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Emerging Markets: A Growing Set of Opportunities

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BlackRock Emerging Markets

Emerging Markets: A Growing Set of Opportunities

With growth portfolios becoming increasingly focussed on China, investors may develop a tendency to overlook the broader emerging markets universe.

To shed a light on some lesser-known opportunities, this infographic from BlackRock explores the evolving landscapes of Southeast Asia, Brazil, and India.

Putting Opportunity Into Perspective

Emerging markets often exhibit lower price/earnings ratios (P/E) when compared to developed markets. While this may suggest that the region is attractively priced, investors can also view emerging markets from a relative size perspective.

Here’s how the market capitalisations of several emerging markets compare to some of the biggest names in tech.

CountryTotal Country Market Cap (USD)Comparable toCompany Market Cap (USD)
India$2,111BApple$1,981B
Brazil$711BFacebook$746B
Thailand$428BTesla$401B
Indonesia$381BNvidia$334B
Philippines$270BNetflix$221B

As of September 2020. Source: CEIC, Ycharts

Investors often focus on tech companies when seeking long-term growth, but with valuations at their highest levels since the dot-com bubble, uncertainty could begin to rise.

That’s where emerging markets can come into play. A country such as Brazil, which contains over 400 listed companies, may offer enhanced returns and diversification when compared to a single company. To learn more, here’s a closer look at three emerging markets opportunities that might be flying under your radar.

1. Southeast Asia: A Rising Digital Economy

Southeast Asia (SEA), which includes Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam, is quickly emerging as the next digital giant. The region is currently home to an online population of 400 million people, a 53% increase from 2015.

With so many people going online, companies such as Grab, a local ride-share provider, have accumulated millions of new users. This spells good news for investors, with SEA’s internet economy expected to reach a gross merchandise value (GMV) of $309B by 2025.

YearSEA Internet Economy GMV* (USD)
2015$32B
2019$100B
2020 projected$105B
2025 projected$309B

*GMV is the total value of merchandise sold through a customer-to-customer exchange site.
Source: Google, Temasek, Bain & Company

Favourable demographics are also contributing to this growth. The region is expecting 50 million entrants to its middle class by 2022 and has an average age of just 30.2 years. That’s roughly 10 years younger than the UK, and 18 years younger than Japan.

Furthermore, this growing cohort of wealthier consumers is already embracing technology. Ecommerce, a subsector of SEA’s internet economy, has added 100 million new users over the past 5 years, with GMV increasing from $5 billion in 2015 to $62 billion in 2020.

2. Brazil: Improvements in Gender Diversity

Gender diversity has been a historical weak point for Brazilian companies, but female representation in the country has been improving. Here’s how the percentage of women on corporate boards differs between Brazil, emerging markets, and developed markets.

YearBrazil (n=53)MSCI Emerging Markets Index (n=1,323)MSCI World Index (n=1,584)
20165.8%9.0%20.3%
20178.4%10.2%20.4%
20188.0%11.2%21.6%
201911.9%12.1%25.0%
202013.7%13.0%26.2%

Source: MSCI

Brazil surpassed the emerging markets average in 2020 thanks to increased awareness and initiatives by its financial sector. Brazil’s B3 exchange, for example, was the first stock exchange in the Americas to sign the Women’s Empowerment Principles, an initiative by UN Women.

Greater female representation is welcome news for both investors and society alike. Research from the Boston Consulting Group found that companies with above-average diversity tended to be more innovative, generating a greater share of revenue from recently launched products.

3. India: Promising Opportunities in Healthcare and Real Estate

As part of its National Health Protection Scheme, India’s government is looking to provide 500 million people with government-sponsored health insurance. If progress is kept on track, health sector revenues could increase at a compound annual growth rate (CAGR) of 18%, making it one of the world’s fastest growing markets in the world.

YearRevenue from India's Healthcare Sector (USD)
2016$140B
2017$160B
2020 Projected$280B
2022 Projected$372B

Source: IBEF

Achieving this goal will require participation from both the public and private sectors. For example, India’s government has pledged to increase public health spending from 1.1% of GDP in 2018, to 2.5% by 2025. Additionally, it allows 100% foreign direct investment (FDI) in projects such as hospitals.

India is adopting a similar strategy for real estate, which has struggled to keep up with growing demand. In India’s top eight cities, the housing deficit amounts to over 3 million units.

 
Indian Real Estate
Income GroupDemandSupplyDeficit
Lower income1,982,00025,0001,957,000
Middle income1,457,000647,000810,000
High income717,000351,000366,000
Total4,156,0001,023,0003,133,000

Source: IBEF

To accelerate development, India’s government has allowed 100% FDI in residential and retail developments since 2018. Analysts believe that the country’s real estate market could become the third largest in the world by 2030.

There’s More Than Meets The Eye

Over the span of a few years, China has grown to comprise nearly 40% of the MSCI Emerging Markets Index—but this doesn’t mean that China should receive all of the attention from investors.

With almost 30 countries to explore, China and the opportunities discussed above are just a subset of what emerging markets have to offer. For growth-minded investors, giving this diverse region a closer look could be rewarding.

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Mining

How to Avoid Common Mistakes With Mining Stocks (Part 5: Funding Strength)

A mining company’s past projects and funding strength are interlinked. This infographic outlines how a company’s ability to raise capital can determine the fate of a mining stock.

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Funding Strength

A mining company’s past projects and funding strength are interlinked, and can provide clues as to its potential success.

A good track record can provide better opportunities to raise capital, but the company must still ensure it times its financing with the market, protects its shareholders, and demonstrates value creation from the funding it receives.

Part 5: The Role of Funding Strength

We’ve partnered with Eclipse Gold Mining on an infographic series to show you how to avoid common mistakes when evaluating and investing in mining exploration stocks.

Part 5 of the series highlights six things to keep in mind when analyzing a company’s project history and funding ability.

Funding Strength

View all five parts of the series:

Part 5: Raising Capital and Funding Strength

So what must investors evaluate when it comes to funding strength?

Here are six important areas to cover.

1. Past Project Success: Veteran vs. Recruit

A history of success in mining helps to attract capital from knowledgeable investors. Having an experienced team provides confidence and opens up opportunities to raise additional capital on more favorable terms.

Veteran:

  • A team with past experience and success in similar projects
  • A history of past projects creating value for shareholders
  • A clear understanding of the building blocks of a successful project

A company with successful past projects instills confidence in investors and indicates the company knows how to make future projects successful, as well.

2. Well-balanced Financing: Shareholder Friendly vs. Banker Friendly

Companies need to balance between large investors and protecting retail shareholders. Management with skin in the game ensures they find a balance between serving the interests of both of these unique groups.

Shareholder Friendly:

  • Clear communication with shareholders regarding the company’s financing plans
  • High levels of insider ownership ensures management has faith in the company’s direction, and is less likely to make decisions which hurt shareholders
  • Share dilution is done in a limited capacity and only when it helps finance new projects that will create more value for shareholders

Mining companies need to find a balance between keeping their current shareholders happy while also offering attractive financing options to attract further investors.

3. A Liquid Stock: Hot Spot vs. Ghost Town

Lack of liquidity in a stock can be a major problem when it comes to attracting investment. It can limit investments from bigger players like funds and savvy investors. Investors prefer liquid stocks that are easily traded, as this allows them to capitalize on market trends.

Hot Spot:

  • A liquid stock ensures shareholders are able to buy and sell shares at their expected price
  • More liquid stocks often trade at better valuations than their illiquid counterparts
  • High liquidity can help avoid price crashes during times of market instability

Liquidity makes all the difference when it comes to attracting investors and ensuring they’re comfortable holding a company’s stock.

4. Timing the Market: On Time vs. Too Late or Too Early

Raising capital at the wrong time can result in little interest from investors. Companies in tune with market cycles can raise capital to capture rising interest in the commodity they’re mining.

Being On Time:

  • Raising capital near the start of a commodity’s bull market can attract interest from speculators looking to capitalize on price trends
  • If timed well, the attention around a commodity can attract investors
  • Well-timed financing will instill confidence in shareholders, who will be more likely to hold onto their stock
  • Raising capital at the right time during bull markets is less expensive for the company and reduces risk for investors

Companies need to time when they raise capital in order to maximize the amount raised.

5. Where is the Money Going? Money Well Spent vs. Well Wasted

How a company spends its money plays a crucial role in whether the company is generating more value or just keeping the lights on. Investors should always try to determine if management is simply in it for a quick buck, or if they truly believe in their projects and the quality of the ore the company is mining.

Money Well Spent:

  • Raised capital goes towards expanding projects and operations
  • Efficient use of capital can increase revenue and keep shareholders happy with dividend hikes and share buybacks
  • By showing tangible results from previous investments, a company can more easily raise capital in the future

Raised capital needs to be allocated wisely in order to support projects and generate value for shareholders.

6. Additional Capital: Back for More vs. Tapped Out

Mining is a capital intensive process, and unless the company has access to a treasure trove, funding is crucial to advancing any project. Companies that demonstrate consistency in their ability to create value at every stage will find it easier to raise capital when it’s necessary.

Back For More:

  • Raise more capital when necessary to fund further development on a project
  • Able to show the value they generated from previous funding when looking to raise capital a second time
  • Attract future shareholders easily by treating current shareholders well

Every mining project requires numerous financings. However, if management proves they spend capital in a way that creates value, investors will likely offer more funding during difficult or unexpected times.

Wealth Creation and Funding Strength

Mining companies that develop significant assets can create massive amounts of wealth, but often the company will not see cash flow for years. This is why it is so important to have funding strength: an ability to raise capital and build value to harvest later.

It is a challenging process to build a mining company, but management that has the ability to treat their shareholders and raise money can see their dreams built.

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Mining

Listing Requirements: From Junior Explorer to Global Mining Company

The journey from a junior miner to a global company is a long route that requires a lot of money. This infographic outlines the listing requirements mining companies must meet when raising capital for each stage of a mineral deposit, from discovery to production.

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Listing Requirements

Making it to the Top: Listing Requirements From Junior Explorer to Global Mining Company

Only a few companies ever meet the listing requirements of global stock exchanges, but the effort to list can be worth it.

In 2019, Newmont produced 6.3 million ounces of gold and earned a net income of $2.9B and returned $1.4B to shareholders in dividends.

This infographic from Corvus Gold looks at the requirements and stages a mining company could face along its journey from a mineral prospect to a global mining company.

The Odds of Discovery

There are 510 million km2 (196,900,000 square miles) on the surface of the Earth and the crust is on average 40 kilometers thick (24 miles). Somewhere in there lie the next deposits of gold.

Mineral exploration companies use drill bits that range in diameter from 76-320 millimeters to explore the subsurface. The deepest drill hole is the Kola Superdeep Borehole which measured 12.2 kilometers (7.6 miles). However, most mineral exploration companies rarely drill longer than a kilometer.

Finding a gold deposit, let alone an economic one is akin to using a hair to find a needle in the proverbial haystack. To mitigate this, a typical junior mining company improves its odds by building a portfolio of properties that show potential through hints of gold and other minerals revealed from surface sampling, aerial magnetic surveys, and historic data.

Then, to dig even deeper, a company can raise capital privately for the properties that show potential. Valuations of these mineral properties are largely subjective and difficult to establish. But if the company would like to raise further capital for more expensive exploration, it can tap into stock exchanges.

Canada’s Toronto (TSX) and Venture Stock Exchanges (TSXV) sit at the center of global mining finance. Over the past five years, companies listed on TSX and TSXV completed 53% of all global mining financings, amounting to $44 billion through 6,500 transactions.

Even an idiot can make a great discovery and drive a stock from three cents to three bucks, and those guys wouldn’t get funded privately. It has to be public.
– Ross Beaty, Founder, Chairman Equinox Gold

Risk Capital: TSX-V Listing Requirements

In 2020, there were 606 companies on the TSXV that have a gold property, or a property that showed potential to host a gold deposit. These companies met a minimum set of requirements to access public markets for further funding.

At this stage, a listed mining company will deploy capital to conduct geological sampling and drilling to produce technical studies that could improve the confidence of the presence of a mineable gold deposit.

If this round of work results in an improved understanding of a gold property, a company can move from Tier 2 to Tier 1 on the TSXV, allowing it to raise further capital to increase the scope of technical and economic studies.

TSX Venture Listing Requirements:

 TSXV Tier 1TSXV Tier 2
Property Requirements
  • Material interest in a Tier 1 property*
  • Significant interest in a qualifying property or, a right to earn a significant interest in a qualifying property

  • Evidence of $100,000 of exploration expenditures on the property in the past three years
Recommended Work Program
  • $500,000
  • $100,000 to $200,000
Working Capital
  • Business plan or work program

  • $200,000 in unallocated funds
  • Adequate working capital to carry out work program or execute business plan for 12 months following listing

  • $100,000 in unallocated funds
Net Tangible Assets
  • $2,000,000
  • No requirement
Capital Structure
  • Public float of 1,000,000 shares

  • 250 public shareholders amounting to 20% of issued and outstanding shares
  • Public float of 500,000 shares

  • 200 public shareholders each holding a board lot and having no resale restrictions on their shares

  • 20% of issued and outstanding shares in the hands of public shareholders
Management and Board
  • Management and board with technical and adequate experience in mining
Sponsorship
  • Sponsor may not be required
Other Criteria
  • A geological report recommending work program
Source: TMX. Figures are in CDN. *Property has a current inferred mineral resource, NI 43-101 compliant

At this point, a company should have a good understanding of the costs and methods to produce a profitable operation or the value of a resource. However, early investors take their profits and new ones are needed to take a mineral property to a mining operation.

One drill hole changes the game. It’s very hard to decide who gets to make it and who doesn’t. It’s a big gate, and yet very few make it through. But you have to let them try.
– Lukas Lundin, Chairman, Lundin Group

Financing Growth: TSX Listing Requirements

To develop and construct a mine, mining companies require larger amounts for development and construction, which requires a different class of investor and stricter requirements.

In 2020, there were 133 gold companies listed on the Toronto Stock Exchange, whose primary metal production is gold and/or own a gold property. These companies meet or exceed a set of listing requirements set out by the exchange.

The TSX has three categories of listing for mining issuers: TSX Exempt Issuers, TSX Non-Exempt Producer and TSX Non-Exempt Exploration and Development Stage. These requirements of these categories reflect the stage of development of the issuer at the time of listing. Exempt issuers are more advanced and so subject to less stringent reporting requirements.

TSX Listing Requirements:

 TSX non-exempt (Exploration & Development)TSX non-exempt (Producer)TSX exempt
Property Requirements
  • Advanced property detailed in technical report

  • Minimum 50% ownership
  • 3 years proven and probable reserves with no production decision made
  • 3 years proven and probable reserves
Recommended Work Program
  • $750,000
  • Bringing the mine into production
  • Commercial level mining operations
Working Capital and Financial Resources
  • Minimum $2,000,000
  • Sufficient funds to bring the mine into commercial production
  • Adequate working capital for all budgeted expenditures
  • Adequate working capital to carry on the business
Net Tangible Assets
  • $3,000,000
  • $4,000,000

  • Evidence indicating profitability
  • $7,500,000 net tangible assets; pre-tax profitability from ongoing operations in last fiscal year

  • Pre-tax cash flow of $700,000 in last fiscal year and average pre-tax cash flow of $500,000 for past two fiscal years
Management and Boards
  • Management, including board of directors with adequate experience and technical expertise relevant to the mining projects as well as adequate public company experience
  • At least two independent directors, a CEO, a Chief Financial Officer who is not also the CEO, and a Corporate Secretary
Distribution, Market Capitalization and Public Float
  • Minimum 1,000,000 freely tradeable shares with market value of $4,000,000
  • At least 300 public holders, each with one board lot or more
Sponsorship
  • Required
  • Not Required
Other Criteria
  • Management-prepared 18 month projection of sources and uses of funds detailing all expenditures and signed by CFO
  • Up-to-date, comprehensive technical report prepared by independent qualified person
Source: TMX. Figures are in CDN.

At this stage, bankers and lawyers set up the financing of a project based on geological and economic studies. Good financing terms can enhance the potential value of a mineral deposit and attract investors.

But sometimes, just this one listing is not enough to allow a company or project to meet its full potential.

Expanding Shareholders: NASDAQ and NYSE Listing Requirements

Companies that require more capital or to meet corporate governance rules in the countries they work in can seek a listing on additional stock exchange markets outside of their home countries. There are several benefits of additional listings:

  1. Gain exposure and access to more capital
  2. Help in improving a company’s structure of corporate governance
  3. Attract more and better talent
  4. Improves the reputation of a company

The NASDAQ and New York Stock Exchange (NYSE) can improve access to the American market. There are only 76 gold mining companies listed on the NASDAQ and NYSE exchanges.

 NASDAQNYSE
Pre-tax income$0 to $750,000$2,000,000
Market Capitalization$0 to $75,000,000$2,000,000
Total Assets and Revenue$0 to $75,000,000n/a
Market Value of Public Float$3,000,000 to $20,000,000$100,000,000 or $40,000,000 (if IPO)
Stockholders Equity$4,000,000No more than $60,000,000
Minimum Share Price$2 to $3$4
Operating History0 to 2 yearsn/a
Source: NASDAQ, NYSE. Figures are in USD

Increased trading, world-class investors, and a well-run operation can deliver a mining company a lot of prestige and generate significant returns.

Ultimately, the continued success of the company will rely on its ability to maintain production and continue to deliver gold to the market. This all comes back to a company’s ability to find, develop, and exploit new gold deposits.

I just want to remind you that the real wealth in the mining industry is generated by FINDING something.
– Robert Friedland, Executive Chairman, Ivanhoe Mines

Building Mineral Wealth to Last

The project development timeline and mine lifecycle is a very long one. It can take decades to move from discovery to production. Each stage requires different amounts of capital and investors.

The odds of building a mine are stacked against a junior mining company—but for the few that grow through the listing process requirements, they can become the next great investment.

A mineral discovery is rare, but a successful gold mining company is even rarer.

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