Matthews Emerging Markets ex China Active ETF (MEMX)

[chang]

Just curious if anyone else noticed this recent launch, or bought any:
www.matthewsasia.com/funds/etfs/emerging-markets-ex-china-active-etf/

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     Snapshot

• Seeks Alpha in Global Emerging Markets ex China—capitalizes on consumption and innovation trends
  
• Quality Growth Portfolio—based on deep, holistic analysis
  
• All-Cap, Company-First Approach—emphasizes fundamental research over top-down country or sector allocation

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I realize that manager bios are intended to make anyone sound like Albert Einstein, but the two managers do seem to have pretty good creds:
www.matthewsasia.com/funds/etfs/emerging-markets-ex-china-active-etf/#Portfolio-Managers

It's not cheap for an ETF, but it's cheaper than most OEFs.

I'm an ex-Matthews owner, who doesn't much like the company anymore after numerous miscalculations and other things that rubbed me the wrong way. So it would take a lot to entice me to own one of their products again.

But I'm curious what others think of this ETF ...

[johnsmith]

Why go Ex-China?

China + Taiwan make up almost 50% - 75% of Emerging market funds in my experience.
If we don't want that exposure, what's the point of the Emerging Market ETF purchase?

If there is a problem with China, Taiwan gets hit. So does Japan, Vietnam, S. Korea.
That leaves India as a major exposure and that market is expensive.

I think Something like Vanguard Total International - VXUS, makes sense as one's exposure to the China/Taiwan exposure is now down to 15% or less at a cost of 0.07%

Get all of the upside with significantly lower exposure to China/Taiwan.

[roi2020]

I haven't looked at this particular fund.
It's been a tumultuous few years at Matthews Asia with many portfolio managers and other personnel (CIO, etc.) leaving the firm.
As a former Matthews Asia investor (MAPIX, MAPTX), it's sad to see these developments at this once fine firm.
I personally would not invest in any of their funds at this time or in the near future.

[roi2020]

MFO published an article recently about MEMX.
Several other EM ex-China funds (only a few exist) were also mentioned.

Link

[chang]

Feb 3, 2023 21:17:57 GMT johnsmith said:

Why go Ex-China?

China + Taiwan make up almost 50% - 75% of Emerging market funds in my experience.
If we don't want that exposure, what's the point of the Emerging Market ETF purchase?

I was once a China bull, and was fortunate to have reaped the big run-ups in MITEX and APDYX. (I didn't sell as early as I should have, and lost quite a bit of my profits, but still did OK.) Now, I guess I'm in the anti-China camp.

roi2020 linked a good MFO article, see this part:

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1. DICTATORSHIPS MAKE FOR BAD INVESTMENTS

Making a good long-term investment starts with the simple faith that a firm’s managers will make their decisions based on their assessment of the firm’s long-term financial interests. If you take that as your starting point, then managers (or index designers) try to identify the managers, companies, and industries which embody the best economic prospects.

Investing in a dictatorship plays hobs with that first principle. In a dictatorship, decisions are made based on the dictator’s vision of where they want to take the entire country; individual companies – whether state-owned enterprises or not – are simply along for the ride. Managers do what the government directs and are forced to live with the consequences of the government’s choices.

Under such circumstances, neither dissent nor independent thought is much tolerated, a lesson embodied by the former Russian oligarchs – Wikipedia actively tracks the deaths of Russian oligarchs, about 30 of whom have died since January 2022 – and former Chinese billionaires – with Forbes wryly commenting on China’s “disappearing” billionaires. That deteriorating rule of law has made such countries “uninvestable” in the judgment of some professional investors.

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Actually, I'm not advocating for this fund. In fact, I sort of lost faith that EM is a valid "asset class" and eliminated all dedicated EM investments. I am indeed relying upon diversified international funds (SCHD, VWILX), which own around 15-20% EM, to provide appropriate EM exposure.

But if I did want to overweight India and Latin America, I would consider this one.

[johnsmith]

chang,

Why do you feel that EM is not a "valid asset class"?
What factors convinced you to go into the "anti-china" camp?

[chang]

Feb 7, 2023 13:13:34 GMT johnsmith said:

chang ,

Why do you feel that EM is not a "valid asset class"?
What factors convinced you to go into the "anti-china" camp?

First, I suppose I'm more interested in stock- and company-specific metrics like valuation, ROE, profitability, quality, management, moat, etc., rather than geographical location. So India vs. Ireland, Belgium vs. Brazil, etc. - I don't see why that's more important than whether I'm buying a good (or great) company at a fair (or lucrative) price.

Second, it's politics. See the MFO article (linked above) "Dictatorships make for bad investments". I lived and worked in China for a year, so I'm no stranger to the country. They don't believe in fair play. I wouldn't put it past them to sabotage Chinese company ADRs. Free market is not in their DNA. Look at what happened with Jack Ma. I don't need that kind of investment risk.

China could be a good trade, but I would only consider it that - a trade. I'm not a trader. I used to think it belonged in a B&H portfolio, and fortunately I reaped the rewards of the last run-up ... but I don't think so any more.

I think MEMX is interesting, but I'm passing it up and sticking with good, diversified foreign funds.

[johnsmith]

Dictatorships make for bad investments
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Maybe. Lots of people make excellent money from dictatorships. (Anyone pulling investments from the Middle East?)

I think the bigger danger for US Investors is the actions of the US government, which in a dictatorial manner can decide where they can and cannot invest - like the actions taken against Russia.

Russian Government didn't prevent investments, the US government banned investments in Russian Stocks, after that Russia prevented capital flight to the US.

The losses inflicted on US investors was created by the US Government.
China needs the US markets to keep it's factories churning and people employed.

The US government is unilaterally (dictatorial?) ratcheting up the temperature with China, so it would make complete sense for US investors to be wary of investing in China, as at any moment Chinese investments may become stranded due to US actions.

[chang]

Sanctions against Russia were/are supported by a large number of countries. I believe that's a different issue than what the MFO article is talking about. I worked for a US company in the China branch, and saw first hand how China puts obstacles in the way of foreign companies trying to make a profit in China. But that's a little beside the point, too. The issue is whether Chinese companies are a good investment. There are, frankly, more red flags (no pun intended) than I need accept.

Of course, US actions have investment consequences, and it's absolutely fair to take these into account. But even in the absence of US actions, the MFO article makes some valid points. Investors depend, to a large extent, upon free markets and capitalism. Those principles do not take priority in many other countries, particularly dictatorships.

[retiredat48]

posted about a year ago:

-----------------------------------------------

I do not want to be overly persuasive here, as the following applies just to me.



Just to me, I decided about a year ago to exit all investments involving China to any degree, other than small. And have posted same throughout the year.



A main holding was FSEAX, Fido Southeast Asia fund...owned for decades.



I personally consider China has become too much a political risk...all the way to confiscating, nationalizing or otherwise taking of assets from USA investors. As a retiree, I see no need to carry this risk of huge loss.





Also note that much of China owned stock is not direct ownership...rather intricate stuff, that I suspect China can dis-avow all rights.



Now, in the last year, this decision has been a great one to exit, as China stocks/companies are down a lot...bear market. And look what has happened to those who owned RUSSIA STOCK funds...about a complete wipeout recently.



If China carries out its well-spoken goal of taking Taiwan, brief history shows our President may respond with huge lecture-type words/sanctions etc, that result in China taking a very adverse posture re the USA. Remember, when small South American countries nationalized (stole) our major oil company holdings, the USA did nothing. If you own China assets, likely kiss them goodbye, if nationalized.



Lastly, if I were a Communist leader, I may do same--take USA assets. Why should China (socialistic) be creating millionaire USA citizens?? And China billionaires as well? Thus, they have been cracking down (Who knows where Jack Ma is?) . They abhor "profits", even mandating that profits are not permissible for companies involved in education. Standby for more.



An influencer of my decision was the arguments presented by pro investor Kyle Bass (google his youtube interviews if interested) on CNBC.



Bottom line: You may do well investing in China Stocks/Funds; they have been in a bear market, and some recovery likely, as China tries to woo investors back in. But not for me...an unnecessary risk. I have exited.



Good luck all.



R48

[johnsmith]

I have a more nuanced view:

I don't think it's "dictatorships" per se, it's more fly by the pants rules (economic + regulatory) that makes investing hard.

There are plenty of examples of US corps investing in Authoritarian/Dictatorship run countries (especially when they were our (in the sense - western "controlled") dictators). For example Augusto Pinochet, Saddam during the Iran/Iraq War, Marcos of the Philippines, Suharto, Mobuto, Taiwan, South Korea and the list is long. American corps have made tons of money under "Dictatorships".

As a US investor, we need to find places to invest, which the US government will be friendly to. The risk for US investors is wholly from our own government's fly-by-pant rule making. Example - economic sanctions against countries the USA doesn't like. Investment bans in those same countries (US first put a stop to the trading of ADRs and shares in Russian Corps (Russia later reacted to this.))

So having clarified this; I agree that China is an extremely high risk from this point of view (and if viewing this from the dictatorship angles makes you happy, that's fine).

Along with this I think Taiwanese corps are also uninvestable (they will get destroyed in a war, 99% loss).
Japan & S. Korea are also extremely risky (easy to see 50% - 90% fall in the stock markets), when they join the US against China.

Between China, Taiwan - 50% of emerging market.
Japan & S. Korea are fairly large economies - 5% of world GDP.
worldeconomics.com/Share-of-Global-GDP/Japan.aspx

So where would be safe?

Europe? - I don't think so, they have large global corps with no more access to cheap energy, expensive labour - no political cover to protect them. They still have lots of IP, assets & cash.

US corps - like they say - the cleanest shirt. Unfortunately many are expensive.

US Corp & Govt. Bonds are probably the safest places to invest in.
Also MIC - defence, prisons, military contractors, arms, ammunition etc.
Find corps that do a bulk of their work for the US govt, are reasonably priced and then ride the gravy train.

[johnsmith]

Quick Add: Berkshire is divesting from BYD & TSMC. Quite large sales. I'd say since it's a large corp, very politically clued in, my guess is that they have read the tea leaves and are pulling their investments in advance of "something" happening.

Biden may gin up a war to get his second term.
GW Bush had his "mission accomplished" - in his 3rd year of first term. (May 1, 2003)
Obama - murdered OBL - in his 3rd year of first term. (May 2, 2011)
Biden - this is his 3rd year in first term. (Do you feel May 2023 will be interesting?)

[mani]

Feb 3, 2023 22:13:14 GMT roi2020 said:

I haven't looked at this particular fund.
It's been a tumultuous few years at Matthews Asia with many portfolio managers and other personnel (CIO, etc.) leaving the firm.
As a former Matthews Asia investor (MAPIX, MAPTX), it's sad to see these developments at this once fine firm.
I personally would not invest in any of their funds at this time or in the near future.

MAPTX has been my largest portfolio detractor this year (after being a laggard for years). Without it my returns would be 2-3 % higher!!!
I don't want to give up the area (dev. asian markets) altogether, but it might be time to look at alternates to this fund.
Any suggestions?