David Dali Can Take the Pain
Week of 17 September 2018
Spotlight on David Dali, Matthews Asia Portfolio Strategist
Like most American investors, David Dali admits to having a home country bias. “That said, I do recognize the benefits of international investing. If I am going to invest outside the U.S., I want to be compensated for the risk. I look for growth—both on the country and at the company level—and it's tough to deny the growth and investment opportunities within Asia,” he says. “The growth dynamics within Asia are difficult to replicate anywhere in the world, including non-Asian emerging markets.”
He should know. A Portfolio Strategist at Matthews Asia, Dali was introduced to emerging markets at the start of his career about three decades ago, a “trial by fire” experience as a risk analyst in Argentina. In the late 1980s and early 1990s, emerging financial markets, especially in Latin America (LatAm), were underdeveloped and susceptible to wild swings due to abrupt changes in government policy, lack of economic discipline or simply the herd mentality of chunky foreign investor flows. Thankfully today, investors have more choices and certain economies in Asia like Japan, Singapore, South Korea and Taiwan have created a roadmap of sensible economic policy and corporate transparency that lesser-developed countries can follow.
How did your background in Latin America lead to your interest in Asia?
When I moved to Argentina, the country had entered into hyperinflation with prices accelerating over 20% each month in 1989. Its currency was the austral and it was devaluing even faster. The government seized individual bank accounts and converted people's cash into government bonds. And Argentina's president was getting forced out of office. After Buenos Aires, I moved to São Paulo, Brazil and a similar scenario unfolded—complete with Brazil's currency changing three times in under two years! Overall, I spent three years living in South America, including my time in Venezuela. These were dramatic economic and political times and I feel grateful to have experienced these countries in such early stages of development.
Back in the late 1980s and early '90s, Latin American markets comprised a larger portion of both emerging debt and emerging equity markets than they do now. In terms of investment research, all major U.S. and European commercial and investment banks had emerging market trading, sales, underwriting and research teams there. These emerging markets (EM)—especially debt markets—were extremely well-researched. Early on, trading revenues funded massive research efforts. EM debt was one of the most liquid, best-researched high yield markets in the world. But by the mid to late '90s, EM equity research, particularly in Asia, improved dramatically. One benefit that came from the 1997 Asian Financial Crisis was that investors were suddenly focused on Asia and demanding a higher level of research. Asset managers demanded a higher level of both government and company transparency. Today, active managers focused on Asia are reaping the benefits of greater corporate access and transparency.
What are recent highlights of your research trips with the investment team?
My on-the-ground visits have been the single best use of time in my emerging markets career. There is no research substitute for “being there.” Vietnam stands out as a country on the move and moving in the right direction. Ho Chi Minh City now feels like New York City. You can walk out of a world-class hotel and find yourself in a neighborhood jammed full of bustling bars, restaurants and shops. It's dynamic. The streets are full of tourists, English-speaking locals—and traffic!
Having been to China several times recently, I think we are in a “woulda, coulda, shoulda” moment—meaning that 10 years from now, when China is a developed market and part of mainstream asset allocations, many investors will be saying “I should've invested more in China.”
On the road, you also educate investors about Asia. Are there common misconceptions you try to dispel?
I see a variety of client types on the road. Some are extremely knowledgeable about EM and Asia and others are just beginning to look at the asset class. We're often fielding requests about how to structure an optimum EM investment and how Asia should fit into the mix. Other questions revolve around regional merits within emerging markets, for example, LatAm versus Asia, and questions about individual country preferences. During roadshows, I think investors are shocked to hear some of the statistics about Asia, especially regarding China and India where the numbers are so large they can be mind-boggling. For example, not only did China surpass the U.S. in auto sales in 2009, its electric vehicle market began soaring past the U.S. in 2015. The following year, India set new records for alternative energy installations while China continued to lead all markets in solar and wind energy capacity.
Investors are also surprised when we speak to opportunities within some of the smaller but fast-growing and vibrant economies like Indonesia and Pakistan. They are even more surprised to hear that when included within a portfolio, some holdings from these lesser-known countries may actually lower volatility while adding growth and offering other idiosyncratic benefits.
You're headed for your second Ironman competition this fall. Do you find triathlon skills analogous to those needed for money management?
One in particular resonates: the ability to deal with pain, both physical and emotional! There are relevant comparisons of the emotional stress of managing money in volatile markets, which can be comparable to the emotional trauma of running a marathon after a 112-mile bike ride. What's also required is balancing your skills, setting long-term strategy, developing mental focus and testing your discipline.
The views and information discussed in this report are as of the date of publication, are subject to change and may not reflect current views. The views expressed represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles. Investment involves risk. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Past performance is no guarantee of future results. The information contained herein has been derived from sources believed to be reliable and accurate at the time of compilation, but no representation or warranty (express or implied) is made as to the accuracy or completeness of any of this information. Matthews Asia and its affiliates do not accept any liability for losses either direct or consequential caused by the use of this information.