liza – CC&L Financial Group Ltd.

President Trump’s spree of tariffs has incited many global leaders to respond in kind by imposing their own tariffs on US exports. But not all leaders have been pulled into the tit-for-tat game. Mexico and Brazil’s economies depend on trading relationships with the United States and their leaders have employed different strategies with which to respond to Trump’s tariffs.

Mexico

The United States is Mexico’s largest trading partner by far. Mexico was the second-largest destination for US exports and the top source of US imports. In 2024, Mexico exported an estimated USD505.9 billion: over 80% of total Mexican goods exports were to the United States and over 40% of total Mexican goods imports were from the United States.

Mexico’s largest exports to the United States include vehicles and automotive parts, followed by electrical equipment like computer data processing units, as well as medical instruments and fruits and vegetables. Given the relationship between the countries, Mexican President Claudia Sheinbaum has a crucial part to play to reduce impacts.

President Trump threatened Mexico with tariffs if there was no increase in effort to reduce fentanyl trafficking. Mexico responded by placing 10,000 troops at the border to reduce drug trafficking and illegal entry, but did not react with reciprocal tariffs, unlike China and Canada. We believe this has played well given that the United States has not implemented any additional tariffs, whereas other countries received a range of 10% to 49%.

Sheinbaum is prioritizing a commercial relationship with the United States and Trump has adopted a warmer tone with Sheinbaum than with foreign leaders who have matched his confrontational style. This strategy has been received well not only by Trump, but by Mexico’s citizens – Sheinbaum’s popularity has surpassed that of previous Mexican leaders.

A company we like in Mexico is Bolsa Mexicana de Valores, S.A.B. de C.V. (BOLSAA MX). Bolsa is a Mexico-based stock exchange operator that functions as an integrated and organized market for equities, financial derivatives and OTC fixed-income instruments. It has access to custody, clearing and settlement of transactions and the sale of information.

The company generates over 50% of revenue through transaction fees. Bolsa should be seeing benefits, given the volatility of the market and the high volume of transactions as investors try to capitalize.

Brazil

The United States’ total goods traded with Brazil was an estimated USD92 billion in 2024, and imports from Brazil in 2024 totaled USD42.3 billion. Industrials comprised over three quarters of Brazilian exports to the United States. Key industrial products exported include crude oil, aircraft, coffee, cellulose and beef.

Brazilian President Luiz Inacio Lula da Silva (also known as “Lula”) has been in a tough spot. As the trade fight escalates between Brazil’s two largest trading partners, Lula does not want to have to choose between China or the United States. China has been Brazil’s largest trading partner for the last 15 years and this relationship has only grown.

The United States has implemented just 10% tariffs on Brazil. Lula has not retaliated, which we believe has worked in his favour, and recent approval ratings reaffirm.

A company we like in Brazil is Vivara Participações S.A. (VIVA3 SA). Vivara is the largest jewelry player in Brazil. The company sells jewelry, watches and luxury accessories under two different brands: Vivara and Life.

Vivara has unparalleled scale, doubling their store footprint since 2018 with 265 Vivara and 180 Life stores representing 20% market share. The next four jewelry players represent a total of 6%, and the remaining smaller players represent 74%. Vivara has built all its production steps vertically, manufacturing ~80% of products sold. Vivara’s main production facility is in the Free Economic Zone of Manaus where it benefits from certain business tax incentives. The company currently trades at a P/E ratio of 7x which is half the multiple that its global luxury jewelry peers trade at.

Écoutez le dernier épisode du balado East of Montreal (en anglais) mettant en vedette Jeff Wigle, directeur général et chef de groupe chez Banyan Capital Partners, qui porte sur notre stratégie de capital-investissement, l’expérience de placement au Canada atlantique et Newcrete, et son point de vue sur le marché actuel.

Écoutez l’épisode complet du balado East of Montreal.

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Nobody is as opiniated as a fan of a particular sport team. This probably explains why there exist so many metrics for any given professional sport: to justify why your team is the better team. Despite multiple millions of data points now gathered per baseball game, no one seems to be replicating the success of the Moneyball story, but that doesn’t stop fans from spending hours upon hours analyzing data in an attempt to make a quick dollar from sports betting.

Sports betting was legalized in the United States in 2018 after the Supreme Court decision to strike down the Professional and Amateur Sports Protection Act (PASPA). Since then, 39 states have legalized sports betting, and that number is expected to reach 45 in the next two to three years. The US market therefore represents a large opportunity compared to the more mature international markets:

In 2024, Americans legally wagered $150 billion on sports, up from $121 billion the year before.
95% of all sports bets placed in 2024 were placed via mobile phone apps.
80% of bettors are between the ages of 21 and 54, and over half of the bettors hold a bachelor’s degree or higher.
Canada sports betting penetration rate is close to 50% versus the United States at 11%.

Modern sports betting is much more data-driven and real-time than it was just 10 years ago when the majority of bets were simply on which team would win. Now, more than half of bets are made during the games (in-play betting) and can be made on virtually anything from coin toss (NFL), first foul (NBA) or number of fights (NHL). This new breadth of betting requires robust data integrity and is therefore why industry stakeholders must rely on a single source of truth (read: data providers).

“Without data you’re just another person with an opinion.” – W. Edwards Deming, Statistician

The professional sports data-aggregation business is essentially a duopoly run by Sportradar Group AG (SRAD US) and Genius Sports Ltd. (GENI US), and Global Alpha is a shareholder of both. These two companies offer B2B data and technology solutions for the sports industry. The core of their business models is to hold streaming rights and exclusive data acquisition for specific sports leagues that are then sold to sportsbook operators like DraftKings and Flutter. They also offer solutions back to sports leagues, teams and broadcasters such as data analytics and insights, as well as augmented display and data overlay or even odds creation.

The lucrative reason for their existence is straightforward: the technology platforms used to collect, clean and aggregate live data require specific expertise that sports leagues do not possess and would be expensive to replicate; it is much easier for leagues to outsource to SportRadar and Genius Sports and benefit from the materially increased consumer engagement as well as royalties.

SportRadar was founded in 2001 and was one of the first online live sports statistics data collection websites. Its initial public offering (IPO) happened in 2021 and it owns rights to the NBA, NHL, MLB, F1 and the European Football League.

Genius Sports is the new(er) kid in the industry, resulting from a merger of Betgenius and SportingPulse in 2016 to create a direct competitor to SportRadar. It owns data rights to NCAA, NASCAR, NFL, PGA Tour and European Basketball.

These two companies check many of the boxes we look for when investing:

The majority of revenue is steady, predictable and globally diversified.
A net cash position and resilient balance sheet allowing for flexibility and potential M&A.
A large growing market with catalysts for accelerated growth.
A competitive advantage that is unlikely to be challenged over our investment period.

Between the two companies, SportRadar and Genius Sports own the official rights to virtually all major western sports leagues. Furthermore, they have been developing other angles for partnering with leagues beyond just distribution of data and they’re progressing toward becoming their technology arms. Through their data aggregation and technology solutions, the US sports-betting players are poised to grow and with plans for future innovation, they look to be investments you could bet on.

Since taking office in January, the Trump administration has attacked the wind and solar energy industry. It withdrew the United States from the Paris climate agreement and rolled back the Inflation Reduction Act (IRA).

President Donald Trump took swift action on the first day of his second term. He paused federal permits and leasing for onshore and offshore wind projects and ordered a review of existing leases. On April 17, he went even further and blocked work on a wind project already in progress off the shores of New York State.

This is not a new direction for President Trump.

In January 2018, the first Trump administration put a 30% tariff on solar panel imports. Despite the challenges, the federal Investment Tax Credit (ITC) remained in place and the solar energy industry continued to grow. However, amid much confusion in the tariff announcements and rollbacks of the last few weeks, solar cells were not exempted from US tariffs and are now subject to tariffs that range from 50% to 3,521%. If we add the 25% tariffs on steel and aluminum imports, the cost of installing solar energy has increased dramatically.

Why is this important?

In the last two decades, the growth in both US oil and gas production and in renewables made the United States an energy superpower that enjoyed a competitive advantage over most countries.

Electricity prices for enterprises worldwide in March 2024, by country (in USD per kilowatt-hour)

UK	0.52	Mexico	0.19
Italy	0.43	Canada	0.14
Singapore	0.32	India	0.12
Japan	0.19	Brazil	0.11
France	0.18	China	0.09
USA	0.14

Source: Statista

However, in the last few years, with the reduction in costs for solar and wind energy, the cheapest additional kilowatt of electricity is wind-powered, closely followed by solar (taking into account capital cost, operating costs and efficiency). The advantage the United States is currently enjoying will disappear fast and become a disadvantage by 2035 – possibly before.

It is already a major disadvantage compared to China.

While the United States backtracks, China is accelerating, installing more wind and solar power last year than ever before. The nation built capacity for 357 gigawatts (GW) of solar and wind power generation, a 45% and 18% respective increase over what was operating at the end of 2023, according to China’s National Energy Administration. That is equivalent to building 357 full-sized nuclear plants in one year.

The United States also had a record clean energy installation in 2024, supporting millions of jobs. Although less than China, it built capacity for 268 GW of solar and wind energy, according to preliminary numbers from the American Clean Power Association.

With the restrictive legislation put in place by the administration, the impact of tariffs, the complexity of multiple jurisdictions, as well as multiple grid operators with complex interconnections, the cost to install a GW of solar or wind power in the United States is now among the highest in the world: twice that of the UK or Germany and over 400% more than in China.

As the share of renewables in total electricity generation increases, the United States will soon face some of the highest electricity costs in the world. This, at a time when demand is increasing significantly – driven by AI, data centres, warming temperatures, etc. – will prove to be costly.

Let us examine how various countries and region are investing in renewables:

Europe

The Ukraine war was an enormous shock for Europe. About a quarter of the energy Europe consumes comes from natural gas and before the Ukraine war, much of that gas came from Russia. Europe needed a new source of gas quickly. It built LNG terminals and increased its imports from the United States, Norway and Qatar. As a result, Russia’s natural gas now accounts for less than 12% of Europe’s imports.

High energy prices pushed Europe to accelerate the green transition. Renewables doubled as a share of EU energy consumption from 2004 to 2022 but still accounted for only about 20% of total consumption.

In 2023, the EU increased its 2030 target for renewable energy from 32% (set in 2018) to 42.5%. By easing regulations surrounding new projects, it should reach that target ahead of the deadline.

EU countries invested over €110 billion in renewable energy generation in 2023 – ten times more money than it invested in fossil fuels. The EU wants to end its dependence on foreign sources.

Investment in the energy transition ($ billion), by region

Source: Bloomberg NEF. From 2020, grid investments are added.

Solar power is booming in Asia and Europe
Total installed solar power capacity

Source: IRENA 2024

What about China?

Clean energy contributed a record 10% of China’s GDP in 2024, represented 40% of the economic growth in China and overtook real estate sales and agriculture in value. China’s 2024 investment in clean energy alone was close to the global total invested in fossil fuel and was similar in size to Saudi Arabia’s entire economy.

China’s investment in solar power capacity has risen 10-fold in five years
Value of investments in new clean power capacity, billion yuan

Source: CREA analysis for Carbon Brief.

Solar and other clean energy sources have gone global in the past decade. In 2010–2015, 70% of solar and 50% of global wind installation occurred in developed economies. By 2023, these proportions had fallen to just over 20%. The United States now represents only 7% of the global market for newly installed solar power plants. The EU is around 12% while the rest of developed economies is around 47%.

The United States has imposed tariffs on imports from China for a long time. As a result, most of the United States’ clean energy supply now comes from Southeast Asia which was just imposed new tariffs of up to 3,521%. Only 4% of China’s total exports of solar power and wind power equipment and electric vehicles (EVs) go to the United States. Almost half of China’s export of clean energy products now go the Global South.

So, despite what looks like a step backward in the United States, the rest of the world is moving on.

According to the IEA (International Energy Agency), global renewable electricity generation is forecast to climb to over 17,000 TWh by 2030, an increase of almost 90% from 2023. This is more than the combined total power demand of China and the United States projected for 2030. Over the next six years, several renewable energy milestones are expected:

In 2024, solar and wind generation together surpassed hydropower generation.
In 2025, renewables-based electricity generation overtakes coal-fired.
In 2026, wind and solar power both surpass nuclear.
In 2027, solar electricity generation surpasses wind.
In 2029, solar electricity generation surpasses hydropower and becomes the largest renewable power source.
In 2030, wind-based generation surpasses hydropower.
In 2030, renewable energy sources are used for 46% of global electricity generation.

How do Global Alpha portfolios participate in the clean energy boom?

Over the last fifteen years, Global Alpha has always had investments that benefit from the growth of renewable energy. We have written numerous weekly commentaries on the topic and our exposure, all of which are available on our website under the Insights tab. Below are a few of our current holdings.

Ormat Technologies Inc. (ORA US) is a holding in our Global, International and Global Sustainable funds and has been profiled numerous times in our weeklies. Ormat is a global leader in geothermal power, recovered energy and solar energy, as well as energy storage solutions.

Nexans S.A. (NEX FR), a holding in our international small cap portfolio, is a leading global player in sustainable electrification, supplying high-voltage transmission cables.

Nextracker Inc. (NEX US) is a holding in our global sustainable small cap portfolio and is a global leader in intelligent, integrated solar tracker and software solutions used in utility-scale and distributed generation solar projects.

Mentioned earlier, the Global South and emerging markets are now the fastest growers in the renewable energy market. In our emerging market small cap portfolio, we own many companies benefiting from that growth.

One example is Cenergy Holdings S.A. (CENER GR). Cenergy is a global leader in energy transmission infrastructure, and a competitor of Nexans, highlighting the synergies between our research analysts and opportunities created by our thematic overlay.

MENA equity markets ended the first quarter of 2025 with returns of 2.7% (for the S&P Pan Arab Index Net Total Return) broadly in line with the MSCI Emerging Markets Index which was up 2.9% in the same period.

While index-level returns were healthy in the first quarter, they were flattered by rather aggressive buying in large cap Saudi stocks (the largest member country in the index) in the four days leading up to the Eid holidays (close of March 27). In fact, 1.9% of the 2.7% gains for S&P Pan Arab Index in the quarter occurred in those four days of trading. Underlying trends in the Saudi market were far less encouraging, with 169 of 246 stocks in the Tadawul All Share Index posting a negative quarterly return amidst significant underperformance from midcap stocks (MSCI Saudi Midcap Index -4.0% in the quarter).

Uncharacteristically, it was the smaller Kuwait market that stood out in the quarter, with the MSCI Kuwait Index up 11.4%. After nearly a year’s wait, the country’s reform program is beginning to take shape, with the cabinet approving the long-awaited debt law that is counted on to unlock a significant proportion of the financing required for a much-needed infrastructure spending program. The approval of the debt law also paves the way for the new mortgage law, which is expected imminently. The mortgage law creates a new market estimated at $65 billion (source: Bloomberg) which allows banks – for the first time – to offer mortgages. Kuwaiti banks are obvious beneficiaries as they are sitting on significant excess capital which can be deployed in attractive risk-adjusted assets in corporate lending (infrastructure spending), government bonds (via the debt law) and mortgages.

Another (even smaller) market that performed positively in the quarter is Morocco. The MASI Free Float Index was up a remarkable 25.6% in the quarter, although its impact on the regional index is limited due to its small size. The market was supported by a one-off 5% tax amnesty that brought almost $10 billion worth of assets and cash (from Morocco’s large grey economy) into the banking system and the equity market. Interestingly, this also resulted in a doubling of retail investor participation from the historical average of 12-15% to over 30% year-to-date ending March. The market was further bolstered by a policy rate cut of 25 bps which catalysed further flows into equities. Moroccan institutions have limited options to deploy capital outside of their local capital markets and as a result exhibit high-interest rate sensitivity that manifests itself in visible and sometimes aggressive shifts between equities and bonds.

Looking forward, the investment outlook has been muddied by the ongoing escalation and volatility in US trade policy. While the direct impact of tariffs on the region is limited, the indirect impact is significant and captured primarily by the weak oil price. Cracks in the OPEC+ alliance are also beginning to appear, which, together with slower global trade, cast a long shadow on the oil price outlook. While there are varying degrees of sensitivity to the oil price in the region, a sustained low oil price (in the low $60s on Brent) is invariably negative. Fortunately, the region’s countercyclical buffers are plentiful and can absorb the fiscal and current account pressures of a lower-for-longer oil price environment.

The region’s geopolitical position also appears robust and highly relevant, which puts it in a good position (relative to other regions) to weather the fallout from the rising tensions in Sino-American relations. The end of the multi-year USD bull run is another factor to consider; increasing openness to foreign portfolio investors and the USD peg increased the share of the region’s ex-US capital inflows in the last decade or so. Insofar as USD bearishness is coupled with a weaker oil price (as is the case now), the region’s share of global inflows is likely to decline in % terms. This, of course, would be the opposite for the smaller oil-importing markets in MENA like Egypt and Morocco, where a weak USD and a lower oil price sets up an accommodative environment for fiscal and monetary conditions, and ultimately asset prices.

While we have a view on macroeconomics, that is certainly not our investment edge and therefore not a tool we count on for making major investment decisions. As we’ve articulated in previous letters, our edge comes from having a deep understanding of the companies we invest in. This understanding is critical in our ability to determine the impact that macroeconomic changes have on the earning power of our companies.

Crucially, this knowledge is leveraged in our valuation framework and gives us a good (and historically reliable) barometer of when our companies are under or over-valued by the market. As stated in previous letters, valuations are the ultimate determinant of our capital allocation reflexivity and is a key tool we rely on in making investment decisions. This has served us well year to date as it reduced the portfolio’s exposure to areas where the market was not prepared for any bad news, and subsequently increased exposure to areas where good news was not needed for outperformance.

As a result, we find ourselves in a strong position where the portfolio generates a dividend yield that is nearly the same level as the index (~4%) and trades at comparable multiples on a P/CF basis (~7x), but with vastly superior fundamentals (captured in an ROE of 18%, which is 500 bps over the index average). The portfolio is sitting on a healthy level of cash which puts us in a good position to make surgical and incremental bets when we deem that the market has overreacted (negatively) on stocks where earning power remains relatively intact. The environment remains fluid and volatile, but our barometer is beginning to signal pockets of under-valuation that we aim to take advantage of in the coming period.

We look forward to continuing to update you on the strategy in the next letter.

The strategy focuses on investing in frontier and emerging market companies that our team expects will benefit from demographic trends, changing consumer behaviour, policy and regulatory reform and technological advancements.

Below, we explore several key factors that influenced returns during the first quarter of 2025 and share observations on the portfolio and the markets.

Internet and technology portfolio

The portfolio’s investments in the internet and technology sector led returns in the first quarter of the year. This was driven by Fawry for Banking Technology & Payments S.A.E. (FWRY EG), the Egyptian payments company. Fawry’s strong execution over the past few years culminated in a record 2024, with revenue and operating profit growing 68% and 160% y-o-y respectively. The value of the payments ecosystem that Fawry’s management team developed over the last few years is now being validated by strong financial results, to which the market is reacting positively. While Fawry’s multi-faceted suite of products, services and business verticals is admittedly complicated to grasp for investors, we believe it is also a source of competitive advantage. Fawry is scaled across several use cases and has a large balance sheet that gives it an advantage in a market with high interest rates and tight liquidity. The company’s ability to leverage technology and deep local expertise to provide their customers (merchants and consumers) with several financial products and services in a seamless online/offline environment is still understated by the market, in our opinion.

The portfolio experienced positive returns from our investment in Allegro.eu S.A. (ALE PW), the leading Polish e-commerce company. Allegro posted a strong fourth quarter results report which included a confident medium-term guide, and a capital allocation policy that was both thoughtful and ahead of the market’s expectations. Allegro also announced a new CEO who, unlike his predecessors, is a native of Poland and comes with 25 years of relevant experience in that market – our preference is always for local talent to lead a company we own if that talent is available. Allegro is the most polarising stock in our portfolio with enough fodder for the bulls and the bears to make a credible case. The recent positive developments contribute to a partial de-risking of the investment thesis and with it, the dial moves closer to the bull camp in which we are situated.

The portfolio’s largest drag in the quarter came from our long-held investment in FPT Corporation (FPT HM), the Vietnamese IT services company. Entering 2025, FPT was the portfolio’s third largest holding (~6% of AUM). We recognised early on in the year that we had too much exposure to a company we liked but with a stock that was becoming increasingly difficult to justify owning as much of, having run up ~150% in USD terms since January 2023. We also began to notice some cracks in the AI universe with Nvidia’s shares beginning to roll over in mid-January and we were well aware that a big part of the multiple expansion in FPT’s shares last year is explained by the company’s proximity to the AI theme.

Putting all that together, we began selling the stock in the first week of February and did another round of selling in mid-March. The selling, while preventing a larger negative impact on the portfolio, was not sufficient to protect the portfolio from a reasonable bps drawdown from the balance of the shares we decided to hold onto in the quarter. While Vietnam has been in the news for the all wrong (tariff) reasons as of late, we have determined that FPT’s service-based business and diversified geographical exposure (including a strong presence in Japan, where the company is long an appreciating JPY) will mean that its earning power remains relatively intact, and that the valuation on the shares we decided to hold onto are now reasonable.

A major highlight from the quarter in the internet and technology portfolio was our decision to finally exit from Kaspi.Kz (KSPI.KZ US), Kazakhstan’s super-app and a truly incredible business. We’ve owned Kaspi since its early days as a London-listed company and continued to own it (in different percentages) through the turbulence in the country in January 2022, to its listing on the Nasdaq in January 2024, and until our eventual full exit early this year.

We were the first foreign investors to visit Almaty and meet with Kaspi in its HQ (according to the company) after the unrest that toppled the regime of Nursultan Nazarbayev in 2022 and have spent considerable time and resources to understand the ins and outs of the business. At this point, we believe that Kaspi will experience slower growth in its home market as it exhausts its ability to monetise its well-penetrated userbase, while digesting an increase in the cost of capital that is essential for the profitability of its lending business. Kaspi’s decision to enter the Turkish market, by way of acquiring Hepsiburada.com, is strategically sound and we will certainly not bet against Kaspi’s management to turn this into a successful venture. However, a slowing home market in Kazakhstan and a competitive and new market in Turkey might prove to be (at least in the short term) too much for even Kaspi to manage. As a result, we chose to watch from the sidelines, hoping to get a chance to re-enter the stock (which is reasonably lower than our exit price now), but pleased with the results of our investment since we acquired our first shares.

Financials portfolio

The financials portfolio was the second largest contributor to returns in the quarter. Our investment in Boursa Kuwait Securities Co. (BOURSA KW), the owner and operator of the Kuwait Stock Exchange and the Kuwait Clearing Company, delivered solid returns. Boursa’s natural monopoly position and its embedded operating leverage to the country’s banking sector market capitalisation and average daily traded value makes it a very good proxy for Kuwait’s reform story. After nearly a year’s wait, the country’s reform program is beginning to take shape with the cabinet approving the long-awaited debt law that is counted on to unlock a significant proportion of the financing required for a much-needed infrastructure spending program. The approval of the debt law also paves the way for the new mortgage law, which is expected imminently. These are very positive developments for Boursa via the prospect of new products being introduced in the market (e.g., fixed income trading and margin lending) and is supportive for valuations and trading activity in the stock exchange (YTD value traded ending March is up over 30%).

On the other hand, the portfolio experienced a drag from our investment in Indonesia’s Bank Syariah Indonesia Tbk Pt (BRIS ID). BRIS is a state-owned entity that has been forged through the merger of Indonesia’s three largest Islamic banks in the country back in 2021. The bank is the largest player in the Islamic financing market with over 40% market share. Indonesia is home to the largest Muslim population in the world (along with Pakistan) and so BRIS has a natural right-to-win in that market. Of course, much rests on management’s ability to execute on its strategy of building a market-leading banking proposition so that they can gain share from the dominant conventional banks in the country (BRIS’ share of the total system assets is only ~6%). We bought BRIS shares last year as we became familiar with their strategy and appreciated the clarity with which they articulated it. We also noticed that there was a visible increase in profitability with return on equity increasing by nearly 400 bps between 2021 and 2024 (to 16.4%) and concluded that there is still another 400 bps of improvement in the next three years that management can deliver that the market did not fully appreciate.

Unfortunately, the Indonesian market had a difficult quarter with the Jakarta Composite Index down 10.3% in USD. Concerns about the country’s political and economic direction weighed on the market and on sentiment. These concerns are valid; the new administration embarked on a series of big projects, including the implementation of a new sovereign wealth fund (Danantara), changes to the 2004 military law (allowing military officers to serve on boards of state-owned companies), and the rollout of the President’s flagship ambitious and fiscally burdensome free school meal program.

Fortunately, the final shape of these initiatives seems to be much better than the market feared. For example, concerns on who would run the new sovereign wealth fund were dispelled quickly when a credible team composed of technocrats and business-friendly professionals was announced. There was also some relief from the details of the appointment of an advisory board that includes the 6^th and 7^th presidents of Indonesia (especially the popular Jokowi), and an advisory council that includes the likes of Ray Dalio and Jeffery Sachs. We see a lot of value in Indonesia at the moment and are sticking with our investments in that market with a potential to increase our investment as the dust settles, including in BRIS.

Healthcare and education portfolio

The weakness in the ASEAN markets in the first quarter was particularly visible in the negative price action experienced in our healthcare and education portfolio. In Thailand, the portfolio experienced a large drawdown in the shares of Singapore International School Bangkok PCL (SISB BK), the operator of K-12 schools that teaches the Singaporean curriculum to over 4,500 students in six locations in and around Bangkok. SISB is a founder-led business that has built a small (in public listed company terms; the company made $25 million net income in the last 12 months) but successful business. It has operating and free cash flow margins in excess of 30% and a healthy return on invested capital of 23%. SISB is a small-/mid-cap Thai stock and so was implicated in the weak sentiment around the market (FTSE Small Cap Thailand is down 30% from September 30, 2024 to March 31, 2025).

SISB built a strong international student base (~30% international) and since Covid-19 received a large influx of students from China. This proved to be a double-edged sword in 2025 as news of the abduction of a Chinese actor in Thailand spread like wildfire on social media, culminating in a sharp decline in tourism from China and raising safety concerns among Chinese nationals living in the country. While SISB’s business is intrinsically defensive, the link to China via its student body (which we gather is about 20%) meant the stock was caught up in the fallout of the news. SISB did see some Chinese students leave, but we believe the market had overly punished the stock for its exposure to that market. We have been in communication with SISB’s CEO and met him in Bangkok in February. Our conclusion is that some of the pressure they are seeing (on the business and the shares) will be temporary as they digest the impact of the China exposure.

Outlook

Looking forward, the investment outlook has been muddied by the ongoing escalation and volatility in US trade policy. From a portfolio standpoint, our direct exposure to tariffs is limited. We estimate that 85% of the portfolio is invested in service-based industries, 9% in product-based, and the rest in cash. Across the portfolio, 87% is invested in companies that make no money outside of their core region. At a country level, nearly half the fund is in countries that were not named in the first tariff announcement. Of course, we are well aware of second-round effects on our companies’ fundamentals from slowing global trade which can come in the form of lower disposable incomes, lower oil prices (on our Middle East portfolio specifically) and a lower wealth effect across the board. We also know (from experience) that markets dislocate and that prices can deviate significantly from intrinsic values. This is especially true now as long-held assumptions about world-order and the established American role in it are being questioned.

On the other hand, as with any crisis, there will be opportunities. We cannot help but feel bullish about the implication of a weak US dollar and the prospect of an end to US exceptionalism. We see a lot of value in our markets today and believe there is a scenario where the current dynamics can favour certain countries and companies that we believe the strategy is over-indexed to.

We look forward to updating you on the strategy in the next letter.

The end of “US exceptionalism” as an investment narrative, the value on offer in EM, and the potential for these maligned markets to enter a virtuous circle of performance are themes that we have been banging on about for months now.

While the unwinding of the “Trump trade” was in keeping with our outlook published to investors in past months, we clearly did not anticipate how the chaotic imposition of tariffs on “Liberation Day” would serve as such a potent accelerant.

This was a radical outcome

Markets expected a gradual and predictable rollout of tariff measures, but what we got was random and unpredictable. The economic fallout, should the 90-day tariff reprieve fail to yield de-escalation, will hit the United States harder than most other countries as the affected share of GDP is much higher. US goods imports alone are equivalent to c.11.5% of US GDP versus total bilateral trade (exports plus imports) with the US of 3.5–5.5% of respective GDPs in Japan, Europe and China.

Exports plus imports of goods as % of GDP
US – total, others – bilateral with US

Source: NS Partners and LSEG Datastream.

Unless there is a dramatic reversal, a return to protectionism threatens a supply shock in the United States, which will drive the price of many things higher and create shortages for many basic goods. This will be destructive for demand and ultimately deflationary unless the Fed accommodates the shock by increasing the money supply.

What is the tariff endgame?

Is President Trump willing to risk a financial crisis in the pursuit of reindustrialising America? Or is this all in the “Art of the Deal,” a negotiating tactic designed to secure better trade terms? Or is it about completely decoupling from and isolating China?

Uncertainty over the outcome sought, the potential fallout from American businesses pausing investment and consumers reining in spending are undermining sentiment for all US assets.

The soft economic underbelly of the United States is being exposed. Liberation Day saw the dollar falling along with bond and equity markets. This is how emerging markets are meant to behave on political risks spiking, and not the global market safe haven.

If Trump truly seeks a dramatic reduction in the US trade deficit, this will be accompanied by a reduction in the capital account surplus, meaning that foreign investors do not need to buy the same quantum of US assets as before.

The trouble is that a falling capital account surplus as foreigners repatriate funds (or simply invest less in US assets) puts upward pressure on government bond yields. It was persistent demand for US Treasuries irrespective of the fiscal profligacy of the government that allowed it to build up a debt pile of $36 trillion, with $9 trillion of that due to be refinanced this year.

So President Trump wants a weaker dollar to boost domestic manufacturers, but what to do about yields? The most simple solution will be financial repression, by forcing domestic financial institutions to increase their holdings of US Treasuries. Where do the funds come from for these purchases – from selling US equities perhaps?

The damage is done

Course corrections were inevitable. As former President Clinton’s political advisor James Carville famously said:

“I used to think that if there was reincarnation, I wanted to come back as the President or the Pope or as a .400 baseball hitter. But now I would want to come back as the bond market. You can intimidate everybody.”

President Trump backed down in the face of spiking bond yields with his 90-day tariff pause to everyone but China, but it is likely that damage has been done here that cannot be undone.

We may be in the early innings of a broader secular shift in markets. Our economist Simon Ward has asked whether this will be similar in magnitude to the dollar bear market sparked by President Nixon’s suspension of gold convertibility and imposition of tariffs in 1971.

While this could signal a rocky period ahead for US equities, a falling dollar flushes emerging markets with managed currency regimes with liquidity and allows central banks to cut rates.

Historically, this has been a good signal and driver of EM outperformance.

EM relative performance and USD

Source: NS Partners and LSEG Datastream.

Expect some unsettling trade headlines in the months ahead, but things could start to get very interesting for emerging markets fuelled by a falling dollar.

Portfolio strategy notes

High level

Tariffs will be deflationary if central banks do not accommodate them – see Smoot-Hawley tariffs in the 1930s which were massively deflationary. Compare and contrast the inflationary oil price shock in 1973 where the central bank accommodated, and the second oil price shock in 1979 which was not inflationary as the Fed under Volcker kept monetary policy tight. We do not expect Powell to accommodate.

It is likely that this will be a very deflationary event for the rest of the world as supply is diverted from the United States elsewhere resulting in downward pressure on rates.

We were already relatively defensively positioned as money trends were suggesting a Q2/Q3 economic slowdown before trade war shock – this will be negative for US growth. Our expectation is for a short, sharp economic shock, but not a crisis (based on our cycles analysis).

Strategy

Inflation boost from tariffs expected to be small/temporary – monetary backdrop still disinflationary
Relative money trends positive for China/EM
Excess money backdrop neutral/negative
Favour more defensive exposure – underweight oil and commodities
Favour interest rate sensitive countries and companies
Falling dollar beneficiaries
Highly cyclical markets downgraded – especially consumer cyclical exposure
Avoid exporters with high exposure to the United States
China consumer – stimulus to step up as tariff response

As the global economy contends with mounting climate-related losses – over USD600 billion in insured damages over the last two decades – the investment case for climate adaptation is gaining strength. From flooded subways in New York and burnt-out neighborhoods in California, to drought-stricken farms in Europe and storm-ravaged coastlines in Japan, major environmental disasters are no longer fodder for movies, and the costs to rebuild are no longer abstract.

In the United States alone, hurricane Milton and Helene in 2024 were amongst the costliest hurricanes in US history, at approximately USD35 billion and USD80 billion in damages respectively, while Canada’s wildfires in 2023 became the most expensive on record for the country, with damages surpassing $1 billion.

The future also holds a sobering reality: insurance claims are likely to rise in regions that were once considered “safe.” In fact, properties along Florida’s eroding shorelines are beginning to lose insurability altogether as entire homes inch closer to the sea with every storm surge. Meanwhile, infrastructure around the world faces the stress of extreme heat, intense rainfall and prolonged droughts, putting pressure on insurers, governments, and private capital to respond.

While mitigation (reducing emissions and overall environmental impact) remains essential, adaptation (making systems more resilient to the physical impacts of climate change) is emerging as an investable trend. For long-term investors, this shift presents an opportunity to capture growth, hedge risk, and align capital with real-world resilience.

Companies that help communities, infrastructure and ecosystems adapt to physical climate risks are unlocking new growth markets while also de-risking their operations and strengthening their long-term resilience. For investors, these businesses represent not only defensive plays but also strategic exposure to rising demand for resilient systems in sectors like water, energy, agriculture and construction.

At Global Alpha, we aim to capture these adaptation-driven opportunities across our small cap portfolio. Several of our holdings are actively contributing to building climate resilience from various angles including conservation, advisory services and infrastructure.

Valmont Industries Inc. (VMI US) offers advanced adaptation solutions for the agricultural sector. As climate change intensifies, the demand for efficient water management and resilient farming practices grows. Valmont’s innovative irrigation technologies, such as their Valley® centre pivots and remote monitoring systems, help farmers optimize water usage, enhance crop yields and reduce operational costs. These solutions not only support sustainable agriculture but also position Valmont as a key player in addressing the challenges posed by climate change.

Mueller Water Products Inc. (MWA US) develops smart water infrastructure, including leak detection and pressure management solutions. These technologies help cities reduce water loss, extend infrastructure lifespan, and ensure a stable supply of clean water – all essential in the face of increasing droughts and floods. By investing in smart water technologies, Mueller enables communities to make informed decisions and prioritize spending on critical assets, thereby enhancing resilience against climate-related challenges.

Montrose Environmental Group Inc. (MEG US) captures opportunities by providing end-to-end solutions for environmental risk management. From air and water quality monitoring to remediation and climate risk advisory, Montrose helps clients adapt operations to a changing climate. Their expertise in climate risk assessment and sustainability advisory helps clients navigate the complexities of climate adaptation, ensuring resilient and sustainable operations

Casella Waste Systems Inc. (CWST US) plays a critical role in climate adaptation by delivering resilient waste management and recycling services. From post-disaster clean-up to ensuring service continuity in rural and underserved areas, Casella helps communities recover quickly and maintain public health as climate-related events grow more frequent.

Rockwool A/S (ROCKB DC) supplies stone wool insulation that improves energy efficiency and helps buildings withstand extreme heat, fire and moisture. As the built environment faces growing physical risks, Rockwool’s products contribute directly to urban structural climate resilience.

Investors should consider these companies as part of a diversified portfolio aimed at capitalizing on the growing demand for climate adaptation solutions. By investing in firms that prioritize resilience, investors can not only mitigate risks but also drive sustainable growth and long-term value.

A cyclical forecasting framework implies that current economic events will contain echoes of developments at the same stage of previous cycles.

Similarities should be more pronounced at around 18- and particularly 54-year frequencies, corresponding to average lengths of the housing and Kondratyev inflation cycles respectively.

A previous post noted the similarity of Fed tightening episodes in 1967-69 and 2022-23. The Fed funds rate (month average) rose from peak to trough by 540 bp and 530 bp respectively, topping in August 1969 and August 2023, exactly 54 years later – see chart 1.

Chart 1

The US economy entered a recession at the end of 1969. GDP was recovering by Q2 1970 but suffered a second hit from a prolonged auto strike.

The Fed cut rates much more aggressively than recently but reversed course temporarily from early 1971 as the economy rebounded strongly and inflation remained high. The current Fed pause has occurred at the same cycle time.

Inflation fell sharply into 1972, mirroring a big slowdown in broad money growth two years earlier. The Fed resumed easing later in 1971, with the funds rate reaching an ultimate low in February 1972.

A possible scenario is that President Trump’s tariff shock triggers the recession “missing” from the current cycle, causing the Fed to ease aggressively later in 2025, with rates and inflation falling to lows in 2026 corresponding to those reached in 1972.

US disruption to global economic relations is itself is strongly reminiscent of policy developments 54 years ago. In August 1971, President Nixon shocked trading partners by suspending convertibility of the dollar into gold within the Bretton Woods system while imposing a 10% tariff on imports.

The backdrop was a US balance of payments deficit and an accelerating loss of gold from US reserves. According to a Federal Reserve history of the period, President Nixon blamed the deficit “on unfair trading practices and other countries’ unwillingness to share the military burden of the Cold War”. Sound familiar?

The “Nixon shock” triggered a crisis, with global policy-makers fearing that “international monetary relations would collapse amid the uncertainty about exchange rates, the imminent spread of protectionism, and the looming prospects of a serious recession”.

The crisis was resolved, at least temporarily, by the December 1971 Smithsonian Agreement, involving trading partners agreeing to revalue their currencies against the dollar in return for the removal of tariffs. “The net effect was roughly a 10.7 percent average devaluation of the dollar against the other key currencies … Foreign nations also agreed to comply with Nixon’s request to lessen existing trade restrictions and to assume a greater share of the military burden.”

Could a revaluation of currencies against the dollar be part of a “deal” to end the current crisis, once President Trump comes to recognise that the economic costs of his high tariff policy greatly exceed any benefits?

The Nixon shock occurred with the real trade-weighted value of the dollar at a similar premium to its long-run average to today. The shock accelerated a secular decline into and beyond the following housing cycle trough – chart 2.

Chart 2

Monetary trends suggest that China’s economy is better placed to withstand tariff damage than Japan’s.

Chinese six-month real narrow money momentum rose further in March, reaching its highest level since August 2020. Japanese momentum moved deeper into contraction – see chart 1. (US March numbers will be released next week, with Eurozone / UK data the following week.)

Chart 1

Inflation divergence has contributed to the wide gap but it mainly reflects nominal money trends: Japanese narrow money is contracting even in nominal terms.

The Japanese fall is partly explained by money-holders switching out of sight deposits (included in narrow money) into time deposits (excluded), which now pay modest interest. Still, broad money trends are also weak: M3 grew by just 0.5% at an annualised rate in the six months to March. Broad money expansion has been dragged down by BoJ QT and a fall in bank lending to non-bank financial corporations.

By contrast, six-month growth of Chinese broad money – on the preferred definition here excluding deposits held by financial institutions – was stable in March at a level close to the 2015-19 average. This pace was associated with solid nominal GDP expansion – chart 2.

Chart 2

Broad money trends have been supported by PBoC and state bank purchases of government bonds issued to finance fiscal stimulus measures. In addition, six-month growth of bank lending has revived recently, despite a drag from debt swap operations (under which funds raised through bond issuance are used to repay bank loans of government-related entities).

Previous posts suggested that Japanese monetary weakness would be reflected in downside economic and inflation surprises. The composite PMI output index fell sharply last month, to well below levels in the US, Eurozone, UK and China.

Annual growth of scheduled earnings, meanwhile, undershot expectations in February. Inflation believers have been relying on a developing wage-price spiral but bumper headline pay awards in the spring Shunto may not be representative of trends across the whole economy – chart 3.

Chart 3