Cosmetic skin care products on green leaves.

Rising consumer demand driving supply chain transparency

Recognizing the trends shaping the trajectory of ESG integration by companies in their processes in 2024 is a key focus point. Amid growing regulatory requirements and increasing consumer demand for transparency, the spotlight has now extended to companies’ supply chain practices, emphasizing the need for holistic ESG considerations.

Regulatory momentum

The surge in regulatory frameworks, such as the upcoming Corporate Sustainable Due Diligence Directive (CSDDD) and the Deforestation Regulation in the EU, alongside proposals like the Securities and Exchange Commission’s mandate for emissions disclosure across value chains, signal a global push toward heightened accountability and risk management. These directives require companies to broaden their due diligence to encompass their entire supply chains, addressing human rights and environmental sustainability risks to preempt controversies and safeguard against reputational damage that could adversely affect shareholder value.

Consumer power and the ripple effect

A driver in these regulatory developments is undoubtedly rising consumer preference for goods that are ethically and sustainably produced. As shoppers become more mindful of the environmental and social impacts, companies are compelled to reevaluate their supply chain practices. Not meeting these emerging standards can result in serious brand and financial repercussions, as evidenced by the backlash against major labels like Adidas and Nike over labour misconduct allegations within their supply chains that triggered boycotts and meaningful share price declines in 2020. Especially within the apparel and footwear industry, there is an acute pressure to implement sustainable practices along supply chains.

Examples of ESG risk management in supply chains

Asics (7936 JP), a Japan-based sporting goods manufacturer in our portfolios, has increasingly integrated ESG principles and enhanced due diligence in its supply chain in recent years. The company, involved in labour issues in a Cambodian factory in 2013 and 2017, has been working on increasing supplier traceability initiatives, including corporate social responsibility (CSR) and human rights policies, audits and monitoring, aiming to reduce the risks of human rights abuses and environmentally harmful practices in procurement activities. As a result of its supply chain initiatives, Asics was recognized on the CDP Supplier Engagement Leaderboard in 2021, a leading international non-profit dedicated to assessing the disclosure of companies on environmental matters. Furthermore, a Human Rights Committee established in 2022 at the board level oversees and evaluates the effectiveness of these initiatives. This strategic focus on ESG not only bolsters brand credibility but also mitigates reputational and legal risks. For instance, Asics avoided the fallout faced by peers in 2020-21 over cotton sourcing controversies from China’s Xinjiang region, likely the result of its intensified risk management.

L’Occitane and the beauty of responsibility

Similarly, the personal care products industry is witnessing rising customer demand for ethically sourced products. Another company in our portfolio, L’Occitane International SA (973 HK), a global leader in natural and organic beauty and skincare products, is considered a champion in this area. By prioritizing a partnerships-based approach with suppliers and rigorously assessing the CSR performance of over 9,000 suppliers worldwide, L’Occitane ensures holistic risk mitigation and proactive engagement with at-risk suppliers. The group participates in the Responsible Beauty Initiative (RBI) and the Partners by Nature program, to help promote responsible sourcing practices in the industry and strengthen its collaboration with strategic suppliers. In 2022, it was invited to join the EcoVadis trailblazer’s network as one of the awarded companies in the 2021 edition. This network includes the most advanced companies in terms of responsible value chains that come together to share best practices and challenges. In addition to being a leader in this field, the company’s commitment to responsible sourcing, increasingly popular among consumers worldwide, is in line with its brand image and strategy.

The bottom line – sustainability as a strategic supply chain priority

In today’s environment of regulatory scrutiny and elevated consumer expectations, ESG integration in portfolio company supply chains can build trust and help to mitigate the legal risks of regulatory non-compliance.

Disclaimer: ESG integration at Global Alpha is driven by taking into account material sustainability and/or ESG risks that could impact investment returns, rather than being driven by specific ethical principles or norms. The investment professionals may still invest in securities that present sustainability and/or ESG risks, including where the portfolio managers believe the potential compensation outweighs the risks identified.

Chinese monetary statistics for January suggest that policy easing is starting to become effective.

Six-month growth of narrow money, as measured by true M1*, rebounded from a negative December reading to its highest level since May – see chart 1.

Chart 1

Chart 1 showing China Nominal GDP & Narrow Money (% 6m)

Q1 numbers can be volatile because of New Year timing effects, so improvement needs to be confirmed by February / March data.

True M1 can be broken down into “private” and “public” sector components. The former aggregates currency in circulation and demand deposits of households and non-financial enterprises. The latter is calculated as a residual and is dominated by demand deposits of government departments and organisations.

Six-month growth rates of both components rose in January but the public sector increase was much larger, consistent with funds being mobilised to boost fiscal spending – chart 2.

Chart 2

Chart 2 showing China True M1 Breakdown (% 6m)

Progress in implementing fiscal stimulus is also suggested by a strong rise in central government deposits – these are excluded from money definitions but deployment of funds will have a positive monetary impact.

The broader M2 measure continues to outpace narrow money, with six-month growth little changed in January, extending a recent sideways movement. In terms of the “credit counterparts”, domestic credit expansion has firmed since late 2023 but there has been an offsetting increase in non-monetary funding (“other liabilities”) – chart 3.

Chart 3

Chart 3 showing China M2 & Credit Counterparts Contributions to M2 % 6m

A reduction in the broad / narrow money growth gap driven by narrow acceleration is usually a positive economic signal, indicating a rise in broad money velocity.

The January narrow money recovery, as noted, partly reflects implementation of fiscal spending plans. A sustained pick-up requires monetary policy to be sufficiently accommodative. Recent developments are promising. PBoC lending to the banking system grew by a record amount in Q4. Banks’ excess reserve ratio rose to 2.1%, the highest since Q4 2020 – before the recent 0.5 pp further reduction in the requirement ratio. The reserves injection has contributed to three-month SHIBOR reversing half of its August-December rise since the start of the year – chart 4. Currency weakness has remained contained despite softer rates; indeed, the JP Morgan effective index has risen slightly year-to-date.

Chart 4

Chart 4 showing China Interest Rates

Monetary deterioration into late 2023 argues for economic weakness through H1 2024. Confirmation that monetary trends have turned would suggest improving prospects for H2.

*Official M1 plus household demand deposits. M1 conventionally includes such deposits but they are omitted from the Chinese official measure for historical reasons.

Inflation divergence explained by monetary trends? Unfavourable US vs. favourable European January inflation news may reflect relative money growth two years ago, in which case US data should improve sharply from Q2 (see charts).

Three of G7 in “technical” recession in H2 2023. Japan and the UK joined Germany in recording successive quarterly GDP declines; the UK and Germany also meet the stricter recession definition of a year-on-year fall (see charts).

Weak US retail sales / manufacturing output. January sales were barely higher than a year ago in cash terms, while manufacturing extended a year-plus-long decline (see charts).

UK recovery hopes at risk from capex contraction. Falls in profits, corporate money balances and construction orders suggest potentially significant weakness in business investment (see charts).

Inflation divergence explained by monetary trends?

Six-month core CPI momentum is back around target in the Eurozone / UK but recovered further in the US

Chart 1 showing Core Consumer Prices (% 6m annualised)

US core PCE momentum is lower but will also have rebounded

Jan estimate based on assumed 0.4% monthly rise.

Chart 2 showing Core Consumer Prices (% 6m annualised)

The recent divergence in US / European inflation news may reflect monetary trends two years ago

US broad money momentum moved back above European levels in 2021 / early 2022, consistent with arrested inflation progress vs. Europe in 2023 / early 2024.

Chart 3 showing Broad Money Lagged 2 Years (% 6m annualised)

The two-year money growth lead suggests another downswing in US inflation momentum from Q2

Chart 4 showing US Consumer Prices & Broad Money (% 6m annualised)

Three of G7 in “technical” recession in H2 2023.

Japan and the UK joined Germany in recording consecutive quarterly GDP declines

Chart 5 showing GDP (% qoq annualised)

Japanese weakness was payback for a strong H1 but Germany / the UK meet the stricter recession requirement of a year-on-year GDP fall

Chart 6 showing GDP (% yoy)

US retail sales fell back in January, with discretionary spending particularly weak

Caveat: possible weather distortion.

Chart 7 showing US Retail Sales (% yoy) Discretionary vs Non-Discretionary* *"Discretionary" = Motor Vehicles & Parts, Furniture, Electronics, Building Materials, Clothing, Sporting Goods & Department Stores "Non-Discretionary" = Food & Food Services, Gasoline, Health & Personal Care, Other General Merchandise, Miscellaneous & Non-Store

US manufacturing output has fallen in four of the last five quarters and slid further in January (partly weather-related)

Chart 8 showing US Manufacturing Output (Peak = 100)

Weak US retail sales / manufacturing output.

Short Treasury yields have reset back to Fed guidance

Chart 9 showing US 2y Treasury Yield & Implied FOMC Median Projection for Fed Funds Rate in 12m* *Interpolated from Current and Next Year-End Projections

Full January numbers confirm a sharp recovery in Chinese six-month narrow money momentum

Caveat: Jan / Feb data susceptible to New Year timing distortions – await Feb data for confirmation.

Chart 10 showing China Nominal GDP & True M1 (% 6m)

UK CPI momentum continues to track the profile of broad money growth two years ago, a relationship suggesting a sustained undershoot ahead

Chart 11 showing UK Consumer Prices & Broad Money (% 6m annualised)

LFS employment and total hours worked peaked last spring, consistent with a “proper” recession having started then

Chart 12 showing UK Employment Measures (mn)

Recorded unemployment has been suppressed by a rise in inactivity – the sum of the two bottomed last spring

Chart 13 showing UK Unemployment & Inactivity % of Labour Force, 16-64 Years

Wage data surprised to the upside but the recent slowdown in six-month private regular earnings momentum still looks impressive

Chart 14 showing UK Average Weekly Regular Earnings (% 6m annualised)

UK recovery hopes at risk from capex contraction.

Recovery hopes rest on a consumption rebound but capex could show offsetting weakness, judging from a sharp decline in profits and falling corporate money

Chart 15 showing UK Business Investment (% yoy) & Real Gross Operating Surplus of Corporations / Real PNFC* M4 (% yoy) *Private Non-Financial Corporations

Construction investment accounts for more than half of overall capex and new orders continued to plunge in Q4

Chart 16 showing UK New Construction Output & Orders (£ bn, 2019 prices)

Six-month core CPI momentum has returned to a target-consistent level in the Eurozone and UK, with January readings of 2.1% and 1.9% annualised respectively*. US momentum is significantly higher, at 3.6% – see chart 1. What explains this gap?

Chart 1

Chart 1 showing Core Consumer Prices (% 6m annualised)

One answer is that the US CPI is overstating core pressure. The six-month increase in the Fed’s preferred core PCE measure was 1.9% annualised in December. Assuming a monthly rise of 0.4% in January (the same as for core CPI), six-month momentum would firm to 2.4% – still little different from Eurozone / UK core CPI readings.

The stronger rise in the US CPI than the PCE index reflects a higher weighting of housing rents and a faster measured increase in “supercore” services prices.

Perhaps reality lies somewhere between the two gauges, i.e. the stickiness of US core CPI momentum is at least partly genuine. If so, the US / European divergence may be explicable by monetary trends in 2021-22.

Previous posts highlighted the close correspondence between the slowdowns in Eurozone and UK six-month CPI momentum and profiles of broad money growth two years earlier. Chart 2 updates the UK comparison to incorporate January CPI data.

Chart 2

Chart 2 showing UK Consumer Prices & Broad Money (% 6m annualised)

UK and Eurozone six-month broad money momentum peaked in summer 2020 and had returned to the pre-pandemic range by late 2021. This is consistent with the reversion of six-month headline and core CPI momentum to target-consistent levels around end-2023.

US broad money momentum followed a different path, with a more extreme surge in summer 2020, a return to earth in H2 2020 and a secondary rise in H1 2021, driven partly by disbursement of stimulus checks in December 2020 and March 2021 – chart 3.

Chart 3

Chart 3 showing US Consumer Prices & Broad Money (% 6m annualised)

The sharp fall in US six-month money growth during H2 2020 was echoed by a slowdown in CPI momentum into end-2022 – much earlier than occurred in the Eurozone and UK. More recent CPI stickiness may reflect the lagged effects of the secondary monetary acceleration into mid-2021.

What does this suggest for absolute and relative prospects? The judgement here is that broad money growth of 4-5% pa is consistent with 2% inflation over the medium term. US six-month money momentum crossed below both this range and UK / Eurozone momentum in May 2022, reaching an eventual low in February 2023, at a weaker level than (later) lows in the UK / Eurozone.

Assuming a two-year lead, this suggests that US six-month core CPI momentum will move down to 2% around mid-2024 on the way to a larger (though possibly shorter) undershoot than in the UK / Eurozone.

*Eurozone = ECB seasonally adjusted CPI excluding energy and food including alcohol and tobacco. UK = own measure additionally excluding education and incorporating estimated effects of VAT changes, seasonally adjusted.

East Indian female pediatrician and mother measuring the weight of baby girl during a routine medical check-up.

When it comes to our wealth, we often think about assets or money that we own. However, when we’re sick, we realize our health represents our real wealth and the importance of investing in it.

Population surge meets healthcare hurdle

With its rapidly growing population, India faces significant challenges in providing adequate healthcare services to its citizens. The World Health Organization (WHO) projects India’s population to reach 1.5 billion by 2030, making it the most populous country globally. This growth puts immense pressure on the healthcare system to meet increasing demand for medical services and facilities.

India’s bold step with the world’s largest insurance plan

In 2018, India’s Prime Minister, Narendra Modi, launched Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB-PMJAY), the world’s largest universal health insurance plan often referred to as the National Health Protection Scheme. The program aims to help India’s most vulnerable population by offering Rs. 5 lakh (~CDN$8,000) per family per year. The plan is estimated to support 550 million citizens across the country, allowing cashless benefits at any public or private impaneled hospital nationwide. This significantly increases access to quality healthcare and medication for almost 40% of the population, covering almost all secondary and many tertiary hospitalizations. It also addresses the previously unmet needs of a hidden population that lacks financial resources. The plan helps to control costs by providing treatment at fixed, packaged rates.

A flourishing market, billions in the making

Since 2015, India’s healthcare sector has been growing at a CAGR of 18%, currently valued at ~USD$450 billion. Narayana Health’s CEO, one of India’s largest hospital chains, estimates the market to be worth USD$828 billion by 2027. This growth is mainly driven by increased spending from both public and private sectors.

India’s healthcare market value (USD)

Bar chart showing projected increase of CAGR of 12% to 14% starting from 2023.

Source: Frost & Sullivan; Aranca Research; Various sources (LSI Financial Services, Deloitte).

Foreign direct investment and pharmaceutical export

It’s not surprising that drugs and pharmaceuticals comprise a large percentage (63.4%) of foreign direct investment, as Western countries outsource generic drug manufacturing to India to benefit from reduced labour costs. This is followed by investment in hospitals/diagnostic centres (26.6%) and medical/surgical appliances (9%).

India remains the world’s largest provider of generic drugs, exporting $25.4 billion worth in 2023. We view this market as attractive as the competitive landscape has forced new players to innovate as patents expire.

Ajanta Pharma – a beacon of innovation in India’s pharmaceutical sector

We continue to own Ajanta Pharma (AJP IN). It has high exposure to branded generic markets and a leading position in niche categories, with a superior margin and return profile. The company operates across India, the US and more than 30 emerging countries in Africa and Asia, focusing on cardiology, ophthalmology, dermatology and pain management.

Despite being a smaller player in the space with a 0.7% market share, Ajanta maintained this position during the lockdown and outperformed industry growth by 200 basis points. Owned by its founder, with the family retaining close to 70% of the business, Ajanta benefits from over four decades of experience and we believe continues to be in capable hands.

This growth story is a testament to how investment can translate into tangible health benefits, weaving a new narrative of prosperity and the true value of wealth in health.

Namdaemun gate at night, Seoul, South Korea.


  • A down month in EM equities was led by continued investor pessimism in China, down by over -10% in USD terms. Further commentary below.
  • Bucking the trend were securities in India across healthcare, communications, real estate and consumer staples.
  • Stocks in Taiwan with AI exposure also outperformed.

Korea adopts Japan’s playbook to boost equities

Bottoming Korean exports growth from October has been led by a recovery in the semiconductor sector, reflected by the outperformance of equities with exposure to the AI supply chain, which posted strong returns through 2023.

South Korea Exports YoY Index

Line graph showing South Korea year-over-year exports from 2019 to January 2024.

Source: Bloomberg

The market pulled back during the month before bouncing on news that Korean regulators are looking to emulate Japan’s efforts to pressure companies into improving governance and driving higher valuations. These proposed measures look set to boost market laggards trading at below 1x price/book – or around half of the Kospi 200.

While yet to be finalised, terms of the proposal include:

  • A requirement that listed companies disclose valuation improvement measures.
  • Financial authorities will publish a name-and-shame list of companies that have not announced valuation improvement plans.

Efforts by listed Korean companies to improve payouts, repair balance sheets and buy back shares could see super-cheap stocks lead the market higher. According to CLSA, Korean stocks are under-owned by GEM investors with the Kospi trading at 0.88x P/B as of 18 January.

Strong retail presence

The catalyst for the move is clear. Parliamentary elections loom in April for deeply unpopular president Yoon Suk Yeol, who is looking to improve his prospects by adding further fuel to an export-led economic recovery via the stock market. The move looks savvy given over 30% of the voting age population invests in single stocks in a market that is dirt cheap.

Bar chart comparing Korean investors to Korean homeowners and the voting population from 2014 to 2022.

Source: CLSA (Feb 2024)

Our playbook is to stick with our quality names in Korea, across semis giants Samsung and Hynix, autos and financials. Preferred shares for a number of companies also look attractive given massive discounts to ordinary shares. For instance, Samsung preferred shares are trading at a c.20% discount. Pref shares could be bought back at a discount by the parent companies as a cost-effective way to boost shareholder returns.

Economic recovery and reforms to benefit rising automaker KIA

KIA is a brand on the rise, continuing to execute on a premiumisation strategy led by the launch of a series of popular EV models that are on track to reach 40% of sales by 2030.

Illustration showing KIA EV sales plan projections to 2030.

Source: Kia Investor Presentation, 2022

The stock is trading around 2024E 4.2x PE for a 5.6% dividend yield and return on equity of 18%. This qualifies KIA for laggard status in our view, as it trades below its Japanese peers despite much better returns and margin profile. The company appears to embrace the drive to improve stock performance, having committed to buying and cancelling Won 2.5trn worth of stocks over the next 5 years (6% of outstanding shares).

KIA enjoys strong brand recognition and growing market share in the US and Europe, along with other growing markets such as India. Average selling prices are set to rise as EVs take a greater share of sales, attracting customers on higher incomes (i.e., KIA’s average customer in the US earns over US$150k per annum) who tend to opt for the more expensive trim options. The company has launched a series of premium EVs, which include a number of SUV models (the EV9 is pictured below) that have been especially popular in the US. They boast fast-charging, battery range, performance and looks (KIA’s chief designers hail from the likes of Audi, Lamborghini and VW), rivalling the best EV offerings from premium European brands.

Picture of a KIA SUV.


Rising vehicle financing costs and recession risks in the US and Europe could slow progress, but recent results have been strong. Declining raw materials costs and the higher SUV mix allowed the company to raise operating profit margin guidance to above the 2023 level (11.9%) and higher-than-market forecasts, putting KIA well ahead of Tesla (9%).

Former general set to clinch presidency in Indonesia

Former Indonesian general Prabowo Subianto is the favourite to win the country’s presidential election in February. The election marks the end of Joko Widodo’s decade in power, stepping down with a remarkable 80% approval rating. Having run against Widodo in the 2014 and 2019 elections, Prabowo now has the backing of the president, along with his 36-year-old son Gibran Rakabuming Raka as a running mate.

The latest polling suggests Prabowo has a chance of winning 50% of the vote needed to avoid a second round run-off. The former military strongman now dubbed the “dancing grandpa” by his young base of supporters has pledged continuity with the policies of Widodo. This includes encouraging investment in industries such as nickel processing to capture more of the battery value chain, along with boosting GDP from the pedestrian 4-5% under Widodo up into the high single digits.

Mexico now the #1 source of imports to the US

Mexico overtook China as the top source of imports to the US in 2023, fuel for the narrative that “friend-shoring” supply chains will gradually screen China out of the Western trading bloc.

Bar chart comparing China and Mexico exports to the US between 2011 and 2023.

Source: US Census data

The real story isn’t quite so simple – US import data understate Chinese exports, with the total recorded in Chinese data being c.25% higher. This seems to reflect systematic tariff avoidance. In addition, many Chinese firms are investing aggressively in Mexico to take advantage of the North American Free Trade Agreement and gain frictionless access to the US market. As the Wall Street Journal illustrates in a recent piece, China’s exporters can access the US duty-free with Made in Mexico labels:

The participation of Chinese companies in this shift attests to the deepening assumption that the breach dividing the United States and China will be an enduring feature of the next phase of globalization. Yet it also reveals something more fundamental: Whatever the political strains, the commercial forces linking the United States and China are even more powerful.

Chinese companies have no intention of forsaking the American economy, still the largest on earth. Instead, they are setting up operations inside the North American trading bloc as a way to supply Americans with goods, from electronics to clothing to furniture.

UK real money contraction warned of 2022 economic stagnation and 2023 recession. Weakness has abated but real money measures have yet to resume expansion, casting doubt on hopes of a sustainable economic recovery.

The latest ONS numbers are consistent with a recession having started in Q2 2023. Among key features of the GDP release:

  • Gross value added (GVA) at basic prices peaked in Q1 2023, falling by 0.03% in Q2, 0.16% in Q3 and 0.34% in Q4.
  • The cumulative decline in GVA / GDP of 0.5% between Q2 and Q4 is inconsistent with a description of the economy as “flatlining”.
  • Similarly, claims that the consumer has been holding up are no longer tenable given a 1.0% cumulative contraction in household consumption between Q2 and Q4.
  • GDP / GVA fell by 0.2% and 0.3% respectively in the year to Q4, meeting a stronger recession definition than the two-quarter rule (in contrast to Japanese GDP also released today).
  • Nominal as well as real GDP fell in Q4, with the GDP deflator rising at a 2.0% annualised pace between Q2 and Q4.

The suggestion of cyclical peak in Q1 2023 is supported by the LFS employment measure, which reached a high in the three-month period centred on March. (The LFS aggregate is 10% larger than the PAYE employment series, reflecting coverage of self-employment.) Aggregate hours worked also peaked then, falling 1.5% through November.

Real money measures began to contract in H2 2021. GDP stagnated from Q2 2022, consistent with the usual lag. The six-month rates of decline of real narrow and broad money reached a peak in March 2023, warning of H2 economic contraction – see chart 1.

Chart 1

Chart 1 showing UK GDP & Real Narrow / Broad Money (% 6m)

Six-month real money momentum has recovered significantly but has yet to turn positive. Slowing inflation has been a key driver, while nominal broad money is no longer contracting. Economic weakness may abate in H1 2024 but current monetary trends appear inconsistent with a meaningful recovery. Early rate cuts are urgently required to limit still-significant downside risk and head off an extended inflation undershoot.

Kingdom of Saudi Arabia, Riyadh, King Abdullah Financial District.

MENA equity markets finished the fourth quarter with returns of 5.9% (for the S&P Pan Arabian Index), rounding out a reasonably strong year with an Index return of 10.2%.

2023 marked the third consecutive year of outperformance for the S&P Pan Arabian index against Emerging Markets (the MSCI EM Index). Over that period, MENA outperformed EM by a remarkable 59.2%. Despite this, an EPFR survey cited by JP Morgan of key EM managers indicates most are staying bearish on the region (as measured by the median exposure relative to the region’s MSCI EM Index weight as of January 8, 2024).

Morgan Stanley’s MENA equity sales desk notes that ~50% of GEM funds have zero exposure to Saudi Arabia, which has a 4.1% weight in the MSCI EM Index. While foreign institutional ownership of Saudi stocks has risen dramatically over recent years (the latest weekly data from the Tadawul shows foreign institutions own 12.5% of the free-float market capitalisation), positioning remains relatively conservative.

Without speculating on the reason(s) why EM managers have taken this view, we continue to believe it demonstrates a knowledge gap from the years when markets like Saudi were all but shut to foreign investors. This presents an opportunity for specialised managers with an early mover advantage in these markets to operate and invest with an edge that is difficult to establish in other well-trodden EMs.

Since the end of the first quarter of 2023, we have become more vocal about our concern on valuation levels in Saudi. During this period, we’ve seen an increase in geopolitical risk, persistently high interest rates, and lower oil prices. None of those factors seem (for the time being) to temper local and regional investor enthusiasm for Saudi stocks, particularly mid-caps and IPOs. We believe it is prudent to avoid being overly exposed to situations where, by our estimates, investor positioning and expectations are excessively high. While we remain constructive on the quality of the Saudi-based businesses we own and the country’s structural growth story, especially in the consumer, healthcare, and education sectors, we enter 2024 with lower exposure to these stocks. The Saudi market is highly dynamic, and we expect there will be opportunities to rebuild our exposure to those stocks throughout year.

We are relatively more bullish on the UAE, focusing primarily on banks and quasi-monopoly businesses like utilities and infrastructure. Benign liquidity conditions and strong economic growth favour UAE banks with a solid deposit franchise and strong lending opportunities in 2024. We have already seen at the beginning of this year that banks are signalling confidence in their outlook by significantly upgrading their dividend payout ratios for the profits from last year. Our UAE banks portfolio is yielding over 6% on average (as of the date of this letter), an attractive level as the interest rate cycle begins to turn.

In other markets, we continue to back Morocco-based companies in the retail and technology sectors and have expanded our portfolio with a new investment in healthcare, a sector set to grow significantly from a universal health scheme that will materially improve access to much-needed medical services. We expect Morocco to perform better in 2024 as inflation pressures ease and the country continues to develop a competitive base for manufacturing and services that we believe will unlock growth this year and beyond. (In a recent Bloomberg article, Morocco, alongside Mexico, Poland, Vietnam, and Indonesia were identified as key “economic connectors” that will benefit from supply chain reshuffling.)

In Qatar and Kuwait, we remain selective, with growth remaining constrained, though we see potential in Qatar’s liquified natural gas value chain and are more optimistic about Kuwait following the appointment of a reformist royal as the new Emir in late 2023.

Egypt remains a wildcard, with an imminent devaluation likely to be the first step in a long journey towards rebuilding policy credibility with investors. That said, we remain open to increasing our ownership in our preferred Egyptian healthcare and technology businesses if opportunities arise later this year.

We wish you a prosperous 2024 and look forward to sharing updates on our strategy with you.

Palace of Culture and Science & city skyline at night, Warsaw, Poland.

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 some of the key factors influencing returns and share observations on the portfolio and the markets.


The strategy saw strong returns from the internet portfolio in the quarter. We capitalised on share price weakness in (ALE), Poland’s leading online marketplace, following a partial sell down by its private equity majority shareholders. Allegro boasts over 14.5 million active buyers in Poland and generated ~$13 billion in gross merchandise value in the last twelve months, securing a clear market lead with a ~35% share of online retail. Under new management over the last 18 months, the company has demonstrated an impressive capacity to enhance commercial terms with merchants and suppliers, increase advertising revenue contribution, and instil much-needed cost and capital allocation discipline. Furthermore, the company is growing its market share and improving engagement through a heavier focus on its SMART! program (akin to Amazon’s Prime). These efforts have driven a noticeable increase in the take rate to 11.9% as of Q3 2023 (a top-quartile take rate amongst EM e-commerce peer group) and underpinned a sustainable operating margin profile of nearly 20% in the nine-month period ending September 2023. While we acknowledge that the overhang from its private equity owners will remain for some time, we plan to take advantage of opportunities to add to our Allegro position as those sellers continue to divest their stake in the business.

Continuing with Emerging Europe, the strategy also saw strong returns from BCG Classifieds Group (BCG), the leading online classifieds group in the Baltics with a dominant position in auto, real estate, jobs and services, and generalist marketplaces in Lithuania and Estonia. BCG’s shares reacted positively to a strong set of results in the second half of 2023, with revenue and operating profits growing 20% and 36% year-over-year (y-o-y), respectively. BCG exemplifies the dominant, unassailable position of a leading classifieds business. In Lithuania, it is six times and 21 times larger than its closest competitor in auto and real estate classifieds, respectively. In Estonia, it is 29 times and 16 times larger than its closest competitor in those categories. This dominance only grows with time, as buyers and sellers find that the largest opportunity to transact (i.e., marketplace liquidity) is with the clear market leader. Management has effectively reinforced the company’s leadership position whilst making prudent capital allocation decisions, including share buybacks and reducing capital throughout the year.


The healthcare portfolio delivered strong returns in the quarter, led by Medikaloka Hermina (HEAL), the Indonesian healthcare provider. HEAL’s share price reacted positively to a strong third-quarter earnings report that showed 22% and 72% y-o-y growth in revenue and EBTIDA, respectively. The profit margin expansion at HEAL reinforced our belief in the company’s potential for profitable growth from its 47 hospitals, whilst scaling up the network to take advantage of the vast opportunity that Indonesia’s 250 million population provides. That said, we took advantage of the strong share price reaction and reduced our exposure to HEAL on account of valuations.

We also saw positive contributions from Integrated Diagnostics Holdings (IDHC) in Egypt due to insider buying, and AGP Pharma (AGP) in Pakistan owing to the country’s improving macroeconomic outlook. We acted on the positive share-price movement at both companies, reducing exposure in Egypt, and exiting Pakistan.

Additionally, we invested in a Thai healthcare provider focused on medical tourism (~70% of revenue). Thailand, ranked as the eighth most popular tourist destination globally, has developed a formidable medical tourism infrastructure over the last 20 years. The company we invested in has established a reputable brand among relatively affluent patients from the Gulf countries, Cambodia, Laos, and parts of the subcontinent.

Financial services

The strategy experienced weak performance from the financials portfolio in the quarter, affected by Indonesian microfinance and UAE banks and financial services. In Indonesia, persistent asset quality pressures continue as low-income households face considerable challenges with disposable income and their ability to make good on loans. Although we anticipated election-related spending to trickle down to this segment, it appears unlikely to significantly change the outlook for these households. There may be more clarity after the Indonesian presidential elections, expected to conclude in June 2024. Accordingly, we decided to scale back our exposure to this theme until more policy clarity emerges after the elections. In the UAE, we remain bullish about the financial services opportunity set and have been adding to our exposure there throughout the quarter.

Consumer portfolio

The strategy’s Asian consumer staples portfolio performed poorly in the quarter. Weakening consumer purchasing power is adversely affecting demand across a range of consumer categories, including health supplements in Indonesia, beer in Vietnam, paints in Thailand, and tiles and sanitary ware in the Philippines. The region’s consumers are generally cautious, and we expect this to continue until inflationary pressures subside. We have been reducing our exposure to consumer stocks in the region but remain invested in our highest-conviction consumer companies, as their valuations appear very attractive to us.


As we move into 2024, our team feels confident in the portfolio, buoyed by a powerful combination of expectations of strong earnings growth and attractive valuations. While the environment remains challenging for many economies we invest in, emerging green shoots make us more optimistic about the future. We look forward to updating you on the strategy as the year progresses.

Image of wind turbines on prairies

Connor, Clark & Lunn Infrastructure (CC&L Infrastructure) is pleased to announce that it has entered into an agreement to acquire a majority stake in the Sharp Hills wind farm (Sharp Hills, or the Project) from EDP Renewables Canada Ltd. (EDPR Canada), a subsidiary of EDP Renewables for an estimated Enterprise Value of approximately C$0.6 billion for an 80% stake and inclusive of investment tax credits. With the addition of this investment, CC&L Infrastructure will own more than 600 megawatts (MW) of wind generation assets and the Firm’s total portfolio of renewable energy projects will exceed 1.8 gigawatts (GW) of clean energy capacity across Canada, the United States, and Chile.

Located in southeastern Alberta, Sharp Hills is one of the largest onshore wind farms in Canada with approximately 300 MW of capacity, representing clean energy generation equivalent to the amount of power used by more than 160,000 Alberta homes. The newly built project recently entered into operations, with remaining construction expected to be completed by Q2 2024. The construction of this facility marked a significant investment in the province, contributing to the local economy through job creation and funding to the community. Sharp Hills is fully contracted through a 15-year power purchase agreement with a high-quality counterparty.

“The Sharp Hills wind farm is an attractive addition to our increasingly diverse portfolio of infrastructure assets. We look forward to working further with our partner, EDPR, in the safe and successful operation of this facility for years to come,” said Matt O’Brien, President of CC&L Infrastructure. “CC&L Infrastructure has a long history and significant expertise as an owner of more than 80 clean energy projects. We are excited to continue expanding our asset base and are actively pursuing further investment opportunities created by the increasing demand for renewable power and the broader energy transition that is underway.”

“We’re excited to partner again with CC&L Infrastructure, this time in Alberta,” added Sandhya Ganapathy, CEO of EDP Renewables North America. “The Sharp Hills project underscores our continuing commitment to invest in Alberta and contribute to its grid resiliency and energy security. We look forward to continued efforts focused on Canada’s energy transition.”

This is CC&L Infrastructure’s second transaction with developer EDPR, having previously acquired a 560 MW portfolio of wind and solar assets in the United States. EDPR will retain a minority equity interest in Sharp Hills and continue to operate and manage the Project. National Bank Financial Inc. advised CC&L Infrastructure as financial advisor and Torys LLP as legal counsel while CIBC Capital Markets served as the financial advisor to EDPR Canada. The transaction is subject to customary closing conditions expected to be satisfied in the coming weeks.

About Connor, Clark & Lunn Infrastructure

CC&L Infrastructure invests in middle-market infrastructure assets with attractive risk-return characteristics, long lives and the potential to generate stable cash flows. To date, CC&L Infrastructure has accumulated over $5 billion in assets under management diversified across a variety of geographies, sectors, and asset types, with over 90 underlying facilities across over 30 individual investments. CC&L Infrastructure is a part of Connor, Clark & Lunn Financial Group Ltd., a multi-boutique asset management firm whose affiliates collectively manage over CAD$118 billion in assets.

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About EDP Renewables North America

EDP Renewables (Euronext: EDPR) is a global leader in renewable energy development which has built a significant position in the energy landscape, establishing a presence in four global hubs – Europe, North America, South America, and Asia Pacific. With headquarters in Madrid and leading regional offices in Porto, Houston, São Paulo and Singapore, EDPR has a sound development portfolio of top-level assets and market-leading operating capacity in renewable energies. Its business mainly encompasses onshore wind, distributed and large-scale solar, offshore wind (through a 50/50 joint venture – Ocean Winds) and complementary technologies to renewables, such as hybridization, storage and green hydrogen. EDPR is a division of EDP (Euronext: EDP), a leader in the energy transition with a focus on decarbonization. EDP – EDPR’s main shareholder – has been listed on the Dow Jones Index for 16 consecutive years, recently being named the most sustainable electricity company on the Index.

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Kaitlin Blainey
Connor, Clark & Lunn Infrastructure
(416) 216-8047
[email protected]

Tom Weirich
Lead – Marketing & Stakeholder Relations
EDP Renewables North America (EDPR NA)
(281) 825-2771
[email protected]