Beer, Banks and Commodities – Axel Krohne invests where real value is most affordable

Axel Krohne: Definitely. Even in the booming Western markets, there are more undervalued stocks than you might expect. But that’s nothing compared to the opportunities in emerging markets. In these regions, many countries have been overlooked for years or have practically fallen off the radar.

Aren't there also valid reasons for investors to be cautious about emerging markets?

That’s certainly true in some cases, but it often also depends on the dominant narratives. Ten or fifteen years ago, investors couldn’t get enough of stocks from frontier markets. They were convinced that early positioning in countries like Vietnam, Nigeria, or Kazakhstan was essential. At one point, Africa was even touted as the last big growth story.

That sentiment has largely reversed now, hasn’t it?

In a way, yes. But not much has changed in the countries themselves. Governments come and go, and there’s the occasional crisis, but the fundamental growth drivers in these countries – demographics and the growing middle class – remain intact overall. Companies with strong market positions there continue to grow, generate solid profits, and, in some cases, pay out exceptionally high dividends.

Do investors have to accept higher risks for this?

It depends on your perspective. We’ve invested in Guinness Ghana, the largest brewery in Ghana, and in Ginebra San Miguel, the leading gin and spirits company in the Philippines. The fund also holds shares in Unilever Nigeria, one of Africa’s largest consumer goods companies, and in Uni-Charm Indonesia, the largest diaper manufacturer in the world’s fourth most populous country. From a purely fundamental standpoint, there’s little to criticise about these companies. If problems do arise, they’re usually related to macroeconomic factors or simply market sentiment.

Mr Krohne, is it true that you’re a fan of the commodities sector as well as financial stocks – even when it comes to African banks?

The commodities sector has been chronically underfunded for a long time, which means a serious supply deficit is looming, especially for copper. But even with fossil fuels like oil and coal, the demand for the coming decades is currently being vastly underestimated. As for the African financial sector, Europe has completely the wrong impression. African banks operate with consistently conservative banking practices, making them both stable and successful. This is something that international investors are barely recognizing at the moment.

Is this an information gap that you’re taking advantage of with the AvH Emerging Markets Fund?

I can only say that with such stocks, we find exactly what we are looking for as value investors: substance and dividend yields. Financial stocks from emerging markets are therefore an important pillar in the fund’s portfolio, alongside consumer goods and commodities. So, our key pillars are "beer, banks, and commodities," and I feel very comfortable with that approach.