A Deep Dive into Emerging Markets Value Investing with Christine Phillpotts

From Concert Pianist to Emerging Markets Guru

Christine Phillpotts' journey into finance was anything but planned. Initially aspiring to be a concert pianist, she realized the extreme competitiveness of the field and, through a scholarship program with Chase Bank, serendipitously discovered her passion for investment management.

This early exposure to finance, combined with a psychology minor focused on cognitive biases, laid the groundwork for her future career navigating the complexities of emerging markets.

Navigating the 2008 Financial Crisis at Morgan Stanley

Phillpotts' time at Morgan Stanley during the summer of 2008 provided a front-row seat to the unfolding financial crisis. Working on the convertible debt desk, one of the last markets to remain open, she witnessed market turmoil firsthand, gaining invaluable experience in a period of unprecedented volatility.

Impact Investing and the Allure of Emerging Markets

Following her MBA, Phillpotts joined the Grassroots Business Fund, focusing on impact investing in emerging markets. This role took her across Sub-Saharan Africa, Latin America, and Asia, providing on-the-ground insights into the unique dynamics of smaller businesses in these regions.

This experience solidified her interest in emerging markets, driven by a desire to explore less efficient markets and a personal connection to economic development, stemming from her Haitian heritage.

The Art of Emerging Market Investing

Phillpotts emphasizes the importance of a bottom-up approach to stock selection, while acknowledging the significance of the "neighborhood," meaning the country-specific risks and opportunities. This includes considering the political landscape and aligning investments with government priorities to mitigate regulatory risks.

Her extensive travel to countries like China underscores the importance of "boots-on-the-ground" research to understand nuances beyond the headlines.

Unveiling Opportunities in China

Despite perceived risks, Phillpotts views China as a significant opportunity, currently representing a substantial portion of her portfolio. She highlights the attractive valuations of companies with double-digit earnings growth potential and improving capital allocation. She also emphasizes the importance of focusing on the directionality of economic indicators, rather than absolute levels.

The Ariel Investments Philosophy: Slow and Steady Wins the Race

Phillpotts' transition to Ariel Investments marks an exciting new chapter. She appreciates the firm's long-term focus, disciplined value investing approach, and the opportunity to be an intrapreneur, launching Ariel's dedicated emerging markets strategy.

The firm's high employee ownership fosters strong alignment of interests and a commitment to client success.

"It's clear we've always been an extremely hardworking, diligent, motivated team. But it got kicked up a thousand notches when joining Ariel," explains Phillpotts.

Looking Ahead: Emerging Markets Still Offer Compelling Value

Phillpotts believes now is the wrong time to give up on emerging markets. Despite a long period of underperformance compared to US equities, she sees compelling valuations, accelerating earnings growth, and the potential for US dollar weakness as catalysts for future outperformance.

Advice for Aspiring Investors

Phillpotts encourages aspiring investors to embrace a growth mindset, be comfortable with being wrong, and say "yes" to new opportunities. She stresses the importance of creativity and a detective-like approach to gathering information, especially in emerging markets.

The key takeaway? Be adaptable, embrace challenges, and constantly strive to piece together the intricate puzzle of the global markets.