Artificial Intelligence & Power

Artificial intelligence is getting all the attention from investors and media right now, but if it is to become the most transformative technology of the 2020s it might in part have to depend on batteries to become so.

After all, all successful revolutions need power, and just as the clean energy revolution relies on batteries (for energy storage and transportation), so will artificial intelligence, to some degree.

AI means a lot of different things to different people, but deep down it includes some sort of intelligent machine performing the most disparate functions in the most disparate fields – including medicine, hospitality, household appliances, transportation, military applications, etc etc.

In few words, AI is supposed to give brains to a lot of these machines, but it is batteries that will allow some of these to free themselves, get up or down, and move around. According to this note, this will be the “Decade of the Batteries”.

We couldn’t agree more.

That’s why at Niche AM we have not one, but three different funds which, to a greater or lesser extent, invest in the battery ecosystem.

Both our Electric Mobility and Asian funds invest in EV & battery players which are not recognised as such by the market, and are thus deemed to have significant re-rating potential.

Our Indonesian fund invests instead in a country which is already (and will increasingly become) one of the world’s most important battery hubs. Be it for the availability in Indonesia of key battery minerals nickel and cobalt, the geopolitical “neutrality” of the country in between China and the West, and the Government’s nationalistic strategy to protect and leverage on its natural resources to develop the domestic battery industry, both downstream and mid-stream.

For details see our range of Niche AM funds & NicheJungle funds

This is a marketing communication intended exclusively for institutional investors. Refer to the Fund Prospectus & KID before making any investment decision.

For any questions email us on: info@nicheam.com

Follow us on LinkedIn: www.linkedin.com/company/niche-am

Not only chips

South Korea ain’t only about chips.

When looking at this Far East market, global investors tend to focus on the Samsungs and similar high-tech exporters. Which is clearly not a bad problem to have as an economy. Yet, South Korea is much more than that, with plenty of other sectors which are equally attractive. Or one could say, equally spicy – like noodles and ramen.

Unlike equity investors, the West’s media & entertainment industry has already noticed the potential and the quality of South Korean assets and products ex-tech, and so have consumers across the world. South Korean companies are already benefitting.

For example, Nongshim, South Korea’s leading instant noodle maker, which has announced this week that it is accelerating overseas expansion as its ramen products benefit from the growing popularity of K-pop, South Korean movies (such as Oscar-winning Parasite) and South Korean culture in general, in countries such as the US, Germany and UK. See here.

As niche investors, we scout the whole globe to try and find attractive assets which are unfairly neglected by the market and which offer huge upside potential, both in terms of cash returns and/or multiple re-rating.

South Korea’s domestic-exposed companies are among the most attractive worldwide from both a valuation and business standpoint, and our NJ South Korean fund is the only vehicle which is available to investors for buying their stock. No other funds invest in these companies, many of which are likely to rally strongly once the effects from the real estate crisis wane.

Our fund includes about 125 stock holdings; trades at around 6x earnings (yes, 6x…this is not a typo) and at circa 40% discount to TBV; and it is highly diversified in terms of sectors, with Tech representing only 4% of the portfolio while the 2 biggest sectors in terms of portfolio weight (Consumer Discretionary and Industrials) weigh just 16% each.

The possible (likely?) inclusion of South Korea in the MSCI Developed Markets index could be a catalyst for a significative revaluation of the whole South Korean market.

Some kind of change in North Korea (even minor – along the lines of past reforms in China or Vietnam) provides instead a powerful free option to which today Mr Market is assigning zero probability. Such an event should disproportionally and massively benefit our portfolio, which is mostly composed of firms exposed to the domestic economy.

Spicy broth with a meaty taste and chewy noodles may not be to everyone’s taste, but South Korea should arguably be in all global investors’ menus.

See here for details on our NJ South Korean fund.

This is a marketing communication intended exclusively for institutional investors. Refer to the Fund Prospectus & KID before making any investment decision.

For any questions email us on: info@nicheam.com

Follow us on LinkedIn: www.linkedin.com/company/niche-am

Age matters

It is said that aging doesn’t matter, unless you are cheese or, one could add, an investor.

For equity investors, population aging means labour force contraction, higher inflation, lower savings, higher interest rates, higher debt and lower economic growth, which in turn imply lower profit growth, and fewer and less attractive investment opportunities.

Emerging markets, thanks to growing and relatively younger populations and labour forces, should increasingly work as a hedge for aging populations in the West (and China), and stand to benefit as demographics play a bigger role in investment decisions.

This demographic dividend should be gradually reflected in valuations of EM assets, in line with what already happens to some extent within OECD countries (see this paper by Blackrock Investment Institute ).

Among emerging markets, Indonesia should be one of the main beneficiaries of demographics, both in terms of profit growth, and in terms of asset re-valuation.

First, because it has one of the largest, youngest and fastest-growing population in the world. And then because of the sizeable increase in productivity which we expect to come from the enormous investments of the last and also the next 20 years, partly the result of the Government’s Golden Indonesia 2045 Vision agenda and increasing FDI.

At Niche AM we find a theme before it becomes one (and as such crowded and expensive). We believe that Indonesia ticks all the right boxes to become a mega theme for investors over the coming years, of which very favourable demographics is just one. See here for details on our NJ Indonesian fund.

This is a marketing communication intended exclusively for institutional investors. Refer to the Fund Prospectus& KID before making any investment decision.

For any questions email us on: info@nicheam.com

Follow us on LinkedIn: www.linkedin.com/company/niche-am

The biggest invisible object on Earth

When searching the web for “the biggest invisible object on Earth” one mostly gets a rather surprising result: Indonesia. Surprising because of the sheer size of the country (the Earth’s 15th largest), the population (the Earth’s 4th largest), and the economy (the Earth’s 16th largest). And yet, despite all that, it is a fact that also Indonesia’s equity market remains equally invisible for global investors.

But this may soon change.

Foreign direct investors are already noticing the country’s potential. Indonesia is already among the top 10 destinations for Chinese FDI, while US multinationals are catching up and have ranked as the 4th largest foreign direct investor in Q1 24, ahead of 5th ranking Japan. FDI in local currency has roughly doubled over the last 2 years.

Last month, Microsoft has announced an investment in Indonesia’s digital infrastructure, while only last week it was Elon Musk’s turn as he launched in Bali SpaceX’s satellite internet service for the country’s health sector.

Indonesia is admittedly still a niche, off-radar, equity market, but we are confident that stock investors will soon follow business investors and start buying the country’s deeply undervalued public equities. Mainly small caps, which are currently trading at less than 7x earnings (vs the almost 23x of their Indian peers!) and are likely to benefit from the Government’s ongoing and massive infrastructure investment programme. The current disconnect between stock and business investors is unlikely to last.

As deep value investors we are generally happy to buy an asset as soon as we see an attractive yield, without the need to wait for a catalyst – which often remains invisible until it’s too late. And in fact, we see that attractive return for Indonesian stocks already today. Having said that, we do anticipate at least 3 possible catalysts:

1. Satya Nadella and Elon Musk’s investments are just two high-profile examples of what could follow in terms of FDI news-flow, something which could help put Indonesia on stock investors’ radars, especially as the country benefits from industrial re-shoring out of China and from the world’s appetite for Indonesian natural resources.

2. Declining US inflation and interest rates (if they were to remain on a downward path) should also benefit Indonesia, along with its EM peers.:

3. An increasingly expensive equity market in India and the fear of a possible correction or crash could gradually or suddenly convince investors to switch into cheaper Indonesia.:

Indonesia doesn’t deserve to remain invisible, and we are confident it won’t stay so for much longer. See here for details about our unique Indonesian niche fund.

This is a marketing communication intended exclusively for institutional investors. Refer to the Fund Prospectus & KID before making any investment decision.

For any questions email us on: info@nicheam.com

Follow us on LinkedIn: www.linkedin.com/company/niche-am

Empowering Indonesia

Niche AM’s mission is to discover an investment theme before it becomes one (and therefore before it becomes expensive and overcrowded).

Niche AM believes Indonesia could become one of these “super themes” in the years to come, perhaps the emerging market darling of the next 5 years, replicating the performances of China in the 2000s and India in recent years.

The country certainly has all the potential to become such a theme, and it also has a number of possible catalysts on the horizon.

Infrastructure investment is one of these key catalysts. Not only from Government, but also from foreign investors, as Indonesia capitalises on growing political and economic stability, and as it benefits from its key geopolitical position: standing right in the middle of the geopolitical fault line between China and the West could help Indonesia attract FDI at increasing rates from both sides.

This is not wishful thinking.

Only last week Microsoft has announced an investment in Indonesia’s digital (cloud and AI) infrastructure, which -albeit not sizeable relative to the country’s GDP- is yet another sign of Indonesia’s benign FDI outlook (see here).

Microsoft’s digital infrastructure investment follows last November’s signature between Indonesia and the US Government of a new partnership to explore supply chain opportunities in the strategic semiconductor sector (see this), and builds on the company’s “Empower Indonesia” initiative, which includes plans to roll out Microsoft’s first data-center region in the country (see here).

With the highest number of micro and small enterprises per capita in the world (and a geographic and logistical dispersion which is probably also unique in the world) digitalisation should massively boost productivity across the archipelago.

According to research by Kearney, AI alone could contribute nearly US$1 trillion to Southeast Asia’s GDP by 2030, of which Indonesia is poised to capture more than US$365 billion.

See here for details on our investment case on Indonesia and our NJ Indonesian fund.

This is a marketing communication intended exclusively for institutional investors. Refer to the Fund Prospectus & KIDs before making any investment decision.

For any questions email us on: info@nicheam.com

Follow us on LinkedIn: www.linkedin.com/company/niche-am