Money For the Rest of Us — Episode 522: Investing in Emerging Markets with Ali Akay

Host: J. David Stein
Guest: Ali Akay (Founder & CIO, Carrhae Capital)
Interviewer: Greg Dowling (Chief Investment Officer, FEG Advisors)
Date: April 30, 2025

Overview of the Episode

In this episode, J. David Stein explores the opportunities, challenges, and nuances of investing in emerging markets with Ali Akay, Founder and CIO of Carrhae Capital, a London-based asset manager specializing in emerging market equities. Interviewed by Greg Dowling, the discussion spans macroeconomic risks, country-specific insights, portfolio construction, and the intricate dance between global politics and local market realities. The discussion also includes memorable analogies rooted in history, a global tour through multiple emerging markets, and practical advice for risk management.

Key Discussion Points and Insights

1. Backgrounds of the Guest and His Firm

• Ali Akay’s Experience: Over 24 years in emerging markets, previously consulted for Turkey’s central bank post-crisis, worked at McKinsey, Goldman Sachs, SAC Capital, HBK. (03:04)
• Carrhae Capital: Founded 2011, $2.5B AUM, global presence, staff across India, China, Brazil; Dubai and London offices. (02:27)

2. Why Invest in Emerging Markets Now?

• Diversification: Vital due to overconcentration in US equities globally and in domestic portfolios. Everyone is “long US stocks”–from retail in Korea to oligarchs in Dubai. (08:35)

• Relative Valuations: Many EM companies would see their valuations jump if US-listed. US stocks, not just tech, command higher premiums. (10:44)

  "Owning an asset like EM, sometimes inversely correlated to US asset prices, is probably not a bad thing." — Ali Akay (09:45)

• Alpha Potential: Active management adds the most value in EM compared to developed markets. (10:25)

3. Challenges in Emerging Market Investing

• Country, Industry, Bottom-Up Risks: Stock dispersion in EMs is split across country, industry, and company-specific factors. Macro and politics are integral. (05:32)

  "Only the paranoid survive. At the end, it's gonna be us and the cockroaches who live through." — Ali Akay (05:32)

• Currency Fluctuations: Tariffs and geopolitics often get offset by currency moves. Akay’s approach: a mix of exporters/importers, exposure to managed currencies (e.g., in the Middle East), and companies positioned for strong/weak local currencies. (12:52)

4. Geopolitics, Tariffs, and the US Dollar

• Tariffs as a Currency Shock: Tariffs rarely sink EMs; instead, currencies adjust as shock absorbers. (11:51)
• Strong US Dollar: EM investors mitigate by balancing exposure, focusing on companies less vulnerable to currency swings. (12:52)

5. Country Spotlights: On-the-Ground Perspectives

• Greece: A unique, uncorrelated play with recovery post-crisis, focus on financials. (16:12)

• Turkey: “Wild market” with lots of retail participation, high alpha opportunities, now easing short-selling constraints. (17:16)

• Peru: Despite chronic political turbulence, the system adapts, and certain companies (Credit Corp) remain enduring investments. (18:07)

• South Korea: Strong investor culture, slow governance reforms, challenges with demographics, unique opportunities in stocks like SK Hynix. (19:27, 21:03)

• Mexico: Proactive engagement with the US on trade; complex dynamics with recent and potential new tariffs. US/Mexico trade is deeply intertwined. (22:00)

  "It makes absolutely no sense to punish Mexico and Canada and punish US corporate America... The same auto part goes back and forth 15 times and you're going to tariff it each time?" — Ali Akay (24:23)

• South Africa & Argentina: Often best returns found in the transition from “terrible” to “just bad” governance. Argentina’s “free markets on steroids” working for now; South Africa showing opportunity in minor improvement. (27:18–27:55)

• Ukraine: Reconstruction could bring significant investment opportunities, e.g., GDP warrants. (27:55)

6. China: Investability and Future Prospects

• Investigrant Basis: US and foreign investors have pulled back, but China has high domestic savings yet low equity participation. Internal rallies can occur without foreign capital. (13:39)

• Caution Recommended: Avoid long lock-ups in PE/VC, but maintain agility if/when opportunity arises. (13:39)

  "My experience in China—they flip on a dime about everything... They can rally their own market." — Ali Akay (13:55)

7. Gold and Gold Miners

• Why Gold Now?: Multi-faceted thesis — rising fiscal spend, inflation, de-dollarization, and global geopolitical risks increase demand. Gold miners are cheap relative to spot gold. (24:40)
• Global Gold Demand: Now includes Chinese and Japanese retail, Saudis, traditional EM demand. (26:10)

8. Risk Management Philosophy

• System and Stomach: Quantitative systems and deep team experience, but Akay’s "asset reflux" (gut intuition) is key:

  "My stomach gives me the best signal... When your stomach hurts, you know there's a problem coming." — Ali Akay (29:22)

• Liquidity: Portfolio focused on liquidity, minimal micro-cap/frontier risk, tight position sizing, and tail hedging. (29:25)
• Diversification: Seeks uncorrelated positions across regions and sectors. (30:39, 30:50)

Memorable Moments & Notable Quotes

• On Learning from History:

  "When we go to emerging markets, we need to go with local advice and a degree of humility." — Ali Akay, describing the Roman defeat at Carrhae as a parable for EM investing. (03:04)

• On EM Investing Mindset:

  "Only the paranoid survive. At the end, it's gonna be us and the cockroaches who live through." (05:32)

• On Portfolio Construction:

  "You could have a great bottom-up idea and it could be slaughtered on the currency, interest rates, or regulation." (05:32)

• On Globalization & Correlation:

  "Everything you own... especially as a US resident... is correlated to the fate of seven stocks." (09:45)

• On Risk Signals:

  "My stomach gives me the best signal... When your stomach hurts, you know there's a problem coming." (29:22)

• On Turkish Barbershops:

  "They also burn your… the air... They put fire into your ears. It's an experience." — Light-hearted personal anecdote. (32:33–32:39)

Timestamps for Important Segments

| Time | Segment/Topic | |------|---------------| | 02:21 | Introduction to Ali Akay and Carrhae Capital | | 03:04 | Carrhae name origin; lessons from Roman history | | 04:07 | Akay's central bank/McKinsey background; macro focus | | 05:32 | Investing framework: aligning country, industry, company | | 08:35 | Why invest in EM vs. US; valuation and diversification | | 10:44 | Valuations: not just about tech, US equity premiums | | 11:51 | Tariffs/currencies: shock absorbers, not EM deal-breakers | | 12:52 | Currency risk management; dollar strength | | 13:39 | Is China investable? Domestic vs. foreign flows | | 16:12 | Country spotlight: Greece | | 17:16 | Turkey: alpha from retail, volatility, regulatory changes | | 18:07 | Peru: stability through chaos, Credit Corp | | 19:27 | South Korea: political drama, governance reforms | | 22:00 | Mexico: US relations, trade, tariffs | | 24:40 | Gold & gold miners thesis | | 27:18 | South Africa & Argentina: opportunity in crisis | | 27:55 | Ukraine: future opportunity, GDP warrants | | 28:57 | Risk management approach: system and intuition | | 30:50 | Diversification via uncorrelated stocks, managing contagion | | 31:29 | Global fluency: languages spoken by Akay/team | | 31:55 | Favorite EM countries to visit; cultural anecdotes | | 32:54 | Favorite history books and authors | | 34:03 | Favorite EM cuisines |

Other Noteworthy Details

• Cultural Insight: Akay emphasizes the importance of local knowledge, humility, and adaptation—not rushing into “uncharted territory” without listening.
• Cultural/Lifestyle: Favorite EM countries to visit (varies by season), loves going to local barbershops for ground-level insight.
• Reading Suggestions: Favors broad, critical history (e.g., Byzantium); wary of ideologues like Niall Ferguson; recommends Run’s works.
• Cuisine: Loves mezze platters, Turkish breakfast—a nod to the richness of EM cultural experience.

Closing Thoughts

Ali Akay’s approach epitomizes humility, deep research, and dynamic risk management in a complex and volatile asset class. While emerging markets carry higher risks—currency volatility, shifting politics, and sudden shocks—he argues compellingly for their value as both a portfolio diversifier and an alpha source, provided investors carefully align their analysis across the macro, sector, and stock-specific levels.

"When we go to emerging markets, we need to go with local advice and a degree of humility." (03:04)

Listeners are left with practical insights, historical context, and a sense of the human and cultural nuances that underpin modern investing well beyond the numbers.