Emerging markets are a place where the dreams of enormous returns are only slightly overshadowed by the spectre of geopolitical drama. As Naspers and Prosus reel from the latest US defence department’s designation of Tencent as a military company, one might wonder: is investing in places such as China really worth it?
The answer is a resounding yes.
Granted, the market reaction to the US move was swift and severe, wiping more than R300bn off the combined market cap of the two companies. And to be sure, investors are grappling with the potential consequences of Tencent’s designation and the broader geopolitical landscape, which poses challenges for these companies’ stability and future profitability.
It’s also easy to sympathise with the critics of this high-risk, high-reward strategy, given that Naspers’ exposure to geopolitical hotspots is not new. Its investments in Mail.ru and VKontakte have already faced scrutiny due to the Russia-Ukraine conflict. The situation led to a writedown of VKontacke’s value to zero, reflecting the inherent risks of operating in regions with significant political tensions.
All that is exhibit A that emerging markets are as stable as a house of cards in a tropical cyclone. Naspers’ challenge? To waltz through this tempest without tripping over regulatory hurdles, currency fluctuations and geopolitical earthquakes. Latin America, SA — which has entered choppy waters of coalition governance on a national level for the first time — and India beckon with promise but they also whisper cautionary tales. The rhythm changes from one market to another — with varying regulations, consumer behaviours and economic conditions. And Naspers must harmonise with the nuances of each market to achieve a cohesive performance.
Still, the long-term benefits of investing in emerging markets such as China far outweigh the costs. The potential for high growth and diversification these markets offer is unparalleled, despite geopolitical tension and market volatility. Naspers, under a relatively new CEO, Fabricio Bloisi, has tapped into this untamed wilderness of emerging-market internet users. As vast populations come online for the first time, their appetite for digital services knows no bounds. With a substantial global footprint in emerging markets, determination and deep pockets, Naspers is uniquely positioned with services that align precisely with the needs of these burgeoning markets.
Few companies illustrate this point better than Naspers itself. It has been more than two decades since chair Koos Bekker scooped up one-third of a then little-known Chinese start-up for about $36m, whose extraordinary ascent since then has been nothing short of a windfall. It has also cast a long shadow over Naspers’ identity and growth narrative, or what chair Bekker describes as “the problem of prosperity”.
While the market reaction was brutal, let’s not lose sight of the bigger picture. Investing is a marathon, not a sprint. Yes, there will be bumps along the way, and savvy investors know that market volatility is a fact of life and riding out the storm leads to sunnier skies.
The potential for high rewards is often found in places of high uncertainty. The designation, while alarming, does not erase Tencent’s phenomenal growth or immense future potential. It’s a hiccup, not a heart attack.
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