Read our latest in the series — South Africa

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By visiting both locally listed companies and the overseas subsidiaries of major multinationals, Lazard Asset Management's analysts and portfolio manager/analysts believe they are able to obtain a broader understanding of each region’s growing significance to multinational corporations. They are also able to assess how companies are faring within the framework of developing economies.

The Traveling Analyst series was designed to highlight our investment professionals' visits to companies in a variety of markets. Below are five installments that share our analysts' insights on:

• South Africa, focusing on the country's infrastructure, its mining and banking sectors, and its capital structure;
• Turkey, as its large conglomerates seek to expand beyond their local market and capitalize on the country’s proximity to Europe, the CIS/Baltic region, and the Middle East;
• India, for a second time, focusing on new developments in the pharmaceutical and health care industries and looking at how generics companies have fared under revised laws on intellectual property rights;
• Korea, as its large conglomerates compete with major multinationals and its companies must address the difficult process of reform;
• Eastern Europe, as the banking industry of the Czech Republic, Hungary, and Poland undergo modernization

A Global Research Focus

At Lazard Asset Management, we believe a global perspective requires local expertise. Our fundamental research capabilities, including our analysts’ skill at continuously assessing each company’s value in the context of its ability to generate consistent returns, over time, is a key differentiator of our research process.

The latest in The Traveling Analyst series, The “Capital” of Sub-Saharan Africa, reveals the insights gained from trips to South Africa by members of Lazard Asset Management’s Global Research Platform and its emerging markets equity team. The objective of their trips was to gain understanding of the country’s major economic investments and positive and negative factors, as well as analyze the risks and rewards of South Africa’s capital composition.

In particular, the analysts were interested in South Africa’s infrastructure considering two main drivers: The amount of work that needs to be completed before 2010, when the country is slated to host the FIFA World CupTM, and the impact of the inadequate infrastructure on the country’s valuable mining sector, which continues to be hurt by rolling blackouts. It appears that South Africa’s infrastructure difficulties present a tradeoff between construction companies reaping the benefits of such increased investments and infrastructure constraints impairing vital industries.

Analysts also examined South Africa’s current capital structure and the effects that the recent commodity boom is having on the mining sector. Analysts noted that the current account deficit is largely backed by foreign portfolio investment instead of foreign direct investment, exposing the country to the risk of a potential rapid outflow of capital during an economic downturn. On the other hand, rising commodities prices, especially for platinum, help to moderate some of the risk created by the country’s capital structure.

The analysts also indicated that the South African banking sector presents opportunities to find value, despite the economic turmoil, and see positive impact of the Black Economic Empowerment policy, if implemented correctly.

A Passage to Istanbul focuses on several trips to Turkey’s storied city of Istanbul and its environs by analysts from Lazard Asset Management’s Global Research Platform and its emerging markets equity team. The purpose of these visits was to deepen and broaden the analysts’ knowledge of a number of Turkish companies, the industries in which they operate, and their relationships with European and global markets. The analysts met with several subsidiaries of multinational companies operating in Turkey; they visited companies that are partnerships between global and local companies; and some spent time with local Turkish companies in search of potential investment ideas.

The analysts were especially interested in meeting with some of Turkey’s large, family-owned conglomerates, which dominate the country’s economy. These conglomerates own interests in a wide range of businesses, many of which are separately registered on Turkey’s stock exchange. Many conglomerates are involved in joint ventures and partnerships with developed-market corporations, which has helped them gain domestic market share in many areas and may position them for growth outside of Turkey. But size is not always an advantage and can limit their attractiveness as an investment, if the conglomerates’ focus is on growth to the exclusion of profitability.

One cannot visit Turkey and its businesses without wondering, will Turkey become part of the EU? Turkey’s government is been a strong supporter of the EU convergence process, but, there has been strong opposition from the governments of some EU countries. And, the support of Turkey’s people has waned, given the time length of time required for modernization.

The Traveling Analyst, Passage to India—Part 2, concentrates on a recent return trip to India, by analysts from Lazard Asset Management’s Global Research Platform and its emerging markets equity team. These analysts returned to India to follow up on their previous insights into its pharmaceutical industry (chronicled in the first issue of The Traveling Analyst). They were particularly interested in learning how India’s life sciences and health care industry had fared since the inception of India’s most recent laws on intellectual property rights.

The analysts also explored some recent developments in the offshoring of medicinal chemistry and human clinical trials and in the rise of for-profit, publicly traded hospital groups. They found that the generics industry had run into unforeseen complications and had caused some unintended consequences in generic drug pricing worldwide.

And, looking back at Indian pharmaceutical industry’s expectations during prior trips, the analysts also examined why India’s R&D has not progressed as expected. Read this latest in the series to learn about our analysts’ most recent picture of India’s life sciences and health care industry.

Click here to view the inaugural issue of the Traveling Analyst - India.

This installment in The Traveling Analyst series focuses on several research trips to Korea, where members of Lazard Asset Management's Seoul-based team (who manage the firm's Korea-based products) accompanied visiting investment colleagues on in-depth visits to Korea's major companies, including many of its chaebols. Lazard Asset Management's research analysts and portfolio manager/analysts wanted to understand these companies' strategies for success, and sought answers to such questions as: Will corporate governance issues or an over-reliance on exports hinder some companies? How does competition with Korea's conglomerates affect developed-market multinational corporations?

Analysts also met with subsidiaries of several major multinational consumer good companies, interested how they plan to remain competitive and deliver the degree of "Korean-ness" that seems a requirement for success. In addition, our investment professionals were interested in how Korean companies plan to move toward a more knowledge- and service-oriented economy.

This installment of The Traveling Analyst focuses on a research trip to Eastern Europe, during which Lazard analysts explored the changes in the banking industry in the Czech Republic, Hungary, and Poland. Their objective was to better understand the state of the banking sector among these three new European Union member-states, especially as Western banks have made significant acquisitions in these countries.

How is the banking industry in these three countries changing? What are the implications of foreign ownership of local banks? In what ways are local consumers driving demand? We examine these questions, and more, as we detail our analysts' insight into the pace of modernization in these rapidly growing Eastern European countries. Read this edition to learn more about these companies: Kredit Bank, Erste Bank.