The Acquirers Podcast
Juan Torres on emerging market value investing, China, Indonesia and Taiwan | S08 E06
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Summary
This episode of Value After Hours features Tobias Carlisle and Jake Taylor in conversation with Juan Torres, co-Portfolio Manager of Emerging Market Equities at Neuberger Berman. The discussion covers the current state of emerging market (EM) valuations, investment philosophy, and country-specific opportunities and risks. Juan shares that while EM as a whole has re-rated from very cheap to roughly fair value after a ~35% benchmark return in 2025, the cheapest quintile (CAPE ~9-9.5x) remains highly attractive and rich with opportunity across countries like China, Indonesia, Brazil, and Colombia. He contrasts this with expensive markets like Taiwan (CAPE ~32x, driven heavily by TSMC at 65x CAPE) and India (~35-36x). The conversation explores Juan's value-first, macro-aware (but not macro-led) investment process at Neuberger Berman, which screens for the cheapest quintile of EM stocks and uses a country/sector heat map to identify mispriced assets. He discusses the nuances of investing in state-owned enterprises, accounting quality, currency risk management, and the behavioral/cognitive challenges of value investing in a decade-long growth-dominated market. Jake Taylor's 'veggies' segment draws a compelling behavioral psychology parallel — using Dickinson's rat experiments on habitual vs. goal-directed behavior — to explain why 'buy the dip' has become a dangerous reflex for a generation of investors conditioned by post-GFC monetary policy. The episode concludes with discussion on why EM has begun attracting more attention, the cognitive dissonance of investors who call China uninvestable while being heavily overweight Taiwan, and the structural characteristics (concentration in banks, telcos, and materials) that define most EM country indexes.
Key Takeaways
EM as a whole is now roughly fairly valued in absolute terms after a ~35% benchmark return in 2025, but the cheapest quintile (CAPE ~9-9.5x) remains very attractive and is the right place to focus research.
highTaiwan is now approaching India-level expensive (CAPE ~32x vs India ~35-36x), driven heavily by TSMC at 65x CAPE — a red flag for value investors even if the business quality is undisputed.
highThe best time to buy EM broadly is during a crisis NOT originating in EM (e.g., GFC, COVID) — panic selling creates mispricings across good and bad companies alike. Crises originating within EM take much longer to recover from.
highThe cognitive dissonance of labeling China 'uninvestable' (partly due to Taiwan invasion risk) while simultaneously holding ~10% weights in TSMC is a major and exploitable market inefficiency.
highBeing 'macro aware, not macro led' is Juan's framework: country-level macro creates opportunity (via mispricings) but should not drive stock selection, since correctly predicting macro across 25 countries simultaneously is nearly impossible.
mediumCurrency hedging over a 5-year holding horizon is prohibitively expensive; instead, buying during periods of panic (when currency weakness is already priced in) serves as a natural hedge.
mediumJake Taylor's behavioral insight: 'buy the dip' has shifted from a thesis to a trained habit (habitual vs. goal-directed behavior). A sustained bear market — like 2000-2003 — is likely required to break this conditioning in a new generation of investors.
mediumNotable Quotes
“When people say China's uninvestable, and then you ask them, why is it uninvestable? And then they will list the macro, the autocratic government, and the real estate. And in that list is the possibility that China might move against Taiwan. And then you ask them, okay, so how much are you investing in Taiwan? And they are like 20%, 30% in TSMC.”
— Juan Torres
Highlighting the glaring logical inconsistency in how many institutional investors simultaneously avoid China on geopolitical grounds while being heavily concentrated in Taiwan — the primary flashpoint of that same geopolitical risk.
“We are macro aware, we're not macro led.”
— Juan Torres
Summarizing the core philosophy of his investment process — understanding the macro environment without letting it dictate stock selection decisions.
“Don't confuse a trained response with an evaluated decision. Next time you want to smash the BTFD button, run a quick audit: what specific evidence would confirm today's drawdown converts to tomorrow's rebound? What would falsify it? If you can't articulate those in advance, you're likely executing a habit rather than thinking through a thesis.”
— Jake Taylor
The practical takeaway from his behavioral psychology segment on habitual vs. goal-directed dip-buying.
“When Joel Greenblatt was talking about bankruptcies, he said, 'Approach them with an open mind, not a hole in your head.' I think that applies to emerging markets all the time.”
— Juan Torres
Warning against uncritical enthusiasm for EM simply because of favorable demographics and growth narratives, without adequately pricing in the genuine risks.
“Jack Ma in Alibaba was not an SOE. And when he pronounced the most expensive words in finance, in the history of finance, he took down Alibaba and the entire tech sector with him. And none of those companies were SOEs.”
— Juan Torres
Rebutting the simplistic narrative that SOEs are inherently riskier than private companies in EM, using the Alibaba regulatory crackdown as a counter-example.
“The over-trained rats — those that had pressed hundreds of times for this magic button — they often did not reduce pressing even though they would refuse the pellet when it was handed to them outside of the box. Same knowledge, but very different control system.”
— Jake Taylor
The crux of his behavioral analogy explaining why investors can intellectually know that 'dip buying' conditions have changed but still execute the behavior reflexively.
Predictions
A 2000-2003-style sustained market drawdown is likely required to break the 'buy the dip' conditioning of the current generation of investors — with repeated failed rebounds before capitulation.
— Jake Taylor · Confidence: medium · Unspecified; framed as an eventual regime outcome
EM value stocks (cheapest quintile) will continue to offer attractive risk-adjusted returns given CAPE of ~9-9.5x, with Indonesia, Brazil, Colombia, and China as key opportunity areas.
— Juan Torres · Confidence: medium · 5-year investment horizon
Taiwan's valuation premium (CAPE ~32x, TSMC at 65x) is unsustainable and represents meaningful downside risk, particularly given concentration — TSMC has grown from 4.5% to 13% of the EM benchmark.
— Juan Torres · Confidence: medium · Unspecified
The shift from market-cap-weighted to equal-weight S&P outperformance (underway since mid-October) could be a sustained rotation that lifts value, small caps, cyclicals, and EM broadly.
— Tobias Carlisle · Confidence: low · Ongoing; began mid-October prior year
Action Items
Audit your 'buy the dip' reflex before acting: write down what specific evidence would confirm the thesis and what would falsify it. If you can't articulate this, you may be acting on habit rather than analysis.
Jake Taylor's behavioral framework — habitual dip-buying was rewarded for 15 years of monetary accommodation but may no longer be valid in a higher-rate regime.
Check your portfolio for the China/Taiwan logical inconsistency: if you are avoiding China on geopolitical grounds, audit your Taiwan and TSMC exposure — the geopolitical risk is the same.
Juan Torres noted that 93% of long-only funds own TSMC with an average ~10% weight, while simultaneously citing China-Taiwan tensions as a reason to avoid China.
Screen for opportunities in EM's cheapest quintile (CAPE ~9-9.5x) with a focus on countries under temporary stress: currently Indonesia (MSCI downgrade threat), Brazil, Colombia, and China.
Juan's core process — country-level panic creates indiscriminate selling of both good and bad companies, offering entry points for patient, valuation-disciplined investors.
When analyzing EM companies, build 10-year financial models and check for auditor changes — a simple but powerful red flag for accounting irregularities.
Juan's quality control process for assessing accounting reliability in markets with variable disclosure standards.
Monitor the market-cap S&P 500 vs. equal-weight S&P 500 ratio as a macro signal. Sustained equal-weight outperformance historically benefits value, small caps, cyclicals, and EM simultaneously.
Tobias Carlisle's thesis that this ratio is the key leading indicator for a broad rotation away from mega-cap US growth dominance.
When considering EM investing, read Dan Rasmussen's (Verdad) paper on investing during crises in emerging markets — his research quantifies the return advantage of buying EM during non-EM-originated crises.
Juan cited this research as a compelling, data-backed framework for timing broad EM allocation.