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By Rajesh Gandhi - August 2, 2019
The global economy has begun to decelerate quite meaningfully since the beginning of the year. The lack of a resolution on the U.S.-China trade front undoubtedly has loomed over the market. And from the Eurozone and United States to Japan and China, many indicators are more downbeat than they have been in years.
Although the backdrop is challenging, the team remains focused on identifying companies exhibiting accelerating and sustainable growth characteristics. Through multiple sources, we continue to find numerous opportunities we consider attractive.
In my latest video, hear how we “connect the dots” to uncover businesses with growth drivers that may defy the gloom.
The back drop is one in which the global economy has begun to decelerate quite meaningfully.
We started the year hoping for a resolution on the China-U.S. trade front. That, combined with lowered expectations and a lower level for the market, was a great setup for 2019. Unfortunately, the events over the last few months have led to even greater uncertainty being introduced into the markets.
In the Eurozone, we have started to see business sentiment weaken, which is leading to a slowdown in capital spending trends. This has been clearly evidenced, for example, in the first quarter as many European capital goods companies have reported decelerating order trends.
Consumer confidence in the Eurozone has also begun to weaken, and this is leading potentially to a slowdown in consumption. In the UK, Brexit continues to create uncertainty, which recently has led to the resignation of the prime minister—adding political uncertainty to the equation. Brexit—and the outcome of Brexit—is still very uncertain. That has led to a weakening of the Pound, a rise in inflation and a continued slowdown in the economy as a result.
In the U.S.—in the manufacturing sector, specifically—we’ve seen a buildup of inventory. That buildup in inventory, combined with a slowdown in market demand, is resulting in lower production levels. More recently, retailers have begun to report a slowdown in same-store sales trends, which is leading us to believe that U.S. consumption may be beginning to slow as well.
In Japan, which is a market and an economy that is very geared into export and exporters, for example, we’ve seen many factory automation companies report weakening order intake—particularly those that are exposed to China.
In China, starting over a year ago, the effect of the U.S.-China trade war had a very dramatic impact on the economy. Earlier this year, we began to see signs of stabilization in that economy. However, more recent data suggests that the economy has continued to weaken. For example, in the last several months we’ve seen auto sales trend down double digits on a year-on-year basis.
But despite the gloomy backdrop, our approach to identify businesses that exhibit accelerating and sustainable growth characteristics has allowed our team to identify an abundant number of opportunities.
We identify ideas through multiple different sources. So, for example, we’re very fortunate here in New York to get a lot of managements in our office. Meeting companies one-on-one, speaking to the CEO and CFO, trying to understand: What are the underlying drivers to their business? What are the risks that they see in their markets, for example? That’s the kind of information that we take back and combine with other fundamental data that we observe—either through our research work or through our teaming meetings, the broader office team-wide meeting—we begin to connect the dots to help us identify a business that is at the cusp of that inflection point.
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Sr. Portfolio Manager Rajesh Gandhi explains how his team finds ways to “connect the dots” to find growth businesses despite looming trade wars.
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