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By Patricia Ribeiro - October 2019
Trade war or no trade war, we continue to find good opportunities in China. How? My team looks for companies showing solid growth and earnings acceleration—and there are plenty of them.
Despite current headlines and economic concerns, consumer demand in China is still very strong. The economy is still growing. It may not be at the same rate we’ve seen in the past, but we’re finding companies with the growth prospects we seek in many areas of the country and sectors of the economy, including real estate, infrastructure and education.
This isn’t to say that the trade war is irrelevant; there will always be challenges in emerging markets. But even with trade and geopolitical conflicts, we’re confident we can identify resilient companies that can do well regardless of the environment.
Watch my latest quarterly update for an inside look into where we’re finding these opportunities.
The reason we continue to find good names in China is because we are really looking from the bottom up. We are looking at companies that are actually showing growth, showing earnings acceleration—and there are plenty of them.
The fact that there is a trade war between the U.S. and China doesn’t mean there are no companies actually doing well in that environment. The consumer in China is still very strong. They continue to show growth, and we have to find where that growth is.
China’s relevant to us. It’s the largest holding that we have in the portfolio. We are overweight China—have been since earlier this year. So, It’s very important to us. The trade war—the rhetoric continues. It’s still not decided what is happening. The news changes every two weeks or so. Are we going to get into some kind of an agreement between the U.S. and China, or not? And what does that mean? What will that translate into?
So, we don’t know. For us— investing in China—what we do is we continue to just look for where we find our best ideas. And by that, we mean companies that are showing an inflection point and earnings acceleration. And that continues to be the case in China. We have plenty of names to own in China if we wanted to even have a bigger position than we have currently.
There are other areas as well. Real estate is an area we continue to see opportunities there, some names there that are doing well. We see even opportunities in cement companies, sort of driven by all this infrastructure and real estate as well. So, there are areas in China—education continues to be another name where we have exposure in the portfolio, in different names there in the education sector.
The economy continues to grow. It might not be the kind of growth that we expected to see or that we have seen in the past. But there are companies that are benefiting from what the growth is today in China. And that’s what we’re doing; we’re looking for those companies. And there is a good amount of opportunities there actually.
There are always going to be challenges in emerging markets. It could be challenges from a very specific country, individual country, within emerging markets. It could be trade wars that we’ve seen more recently—or anything else. There are a lot of different geopolitical issues, for example—there could be 24 countries with significant exposure there. But what we really think is important in emerging markets is to really focus on the bottom up. Really look for companies that can do well regardless of the environment, or despite of the environment that they are in. I think in emerging markets the companies are very resilient.
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International investing involves special risks, such as political instability and currency fluctuations. Investing in emerging markets may accentuate these risks.
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