According to Jordan Cvetanovski of Pella Funds, investors should consider high-quality companies from China and Europe with excellent valuations that are performing very well despite the “challenging” political and economic situation in these markets.
Over the past two to three months, Pella Funds has been scouting opportunities in China and has increased its exposure to the region by “well over 10%,” said Cvetanovski, the firm's president and chief investment officer. The company's tight focus on valuations has taken it to regions outside the U.S., such as Europe and Asia.
He told CNBC's Sri Jegarajah that the company's investments in China may require more support from the country, which is currently implementing greater fiscal stimulus to revitalize its economy. Even if such steps are not taken, the investment opportunities selected by Pella Funds will still perform well despite market volatility.
In November, China announced five-year stimulus package a total of 10 trillion yuan ($1.37 trillion) to solve local government debt problems. Beijing's administration has signaled that more economic support is coming in 2025 as it seeks to boost economic growth in the world's second-largest economy.
“Any stimulus we expect from the Chinese authorities would be extremely beneficial for these companies, given their very low valuations and low standing among global managers,” Cvetanovski said.
“We anticipate very strong gains and we think it's time to get into that position next year given all the fear around tariff wars and what comes with that,” he added.
Stock calls
Chinese companies that have favorable prices and could benefit from fiscal stimulus include robot manufacturers Midea GroupHongkong Exchange and life insurer AI Group– says Cvetanovski.
He said Pella Funds has been monitoring Hong Kong's stock markets for many years and expects to benefit “hugely” from market recovery and new issuances.
“One of the best companies in the region is AIA, a life insurer in Hong Kong, which has been realizing its investments year after year,” Cvetanovski said, adding that if the insurer was listed on the US stock exchange, it would have a valuation of 50% to 70%. more from day one.
Cvetanovski noted that Pella Funds is a big supporter of the world's largest contract chipmaker Taiwanese semiconductor production What. However, TSMC's interest is in the AI game.
European opportunities
Cvetanovski said there was also political turmoil in Europe, which resulted in the fall of governments in both cases Germany AND France leading to high uncertainty in the regional market.
However, according to Cvetanovski, investors' reluctance to invest in Europe represents a “great” opportunity for Pella funds.
The portfolio manager mentioned a French energy equipment manufacturer Schneider Electric as an example of a company that is increasing its expected growth rate and margin improvement despite the recent political instability in France.
Schneider Electric is keen to capitalize on Europe's digital transformation and developments in artificial intelligence by investing heavily in its data center business. In July, the company raised its 2024 financial targets on the back of record revenue and improved profit margins.
Pella Funds also recently took up a position with a UK engineering company Spirax Groupformerly known as Spirax-Sarco, and Swedish producer Epiroc, a company that will benefit from an increase in capital spending on mining, Cvetanovski told CNBC.
“These are companies that, starting with China, would benefit again by… providing fiscal stimulus. But beyond that, they don't necessarily need it. They're just cheap and they're rising, and we can justify what we're paying for, whereas in general we really can't justify some of the valuations in the U.S.,” Cvetanovski said.