Investing in Uncertain Times: Finding Opportunities in China and Europe
As global markets navigate turbulent waters, savvy investors are seeking out quality firms in China and Europe that offer superior valuations despite the challenging political and economic landscapes. Pella Funds’ Jordan Cvetanovski believes that these regions present attractive opportunities for investors willing to look beyond the U.S.
A Shift in Focus
In recent months, Pella Funds has increased its exposure to China by over 10%, driven by a strict focus on valuations. This strategy has led the firm to explore regions beyond the U.S., including Europe and Asia. Cvetanovski expects that China’s introduction of fiscal stimulus will provide a significant boost to the economy, benefiting companies that have executed well despite market volatility.
Chinese Firms with Strong Potential
Among the Chinese firms that Cvetanovski favors are robot maker Midea Group, Hong Kong Exchanges, and life insurer AIA Group. He believes that these companies are undervalued and poised to benefit from fiscal stimulus. Hong Kong Exchanges, in particular, is expected to thrive from a boost to markets and new issuances. AIA Group, with its consistent execution, would likely command a significantly higher valuation if listed in the U.S.
Taiwan Semiconductor Manufacturing Co.: An AI Play
Pella Funds has been a long-time proponent of Taiwan Semiconductor Manufacturing Co., but not solely for its chipmaking prowess. Cvetanovski views TSMC as an artificial-intelligence play, highlighting the company’s potential for growth in this emerging field.
Europe: A Region of Opportunity
Despite political turmoil in Europe, Cvetanovski sees a “great” opportunity for Pella Funds. French power-equipment maker Schneider Electric, for instance, is increasing its expected growth rates and margin improvements despite the recent political instability in France. The firm’s focus on Europe’s digital transition and artificial intelligence has positioned it for success. Other European companies, such as U.K. engineering firm Spirax Group and Swedish manufacturer Epiroc, offer attractive valuations and growth potential.
Investing in Quality Firms
Cvetanovski emphasizes that Pella Funds is drawn to companies that are “cheap and growing,” with valuations that can be justified. In contrast, many U.S. firms have valuations that are difficult to justify. By focusing on quality firms in China and Europe, investors can capitalize on opportunities that may not be available in the U.S. market.
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