Investors should consider high-quality companies in China and Europe with outperforming valuations that have performed very well despite “dire” political and economic conditions in these markets, according to Jordan Cvitanovsky of Pella Funds.
In the past two or three months, Pella Funds has been looking for opportunities in China and has increased its exposure to the region by more than 10%, said Tsvetanovsky, the company's chairman and chief investment officer. The company's strict focus on ratings has led it to other regions outside the United States, such as Europe and Asia.
The company's investments in China may need more support from the country, which is currently offering more financial stimulus to revive its economy, he told CNBC's Sri Jegaraja. Even if such steps were not taken, the investment opportunities selected by Pella Funds would still perform well despite market volatility.
Back in November, China announced a Five-year stimulus package A total of 10 trillion yuan (US$1.37 trillion) to address local governments' debt problems. The Beijing administration has indicated that more economic support will come in 2025 as it seeks to stimulate growth for the world's second-largest economy.
“Any stimulus we expect to occur from the Chinese authorities will be very favorable for these companies, given their very low valuations and low positions by global managers,” Cvitanovsky said.
“We expect very strong returns, and we think now is actually a good time to get ready for this next year, given all the concerns surrounding the tariff wars and what have you,” he added.
Stock calls
Among the affordable Chinese companies that could benefit from fiscal stimulus is a robotics manufacturer Media GroupHong Kong Stock Exchange and Life Insurance Company Aya Groupaccording to Cvetanovsky.
Pella Funds has monitored Hong Kong's stock exchanges for many years and expects they will benefit “tremendously” from consolidating markets and new issuances, he said.
“One of the best quality companies in the region is AIA, the life insurer in Hong Kong, which continues to execute year after year,” Cvetanovsky said, adding that if the insurer were to list in the US, it would have a valuation. This is 50% to 70% higher than day one.
Cvetanovsky noted that Pella Funds has been a major backer of the world's largest contract chip manufacturer. Taiwan Semiconductor Manufacturing Co., Ltd However, the company's interest in TSMC is an AI play.
European opportunities
Europe has also had its share of political turmoil, with governments collapsing in both, Cvetanovsky said Germany and France Which leads to a lot of uncertainty in the regional market.
However, traders being wary of investing in Europe represents a “great” opportunity for Bella Funds, according to Cvetanovsky.
The portfolio manager mentioned the French energy equipment maker Schneider Electric As an example of a company that is increasing expected growth rates and margin improvements despite recent political instability in France.
Schneider Electric is looking to capitalize on Europe's digital transformation and the boom in artificial intelligence by investing heavily in its data center business. In July, the company raised its financial targets for 2024 on the back of record revenues and improvement in its profit margins.
Pella Funds also recently secured a position in a UK engineering firm Spirax groupformerly known as Spirax-Sarco, and at Swedish manufacturer Epiroc — a company that stands to reap rewards from a return in capital spending on mining, Cvetanovsky told CNBC.
“These are the companies that will benefit, again, from China… by offering financial incentives. But beyond that, they don't necessarily need them. They're just cheap, they're growing, and we can justify what we want.” “We're paying for it, whereas overall we can't really justify some of the valuations in the U.S.,” Cvetanovsky said.
