February 13, 2019
By Michael Connor
NEW YORK (Reuters) – Slower overall growth is the new normal for China, but the globe’s second largest economy still holds much promise for choosy foreign investors, according to U.S. portfolio manager Kera Van Valen, who helps manage over $17 billion in assets.
Van Valen, a managing director at Epoch Investment Partners, uses a risks-minimizing methodology focused on dividends. She said on Wednesday that the world economy is expected to grow more modestly in 2019 than in recent years.
But, she said during an interview in the Reuters Global Markets Forum online chat room that the easing of economic expansion in China was no reason for her conservatively managed portfolios to avoid China exposure.
Following are excerpts:
Question: Your portfolios include Unilever and other companies you describe as global champions. Are you repositioning at all among those global champions because of their exposures to China?
Answer: China has been a great growth driver and remains a long-term opportunity for many global champions. Even before the (U.S.-China) trade tensions, the growth was something we had to monitor because of the competition within the market. We have not repositioned our portfolios, but do discuss the competitive environment with the companies in which we invest. We (follow) a low turnover strategy and take a long-term approach to investing.
Q: Does that mean you see the slowing in China as short-term?
A: Slowing growth is likely not a short-term event. But there is still growth, and there is still the emerging middle class. We do believe there is still room for growth, even if it is slower.
Q: What are you hearing about China from the companies you have spoken to?
A: I wouldn’t say there are China-specific worries; it is more the discussion about a highly competitive environment with strong local players as well. There are pockets of China that may be more of a threat to other industries; however, most of the indirect China exposure we have is because of the exposure to the growing middle class.
Q: Do you find many investments in the emerging markets that meet your tough requirements for dividends and share buybacks?
A: Emerging markets are part of our initial screening process; however, not many emerging market companies meet our criteria of sustainable cash flow generation and returning cash to shareholders consistently through dividends, share buybacks, and debt reduction.
(This interview was conducted in the Reuters Global Markets Forum, a chat room hosted on the Eikon platform. To join the forum, click here http://solutions.refinitiv.com/GMF-Davos2019)
(Reporting By Michael Connor in New York; editing by Jonathan Oatis)