Investors should consider quality companies in China and Europe with premium valuations that have performed very well despite the “difficult” political and economic situation in those markets, according to Jordan Cvetanovski of Pella Funds.
In the past two to three months, Pella Funds has been looking for opportunities in China and has increased its exposure to the region by “over 10%,” said Cvetanovski, the company’s president and chief investment officer. The company’s strict focus on valuations has taken it to other regions outside the US, such as Europe and Asia.
He told CNBC’s Sri Jegarajah that the company’s investments in China may need more encouragement from the country, which is currently rolling out more fiscal stimulus to revive its economy. Even if such steps are not taken, the investment opportunities selected by Pella Funds are still well executed despite market volatility.
Back in November, China announced a a five-year stimulus package a total of 10 trillion yuan ($1.37 trillion) to address the debt problems of local governments. The administration in Beijing has signaled that more economic support will arrive in 2025 as it seeks to jump-start growth in the world’s second-largest economy.
“Any stimulus we expect from the Chinese authorities would be extremely favorable for these companies, given that they have a very low valuation and a low positioning by global managers,” Cvetanovski said.
“We expect very strong returns and we think now is a good time to position ourselves for that in the next year, given all the fear surrounding tariff wars and what have you,” he added.
Stock calls
Among the Chinese companies that have favorable prices and could benefit from fiscal incentives are robot manufacturers Midea Groupstock exchange in Hong Kong and a life insurer AIA groupaccording to Cvetanovski.
He said Pella Funds has been tracking the Hong Kong stock market for years and expects to benefit “hugely” from market stimulus and new issues.
“One of the best quality companies in the region is AIA, a life insurer in Hong Kong, which continues to do business year after year,” Cvetanovski said, adding that if the insurer were to be listed in the US, it would have an estimate of 50% to 70% more than the first day.
Cvetanovski pointed out that Pella Funds is a big supporter of the world’s largest contract manufacturer of chips Taiwanese semiconductor manufacturing Co. However, the company’s interest in TSMC is the artificial intelligence play.
European opportunities
Cvetanovski said Europe has also had its share of political turmoil, with governments falling in both countries Germany and France leading to great uncertainty in the regional market.
However, traders’ caution to invest in Europe serves as a “great” opportunity for Pella Funds, according to Cvetanovski.
The portfolio manager mentioned the French power equipment manufacturer Schneider Electric as an example of a company increasing its expected growth rates and margin improvement despite the recent political instability in France.
Schneider Electric is looking to capitalize on Europe’s digital transition and boom in artificial intelligence by investing heavily in its data center business. In July, the company raised its financial targets for 2024 thanks to record revenues and improving profit margins.
Pella Funds also recently landed a deal with a British engineering company Spirax Groupformerly known as Spirax-Sarco, and in Swedish producer Epiroc — a company that would reap the rewards of a resurgence in capital investment in mining, Cvetanovski told CNBC.
“These are companies that would again benefit from China … providing fiscal stimulus. But on top of that, they don’t necessarily need it. They’re just cheap and growing, and we can justify what we’re paying, whereas in general, we really can’t some of the estimates in the US,” said Cvetanovski.
