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Allianz's Bric Star Ghosh questions Chinese growth concerns
by Elsa Buchanan on Jun 03, 2014 at 13:11
A little over six months after taking the reins on the Allianz Global Investors’ Bric Stars fund from Michael Konstantinov, Kunal Ghosh has re-positioned the portfolio for a cyclical recovery in emerging markets.
‘We are getting to the last innings of the game in the emerging markets. A final capitulation will happen before they outperform developed markets again. The turning point will depend on how China’s cards finally play out,’ Ghosh said.
In a contrarian stance, Ghosh said he is a “big fan” of China, backing it to maintain solid levels of GDP growth and benefit from demographics. He acknowledges, though, that the investor scepticism about the Asian powerhouse and the wider emerging market universe is deep-rooted.
‘When the world’s largest economy is only growing at 2%, why get alarmed about the second one growing at 7.5%? Something is seriously wrong in the benchmark [investors use],’ he said.
‘You’re in denial that the country is shifting gears. China’s payoff might come a little later, but you need to position the portfolio without anchoring for what happened in the past.’
He points to Chinese retail sales growth rising by 12-13% on an annualised basis over the past eight years, something Ghosh describes as unparalleled. ‘The recovery is coming in stock specific stories, not across the whole index,’ he added.
Chinese stocks make up a third of his top 25 holdings, including names such as Bank of China and Sands China, and Ghosh expects an economic surprise to the upside in the third quarter.
Indeed, this represents a significant shift in the portfolio make-up. ‘The historical portfolio positioning was paying a high multiple for quality, not growth,’ he explained, pointing to the likes of Petrobras and Chinese energy firm Fanuc as positions he has axed.
Ghosh is less positive overall on Indian equities, and expects the elation brought about by the recent elections to die down soon. ‘[Newly elected prime minister] Narendra Modi is very pro-economics and has a lot of good credentials, but we think the euphoria is going to fade away after the next earnings season, which is coming up.’
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