World economy 'to still grow despite dire predictions'

Unigestion's Mr Bruno Taillardat says his top picks are healthcare stocks in India and telecoms shares in Indonesia. A man pushing a rack of clothes along a street in Beijing last Tuesday. Mr Bruno Taillardat thinks the Chinese A-shares - those liste
A man pushing a rack of clothes along a street in Beijing last Tuesday. Mr Bruno Taillardat thinks the Chinese A-shares - those listed in the mainland - need to fall further until their valuations are equal to those of Chinese H-shares - those listed in Hong Kong - before it is a good time to invest in emerging market equities again.PHOTO: AGENCE FRANCE-PRESSE
Unigestion's Mr Bruno Taillardat says his top picks are healthcare stocks in India and telecoms shares in Indonesia. A man pushing a rack of clothes along a street in Beijing last Tuesday. Mr Bruno Taillardat thinks the Chinese A-shares - those liste
Unigestion's Mr Bruno Taillardat says his top picks are healthcare stocks in India and telecoms shares in Indonesia.ST PHOTO: LAU FOOK KONG

Financial expert is upbeat about China's growth in the long term and sees US and Europe bolstering global economy

Markets have been in distress in the new year and several analysts have forecast catastrophic outcomes, but one financial expert feels the doom and gloom has been overdone.

Mr Bruno Taillardat, investment director and executive director for equities at Unigestion, believes global growth will remain resilient and remains optimistic about China's long-term growth.

The strength of the US and Europe will support global growth, he adds. The US is doing well, given "very low" unemployment and still "very high" business margins, while the European economy and margins are also improving.

However, he thinks that Chinese A-shares - those listed in the mainland - need to fall further until their valuations are equal to those of Chinese H-shares - those listed in Hong Kong - before it is a good time to invest in emerging market equities again.

The value of the yuan and outflows from China will need to stabilise too. In the next six months, the market will have a better idea of what China's growth will be and that would have been priced into equities more, he says.

FEELING THE PINCH

Countries with current account deficits will experience major problems. This is because interest rates are rising in the US. Countries in deficits - such as Indonesia, Turkey, South Africa and Brazil - would have to fund this by borrowing at higher interest rates.

''MR BRUNO TAILLARDAT, investment director and executive director for equities at Unigestion

His top picks are healthcare stocks in India and telecommunications shares in Indonesia.

Q What is your outlook in the light of recent market volatility?

A The global economy will be manageable in spite of the Chinese slowdown because we don't believe the China slowdown is a major problem. (It is) favouring local consumption and services so it will make for more sustainable growth, which is very positive.

Yes, China is important, I think it still accounts for 15 per cent of global growth. But I think people will realise growth can continue with a Chinese economy that is slowing down in the short term but will do better in the very long term.

Q What is your short-term outlook?

A It is earnings season in the US currently, and if the results are good, then investors will focus more on the US economy and less on China. Then the market can go up again because they will focus on something else.

For the next three to six months though, there will be volatility and the market will fall more than rise. It will be quite a turbulent market in China, and so in global and emerging markets as well because of contagion effects. In the short term, China's GDP may even grow by 5 per cent.

But once everything has settled down, people will realise China's restructuring is not necessarily a bad thing for the long-term economy. In any case, the previous economic model was not sustainable.

In the next six months, the market would have a better estimate of China's growth potential and would have better priced that in.

Q What would be good signs for investors to start investing in stocks again?

A The gap between Chinese A-shares and H-shares needs to be zero. A-shares are still highly valued - if you look at the price to earnings, it's 11 times while it's nine times for the offshore Chinese market.

We would also first need to see the value of the yuan and outflows from China stabilise.

Q What is your take on the Singapore market?

A Singapore is affected by what is going on in China and the rest of the region. People will think the situation is worse than expected so I think the volatility will increase over the next couple of months.

But I think the situation in Singapore is completely different from that in China. Companies are more mature and transparent.

I believe that we can be quite confident that going forward, the economy will do well.

Q What is your outlook for emerging markets in general?

A Our funds are overweight emerging markets in Asia and underweight Latin America. Latin America is a big exporter of commodities and it is struggling because of low commodity prices.

Asia, we believe, is in better shape. It benefits from the low commodity prices.

Countries with current account deficits will experience major problems. This is because interest rates are rising in the US. Countries in deficits - such as Indonesia, Turkey, South Africa and Brazil - would have to fund this by borrowing at higher interest rates.

Q Which specific countries and sectors are you optimistic on?

A We think India is the most promising, and are neutral to positive on Indonesia.

The reforms both are undertaking today will create very good conditions for companies.

Both countries have increased the level of governance and transparency required of companies. They have also built a lot of new roads and transport networks, which will help people and merchandise circulate.

India also no longer has a current account deficit, and has made employment more accessible for groups of people such as women, and this is positive for companies.

Q Which sectors are you optimistic on?

A We are optimistic on the healthcare sector for India.

The population is very large and they need access to good hospitals, insurance and drugs. The government would also want to improve healthcare access to ensure social stability. Companies in India which are involved in generic medicines can also start to export.

Healthcare is a broad sector - everybody thinks of pharmaceuticals but there are a lot of other segments such as healthcare insurance, hospital management and biotech. India is improving in biotech activities.

Q Which sectors are you optimistic on for Indonesia?

A Telecoms stocks in Indonesia are fairly valued. Here, unlike Europe or the US, you can find good telecoms companies with a high dividend yield with good growth profile.

In Europe, the telecoms companies are not growing any more. Everyone has at least two mobile phones; it's a bit of a saturated business model.

In Indonesia, there are many low coverage areas where companies can grow further. (For example) 4G infrastructure... is developing and giving access to a lot of people.

A version of this article appeared in the print edition of The Sunday Times on January 24, 2016, with the headline 'World economy 'to still grow despite dire predictions''. Print Edition | Subscribe