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THE INVESTOR
THE INVESTOR CENTRE
All information correct as at 30 September 2015
A
fter a period of calm, volatility returned
to the stock markets in the summer.
Investors have been unsettled by the extent
of the economic slowdown in China (and
other emerging markets) and the potential
knock-on e ect on corporate pro ts. We
cannot know how this will play out, except
to say that, over the years, very signi cant
imbalances have built up in China that are
likely to take a considerable period of time
to unwind.
This is most acutely demonstrated in the
commodity markets, where prices have
already declined signi cantly from high
levels.This places strain on the mining and oil
companies, and exposes the vulnerabilities
of those companies that have insu ciently
strong nances.While the commodity
companies are in the front line, many
companies have bene ted from the extreme
levels of xed-asset investment in China
since 2008, and should the Chinese economy
experience a hard landing, then the pro ts of
these companies will likely su er.
We don’t take explicit views as to how the
Asian economies will fare over the coming
months – we simply seek to evaluate whether
investors are being adequately compensated
in the form of low stock valuations for the
risks that the outcome is poor. Despite the
sell-o that has occurred in some areas of
the market, we don’t think that this is yet
the case.Accordingly, we think that it is
still right to adopt a relatively defensive
investment stance.
RWC
Equity Income
Defensive investment strategy
matches current market conditions
Commoditymarket
worst-hit byproblems
inChina
Nick Purves
T
he aims of the current low interest rate
policies and other elements of central
banks’ quantitative easing programmes
are well known: to encourage people to
save less and spend more, to reduce the cost
of corporate debt, to spur growth, and
so on. But could the authorities’ e orts
to improve the economy unintentionally
create distortions and increase risks in
the market? Many investors have become
used to policymakers stepping in to calm
markets whenever volatility has arisen, and
this has led to increased con dence.
It is in this sort of environment when,
what value investors refer to as‘margin
of safety’(the di erence between the
market price of an investment and its
true worth) becomes harder to come by.
When margin of safety is scarce, both the
upside we can expect from an investment
and the insurance we have against its risks,
are reduced.Achieving a suitable balance
between risk and reward is the foundation
of successful long-term investing, and by
consistently viewing the stock market in
these terms investors are much less likely
to be distracted by short-term exuberance.
This focus on the fundamentals – rather
than the‘froth’ – may not be rewarded in
the short-term but, in the long run this
is the surest way to safeguard capital and
ensure that full advantage can be taken when
margin of safety, and hence investment
opportunity, becomes abundant once again.
T
he growth and development of
emerging markets are key factors
shaping the global economy. However,
the investment opportunities that these
countries present can di er dramatically.
Consistent with our bottom-up approach
to portfolio construction, we examine
emerging markets on a country-by-country
basis, rather than as a homogeneous group.
Our approach – active, concentrated and
benchmark agnostic – allows us to select
businesses within geographies where
certain pro-growth attributes create an
attractive macroeconomic backdrop in
which to operate.
At present, global investors appear
most focused on China; the pace at which
its economy is slowing and what it might
mean for the rest of the world.We maintain
direct exposure to China through select
businesses where we expect long-term
secular drivers and compounding business
results will mitigate the e ects of slowing
GDP, including Alibaba Group, Baidu,
Naspers and LasVegas Sands.
As for other emerging economies, we
remain positive on India’s growth prospects,
continue to monitor developments in
Thailand and are on the lookout for signs of
either crisis or positive change in Brazil.
As we look for growth businesses in
emerging markets, we continue to prefer
those that are bene ting from structural
local demand over those that employ
export-driven business models.
SCHRODERS
Schroder Managed Growth
A focus on fundamentals will be
rewarded in the long term
SANDS CAPITAL
Satellite manager: Global Equity
Honing in on Chinese businesses that
could benefit from ‘Big Pivot’
IsQEdistorting the
market and creating
risks for investors?
Future growth should
help themiddle class
grow larger, over time
David Levanson, Sunil Thakor and
Perry Williams
Kevin Murphy and Nick Kirrage
