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T. Rowe Price: the opportunities across four global powerhouses

The firm offered its outlook at an event in New York.

Brazil might be grappling with much-needed reforms and the US equities rally might be in question, but these and other global powerhouses still offer opportunities.

That was a key takeaway from T. Rowe Price Global Market Outlook event last week, where several of the firm's portfolio managers offered their take on this year's key trends and outlined their views for next year. 

In this gallery, we highlight comments from US equities manager Ann Holcomb and international small-cap equity CIO Justin Thomson. Click through to read their thoughts.

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LatAm powerhouse

Thomson, a Citywire-AA rated manager, has found opportunities in Brazil even if he's cautious about the country given its uphill battle to pass reforms and its fiscal deficit.

Finds include MercadoLibre, an Argentine e-commerce firm with an important presence in Brazil.

‘It’s been a bit wobbly recently because Amazon have started to recruit in Brazil, but we think [MercadoLibre has] got a decent head start,’ Thomson said. ‘They’ve got 3 million registered users in Brazil... and they do a transaction every six seconds.’

Amazon remains a threat to MercadoLibre, however, because the US powerhouse has experience trying to enter markets dominated by local e-commerce firms.

‘Amazon, they got outmaneuvered by Alibaba in China but... they learned from that, and the view is that they underspent in China. They know their mistakes,’ said Thomson, who runs the T. Rowe Price International Discovery fund.

Marcopolo, a Brazilian bus and coach manufacturer, has also caught Thomson's attention, as it continued to thrive when Brazil's domestic market suffered amid the country's recession.

‘This was a company that I think was responding to the collapse in demand more rigorously than a lot of companies we looked at in Brazil.

‘That means restructuring their workforce, running reduced shifts, but also they were proactive about building export markets to sort of fill the gaps,’ he said.

 

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Chinese surprise 

Turning to the other side of the world, Thomson said China had been this year's ‘biggest surprise’ in global markets.

Earlier this year, the Chinese government restricted foreign investments by its local companies, reversing its previous efforts to promote spending sprees.

‘As the government has restricted credit and monetary aggregates have been rolling over, something very surprising has happened,’ Thomson said. ‘Inflation in nominal GDP, that’s the great bar there, has gone up and that’s been very surprising.’ 

Moreover, asset quality has gone up as government intervention and market forces have cut the previous overcapacity in China's 'old economy' industries, Thomson said. 

‘[So China has] had a remarkable balancing act where growth has gone up, inflation has gone up but bad debts are down, and I think this could well continue and that market will continue to broaden and be part of all our investment horizons.’

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Japanese growth

Japanese equities have gone through a phenomenal run this year, and according to Thomson, it’s not just because of the policies of prime minister Shinzo Abe.

‘[There’s] a slow but definitive change in the way corporates are being managed, and I think this is the narrative that it’s not often told… [there’s] been an increase in the appointment of outside directors, so if management is not going to change themselves, you need to change management.’

As much as the change doesn't solely rely on Abe, he's had a hand at making sure it lasts. 

‘One of the smartest things that Abe has done is the new index, which is the Nikkei 400, in which inclusion is not based on market capitalization but on return on equity.

‘If you want to get Japanese management to change, the best way is to shame them into change, and if you’re excluded from the Nikkei 400, you better do something about it.’

 

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US focus

A contentious plan to slash taxes in the US would be a windfall for the market, but T. Rowe Price portfolio manager Ann Holcomb doesn’t expect the sky to fall if the proposal doesn’t materialize.

‘I do think it would be a real blow to confidence is these policies don’t go through. Across the market, we may see some multiple compression,’ said Holcomb, a manager on the T. Rowe Price Capital Opportunity Fund.

‘However, there are fundamental underpinnings in place for a lot of companies. We saw that there was a lot of cash on corporate balance sheets… and generally, the economy is healthy at this point, so whereas it would be a large risk it does not necessarily mean that the expansion is completely derailed at this point.’

Turning to the performance of the US market, Holcomb said this year growth has done much better than value. More broadly, Holcomb pointed to the persistent low volatility and the expanded valuations across the US market. 

‘Overall, I’d say we’re somewhat cautious on US equities given the full valuations. However, we do see earnings growth continuing in 2018,’ Holcomb said.

‘That, coupled with continued low rates and potential benefits from Washington’s policies, should support further upside. However, stock selection is key.’ 

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Ann M. Holcomb
Ann M. Holcomb
356/589 in Equity - Europe (Performance over 3 years) Average Total Return: 19.54%
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