Opportunities in China Amid the Trade War

China’s relevant to us. It’s the largest holding that we have in the portfolio. We are overweight China—have been since earlier this year. So, It’s very important to us.

The trade war—the rhetoric continues. It’s still not decided what is happening. The news changes every two weeks or so. Are we going to get into some kind of an agreement between the U.S. and China, or not? And what does that mean? What will that translate into?

So, we don’t know. For us— investing in China—what we do is we continue to just look for where we find our best ideas. And by that, we mean companies that are showing an inflection point and earnings acceleration. And that continues to be the case in China. We have plenty of names to own in China if we wanted to even have a bigger position than we have currently.

A name that we like is Brilliance. Brilliance is a joint venture between BMW and the Chinese. They manufacture BMW cars in China. The reason why we like them—why we continue to see opportunities there with Brilliance—is they are actually launching new models. They are also face-lifting some of the models that the currently have.

So, between now—the second half of 2019 and onward—there are several models that will be coming to the market for them. Luxury cars continue to have good acceptance in China, regardless of the auto environment not being that strong. But we’re seeing still good, strong demand for high-end cars and BMW is obviously one with good acceptance in that market. And those new models will actually be helping the company in terms of that inflection point and then the earnings acceleration afterwards.

There are other areas as well. Real estate is an area we continue to see opportunities there, some names there that are doing well. We see even opportunities in cement companies, sort of driven by all this infrastructure and real estate as well. So, there are areas in China—education continues to be another name where we have exposure in the portfolio, in different names there in the education sector.

The economy continues to grow. It might not be the kind of growth that we expected to see or that we have seen in the past. But there are companies that are benefiting from what the growth is today in China. And that’s what we’re doing; we’re looking for those companies. And there is a good amount of opportunities there actually.

There are always going to be challenges in emerging markets. It could be challenges from a very specific country, individual country, within emerging markets. It could be trade wars that we’ve seen more recently—or anything else. There are a lot of different geopolitical issues, for example—there could be 24 countries with significant exposure there.

But what we really think is important in emerging markets is to really focus on the bottom up. Really look for companies that can do well regardless of the environment, or despite of the environment that they are in. I think in emerging markets, the companies are very resilient.