Portfolio manager names China, Europe stocks promising strong returns

Investors should consider quality companies in China and Europe with superior valuations that have performed very well despite the “diverse” political and economic situation in these markets, according to Jordan Cvetanovski of Pella Funds.

In the past two to three months, Pella Funds has been looking for opportunities in China and has increased its exposure to the region by “well over 10%,” said Cvetanovski, the company’s president and chief investment officer. The firm’s close focus on ratings has taken it to other regions beyond the US, such as Europe and Asia.

He told CNBC’s Sri Jegarajah that the firm’s China investments may need more of a boost from the country, which is currently introducing more fiscal stimulus to revive its economy. Even if such steps are not taken, the selected Pella Funds investment opportunities have still performed well despite the volatility in the market.

Back in November, China announced a five-year stimulus package total 10 trillion yuan ($1.37 trillion) to address local government debt problems. Beijing’s administration has signaled that more economic support will come in 2025 as it seeks to jump-start growth for the world’s second-largest economy.

“Any stimulus we expect from the Chinese authorities would be extremely favorable for these companies, and since they have very low ratings and low positions from global managers,” Cvetanovski said.

“We anticipate very strong returns, and we think the time is effectively now to position for this guidance in the next year, given all the fear surrounding the tariff wars and what have you,” he added.

Among the Chinese companies that have a favorable price and that could benefit from tax incentives are the robot maker Midea GroupHong Kong Exchanges and life insurance AIA Groupaccording to Cvetanovski.

He said Pella Funds has been monitoring Hong Kong exchanges for several years and expects it to benefit “tremendously” from a boost to markets and new issues.

“One of the best quality companies in the region is AIA, the life insurer in Hong Kong, which continues to perform year after year,” Cvetanovski said, adding that if the insurer were listed in the United States, it would an assessment. which is 50% to 70% higher than the first day.

Cvetanovski noted that Pella Funds has been a major proponent of the world’s largest chipmaker contract Taiwan Semiconductor Manufacturing co. However, the company’s interest in TSMC is an artificial intelligence play.

Cvetanovski said Europe has also had its share of political turmoil, with the collapse of government in both Germany and France which brings a lot of uncertainty in the regional market.

However, the caution of traders to invest in Europe, serves as a “great” opportunity for Pella Funds, according to Cvetanovski.

The portfolio manager mentions the French manufacturer of power equipment Schneider Electric as an example of a company increasing its expected growth rates and margin improvements despite the recent political instability in France.

Schneider Electric has sought to capitalize on Europe’s digital transition and artificial intelligence boom by investing heavily in its data centers. In July, the company raised its financial targets for 2024 on the back of record revenues and the improvement of its profit margins.

Pella Funds also recently entered into a position in a British engineering firm Spirax Groupformerly known as Spirax-Sarco, and in the Swedish manufacturer Epiroc – a company that would be rewarded by a resurgence of capital expenditure in mining, Cvetanovski told CNBC.

“These are the companies that would benefit again, from China … providing a fiscal stimulus. But in addition to that, it does not necessarily need it. They are just good and growing, and we can justify what we have. We pay , while in general, we really can’t justify some of the ratings in the United States,” said Cvetanovski.