Lazard backs Chinese consumer stocks, small African banks SALLY ROSE 19 SEPT 2014 AFR Lazard backs Chinese consumer stocks, small African banks A retailer prepares her jewellery display. Lazard Asset Management has tipped Chinese consumer stocks as a good growth asset in the months ahead. Photo: Xaume Olleros Jai Jacob of Lazard Asset Management. Photo: Lazard As China embarks on a new round of monetary stimulus, fears about the nation’s slowing pace of economic growth are blinding investors to the opportunities in its equity market, according to one of the world’s top emerging market fund managers. “China’s economic growth indicators are not as strong as the state or markets would like, and we are actually more bearish than consensus on our forecasts for Chinese gross domestic product growth this year, but there still are lots of companies there that look really good,” said New York-based Jai Jacob, the head of Lazard Asset Management’s emerging markets multi-asset strategy. The $US283 million ($314 million) portfolio includes equity, debt and currency from 60 developing countries. Following the release of some much weaker-than-expected industrial production statistics at the weekend, China announced 500 billion yuan ($89.7 billion) worth of monetary stimulus on Tuesday. “More powerful than the small amount of stimulus announced this week is the fact that China has the scope to do much more,” Mr Jacob said. “But the state knows it is treading a delicate balance. A larger stimulus program could risk increasing the amount of leverage in the shadow banking system.” Lazard’s current selection of Chinese-listed stocks is split about evenly between value and growth style companies, he said. The fast pace of internet adoption and changing patterns of consumer behaviour are the most prominent macroeconomic themes grouping the Chinese stocks that Lazard favours, Mr Jacob said. He declined to offer a view on Alibaba, the Chinese e-commerce business that is set to make the largest initial public offering ever as it raises about $US21 billion when it dual-lists on the New York Stock Exchange on Friday. After China, the next biggest country weighting in the Lazard emerging markets portfolio is India. Similarly the assets held are mostly equities. “Among emerging market economies, India stands out as doing a good job of readying itself for when the United States starts raising interest rates,” Mr Jacob said. He praised the heads of India’s central bank and government for pursuing a structural reform agenda. “India has a lot of positive momentum at the moment, but unlike China it has to deal with being a functioning democracy which could limit the pace of change,” Mr Jacob said. Both China and India’s policymakers have flagged their long-term intention to open up their countries’ debt markets to foreign investment. “We expect India to achieve this gradually over the coming years, and, when it does, jump straight to the top of the index for global corporate credit markets,” Mr Jacob said. “China faces a much longer road to opening up its credit markets, largely because it must liberalise its currency first,” Mr Jacobs said. While China and India have the heaviest representation in Lazard’s multi-asset emerging markets strategy, Mr Jacob said Africa is the region that most excites him. “A few global equity portfolios have a handful of South African stocks, but the average investor has little to no exposure to the emerging economies in Africa that are commonly referred to as frontier markets,” Mr Jacob said. “African stocks are underresearched, and there are lots of great undiscovered companies there that are profitable and growing with business models that are simple to understand,” he said. Mr Jacob said the portfolio has a skew towards African financial services stocks, including a number of small-cap banks. The fund also holds Zambian currency positions and Angolan debt. afr/p/business/companies/lazard_backs_chinese_consumer_stocks_JhP1yGFWu2wVhONCa9PxZL
Posted on: Fri, 19 Sep 2014 01:44:04 +0000