Home' Trinidad and Tobago Guardian : June 29th 2014 Contents JUNE 29 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
INTERNATIONAL | SBG17
China s stumbling stock mar-
ket has spooked many
investors, but Justin Leverenz
isn t one of them. He runs
Oppenheimer s developing
markets fund, the largest
actively managed mutual fund specialising
in emerging-market stocks, and he still sees
big opportunities for stocks from China and
developing economies in general.
Investors overall have grown more sceptical
of these formerly fast-growing economies:
Growth for emerging markets dropped by
nearly half between 2007 and last year, and
investors pulled out a net US$1.3 billion from
Chinese stock funds over the last 12 months,
according to Morningstar.
Leverenz spoke recently about why he sees
big gains for Chinese online-video companies
in particular, as well as why he has avoided
Argentine stocks and why Indian stocks may
be in the midst of a strong bull market.
Q: You ve called Chinese online-video
stocks one of the best media opportu-
nities of a lifetime. Why so optimistic?
A: America is disproportionate in every-
thing; half the world s healthcare spending,
half the world s media spending. The only
other country that has that capacity to develop
these continental-size markets, whether it
s health care or media or technology, is going
to be China.
And that s what I meant by one of the
greatest media opportunities of all time:
China s a continental-sized economy. What
you re going to see is advertising, which is
relatively small in China as a percentage of
GDP, is going to get a lot larger. That is
because the real growth story in China is
about the consumer, and that consumer is
one of the most coveted consumers on the
planet because every single multi-national
company wants to build a scalable business
on the other big, continental-sized econo-
Q: What do you make of all the jitters
surrounding Chinese stocks?
A: Chinese equities have done stunningly
bad against the world s greatest growth mar-
kets from a macro perspective. There was a
big bull market between 2004 and 2007, but
we re basically back where we were 10 years
All great bull markets have to start in the
environment of extreme stress and despair
because then ownership is low. That s where
we are in the Chinese equity market.
I think that China is the one economy that
is addicted to reform, and that reform agenda
is very powerful and will create significant,
sustained growth. That reform agenda
includes interest-rate liberalisation, labour-
market reform and lots of micro-level reform
including consolidation and privatisation.
Q: What do you think of the argument
that it s better to invest in the Chinese
economy by buying developed-market
stocks that do lots of business there?
The Chinese model is very different. Think
about Alibaba in e-commerce. Alibaba had
to do things very differently than eBay did.
Because you have a lack of trust in many of
these geographies, where buyers didn t trust
that sellers offered what they sold on the
Internet, Alibaba had to create escrow
accounts, which is Alipay.
There s a presumption that China is going
to look a lot like America, and frankly it
doesn t look like America. The world is het-
erogeneous: Tastes are different, distribution
is different, business models can be radically,
Q: You ve said Argentina and Ukraine
are two places you wouldn t invest. Is
the common thread the risk that politics
can hurt investors?
A: Politics is dirty. The problem is insti-
tutions create politics. The institutions in
Argentina have not changed for over 100
years. If you remember in the 19th century,
Argentina was supposed to be a country like
America. It had the same immigrant propen-
sity, massive resources, very fruitful land.
And it has always been a yo-yo, and that s
because the underlying institutions are very
easily manipulated in a fashion of populism,
and those things aren t changing.
Every couple of years there is a thesis that
Argentina is on the cusp of change. And
stocks run up hugely, but that s someone
else s money. We don t do that.
Q: What about India, where stocks are
surging on excitement about the new
prime minister, Narendra Modi?
A: I do think in this five-year term with
Modi, it will be a very strong market. It s
not just his character but the unique mandate
he s got, that he s going to be able to scare
his opposition into doing things that they
may not be inclined to do because they would
be voted out if they didn t.
From that perspective, all the bottlenecks
in the economy---about land clearances, envi-
ronmental permits, financing for projects---
all those things that had completely broken
the animal spirits of India will get repaired.
From the perspective of an investor, it looks
really encouraging. However if India really
wants to become powerful, a really significant
player and not just a regional powerhouse,
it is going to have to really change the labour
laws so that people are willing to hire.
If you can hire or fire people on an at-will
basis like other geographies, then there s a
huge amount of manufacturing, which is
being moved to places like Bangladesh, the
Philippines, Thailand, which could naturally
gravitate to India. But if they don t, the long-
term promise of India s demographic dividend
will be hard to achieve.
Q: What kind of returns should
investors expect from emerging-market
A: I can only speak to my fund. My fund
in the long term generates somewhere
between 12 and 15 per cent compounded. I
think that s the capacity of this fund. But
in the environment where most people think
interest rates are going to be stuck at relatively
low levels, that s a pretty nice return. But
that won t happen year in, year out.
Of mutual interest-emerging markets
Fund manager: We're sticking with China
Links Archive June 28th 2014 June 30th 2014 Navigation Previous Page Next Page