Stock pro Bhansali: Opportunity abroad in '15
Part of Paste BN's exclusive 2015 Investment Roundtable. Also on Twitter at #marketoutlook15.
Investors looking for money-making ideas outside the U.S. should be able to unearth some good opportunities abroad in 2015 despite economic challenges and risks in big markets like China and the eurozone, says Rupal Bhansali, chief investment officer of international equities at Ariel Investments, speaking at Paste BN's 19th annual Investment Roundtable.
"There is opportunity in all parts of the world," says Bhansali, who manages Ariel's International Fund and its Global Fund. "That is the central message."
Winning performance, however, might not come from broad indexes that track global stock markets, but rather from pinpointing good opportunities in individual stocks and sectors of the market, adds Bhansali, one of four top Wall Street money managers and investment strategists that sat down with Paste BN on Dec. 5 to map out where financial markets are headed in 2015.
(Friday, Paste BN rolls out the final installment of its Investment Roundtable coverage with a big-picture outlook for the year ahead, as well as stock picks and other portfolio ideas and recommendations for 2015.)
* What's the call.
A lot of the easy money has been made in many places around the globe, so investors should "pick their spots" and zero in on a few winning investment themes. Bhansali sees great opportunity -- and value -- in the healthcare sector in Europe, which has lagged the solid performance in the U.S.
"Healthcare," she says, "is the new consumer staples. Whether it is biotech or traditional pharma, in an aging society the demand for healthcare is going to be astronomically higher compared to the past."
Tech is another fertile sector to explore, she adds.
An investment strategy that should work well in 2015, Bhansali says, is finding good companies that have been beaten down and that pay out an annual dividend of 3% or more. "You can get the best of both worlds -- growth and income -- in stock markets around the world."
Another strategy she laid out is buying foreign stocks that offer better value than similar U.S. companies in the same business.
Shares of Japan's Toyota, for example, are selling more cheaply than U.S. automakers. Similarly, she likes shares of Deutsche Bourse, a German stock exchange, which she says sells at a "significant discount" to the U.S.-based Chicago Mercantile Exchange, or CME Group. She also prefers China's internet play Baidu over U.S. search giant Google
But be careful in emerging markets, she warns. For example, the continued slowdown in China could hinder companies exposed to the world's second-biggest economy.
* What will move the market?
Investors will be closely watching whether the stimulus efforts by the European Central Bank will be able to fend off the "threat of deflation" in the eurozone. If the ECB, led by president Mario Draghi, fails, "that can certainly derail stock markets worldwide, as it will raise the specter of sovereign risk all over again," Bhansali warns.
Investors should also watch closely to see if the Bank of Japan can get that country's economy, now in recession, back growing again. That's another potential "tail-risk" for markets.
* What's the biggest risk?
One word: China.
A sharp economic downturn or unraveling of its overheated and highly leveraged real estate market , she says, could cause financial market turbulence because "a lot of sectors and companies have benefited from China's rapid growth" during the past 15 years.
"China still remains the big swing factor in terms of the outlook for global GDP growth and risk," Bhansali says.
The ratio of China's debt to its GDP has "seen a massive increase," she says. China's exports are also slowing. And its "shadow banking system" has created a lot of non-performing loans that "will end up on its central bank's balance sheet. This kind of debt load always creates challenges."
* Stock to watch.
GlaxoSmithKline (GSK). The U.K.-based drug maker, despite recent headwinds from disappointing drug launches and the generic threat to its core franchise Advair, a leading asthma drug, is still well-positioned to profit from rising instances of respiratory diseases worldwide, says Bhansali.