Emma Wall: Hello, and welcome to the Morningstar series, 'Why Should I Invest with you?' I'm Emma Wall and here with me today is James Thomson, manager of the Rathbone Global Opportunities Fund.
Hello, James.
James Thomson: Hello.
Wall: You've got a really wide remit in the global fund. I thought we could talk about some positives and negatives, where you seeing some opportunities and where are you seeing some threats. Maybe we'll start with the negative; China. That seems to be the big cloud on the horizon. I know you don't have any exposure, but perhaps you could talk about why you don't?
Thomson: Yes, I mean even though I don't have any direct exposure to China or any emerging markets, I think it's important to have a view on China because, of course it can infect the rest of the world's growth and my view on China is more bearish. I don't think we're about to collapse, but I think that we are in a transition period in China and many emerging markets where there a transitioning away from the growth miracle that was investment spending, really to a world of consumption spending, which is like our own economy.
My problem is I think that transition is going to be more difficult than many commentators think and I think that the transition itself is going to lead to much lower growth rates, much higher unemployment and a more difficult prospect for their equity markets and that could spill over to the rest of the world.
Wall: On that unemployment thing, it's quite a novel view because I have had the idea that growth will slow down but slowdown from sort of 8% to 6% is no bad thing, I mean we dream of that kind of growth in the UK.
But on that unemployment issues that will really affect the private sector, and that's that stock market.
Thomson: Absolutely, you are right and one of the key statistics is that for investment spending in China, which is what they've been reliant upon for every million dollars' worth of investment spending towards GDP you create 12 jobs for every million dollars' worth of consumption spending, contribution towards GDP, you only create four.
So, as you try and rebalance away from investment towards consumption, inevitably you are going to create unemployment, which then gets into the spiral of slower growth. 6%, 7% GDP growth for us sounds fantastic, but in China, they need that level of water moving over the keel just to keep the ship afloat.
Wall: What then about the oil price because I think that's the other big threat to the global economy at the moment.
Thomson: The best thing I can do as fund manager to protect myself from the collapsing oil price is to have virtually no energy exposure, oil and gas exposure in my fund and that's the case. But what a collapsing oil price or a price spike does is that it opens up structural vulnerabilities across the world and that will translate into increased volatility, not just for energy stocks, but that could spill over into geopolitical events and the rest of the equity market.
So, I think as we are coming to terms with these lower oil prices, it's going to create extra volatility in equity markets, but there is your opportunity, because with lower oil price of course, comes more money in our wallets, and so that will be a boost to consumer spending in the long-term. The problem is the road getting there could be a bit bumpier.
Wall: You started to talk positives there within that oil price conversation. What else are some of the big sort of opportunities to someone like you across the globe at the moment?
Thomson: Well, I think both of those phenomenon, a weakening China and falling oil prices in the medium to long-term probably benefits countries like the United States and their stock market there and that's why we've been seeing I think such excellent performance coming out of the U.S. stock market and why I have 60% of my fund in the U.S., the highest in the fund's history. So, I think that we are going to go through a much better period of sustainable growth in the United States, much less volatility of growth prospects as well. So, I think that really opens up a lot of exciting opportunities that while we acknowledge, there may be some volatility on the way, I think that's where we're going to make some money.
Wall: I think for those who are naysayers, they say the U.S. has done incredibly well. If you were a contrarian investor and you got in when things looked choppy, you've made an incredible amount of money S&P, new highs seemingly every day. Why will this continue? Because surely you've got to come to a point where you're going to call the top of the market?
Thomson: I can't tell you how many people have told me that this stock, this country, this equity market has done very well, move on and find the next thing only for it to continue to go higher and beat the other relative companies or sectors as a result. Look the United States is in a period of sort of goldilocks period in many ways where there is low inflation and a strong dollar and that creates the most beneficial environment for equities.
So during those periods, stock markets like the United States actually deserve a higher valuation that's the pushback I get the most often. High valuations in the states, let's go somewhere else. I would much rather buy unblemished growth, a sustainable story and a good economic backdrop than trying to predict when something is going to turnaround I prefer unblemished growth stories all day long.
Wall: James, thank you very much.
Thomson: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
