Emma Wall: Hello and welcome to the Morningstar Series "Why Should I Invest With You". I'm Emma Wall and I am joined today by Charles Biderman Manager of the Comgest Growth Emerging Markets Fund.
Hi, Charles.
Charles Biderman: Hi, Emma.
Wall: So we're talking about emerging markets today and we should start with the largest holding in the fund and indeed probably the most important, if we are looking at the news headlines at the moment and that’s China. A sizable weighting, how do you feel about it?
Biderman: Yes, well China has been let's say, volatile in the past year, year and half. And well at Comgest we are more stock pickers, so we don’t really look at the macro, we don’t look at the short term volatility. We're much more interested in what's going on over the long term.
So what we have been doing in China is just sticking to our approach, meaning that we are looking for quality companies that will grow over time on a sustainable basis. So we have used the volatility of the market as an opportunity to adjust and fine tune our positions.
Wall: The good thing about stock picking as you say is you can ignore the rest of the market, you can ignore the macro. But when all of the market is dragged down and all of the market dragged up it becomes difficult to just be able to trust a stock on its fundamentals.
I suppose there are concerns with China that the way that you evaluate a stock becomes null and void because the government's hand is so strong in the playing of the market. I mean is that a concern for you or do you trust the process enough that whatever the government does, it will out?
Biderman: Well, we've been investing in emerging markets for more than 20 years. So I mean we have this kind of experience and we know that short term yes, there will be noise and there might even be impact on an operational basis.
But over the long term, and when I mean long term it's like on the five year or more basis, then fundamentals will prevail and we do have trust. We do really stick to our convictions and to a process in that case.
So for example we are investing right now in China Life. This is a life insurance company in China. It has 30% market share. I mean just to give an idea, it's just incredible, the size and the magnitude of things. China, I mean the middle class of China is still small. But we are talking already about 300 million people. So 30% of that it's just huge, right?
So they have 700,000 brokers, selling premiums for China Life throughout the country. I mean it has been growing at double digit in the past 15 years and given the level of penetration today it's most likely that would continue in the next 15.
So alright this year might be a little bit more problematic or volatile. But we are pretty sure about the next 15 years and so we stick to that.
Wall: Let's jump across the globe then to another one of your overweight holdings and that’s Brazil. Latin America in general has had quite a difficult period, both looking at on a stock-by-stock basis, there've been couple of scandals with individual companies.
There's also been the macro overlay of almost every single country in Latin America has had an election in the last few years and coming up for the next couple of years. But there are signs that show that Brazil is perhaps turning a corner. Where do you see the opportunities within that and are you sort of positive that Brazil is turning the corner?
Biderman: Well, politics is always a big theme in Latin America no doubt about that. Brazil has gotten through elections, Dilma has been reelected. And it looks like it's going to a different direction, they have no choice, they have no money left.
Their running current account deficits and they have to address that and they are. Are we at a turning point or not? The next few months will tell us really if it was just announcement to reassure the market or if there really are facts behind it.
At least the first signs are encouraging in terms of what's the direction that they are taking. But well then there is still talk is cheap, so there is still lot to do there.
I mean but despite this slowing macro and this difficult environment we still are able to find like companies growing more than 20% EPS. I mean we have WEG the electrical motor manufacturer in Brazil. They are growing more than 20% in the first half.
GDP will probably contract by 2% this year investments are falling and thus you are growing more than 20% because they have a lot of recurring revenues because they are investing abroad as well and just because they have an extraordinary product.
Wall: I suppose it's like any market. 70% of the revenues of the FTSE 100 come from outside the U.K. so just because the stock is listed in Brazil doesn’t necessarily mean it's dependent on the Brazilian stock market, Brazilian domestic market, rather?
Biderman: Yes, there is still so much to do within Brazil. I mean companies they are still, I mean they are less international still, than what we can find in the U.K. for example. But you can find those companies that have operations abroad that’s certain, yes.
Wall: Charles, thank you very much.
Biderman: No, thank you.
Wall: This is Emma Wall from Morningstar. Thank you for watching.
