Global outlook remains strong: GGOF

Canadian investors are once again being told to cash in some of their Canadian oil profits and look abroad, before the markets succumb to the long-anticipated slowdown. The prophets of foreign profits this time around are Gavin Graham and a pair of globally focused portfolio managers for Guardian Group of Funds.

“Canada has been by far the best performing stock market for Canadian investors over the last five years,” says Gavin Graham, chief investment officer of GGOF. “We still feel that it will be a very attractive place for Canadian investors, but there are some areas that Canada does not give investors good exposure to. By having non-Canadian content, you will reduce the overall volatility of your portfolio.”

He points to Europe as providing strong industry diversification, while Asia remains attractive in terms of overall growth potential.

Rajiv Jain, a value-oriented manager with Vontobel Asset Management Inc. and lead manager of GGOF European Equity Fund, says Europe currently offers just the set of conditions he is looking for.

The EU, long seen as plagued by relatively slow growth and chronic restructuring, offers several well-run companies with global scope, providing relatively low risk, Jain says.

“There are some fairly well-run, well-entrenched companies which operate globally, or even within their own country, that have managed to grow at a reasonably heady pace without taking on a lot of the risk that one would take by going into some of the other parts of the world,” he says.

Valuations on some consumer-oriented stocks — large multinationals such as the grocer Tesco and drinks giant Diageo — remain relatively attractive, as they have underperformed the rallying indices, which have been led by commodities giants.

If value investing is off your client’s radar, Asia continues to offer strong growth potential, according to Paul Matthews, founder of Matthews International Capital Management and lead manager of GGOF Asian Growth and Income Fund. He calls Asia “undoubtedly the growth part of the world.”

The old story of China as just a source of cheap manufacturing may already be outdated, he says, pointing to the country as a growing financial powerhouse. In 2006, China’s stock markets surpassed both the U.S. and the U.K. as the largest source of capital for new listings.

“Over the past three to five years, China has reached a tipping point where its role in the global economy is no longer deniable,” Matthews says.

Across the region, the availability and use of credit is rapidly expanding and still has plenty of room for growth. In more developed economies, such as Taiwan and Singapore, virtually every adult has some form of household credit, making up about 50% of GDP, while in India, consumer credit accounts for less than 5% of GDP, and less than 2% have credit cards.

China and India have continued to lead the region in 2006, but it may be time for investors to start looking to more peripheral markets to find higher rates of growth.

On a sectoral basis, he favours consumer stocks as a means of capitalizing on the rapidly increasing affluence across the region.

“Although we think the Indian market has gotten ahead of itself, there are still tremendous long-term opportunities,” Matthews says. “Seventy per cent of India’s population still lives in the country, where penetration of basic everyday items is extremely low.”

He admits that there remain threats to growth in the region, ranging from industrial pollution to weakness of the books in Chinese banks.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(11/28/06)

Steven Lamb