What You Need to Know
- The sell-off after Russia's invasion of Ukraine created opportunities, Sammy Simnegar of Fidelity says.
- He likes luxury companies like LVMH that don't get squeezed when the mass market does.
- CEO Sarah Ketterer of Causeway Capital says investing in China is critical, Simnegar sees a major shift in progress there.
Causeway Capital CEO Sarah Ketterer and Fidelity portfolio manager Sammy Simnegar take different investing approaches but both see opportunity in international markets, despite significant uncertainties surrounding China and Russia’s Ukraine invasion.
Value manager Ketterer and growth manager Simnegar, discussing their perspectives last week at the Morningstar Investment Conference, also cited notable economic risks domestically and globally, given geopolitical events, supply chain disruptions and high inflation.
“There are exceptional companies in the emerging markets and international markets,” Simnegar said. “There’s a lot of money to be made and a lot of money in active management relative to the benchmarks.”
Longer term, Simnegar sees conditions as more bullish for developed markets.
Ketterer noted that non-U.S. managements and companies tend to emerge well from crises. “I wouldn’t give up hope on non-U.S.,” she said. “We think it looks excellent for the next decade.”
Irrational selling created buying opportunities after Russia invaded Ukraine on Feb. 24, she said, noting a European equities swoon as investors abandoned any stock with exposure to Russia.
“It was sold off heavily,” with more market cap destruction than the actual value of whatever the companies had in Russia, “and that created an opportunity for us to buy more of some great companies, because we’ll get through this, it’s just taking a while,” said Ketterer.
Causeway has started adding positions in select European banks with hard-hit stocks. The selloff left European financials trading at the same levels they did during the global financial crisis, but with “demonstrably more financial strength,” she noted.
(Simnegar considers banks to be commoditized and while he owns a few, he said he tends to avoid them.)
Effects of the prolonged Ukraine crisis will be tough for Europe economically, said Ketterer, who expects rationing and conservation measures next winter as countries face cuts in Russian energy supplies on which they’ve depended.
Investors may find a silver lining in European utilities and their renewable energy investments, she said. “They’re carrying the mantle,” she said. The need for renewables is inexorable. The byproduct of this invasion is not just misery and just terrible tragedy in the Ukraine, it’s also the urgent need for Europe to become energy independent and they’ll need transition fuels like natural gas.”
After the invasion, Causeway added stocks in industries it normally doesn’t invest in, including certain tech stocks, while sticking to its buy and sell discipline, said Ketterer.
“It’s very hard to know where the bottom is for the market or stocks in particular,” but her firm works with specific valuation criteria and analyses that point managers to promising portfolio candidates, she said.
The effects of Russia’s invasion on commodities, such as oil, agriculture and metals, has hit the global economy and caused the Fed to be much more aggressive, Simnegar noted.
Hard Landing, Recession Possible
“I think the chances of a soft landing have come down dramatically and I think the chances of a hard landing have gone up a lot,” he said.