Laurence Bensafi, portfolio manager and deputy head of emerging-markets equities for RBC Global Asset Management (UK).Kate Peters/The Globe and Mail
Laurence Bensafi has spent nearly 20 years managing emerging-markets equities, but it was an accidental career. After earning a statistics and econometrics degree, she eventually got a chance to run an Asian stock fund. It happened during the 2001–2010 bull market for emerging economies, fuelled by China joining the World Trade Organization and unleashing a commodity super cycle. Despite market volatility and political headwinds, she was hooked. Since 2013, her $1.5-billion RBC Emerging Markets Dividend Fund RBF486 has outpaced the MSCI Emerging Markets Net Total Return Index over the long haul. We asked Bensafi how investable the Chinese market is and why she likes Taiwan Semiconductor Manufacturing.
What’s your strategy to outperform your index?
We take advantage of market volatility and inefficiency by buying companies that become cheap for a short period. During COVID-19, we bought companies priced as if the pandemic would last forever. We look for quality companies that are growing, have cash flow and pay dividends. We try to identify areas of long-term secular themes to avoid parts of the benchmark without growth.
What is your outlook for emerging markets given they have been range-bound for a decade?
It’s been disappointing, especially when developed markets have done well. The strong U.S. dollar has been a headwind, but it now looks overvalued and U.S. equities are expensive. Emerging markets equities, however, trade at a big discount to developed markets and have improved fundamentals. It is difficult to know when emerging markets will outperform but we expect the next 10 years will be better than the last 10. When the U.S. dollar weakens, it will be a signal that we are in a more risk-on environment.
Indian stocks have soared since 2014. What’s your outlook given that Prime Minister Narendra Modi lost his parliamentary majority?
There was concern that we would see more populist policies and less fiscal discipline. But the July budget shows a commitment to macroeconomic stability, and continued focus on infrastructure, local manufacturing, energy transition, and digitalization. My strategy is to buy cheap stocks, but Indian equities have become expensive. We still like the financial sector. We own Axis Bank because loans and mortgages have growth potential. We also like aluminum giant Hindalco Industries and Apollo Tyres, maker of tires.
How investable is the Chinese market given its past crackdown on the technology sector?
China is trying to reach several goals simultaneously. It wants sustainable growth without income inequality. It wants to modernize the country but continue with its political system. We need to see the [crisis-hit] real estate sector resume growing, but consumers are depressed, and are saving instead of spending. When investing in China, you must be very selective—and more so now. We like the consumer sector because of low valuations. We own online travel agency Trip.com, which is expanding in Asia, and Topsports International Holdings, the main distributor of Nike and Adidas products in China. We also like exporters, such as Zoomlion, which is the Caterpillar of China.
Why is Taiwan Semiconductor Manufacturing a top holding when China could invade Taiwan?
It’s part of our digitalization theme. Taiwan Semiconductor makes higher-value-added chips for Nvidia and others, is very profitable and is ahead of its competitors. It trades at a significant discount to U.S. companies involved in AI or technology, so it reflects that risk. The probability of China invading Taiwan is low, but not zero. If it did, that would impact all equity markets globally. It’s tricky, but we diversify as much as we can and still continue investing there.
Turkey’s surging stock market over the past two years has been ignored by many fund managers. Why do you like it?
Foreign investors left because of issues with Turkey’s leadership and handling of the economy. We like Turkey long term because of its young population, and the quality of its corporations despite high inflation and government interference. We own Koc Holdings, an industrial conglomerate. The Turkish market has done well because local investors saw it has an inflation hedge while interest rates were low. But rates have risen massively, and inflation is falling. Foreign investors will return but are more interested in its bond market now.
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