Skagen AS is looking for the gainers that will emerge from China’s stock market plunge.
There will be opportunities in the “action we are seeing now,” said Kristoffer Stensrud, manager of the 36 billion-krone ($4 billion) Kon-Tiki A emerging market fund which has beaten the benchmark index in 11 of the past 14 years.
With U.S. rates interest rising, emerging markets are seeing outflows of cash that threaten growth and stability. China is among the few developing countries that will perform well as the Federal Reserve raises rates because of large asset holdings outside their own country, Stensrud, a founding partner of the Stavanger, Norway-based asset manager, said Tuesday in an interview.
China has stepped up its defense of the yuan, buying the currency in Hong Kong. By intervening, the People’s Bank of China is trying to curb bets on a rapid depreciation and close the gap between onshore and offshore rates — a condition for entry into the International Monetary Fund’s reserve-currency basket. The Shanghai Composite Index has fallen 17 percent so far this year making it the world’s worst-performing stock index.
“People are a little bit too pessimistic and putting too much weight on the negative consequences of commodities and of Chinese rebalancing,” Stensrud said.
Skagen invests 7 percent of its Kon-Tiki A fund in Chinese stocks, with China Shipping Development Co. Ltd. its top performer in December. Its largest investments were in Samsung Electronics Co., Hyundai Motor Co. and Mahindra & Mahindra Ltd. at the end of 2015. The fund gained an annualized 8.6 percent over the last 10 years, according to Skagen, while the MSCI Emerging Markets Index has gained 6.4 percent.
Skagen is also seeking out opportunities elsewhere. Even though the fund exited Petroleo Brasileiro SA and Vale SA in December, Stensrud says the negative outlook for Brazil makes it interesting for value investors. That’s a turnaround from March last year, when Stensrud said he had snapped up shares in Petrobras in a bet the troubled oil producer would rebound.
Skagen will “see what the market can serve us in terms of interesting valuations,” he said. “See what companies can do to utilize their obvious macro-challenges.”