NEW YORK — China’s stumbling stock market has spooked many investors, but Justin Leverenz isn’t one of them. He runs Oppenheimer’s Developing Markets fund, the largest actively managed mutual fund specializing in emerging-market stocks, and he still sees big opportunities for stocks from China and developing economies in general.
Investors overall have grown more skeptical of these formerly fast-growing economies: Growth for emerging markets dropped by nearly half between 2007 and last year, and investors pulled out a net $1.3 billion from Chinese stock funds over the last 12 months, according to Morningstar.
Leverenz spoke recently about why he sees big gains for Chinese online-video companies in particular, as well as why he has avoided Argentine stocks and why Indian stocks may be in the midst of a strong bull market.
Q: You’ve called Chinese online-video stocks one of the best media opportunities of a lifetime. Why so optimistic?
A: America is disproportionate in everything — half the world’s health care spending, half the world’s media spending. The only other country that has that capacity to develop these continental-size markets, whether it’s health care or media or technology, is going to be China.
And that’s what I meant by one of the greatest media opportunities of all time: China’s a continental-sized economy. What you’re going to see is advertising, which is relatively small in China as a percentage of GDP, is going to get a lot larger. That is because the real growth story in China is about the consumer, and that consumer is one of the most coveted consumers on the planet because every single multi-national company wants to build a scalable business on the other big, continental-sized economy.
Q: What do you make of all the jitters surrounding Chinese stocks?
A: Chinese equities have done stunningly bad against the world’s greatest growth markets from a macro perspective. There was a big bull market between 2004 and 2007, but we’re basically back where we were 10 years ago. All great bull markets have to start in the environment of extreme stress and despair because then ownership is low. That’s where we are in the Chinese equity market.
I think that China is the one economy that is addicted to reform, and that reform agenda is very powerful and will create significant, sustained growth. That reform agenda includes interest-rate liberalization, labor-market reform and lots of micro-level reform including consolidation and privatization.
Q: What do you think of the argument that it’s better to invest in the Chinese economy by buying developed-market stocks that do lots of business there?
A: The Chinese model is very different. Think about Alibaba in e-commerce. Alibaba had to do things very differently than eBay did. Because you have a lack of trust in many of these geographies, where buyers didn’t trust that sellers offered what they sold on the Internet, Alibaba had to create escrow accounts, which is Alipay.