We remain focused on secular growth companies: Albert Kwok, MD, PGIM Jennison Associates

December 8, 2020 4:00 AM

Despite strong year-to-date performance, we remain comfortable with portfolio level valuations and the reasons behind their expansion.

Albert Kwok, MD, PGIM Jennison AssociatesAlbert Kwok, MD, PGIM Jennison Associates

By Urvashi Valecha

The new normal will create an environment for active investors to generate alpha, says Albert Kwok, managing director, PGIM Jennison Associates. In an interview with Urvashi Valecha, Kwok says the worst of the Covid-19 pandemic seems to be behind India. Excerpts:

India, barring China at $8 billion, has received the highest inflows among EMs in November. Why does India stand out?
In India, wealth accumulation and rising discretionary spending have been catalysts for growth. Lifestyle changes and urbanisation have driven up consumption, increasing demand in areas such as educational and financial services, healthcare products, and leisure. Companies offering these services have a long runway for secular growth. One of the reasons for the inflows is that the worst of the Covid-19 pandemic seems to be behind India. Daily new cases have been on the decline and mortality rates remain low. Many pockets of the economy have been recovering back to the pre-Covid-19 levels.

What is your view on EMs and the reversal of the globalisation trend?
The world is indeed becoming more inward looking. Localisation and supply chain diversification will create opportunities for many countries and companies. We think the new normal will create a great environment for active investors to generate alpha. We remain focused on secular growth companies that are mostly found in the consumer, technology and health care sectors. We believe that opportunities will emerge regardless of the economic or political backdrop.

Global markets have risen quite a lot from their crash and valuations are soaring. What kind of returns do you expect from equities in this scenario?
Despite strong year-to-date performance, we remain comfortable with portfolio level valuations and the reasons behind their expansion. The growth profiles of the companies we own remain attractive, especially the secular growth stocks in which we invest, versus other segments of the market. We are also comfortable with portfolio valuations because our fundamental research suggests that the businesses of many holdings are accelerating during the pandemic. We are very mindful of valuation and we address it one stock at a time; however, we believe that price earnings (PE) are not an accurate predictor of future returns; future earnings are what drive stock price performance. While near-term PEs might look rich, we believe that earnings are depressed due to the Covid-19 disruption. We are also seeing an acceleration in many secular trends that were already taking place before Covid-19.

Investment banks are saying this is the start of strong corporate earnings for EMs. Your view on the same.
We believe that many of the winners of the last few years offer differentiated and disruptive business models that are even more compelling in the current period of economic turmoil and social distancing. E-commerce companies, health care innovators and digital payments systems are among companies positioned for continued growth. As companies and individuals in developing countries gain an enhanced appreciation of their distinct value and utility, especially in times of unprecedented disruption and restricted mobility, demand for and adoption of their services and products are set to accelerate, leading to greater penetration and market share gains. The earnings growth we expect from our holdings is well above market averages.

India has introduced a number of reforms. How have these changed the perception of the Indian markets?
The direction is positive and the market should view the reforms constructively, particularly those on labor laws and the agricultural sector. However, execution and implementation are keys.

What is your outlook for India as a market for 2021?
In early 2020, we reduced our weight aggressively due to the impact Covid-19 was having on our Indian holdings. As the high frequency economic data improve in India, we are more encouraged about the pace of the recovery and future investment opportunities in India. We recently increased our exposure to India by re-establishing a position in HDFC Bank and adding to our existing holdings. Overall, India is one of the few true emerging markets left and we are optimistic in the long-term outlook for India.

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