Industry News

Asset managers highlight growth opportunities in Europe, Japan and India

By Megan Harman |

International markets such as Europe, Japan and India offer promising opportunities for stock pickers, executives at investment management firms said on Tuesday.

Speaking at the Canadian Institute of Financial Planners conference in Ottawa, Bruce Cooper, vice chair at TD Asset Management Inc. said Canadian investors should be tapping into global growth through exposure to international equities.

“We do think equities today offer the possibility of higher returns,” he said. “Valuations in the equity market I think are quite attractive.”

Cooper said he sees investment opportunities in both emerging markets and developed markets around the world. But in many regions, he said it’s necessary to choose stocks carefully based on their fundamentals and growth prospects.

Europe, for instance, boasts many stocks with promising potential. “If you look at European companies, they’re doing really, really well,” Cooper said. “Earnings growth has been terrific.”

But with massive debt loads and fiscal problems plaguing parts of the region, it’s important to choose stocks and sectors that aren’t negatively impacted by this turmoil. Cooper favours European exporters and companies with exposure to Asia and other growing markets.

“These companies are not land-locked,” he said, “they’re selling to a global market.”

The situation is similar in Japan, where despite muted economic growth prospects, investment opportunities can be found. Cooper noted that Japanese equities are currently very cheap, and that many companies have become more focused on delivering returns to shareholders.

“There are opportunities for stock pickers, in a global portfolio, to buy interesting Japanese companies that actually have high dividend yields and generally good cash flow,” Cooper said.

India is another country showing promise for stock market investors, Cooper said. Larry Puglia, vice president at Baltimore-based T. Rowe Price Group, Inc., agreed that prospects are strong in India and other emerging markets.

“Over the next five to 10 years, I would have a good portion [of my portfolio] if I was an investor in emerging markets,” he said.

Many U.S. stocks provide effective exposure to these markets, Puglia said. He’s particularly bullish on consumer discretionary stocks such as Nike, Inc. (NYSE:NKE), Fossil, Inc. (Nasdaq:FOSL) and Tiffany & Co. (NYSE:TIF), which are poised benefit from the growing middle class market of consumers in countries such as China.

The time is right for Canadians to be looking abroad, according to Cooper, since the Canadian dollar appears to have stabilized at a level around par with the U.S. dollar.

“I think that opens up the opportunity for Canadian investors to invest internationally without the headwinds of currency,” he said. In the past, he noted, significant fluctuations in the value of the loonie have made international investments considerably more risky for Canadians.

Cooper is currently bearish on fixed income, since yields continue to be very low. Over the next few years, he expects fixed income returns to remain in the low single digits, at best.

“You want to think through, in your clients’ portfolios, whether that single digit return is enough to get you to where you want to go,” he said. “A lot of people have had this experience in the fixed income market of great returns and low volatility, but we’re trying to highlight that that’s probably an unreasonable expectation.”

IE