As point man for Greystone’s international equities, Jeff Tiefenbach reveals his strategy when dealing with markets a long way from home
WE LIVE in the age of globalization, a time when a great deal of the world’s population has the ability to contact people across time zones and oceans in a matter of seconds. But while nations are indeed interconnected in 2016, it still holds true that each country has its own unique culture and history – and that must never be disregarded when doing business.
Looking abroad can often bring huge returns for investors, but it’s not without considerable risk. How things are done in Toronto or New York may not necessarily be the same in Shanghai, Mumbai or Mexico City. As such, individuals like Jeff Tiefenbach are there to direct investors to companies, countries or regions that offer safe returns for their money.
Now in his eighth year as senior vice president of international equities at Greystone Managed Investments, Tiefenbach has developed a keen sense for the vagaries of the world economy.
Risk and reward in China
Tiefenbach first touches on the world’s most populous country, which has been driving global growth (and volatility) for decades now.
“China needs to reform – and the sooner the better,” he says. “The biggest risk is its financial sector. There are non-performing loans and bad debts throughout the system, but levers are being used to work those loans through the system currently.”
China’s average growth rate of around 10% throughout the 1990s and 2000s has now slowed (to 6.7% in Q1 of 2016), but there has always been a degree of cynicism when it comes to the veracity of China’s reporting. One such area has been real estate, but Tiefenbach reveals that it has largely stabilized. This supports pronouncements from Beijing that it is making stringent efforts to stabilize the economy and promote more sustainable growth moving forward.
“In certain housing markets, it is getting into overheated territory,” Tiefenbach says. “The main markets, places like Shenzhen – a tier one city – have had house prices increase by 65%. Beijing and Shanghai are about 20% growth year-over-year. More broadly, there is a 70-city index, and prices are up 5% on that. It looks relatively good overall, but with some pockets of excess.”
In changing the face of Chinese growth, the government of President Xi Jinping is attempting to move the economy away from the manufacturing that created a new superpower and toward services. Given the sheer scale of China, the move is akin to turning around an oil tanker. The shift will therefore take time, but signs are there that change is taking root.
“There has been a reliance on manufacturing and heavy-industry spending – over-investment,” Tiefenbach says. “Generally the quickest, easiest way to get growth is through building a new steel mill or a factory. What needs to replace that is an increase in consumer spending. It will take a rebalancing of the economy, and we are seeing that with services growing. Things like healthcare and online retailing are doing quite well and paying rewards to investors.”
Other targets for investment
A fixture with Greystone for 11 years now, Tiefenbach moved into foreign equities in 2008. He reveals the firm’s strategy when searching for new markets.
“From a growth point of view, India does look interesting,” he says. “We don’t have any direct investments there right now, but we are actively looking. The way we look at the world is from a top-down macro view, but finding the right stock is the always the most important factor.”
Aside from the two giants of China and India, Tiefenbach sees plenty of other developing nations out there that are ripe for investment.
“Mexico looks quite interesting due to its proximity to the US,” he says. “Consumers in the United States continue to be a good source of demand globally. As China becomes more expensive to export from, Mexico looks more interesting. For energy, it also has a long-term, low-cost supply of natural gas, which will feed into its resource base.”
Greystone also has its eye on South Africa. “It’s still developing, but South Africa has a lot of potential,” Tiefenbach says. “If gold remains firm, that will help buoy the economy. It is similar to a lot of the emerging economies, where growth is slow because of commodities and China, but they are coming out the other side.”
Emerging markets have to meet certain standards to fulfill Greystone’s investment criteria. A nation with plenty of natural resources or a well-educated and cheap workforce is all well and good, but Tiefenbach says the political environment must be right, too.
“The main thing [we look for] is some sense of macro stability,” he says. “There has to be good corporate governance. We have to know our investors will be rewarded for holding securities in these countries. Russia has been a very good market, but there are a lot of governance issues there.”
Capricious leaders notwithstanding, there are many other factors that dictate where to invest or not – and Tiefenbach is definitely keeping his eye on one issue in particular.
“I saw a recent stat that sovereign debt trading at negative interest rates globally was close to US$7 trillion, and that is concerning,” he says. “How banking systems can function with negative interest rates is a worry. A big area of risk is the European banks and, to a lesser extent, in Japan, which have yield curves that make it very challenging to make profits in those markets. We are underexposed to the banking sectors in those regions, but it’s something we are monitoring very closely.”
