With my sleep, but it also creates opportunities for stock pickers, says Suneil Mahindru
New York: Suneil Mahindru expects a wild ride in the world’s stock markets and not that much to show for it, at least compared with easier times in the past.
The chief investment officer for international equities at Goldman Sachs Asset Management, who oversees about $15 billion, says bouts of volatility will continue as nervous investors dump shares at even the slightest hint of bad news. Yearly returns on stocks will probably be in the mid-single digits as low inflation and high debt constrain growth in the biggest economies, he says. That’s about in line with the average over the past two decades, though down from the 12% average throughout the recovery from the 2008 crisis.
Shares have just clawed their way back to where they started 2016, af- ter concern about collapsing oil prices and the potency of central bank stimulus drove a global stock gauge to a 2 1/2-year low in February. For Mahindru, the world is still struggling after the kind of recession that generally takes a decade or more to overcome. He’s not alone in seeing muted returns, with US equity strategists predicting just a 3.3% gain in American stocks for the rest of the year. “The market is very skittish,” Mahindru said in a phone interview from London this week. “Anything that can be interpreted as negative, the market is interpreting it negatively,” he said. “It doesn’t help me sleep but actually it gives me more opportunities.”
Mahindru runs Goldman’s flag- ship Global Equity Partners Portfolio, which holds 25 to 35 companies with high and defensible returns, predictable business models and lower valuations — a strategy that the company says should perform well even when the market turns bad.
The fund has returned an annual average of 5.6% over the past five years, against a 6.8% gain for its benchmark,theMSCIWorldIndexdenominated in US dollars, according to data on Goldman’s website. While Mahindrudeclinedtonamecompanies it buys, the two largest holdings areYum!Brands,ownerof theKFC, Pizza Hut and Taco Bell fast-food chains, and Alphabet, the parent of Google, according to the website.
Mahindru sees scope to exploit a selloff in European shares by picking global businesses that happen to be listed there. On China, he expects more volatility as the economy shifts from manu-
‘Bouts of volatility will continue as nervous investors dump shares at even the slightest hint of bad news’
facturing to services, where the government has much less control. He favors consumer businesses associated with a high standard of living, anything from healthcare to food quality and even sportswear. A measure of European stocks lost 6.2% in 2016, while the Shanghai Composite Index was down 13% through Wednesday.
“When people say, ‘I don’t want to own Europe at all,’ that gives us an opportunity,” Mahindru said. In China, “we tend to stay away from state-owned enterprises and focus much more on the private sector, where we find good businesses.”