Portfolio manager names Chinese and European stocks that promise strong returns

Investors should consider quality companies in China and Europe with premium valuations that have performed very well despite the “terrible” political and economic situations in these markets, according to Jordan Cvetanovski of Pella Funds.

Over the past two to three months, Pella Funds has been looking for opportunities in China and has increased its exposure to the region by “more than 10%,” said Cvetanovski, the company’s president and chief investment officer. The company’s strict focus on valuations has led it to other regions beyond the United States, such as Europe and Asia.

He told CNBC’s Sri Jegarajah that the company’s investments in China may need a bigger push from the country, which is currently introducing more fiscal stimulus to revive its economy. Even if those measures are not taken, the investment opportunities selected by Pella Funds have performed well despite market volatility.

In November, China announced a five year stimulus package totaling 10 trillion yuan ($1.37 trillion) to address local governments’ debt problems. Beijing’s administration signaled it will receive more economic support in 2025 as it seeks to boost growth in the world’s second-largest economy.

“Any stimulus we expect from the Chinese authorities would be extremely favorable for these companies, given their very low valuations and low positioning by global managers,” Cvetanovski said.

“We anticipate very strong returns, and we think the time has indeed come to position ourselves for this going into next year, given all the fear surrounding tariff wars and what have you,” he added.

Among the Chinese companies that are priced favorably and could benefit from fiscal stimulus are robot makers. Midea GroupHong Kong stock exchanges and life insurer AIA Groupaccording to Cvetanovski.

He said Pella Funds has monitored the Hong Kong stock exchanges for many years and expects it to benefit “tremendously” from a boost to the markets and new issuance.

“One of the best quality companies within the region is AIA, the life insurer in Hong Kong, which continues to perform year after year,” Cvetanovski said, adding that if the insurer were listed in the US, it would have a lower valuation. That is, between 50% and 70% more from the first day.

Cvetanovski noted that Pella Funds has been a strong supporter of the world’s largest contract chipmaker. Semiconductor manufacturing in Taiwan Co. However, the company’s interest in TSMC is an artificial intelligence play.

Cvetanovski said Europe has also suffered its share of political turmoil, with government collapses in both Germany and France generating a lot of uncertainty in the regional market.

However, traders’ distrust of investing in Europe constitutes a “big” opportunity for Pella Funds, according to Cvetanovski.

The portfolio manager mentioned the French electrical equipment manufacturer. Schneider Electricity as an example of a company that is increasing its expected growth rates and margin improvements despite the recent political instability in France.

Schneider Electric has been looking to capitalize on Europe’s digital transition and the rise of artificial intelligence by investing heavily in its data center business. In July, the company raised its 2024 financial targets thanks to record revenue and improved profit margins.

Pella Funds also recently entered a position in a UK engineering company. Spirax Groupformerly known as Spirax-Sarco, and at Swedish manufacturer Epiroc, a company that would benefit from a resurgence in mining capital spending, Cvetanovski told CNBC.

“These are the companies that would benefit again from China… by offering fiscal stimulus. But other than that, you don’t necessarily need it. They’re just cheap and growing, and we can justify what we’re paying, while overall, we can’t really justify some of the valuations in the United States,” Cvetanovski said.