We Favor Tech Sector, U.S. Equity Markets: Koch

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Nov. 19 (Bloomberg) -- Katie Koch, Managing Director and head of the Global Portfolio Solutions group for EMEA and Asia Pacific Ex-Japan at Goldman Sachs Asset Management, discusses worldwide economic outlook and her subsequent investing strategy. She speaks on Bloomberg Television’s “On The Move.”


If they do, how are they going to transform the way that investors can look at china?

This is an incredibly important question for investors everywhere.

We look at the reforms announced . i think they are real, they are significant, and the potential impact for china and the rest of the world is very substantial.

We think about those reforms in three buckets.

We think about the social reforms.

I would highlight the one-child policy and the lit realization.

We can think of economic reforms and allowing the markets to set the price of capital.

Finally, we think about the reform in the state owned enterprise status.

A lot of people have been critical of that reform because the chinese have said it would still be an important dollar of the economy.

We are encouraged by the dedication to remove some of the inefficiencies.

We think it is very expensive and could be huge for markets.

One of the most important things, this may be a population at will save less rather than more.

More importantly, it is exactly what china needs.

When we look at china, this is a country that needs to go through a rebalancing.

He have been saying that for a long time.

China needs to rebalance from being an export led economy to more of a consumer-driven economy.

You have to look at the reforms.

We are very encouraged because we think it will help drive the rebalance is -- the rebalancing we have been looking for.

Your favorite play our u.s. and japanese equities.

U.s. equities, clearly the valuation is quite expensive on the stoxx.

You look at it relative to history and some other developed markets.

U.s. equity markets also have a lot going for them.

We know that we will be in a period of relatively easy monetary policy.

That will be good for equity markets.

We have seen a continued housing market in the u.s., which we think can be good for growth.

The final point i would make is that we can see a pickup in business spending.

We have not quite seen that get traction yet.

We think that could be a positive catalyst.

In terms of sectors, our favorite one is technology.

In many of our portfolios, we are overweight in the technology space.

And we look at technology, what we like is that you can look at technology now as a value sector, not something you would have thought in the late 1990s. but it is the case now.

13% of the ballot sheets of those companies is actually cash.

Free cash flow has doubled over the past few years and we like it to continue.

Are you a little bit worried about relations?

There is such hype on these text box -- tech stocks because they are new and investors get a little carried away, sometimes.

In technology, you have to split it into two buckets.

You have emerging text box -- tech stocks and then you have the more mature tech companies, pristine balance sheet and strong cash flow valuation.

You're getting broad market exposure to the second bucket.

Talk to me about europe.

Is there any value in europe?

In europe, we are trying to grow.

We are not really doing a great job.

We like european equities.

We were very bullish on european equities earlier this year.

At that point in time, the valuation gap was wider.

Evaluation gap has narrowed, but we still are constructive on europe.

We think we will have an accommodative monetary policy backdrop.

Other things that we like about europe are certain sectors where we see a tremendous amount of valuation.

Overall, the market valuation has closed, but certain sectors are attractive.

Like which ones?

Technology and some of the industrial companies.

Japan, you still like it despite the fact that it seems markets are ahead of themselves.

We know they are ready to act, but it is not the kind of stimulus we were really expecting.

Another market we have been bullish on since december of last year.

We like the equity markets and we are overweight japanese equities, but we are heading out the fx exposure.

Short-term, the monetary policy story will be accommodative.

That is why we hedge out the currency.

Medium term, it is the rotation story.

A market capitalization of about 4 trillion or the japanese equity market.

18% of retail investors in japan are sitting in cash.

Is a trillion dollars in cash.

The flow can be very positive.

We are seeing some pension funds step in to equity markets.

That would be a good story.

The longer-term, it is about reforms.

Raising the rates of female legal participation in japan, which is the second lowest in the developed world.

That will take sometime to see if that plays out.

We still think there is more work to do.

You are at an insurance conference last year.

If you advise an insurance company how to invest their money, is a different as to how you would advise an individual?

Yes, of course.

Every investor is individual and you have to tailor the portfolio for that investor.

For insurance companies, we are asking them to risk up certain parts of the portfolio and look at places they have not historically look.

For example, emerging-market debt, where we see some good value.

You have to pick the right emerging-market.

Once the fed starts tapering, we may see a huge crunch.

This is true.

Obviously, when you get in an environment of rising u.s. rates, that could be bad.

Selectivity is critical both for emerging-market equities and emerging-market debt.

Thank you so much.

Great to have you on the program.

Coming up on the program, is dropbox holding investors?

The valuation is incredible, phenomenal.

He will tell you how much next.


This text has been automatically generated. It may not be 100% accurate.


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