After a strong start to global stock markets, Franz Weis chief investment officer at Comgest, a growth investor, discusses with this publication in Paris the outlook for 2023 and investment opportunities in Europe and Asia.
After a very difficult year in 2022, Franz Weis, chief investment officer at Paris-based Comgest and European equities portfolio manager, is more optimistic about the outlook for 2023.
“Last year, raw material prices were out of control and the whole market was dominated by high inflation and interest rate hikes,” he told this news service in an exclusive interview at its offices in Paris.
“As a growth investor, 2022 was a challenging year but we hope that 2023 will be better,” he continued.
Eurostat's flash index reading showed that consumer prices in the eurozone rose at an annual rate of 8.5 per cent in January, down from 9.2 per cent in December. This led markets to take a more optimistic stance about potential interest rate hikes and the depth of the expected economic downturn. Consumer and growth stocks performed strongest, while more defensive sectors, including healthcare, underperformed.
Weis’s investment philosophy is based on investing in a few high-quality long-term growth firms, which are less likely to be impacted. Factoring in ESG criteria into the investment process is also an important point for Weis; it is something that is gaining increasing attention from investors. Weis said that most of their funds come under Article 8 of the EU’s Sustainable Finance Disclosure Regulation.
Comgest Growth Europe Fund
Although COMGEST’s Growth Europe Fund underperformed last year, profits were up and the fund has consistently outperformed the index over the period 2013 to 2021, he said. In the portfolio, consumer and travel names rose strongly.
The fund focuses on healthcare, IT, industrials and consumer staples, and it is heavily weighted in France, followed by Switzerland, the Netherlands, Ireland, Denmark and the UK. Its top holding is Dutch firm ASML in the semiconductor industry, providing chipmakers with what they need through lithography, and it is guiding for 25 per cent sales growth in 2023. They also include Danish pharmaceutical company Novo Nordisk, which excels in diabetes care and has developed a new drug to fight obesity, he continued. EssilorLuxottica is another top five holding, producing optical lenses for glasses and sunglasses. LVMH Moet Hennessy Louis Vuitton is in the top five too, reporting record 2022 sales and profits as Louis Vuitton, its main profit contributor, surpassed the €20 billion ($21 billion) revenue mark for the first time.
Weis is positive about the outlook for China this year. The end of 2022 saw a vast change as the Chinese government lifted most of their Covid controls, industrial policies turned more business-friendly and progress was made to ameliorate geopolitical tensions. Meanwhile, their inflation rate is expected to stay moderate, allowing macroeconomic policies to remain loose.
Consumer and business activities are bouncing back. Cinema box office takings during the Chinese New Year holidays exceeded 2019 levels and during this holiday season passenger movement volume was nearing its 2019 level. GDP outlook for 2023 is being revised up, with Goldman Sachs now expecting 5.5 per cent growth, the firm said.
“In our view, the outlook for 2023 should be one of growth reacceleration and investor sentiment recovery. The P/E valuation for Chinese equity remains cheap by historical standards. As a result, we believe that China equity is poised for strong performance in the Year of the Rabbit,” Jimmy Chen, portfolio manager of the Comgest Growth China fund, said.
Comgest Growth China Fund
Despite a difficult year in 2022, the fund outperformed the index. Performance came from its high-quality companies and high growth sectors. Whilst the top three contributors were e-commerce giant Alibaba, Tencent and NetEase, the next three were Man Wah, Suofeiya and Anta Sports. Its positions in pharmaceuticals outsourcing and solar also outperformed. Recently, the firm trimmed its positions in Samsonite and Trip.com and increased its exposure to Xinyi Solar and Wuxi AppTec.
Comgest Growth Japan Fund
Japanese equities started the year strongly in spite of ongoing volatility. The portfolio outperformed its reference index in January. Attention was focused on the Bank of Japan's decision mid-month not to change its highly accommodative stance, which it justified by repeating that inflation is not endemic in Japan, although there are reports of wage increases at some large companies. Bank share prices have already risen for roughly two years in anticipation of inflation and rising rates and therefore spreads. Top holdings include Sony and Suzuki Motors, which reported monthly shipment data which showed volumes in India are back to pre-Covid levels.