The portfolio manager names stocks in China and Europe that promise high returns

According to Jordan Czvetanowski of Pella Funds, investors should look at top-rated quality firms in China and Europe that are performing very well despite the “terrible” political and economic conditions in those markets.

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 Tsvetanovsky, the company’s chairman and chief investment officer. The firm’s rigorous focus on valuations has taken it to regions outside the US, such as Europe and Asia.

He told CNBC’s Sri Jegaraj that the firm’s investment in China may need more support from the country, which is currently introducing additional financial stimulus to revive its economy. Even if such moves are not made, the investment opportunities selected by Pella Funds continue to perform well despite market volatility.

Back in November, China announced a five-year stimulus package for a total of 10 trillion yuan ($1.37 trillion) to address local government debt problems. The Beijing administration has made it clear that additional economic support will be provided in 2025 as it seeks to boost growth in the world’s second-largest economy.

“Any stimulus we expect from the Chinese authorities will be extremely favorable for these companies, given that they have very low valuations and low positioning by global managers,” Cvetanovsky said.

“We’re projecting a very strong return, and we think now is the time to do it next year, given all the fears around tariff wars and all that you have,” he added.

Among the Chinese firms that have favorable prices and can take advantage of fiscal incentives are robot manufacturers Midea GroupHong Kong stock exchanges and life insurer AIA groupaccording to Tsvetanovsky.

He said Pella Funds has been tracking the Hong Kong stock market for years and expects it to benefit “hugely” from market stimulus and new issues.

“One of the highest-quality companies in the region is AIA, an insurance company in Hong Kong that continues year after year,” Cvetanovsky said, adding that if the insurer were registered in the US, it would have a rating. it’s up 50-70% from day one.

Tsvetanovsky noted that the Pella funds were a big supporter of the creation of the world’s largest contract chip maker Taiwanese semiconductor manufacturing However, the firm’s interest in TSMC is an AI play.

Svetanovsky said Europe had also experienced its share of political upheaval, with governments collapsing in both countries Germany and France leading to a lot of uncertainty in the regional market.

Still, traders’ reluctance to invest in Europe serves as a “great” opportunity for Pella Funds, according to Tsvetanovsky.

The portfolio manager mentioned a French power equipment manufacturer Schneider Electric Company as an example of a firm increasing its expected growth rate and margin improvement despite recent political instability in France.

Schneider Electric is looking to capitalize on Europe’s digital transformation and artificial intelligence boom by investing heavily in its data center business. In July, the company raised its financial targets for 2024 on the back of record revenue and an improved margin.

Pella Funds also recently took a position in a UK engineering firm The Spirax Groupformerly known as Spirax-Sarco, and Swedish producer Epiroc is a company that will benefit from a resurgence in mining capex, Tsvetanovsky told CNBC.

“These are the companies that will again benefit from China… adopting fiscal stimulus. But, apart from that, it is not necessarily necessary. They’re just cheap and growing, and we can justify what we’re paying, whereas we typically really can’t justify some of the valuations in the US,” Cvetanovsky said.