Why China Is a Bigger Problem for the Global Economy Than You Think, According to a Portfolio Manager

Date: July 12, 2019

Rupal Bhansali, Ariel Investments Photograph by ioulex

Barron’s recently caught up by phone with the members of our January Roundtable. Here are the latest investment views and stock picks of Rupal Bhansali, chief investment officer, international and global equities, and a portfolio of manager at Ariel Investments in New York. She is also the author of Non-Consensus Investing: Being Right When Everyone Else is Wrong, to be published in October by Columbia University Press.

Barron’s: What lies ahead for investors, Rupal?

Rupal J. Bhansali: The economy and growth stocks are likely to disappoint. It is time to switch from FAANG to MANG.

What is MANG?

MANG includes two stocks I discussed in my 2019 Roundtable presentation—Michelin [ticker: ML.France] and Gilead Sciences [GILD]—plus Ahold Delhaize [ADRNY] and Nokia [NOK], the A and B.

Ah, you’ve developed your own acronym.

That’s correct. The common denominator of these four stocks is that they are generally out of favor, as opposed to the crowded, overvalued stocks of FAANG [ Facebook (FB), Amazon.com (AMZN), Apple (AAPL), Netflix(NFLX), and Google’s parent, Alphabet (GOOGL)]. I’m a contrarian, but more important, I am an intrinsic-value investor and all of the MANGs trade at 10 to 12 times earnings and offer roughly 4%-5% dividend yields.

And they don’t face regulatory threats, either.

Or competitive threats of the sort that Netflix and Apple are likely to face.

Before we delve into the MANG stocks, let’s talk about the big picture. Why do you expect growth to slow?

People underestimate how much China was responsible for world gross domestic product growth over the past decade, and China is running out of options to boost growth. The popular perception is thatthe slowdown in China is due to the tariff war with the U.S.. The actual cause is the huge pullback in credit growth, which the Chinese economy is addicted to. Starting in the middle of 2018, there’s been a 40% pullback, year over year. This comes in the wake of a more-than-fourfold increase in credit growth over the past 10 years, from roughly $9 trillion in the banking system to $41 trillion as of the first quarter. For perspective, the banking sector’s total assets in the U.S. are about $18 trillion, and in Japan, about $10 trillion.    [FULL  STORY]