Jason Stipp: What's your take on the global stage? Where are you seeing opportunities for more growth, and are those areas still opportunities today? I know emerging markets, for example, have run up quite a bit since March.
Rudolph-Riad Younes: Well, the outlook is going to be difficult to predict just because it's reliant on what the U.S. and the industrialized economies are going to do.
If we continue in this denial or partial denial, let's put it that way, then there is no doubt that the current trends will continue, which means we're going to see continued outflow ... from the U.S. and the developed world into emerging economies as well as commodity countries who are going to be beneficiaries from two main events.
One is the continued growth of India and China, therefore, continued demand for these commodities. And two, it's an insurance against the potential partial or full monetization of this wall of debt that almost every major country had to undertake in order to solve the short-term problems of a global recession/depression.
Stipp: So, as you're looking out globally, I was looking at your fund's portfolio, and there didn't seem to be a lot of positions in Asia. What's your take on valuations in Asia, and where are you seeing the opportunities today for investors in the current market environment?
Younes: In Asia we're overweight in China and Korea. And in India valuation, as you mentioned, is one of the key problems. We are also most focused on the consumer rather than on the exporters.
And we are overweight the commodity sector. That for us is like where it's really you get two birds with one stone, the growth in the emerging market as well as insurance against malfeasance by central bankers.
Stipp: I know in your portfolio in the past you had had some positions in Eastern Europe, and at the time our analyst said that you had spoken of, you were getting the emerging market prices on what were developing countries. Has this played out as you anticipated, and do you still see opportunity there in Eastern Europe?
Younes: No, the thesis did not play out as anticipated, but ultimately it will. The reason it did not play out is short term, they got into an overheated situation, and the source of this domestic overheating was the Western financials, mostly European banks, who were the mother companies of the local entities.
And as the Western European banks were in trouble, like in most developed economies where you had this imbalance and balance sheet issues. So the result of the funding from these countries have exacerbated their situation and led to a big contraction in their economies.
But going forward, that's a part of the world that's not really reliant on the global imbalance, it's more reliant on their undertaking reforms in order to qualify for Eurozone membership, which basically is adopting the euro as the major currency.
And this crisis was also a blessing in disguise because they taught many of these local governments hard lessons, because earlier things were easy and therefore they were backpedaling on many of the hard decisions that they had to make.
So now after they saw the facts of their misbehavior, we see many of the central banks and the governments in that region doing all what they can to join the Euro as early as possible.
So given that we're still in global imbalance, if these governments really follow up on what they are promising today, we feel from a risk-reward perspective over the next three to five years that region should really be one of the best-performing regions in the world.
Stipp: Riad, thanks so much for your insights and for your ideas today. It was a pleasure speaking with you.
Younes: Thank you, Jason.
Stipp: From Morningstar I'm Jason Stipp. Thanks for watching.