India is one of few true Emerging Markets left: Albert Kwok, Jennison Associates

Albert Kwok, managing director of New York-based Jennison Associates does not expect the US economy to slip into a recession in 2019, but its growth could slow from here on. In an interview with Prashant Mahesh, Kwok said he is overweight on India as it is among the few true emerging markets left.

Edited excerpts:

What is your take on the trade dispute between the US and China? How will it affect global economies?

This is a classic case of an emerging economic power clashing with an established one. This will not be the only episode, there will be more. However, this will not derail growth. Both countries will have to learn to live with each other. China is the second largest economy, so the US would not want to lose this market. Also, the US is a big market for China. In the coming years, China will require a lot of technology and knowledge and they too will not want to lose US as a partner. Both the countries will soon find a way to get along, as there is no historical baggage between them. The trade wars are on pure economic terms. Over the long term, China would need to open up. It will make their companies that much more competitive.


The US economy expanded 3.5% in the third quarter and unemployment is down to 3.7%, the lowest in level in half a century. Can it continue to grow at this rate?

The US economy is doing well. The growth from here could come down a little bit, but I feel even 3% is not bad. Whether it has peaked and will things get worse from here? From the Fed’s point of view, there is inflation, which is recessionary, and the economy is strong which is making them normalise interest rates. Lot of people who have been driven out of the workforce are coming back. The US is doing fine since 2008, but the economy has grown 20% which is the slowest recovery on record. We think it should have grown 40%. If that is the base case, then growth is likely to continue in the long term. We will go into recession at some stage, but I don’t think a recession will happen in 2019. Global growth at 3% is one of the highest growth on record. A little bit of slowdown from here is fine.

Where are you placing your bets these days?

We like companies that are disruptive, that are expanding market opportunities and are at a inflection point, with accelerating growth and improving return on equity (ROE). We look at the valuation and discount the cash flow, to gauge the market sentiment. We visit companies, investors, angel investors and even the employees that they fire. That’s the depth of research we do on the companies we own.

Disruption is a big theme, autonomous driving and electric vehicles, will be areas where the next big disruption will happen. In our strategy, we don’t look at benchmarks, nor are we underweight or overweight any sector. We pick 35-45 companies across the world which have sustainable competitive advantages and can grow earnings over time.

We use an unconstrained, country sector agnostic, high conviction concentrated global strategy while building our portfolio. We are aware of the global macro environment, but our focus is on picking these companies irrespective of the countries and sectors they are from. It’s a powerful strategy and worked well. Companies like Amazon, Netflix, Alibaba, Tencent and MasterCard are among the top holdings in this portfolio.

Oil prices have fallen sharply over the last one month. How does that change things?

The Middle East cartel no longer holds the largest oil reserve in the world, it’s now in the US. That means there is a natural cap on prices, because there is no cartel in the US. When the prices are high you encourage disruptive technologies and innovations. In the next 5-10 years, we will not care about oil and it will not be a driver of global growth. It can be managed. The world will learn to cope with this volatility.

India has had problems on the NBFC front in the recent past. What will be its impact?

It was a liquidity problem and one off. So far, it is not a widespread contagion. Growing at 8%, India is the fastest growing country in the planet. India is one of the few true emerging markets left. GDP growth is high, as long as India can keep inflation and budget deficit in check. India is not correlated to trade wars. The Modi government gets a lot of credit for the work done in reducing budget deficit, low inflation, implementing GST, bankruptcy laws all of which are structural changes that will benefit the country for the long term. Lot of economies cannot get this done. We are overweight India.

With state and general elections in the next six months, how do you position yourself?

We do not try to predict elections. We are aware of the risks and keep a close eye on what will happen. Right now, the consensus is that the BJP will win and Modi would be reelected and that is a base case under which I would like to operate.