Small-cap manager Jim Oberweis discusses the three main global small-cap regions, and explains which ones are his favorites now.
What’s happening in global small caps? We’re here with Jim Oberweis, who is going to tell us what’s really going on beyond US shores.
Sure. I think you can divide the world into three components—it’s called North America, Europe, and Asia. I think they’re all in very different stages.
Europe, I think, continues to be bogged down by economic macro problems and really political problems of aligned leaders all in one space. Things are getting a little better than they were. I think there is still a lot of dust that needs to be settled.
Asia? Asia is slowing mostly because of Europe. About 25% of China’s economy stems from exports to Europe. However, it’s fully discounted stock prices right now. Valuations in China for small-cap Chinese companies are lower than they were in 2008. It’s the only market in the world where we’re seeing that right now.
We’re very enthusiastic about China, just because stocks are so cheap and that the policies that slowed the Chinese economy besides slower exports like rising interest rates and tighter credit are now being reversed. Interest rates are being decreased and credit is being loosened. That should kick in in 2013. I think it will drive valuations for Chinese equities substantially higher.
In the Asia space, is there any interest on your part in Japan, where they’re starting to rebuild after the tsunami and the nuclear incident?
Japanese small caps have been driving our Overweight Opportunities Fund this year. It’s actually been a really good place to be. It’s been a good place for a couple of reasons.
- Because some of the factors with regard to the economy doing OK despite really lackluster expectations;
- Because valuations were so low.
If you’re going to ask me where I would park money for the next decade, it would be in China. China has market opportunities that are really unprecedented in areas like smartphone development, where only a small percentage of the population right now has smartphones.
It’s a major issue with the government, and disposable income is rising. The companies that’s strong in that space are actually pretty well positioned.