Webcast – Global Equities in focus

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Hello, and welcome to Fidelity Compass.

 

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I'm Glen Davidson. Global markets are firmly in the green today.

 

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Across North America, Europe and Asia equities moved higher following a

 

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tech-led rally on Wall Street.

 

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Investor sentiment also improved after US President Donald Trump's universal

 

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10% tariff took effect, lower than previously signalled 15%,

 

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which has helped to ease some market nerves.

 

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How's the macro picture impacting our next guest's investing strategy, and

 

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why does he say the decade ahead will be the decade of intensifying

 

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competition? Joining me today to discuss his investment style as he navigates

 

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the current market environment is portfolio manager, Patrice Quirion.

 

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Patrice manages the Global Concentrated Equity Institutional Trust, a

 

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go-anywhere strategy that capitalizes on Fidelity's unrivalled global

 

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investment resources. Patrice, welcome.

 

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Pleasure to be here.

 

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Great to see you today.

 

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We should probably start with a reminder to our viewers on what

 

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you're all about as a portfolio manager and how you put that towards your

 

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mandate.

 

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Happy to do so. I think one of the critical questions to start is

 

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make a strong opinion on how the markets function, and given our

 

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view of the market's functioning how will we take advantage of it?

 

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I always start by saying I think the markets are incredibly efficient

 

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but the markets also tend to overreact to trends that

 

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become universally accepted.

 

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It doesn't mean to trends that lasted a few weeks or a few months

 

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but trends that last for a long period of time have the tendency to gather

 

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too much capital when it's going well and too much capital tends to

 

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move away from underperforming parts of the market over extended time periods.

 

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If we are looking for ultimately mispriced, underpriced securities,

 

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I think we have better odds by starting to look in the parts of the market

 

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that have been out of favour for an extended period of time and where maybe

 

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we are at that overreaction time.

 

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All of that led me to be over time a contrarian

 

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investor, trying to go in parts of the market that have been

 

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left behind but where with our focus, with the

 

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research efforts that we bring, where we have high level of conviction that

 

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we will see a normalization at some point in the future.

 

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Doesn't need to be an outlook over the next quarter or next six months where

 

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things get better but where we have a high level of conviction that a mid-cycle

 

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normalized level is more favourable than what the market is

 

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discounting at today's prices.

 

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It leads me to be contrarian, generally value focus,

 

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and I put a quality overlay on top of that.

 

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The reason being that, hopefully, we are right most of the time but

 

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we know very well we won't be right all the time.

 

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I think that quality overlay puts time on our side.

 

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After COVID it took longer, as it did, by the

 

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way, for economies to recover.

 

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Well, if you were in higher quality leisure or travel companies at

 

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least time was on your side to see the normalization, see the recovery,

 

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as opposed to buying lower quality companies where you may face more

 

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negative effect of bankruptcy at the extreme or dilution as

 

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you wait for that normalization to take place.

 

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I'm of the view that everything follows a cycle.

 

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Some cycles are short, easily recognizable, some are long,

 

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and sometimes are getting confused with structural trends.

 

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I have a tendency to go in those cycles, long or short,

 

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in terms of sectors or sub-sectors or geographies or investment style,

 

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and really sharpening our pencils, doing the work, when it feels we

 

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are at or near a trough and just be more patient than most

 

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other investors. Essentially, you can call it time arbitrage in

 

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a market that is, in my opinion, increasingly volatile around

 

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short term events because a lot of market participants don't have the

 

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luxury of taking a 3, 5 or 10-year type of time horizon.

 

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So contrarian global focus, which gives you a lot of opportunity.

 

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You were saying how you look for areas of the market that haven't been as well

 

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exploited. As we know, it's been very concentrated out there so you must have a

 

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lot of opportunity. It's global but you also have a quality overlay which gives

 

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you some comfort and protection within the solution that you're running.

 

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What about capitalizations? Are you specific to a certain type of

 

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capitalization for equities?

 

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The mandates I manage are extremely flexible.

 

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They are go-anywhere types of strategies, really trying

 

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to highlight where our highest conviction is of areas of the market that are

 

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mispriced.

 

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Obviously, we are benchmarked to the MSCI ACWI but in

 

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the back of my mind I'm not managing to stay

 

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close to an index. It's really expressing our opinions of where those highest

 

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conviction ideas are.

 

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Yes, it can be across very different construction from a geographic sector

 

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but also investment style and market cap.

 

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I would say, in general, over the past 13 years I've been running

 

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the Global strategy I tend to find more of

 

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those opportunities in the small, mid-cap range.

 

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I think it is easier for us through our research focus

 

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to find misunderstood parts of the stories, miscalibrated

 

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long term assumptions on financial statements around

 

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some smaller companies as opposed to going to the mega-cap

 

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spectrum. That said, if mega-caps are out of favour

 

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I will go there. It is meant to be flexible

 

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across all aspects.

 

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You also work with a massive team that will give you research from those

 

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small and mid-cap equities that many institutions don't have the ability

 

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to do.

 

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I think that's the beauty of the Fidelity global research platform.

 

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We are global but at the same time we are very local with investment

 

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teams scattered around the globe who are truly experts on

 

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their local markets, who are there to help manage, if

 

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we take an example, our team in Japan, their

 

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main responsibility is to manage Japanese equity funds

 

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for Japanese investors.

 

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As a global portfolio manager based in Toronto I have the access, the ability,

 

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to leverage all of their knowledge that they put to work in their local

 

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market and bring those ideas for clients here at home.

 

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Now, we're sitting here at the end of February.

 

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I think I'd be remiss if I didn't ask you to give us a bit of a synopsis

 

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of 2025, the world according to Patrice that we just left of

 

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2025.

 

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2025, I think, has the potential to be remembered as one of those

 

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inflection point years where after literally a decade plus

 

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of US leadership in asset performance,

 

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relative performance in the market, that in a way culminated

 

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with the second Trump election victory where we were talking

 

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on a daily basis about US exceptionalism, rest of

 

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the world being uninvestible, at least the China part.

 

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I think when you get to those type of discussion

 

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points I think it's indicative of potential extremes in the market.

 

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As a contrarian investor I had been cautioning, advising, against

 

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greater international diversification not knowing exactly

 

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when that momentum, that leadership would change but increasingly over

 

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the past few years noticing a really extreme divergence

 

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in terms of expectations, where we are in the economic cycle

 

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as starting point, and valuations on international equities

 

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relative to US similar counterparts.

 

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Post US election back in 2024 that started to shift.

 

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I think there's been a degree of

 

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realization that, notably around tariffs which were

 

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front and centre, are still today, that not all of that would necessarily

 

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be great for the US and terrible for the rest of the world.

 

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I think we were stretched on all fronts, on momentum notably, that started to

 

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revert. At the same time we had, or shortly after, we had Germany

 

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starting to talk about fiscal stimulus which brought interest back into

 

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Europe.

 

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We started to witness potential stabilization in China,

 

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more recently favourable election in Japan, so it feels like all of

 

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a sudden there are potential areas of improvement in

 

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overseas markets at the same time as maybe we start

 

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to question a little bit the sustainability of that

 

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US performance.

 

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I think 2025 is that year where things started to shift

 

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and as a result we see not only leadership moving

 

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more towards international markets on the equity side but

 

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we've seen currencies following a similar pattern which sort of amplified

 

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relative performance of international markets.

 

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Europe was really sort of leading the charge initially, then China joined, more

 

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recently Japan joined as well.

 

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The way I'm positioned given the flexibility of the mandates was

 

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a very underweight position in the US,

 

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notably around the tech sector which I think has definitely pockets

 

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of risk to consider longer term here.

 

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I think Europe was really interesting.

 

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That played out to some extent, moved maybe some of my optimism more

 

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so towards China in the second part

 

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of the year. That was, in my opinion, a large part of story of 2025.

 

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Maybe we can touch on where does 2026 leads us going forward.

 

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That's a great segue.

 

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I think we are at a point where, two things,

 

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I think the underperformance of the US, while

 

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maybe not overly visible at the broad index level,

 

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has started to be quite meaningful at some sector levels

 

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in some pockets. I think notably what is tied to the US consumer,

 

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the reality is the low end consumer, even a lot of the middle class, has been

 

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under a fair bit of pressure for some time which impacted a lot of companies

 

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tied to, I call it the real economy, the consumption economy which

 

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goes from consumer discretionary products, housing,

 

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transport, autos, all transports as part

 

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of that, I think there's starting to be an opportunity set being created there.

 

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I think globally there's also that consumer potential rebound

 

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dynamic that I think we need to increasingly pay attention to.

 

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We talked about the US, the reality is if you look at the European consumer, or

 

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to the extreme the Chinese consumer, there's been an obvious

 

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lack of confidence, a big step-up in savings rates,

 

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deleveraging that took place over a long period of time now, all

 

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of that adds the potential to eventually bounce back.

 

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I think we're starting to potentially have some of those ingredients to see the

 

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bounce-back in terms of interest rates have been cut, there is a lag effect but

 

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that will start to kick in. After the inflation shock of

 

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the post-COVID recovery we've now had a couple years where inflation

 

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is rolling over.

 

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Prices are still high but wages are still increasing so you're starting

 

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to see real disposable income growth once

 

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again. There's been a lot of excess savings built, China

 

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is the extreme on that front.

 

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If confidence can come back I think you have quite a few of these levers that

 

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could get the consumer going, real estate, residential real estate markets,

 

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going again after a decade of going nowhere in Europe, after

 

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a pretty severe correction in China.

 

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Those are very important ingredients to a sort of broadening

 

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economic recovery in those countries.

 

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What's interesting is you look at the most exposed stocks

 

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to a consumer-led recovery and

 

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the market is still fairly cautious around expectations on those.

 

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I don't think we are paying a whole lot for that

 

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potential eventual optionality of seeing a broad-based rebound there.

 

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This is one area that I am increasingly spending time on.

 

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There are other pockets. Health care in the US has been under a lot of pressure

 

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for an extended period of time, starting to see opportunities there.

 

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Maybe more lately, after

 

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years of finding it extremely difficult to find

 

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compelling risk-reward in US technology

 

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sector, we are seeing a pretty

 

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mind boggling derating, in terms of pace, at least, in the software sector,

 

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which we need to be careful.

 

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There'll be some potential real areas of risk.

 

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I think it's definitely an area that I'm spending more time, software, data

 

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services, the areas where the market is concluding that AI causes

 

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an existential risk and

 

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trying to use our expertise or research or

 

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networks to get an idea.

 

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We never know for perfection or for certainty but where we think

 

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those risks are being exaggerated and where that may lead to interesting

 

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opportunities here.

 

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It sounds like there's a lot of opportunities as we head into 2026.

 

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Let's pick up on the AI commentary that you had.

 

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I read an acronym the other day, HALO,

 

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hard assets and low on obsolescence.

 

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What do you think of that, especially as a value investor.

 

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I think historically a lot of those companies

 

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were sort of more in the value camp,

 

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lesser expectations valuation on it.

 

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It did raise an opportunity but in my mind that was more the story of a few

 

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years back. I know now it's coming up as a thematic but the reality if you look

 

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across commodities, mostly on the metal side, we've

 

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already seen a pretty large

 

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magnitude move over the course of the past couple of years.

 

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Same thing on the industrial side. I remember capital goods were one

 

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of the largest exposures into the portfolios across 2021,

 

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'22, '23.

 

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A lot of stocks were on relatively depressed earnings post-COVID, on

 

231

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relatively low valuations.

 

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Now you look at some of those areas, metal prices have really moved in the

 

233

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commodity side, valuations have rebounded, there's a lot of optimism on the

 

234

00:15:16,548 --> 00:15:20,619

industrial side. A lot of these companies that were in the past, call it,

 

235

00:15:20,619 --> 00:15:24,857

14 to 18 times earnings are now on 25 to 30 times earnings,

 

236

00:15:24,857 --> 00:15:28,794

while earnings have moved to a level which, I won't say they're necessarily at

 

237

00:15:28,794 --> 00:15:32,831

peak but certainly much closer to peak than trough.

 

238

00:15:32,831 --> 00:15:37,236

I am a little bit nervous about jumping on that HALO

 

239

00:15:37,236 --> 00:15:41,607

bandwagon right now just given where prices are

 

240

00:15:41,607 --> 00:15:45,177

and where I think we could be on that cycle.

 

241

00:15:45,177 --> 00:15:49,715

Not to say it can't go further but it's definitely not out of favour contrarian

 

242

00:15:49,715 --> 00:15:51,550

at this point.

 

243

00:15:51,550 --> 00:15:55,788

I do still have some exposure, for instance, to the commodity sector,

 

244

00:15:55,788 --> 00:15:59,758

notably around copper which I've been optimistic on, not

 

245

00:15:59,758 --> 00:16:03,195

over past year or two where everyone seems to be optimistic on those stocks,

 

246

00:16:03,195 --> 00:16:07,766

but really for past five years on the view that copper at $3

 

247

00:16:07,766 --> 00:16:11,637

is not sending the signal to build more production capacity, and we will need

 

248

00:16:11,637 --> 00:16:15,574

that at some point. Now with copper at $6, well, clearly the signal

 

249

00:16:15,574 --> 00:16:18,010

is there to build new projects.

 

250

00:16:18,010 --> 00:16:22,614

I exited that, still have some mining CapEx stocks

 

251

00:16:22,614 --> 00:16:25,617

in the portfolio.

 

252

00:16:25,617 --> 00:16:28,787

All of that to say I think we ...

 

253

00:16:28,787 --> 00:16:33,192

there's two types of investing. You can try to follow that short term

 

254

00:16:33,192 --> 00:16:37,463

trend, noise, flavour of the week or month, or you

 

255

00:16:37,463 --> 00:16:41,500

can try to stand back and look at big picture,

 

256

00:16:41,500 --> 00:16:44,770

where are we on those cycles, and I am much more in the later case.

 

257

00:16:44,770 --> 00:16:47,373

I want to pick up on that because you said noise.

 

258

00:16:47,373 --> 00:16:50,242

You mentioned how tariffs were an issue last year, and they still are today,

 

259

00:16:50,242 --> 00:16:53,512

and are they 10%, are they 15%?

 

260

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There's so much information that comes to you, comes to all of us, but

 

261

00:16:56,849 --> 00:16:59,418

certainly as a portfolio manager comes to you.

 

262

00:16:59,418 --> 00:17:03,422

There's high volatility, high frequency of information, how do you digest

 

263

00:17:03,422 --> 00:17:06,992

all of that so that you're not second guessing what it is that you commit to

 

264

00:17:06,992 --> 00:17:09,194

within your mandates?

 

265

00:17:09,194 --> 00:17:13,332

I think it is extremely difficult to try

 

266

00:17:13,365 --> 00:17:17,503

to predict that short term noise and where is that going to be

 

267

00:17:17,503 --> 00:17:19,705

tomorrow or next week or next month.

 

268

00:17:19,705 --> 00:17:22,841

That's now what I'm trying to do. The first thing I do at any information that

 

269

00:17:22,841 --> 00:17:27,046

comes to us is, is it material or not?

 

270

00:17:27,046 --> 00:17:31,917

Sometimes you'll get some short term movements, short terms news flows around

 

271

00:17:31,917 --> 00:17:36,021

things that are maybe of consequence to a country, I

 

272

00:17:36,021 --> 00:17:40,125

don't know, we can take the example of Venezuela lately, but in the grand

 

273

00:17:40,125 --> 00:17:44,229

scheme of the overall global market just doesn't really have much

 

274

00:17:44,229 --> 00:17:47,366

of an impact. I think first thing is that something important or not.

 

275

00:17:47,366 --> 00:17:50,869

It's big news but it may not have material impact on a portfolio.

 

276

00:17:50,869 --> 00:17:53,939

Precisely. You said it better than I could.

 

277

00:17:53,939 --> 00:17:57,976

Then there's the question of what is material, and tariffs certainly

 

278

00:17:57,976 --> 00:18:02,281

are material, if we can't

 

279

00:18:02,281 --> 00:18:06,285

for certainty predict where they will be, again, let's stand

 

280

00:18:06,285 --> 00:18:08,320

back and look where are we in that cycle?

 

281

00:18:08,320 --> 00:18:12,357

I think the story today around tariffs is extremely different than

 

282

00:18:12,357 --> 00:18:16,328

the story if we go back on Liberation Day a

 

283

00:18:16,328 --> 00:18:21,166

year ago, not because of the impact those tariffs will have

 

284

00:18:21,166 --> 00:18:24,303

but because of where the markets were as a starting point.

 

285

00:18:24,303 --> 00:18:28,340

In a way, it was much easier to step into the uncertainty that was created

 

286

00:18:28,340 --> 00:18:32,277

in April of 2024 because the market had already discounted

 

287

00:18:32,277 --> 00:18:36,615

a very negative scenario, as opposed to now where

 

288

00:18:36,615 --> 00:18:40,719

over the course of the past year the reality is we've not seen a tremendous

 

289

00:18:40,719 --> 00:18:45,357

impact on the economy, on inflation, on export

 

290

00:18:45,357 --> 00:18:47,359

competitiveness of some countries.

 

291

00:18:47,359 --> 00:18:51,797

The world has changed much less than what was feared so the market sort

 

292

00:18:51,797 --> 00:18:56,068

of maybe discounted the impact of tariffs, which

 

293

00:18:56,068 --> 00:19:00,172

makes it, I guess, much more balance of a risk-reward to

 

294

00:19:00,172 --> 00:19:03,976

trying to take position on that as it happens now.

 

295

00:19:03,976 --> 00:19:05,677

That's my general approach.

 

296

00:19:05,677 --> 00:19:09,715

If it feels like it is creating an extreme let's be active,

 

297

00:19:09,715 --> 00:19:11,850

let's take action on it.

 

298

00:19:11,850 --> 00:19:16,021

If it is creating noise into sort of like a reasonable ban

 

299

00:19:16,021 --> 00:19:19,992

of potential outcomes, I don't know if we want to change

 

300

00:19:19,992 --> 00:19:24,062

our TCs or our portfolios all that much based on that.

 

301

00:19:24,062 --> 00:19:27,533

As much as it could stick it could reverse the next day.

 

302

00:19:27,533 --> 00:19:30,702

Indeed, and it probably will. Why don't we get into some examples now.

 

303

00:19:30,702 --> 00:19:33,539

When I look at your top ten one of the names that comes to mind is Yokohama

 

304

00:19:33,539 --> 00:19:37,676

Financial. What is behind a Japanese regional bank being within

 

305

00:19:37,676 --> 00:19:39,845

the portfolio of your mandate?

 

306

00:19:39,845 --> 00:19:41,547

I'm glad you bring this one up.

 

307

00:19:41,547 --> 00:19:45,651

Like many others I'll try to exemplify the research process that

 

308

00:19:45,651 --> 00:19:48,854

goes behind that.

 

309

00:19:48,854 --> 00:19:52,224

Yokohama Financial is one of those Japanese regional banks.

 

310

00:19:52,224 --> 00:19:56,228

The first thing we do on any stock is let's really

 

311

00:19:56,228 --> 00:20:00,332

focus to make sure we identify the key drivers of

 

312

00:20:00,332 --> 00:20:04,870

future profitability for that business, that we calibrate those sensitivities

 

313

00:20:04,870 --> 00:20:07,439

accordingly.

 

314

00:20:07,439 --> 00:20:11,944

We try to get an edge relative to consensus on what's

 

315

00:20:11,944 --> 00:20:14,947

a reasonable range of outcome on that important driver.

 

316

00:20:14,947 --> 00:20:18,951

In the case of a Japanese regional bank,

 

317

00:20:18,951 --> 00:20:22,988

like it is a case for most banks, the main driver is

 

318

00:20:22,988 --> 00:20:26,525

interest rates policy by the central bank.

 

319

00:20:26,525 --> 00:20:30,562

This is especially the case in Japan because after 30 years of

 

320

00:20:30,562 --> 00:20:35,801

deflation we had many years of negative interest rates.

 

321

00:20:35,801 --> 00:20:39,972

If you are a regional bank with much more deposits

 

322

00:20:40,005 --> 00:20:44,243

than you have loans, which is the story of Japan, you are

 

323

00:20:44,243 --> 00:20:48,447

forced to look at different alternatives to deploy those deposits.

 

324

00:20:48,447 --> 00:20:52,718

That's why the large banks have been financing overseas

 

325

00:20:52,718 --> 00:20:56,321

projects, buying subsidiaries in Southeast Asia and the US.

 

326

00:20:56,321 --> 00:20:59,424

Small regional banks couldn't do that so what did they do with their deposits,

 

327

00:20:59,424 --> 00:21:04,263

they parked it at the central bank and had to pay the central

 

328

00:21:04,263 --> 00:21:06,865

bank to store those excess deposits.

 

329

00:21:06,865 --> 00:21:10,702

As you can imagine, low interest rates or negative interest rates was extremely

 

330

00:21:10,702 --> 00:21:14,740

costly. As a result, for decades the market voted

 

331

00:21:14,740 --> 00:21:18,844

those Japanese banks are uninvestible because profitability

 

332

00:21:18,844 --> 00:21:22,914

is extremely low, there is no growth, ROEs were in the range of 4 to

 

333

00:21:22,914 --> 00:21:26,885

5%. Same story as in Europe back in 2021, by

 

334

00:21:26,885 --> 00:21:29,488

the way.

 

335

00:21:29,488 --> 00:21:33,525

What led me to Japan is I think a lot

 

336

00:21:33,525 --> 00:21:37,663

of observations underground by our teams, a lot of macro data that's

 

337

00:21:37,663 --> 00:21:41,733

accessible to everyone, that inflation is coming

 

338

00:21:41,733 --> 00:21:45,671

back and is, so far at the minimum,

 

339

00:21:45,671 --> 00:21:51,143

is proving to be sticky because it is driven by wage growth.

 

340

00:21:51,143 --> 00:21:54,579

You can certainly paint a scenario where that remains the case given the

 

341

00:21:54,579 --> 00:21:57,015

demographic headwinds that Japan faces.

 

342

00:21:57,015 --> 00:22:01,086

The workforce is shrinking at a pretty astonishing pace right now which

 

343

00:22:01,086 --> 00:22:05,991

leads to scarcity of labour and wage inflation.

 

344

00:22:05,991 --> 00:22:10,128

When you come out of 30 years of deflation this is where historical

 

345

00:22:10,128 --> 00:22:14,099

context is incredibly useful, not only my perspective but colleagues and

 

346

00:22:14,099 --> 00:22:18,103

some of my colleagues have been in the business even longer, it creates

 

347

00:22:18,103 --> 00:22:22,207

anchoring when something has been unchanged for such a long period of time.

 

348

00:22:22,207 --> 00:22:25,911

I think Japan is at that point where inflation is back but they're still

 

349

00:22:25,911 --> 00:22:29,948

anchoring to deflation, still fears of deflation, anchoring of rates at

 

350

00:22:29,948 --> 00:22:33,518

very low levels and now rates are starting to move up.

 

351

00:22:33,518 --> 00:22:36,254

For regional banks, they are so deposit-heavy.

 

352

00:22:36,254 --> 00:22:40,425

To give you a sense, and we run all kinds of statistics

 

353

00:22:40,425 --> 00:22:44,663

like that, Japanese regional banks have 20 dollars, or 20

 

354

00:22:44,663 --> 00:22:48,767

yens, of deposit for every dollar of market cap as opposed to if you take a

 

355

00:22:48,767 --> 00:22:52,137

large US bank it's going to be like three to one, four to one.

 

356

00:22:52,137 --> 00:22:56,441

There's a lot of deposits. If rates move up and they start making

 

357

00:22:56,441 --> 00:23:00,278

more money on that deposit base it can have a very meaningful impact on the

 

358

00:23:00,278 --> 00:23:02,414

profitability.

 

359

00:23:02,414 --> 00:23:05,417

This is basically what created the interest.

 

360

00:23:05,417 --> 00:23:09,421

Through the research we've met with numerous parties,

 

361

00:23:09,421 --> 00:23:13,725

not only internal research but we had the access to meet the Bank of Japan,

 

362

00:23:13,725 --> 00:23:15,260

the Ministry of Finance, [crosstalk].

 

363

00:23:15,260 --> 00:23:20,065

But you also travel around the world to see these institutions

 

364

00:23:20,065 --> 00:23:20,866

and companies.

 

365

00:23:20,866 --> 00:23:24,503

Absolutely. Rely on the internal research but when I identify something that's

 

366

00:23:24,503 --> 00:23:28,507

really of interest I like to jump on a plane and go see it

 

367

00:23:28,507 --> 00:23:30,208

for myself and build that extra conviction.

 

368

00:23:30,242 --> 00:23:34,379

This is a great example where we've done all that, met the

 

369

00:23:34,379 --> 00:23:38,350

management teams, understand deposit sensitivity, understand sensitivity

 

370

00:23:38,350 --> 00:23:42,654

of earnings to higher net interest margins, try to get a feel for

 

371

00:23:42,654 --> 00:23:46,792

rates expectations where assumptions were misbased, and

 

372

00:23:46,792 --> 00:23:49,928

we came with a view that earnings power is potentially much higher than what

 

373

00:23:49,928 --> 00:23:52,697

the market expects and we took action.

 

374

00:23:52,697 --> 00:23:55,567

This is one example of the stock in the top 10.

 

375

00:23:55,567 --> 00:23:59,905

Hopefully, it sheds a little bit of light on not only the story around it

 

376

00:23:59,905 --> 00:24:04,176

but there's a lot of numbers work, a lot gathering of information, gathering of

 

377

00:24:04,176 --> 00:24:08,013

expectations and forming a differentiated view around that.

 

378

00:24:08,013 --> 00:24:10,849

We only have a minute left so I'm going to ask you what I talked about in the

 

379

00:24:10,849 --> 00:24:14,186

intro for this session, which is the next decade.

 

380

00:24:14,186 --> 00:24:17,022

You had some comments on that.

 

381

00:24:17,022 --> 00:24:21,092

It's always a big question but one thing that I encourage people to think

 

382

00:24:21,126 --> 00:24:25,697

about is we come from multi-decades of consolidation

 

383

00:24:25,697 --> 00:24:29,701

of market share to now most industries are controlled

 

384

00:24:29,701 --> 00:24:33,839

by a handful of large companies in Western markets,

 

385

00:24:33,839 --> 00:24:37,576

which has been phenomenal for markets. It gave them pricing power in a lot of

 

386

00:24:37,576 --> 00:24:41,513

case, economies of scale, allowed margins to go up, returns to go up,

 

387

00:24:41,513 --> 00:24:43,482

valuations to go as a result of that.

 

388

00:24:43,482 --> 00:24:47,486

That's been the story of Western markets for the past decades.

 

389

00:24:47,486 --> 00:24:51,790

I think there's potentially a story of the decade ahead where we

 

390

00:24:51,790 --> 00:24:55,994

are now at a point where Chinese domestic champions have won their

 

391

00:24:55,994 --> 00:25:00,532

market domestically after a decade of displacing European, Japanese,

 

392

00:25:00,532 --> 00:25:04,936

American multi-nationals and are now ready to start exporting to

 

393

00:25:04,936 --> 00:25:09,774

mostly emerging markets in first glance.

 

394

00:25:09,774 --> 00:25:13,879

I certainly keep that very top of mind, on one side identifying potential

 

395

00:25:13,879 --> 00:25:18,049

winners coming from the China side, capturing international market

 

396

00:25:18,049 --> 00:25:22,354

share opportunities but also really being careful around

 

397

00:25:22,354 --> 00:25:26,291

Western multi-nationals that have a meaningful part of profitability coming

 

398

00:25:26,291 --> 00:25:30,529

from high margin emerging markets that had no competition where this

 

399

00:25:30,529 --> 00:25:32,564

is potentially changing.

 

400

00:25:32,564 --> 00:25:36,668

I think we can name an increasing number of industries where we see that

 

401

00:25:36,668 --> 00:25:38,169

starting to change already today.

 

402

00:25:38,169 --> 00:25:41,973

You have a keen eye on a lot and it was wonderful to hear your thinking on the

 

403

00:25:41,973 --> 00:25:45,577

mandate but also your style and what you see for all of us as investors.

 

404

00:25:45,577 --> 00:25:46,578

Thank you very much, Patrice.

 

405

00:25:46,578 --> 00:25:47,546

Thank you, Glen.

 

406

00:25:47,546 --> 00:25:49,981

Thank you for joining me today on Fidelity Compass.

 

407

00:25:49,981 --> 00:25:53,685

As always, if you have suggestions on future topics or guests you'd like to see

 

408

00:25:53,685 --> 00:25:55,754

on the show please share your ideas with us.

 

409

00:25:55,754 --> 00:25:59,090

In the meantime, stay tuned for more Fidelity Compass webcasts in the week

 

410

00:25:59,090 --> 00:26:00,592

ahead. I'm Glen Davidson. Take care.