The strong growth outlook of emerging markets in Asia makes them investable, and Chinese non-performing loans have presented good results, said Howard Marks, Oaktree Capital Management co-founder and co-chair during an interview in Singapore.
"In general, the thing I'm interested in is growth. And I think that Southeast Asia (and) Asia in general have a strong growth outlook. Certainly a better growth outlook than the mature countries of the world," he said.
"If you look at developed nations like Japan and Europe, they're like economic senior citizens. You look at the U.S., it's a mature adult and still doing OK, but its best decades are behind it. You look at the emerging markets, these are teenagers — the best decades are ahead of them," he said.
However, he cautioned that much like teenagers, emerging markets are "volatile and tempestuous." "You'll have some bad days and weeks and months in the emerging markets, but if you have patience and the ability to hold through, I think on the other side, eventually, some good things will happen," he said.
The alternatives investment management firm has owned Chinese assets for 25 years, he said, and started buying Chinese non-performing loans in 2015. The firm has done more every year with "very good results" and has continued to make loans, Marks said.
Oaktree has $183 billion in assets under management in total and has 40 billion yuan ($5.5 billion) across stocks, public and private debt, and real estate invested in the Greater China region.
On whether it has become more difficult to find good opportunities in China amid the economic slowdown and negative investor sentiment, Marks said the difficulty of carving out deals does not deter him.
"It gets more difficult when you operate more carefully; people who have low standards find it very easy to find things to invest in. But if you have tough standards, and you want to preserve a record of avoiding credit issues, then it's tough. That's our job," he said.
The investment community is entering a difficult period where leverage can magnify an investor's losses, and that's when value investors will be able to hunt the bargains, he added.
"In this period of easy, cheap money, companies could lever up. And, of course, the more leverage you put on a company, or an investment, the bigger your gains are magnified. … There'll be a period in the future, sometime within the next 10 years, when the effect of the leverage is to magnify the losses. And these are the periods in which people dump securities, and in which it's possible to find bargains," he said.
During the good years of 2009 to 2021, when investors were making decent returns amid accommodative monetary policy, it was difficult for bargain hunters because no one was selling assets for less than they were worth, he said.
"You get great bargains when the owners get terrified and they want to get out at any price when events turn against them. When the economy's doing poorly, the companies are doing poorly, the markets are doing poorly, their psychology is deteriorating, they get depressed, and they get panicky. And eventually, if things go badly enough, they say 'get me out at any price,'" he explained.
"So we're excited about the period that lies ahead, whereas the (previous) 13-year period was quite dreary," he said.
