Top Fund Manager Says China Stock Rally Is Just Getting Started

(Bloomberg) -- The fund manager who trounced 99 percent of peers this year says Chinese stocks could be the most alluring bet in the decade to come.

Lewis Kaufman, who oversees the $2 billion Artisan Developing World fund in San Francisco, has outperformed amid rebounds in Alibaba Group Holding Ltd., liquor giant Kweichow Moutai Co. and TAL Education Group. Chinese shares could get an extra boost from further policy support, additional index inclusions and a trade resolution between Washington and Beijing, he said.

Kaufman, 43, is also overweight equities in the other so-called BRIC nations of India, Brazil and Russia. India is still largely untapped by foreign investors and benefits from a large base of educated youth as well as economic overhauls under Prime Minister Narendra Modi, he said. Brazilian companies, including stock exchange Brasil Bolsa Balcao and pharmacy chain Raia Drogasil, have the domestic demand potential to transcend the limitations of Latin America's largest economy, according to Kaufman. He said he's trimmed his Russian holdings down to just two stocks -- search engine provider Yandex NV and Sberbank of Russia PJSC -- as the prospect of new U.S. sanctions concerns him.

“There's a B, an R, an I and China,” Kaufman said. “In China, our weighting is almost as big as it's ever been. Everything else in emerging markets pales in robustness to that story.”

Kaufman has avoided South Korean and Taiwanese shares, which make up almost 25 percent of MSCI's emerging-market index. Instead, 20 percent of his portfolio is dedicated to multinationals such as Visa Inc., which has exposure in the developing world.

While emerging markets still have their share of fragile nations, from Argentina to Turkey and South Africa, Kaufman said the asset class has undergone a transformation in recent decades. “Emerging markets have come a long way since the Asian financial crisis of the 1990s,” he said.

To contact the reporter on this story: Ben Bartenstein in New York at bbartenstei3@bloomberg.net

To contact the editors responsible for this story: Philip Sanders at psanders@bloomberg.net, Alec D.B. McCabe