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Mindich, Perry and Erdoes: Opportunities in Global Distress

At today’s Delivering Alpha conference, Eric Mindich, Richard Perry and Mary Callahan Erdoes attempt to make sense of the global economy’s risks and potential rewards.

Greece. China. Japan. And Puerto Rico. Now there’s a collection of opportunities. In fact, it’s been a pretty rocky stretch for global investors, punctuated by fears that Greece will leave — or get tossed from — the euro zone, triggering contagion through the peripheral nations of the zone and perhaps beyond. China has seen its domestic A shares first spiral upward, then crash, forcing the government to intervene in a variety of ways to salvage the market. Japan has suffered from growth problems for several decades and is pursuing an aggressive quantitative easing program to restart the economy’s engines. And the president of Puerto Rico recently announced that the territory couldn’t pay back its $72 billion of debt. A panel of blue-chip investors at today’s Delivering Alpha conference, however, not only didn’t see signs of an apocalypse, but in each of these cases managed to glean some hopeful signs for investors in these distressed situations. J.P. Morgan Asset Management CEO Mary Callahan Erdoes, for instance, argued that Greece is a humanitarian situation that needs to be dealt with but tends to overshadow many bullish signs that have recently appeared in Europe: the European Central Bank’s quantitative easing program, low oil prices, rising consumer confidence, improving earnings and revenues. “Lots of fantastic things are happening in Europe,” she said.

Richard Perry of Perry Capital was more concerned, not just about the fate of the Greek people, but about what he called “adjacencies” — Ukraine, Russia, Turkey, Greece — which makes the situation a geopolitical, as much as a financial, problem. Perry credited France and Italy with stepping in to block a German move. Perry, however, remains upbeat on Greek bonds, which are currently trading at 50 percent of par. The reason: the ECB’s QE program, which will be buying some of that $320 billion in debt, and providing much-needed liquidity.

Then there’s China. Eric Mindich, the founder and CEO of Eton Park Capital, didn’t believe the wild swings in the Chinese equity markets would have all that much effect on the real economy. He argued that right now the H market of shares — Chinese stocks traded in Hong Kong — “is trading at a significant discount and is more interesting [than the A shares].”

Both Erdoes and Perry agreed that the underlying problem in the Chinese markets was the sheer amount of leverage the government had allowed, even encouraged. Erdoes called it, “the simplest explanation for the steep rise.” Perry noted that for investors to put their money into Chinese equities they needed to understand the Chinese economy, to get some sense of what the Chinese government was doing.

Mindich called Japan the “market we’re most excited about.” In particular, he was referring to signs that Japanese companies were finally — and this has long been predicted — making changes in corporate governance. Erdoes agreed, adding that Japan had been down so long that the investment community underweighted the economy, a trend that was slowly changing. She stressed not the global Japanese multinationals as much as domestically focused Japanese companies that were “taking advantage of the current environment.” U.S.-style activism was not taking place, but rather “companies were doing it themselves.”

Perry even found some hope in the Puerto Rican situation. He argued that the territory was really “the 51st state,” with constitutional guarantees that the debt would be repaid. He argued that the notion that Puerto Rico was losing population in a kind of Detroit death-spiral was inaccurate. And at 70 percent debt to GDP, Puerto Rico looked a lot better than Greece at 120 percent — or for that matter Japan, with nearly 200 percent.

It’s that kind of world these days.

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