My finance view

NEW YORK — Simon Hallett, chief investment officer of Harding Loevner, knows a thing or two about international markets. The nearly 30-year investment-industry veteran manages two highly rated mutual funds, Harding Loevner International Equity, and Harding Loevner Emerging Markets. His firm manages more than $7.3 billion. Here are his views on the European debt crisis and the global economy:

With all the discussion about Greece and the decline of the euro, what’s on your mind?

All that we’re seeing now in Europe is a kind of a ripple effect from what began here three years ago.

We wrote to our mutual fund shareholders in October, and talked about the twin big risks that the world faced. One is the risk of higher inflation resulting from the massive expansion of monetary supplies.

That helped finance the other big risk: the contraction in assets that came as a result of terrible lending by the banks. So there’s this kind of tradeoff between inflationary pressures in the future, and massive deflationary pressures now.

We don’t know what policy is going to enable us to steer between these two monsters. There is a tremendous risk of policy errors at a time when government involvement is much, much greater. But we basically said, deflationary pressures are the ones that are going to win out over the coming years, and that has some implications for the kind of companies in which we should invest.

What can we expect now?

We’re seeing a contraction in bank assets because they made stupid loans. And equity markets, in particular, seem to be very short-sighted about where the strains are going to emerge next. Governments in Europe have too much leverage. Not just in terms of their balance sheets, but also in terms of their unfunded commitments, such as welfare benefits, and unemployment benefits. In order to fix the credit problems that the banks have, governments have to generate more revenue, so they have to push tax rates up and that threatens the economic growth. So I think we’re going to continue seeing strains on government finances, strains on the finances on anybody who has too much debt.

What kind of companies can best operate in this kind of environment?

Our philosophy is to make sure that balance sheets are strong, cash flow is strong, that management is capable, and that the competitive position is invulnerable — or at least as strong as you can possibly assure. And that this is the kind of company that can eke out fairly modest amounts of growth wherever they can find it. They’re not reliant upon very strong economies.

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