Black Friday: bankers’ bargains around the world
As shoppers in the US, and increasingly elsewhere around the world, head to stores and online to try and unearth bargains this Black Friday, a number of investment managers outline areas of the market they believe are currently undervalued…
‘Cheap Korea on cusp of corporate revolution’
“For a long time, minority shareholders in Korea have been negatively impacted by an unhealthy closeness between chaebol-controlled conglomerates and the government. This has allowed the controlling shareholders of many operationally sound companies to mismanage balance sheets and expand into areas that are not in the best interests of minority shareholders. However, newly elected government officials are beginning to position themselves independently of the country’s most powerful families and are implementing reform to eliminate many of the shareholder unfriendly actions that have been prevalent in the country.
“We are bullish on the prospects for Korea and have an approximate 10% net long exposure to the country. Korea remains a cheap market and the prospect for continued corporate governance reform heightens our appeal towards the country.”
‘Rents on the rise in booming Berlin’
Rogier Quirijns, senior vice president and portfolio manager at Cohen & Steers
“Germany, the economic gravitational centre of the EU, is enjoying strong economic, population and job growth – thanks to a vibrant exports sector and attractive migration policies. German household formations are running at the highest levels since the boom years in the early 1990s following reunification. Nowhere is this more evident than in Berlin. While the public sector and tourism are playing central roles in Berlin’s revitalisation, the city is quickly becoming the Silicon Valley of Europe.
“Although residential supply is increasing in Germany, it has not been nearly enough to meet demand, particularly in Berlin. It is estimated 20,000 new housing units are needed each year to meet new and pent-up demand in the city. However, the market has supplied only half this amount annually in recent years, which is helping to drive rents higher. Quality office space in Berlin is also scarce, with strong job growth driving low vacancy rates and rising rents amid the creation of limited new supply. Berlin office take-up has set records in each of the last several years, but supply has met only a quarter of this demand.”
‘Seek countries less sensitive to rate hikes’
“A synchronised tightening move among major central banks could give developed market government bonds a volatile ride. Navigating this uncertain environment will require a smart approach, with specific positioning on the yield curve likely to take centre stage within portfolio construction.
“In addition to yield curve positioning, another way of navigating the current environment is to identify countries that are potentially less sensitive to a rising rate environment. Australia stands out in this regard. Although its domestic bond market is likely to react to a selloff in US treasuries, it should quickly revert to being driven by domestic fundamentals once the market settles. Israel also offers a potential refuge from interest rate volatility. With little sign of inflation in the country’s economy, the Bank of Israel is likely to remain on hold for the foreseeable future. However, the yield curve seems to be pricing an interest rate path similar to the one likely to be followed by the US.”