Each week, a professional investor tells MoneyWeek where he’d put his money now. This week: Tom Walker, fund manager, Martin Currie Global Portfolio Trust.
In recent years we’ve seen a large divergence between developed markets, such as America and the UK, and developing markets, such as China. This divergence was particularly pronounced throughout 2013 and at the start of this year.
Asian and emerging markets were hit hard during this period – firstly by fears about what might happen when the US Federal Reserve started to buy fewer bonds, known as the ‘taper’, and then there was further damage when the taper actually began.
Meanwhile, many developed markets reached record levels, climbing far faster than underlying profits growth. Although the recent rally in emerging markets has gone some way to close the gap, the divergence may continue for some months to come.
As the manager of a global portfolio, I’m often asked how much this type of trend influences my stock choices. The answer is simple. As a ‘bottom-up’ stockpicker, I concentrate on the prospects for individual companies.
I focus on identifying well-run companies with sound finances and healthy cash flows, rather than trying to make broad ‘top-down’ predictions on the outlook for entire countries or sectors.
In fact, I believe there is ample opportunity for finding high-conviction stocks globally. For instance, in China, after a difficult start to the year, oil producer CNOOC (HK: 883) has continued with its investment spending, and performance has improved in the second quarter. I anticipate the company’s production will gather momentum as we approach 2015, with substantial growth expected next year.
Staying in Asia, Taiwan Semiconductor Manufacturing Company’s (NYSE: TSM) growth and profit-margin expectations rose in the first quarter of this year. The company is a major beneficiary of increasing demand for low- and mid-end smartphones and tablets.
In developed markets, Apple’s (NYSE: AAPL) share price has climbed steadily since the end of April, when there was a positive earnings report. iPhone sales have been stronger than expected, rising 17% to 43.7 million phones in the second quarter, ahead of the new product launches this month.
Meanwhile, LyondellBasell (NYSE: LYB), a US chemical firm that makes ethane-based products, has benefited from lower costs. That’s due to the increasing supply of shale gas and associated liquids, including ethane. Lyondell’s free cash-flow generation has been impressive and the company is continuing to buy back its shares.
Elsewhere, the Japanese equipment manufacturer Komatsu (NYSE: KMTUF) is a high-quality cyclical business at the trough in the earnings cycle. There is potential for a strong boost to profits as the equipment markets for mining and reconstruction recover in the next few years. I believe Komatsu is even more exposed to this upcoming positive change than its key competitor, Caterpillar.
As a long-term fundamental investor, I believe that in every sector and region there will be opportunities, irrespective of the prevailing conditions. If anything, the current uncertainties over economic recovery actually reemphasise the benefits of stock-focused portfolios based on rigorous research and regional expertise.
That’s a better approach than building portfolios whose performance is dictated by ‘big picture’ or macro factors.