Four “flavours” of value for equity investors

Banks around the world are seeing significant profit growth after a decade in the doldrums. Today they are growing earnings and, as a result of real balance sheet strength, are returning capital to shareholders. They also remain out of favour with most investors. That’s the kind of combination we like and we continue to hold a number of the most attractive banks.

Elsewhere in Europe, we have seen a number of German industrial businesses come onto our screen in the second half of the year. With Germany’s reliance on Russian energy, plus wider economic uncertainty, lower forecast order numbers, and supply chain squeezes, its industrial sector has seen larger share price falls than elsewhere.

Nonetheless, we can still find businesses with structurally growing end markets, that have delivered high single-digit revenue growth every year for a decade, have well-capitalised balance sheets, yet still trade at a wide discount to our estimates of fair value.

3. Emerging markets: ‘China, China, China’

Regulatory crackdowns, political worries, a property market crash, extended zero-COVID policy and weakening GDP data led many investors fleeing mainland companies in China. This caused the Chinese stock market to fall far from the heights reached in 2019/2020. Far enough to mean that our valuation screen has been throwing up an abundance of Chinese businesses across a broad range of industries for our emerging markets value portfolio managers to examine.

Outside of China, financials are also screening as attractively valued, notably in Kenya and Argentina.

4. Global: China, US and Japanese cyclicals, US technology

China has also been a key area of research focus for our global value portfolio managers.

Elsewhere, a number of US and Japanese cyclicals are beginning to flash on our screen as looking very cheap, especially in the memory and semiconductor space.

We have done a significant amount of work on the memory chip sub-sector, looking at a number of the major global players. This comes after a fall in share prices owing to a sudden fall in memory demand and the change in cost structure of the various memory mediums.

Memory businesses are very cyclical but are likely to grow over time, make decent returns on capital and have reasonable balance sheets.

Finally, an area that many investors will know has struggled consistently this year is large cap US technology. Rising interest rates, alongside some idiosyncratic factors, have seen the share prices of a number of these former growth darlings fall considerably this year. Some of their share prices are beginning to approach realms which have begun to pique the team’s interest and as such we are keeping a close eye on them as we move further into 2023.