France – 34 medals in 2012
The exploits of European athletes are often discounted, which is not unlike the prospects for corporates on the Continent, explains Alken Asset Management founder Nicolas Walewski.
“European equities are today offering investors one of the most powerful value opportunities in history. There is an extremely rare two standard deviation valuation differential between cyclical and growth stocks – which was last witnessed in the 1930s. In addition, the valuation discrepancy between US and European stocks is also at an all-time high, again two standard deviations above the norm.
“One of the most compelling opportunities in Europe currently is in the auto sector – particularly French duo Peugeot and Valeo. While the market is currently fixated on the environment for the US manufactures, investors need to realise the auto market is not just the US – it is global. The US auto market is rolling over, but this only constitutes 18 million cars out of a global market of about 73 million. With no excesses in the overall global car market, we are witnessing strong tailwinds for the fundamentally sound French auto giants.”
South Korea – 28 medals in 2012
South Korea was one of the top performing nations at the London 2012 Olympics, with almost half of its gold medals coming from shooting and archery. Jorry Rask Nøddekær, manager of the Nordea 1 – Emerging Starts Equity Fund, has a similarly targeted approach to Korea.
“While we have large underweight in the country, the largest individual position in our fund is Korean IT giant Samsung Electronics, which has performed well recently on the back of a pick-up in demand for hard drive components. Our other top Korean holding is in LG Household & Healthcare, which is delivering strong sales numbers driven by its growing Chinese business.”
Italy – 28 medals in 2012
Uncertainty usually surrounds Italy in sporting events, which is similar to the current state of the Italian economy, Filippo Alloatti, senior credit analyst at Hermes Investment Management, says.
“The NPL issue in Italy has been around for many years, but very little has been done to tackle the problem. The relationship between the borrower and lender is skewed towards the former, and while recent legislation has sought to improve this, it still very difficult for the banks to repossess assets.
The recent action from the Italian government is a step in the right direction. There is no magic wand that can solve this overnight; it will take five or 10 years to sort out. Italy’s problem is in its overly bank-centric system, which creates issues when the economy is underperforming. As for Monte dei Paschi, the world’s oldest surviving bank, its rescue plan announced last week remains in a fragile state. The deal has major execution risk, considering all of its moving parts.”
