Davos: Wincrest, net short U.S. stocks, says lofty valuations dangerous
20/01/2020 16:58
By Divya Chowdhury and Lisa Pauline Mattackal
Jan 20 (Reuters) - Emerging markets are the "anti-bubble" to
increasingly expensive U.S. stocks, Barbara Ann Bernard, founder
and chief investment officer of asset manager Wincrest Capital,
said on Monday.
Lofty equity valuations of companies like Apple Inc AAPL.O
were dangerous, Bernard, whose investments include Saudi Arabian
gyms and Indian shoe maker Relaxo Footwears Ltd RLXO.NS , said
in an interview in the Reuters Global Markets Forum.
Although the trend towards passive investing threatens the
process of price discovery, it creates opportunities for
investors willing to bet on overlooked stocks, Bernard said on
the eve of the annual meeting of the World Economic Forum in the
Swiss ski resort of Davos.
Below are excerpts from the interview:
Question (Q) - Which countries do you find value in
currently? Do emerging markets look appealing to you?
Answer (A) - Absolutely. Our fund is currently net short the
U.S. market, not because we don't like the United States as a
country, but rather, because we find twice the growth at half
the multiple in Europe and emerging markets.
Last year, the earnings of the S&P 500 .SPX were flat.
Yet its price-to-earnings multiple (P/E) expanded from 14 times
earnings to 19 times by year-end. People are paying more for
less there today.
As value investors, we are interested in paying less for
more and are agnostic as to where we look for that opportunity.
Q: What is your view on the FAANG group (Facebook, Amazon,
Apple, Netflix and Google) of stocks, and in general, on U.S.
tech valuations?
A: Things can be popular or safe, but in my experience, they
are rarely both. FAANG is popular, but it is expensive, which
makes it dangerous.
Today, the emerging market consumer is the "anti-bubble" to
FAANG. For the market cap of Apple, you can buy every company in
the four largest southeast Asian economies.
It is not normal, nor rational, to believe one company has a
brighter future than several countries combined.
Q: What are your thoughts on quantitative easing's
(QE)impact on value investing?
A: QE has distorted all valuations, not just in the public
markets. With cheaper money, higher P/Es can be justified. But
should they when you can still buy other markets at a discount
with more growth and better yields?
You might have to look farther and work harder to uncover
value today, but the harder we look the luckier we get.
Q: What is your view on the gradual fund flow from active
investing to passive investing? Will passive flows eventually
create more bubbles?
A: Today over 50% of the market is held by passive
investors; three companies comprise 80% of that market share. I
worry that this is eroding price discovery. I worry that more
and more people are crowding into a room, but the exit door is
still the same size. We have seen them indiscriminately buy, but
we have not seen them sell.
At the same time, this is creating great opportunity. 80% of
the positions in our fund are in no major index. We have adopted
a private market approach to public equity markets.
(This interview was conducted in the Reuters Global Markets
Forum, a chat room hosted on the Eikon platform. Sign up here to
join GMF: https://refini.tv/2LbSKPl)
(Reporting by Divya Chowdhury in Davos, Savio Shetty in Mumbai,
and Lisa Mattackal in Bengaluru; Additional reporting by Svea
Herbst-Bayliss; Editing by Alexander Smith)
((LisaPauline.Mattackal@thomsonreuters.com;+91 80 6749 9014;
Reuters Messaging:
lisapauline.mattackal@thomsonreuters.com@reuters.net))