Sporting greats: the investment prospects for the top 10 Olympic nations
United States – 104 medals in 2012
Sanlam FOUR US Dividend Income fund manager Adour Sarkissian expects US equities to continue showing strength as the market enters an eighth consecutive positive year of return.
“While US markets are in uncharted high territory, we are still able to find value in select areas. The dividend style significantly underperformed in 2015, with investors fearing interest rate hikes were on the horizon. Many strong companies were being sold off for the wrong reasons, allowing investors to take advantage of the attractive valuations. Following a long hibernation, the dividend style has come back into favour and is considerably leading the US market this year.”
China – 88 medals in 2012
The rise of the Chinese sporting superpower in recent decades echoes the rapid growth of the Chinese and Asian consumer, T. Rowe Price Asia Opportunities Equity fund manager Eric Moffett explains.
“Real wage growth and improving standards of living are driving an exciting, broad-based shift in Asian consumer tastes and daily spending habits. One knock-on effect of this demand has been the sharp growth in e-commerce. The traditional economy is still under-developed, allowing new technologies to leapfrog years of normal change. Although global e-commerce sales continue to grow at a healthy pace, China’s market has been growing more than 70% annually since 2009, and it officially overtook the US in 2013 as the world’s largest e-commerce market. Some estimates suggest by 2020 it may be as large as the US, Japan, UK, Germany, and France combined.”
Great Britain – 65 medals in 2012
While the REIT market was impacted by the Brexit referendum, Rogier Quirijns, the European real estate securities portfolio manager at Cohen & Steers, believes attractive opportunities remain.
“This sell off has created potential opportunities in REITs that have built up a strong long-term income and growth profile. Average leases in many REITs are in excess of 10 years and we do not believe the UK faces a severe recession – therefore cash flows should remain robust. We prefer REITs offering dividend yields of between 4% and 6%, with 3-year growth rates of 10% to 30%. Many of these names should continue to deliver sustainable income and growth, despite the Brexit shock.”
Russia – 82 medals in 2012
Amid the ongoing drug scandal of the Olympic team, Russia’s economy appears to be slowly picking itself off the canvas, SWMC Emerging European fund manager Lukas Schmitz writes.
“The heavily commodity-dependent economy plunged into a recession last year due to the collapse in the oil price and the following devaluation of the rouble. With oil making a slight comeback and the Russian economy slowly diversifying, we can expect a return to GDP growth by 2017. We believe the best way of gaining exposure to the improving Russian economy is through the country’s largest banking and financial services company Sberbank, which has more than 130 million retail and 1.4 million corporate clients.”
Germany – 44 medals in 2012
Chris Hiorns, manager of the EdenTree Amity European Fund, says corporate Germany houses many of the world’s highest quality and resilient companies.
“The German stock market offers access to a plethora of high quality engineering names, from large global multinationals to more specialist small and medium size ‘Mittelstand’ companies – often credited with turning Germany into an economic powerhouse. Indus Holdings specialises in providing a responsible long-term home for Mittelstand companies in the construction, automotive, engineering and medical industries. It has a 30-year track record of managing them on a sustainable basis, with healthy balance sheets and attractive operating margins. Indus’ reputation enables it to purchase businesses at attractive valuations from founding families looking to safeguard the long-term future of their companies.”
Japan – 38 medals in 2012
Brad Tank, the chief investment officer – fixed Income at Neuberger Berman, says global investors have already made moves into Japan, the 2020 host nation, particularly after the Brexit vote.
“The sharp rise in the Japanese yen is one of the more challenging effects of the referendum vote. The yen has long been viewed as safe-haven currency, and thus recently reached highs not seen since 2014, threatening to undermine progress made via Abenomics. Given the bleak picture, we think it is possible that Japan could be the first country to introduce ‘helicopter money’.”
Australia – 35 medals in 2012
Australia depends on its mining sector and Jeremy Lang, founder and partner at Ardevora Asset Management, discusses the resources paradox.
“While we have recently witnessed some value opportunities opening up in the resources sector, we remain bearish on the likes of Anglo-Australian giants Rio Tinto and BHP. Rio Tinto looks like a value trap. Management still appears to be in denial, believing current difficulties are transient and little needs to change from its side. But most investors view it with relative calm, because of its less aggressive pursuit of growth in the past. The riskier looking resources businesses are the safest to own at the moment – with a willingness to sell risk – whereas the safer ones are still in denial and are willing buyers of risk. This reshuffling of risk will not solve the entire industry’s problems.”
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. The valuation discrepancy between US and European stocks is also at an all-time high, two standard deviations above the norm. One of the most compelling opportunities in Europe currently is in the auto sector – particularly 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
Almost half of South Korea’s gold medals came from shooting and archery. Jorry Rask Nøddekær, manager of the Nordea 1 – Emerging Starts Equity fund, has a similarly targeted approach.
“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 its 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’s still very difficult for the banks to repossess assets. 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 remains in a fragile state. The deal has major execution risk, considering all of its moving parts.”