Salient to Investors:
The cheap valuations of European banks, Japanese carmakers, Hong Kong developers and Russian oil producers are attracting investors, indicating that most investors are more concerned with preserving capital than earning higher returns. Shares with the lowest price-to-book ratios lost an average 10 percent since March 2012 and trailed the most expensive shares by 7.2 percentage points, the widest gap since Bloomberg began tracking quarterly data in 2002.
Bloomberg data show over 580 companies in MSCI indexes sell for less than their net assets – the cheapest trade at an average 0.7 times book value; the most expensive trade at 9.6 times book value, led by health-care and consumer products companies whose earnings aren’t tied to the economy. Stocks with the lowest price-to-book ratios have returned an average 6.2 percent per quarter during the past decade, versus 4.3 percent gain for shares with the highest valuations.
Global investors cut equity holdings in Russia and Japan, and had their biggest underweight positions in banks.
David Herro of Harris Associates been significantly adding to European banks, Japanese carmakers, Hong Kong developers and Russian oil producers. Herro says the gloomy environment makes his job quite easy, and investors who focus on good quality companies at low prices are getting very enthused.
Kathy Xu at Aberdeen Asset Management is finding many value stocks and has been has been adding Hong Kong developers at valuations at a five-year low versus global peers. HSBC Global Asset Management likes Russian energy companies at a 45 percent discount to net assets, the cheapest level since 2009.
David Semple at Van Eck Global is not yet ready to buy deeply undervalued but still risky stocks.
Gareth Morgan at F&C Investments dislikes Russian stocks.
The cheapest stocks are favored most by analysts, who predict average gains of 24 percent for the group and 27 percent earnings growth during the next 12 months. The average return predicted for the most expensive companies are 14 percent and projected profit growth of 20 percent during the next 12 months
Ed Conroy at HSBC Global Asset Management likes the long-term prospects of the Russian oil industry – largest holdings are in Russia where current valuations are a buying opportunity.