Emerging market equity opportunities are starting to appear as investors “throw the baby out with the bath water”, according to JO Hambro Capital Management (JOHCM) global equity manager Ben Leyland.
Mr Leyland, who runs the £114m Global Opportunities fund with Robert Lancastle, said this was particularly the case for China and Brazil.
The manager has several Chinese and Brazilian stocks in his “watch list” as he scours his universe for opportunities.
Both countries have fallen drastically out of favour with investors as their stockmarkets dropped on concerns of slowing growth.
When converted to sterling, the MSCI China index is down 24 per cent across the last six months, although it has added 7 per cent during a recent recovery in the month to October 19.
The MSCI Brazil index has decreased 35 per cent across six months, but is up 2.4 per cent in the past month also in sterling terms.
Mr Leyland said this showed other investors had been prepared to “sell indiscriminately”, leaving several desirable stocks undervalued and open for investment.
The manager thought global markets in general were incredibly expensive with “nowhere to hide”, so priorities were “cash, caution, and a combination of quality and growth”.
However, he is keen to use his high cash holding – which stands at around 12 per cent of his portfolio – to exploit these “geographical anomalies”.
Mr Leyland said he might also fund such positions by neutralising overweight plays in Europe and Japan that were initiated a year ago.
“Our cash balance will continue to come down if markets [keep falling], and we will eventually reach the point of having competition for our capital,” he added.
Elsewhere, bond proxies – such as strong consumer staples or utility stocks – are an area concerning the manager.
He said that while he had favoured such sectors, the focus now was on “companies that reinvest in themselves”.
But he added that these kinds of stocks could not be found among bond proxies.
Resources is another space in which Mr Leyland sees opportunities.
The manager has made investments in stocks such as Swiss agribusiness firm Syngenta, Japanese oil company Inpex, and Woodward, which focuses on improving systems for aerospace and energy markets.
They are now in his top-20 stocks, making up 3, 2.8 and 2.5 per cent of his portfolio respectively, the latest update shows.
Mr Leyland said he would consider adding up to his 5 per cent maximum for any holding.
Global information services company Wolters Kluwer is currently his top stock at 4.6 per cent.
The fund was launched at the end of June 2012 and has performed strongly since then, delivering 50.8 per cent. Its benchmark – the MSCI AC World index – increased 40.4 per cent over the same period, data from JOHCM shows.
