HSBC’s Nick Timberlake and Omar Negyal have opened up a net short position in India within the new GIF Global Emerging Markets Equity Alpha fund.
The pair, who have been running the absolute return strategy since it launched in April, say although they like India’s economic story, it has become increasingly difficult to find undervalued companies.
They are also short Taiwan, where they view the domestic market as particularly overvalued, and have introduced six short positions in both markets from launch.
“There are few companies in India today exhibiting attractive levels of valuation, and the market as a whole is among the most expensive in the emerging world,” Timberlake says.
“People are looking at the very robust growth in India and are looking around the rest of the emerging world and see India as very attractive from a growth perspective. However, we see growth as already being priced in, so we are taking a more cautious view.
“Taiwan is difficult to categorise. The domestic part of the market looks overvalued so it is an area we find it difficult to find interesting stocks to buy. However, there are a number of interesting shorting opportunities.”
Instead, Timberlake and Negyal prefer Russia, South Korea and South Africa, which they believe offer far greater value.
They have an 8% net long position in Russia with a bias towards energy companies such as Rosneft, Gazprom and Lukoil. They also hold an 8% position in South Korea, where their favoured stocks are shipbuilders and electronic giants Samsung and LG.
In South Africa, where they have a 6% weighting, they favour industrial and
consumption names such as Murray & Roberts, and Steinhoff International.
The fund aims to generate a 10%-15% annual return with target volatility of 10%.
“This might not sound a lot but you need to consider what the asset class has done over the last 15 to 20 years,” Timberlake says.
“If you had just bought the MSCI Emerging Markets index, returns would have between 10% and 15% per annum depending on your starting point and cut-off point, but you would have experienced a rollercoaster ride of extreme levels of return from one year to the next.
“With this product you will end up with a similar level of return but with a much smoother path,” he adds.
| TOP FIVE HOLDINGS | % |
| Chaoda Modern |
2.7 |
| Compel Electronics |
2.6 |
| China Petroleum and Chemicals |
2.4 |
| Murray & Roberts |
2.4 |
| Steinhoff International |
2.4 |
| Source: HSBC |
|
