Polar Capital’s Yakas favours 'transparent’ EM banks

Polar Capital’s financials manager John Yakas is shunning the troubled Southern European banking sector in favour of ‘more transparent’ emerging European banks.

Yakas, manager of firm’s European Financials fund, is underweight Southern European banks in light of continued uncertainty over whether Greece will default and recent news Portugal has agreed a bailout from the European Union and the IMF.

The fund manager has limited exposure to Spanish, Cypriot, and Italian banks and no exposure to Portuguese or Greek banks.

“The underlying picture for Portuguese banks is not that profitable relative to Spanish and Greek banks,” he said.

Meanwhile, he has added 3%-4% to European emerging market banks over the past quarter, on the basis these economies will not need to deleverage as much as those in Western Europe.

“In Western Europe, loan growth is likely to be lacklustre, so you are looking for countries where growth opportunities are likely to be better.

“At the beginning of the year, markets started to fall in the European emerging markets, which prompted us to buy. If there is a further correction, we will buy more. Turkey is a good example, and Poland to a lesser extent,” said Yakas.

“At some point, Southern European banks will look more interesting, but ultimately they do not look attractive enough yet. You have to adjust to the fact at some point they will have to write down the value of their government bond portfolios,” he added.

“If you are buying Southern European banks now, you have to be very confident they will have enough capital to withstand a default. One or two Greek banks might look reasonably priced after a default, but others are not in good shape to deal with that, particularly in Portugal,” he said.

Polar Capital launched a globally focused Financial Opportunity fund last week for Yakas. He said the group may look to merge the European Financials into the new fund in the future if investor appetite is greater for a global mandate.