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JP Morgan AM's Titherington: my top five emerging market bargains
by Elsa Buchanan on Feb 28, 2014 at 13:10
In the final instalment of our five part series, we move to more exotic climes as JP Morgan Asset Management 's Richard Titherington highlights the top stock bargains in emerging markets.
Titherington, who manages the JPM Emerging Market Opportunities fund alongside Citywire A-rated Amit Mehta ,is playing the Chinese consumer discretionary theme.
Over the last 12 months, the fund has posted 13.61% losses versus a 13.01% loss in the MSCI Emerging Market benchmark. Since inception, the fund posted 7.51% losses, against 5.21% losses by the benchmark.
Despite our quality bias, our value approach has meant that we own countries, sectors and stocks where there is a greater level of uncertainty discounted around company earnings.
Kia is a good example of a company benefiting from long-term structural growth in emerging markets. It has delivered better returns while trading at lower multiples than it’s developed market counterparts over the last decade. In general, we are positive on emerging market automotive sector companies.
For every 1,000 people in the US, there are about 815 cars. For every 1,000 people in China, here are only 70 cars, so you can imagine the scope of demand. There is a high potential for growth as emerging market societies become more affluent and this sector should be supported by strong economics.
Belle is an example of playing the Chinese consumer discretionary theme. It is a shoe retailer that is benefiting from rising affluence in China.
They have opened over 1,600 stores per annum over the last three years. They are developing a sports shoe line and are entering e-commerce.
They have exhibited resilient performance despite operating in a tough macro environment. This company is a good example of looking to build on the emergence of an aspirational middle class.
We have been adding to our India weighting during 2013, as the country model started to view India more positively and the mid-year sell off in the currency meant the Indian rupee was close to 30% undervalued on our estimates of fair value.
Despite the challenging economic backdrop, our India overweight contributed positively to relative performance. Some stock examples include Coal India and HCL Technologies.
We continue to see value in the BRIC markets compared with Latin America ex-Brazil and ASEAN. During the quarter, being underweight Colombia, Chile, the Philippines and Indonesia contributed to relative returns as the valuation of these defensive and expensive markets fell.
Wynn Macau, a Macau casino operator, have been strong performers in our value oriented fund.
The firm has delivered solid returns following strong gross gaming revenue (GGR) and is coming from attractive valuations.
The stock is traded on the Hong Kong Stock Exchange and is also a subsidiary of NASDAQ listed Wynn Resorts.
MGM China, is another Macau casino operator, which has been a strong performer in the fund.
Similarly to our other favourite stock Wynn Macau, MGM China has delivered solid returns following strong gross gaming revenue (GGR) and is coming from attractive valuations.
On 21 January, the operator controlled by MGM Resorts International (MGM) declined 6.6%, the most since 11 June, to HK$32.65 at the close in Hong Kong trading.