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Sanlam's Kokkie Kooyman: my top GEM financials ideas
by Kokkie Kooyman on Dec 21, 2012 at 11:53
Sanlam financials fund manager Kokkie Kooyman highlights some of the opportunities in the sector which can be found lower down the market spectrum.
Emerging market equities tend to be quite volatile due to their low levels of liquidity. Hence, when there is demand, share prices tend to move up sharply, and similar when the opposite happens.
Yet, when you look through the volatile share price movements they have consistently grown their earnings. Especially many of the smaller financial companies have enviable track records.
The top 15 small cap emerging market shares in our financial fund have generated a compound return for investors exceeding 24% since 2004, and are yet only on a forward Dec 2013 PE ratio of 7.6
Three common factors
Three common factors tend to drive their earnings:
* Demographics: most emerging markets have very young populations, which means that for the next few years each generation will outnumber its predecessor, hence providing an underlying driver of increased demand
* Low debt exposure: generally large parts of the population have not had access to banking products or the possibility to borrow money. Hence the growth potential is still huge.
* Industrialisation: the shift from rural to urban as well as increasing focus on better education, is industrialising these countries, creating more and more “white collar” salaried jobs, which facilitates the deepening of the financial sector
Below are few that we’ve held or hold in our funds with enviable 10 year track records in terms of delivering 18%+ compound net asset value per share growth (measured in US$), but still have their best growth years ahead of them AND remain mispriced:
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