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SGPB Hambro's Verleyen tips Russian banks to soar
by Annabelle Williams on Feb 22, 2013 at 10:38
Société Générale Private Banking Hambro's chief investment officer Eric Verleyen is tipping Russian bank bonds as a star performer this year, believing they are ‘terribly oversold’.
Verleyen’s private client portfolios are ‘well exposed’ to Russia and he says it is purely a question of valuation.
‘We all know that it is not easy for companies to do business in Russia. They have to improve governance. But it is slowly happening and now the discount in Russia is actually of a price-to-earnings ratio that is half that of the wider emerging market P/Es,’ he said. ‘This is an overdone discount and Russia is too cheap.’
He believes the market will recover provided the oil price stays buoyant – and political tensions in the Middle East will ensure this is the case.
For equity exposure, Verleyen has chosen a tracker fund for its broad spread, buying the Lyxor ETF Russia, as well as the DWS Russia fund, which is ranked ninth out of 54 in the Equity Russia sector over three years.
He has bought the bonds of Russia’s second largest bank, VTB, which he regards as exceedingly solid, alongside the debt of Gazprombank, which finances Russian blue chips. ‘VTB has $212 billion in assets, a market share of 13.6% of retail loans and 9% of retail deposits,’ he said.
Buying into US energy
Verleyen has also been playing the US energy independence theme and has bought chemical company Lyondellbasell.
‘Chemical makers guzzle energy and also rely on byproducts from oil and gas purification so the shale boom delivers a double blessing of cheap feedstock and cheap energy,’ he explained. ‘Lyondellbasell’s management team is boosting earnings and returning capital to shareholders through share buybacks and dividends.’
A similar play is Valero, which recently rose 8% on the back of strong results. ‘This is the largest independent petroleum refiner in the US, with capacity of three million barrels per day,’ he said. ‘It is actively expanding its ethanol production business, has capacity for 1.1 billion gallons per year and is still one of the cheapest companies in its sector.’
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Aberdeen Live supplement: Fundamentals point to ongoing flows and solid returns from EMD
After a record year for inflows and market-leading performance in 2012, emerging market debt has taken a large step towards the mainstream. Our recent debate covers the outlook for the asset class this year and where opportunities can be found.