Comment: Tim Love, Cazenove Capital Management: Tapping into the anomalies in global growth trends
Tim Love outlines the global investment opportunities that are being created and driven by the growth of the emerging economies.
Love joined Cazenove Capital Management in January 2006 from Deutsche Bank, where he has been number one rated for both emerging markets and global strategy in four of the last six years. He has over 20 years of experience including fund management roles with HSBC and Mercury Asset Management followed by spells at ING Barings and latterly Deutsche Bank, advising the world's leading institutional investors.
'I am sure you have all observed or read about a change in the world and thought 'How do I invest in that?' My job at Cazenove Capital is to seek out such themes and exploit them on behalf of our clients.
Those I currently see include sustainable energy, water shortages, the re-rating of Japanese property and, most significantly, the impact of China, India and now Russia joining the World Trade Organisation.
The impact of the growth of emerging economies on the world will continue for many years, both in emerging and developed markets. After all, today's developed market was yesterday's emerging market. The transition from emerging to developed can produce outstanding returns, albeit accompanied by considerable volatility as investors inevitably take time to absorb the change. For example, ten former Soviet block countries have entered the EU, but many of these are still classified as emerging markets by index providers. This provides a range of opportunities to arbitrage the misperception.
A much larger convergence story is now under way with a more global impact; the accession of China and India to the World Trade Organisation saw the membership double in size from 1.4bn to 3.2bn people. The consumption impact has already affected base industries and commodities. The next phases of globalisation are being played out in textiles, autos, and tourism. This will be followed by banking, insurance and technology.
Despite 40% of the increases in global GDP being attributed to emerging markets, there remain investor concerns over poor liquidity and high risk. But investment in emerging markets is only half the story. We will see both winners and losers in developed markets as well. Most equity analysis is regional; by taking a global view we are able to identify more anomalies. My team has perfected a process of identifying these anomalies over the years which will be the main driver of our investment decisions in the Fund.
China related themes provide good examples of the type of investments we might make. Kuoni, Inchcape and the casinos of Macaw are all making huge profits from the exponential growth in Chinese tourism while the Potash Company of Saskatchewan is one of the few companies worldwide benefiting from the enormous demand for fertiliser as the Chinese authorities seek to feed the huge migration to cities.
For the losers you need look no further than the US car manufacturing industry. Interestingly, all these would have been more profitable trades than investing in the Chinese stock market itself during the last two years.'
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