Pockets of opportunity amid the global market rout
Investors are mistaken in making blanket judgements about global stock valuations, even as rising US interest rates and China-US trade tensions spook markets, says Platinum CEO Andrew Clifford.
Investors are mistaken in making blanket judgements about global stock valuations, even as rising US interest rates and China-US trade tensions spook markets, says Platinum CEO Andrew Clifford.
Speaking at Morningstar's Individual Investor Conference yesterday, Clifford urged investors to look beyond the headlines, take a long-term view and search for pockets of opportunity among the wreckage.
"If you read the financial papers, you'll recognise that most commentators say Trump isn't going to back down, he wants to hurt China, and he has bipartisan and voter support to do so.
"On the other hand, they say president Xi is going to retaliate dollar-for-dollar. China isn't going to budge, the US isn't going to either, and we're drifting towards some kind of new cold war era," Clifford said.
While conceding he has "no way of reading President Trump or Xi's minds," the Platinum Asset Management head said there are still ways investors can "frame the problem of the trade war" as opportunities.
Where Clifford sees value
Noting that avoiding the crowd as an investor is easier said than done, he highlighted several out-of-favour companies across the auto, energy and materials, industrials and Asian consumer sectors – where he sees strong prospects over the next three to five years.
Samsung Electronics (SSNLF)
South Korean electronics giant and one of Platinum's biggest stock holdings, Samsung Electronics may be known for its smartphones and televisions, but Clifford also likes its semiconductor memory chip business.
Its dynamic random-access memory dram chips are used in personal computers and servers powering the internet.
Though this space traditionally has been highly cyclical and ripe for competition, Clifford said it has now become more rationalised, with only three or four dominant companies.
"Chips have gone from being a fairly dull business, to an incredibly profitable one. If you think about what is driving the demand for more memory chips, it's all the devices we use, it's storage devices, but also things like artificial intelligence.
"This company is fundamental to the technological revolution that we see. It is the leader," said Clifford, who believes the company's appeal is furthered by the global tech sector sell-off.
"Samsung is down from its highs early in the year over 25 per cent. Add another 3 per cent today in fact. It trades on a P/E multiple this year of less than 6 times.
On top of that, the company has little debt, and has net cash worth 25 per cent more than the price of the company.
"Uncertainty has had a slight impact on Samsung…maybe it's profits aren't going to be quite as good in the next year or two, but over the next five years, I don't think very much has changed but the price we're paying for this today is 25 per cent better than it was a few months ago."
Ping An Insurance company of China (CYN)
Chinese firm Ping An Insurance is a leading life insurance provider in China, the second largest in general insurance, and runs a bank which focuses on SME and consumer lending – rather than the more fraught large-scale industrial projects space.
Clifford singles out Ping An among its Chinese peers because of its investment in assessment technology.
"Ping An is a global leader in the application of artificial intelligence technology in the financial sector," he said.
"It can now assess claims for damaged motor vehicles, simply from a photograph sent in, without human intervention."
According to Clifford, the company has grown an average of 20 per cent annually over the last 15 years – a growth rate comparable with Amazon's. And the global sell off has turned what typically is an expensive stock, into a bargain.
"This stock had a sell off of over 30 per cent in the year – it's bounced a bit now, it's only down around 15 per cent, but it is on a P/E of 12, or an earnings yield of eight.
"If you were to compare that to any of the local insurers, you'd find they're on a similar or higher P/E but not growing as fast," he said.
Glencore PLC (GLEN)
Anglo–Swiss multinational commodity trading and mining company Glencore plc has been hit hard by falling copper and nickel prices, but Clifford see strong future growth prospects for the company.
"Copper and nickel are both metals that were in massive oversupply after the slowdown in China in 2013-14, huge inventories filled up," he said.
But demand has now caught up with supply and inventories falling, with supply shortages tipped to be exacerbated by growing electric vehicle demand in the short- to medium-term.
"Cobalt is one of the important metals in making lithium iron phosphate batteries and is in very short supply. This company has all of the new supply coming on."
Clifford says financial speculation is weakening copper and nickel prices, despite the fact that inventories keep going down, pulling the stock down 25 per cent and making it an attractive opportunity for investors.
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Emma Rapaport is a reporter with Morningstar Australia, based in Sydney.
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