At a recent PSG fund manager presentation the words “Japanese financials” came up as the next investment opportunity. The Japanese residential property market had collapsed after its high in 1990 and the stock market, including the banking sector, had tumbled by more than 50%. The Bank Index was still around 80% down from its highs in 1990. This was not the first time that the potential for Japanese investment had been raised. At the recent Allan Gray summit there were some fund managers who believed that the improvements in corporate governance at Japanese companies made them investment targets. PSG believed Japanese financials provided positive asymmetry and investments were made in Resona Group, JP Bank and JP Insurance.
Following on the positive asymmetry argument, they believed the US market, where we had seen decent returns during the last couple of years, was now crowded and that the UK, Japan and emerging markets offered much better value. The e-commerce and technology sectors had to be avoided according to PSG and one also had to consider investing in the international property market via companies like The Simon Group and Washington Prime Group.
Regarding South Africa the issue of collapsing business confidence was mentioned. Things were becoming gloomy again after a short rally after the ANC conference in 2017. Although this was not good news for our economy, it did create investment opportunities where the negative sentiment dragged down good companies for no good reason.
PSG is a somewhat contrarian fund manager and there are years during which they under perform, but they are currently very optimistic about their Flexible Fund with a price-earnings ratio of 10.9 compared to the JSE All Share which is trading on a 17 p/e ratio. They currently prefer small and medium companies like Super Group, Grindrod, Raubex, Tongaat and AECI, but they do rate Old Mutual and Glencore positively.
