Asset allocation strategies at Investec and Standard Life Investments remain positive on most Wester...
Asset allocation strategies at Investec and Standard Life Investments remain positive on most Western geographical regions, but are moving away from Latin America.
The strategies for funds at both groups have been to reduce positions in the Latin American countries.
Richard Batty, global investment strategist at Standard Life, says: "We are cautious about investing in Latin American countries because of their high weighting in materials and energy stocks, which makes up 40% of the sector. We also believe the oil price recently peaking at $72 (£40) a barrel is unsustainable and the good news is already priced in the stocks."
One region both Investec and Standard Life strategists are recommending their funds stay overweight is Europe.
According to Philip Saunders, head of strategy at Investec, Germany is showing strong signs of recovery due to a more competitive environment and company restructuring. He believes overweight positions should be held in banking, consumer and property sectors.
He also believes European exporters are benefiting from a euro weak against the dollar, presently trading at 74 cents to the euro.
Similarly, Batty sees Europe as a restructuring story. One company in Standard Life's European portfolios is German truck manufacturer Mann.
In the last year, Mann has undergone a number of cost saving excerises including the closure of its Western factories to open Eastern European bases which has saved it 40%.
Batty remains positive on the UK, as the average market cashflow yield for companies is 6% with increasing dividend payouts. M&A activity is also pushing up share prices, he points out.
Standard Life is overweight UK banking stocks. Batty gives the example of the Banco Santander takeover of Abbey National in 2004, which has since led to the former's share price in London reaching £8.34 in April this year, up from an equivalent of £6 in May 2005.
Another region in which both groups have overweight positions is Japan.
Saunders says: "This is due to the country emerging from deflation. We favour companies in the electrical machinery sector as they have been beneficiaries from the capital investment boom in the country."
For Japan, Batty is seeing a pick up in the domestic economy. He explains inflation is returning in the country, with the Bank of Japan signalling a move towards raising interest rates this year from its zero rate policy.
Batty likes exporters in Japan such as car manufacturers Toyota and Honda. With oil prices reaching an all time high, he believes US consumers are now purchasing fuel-efficient cars, which Toyota and Honda make, compared to previously popular gas guzzling vehicles such as SUV trucks.
Despite the Investec Global Balanced fund being underweight the US, Saunders is overweight US IT companies. He favours IT because it has been a beneficiary of the capital investment boom and a lot of the companies have good earnings growth. He also believes a lot of companies have not been highly rated since the bursting of the technology bubble in March 2000 and
could be due for a re-rating.
Managers cautious about Latin America
Europe benefited from corporate restructuring
Japanese car exporters have performed well
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