By Joanne Frearson Managers have been tilting their global asset allocations towards Continental E...
By Joanne Frearson
Managers have been tilting their global asset allocations towards Continental Europe and Japan on the back of rising property markets and corporate restructuring in the finance sector.
The Threadneedle Global Select fund, which is benchmarked to the MSCI World All Countries index is currently 3% overweight Continental Europe.
Jeremy Podger, manager of the portfolio, is presently finding opportunities in the Swiss investment banking sector and the German real estate market.
Podger says: "In the Swiss market Credit Suisse Asset Management (CSAM) is undervalued at the moment, as its P/E ratio is 12 times earnings compared to the market average for Europe of 14.
"I expect CSAM will continue to do well as a result of its business in the Far East, where the domestic economies have been buoyant and people are spending and borrowing money."
In Germany, Podger has real estate company Hypo Real Estate in his top 10. He explains lending volumes have been picking up and it is now cheaper to buy a flat than it is to rent.
Statistics from the Association of German Pfandbrief Banks show domestic mortgage lending to be up 17.5m (£11.9m) in October 2005 compared to 14.9m the previous year.
Threadneedle and F&C have also slanted their asset allocation to be overweight in the Japanese market.
Paul Niven, head of asset allocation at F&C as well as manager of the FP Balanced Managed fund, believes Japan is a good domestic story and the key to Japanese recovery is real estate.
The Threadneedle fund is overweight Japan by about 5%. Podger also favours the property market as land prices begin to rise.
An example of a real estate company in the Threadneedle portfolio is Mitsui Fudosan, which specialises in property development. The company currently manages commercial properties for 1,000 tenants and office buildings for 3,000 tenant companies.
On top of this, more than 500,000 households have either bought or sold or leased property through it. As property prices start to rise, Podger feels the company will be a beneficiary of this phenomenon.
Podger is a fan of Asia markets while Niven, by contrast, is underweight the region.
Podger is overweight in Korea and has Samsung Electronics in his top 10 position.
He says: "This company has been re-rated by analysts. It was suffering following pricing pressure on LCD screens on mobile handsets.
"But, it has since improved, due to the increase in demand for iPod memory chips, which Samsung produces."
Conversely, Niven remains underweight Asia. He explains: "This market will be impacted by a global slow down. Global earnings growth is expected to be 8%-10% this year compared to 20% last year and people will become more cautious in the price they pay for equities."
Both managers are also underweight the UK and US. The Threadneedle portfolio is underweight in the UK by 6% and the US by 10%.
Podger says there are better opportunities elsewhere in the world, but acknowledges the UK is fairly valued from an international context.
Niven adds: "Normally the US market is defensive and as the economy slows down, we may switch to an overweight position in the latter half of the year."
Managers are favouring Japan and Europe
UK and US managers remain underweight
Asia could be impacted if there is a global slow down
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