Reuters Insider - Wealth Strategies: EM areas with risk hold best opportunity

Huayu Expressway

27/04/2014 17:37

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 Source:             Thomson Reuters                                   
                                                                       
 Description:        Gary Greenberg, manager of the Calvert Emerging   
                     Markets Equity Fund, says areas like Brazil and   
                     Russia which have sold off due to political       
                     instability hold the best opportunity for         
                     investment                                        
 
 
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Transcript (May be auto-generated)

 We're going to look at emerging markets today on Wealth Strategies. I'm joined 
by Gary Greenberg, Lead Portfolio Manager of the Calvert Emerging Markets Equity
Fund. Nice to have you in New York for a change. Thank you. Let's get right down
to business and talk about where you see opportunities. You like most of the 
BRIC nations, correct? Yeah. India, perhaps not so much, but Brazil, Russia, 
China, favorites of yours. Russia's an overweight in particular. Why Russia? 
Russia's cheap relative to its own history. Normally Russia's always cheap, but 
currently it's especially cheap and you've got some very good companies there 
trading at throwaway prices. Let's get to the companies. 

Financial bank Sberbank is a Russian bank. You see a growth opportunity for that
name? Sberbank is a very undervalued stock. It's got an ROE of about 20%. It's 
got a price-to-book of just over 1. And it's got a tremendous franchise. The 
market is not valuing their franchise, or their management, which is actually 
pretty good. And how much build-out opportunity is there for a name like this in
terms of penetration throughout the country? Their penetration's already very 
good, but what they can do is improve their profitability. And the Russian 
economy is underpenetrated in terms of financial services. They don't need a lot
of branches, but what they can do is offer a whole lot more services to the 
population at large. 

Another name you like there is Sollers, which is actually in a joint venture 
with Ford, making SUVs. Yeah. So that's obviously got to be a huge boost for the
company. Yeah, the Russian government is very keen on adding value within the 
country and so they've put in some nice incentives for manufacturers, both 
domestic and foreign, this is a combination of both, to build cars, because 
Russia has steel, but it does not have cars. So the market is pretty good in 
Russia, it's growing and Sollers is a very cheap stock. It's not very liquid, 
several hundred thousand Dollars today, but it's got a P/E of about four times 
and over the next five years, we expect very strong growth in this company. 
Let's move from Russia to China. What are some opportunities there in terms of 
either sectors in the market or companies specifically. I think China's full of 
opportunities, the long-term outlook for China has improved dramatically with 
the recent third plenum of the party and so from having visibility of maybe a 
year or two, now we have visibility at a much longer time period. Opportunities 
include large caps like Ping An China which is one of the leading insurers, and 
a very successful life insurer as opposed to its competitors. 

In addition to that, you might even take a contrarian play and look at ICBC, one
of the larger banks which is at a similar valuation to Sberbank, 1x book, 20% 
ROE et cetera. There are also some very interesting companies in the auto space 
in terms of the A-share market. So for example, a great company called Huayu, 
which is- Glad you said it, not me. -which is a company that makes auto parts 
for Shanghai Industrial, the Volkswagen joint venture. 

A very successful company, very cheap multiple, very attractive. Alright, let's 
move to Brazil because here is perhaps a little bit more of a controversial pick
as Brazil's had a lot of problems. There has been unrest there. There've been 
issues about what's happening financially. So what are you seeing in Brazil that
others are missing out on? I really like Brazil when the euphoria is gone and 
the euphoria is definitely gone right now. The market is very concerned about 
the government intervention, but that's in the price, so Petrobras for example, 
a very, very liquid stock, has gone from $65 in ADR six years ago to $14 in ADR 
now. And they're only two years away from being able to double their production.
That process will start in 2016 where they start doubling their production in 
oil. So this company is a very attractive long-term play. They've had to spend a
lot of money to do it, but that spending is also nearing the end. 

So you've got a world-class oil company with tremendous growth ahead of it, 
trading as if it's going out of business. Outside of the BRICs, is there one 
particular country that just you're not interested in increasing investments in 
that you do have some overwhelming concerns with? The BRICs are the countries 
with the most overwhelming concerns. So that's where you're finding the most 
opportunities? But that's where we're finding the most opportunities. The 
countries like Mexico and the Philippines are darlings of the market, but their 
priced that way, so we're not finding much in those. It's hard when I ask this 
question and we talk about EM because we're talking about a lot of different 
places, but what is the biggest risk that EM investors need to think about next 
year? Well, the tapering is going to be top of mind and the question is have the
emerging markets, especially the ones that are vulnerable, have they adequately 
discounted the prospect of Fed tapering. Have they? I think they have. I think 
they have, I think if the markets fall, and those would be South Africa, Turkey,
Indonesia, India and Brazil, if they fall a good amount, say 5% to 10% as the 
Fed begins to taper, we'll regard that as an opportunity. Gary Greenberg, good 
to talk to you. Thanks so much. Thank you. I'm Rhonda Schaffler. This is 
Reuters