“Because global growth has been low there is excess capacity in the system and because of that the conventional view is that global inflation and interest rates are going to stay low forever,” says Philipp Wörz, a fund manager at PSG Asset Management.
“Markets are made up of people, and it’s human nature to act irrationally and to be more comfortable following the herd, particularly when it comes to investments,” he explains.
As a result of this, an enormous mispricing in assets has crept into the market especially in the last couple of years. “People are overpaying for quality and certainty.” Inevitably this leads to the prices of less favoured stocks coming down in relation to their underlying values. “We are now seeing a wide divergence between the valuations of cheap versus expensive global equities – in many cases as wide as during the tech bubble at the turn of the 21st century,” he said.
Conversely, the performance of “real” assets (such as commodities, infrastructure assets and value stocks), as opposed to “financial” assets (such as large cap blue chips and developed market government bonds), is at generational lows.
To value managers these conditions spell opportunity, and they are finding some good buys in high-quality global cyclical companies and global banks.
“A number of global banks have solid balance sheets, are trading on attractive price to book valuations and are being priced for a continuation of the headwinds they have faced since the financial crisis of 2008.”
Overall, Wörz said there is currently a strong case to be made for investing globally. “Many quality global assets which have been through hard times over the past few years can be acquired at below average prices.
While most investors lack the knowledge and resources to pick out global stocks to invest in, they can invest in unit trusts with significant global exposure. These include global flexible funds which according the Association for Savings and Investments (ASISA) can be fully invested offshore.
