Now is not the time to be cautious
June 12, 2018

Now is not the time to be cautious when it comes to equities, according to River and Mercantile Asset Management's Hugh Sergeant.

Investors must attempt to look through much of the macro noise caused by recent global political turbulence or risk missing out on attractive value opportunities, he says in a just-released short note.

Markets sold off around the world at the start of 2018 as a number of macro events caused jitters across stock markets. However, they have bounced back sharply, with many pockets of valuation left across global markets for investors to continue to focus on this year, believes Sergeant.

Sergeant, manager of the 455 million River and Mercantile World Recovery fund, said investors need to block out macro noise'created by events such as a potential trade war between the US and China, Russian sanctions and Brexit, and use any such sell-offs to exploit valuation opportunities.

"There is so much macro noise again and some of it could make one quite concerned," said Sergeant. "But then I go through the portfolios I manage and I know they are full of really good value anomalies, many of which are now very oversold.

"I can't help being confident that these portfolios will be able to generate strong absolute and relative returns over the years to come."

Sergeant said the UK, Japan and emerging markets stand out among global equity markets for value investors looking for good quality companies at a reasonable price.

"After another quarter of relative underperformance UK equities are looking attractive from an absolute and relatively perspective, while it also has one of the highest dividend yields globally, second only to Australia," Sergeant said.

"Meanwhile, Japan looks cheap on almost all metrics we look at, including on a PE and price to book value basis. Emerging markets are also relatively early in their cycle, with return on capital, margins and profits at companies across the emerging market space still offering a lot of recovery potential."

However, one equity market has become overvalued versus the rest of the world, according to Sergeant. He said the US, where the rally has been particularly pronounced since Donald Trump was voted into power in 2016, has reached levels which appear overdone.

"It remains our contention that the US equity market has seen the best of its cycle, with profits having more than fully recovered and the multiple that is put on those full returns being high," he said.





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Now is not the time to be cautious when it comes to equities, according to River and Mercantile Asset Management's Hugh Sergeant.

Investors must attempt to look through much of the macro noise caused by recent global political turbulence or risk missing out on attractive value opportunities, he says in a just-released short note.

Markets sold off around the world at the start of 2018 as a number of macro events caused jitters across stock markets. However, they have bounced back sharply, with many pockets of valuation left across global markets for investors to continue to focus on this year, believes Sergeant.

Sergeant, manager of the 455 million River and Mercantile World Recovery fund, said investors need to block out macro noise'created by events such as a potential trade war between the US and China, Russian sanctions and Brexit, and use any such sell-offs to exploit valuation opportunities.

"There is so much macro noise again and some of it could make one quite concerned," said Sergeant. "But then I go through the portfolios I manage and I know they are full of really good value anomalies, many of which are now very oversold.

"I can't help being confident that these portfolios will be able to generate strong absolute and relative returns over the years to come."

Sergeant said the UK, Japan and emerging markets stand out among global equity markets for value investors looking for good quality companies at a reasonable price.

"After another quarter of relative underperformance UK equities are looking attractive from an absolute and relatively perspective, while it also has one of the highest dividend yields globally, second only to Australia," Sergeant said.

"Meanwhile, Japan looks cheap on almost all metrics we look at, including on a PE and price to book value basis. Emerging markets are also relatively early in their cycle, with return on capital, margins and profits at companies across the emerging market space still offering a lot of recovery potential."

However, one equity market has become overvalued versus the rest of the world, according to Sergeant. He said the US, where the rally has been particularly pronounced since Donald Trump was voted into power in 2016, has reached levels which appear overdone.

"It remains our contention that the US equity market has seen the best of its cycle, with profits having more than fully recovered and the multiple that is put on those full returns being high," he said.




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