Premier Asset Management’s Jake Robbins has bought into a Chinese bank in spite of wide-ranging and severe negative sentiment towards the banking sector in the world’s second largest economy.
The manager of the £72.7m Premier Global Alpha Growth fund has bought into China Construction Bank (CCB), even though there are fears that more Chinese banks will be forced to take losses on bad loans. The Chinese government has indicated several times that it is prepared to let loans and bonds default in order to improve the country’s bond market.
Mr Robbins said: “CCB shares have been poor and people are concerned that bad loans will pick up, and I think they will overall, but CCB has loan coverage of more than 200 per cent.
“It is currently very profitable with 20 per cent return on equity, but is trading at less than book value. The market has priced in a huge blow up of the Chinese economy.”
The manager had 22 per cent of his portfolio invested in Asia at the end of March 2014 and said China looked “particularly cheap”.
“Valuations there are easy to buy and at very attractive yields,” he added.
“There is a lot of value in emerging markets in general but something needs to change sentiment wise, and I’m not sure what that is. Chinese stimulus could do it, but until then it could stay cheap for a bit.”
Mr Robbins also questioned the wisdom of asset allocators piling into Europe to back its economic recovery, arguing that it is “difficult to find” good-value opportunities that were not priced as if the economy was going to “blow the lights out”.
He said some industrial companies were reporting results that were “not very good”, which could threaten the fragile cyclical recovery on the continent.
Elsewhere in his portfolio, Mr Robbins has reduced an underweight position in oil & gas stocks through the purchases of three companies specialising in shale gas development.
The manager has added holdings in US firms Helmerich & Payne and EOG Resources, which are heavily involved in the production of shale gas in the US. He has also bought into Beach Energy, an Australian drilling company at the forefront of the country’s fledgling shale gas industry.
“Beach Energy was the first company with rights to develop shale gas drilling in Australia,” Mr Robbins said. “It’s trying to ascertain whether it is commercially viable. The Australian government has signed a lot of agreements to sell gas into Asia and is committed to exporting that. It is a high risk position but none of its potential in shale gas is in the share price.”
The manager said the improving global economy could prove a positive catalyst for the oil price, while the potential stepping up of sanctions against Russia imposed by Europe and the US could also be positive for the price of oil “in the short term”. The three additions have reduced Mr Robbins’ underweight position in oil & gas stocks.