Banks are growing earnings and remain out of favor; that’s the kind of combination we like.  

2. Europe: Banks and German Industrials

While Europe as a whole is looking attractively valued, there are even greater opportunities within the market. One example is European banks, which, on average, are trading at multiples well below their 20-year average, so it’s easy to see why we’ve gone fishing there.

Banks around the world are seeing significant profit growth after a decade in the doldrums. Today, they are growing earnings and are returning capital to shareholders as a result of real balance-sheet strength. They also remain out-of-favor with most investors. That’s the kind of combination we like, and we continue to hold a number of the most attractive banks.

Elsewhere in Europe, we have seen a number of German industrial businesses come onto our screen in the second half of the year. With Germany’s reliance on Russian energy, wider economic uncertainty, lower forecast order numbers, and supply-chain squeezes, its industrial sector has seen larger share price falls than elsewhere.

Nonetheless, we can still find businesses with structurally growing end markets that have delivered high single-digit revenue growth every year for a decade, have well-capitalized balance sheets, and still trade at a wide discount to our estimates of fair value.

3. Emerging Markets: “China, China, China”

Regulatory crackdowns, political worries, a property-market crash, extended zero-COVID-19 policy, and weakening GDP data led many investors to flee mainland companies in China. This caused the Chinese stock market to fall far from the heights reached in 2019/2020. The market fell far enough that our valuation screen has been throwing up an abundance of Chinese businesses across a broad range of industries for our emerging-markets value portfolio managers to examine.

Outside of China, financials are also screening as attractively valued, notably in Kenya and Argentina..

4. Global: Chinese, US, and Japanese Cyclicals, US Technology

China has also been a key area of research focus for our global value portfolio managers.

Elsewhere, a number of US and Japanese cyclicals are beginning to flash on our screen because they look very cheap, especially in the memory and semiconductor space.

We have done a significant amount of work on the memory chip sub-sector, looking at a number of the major global players. This comes after a fall in share prices owing to a sudden decline in memory demand and the change in cost structure of the various memory mediums.

Memory businesses are very cyclical but are likely to grow over time, make decent returns on capital, and have reasonable balance sheets.

Finally, as many investors know, large-cap US technology struggled in 2022. Between rising interest rates and some idiosyncratic factors, the share prices of a number of these former growth darlings fell considerably. Some of their share prices are beginning to approach realms that pique the team’s interest. As such, we’re keeping a close eye on them.