Nonetheless, it's time for action. In partial contrast to the market volatility of the last period, for Carmignac, the beginning of 2012 brings with it more than one good reason to increase exposure to equity: the restrictive cycle of Chinese monetary policy should now be behind us with inflation under control, American politicians seem to want to avoid short circuits and tug-of-war at least until the November elections and finally the ECB's move has significantly increased liquidity in Europe . Here the Stock Exchanges, despite the turbulence of the last few days, could during 2012 regain share at more balanced levels than the current ones. There are two areas on which the managers have already increased their allocation in recent months: emerging countries, given that the risk aversion that penalized them in 2011 has created interesting opportunities with still significant potential for a recovery in prices; stocks related to energy and some commodities.
EMERGING, DIFFERENTIATING CONSUMPTION
One of the key investment themes is the improvement of living standards in emerging markets, which positively influences the consumer, financial services and infrastructure sectors. Thanks to a more favorable context, due to the relaxation of monetary policies in particular in emerging countries and in general to improved global liquidity, the Carmignac Investissement fund increased its exposure to emerging markets to 43,1% from 37,3% at the end of 2011 and from 34% at the end of September. “If there is a problem in developed markets, people sell emerging markets because risk aversion increases – says Simon Pickard, head of the emerging equities team – but it is irrational to sell emerging markets when Europe does badly. When we are away from the crisis then the fundamentals of emerging markets will take over”. This is why there is significant room for recovery in emerging markets for Carmignac.
Yeah but where? “As well as China – continues Pickard – we are now also looking at Indonesia, Colombia, Thailand and the Philippines. In India we have not been positive in the past but we are entering. There are still many problems in the country, especially corruption, but it can offer good opportunities especially in the infrastructure sector. Similarly Turkey should present opportunities due to its strong industry and positive demographics, but poses a slightly higher risk due to its dependence on funding from Western European banks. Over the long term, we invest in Africa, in particular companies that are listed in developed countries but have all assets in Africa, such as the French Cfao listed on Euronext Paris and leader in the distribution of automotive, pharma and electronic products in Africa. In particular, China will be driven by services and consumption: no to state-owned companies and instead the green light to the private sector of supermarkets". Like the company Baidu, the Chinese equivalent of Google. But exposure to the country can also be found by focusing on Ambev beer, the Pan-American leader in the beers and soft drinks sector, or Yum!Brands which manages the KFC restaurant chain which generates two thirds of its profit from emerging countries. Finally Mead Johnson, in the baby food sector which produces 60% of its turnover in emerging countries.
COPPER MINES AND OIL SERVICES, THE DISCOUNT IS TOO MUCH
Exposure to energy stocks also increased, to 54,26% (including 13,42% in oil services) from 48,24% at the end of December and 41,85% at the end of September. Furthermore, the exposure to diversified metals went from 25% at the end of September to 30%. “We think we are heading towards a situation of renewed liquidity – explains David Field, head of the commodities team – but we must bear in mind that there will be periods of crisis. There are a few sectors that we see as overpriced by the market as a buying opportunity: copper mining stocks, which appear to have good underlying demand with China continuing to grow nonetheless and should support demand; the stocks of oil services, those companies that provide the technology for production; and finally the gold mines”.
The exposure to gold mines was actually reduced slightly between the end of the year and today from 15% to 10%. However, the yellow metal remains a sector to keep in the portfolio. “Gold purchases are also on the rise by central banks and China – continues Field – Gold is insurance against financial, geopolitical and inflationary risk. It is certainly true that the companies' performances have not followed the gold rush and this is because the budgets have failed on costs. We look for three types of companies to avoid the cost problem: companies that have royalties, which are independent of the increase in costs and instead participate in the results of new explorations; companies enjoying sustainable production increases and those making large discoveries of high-quality gold deposits. 2012 will be an important year for the business credibility of these companies”. They like Franco Nevada, a royalty-based company, and El Dorado, a gold mining company in Turkey and China. In terms of copper-related stocks, Carmignac is betting on FirstQuantan, a copper producer in Zambia, and Lundin Mining. In oil services, the choice falls on Ensco and Core Laboratories, and between oil companies (among producers) Anadarko Petroleum and Pacific Rubiales.
