Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

<ul>
<li>South African allocations have fallen to record lows among active GEM investors.  Over the last 6-months, weights have fallen by 0.77% to just 2.82% after fund outflows of $2.78bn.</li>
<li>Naspers was the driver following the Prosus exchange offer.  28 of the 126 pre-existing holders of Naspers sold down their positions , totalling $2.45bn in combined outflows</li>
<li>Strip out Naspers and South Africa looks to be bottoming out.  Selected stocks are starting to attract interest from active EM managers, led by FirstRand, MTN and Capitec.</li>
</ul>


South African allocations have fallen to record lows among active GEM investors.  Over the last 6-months, weights have fallen by 0.77% to just 2.82% after fund outflows of $2.78bn.
Naspers was the driver following the Prosus exchange offer.  28 of the 126 pre-existing holders of Naspers sold down their positions , totalling $2.45bn in combined outflows
Strip out Naspers and South Africa looks to be bottoming out.  Selected stocks are starting to attract interest from active EM managers, led by FirstRand, MTN and Capitec.


Naspers Drives South Africa Positioning to All-Time Lows, but Bright Spots Emerge

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Thematic (Sector/Industry)

Africa has been described as the "final frontier". Regarding financial services, the adoption of new technologies is progressing fast in young underbanked populations. And the market is huge- almost the size of India or China. It is here that there is greatest potential returns and the greatest risk- from climate change, terrorism etc. Zimbabwe is a case in point: high risk but highly profitable.South Africa is a regional hub, not just for manufacturing but for financial services.  The top banks with broadly similar business models have ample exposure to high-risk high-return markets outside their home base. Just as say, though to a lesser scale, the Colombian banks tap into opportunities in Central America.The South African system has weather the C-19 storm better than many foretold and remains resilient and open to external financing. Impaired Loans hover around 5% which seems a fair reflection of the Asset Quality of the system unlike elsewhere. Liquidity and Capitalisation (helped by dividend restrictions) are on an upward trend though lower interest rates have exerted a negative pull on NIM/Spread and Profitability (despite Cost of Funds reduction) as LLPs have risen fast and top-lines have flatlined. This has affected Efficiency ratios. Writeback of provisions has yet to materialise in contrast to other markets. This means that the PH Score has eroded. The deterioration in value-quality trends though has been more than offset by the commodity tailwind which has underpinned South African bank shares. There are similarities again with Brazil.Despite their exposure to regional markets, South African banks remain mainly a narrative around the Sovereign. They hold a lot of government debt. Credit risk is more pronounced in the Sovereign than the banks. Low growth, high unemployment, C-19 and its impact on tourism and mining, and a dysfunctional energy market remain huge challenges. But the top banks adopt quality risk management policies in the face of potential and real defaults in areas such as car loans, consumer finance, and SMEs.With the top banks, as has been mentioned there are great similarities in business model, though there are nuances and slight differences of identity and focus. Standard Bank Group is partially owned by ICBC and thus has more of a Chinese connection.  Nedbank has a concentration in CRE which has as yet not revealed stresses from C-19. FirstRand has its merchant bank. Absa, Standard, Nedbank, and FirstRand all share a pan-African focus. Capitec is somewhat different structurally though with a mass market proposition, more susceptible to labour statistics, though lower income inhabitants tend to be better clients than many think.South African bank shares have had a good run of late. They have coped better than many thought, including this author. I underestimated the impact of higher commodities and extent of funding expansion (Liquidity injection) on the sector. Valuations are now of course higher. Once we get higher PH Scores, I will be somewhat more confident.  That could be around the corner in some cases with writebacks of provisions at some stage. But the market remains quite highly rated. For a reason: top South African banks (again like Brazil) know their onions.  Regarding recent trading history, momentum is not bad though the reflation story has taken a few knocks of late and shares have run out of steam.

Africa has been described as the "final frontier". Regarding financial services, the adoption of new technologies is progressing fast in young underbanked populations. And the market is huge- almost the size of India or China. It is here that there is greatest potential returns and the greatest risk- from climate change, terrorism etc. Zimbabwe is a case in point: high risk but highly profitable.South Africa is a regional hub, not just for manufacturing but for financial services.  The top banks with broadly similar business models have ample exposure to high-risk high-return markets outside their home base. Just as say, though to a lesser scale, the Colombian banks tap into opportunities in Central America.The South African system has weather the C-19 storm better than many foretold and remains resilient and open to external financing. Impaired Loans hover around 5% which seems a fair reflection of the Asset Quality of the system unlike elsewhere. Liquidity and Capitalisation (helped by dividend restrictions) are on an upward trend though lower interest rates have exerted a negative pull on NIM/Spread and Profitability (despite Cost of Funds reduction) as LLPs have risen fast and top-lines have flatlined. This has affected Efficiency ratios. Writeback of provisions has yet to materialise in contrast to other markets. This means that the PH Score has eroded. The deterioration in value-quality trends though has been more than offset by the commodity tailwind which has underpinned South African bank shares. There are similarities again with Brazil.Despite their exposure to regional markets, South African banks remain mainly a narrative around the Sovereign. They hold a lot of government debt. Credit risk is more pronounced in the Sovereign than the banks. Low growth, high unemployment, C-19 and its impact on tourism and mining, and a dysfunctional energy market remain huge challenges. But the top banks adopt quality risk management policies in the face of potential and real defaults in areas such as car loans, consumer finance, and SMEs.With the top banks, as has been mentioned there are great similarities in business model, though there are nuances and slight differences of identity and focus. Standard Bank Group is partially owned by ICBC and thus has more of a Chinese connection.  Nedbank has a concentration in CRE which has as yet not revealed stresses from C-19. FirstRand has its merchant bank. Absa, Standard, Nedbank, and FirstRand all share a pan-African focus. Capitec is somewhat different structurally though with a mass market proposition, more susceptible to labour statistics, though lower income inhabitants tend to be better clients than many think.South African bank shares have had a good run of late. They have coped better than many thought, including this author. I underestimated the impact of higher commodities and extent of funding expansion (Liquidity injection) on the sector. Valuations are now of course higher. Once we get higher PH Scores, I will be somewhat more confident.  That could be around the corner in some cases with writebacks of provisions at some stage. But the market remains quite highly rated. For a reason: top South African banks (again like Brazil) know their onions.  Regarding recent trading history, momentum is not bad though the reflation story has taken a few knocks of late and shares have run out of steam.

South African Banks: Opportunities and Risks

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. Companies mentioned this week:<a href="https://www.smartkarma.com/entities/saudi-aramco" target="_blank" data-smartkarma-citation="entities:27317:1" rel="noopener">Saudi Aramco (ARAMCO AB)</a>, <a href="https://www.smartkarma.com/entities/hyundai-motor-co" target="_blank" data-smartkarma-citation="entities:155:1" rel="noopener">Hyundai Motor Co (005380 KS)</a>, GlobalFoundries, <a href="https://www.smartkarma.com/entities/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">Samsung Electronics (005930 KS)</a>, <a href="https://www.smartkarma.com/entities/e-mart-inc" target="_blank" data-smartkarma-citation="entities:6993:1" rel="noopener">E Mart Inc (139480 KS)</a>

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. Companies mentioned this week:Saudi Aramco (ARAMCO AB), Hyundai Motor Co (005380 KS), GlobalFoundries, Samsung Electronics (005930 KS), E Mart Inc (139480 KS)

Global Emerging Markets Weekly: 25 June 2021

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Positive COVID vaccine news has since led to bullish inflections in a staggering number of countries, ACWI-US included. Our current outlook is bullish. Buy dips. In this report we outline key technical levels across markets and highlight actionable ideas within our Financials &amp; Energy Sectors.

Positive COVID vaccine news has since led to bullish inflections in a staggering number of countries, ACWI-US included. Our current outlook is bullish. Buy dips. In this report we outline key technical levels across markets and highlight actionable ideas within our Financials &amp; Energy Sectors.

Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Equity Bottom-Up

<ul>
<li>We highlight six EM Banks from our value screen of a total of 40 banks, selected from the top 65 EM banks by MSCI weighting</li>
<li>Our preferred name, on a quality to value basis, is <a href="https://www.smartkarma.com/entities/credicorp-ltd" target="_blank" data-smartkarma-citation="entities:25963:1" rel="noopener">Credicorp Ltd (BAP US)</a> </li>
<li>We see Credicorp as a quality bank, which is inexpensive relative to its historic PBV range with potential for continued premium returns</li>
<li>We also highlight <a href="https://www.smartkarma.com/entities/banco-do-brasil-sa" target="_blank" data-smartkarma-citation="entities:24564:1" rel="noopener">Banco Do Brasil Sa (BBAS3 BZ)</a> and <a href="https://www.smartkarma.com/entities/banco-bradesco-sa" target="_blank" data-smartkarma-citation="entities:24569:1" rel="noopener">Banco Bradesco Sa (BBDC4 BZ)</a>  from the LatAm Universe, given Brazil’s recent foreign investor out-flows</li>
<li>In the case of EM banks ex-LatAm, we highlight <a href="https://www.smartkarma.com/entities/sberbank-of-russia-pjsc-cde59529-fb78-4659-85d0-127942b44ba7" target="_blank" data-smartkarma-citation="entities:27581:1" rel="noopener">Sberbank of Russia PJSC (SBER RM)</a>, <a href="https://www.smartkarma.com/entities/standard-bank-group-ltd" target="_blank" data-smartkarma-citation="entities:24988:1" rel="noopener">Standard Bank (SBK SJ)</a> and <a href="https://www.smartkarma.com/entities/commercial-international-bank" target="_blank" data-smartkarma-citation="entities:27625:1" rel="noopener">Commercial International Bank (COMI EY)</a> </li>
<li>Risks to our view on these EM banks include a reversal in “risk on” sentiment towards EM, potentially driven by liquidity reversal, USD appreciation, increased oil price volatility and increased political risk</li>
</ul>


We highlight six EM Banks from our value screen of a total of 40 banks, selected from the top 65 EM banks by MSCI weighting
Our preferred name, on a quality to value basis, is Credicorp Ltd (BAP US) 
We see Credicorp as a quality bank, which is inexpensive relative to its historic PBV range with potential for continued premium returns
We also highlight Banco Do Brasil Sa (BBAS3 BZ) and Banco Bradesco Sa (BBDC4 BZ)  from the LatAm Universe, given Brazil’s recent foreign investor out-flows
In the case of EM banks ex-LatAm, we highlight Sberbank of Russia PJSC (SBER RM), Standard Bank (SBK SJ) and Commercial International Bank (COMI EY) 
Risks to our view on these EM banks include a reversal in “risk on” sentiment towards EM, potentially driven by liquidity reversal, USD appreciation, increased oil price volatility and increased political risk


EM Banks Value Screen: Focus on a Half Dozen

South Africa

Standard Bank Group Limited is an African integrated financial services group offering a full range of banking and related financial services. The Bank provides services in transactional banking, saving, borrowing, lending, investment, insurance, risk management, wealth management, and advisory services.

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Standard Bank (SBK SJ)

Naspers Drives South Africa Positioning to All-Time Lows, but Bright Spots Emerge

Heavy selling in Naspers has driven South Africa exposure to record lows following the Prosus exchange offer. EM active managers turn instead to...

Steven Holden

South African Banks: Opportunities and Risks

South African bank shares have performed well of late, underpinned by commodities narrative. They remain quite highly rated though long-term the...

Paul Hollingworth

Global Emerging Markets Weekly: 25 June 2021

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity...

Wium Malan, CFA

Bullish Inflections Around The World

In this report we outline key technical levels across markets and highlight actionable ideas within our Financials & Energy Sectors.

Vermilion Research

EM Banks Value Screen: Focus on a Half Dozen

We highlight six EM Banks from our value screen of a total of 40 banks, selected from the top 65 EM banks by MSCI weighting Our preferred name, on...

Victor Galliano

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