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Evaluating Global Stocks as the Recovery Takes Hold

March 24, 2021 5 min 20 sec

Text transcript

I’m Amber Sinha with CIBC Asset Management. I’m senior portfolio manager, managing global equity mandates.

So, the good thing about being a global investor is that our investment universe is so vast. So, regardless of where the market overall is, I think there’s always good opportunities out there.

When we draw lines around the regions, I would say we continue to like the U.S. The U.S. has been a market where we’ve been fairly well represented throughout my career. And what we like about the U.S. in particular is it hosts the most high-quality defensive franchises, global multinationals, that are out there. And those companies always find steady hands when the market gets volatile. So, I think we like that about the U.S. market.

If I try and think about what makes us cautious, I would say technology. So as much as I like technology, the U.S. market, the S&P 500, is in my opinion, fairly heavily represented in technology. That’s just because how well the stocks have done.

So, at some point, I think we have to exercise some caution around technology, and we’ve actually seen that right now. If you look at the first two months of 2021 that have just gone by, technology, despite the fundamentals, has been a big laggard. And as a result, the U.S market has lagged all other global markets in a big way.

As much as we like the U.S., we are conscious of the fact that technology plays an oversized role in the U.S. relative to any other market.

We think Asia offers a great combination of some cyclical upside, good representation of technology stocks — not a lot. And also that it’s further along in terms of dealing with the pandemic. The emerging markets as well, which a big part of the year they’ve made a stronger comeback than most people had expected from the pandemic-related economic decline. And valuations as well seem fairly reasonable across the board.

So, Asia, I would say, if you line up the fundamentals, the opportunities, the valuation issues, probably is the one that seems most attractive to us right now.

When we look at Europe, I would say valuations are great. That being said, there isn’t really much out there after that. So, I think it’s a market that’s attractively valued, but on its own fundamentals, I would pick up stocks in the U.S. or Asia before Europe. And if you tell me that the market is going only up from here, I think I would be more aggressively positioned in Europe because of the valuation upside. But again, that’s not helpful for you as manager. If you’re trying to build global portfolios with the best quality franchises out there, this time I would look to the U.S. and Asia before I would look to Europe.

In terms of some of the stocks that we are looking at currently where we see great upside, I would like to mention Home Depot. So, that’s been a stock for us for a few months now. Home Depot was obviously one of the big winners from the Covid pandemic, as we were all sitting at home and increasingly spending more and more time at home. As a result, Home Depot and their biggest competitor, Lowes, they’ve seen massive growth in revenues in 2020, somewhere in the theme of plus 20%, which is an all-time high for both these companies.

After the very strong 2020, concerns have come back to the market in terms of what happens in 2021. Do we reverse the gains from 2020 as we go into 2021? Because people just have more to do; so, people can go take that trip they wanted, people can go to the movies, et cetera. So, are we going to be spending as much on home improvement?

This is where I think we have a different view from the market. We think that having spent the last one year at home, and it looks like we will be spending much of this year also at home, and then going forward, work habits, work schedules, are likely going to be more flexible again, making us stay home a little longer than we’re used to. So, I think just this experience with the pandemic and all the changes that have been about, I think it makes our homes more important, more central to our lives than they have ever been. And home improvement retailers I think are going to reap the benefits of that over a multi-year period. So, I don’t agree with the market when people expect a reversal of the 2020 gains. I actually see a continuation after a step-up in 2020.

So, home improvement and in particular Home Depot looks great to us right now.

Another company we’ve bought in our global funds recently is a Korean company called Samsung SDI — one of the leading battery manufacturers for electric vehicles globally. So, they were ranked among the top five globally. And this is a company that I had a chance to meet them a couple of years back at their offices. We did some work on them — valuations didn’t look particularly attractive. At some point we did buy the stock. And in more recent months, as the stock has pulled back, we’ve taken this position and tried to buy it across the board in our global mandates.

What do we like about Samsung SDI? I think electric vehicles are here to stay, and the adoption of electric vehicles by all accounts is happening faster than most people had expected. So, they’re a tier-one supplier to the auto OEMs for EV batteries. I think that’s a great place to be. The supply, demand, industry developments with regards to EVs, industry developments with regard to battery chemistry — all are highly supportive of Samsung SDI franchise, and we see great things from that company going forward.