Neptune’s Geffen: The global economy is at a turning point
Neptune founder and CEO Robin Geffen expects global growth to accelerate over the next six months, and said consensus views on China are too bearish.
Geffen (pictured), manager of the £945m Neptune Global Equity fund, said with markets lacking conviction and equity valuations cheap across the board, the potential for positive surprises is high.
“As Beijing transitions its growth strategy from quantity to quality, we are beginning to see tentative signs of stabilisation,” said Geffen.
“While we do not anticipate a large acceleration in China’s growth, we believe when this stabilisation is further validated by data, the markets should react very favourably.
“We believe the global economy is at a turning point. In the third quarter we saw global growth stabilise at 2.5%, having slowed markedly in the second quarter, and our leading indicators are now pointing towards an acceleration over the next six months.”
Geffen said the US will remain the engine of global growth, and has continued to add to the country, which is now around half of the fund’s assets, up from 14.4% in November 2011.
The manager’s US exposure is now at its highest historic level, with Geffen adding to cyclical holdings in recent months.
“In addition to gaining access to the US recovery – which we believe will be borne out in the Q4 corporate earnings seasons – we have also sought high quality global companies with growing market share in emerging economies,” he said.
“Examples include consumer stocks with strong balance sheets, dominant market share and resilience against margin pressures in a tough operating environment. We also favour more cyclical names in the consumer discretionary and energy sectors, including Halliburton – our top performer in the third quarter.”
Geffen added he expects the recent disconnect between emerging markets’ superior economic growth and recent market underperformance will correct in the near term.
“Emerging markets are not only cheap relative to developed markets but also to their own long-term averages. For instance, China is currently trading on a P/E multiple of 11 compared to its peak of 30, while Russia is currently trading on just 5.88x earnings – a 53% discount to the emerging markets average,” said Geffen.
“Relative to their contribution to global growth, we believe these valuations are unjustified and we fully expect to see the emerging markets re-rate – particularly China and Russia, two of our long-held overweights.”