Carmignac ups equity and emerging market exposure
French fund house Carmignac Gestion has increased its exposure to equities, emerging markets and energy while taking a cautious approach to European sovereign debt, favouring US bonds for safe haven appeal.
Carmignac Gestion’s faith in equity markets stems from Chinese monetary policy becoming more favourable, American politicians avoiding implementing unpleasant measures in the build-up to the November elections and liquidity in Europe having improved on the back of the European Central Bank’s three-year credit facility.
“These breakthroughs could push up market valuations towards their equilibrium. We have therefore adopted more a more aggressive stance and raised the level of equity exposure in our global funds,” the group said.
It has increased exposure to its emerging market consumer theme from 34% to 37.3% of Carmignac Investissement’s assets. The group more than doubled its holding in GOME Electrical, a retailer “currently undergoing a recovery and well positioned to benefit from the strength of Chinese consumer spending and the development of social housing.”
It has also added to its position in the brewer Ambev, a pan-American beers and soft drinks conglomerate and started investing in American company Yum! which has exposure to China via its rapidly expanding fast food chain. Carmignac similarly invested in Mead Johnson, an infant nutrition manufacturer which generates 60% of its turnover in emerging countries.
“We believe that the risk aversion which penalised emerging markets in 2011has created quite an attractive opportunity,” it said.
The energy sector has seen its weighting raised from 12.2% to 13.9% of Carmignac Investissement’s assets, mainly as a result of the strengthening of its position in Ensco and the relative re-rating of the sector.
The group believes the energy sector will benefit from the easing of Chinese monetary policy and the economic recovery under way in the US. It says growth in China should ease off to 7-8% in 2012 as monetary tightening and the slowdown in global trade start to be felt.
It voiced confidence in corporate bonds as the ECB’s three-year credit facility has eased volatility and should boost investors’ appetite for risk. It added that companies’ fundamentals remain solid owing to the prudence of companies on both sides of the Atlantic.
Despite Carmignac Gestion’s bullish attitude on these sectors, it remains cautious on European sovereign debt “given the ongoing risks surrounding the resolution of the European crisis,” it said. “The risks posed by Greece and Spain, combined with the upcoming elections in France and the economic outlook in Germany, which is expecting negative growth this quarter as in the previous one, make the European landscape a rocky one indeed,” it added.
By contrast the group is planning to increase exposure to selected emerging market sovereign debt. “As inflation indices fall, allowing further cuts in interest rates, the environment should gradually begin to favour emerging local debt,” it said.