04 June 2020
At GAM Investments’ Weekly Equities Meeting held on 2 June, Gianmarco Mondani discussed opportunities among European equities and Davide Marchesin commented on contrasts between European and US banks.
Gianmarco Mondani – Developed Europe Long / Short Equity
It is easy at present to construct a negative view of equities given widespread earnings revisions and dividend cuts. However, we believe there are opportunities on the long side among reliable companies with solid balance sheets and whose earnings are moving to new highs as they are not impacted negatively by the crisis. A couple of recent events underscore investors’ appetite for companies with reliable cash flow characteristics and growth potential. European coffee giant JDE Peet's completed its initial public offering (IPO) on 29 May with the offering multiple times oversubscribed despite Covid-19 uncertainty. MasMovil, the Spanish telecom operator, was bid for by a consortium of private equity firms which suggests the private equity market may be looking more towards good companies with growth potential rather than simple recovery candidates among the worst hit sectors. We favour companies in the cyclical space with robust balance sheets and estimates slashed to levels that can be beaten. We have seen a few opportunities among industrials, services, technology and luxury sectors.
On the short side, timing is key. Many Purchasing Managers' Indexes (PMIs) are likely to bounce back from record lows, leading to volatile share prices in the worst impacted companies. Hotel and restaurant operators face an uncertain future. Financials, particularly European banks, face medium-term profitability challenges. We find many companies with deep structural problems, often with a cyclical bias and stretched balance sheets.
Davide Marchesin – Non-Directional Equity
We have a constructive view on the financials sector, while acknowledging the significant difference between the European and US banks. US banks have generally outperformed European banks in terms of profitability, loans growth, return on assets (ROA), credit quality and non-performing assets. In the case of loans growth, the US is nearly double Europe. Likewise, ROA for the American banks is approximately three times higher than that of Europe’s banks. The sector’s performance has been stable over the past few weeks; we anticipate US banks should be able to grow their pre-provision profit over the next two years.
Source: GAM unless otherwise stated. The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator for the current or future development. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. Reference to a security is not a recommendation to buy or sell that security. The companies listed were selected from the universe of companies covered by the portfolio managers to assist the reader in better understanding the themes presented. The companies included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. June 2020 .