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In equities, UBP prefers Japan in 2019

US equity valuations have become cheaper, but investors can find more value elsewhere, argues Norman Villamin, Zurich-based chief investment officer for private banking at Union Bancaire Privée.
Norman Villamin, UBP
Norman Villamin, Union Bancaire Privée

“Your favourite tech names are now 14-20% cheaper than they used to be. But for the most part, while the US market trades at a 20% premium to the rest of the world, the ability to outperform declines remarkably,” he said at a recent media briefing in Hong Kong.

One of Villamin’s favourite equity markets is Japan, though he acknowlegded that it “did not play out well” last year. The MSCI Japan Index returned -12.58% in US dollar terms in 2018, according to data from FE.

However, he argued that Japan has the fastest rate of earnings growth – around 50% faster than the US and Europe. Japan equities also provide a dividend yield of 2%, which is roughly the same as the US and Europe.

Source: UBP

The trailing price-to-earnings ratio for Japan equities has also fallen to 2008 levels.

“Unless you believe a financial crisis is coming, then Japanese corporates present very good value going forward.”


Villamin is also seeing opportunities in Chinese equities, despite the slowdown of the economy and additional pressure from the ongoing trade war with the US.

He believes that when China and the US strike an agreement, which could be in February, Chinese authorities will take have more clarity on which policies they should implement to stabilise the economy.

“As we get into the second quarter, Chinese policymakers will have more visibility, particularly on how much policy is due to trade and how much is due to the domestic economy.”

Given that it usually takes six months for policies to play through, Villamin believes that investors should start allocating now into Chinese equities.

“Mid-year, investors will be more interested in China, but this is the time to start picking your spots. Because after what you have seen in the fourth quarter where you’re getting a lot of volatility, you would want to be able to step in and say, ‘this is value’.”

Villamin said that the firm has already started buying into Chinese equities and is overweight the asset class in its emerging markets portfolios, but he did not provide figures.

“If we were right that Chinese policymakers can then move [after making a deal with the US], then we would be more aggressive from there,” he added.

The renminbi remains to a risk, however.

“There is a perception that if the trade war eases, the renminbi would go back to where it used to be. But the Chinese economy is not where it was 12-18 months ago. They are going through deleveraging and reform. And every country that goes through this tends to have a relatively weaker currency.”

Hedge funds

Because the firm is not that positive on the US, Villamin said that it makes use of what he calls “capital protected” or “deleveraged exposure” for its US equity allocations.

“If things fall, we are only getting partial downside, and if things rise, we get 100% upside,” he explained.

The firm also makes use of long-short equity hedge funds for both its US and European equities exposures.

“For example, we have long-short [exposure to] US tech stocks. That has helped us quite a lot in a period like November and December. It allows us to stay in without taking the full brunt of sell-offs.”

Part of the Mark Allen Group.