These are the hottest financial shares right now, according to the South African who was the world’s top fund manager for four years in a row
- Denker Capital's Kokkie Kooyman sees excellent opportunities in a number of financial companies across the world following the market slump last year.
- These include Russia's biggest bank and an Indian housing finance company.
- In South Africa, he has two favourites: Absa and Investec.
The large market slump in 2018 has offered investors excellent investment opportunities in the financial sector, says one of South Africa’s best-known investors, Kokkie Kooyman.
The Denker Capital founder manages the award-winning Sanlam Global Financial Fund and the Denker Global Financial Fund. Kooyman was named Fund Manager of the Year four years in a row in the financials category by the UK-based publication Investment Week.
Kooyman sees a number of bargain shares in the global market, and his funds have bought more shares over the past three months after panic selling brought a long bull run to an end in 2018.
Wall Street's S&P 500 was down 6.2% in 2018, booking its worst year since the financial crisis and worst December since the Great Depression. The JSE lost more than 11% last year - also its worst performance since 2008.
“This time it was higher interest rates and macro-economic concerns and political uncertainty that triggered the sell-off. The rest followed driven by misplaced fear.
“Our own research (and the research of many others) highlights how small the effect of these macro concerns is on earnings of companies.”
“US financial shares were sold down aggressively due to fears about short-term effect of US interest rates not being hiked much further, while emerging market companies were sold because of fears of the effect of future higher interest rates.”
This has created a great opportunity to invest in good companies in strong growth environments whose share prices have fallen due to irrational fears of emotional investors about their prospects, says Kooyman.
He looks for these four factors before he invests:
- A share price that has fallen to a level far below its intrinsic valuation (a calculation of what a company is really worth). “That is difficult for most investors to judge, but mostly that also means that the company’s valuation is trading below its historic average.”
- The future growth prospects of the company remain good.
- Most importantly, management have a track record of being capable and rational allocation of capital.
Kooyman sees value in two JSE-listed financial shares: Absa and, his favourite, Investec.
Based on its share price compared to its net asset value, Investec is now the most undervalued it has ever been, Kooyman says.
"This is another case where the market has totally overreacted to three factors that do influence its earnings growth: the South African economy, pound currency risk if we have a hard' Brexit and then negative markets, which affect both its asset management and wealth management income stream.
"But the market is ignoring the fact that a lot has been done clearing debris left from 2008 and other problems, as well as the renewed focus and energy that new CEOs Hendrik du Toit and Fani Titi will bring."
Looking beyond South Africa, these are his top investment picks right now:
- Indiabulls Financials, an Indian housing finance company with “very entrepreneurial management”
- Prudential, a UK life company which earns 70% of its premium income from China and Indonesia
- Essent Group, a US mortgage insurer with a "clean" balance sheet
- One Saving, a UK company that finances property groups which has been hit hard by Brexit fears
- Tinkoff, a Russian company and "one of the best financial services companies in the world
- Société Générale, which has been sold down to "very attractive levels"
- Russia's largest bank Sberbank, which has “an excellent track record”
- Legal & General, a UK company which could benefit from pension reform
- The US bank Citigroup, "not the best, but the cheapest" with very good assets in Latin America
- TBC, a Georgian bank in a strong growth environment
All of these companies have lost large chunks of their value in the past year:
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