Baba Stock – Rising tech competition will favour value, says EM outperformer
Value’s role as a market leader could be boosted further by increased competition and tighter regulation in high-growth areas, such as tech, according to Citywire + rated Laurence Bensafi.
Bensafi (pictured), who is deputy head of emerging markets at RBC Global Asset Management, believes economic growth will return to normal levels soon.
‘A scenario of more competition and regulation would favour value stocks. Five years ago, you had just one player in ecommerce and egaming, now you have 10-15 investors, and all those companies had IPOs relatively recently.’
Bensafi oversees the $970m (€792m) RBC Funds (Lux) Emerging Markets Value Equities fund, and co-runs the $11.24bn RBC Funds (Lux) Emerging Markets Equity fund with Citywire + rated Philippe Langham.
Speaking to Citywire Selector, Bensafi said the Covid vaccine breakthrough, combined with Joe Biden’s election victory, had spurred a rotation from growth to value.
‘The market is usually driven by a style that changes through time. Value stocks do well when economic growth is pretty good, because people are confident about the future, and ready to pay a bit more for companies that are cyclical,’ she added.
Bensafi said this could dent tech’s leadership, as growth as dominated for the last decade, which was understandable. ‘When people are worried about the future, they opt for growth companies because they will do well regardless of the economic environment.
‘Since the last global financial crisis, economic growth has been supported globally by central banks keeping interest rates low. Especially over the last three years, growth stocks did very well.’
Bensafi said the current technological revolution has been accelerated by Covid, and companies exposed to that segment grew quickly.
Also, there was not a lot of competition at the beginning of this phase, and regulation wasn’t very stringent. ‘We have seen both new and old investors jumping in and piling on even more money into the same stocks that were doing well,’ she said.
Her value-focused EM fund invests almost equally in IT and consumer discretionary, with 21.6% and 21.2%, respectively. Alibaba, semiconductor firm TSMC, and Samsung are the top three holdings.
This is while China/Hong Kong makes up almost 34% of investment by country, with South Korea (16.3%) and Taiwan (11.4%) also well represented. The fund returned 20.8% in US dollar terms over the three years to the end of April 2021, which is just below the 23.3% sector average.
The RBC Funds (Lux) Emerging Markets Equity fund has a slightly different profile, as it invests most of its capital in financials (23.2%), consumer discretionary (22.1%) and IT (19.1%).
TSMC, Alibaba and Chinese technology giant Tencent are the top three holdings, while China/HK makes up over 28% of investment by geography, followed by India (15.8%) and Taiwan (14.7).
Bensafi also said RBC is embracing the green transition with electric vehicle investments becoming increasingly relevant, although they are not in her remit.
‘There are different ways to get exposure to the electric cars theme notably through mining companies producing copper. We also like the electric battery makers as only a handful of players in Asia are able to produce them and barriers to entry are high.
‘As volumes increase, profitability will improve. On the traditional auto manufacturers side only a few may succeed to compete with pure EV cars but we believe that some of the Korean and Chinese players are well positioned.’