UK stocks, much like a younger sibling, are often described as ‘unloved’. Ditto more recently for Chinese equities. But there are plenty of allocators who see reasons to believe in those respective markets, with the folks at Premier Miton one of them.
We sat down with Ian Rees, co-head of the multi-manager team, to discuss how they approach some of the world’s cheaper regions at present.
“It’s probably fair to say we feel a bit like the last man standing when it comes to the UK,” he joked.
“We continue to like it for many reasons. I think first and foremost you can start with the macro, which is actually better than most of the commentary leads you to believe. In fact, it's far better than most of Europe and that seems quite encouraging to us.”
He added that decent profitability and good earnings expectations from corporates was another ticked box and, on top of this, valuations are pretty depressed, which they also find "quite exciting".
To take an example, Rees’s Multi-Asset Distribution fund holds an exposure to UK equities of 28 per cent.
While we won’t compare apples to oranges, the average allocation to the UK among the DFMs we cover is 15 per cent – the largest of those being Momentum, at 23 per cent.
So Rees’s British bet is a significant one, though he takes issue with the phrase ‘home bias’ to describe the view.
“That has quite a derogatory term associated with it,” he said. “It's always felt to me as though if you've got a home bias then it’s bad, and I really rail back from that because it’s a risk bias, not a home bias.”
“And I find that quite anomalous when you compare it to what investors overseas are owning in their domestic markets. It’s typically 40 per cent across Europe, and it's over 60 per cent in the US. So it feels as though at times that the UK investor actively discriminates against the home market. And given the current valuations, I think that's just madness.”
The China conundrum
Whether or not to dabble in China is certainly a question on allocators’ minds after three years of outflows and geopolitical turmoil. But Rees is taking caution not to place too much of a bet on India’s ability to replicate its economic story. Instead, he’s placing faith in China recovering from its low base.
“I think it's become all too easy for investors to look to India as the next biggest liquid market where they can go and park assets. And so I think there's quite a divergence between India and China now, and China has become very unloved and I think the reasons for that are understandable.
He added that despite the country’s woes and negative investor sentiment, China is likely to remain a dominant force in the global economy.
“I think what will happen is, given this low starting point of valuations, China has the ability to perform quite well. And we just prefer to be in at the ground level rather than chasing it a few years down the line.”
Indeed the wider allocator sentiment surrounding Chinese equities is one of neutrality. 60 per cent of allocators are ambivalent on the region, unchanged from our last pulse check in December.
One of the longer running trends in our allocations database is that DFMs have been slashing their exposure to ex-Japan Asian equity funds.
At the start of 2023 the average allocation was above 5 per cent but it now sits just below 4 per cent.
It seems that Premier Miton, at least, will be backing the underdogs for the foreseeable future.
