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Nick Timberlake is upbeat on India among BRIC nations due to the strong combination of profitability and value offered by the large number of companies present in the country.
The problems in the BRIC nations are only in the short-term and they present fantastic opportunities to invest in thanks to the favourable balance between value and profitability, says Nick Timberlake, global head-emerging markets at HSBC AMC.
In an interview to CNBC-TV18's London Eye, Nick Timberlake says that among the BRIC nations, he is keen on India due to the strong combination of profitability and value offered by the large number of companies present in the country. The investment has a 27-percent exposure in India which is the largest the investment bank has in any market.
The constant quest for an optimum balance between value and profitability has led HSBC to shun export-oriented sectors like IT and focus on financial services, materials and infrastructure which are troubled by regulatory ambiguity and political inaction.
Below is an edited transcript of the interview on CNBC-TV18
Q: You run a fairly significantly-sized BRIC (Brazil, Russia, India, China) fund. Has there been any disenchantment of late because how these markets have performed?
A: The BRIC countries, in the short-term, have had a tough time. But I would argue somewhat differently. I think there is a fantastic opportunity for those markets today. They are of fantastic value relative to a broader list of global emerging markets and in many cases, the companies that we invest in are generating much higher returns that you might find broadly across the emerging markets.
Q: Have inflows slowed or have there been redemption pressures as well?
A: We had redemptions in our BRIC fund for most of this year- not enormous, but a steady trickle. Though a bit of investor interest, in terms of flows, is starting to the BRIC fund, it is still very early days.
Q: Do you agree with the view that markets like Indonesia, Philippines and Turkey will continue to do much better than the bigger BRIC economies?
A: We invest across a very broad range of countries in our mainstream emerging-market funds. We have potential to expose ourselves to about 25 countries and there are another 40 countries that we are interested called Frontier Markets that we can also invest in from mainstream funds where liquidity allows and from time to time, exhibit more attractive valuations.
Our objective is to constantly search for the markets that offer the best value through the lens of profitability. There are some markets, like Turkey, which have risen quite strongly on high core investor attention.
But then you will find that majority of the markets at any point in time tend to be the ones that we like- fallen out favour on other factors and the value started to appear. That is a good time to be buying again and India is an example of that where in recent times that market started to perform a little bit better.
Q: What role do commodities play in determining your choice of emerging markets this year?
A: Our objective is to find the market with the best value relative to profitability. Our preference for commodities depends on the combination of valuation and profitability. Now India has benefitted by some degree from the fall in prices of some commodities.
We tend not to think about commodities in terms of avoiding or increasing exposure. We are not taking a sort of active bet or view on the fall or rise of oil prices or the prices of other commodities like aluminium. We look at each individual security and the valuation and then come to a conclusion. At the moment we have quite a lot of exposure to energy companies around the world — in India, China, Russia and other countries. In the direct hard commodity space, our exposure is much more stock-specific and we do not have a strong overall view on the whole sector.
Q: In your BRIC funds, are you overweight India or is it just in line with the benchmark?
A: The benchmark is quite lowly weighted towards India. So we reset the benchmarks so that each country starts with at least an equal weighting and then worked out what we like, more or less, on that basis.
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