Whether there will be a soft or hard landing in emerging markets as policy makers attempt to push down inflation is one of the biggest investment stories of our time, but analysts at Societe Generale in Paris believe whatever the outcome, investors can benefit from emerging market growth via holding European companies.
“While corporate profit growth remains emerging market driven, exposure to these regions is no longer a positive catalyst for sector performance,” said Claudia Panseri from the European equities strategy team at Socgen in Paris in a research note.
“However, we believe that the combination of peaking US indicators, better-than-expected emerging market news flow and FX fluctuations should reverse this situation and favour the most emerging market exposed sectors.”
“Within our universe, we particularly like stocks in the Machinery, Industrial Conglomerates and Metals & Mining sectors as they all rank highly under our value score,” said Panseri
In order to pick out the stocks you should hold, Panseri and her team set out criteria that helped them isolate a number of stocks from the DJ Stoxx 600 that would benefit from emerging market growth.
Stocks needed to have significant exposure to emerging markets like Asia, Africa, Eastern Europe or Latin America with at least 15 percent of their 2010 sales being made in those markets. Given Panseri’s fears over the US dollar, she also looked for firms that had less exposure to the US than to emerging markets. The stocks also needed to be negative year to date relative to the MSCI Europe Index, be expected to have EPS growth this year and next and have either a buy or hold rating from SG.
The top ten picks under these criteria in Europe are: Standard Chartered, Anglo American, BHP Billiton, Antofagasta, Bourbon, Holcim, Atlas Copco, Richemont, Hochtief and Inchcape.
Societe Generale does now and seeks to do business with the companies mentioned, while the analyst view accurately reflects her personal views and no part of her compensation is related, directly or indirectly, to the specific recommendations or views expressed in her report.