by Niko Kloeten
Paul Moore, founder and chairman of Australian fund manager PM Capital, told an adviser briefing in Auckland that a number of factors were making certain global shares attractive.
“The offshore investment proposition is pretty simple: there’s a greater breadth of opportunity, a greater risk-reward ratio as well as a historically elevated currency both here in New Zealand and in Australia.
“And yet, only 1% of self-managed super funds have their money offshore. It doesn’t make any sense.”
According to Moore, two of the biggest sectors in the Trans-Tasman market -- mining and banking -- both look unattractive from an investment point of view.
“We’re in a bear market for commodities and the big banks are all selling at historically high valuation metrics. That’s not the place to invest your long-term capital.
“There’s a very limited subset of opportunities in Australia and New Zealand in terms of the equity market.”
Another issue favouring global stocks is valuations. Moore says Australian and New Zealand stocks are “structurally over-valued” by 10-20% and similar companies can be had much more cheaply overseas.
He compared Google, the internet search giant trading at 19-20 times earnings, to Coca-Cola Amitil, which despite a recent earnings downgrade has been trading at 17-18 times earnings.
“Google has a 90% market share and is growing revenue 25% per annum. It’s still pretty decent value at 20 times.
“I challenge anyone to find me a company in Australia growing that much at that many times earnings.”
Perhaps the biggest disparity in valuations is in the banking sector, Moore says.
For example, ASB’s ASX-listed parent Commonwealth Bank of Australia has a current price to book ratio of 2.7, compared to 1.5 times book for American Bank Wells Fargo, which is less leveraged and has a return on assets nearly double that of CBA.
Banks in the US and Europe are undergoing a similar transition to what Australian banks went through after a banking crisis in the early 1990s, Moore says.
“The bottom line is there’s a unique opportunity to replay the same story that’s played out here over the last 20 years. Offshore banks have just started having high payout ratios.”
Niko Kloeten can be contacted at niko@goodreturns.co.nz
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