US tapering presents investment opportunities: William Blair
Fears of stability across the globe around tapering are creating significant investment opportunities in countries like India, Thailand, the Ukraine, Venezuela and Argentina, according to William Blair’s Head of Dynamic Allocation Strategies (DAS), Brian Singer.
On a visit to Australia to promote William Blair’s DAS to institutional investors last week, Mr Singer said geopolitical events do not tend to change the valuation of assets or the value of currencies. “Risks are definitely out there, but the developments are creating opportunities,” he said. “These events significantly motivate prices away from or towards fundamental value.”
Mr Singer said William Blair’s DAS team assesses each individual geopolitical situation, to decide whether the opportunity is adequately compensating for the risk that is introduced. “What we are doing is taking some of the risk away from just being exposed to the market and adding risk that is uncorrelated to the currency,” he said. “India became our largest position when Raghuram Rajan became the Governor of the Reserve Bank of India in August 2013.”
India is still the William Blair DAS team’s largest position due to a significant interest rate differential and because the currency is cheap relative to its fundamental value. “It looks to be a great opportunity going forward, and a great diversifier for portfolios.”
Mr Singer said the first port of call for the William Blair DAS team in deciding to invest in equity markets, bond markets and currencies all over the world, is to determine fundamental value. “We look for prices that revert back to fundamental value over time,” he said. “Within the current geopolitically unstable environment, there are a lot of strategic negotiations and it is important to understand those negotiations and the behaviours of the players as that pushes prices around.“
On currencies, Mr Singer’s said the William Blair DAS team estimates the value of the Australian dollar at about $0.65-$0.70 to the US dollar. “So it’s a long way away from fundamental value,” he said. “We are short and we are short most of the commodity currencies for a number of reasons. First of all because we believe commodity super-cycles have led investors to push prices up above fundamental values and secondly because we see the opportunity for those prices to revert back to fundamental value as commodity prices come down.”