Tuesday, 02 December 2014 07:53

2015 Investment Insights

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What does the future hold for investors in 2015?

 

We put this question to Kerr Neilson (CEO Platinum Asset Management) when we met with him recently.  Here is our 6 minute interview.

 

Of course Kerr Neilson requires little introduction as one of Australia's best investors, recently nominated in the top 100 global investors.  We have also provided a transcript below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark Draper: Here with Kerr Neilson, CEO of Platinum Asset Management. Kerr, thank you for joining us.

 

Kerr Neilson: Thank you.

 

Mark Draper: What do you think are the key things that investors particularly from the Australian perspective should be thinking about in 2015, in the year ahead?

 

Kerr Neilson: I think the Aussie currency is a soft currency so you are probably best to push in for people to put money abroad. And if we look at the opportunities, we think that there is quite a big opportunity in Asia, so that is China and India and even Korea and Japan would be okay because the market is benefiting from the weakening yen so we think the big money should be in Asia and we are not particularly negative on the high valuation western markets, we’re thinking…

 

Mark Draper: So such as America?

 

Kerr Neilson: Yes, towards the upper end of the valuation bands and but I think we still get surprises from the financial system in Europe, strangely enough. So the banks there are still very attractive, we think and in the States we like some of the old technology, that look like they are broken but they are exactly the duration plays the market is already looking for and yet the price is at less than the market average, so we quite like them.

 

Mark Draper: And in terms of potential surprises for 2015, if you were to pick an x factor, what would keep you awake at night.

 

Kerr Neilson: I think that all price, if there were some interruptions surprise, that would be a nasty shock. I don’t think it is necessarily going to come from interest rates moving up sharply, I don’t think that is in prospect, really. If we start moving up in the States, in real terms end and accelerate that would be quite a setback, I think, for corporate profitability because that is where the costs squeeze would be and I wouldn’t be able to get the prices up. So, in many cases, so you get an idea on margins, in Europe I think most of the bad news is out, I don’t think we have any more concerns about the banks, we will have a lot of chatter about falling prices so called inflation but in fact the worst side of that is real incomes do improve and gradually I think men, and it has been, that all those countries are in surplus. So it is not as if…

 

Mark Draper: It’s including Greece too isn’t it?

 

Kerr Neilson: Greece and places like Spain, you’ve seen some depreciation, a big stock of unsold houses and in Ireland where there have been huge cuts in living standards, something like 15% cut in real incomes, the place is just flying. You know 6% growth, property prices are up by 20%.

 

Mark Draper: Yep. So, broadly, you’re optimistic for 2015 by the sound of it with a particular skew towards Asian story on valuation, but it is more than the valuation, they can also grow.

 

Kerr Neilson: That is correct. These are parts of the world which will grow twice the rates of the world in general and in fact drag the world upwards. There is obviously a slight slow in China, the property markets will remain quite comatose. Interestingly, in the big cities prices have not come down very much and now they have made concessions to people having, if you have paid all your mortgage you are treated as a first time buyer so you can buy a second property and you only have to put down 30%, so that is stabilising the market which is not to say there is not plenty of over supply in the smaller cities. So property is a bit of a drag because it was a big growth, investment will probably slow and savings will remain high because the social security network is still not in place, so it is a country that will have slowing growth. The need for new jobs is diminishing too, you know in ten years to 2013, 160 million people entered the workforce, but in the next ten years 40 million will come into the workforce so the pressure on jobs and for concerns about the environment has diminished.

 

Mark Draper: Oh, ok. And you’re mainly playing China through the consumer side in any case rather than the investment as in building side

 

Kerr Neilson: A mix, a mix. Yeah, I’m a not mad about property. There are things like a truck company we can, a truck engine company which also has a truck subsidiary, which is an interesting story which is why Weichai and you know it’s less than ten times earnings, it’s got a fantastic growth rate, it’s got a clean balance sheet and dominates the diesel engine market, it nearly produces as many engines as Cummins, the great American company. I like that and we sort of looking at these drink companies as you say, these white spirit drink companies and they are doing fine.. There were concerns that the luxury goods area would fade in terms of consumption but in fact, they are holding up quite well and the turnaround could be huge and you’re buying these on 12, 14 times which is for a packaged goods company, making huge profits over 20% for total cap is cheap. And then there are railways, there are all sorts of things we can buy and this is being facilitated by the through trade so where we put on an order in Hong Kong with a broker there, we actually have the access to their market, their share market.

 

Mark Draper: Which hasn’t been possible…

 

Kerr Neilson: It hasn’t been possible. We had a quota but this is now pretty much almost an infinite access, so where we have started to see an opening up of their exchange control, this is the mechanism that they are starting to use. And every day the quota is set up at about two billion US dollars for money going in and about 1.8 billion dollars coming out and thus far is not  being fully used, so we can buy whatever we like, pretty much, at the moment.

 

 

This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. We strongly suggest that no person should act specifically on the basis of the information contained herein, but should obtain appropriate professional advice based upon their own personal circumstances including personal financial advice from a licensed financial adviser and legal advice. Fortnum Private Wealth Pty Ltd ABN 54 139 889 535 AFSL 357306

 

Read 1910 times Last modified on Thursday, 04 December 2014 08:31
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