It was a "very special event" that convinced Hongsik Park that global growth has seen the worst.
Posco, South Korea's biggest steelmaker and a bellwether for global manufacturing, raised prices every month in 2016. Those are the first increases in about five years, which is very special for markets, said Seoul-based Park, whose Macquarie New Growth Securities Feeder Investment Trust 1 fund beat 99 percent of peers over the past five years with an 11 percent annual return.
"The global economy appears to be heading back to a normal track" after suffering a phase of deflation and low growth for the past five years, Park, the chief investment officer for equities at Macquarie Investment Management Korea, said in an interview at his office. "I will add large cyclical stocks that show great earnings growth."
Even as the World Bank this month cut its global growth forecast for 2016, Korean companies most affected by economic cycles - from commodities to construction and shipbuilding - have climbed. That's a stark contrast to stocks immune to the economic swings such as cosmetic makers that were darlings of investors last year. Posco is up 23 percent this year versus a 40 percent slump last year. Amorepacific Corp., which sells skin-care products, is down after an 87 percent jump in 2015.
The global economy can't "crash" further because the U.S. job market has almost reached full employment and commodities have probably reached a floor, said Park. The investor, who correctly predicted a rally for Korean cosmetics and health-care companies in 2016, said his portfolio had been "tilted" last year to cosmetics. He now wants to make it more "balanced" by putting in more large-cap cyclical stocks.
In April, Posco reported profit that beat estimates in the first quarter, adding to signs Asian producers are recovering. Hyundai Heavy Industries Co., one of the world's biggest shipyards, has surged 22 percent this year. Battered by the deepest industry slump in at least two decades, shipbuilders are being restructured with the help of the government. GS Engineering & Construction Corp. has rallied 44 percent versus a 15 percent loss in 2015, with Kiwoom Securities Co. saying in April that first-quarter earnings are signaling a turnaround.
Some fund managers say it's too early to jump in just yet.
"There is some hope that the second half would be stronger than the first half, and that would boost cyclical stocks," Kelvin Tay, chief investment officer at UBS Group AG's wealth management business in Singapore, said in a phone interview. "But I think we need to keep in mind some events that are actually happening right now and see whether the rebound would be actually sustained."
Central bank policy decisions and the looming vote by Britons this week on membership of the European Union have sent markets across the world tumbling recently amid heightened volatility, while investors such as billionaire investor George Soros warned of global risks stemming from China's economy.
The Federal Reserve last week left interest rates steady, as officials painted a mixed picture of an economy where growth is picking up while job gains slow. Chair Janet Yellen cited Brexit as one of the factors in the rates decision.
Heejung Chang, a Singapore-based hedge fund manager from Truston Asset Management Singapore Pte., said many factors make it difficult for the commodities rally to continue, such as rebounding oil supply from Iran and the U.S. Japan and China still face structural issues, he said.
Bank of Korea on June 9 surprised financial markets by cutting interest rates to a historic low as a "preemptive" move to prepare against the negative impact that corporate restructuring may have on economic activities and sentiment. Park sees a positive side to the rate cut, as it shows the government's commitment to spur growth.
Lee Jin Woo, a fund manager at KTB Asset Management Co. in Seoul, agrees.
"Many people are so pessimistic about the global economy, the governments will show various measures to shore up their economies," he said. "So for me it is right to bet on a recovery. There's a possibility for cyclical stocks to rise further."
Source: Hellenic Shipping News