New Star Global Financials - update on the financials market
By Meera Patel | 01 Jul, 2008
Banks have clearly had their share of troubles over the last year. Investors have focused on rising bad debts, particularly in the US mortgage market, and pressures to gain new business which has weighed heavily on the sector.
Several major banks have responded through a combination of write downs and raising capital in order to improve sentiment towards financial stocks. Royal Bank of Scotland and HBOS are raising £16 billion between them, and Barclays is the latest in the line looking to raise £4.5 billion.
According to Guy de Blonay, the manager of the New Star Global Financials Fund, these companies have been punished by investors and are now among the most attractively valued in Europe. Whether or not this now presents a sector-wide buying opportunity or whether it is still necessary to be selective about these shares is the key question.
In terms of the fund positioning, there is no exposure to the sub-prime mortgage market and the fund has largely avoided investing in Ireland, Spain and the UK mortgage banks as their credit quality is expected to deteriorate further. Guy de Blonay favours companies exposed to emerging markets such as Standard Chartered. He also believes the prospects in Japan are improving with many financial companies well positioned to benefit from Asian growth while having limited exposure to the US sub prime market.
He has avoided investment banks like Merrill Lynch and Goldman Sachs due to a risk of further write downs and their struggle to raise new business over the next few years.
In light of the ongoing uncertainty, Guy de Blonay is maintaining a bias towards more defensive financial companies. In essence these are companies with robust business models which benefit from better trading conditions in areas like emerging markets where there look to be genuine growth opportunities. Financial shares should begin to look extremely attractive at some point and we believe a fund like this is well placed to benefit from any recovery.
