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Mark Williams, Asia: Why we are underweight Australia

We have been underweight the Australian equity market since the launch of the Liontrust Asia Income Fund and do not yet feel it is right to take a more positive view.  Since the start of November, the Australian market has returned -9.1% in sterling terms, compared with an MSCI Asia index performance of -3.3%. Year to date things look better; the Australian index has returned about 2.8%*, in line with the 3.0% sterling return from the MSCI Asia ex-Japan index. Over both periods a large element of the return is attributable to currency weakness: the Australian market in local currency terms fell only 3.3% since November and has returned almost 18% year to date.

This equity strength means that Australian valuations, in our opinion, remain too high, even though sterling-based investors will not have benefitted from their exposure.

Julian Fosh, Economic Advantage: Looking beyond p/e lessons

Anthony’s last blog raised the question of whether ‘quality’ stocks might find more share price support relative to ‘value’ stocks when quantitative easing is finally reduced. I would supplement this with some thoughts on how these market trends have necessitated a very selective approach to the sectors and companies one chooses to invest in.

Although – as ever – share prices have reacted very swiftly to the UK economic recovery evident from data releases, this recovery has, with the exception of a few largely domestic and cyclical sectors, yet to show up in the earnings per share recorded by companies: for calendar 2013, the average (non-financial, non-resources) UK company is forecast to show precisely 0% EPS growth*.

Jan Luthman, Macro-thematic: Can political risk cause shareholder returns to go up in smoke?

Last week’s apparent u-turn by David Cameron on the introduction of plain cigarette packaging highlights the political risks shrouding investment in certain industries. The sensitivity of the UK stockmarket to political interference is only likely to increase as we edge towards a general election, as illustrated by Ed Milliband’s recent pronouncements over energy prices. Our thematic approach encompasses social and political developments, as well as economic trends and we place as much emphasis on the stocks and sectors it is vital to avoid as those we choose to invest in; our Funds do not hold any utilities or tobacco stocks.

After several years of marked outperformance relative to the wider market, we sold out of our tobacco sector holdings in 2012 (as detailed in our blog entry at the time) due to sector valuations which we felt failed to reflect slowing growth and a hardening of political attitudes towards smoking in countries around the world. The Australian government was the first to legislate against branded tobacco and a study of its efficacy in reducing smoking rates is now likely to form part of an independent review announced by the UK government. This represents something of a turnaround from Cameron’s position this summer when he stated that there was insufficient evidence to suggest that removing branding would lead to a decline in smoking.

Disclaimer

Any opinions expressed should not be construed as advice for investment in any [product or] security mentioned or which may form the underlying content of any topics discussed in this blog.  The information and opinions provided in this blog take no account of the investors’ individual circumstances and should not be taken as specific advice on the merits of any investment decision.   Any opinions or information provided has been based on sources we believe to be reliable at the time of this blog’s preparation: no representation or warranty, express or implied, is made as to the accuracy, reliability or completeness of such information.  Neither Liontrust, nor any of its partners, employees, representatives or agents accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of our research or its contents.

Liontrust, its partners and/or employees may have had, have or will have positions in the securities (or related financial instruments) which are those referred to, or those underlying the content discussed in this blog.

Any individual who chooses to invest in any securities should do so with caution. Investing in securities is speculative and carries a high degree of risk; you may lose some or all of the money that is invested.  Always research your own investments and consult with a regulated investment advisor or licensed stock broker before investing.

Shares in companies referred to may be relatively illiquid and hard to trade, therefore riskier than other investments and there could be a large bid/offer spread, so if you need to sell soon after you’ve bought, you might get less back than you paid. This can make them riskier than other investments.