Mackenzie Minute: July 21, 2017
Richard Wong, Portfolio Manager on the Mackenzie Cundill Team, discusses the improved strength of the global financial system and opportunities for investors.
RICHARD WONG: We believe in the first half of this year, many market participants have made three errors in judgment about the markets. The first error is in believing that global growth has slowed down; it has not. The second error is the perception that there is no inflation, therefore capital has gone back into the bond market, it’s gone back into other low vol, high multiple stocks and the third error is the belief that geopolitical risks are reason to stay in cash and away from the markets. We don’t believe that to be the case.
We believe the global financial system is actually strengthening. It’s demonstrated by the CCAR and stress test results in the US, where most banks have done really well. Over in Europe, the financial system there is also turning the corner, with the recent rescues of smaller players in Spain and Italy by stronger players in that market.
We see better numbers in the US going into the second half and now that the French election is behind us, we also see that the European recovery is on much better, solid footing. We believe central banks around the world are going to continue or start renormalization into the second half of this year and early part of next year. Monetary stimulus will play less of a role and there’ll be more discussion of fiscal stimulus around the world.
We think the global banking sector is fertile ground for bargain hunting and value investing right now. We like the improved capital ratios, earnings recovery, as well as increased shareholder returns offered by these stocks. Currently, about a third of the Cundill Value Fund is invested in financials globally. In addition, we also find a lot of undervalued cyclical stocks around the world that could benefit from this accelerated economic growth that we see unfolding before our eyes. We feel very good about how we’re positioned right now.