Since bottoming at the end of October, the MSCI Emerging Market Index (MXEA) and MSCI Asia Ex-Japan ...
Looking for Value Outside the US
10/10/2013 6:00 am EST
Veteran investor Roger Conrad thinks that there are two countries that are currently out of favor that he thinks offer good value now.
SPEAKER 1: Hi and thanks for joining us. My guest today is Roger Conrad. Hi Roger, and thanks for coming by.
ROGER: Thanks for having me.
SPEAKER 1: So let’s talk a little bit about what’s going on in Australia and Canada. Of course the Australian dollar – taking it on the nose these days, and so a lot of investors seem to be a little worried about entering that market, but you have a different feeling about that.
ROGER: Well, I’m a contrary investor at heart, so while everything was going really well the last couple of years, to me it was getting harder and harder to find value. I think we’re in the exact opposite position right now. For the US investor, you buy Australian stocks with Australian currency. You receive your dividends in Australian currency, so the cheaper that currency is when you enter, the better you’re going to do.
SPEAKER 1: Sure.
ROGER: Australian currency is – and in fact the Australian market and all these concerns that we’re seeing surfacing now really have their roots in what’s going on in Asia, and particularly what’s going on in China.
SPEAKER 1: The slowdown in the growth.
ROGER: The slowdown in the growth and in fact the things that the governments doing there to manipulate its growth and perhaps do some things that will help them in the long run, but in the short run, it means a threat – it’s a threat to demand for commodities, and of course that’s what Australia has in abundance, so this is what people are looking at, and the way I’m looking at it, though, is when the Australian dollar was at $1, US $1.05, very, very high level; it’s now considerably below that, but when it was at the very high level, the cost to Australian companies was very, very high in terms of operating costs, in terms of labor costs, and you saw it really manifested in big projects; what the big mining companies had or the big liquified natural gas projects that are about to come on line. Huge cost overruns and a big part of that was the fact that the Australian dollar depreciated to such a large extent.
Now that the Australian dollar has come down, that’s no longer a worry, so you’ve had just a tremendous cut of costs for no other reason than the Australian dollar coming down. It’s going to be very, very healthy for those companies that are affected. As far as the investor goes, if you had Australian stocks, you wrote them up; maybe you didn’t take some of the profits when prices were high and so you’ve ridden them back down. This is not the time to be thinking about selling if you have good quality companies. For conservative investors, that’s companies like APPROPRIATE group, which is a big pipeline company, or AGL Energy, which is a big utility company. Very, very stable, safe companies; now you can buy them at much cheaper prices.
The yields are much better, and as we start to see more recovery in the commodity markets, more certainty from Asia, your return as a US investor is going to go up, as the value of that currency goes up, just as it had the y ears prior to the last several months, so I think this is the time to be considering particularly some of the more conservative names out there. Even companies like Telstra, which have been really out of reach for a long time, really bid up by a lot of people, it’s really a second chance to get back in to a market where there’s tremendous value. There’s still a huge resource treasure house. All those good things, that case for buying Australia is still there, but now you can get into it at a lot cheaper price, so again, this is the time to think about buying, and if you own them…
SPEAKER 1: Blood is in the streets.
ROGER: Hang onto them. Right, absolutely.
SPEAKER 1: Super. Thank you, Roger.
SPEAKER 1: And thanks for joining us at the MoneyShow.com Video Network.
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