Ideas Farm 

Ideas Farm: Not all currency issuers are created equal

Ideas Farm: Not all currency issuers are created equal

One of our ambitions with the Ideas Farm is to provide more international ideas for readers. The key way in which we are doing this is by putting an international spin on several of our fund manager “best ideas” lists. This week is a case in point with the “best ideas” representing the three most-overweight positions of 22 top-performing global funds.

Covid-19 has done much to strengthen the argument for investing in overseas shares. 

The British economy has been badly hit, with second-quarter GDP down an astronomical 20.4 per cent - albeit better than Office for Budget Responsibility (OBR) forecasts. Meanwhile, the fiscal stimulus being provided to weather the storm and support a recovery is expected to see the UK’s borrowing requirements explode. A joint study by Citi and the Institute of Fiscal Studies (IFS) has modelled that a severe-second-wave scenario would require about £100bn of post-crisis fiscal tightening just to stabalise debt-to-GDP, based on long-term nominal GDP growth of 2.5 per cent. 

Given the economic challenge the country faces, few would want to see a government preoccupied with balancing the books right now. But for the UK the question of 'how will we pay for it' still looms large. 

This question is made all the more interesting by the ascent of Modern Monetary Theory (MMT) in economic thinking. MMT puts forward a credible argument that currency issuers (countries like the UK that print their own 'fiat' currency and borrow in it)  are actually fundamentally wrong to focus on the 'how will we pay for it' question. 

Sounds a great for a country in a fiscal pickle. But there's a big catch. The credibility of MMT’s argument hinges on one vital thing; proponents argue fiscal deficits must be curbed if inflation starts to move above target. The issue of inflation really seems the crux of fears about UK-focused investments. 

While there seems little immediate reason to worry that government spending will stoke inflation by creating excess demand, an altogether more noxious cause of inflation lurks in the shadows for second-rung currency issuers, which is potential currency debasement (extreme devaluation). 

To borrow from the lexicon of marketeers, key to staving off the threat of debasement is a currency’s 'brand value'. For MMT fans, the big considerations for the savers on the other side of a currency issuer’s deficit is not whether the borrowing they’ve financed will be repaid (whatever is needed to repay them can be printed by the issuer at will) but whether the currency is a 'brand' that will stay in fashion. If the currency loses its 'brand' appeal and investors decide to dump the stuff, then there will be an inflation-inducing drop in its buying power, and potentially debasement.

The unfortunate reality is that, as far as currencies go, sterling looks a bit more Primark than Prada at the moment. The crisis has laid bare a number of long-standing economic weaknesses at the same time as Brexit negotiations feed uncertainty. 

As any brand manager will tell you, a classic way to support 'brand value' is to limit supply. So too with MMT, which views reining in deficits (taxes up, spending down) as the key policy lever governments should pull when threatened with inflation, such as that caused by noteworthy devaluation. 

While economic events often move quickly, at the moment serious pressure for the UK to protect sterling's brand does not feel too near. Yet for our consumption-focused economy, the creeping threat is whether markets allow policy-makers the space needed to finance a recovery. 

Under the circumstances, paying more attention to international investment opportunities definitely makes some sense, perhaps especially for investors who believe MMT’s new economic paradigm has arrived. 

 

Click here to view the tables in PDF form

 

Fund manager best ideas: GLOBAL
26/08/2020No. Funds
Amazon.com Inc5 (NEW)
Mastercard Inc A5 (-1)
Microsoft Corp5 (+1)
Novo Nordisk A/S B3 (+2)
Accenture PLC Class A2 (NEW)
Alphabet Inc A2
Alphabet Inc Class C2
Linde PLC2
London Stock Exchange Group PLC2
TAL Education Group ADR2 (NEW)
Adyen NV1
Alcon Inc1
Apple Inc1
Applied Materials Inc1
B3 SA - Brasil Bolsa Balcao1 (NEW)
Baxter International Inc1
Becton, Dickinson and Co1
Capgemini SE1
Charles Schwab Corp1
CME Group Inc Class A1
Cognizant Technology Solutions Corp A1 (NEW)
Deutsche Boerse AG1
DexCom Inc1
Diageo PLC1
Edwards Lifesciences Corp1
Electronic Arts Inc1
Equinix Inc1
Fidelity National Information Services Inc1
Hong Kong Exchanges and Clearing Ltd1 (NEW)
Hoya Corp1
Illumina Inc1 (NEW)
Lam Research Corp1
Macquarie Group Ltd1
Meituan Dianping1
NVIDIA Corp1
Partners Group Holding AG1
Philip Morris International Inc1
Ping An Insurance (Group) Co. of China Ltd Class H1
Prologis Inc1 (NEW)
Roche Holding AG Dividend Right Cert.1 (NEW)
Samsung Electronics Co Ltd1
Tencent Holdings Ltd1 (-1)
Tesla Inc1 (NEW)
Unilever PLC1
Verisk Analytics Inc1
Visa Inc Class A1 (-1)

Source: Morningstar, based on 3 most overweight holdings

 

New 52-week highs   
NameTIDMPrice% from hi
TreattTET580p0.0%
ASOSASC5,054p0.4%
AntofagastaANTO1,133p0.8%
Croda InternationalCRDA6,014p0.9%
Ocado GroupOCDO2,398p1.0%
Capital Gearing Trust PlcCGT4,470p1.1%
Herald Investment TrustHRI1,720p1.1%
YouGovYOU860p1.1%
SDCL Energy EfficiencySEIT112p1.3%
Schroder Asian TotalATR397p1.4%
Impax Environmental MktsIEM356p1.5%
KingfisherKGF276p1.5%
Hastings Group HoldingsHSTG252p1.6%
ByotrolBYOT9p1.6%
Hipgnosis SongsSONG122p1.6%
JPMorgan Japanese InvtJFJ544p1.6%
Fidelity Japan TrustFJV182p1.8%
First DerivativesFDP3,060p1.8%
Studio Retail GroupSTU245p1.8%
BBGIBBGI169p1.9%
B&M European Value RetailBME489p2.0%
Plus500PLUS1,541p2.0%
Admiral GroupADM2,698p2.2%
Montanaro Europn Small TrMTE1,345p2.2%
Fidelity China SpecialFCSS312p2.2%
Flutter EntertainmentFLTR12,100p2.2%
RWSRWS745p2.2%
Gore Street EnergyGSF107p2.3%
Polymetal InternationalPOLY2,011p2.3%
LSE GroupLSE8,678p2.3%
Baillie Gifford ShinBGS193p2.4%
Just Eat Takeaway.comJET9,062p2.4%
CQS Natural ResourcesCYN95p2.5%
IntegraFin HoldingsIHP554p2.5%
JP Morgan Emerging MktsJMG1,062p2.6%
Frontier DevelopmentsFDEV2,080p2.6%
Octopus Renewables InfraORIT113p2.6%
BunzlBNZL2,400p2.6%
HomeServeHSV1,334p2.7%
Scottish American InvtSAIN431p2.7%
JP Morgan European SmallJESC394p2.8%
ElectrocomponentsECM711p2.8%
AnparioANP410p2.8%
Impax Asset Management GpIPX461p2.9%
DistilDIS1p2.9%
Sterling EnergySEY12p2.9%
Bankers Invt TrustBNKR1,012p2.9%
Mobius Investment TrustMMIT96p2.9%
XP PowerXPP4,500p2.9%

Source: FactSet, as at 26 August 2020

 

New 52-week highs   
NameTIDMPrice% from lo
STV GroupSTVG210p0.0%
Capital & Counties PropsCAPC125p0.0%
ReachRCH53p0.6%
TOC Property Backed LndngPBLT86p2.9%

Source: FactSet, as at 26 August 2020

 

Shorts   
CompanyShort InterestNo. Shorters1wk chg in short interest
HAMMERSON PLC14.0%11-0.3%
CINEWORLD GROUP9.3%90.0%
METRO BANK PLC8.9%5-0.2%
SAINSBURY (J) PLC8.2%70.4%
PREMIER OIL PLC8.2%20.0%
Royal Mail Plc7.6%6-0.1%
TULLOW OIL PLC7.2%60.0%
PEARSON PLC5.8%71.0%
TUI AG5.6%20.0%
PETROPAVLOVSK PLC5.5%70.0%
DOMINO'S PIZZA GROUP PLC5.4%40.0%
PETROFAC LTD5.0%30.0%
BABCOCK INTL GROUP PLC4.9%20.0%
PETS AT HOME GROUP PLC4.9%5-0.1%
BLUE PRISM GROUP PLC4.7%60.3%
WEIR GROUP PLC/THE4.7%30.0%
IQE PLC4.4%3-0.2%
FUTURE PLC4.3%50.6%
CAPITA PLC4.0%40.0%
VODAFONE GROUP PLC3.9%40.0%
CRODA INTERNATIONAL PLC3.8%60.3%
WOOD GROUP (JOHN) PLC3.7%30.0%
MICRO FOCUS INTERNATIONAL3.5%3-0.3%
WM MORRISON SUPERMARKETS3.5%40.0%
ASHMORE GROUP PLC3.5%5-0.1%
GVC Holdings Plc3.4%40.1%
KEYWORDS STUDIOS PLC3.3%40.5%
ASCENTIAL PLC3.2%20.0%
MARKS & SPENCER GROUP PLC3.2%30.1%
HURRICANE ENERGY PLC3.2%30.7%
ITV PLC3.1%50.6%
AUTO TRADER GROUP PLC3.1%40.0%
Primary Health Properties PLC3.0%10.0%
ULTRA ELECTRONICS HLDGS PLC3.0%20.0%
N. Brown Group2.9%30.0%
VICTREX PLC2.9%30.0%
RESTAURANT GROUP PLC2.8%2-0.3%
INTERCONTINENTAL HOTELS GROUP PLC2.8%10.0%
VALARIS PLC2.6%3-0.5%
SMITH (DAVID S) HOLDINGS PLC2.4%20.0%
VITEC GROUP PLC (THE)2.4%2-0.1%
HISCOX LTD2.3%30.0%
B&M EUROPEAN VALUE RETAIL S.A.2.2%20.0%
DAILY MAIL & GENERAL TRUST2.2%2-0.1%

Source: FCA, as at 26 August 2020

 

1-month EPS upgrades
 FWD EPS CHG
NameTIDM1mth3mth1yr
IGas EnergyIGAS280.0%-29.6%-70%
Belvoir GroupBLV141.0%141.0%18%
ASOSASC132.6%-230%
BarclaysBARC111.2%61.2%-80%
Alfa Financial SoftwareALFA100.6%113.4%-72%
Sylvania PlatinumSLP75.5%28.5%143%
RenishawRSW59.5%74.3%-36%
NextNXT52.9%63.2%-61%
IXICOIXI50.0%--
LSL Property ServicesLSL49.0%0.9%-21%
Panoply HoldingsTPX45.2%38.5%2%
Hollywood Bowl GroupBOWL44.7%5.4%-75%
3i Group PlcIII40.4%96.6%-13%
Clipper LogisticsCLG39.7%36.7%43%
Hochschild MiningHOC39.7%7.8%-11%
CapitalCAPD37.5%36.3%67%
Luceco PlcLUCE36.9%261.9%62%
TI Fluid SystemsTIFS32.1%82.6%-86%
Breedon GrpBREE28.8%-42.8%-51%
Royal Dutch ShellRDSA26.5%5.2%-77%
FerrexpoFXPO25.9%44.4%-41%
Hargreaves ServicesHSP25.3%25.3%40%
Royal Dutch ShellRDSB24.9%4.6%-77%
Keller GroupKLR24.6%16.3%-13%
AO WorldAO24.0%--
Kainos GroupKNOS23.6%26.4%26%
Kenmare ResourcesKMR22.6%-58.1%-74%
Gear4music HoldingsG4M22.4%241.8%436%
TymanTYMN22.2%-6.5%-31%
Phoenix Group HoldingsPHNX21.5%16.5%23%
IP GroupIPO20.2%264.5%-64%
Henry BootBOOT18.6%18.6%-68%
SDLSDL17.5%14.7%-15%
Watches of Switzerland GroupWOSG15.9%16.0%-11%
BATM Advanced CommBVC15.9%91.4%81%
BeazleyBEZ15.8%146.3%-80%
4Imprint GroupFOUR15.3%-69.3%-86%
Just GrpJUST14.7%17.5%18%
Intu PropertiesINTU14.5%-15.2%-73%
AAAA14.4%14.1%-10%
CRHCRH13.5%23.3%-17%
RobinsonRBN13.4%13.4%41%
Admiral GroupADM13.3%13.2%18%
Standard CharteredSTAN13.1%-17.1%-56%
B&M European Value RetailBME12.1%51.2%47%
ContourGlobal PlcGLO11.8%23.9%1%
FresnilloFRES11.0%50.2%60%
CLS HoldingsCLI10.8%10.9%-12%
EVRAZEVR10.4%3.1%-56%
Smurfit Kappa GroupSKG10.3%6.7%-26%
Tribal GroupTRB10.0%10.0%-7%
Codemasters Group HoldingsCDM9.9%47.0%33%
Bank of Georgia GroupBGEO9.6%-29.1%-45%
PersimmonPSN9.6%11.0%-24%
GraingerGRI9.4%0.5%-18%
Pets At HomePETS9.4%-9.4%-17%
Marks & Spencer GroupMKS9.2%-14.7%-62%
MondiMNDI8.7%5.4%-32%
PlaytechPTEC8.5%6.1%-61%
Frasers GroupFRAS8.3%2.4%-4%
IMIIMI8.1%13.0%-7%
CentricaCNA8.0%6.9%-38%
Mortgage Advice BureauMAB17.5%7.5%-31%
Polymetal InternationalPOLY7.5%9.6%66%
Empiric StudentESP7.5%-13.8%-44%
BunzlBNZL7.4%32.1%-2%
AntofagastaANTO7.4%138.2%-42%
AvivaAV7.1%4.5%-16%
CMC MarketsCMCX7.1%14.7%350%
Gamesys GroupGYS7.0%7.0%32%
RHI MagnesitaRHIM6.5%8.7%-46%
discoverIE GroupDSCV6.2%-17.2%-22%
GVC HoldingsGVC6.2%23.6%-14%
Weir GroupWEIR6.0%6.3%-30%
G4SGFS5.7%25.2%-32%
Rio TintoRIO5.5%12.8%-18%
Next Fifteen CommNFC5.4%8.1%-12%
EKF DiagnosticsEKF5.3%78.5%131%
RotorkROR5.2%7.5%-15%
Caledonia MiningCMCL5.2%7.7%-
Hikma PharmaceuticalsHIK5.2%1.8%14%
CranswickCWK5.0%15.6%28%
AG BARRBAG5.0%-3.5%-19%
Draper EspritGROW4.9%85.1%-16%
TBC Bank GroupTBCG4.7%-31.3%-50%
Rentokil InitialRTO4.6%7.9%-11%
ApplegreenAPGN4.5%4.5%20%
Plus500PLUS4.5%2.2%141%
Flutter EntertainmentFLTR4.4%13.7%26%
Rathbone BrothersRAT4.4%13.0%-21%
IG Group HoldingsIGG4.4%-16.0%28%
BodycoteBOY4.2%-1.8%-44%
Anglo American PlcAAL4.1%-0.7%-42%
Randall & Quilter Investment HoldingsRQIH4.1%-20.8%-20%
SchrodersSDR3.8%12.1%-10%
Ultra Electronics HldgsULE3.6%2.6%8%
Volution GroupFAN3.5%-3.8%-27%
Compass GroupCPG3.5%-17.6%-74%
Burford CapitalBUR3.5%-20.0%-39%
ClarksonCKN3.4%-5.7%-15%
ChesnaraCSN3.3%6.7%-15%
Polar CapitalPOLR3.0%1.8%-2%

Source: FactSet, as at 26 August 2020

 

1-month EPS downgrades
 FWD EPS CHG
NameTIDM1mth3mth1yr
Mears GroupMER-88.0%-95.9%-96%
Churchill ChinaCHH-87.9%--86%
PageGroupPAGE-87.0%-92.6%-98%
ScS GroupSCS-72.0%-20.2%-86%
VictoriaVCP-65.7%-66.8%-73%
Gem DiamondsGEMD-64.4%-73.1%-90%
Appreciate GroupAPP-58.0%-58.0%-59%
AscentialASCL-57.9%-64.0%-89%
H&T GroupHAT-57.3%-57.5%-40%
Melrose IndustriesMRO-56.9%-95.3%-98%
Bigblu BroadbandBBB-52.3%-52.3%2%
IG Design GroupIGR-50.4%-50.4%-53%
Shearwater GroupSWG-45.1%-34.8%-33%
Vitec GroupVTC-41.1%-78.7%-91%
U & I GroupUAI-38.0%--81%
Balfour BeattyBBY-37.6%-57.9%-64%
Inspiration Healthcare GpIHC-37.1%-49.3%-37%
InterContinental Hotels GroupIHG-35.0%-67.2%-86%
Franchise BrandsFRAN-34.3%-34.3%-
Robert WaltersRWA-34.1%-21.6%-88%
Keystone Law GroupKEYS-33.4%-41.7%-57%
RicardoRCDO-33.4%-42.7%-59%
TrifastTRI-33.4%-33.1%-52%
PetrofacPFC-33.2%-55.0%-77%
Coats GroupCOA-32.1%-44.1%-81%
GlencoreGLEN-30.0%-31.9%-82%
Picton Property IncomePCTN-27.7%-19.0%-21%
Taylor WimpeyTW-27.7%-50.7%-67%
InchcapeINCH-25.3%-53.9%-69%
MITIE GroupMTO-23.2%-60.1%-64%
Bushveld MineralsBMN-22.3%-36.7%-63%
DialightDIA-22.2%-22.3%-79%
MarshallsMSLH-21.8%-36.2%-49%
HammersonHMSO-21.6%-28.1%-64%
Morses ClubMCL-21.2%-21.2%-36%
NewRiver REITNRR-20.9%-60.9%-54%
Smart Metering SystemsSMS-20.7%-18.2%-49%
Just Eat Takeaway.comJET-20.5%12.8%-
Wentworth ResourcesWEN-20.3%-19.1%-59%
Anexo GroupANX-19.5%-33.9%-36%
Babcock International GroupBAB-18.9%-36.9%-40%
AggrekoAGK-17.7%-29.2%-56%
InvestecINVP-16.3%-29.9%-34%
Airtel AfricaAAF-16.1%-18.3%-27%
Serica EnergySQZ-15.9%-33.6%-80%
Vivo EnergyVVO-15.6%-46.8%-57%
Greencore GroupGNC-15.4%-35.7%-60%
LancashireLRE-15.1%-30.3%-42%
Grafton GroupGFTU-15.0%-36.0%-66%
Tekmar Group PlcTGP-15.0%-15.0%-52%
Scapa GroupSCPA-14.9%-71.0%-77%
Howden Joinery GroupHWDN-14.6%-42.6%-52%
IbstockIBST-14.4%-59.5%-75%
Yellow CakeYCA-13.4%3586.6%5480%
Hargreaves LansdownHL-12.9%-10.4%-14%
Urban&CivicUANC-12.9%67.3%-56%
Gooch & HousegoGHH-11.9%-20.0%-38%
BellwayBWY-11.8%-18.1%-45%
James HalsteadJHD-11.2%-11.2%-15%
HSBC HoldingsHSBA-11.2%-27.5%-67%
Midwich GroupMIDW-11.1%-23.9%-28%
InformaINF-11.0%-35.4%-66%
K3 Capital GroupK3C-10.9%-10.9%30%
ElementisELM-10.8%-17.8%-55%
Lloyds Banking GroupLLOY-10.2%-41.5%-85%
Virgin Money UKVMUK-10.1%-11.6%-83%
ProactisPHD-10.0%-10.0%-74%
Countryside PropertiesCSP-9.9%-44.1%-61%
De La RueDLAR-9.9%38.5%-60%
SThreeSTEM-9.4%-17.0%-60%
BHP GroupBHP-9.3%-11.3%-28%
Moneysupermarket com GrpMONY-8.1%-22.0%-24%
PelatroPTRO-7.9%--87%
Travis PerkinsTPK-7.7%-22.8%-47%
Amino TechnologiesAMO-7.3%-8.4%-5%
Signature AviationSIG-7.1%-19.5%-71%
Costain GroupCOST-7.1%-42.4%-73%
Polypipe GroupPLP-7.1%-54.8%-62%
SimplyBiz GroupSBIZ-7.1%-18.6%-13%
Workspace GroupWKP-7.0%-31.9%-33%
Vodafone GroupVOD-6.7%-18.8%-18%
Capital & RegionalCAL-6.3%-22.2%-67%
BT GroupBT.A-6.2%-9.7%-26%
NWF GroupNWF-6.2%-6.2%13%
NicholsNICL-6.1%-9.4%-36%
Equiniti GroupEQN-6.0%-14.9%-36%
Kier GroupKIE-6.0%-28.0%-62%
GlobalDataDATA-5.9%0.6%21%
James Fisher & SonsFSJ-5.6%-13.0%-33%
RDI REITRDI-5.6%-3.1%-45%
St Modwen PropertiesSMP-5.3%-33.9%-44%
AbcamABC-5.1%-20.8%-47%
United Oil & GasUOG-5.0%--
Drax GroupDRX-5.0%-0.4%9%
RestoreRST-4.8%-17.7%-45%
Stagecoach GroupSGC-4.7%-84.8%-88%
BOKUBOKU-4.5%11.0%32%
CalisenCLSN-4.5%-1.6%-
Close Brothers GroupCBG-4.5%-25.6%-48%
GoCo GroupGOCO-4.4%-6.4%-1%
Network International HoldingsNETW-4.4%-27.0%-51%
Target Healthcare REITTHRL-4.4%-4.4%16%
Hastings Group HoldingsHSTG-4.4%-5.5%-2%
CVS GroupCVSG-4.3%69.6%-18%
PetropavlovskPOG-4.3%192.9%-
DevroDVO-4.2%-3.7%-6%
CentralNic GroupCNIC-4.1%3.1%3%
Go-Ahead GroupGOG-3.8%-34.4%-64%
SSESSE-3.7%-12.5%-19%
Alliance PharmaAPH-3.6%-4.9%-8%
UDG HealthcareUDG-3.2%-12.0%-16%
Redde NorthgateREDD-3.1%-12.4%-23%
Hummingbird ResourcesHUM-3.1%--12%
Smith & NephewSN-3.0%-19.1%-38%

Source: FactSet, as at 26 August 2020

 

Click here to view the tables in PDF form

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