Are international equity market disparities opportunity sources for value investing?

Global financial markets have yet to fully take on board the effects of numerous events in 2014. Geopolitical risks featured prominently, including tensions in Ukraine, a rash of Middle Eastern conflicts and fresh political friction in the EU (Scotland’s independence referendum, Spanish protests, Greece’s parliamentary elections). The interest rate increase everyone expected in 2014 also failed to materialise, while oil prices fell to a six-year low. Risk aversion against such a diverse backdrop has, however, produced a number of value opportunities in cyclicals. Even so, we believe it also remains vital to adopt a diversified, fundamental and long-term approach to value investing.

What can we derive from markets in 2014?

Global markets returned close to 20% in euros in 2014. Half of this can be attributed to currency effects1 but this advance masked the idiosyncrasies of specific markets. Indeed, each of them has its own geographical and sector cyclicality, which urges a diversified approach to multiple investment opportunities and to shift exposure when necessary to sectors which have the most potentially attractive upside.

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