Japan and UK stocks still offer value

Oksana Patron

3 February 2023

Although the poor outlook for global equities in 2023, investors will still be able to find individual opportunities with Japan and UK stocks offering more value compared to expensive US shares, according to Talaria Asset Management.

Hugh Selby-Smith, the firm’s co-chief investment officer, believed that the probability of the US recession remained high and it was still “not at all reflected in valuations”, making the US stocks expensive and with a scope to fall further.

“This is against a backdrop of unusually rapid interest rate increases in developed markets, falling leading economic indicators such as housing sentiment, and sticky inflation components squeezing near record levels of profitability,” he said.

“US shares are expensive, pricing in a ‘soft’ or even ‘no landing’. Compared with 2007, many of the forward EV/Sales bands of the global index are so high as to be pricing in a good outcome. Usually when this is the case, upside is scarce and risk abundant.”

But, on the other hand, there will be individual opportunities for investors wanting to add some diversification to their portfolios.

Selby-Smith pointed to regions such as the UK and Japan for investors searching for regional diversification.

In terms of the themes, he said capex growth and onshoring were worth of attention as they were likely to “have positive long-term benefits for countries like Mexico and industries like industrial automation.”

“But most importantly, equity investors should prize income, good value, short duration, and rapid payback periods when looking at returns.

“That means looking towards large cap healthcare, especially pharma majors, for attractive options.”