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JPM's Titherington: China's banking giants will not fail

JPM's Titherington: China's banking giants will not fail

JPM's head of emerging markets equity Richard Titherington has taken his blockbuster JPM Emerging Markets Opportunities fund overweight on all four BRIC nations for the first time in years as he thinks valuations have become too cheap to ignore.

Titherington has been adding Russian, Chinese, Indian and Brazilian exposure to his $2.3 billion fund after the prolonged EM equity sell off.

The emerging markets veteran believes the issues facing these economies, and many other emerging countries, are cyclical rather than structural in nature.

Titherington told Citywire Global that he had bought into state-owned Chinese banks BoC and ICBC for the first time and had also added to Russian oil major Lukoil in recent weeks, making it now a top 10 holding. 

He said: 'Lukoil generates free cash flow and is a very focused business paying out a dividend of 6.5%. It is a more transparent company than most and has a dividend payment policy far better than Rosneft or Gazprom.'

Buying banks

Elsewhere in Russia, state bank Sberbank is also a top 10 holding, as Titherington thinks it still looks cheap trading on 1.2 times book.

Chinese bank ICBC is also now a top 10 position, representing 2.5% of the fund at the end of January.

'This is the first time we have owned the Chinese state-owned banking giants. We are happy to do so as long as China has the largest forex reserves, they are trading at book value, and paying a 6.5% dividend.'

'We think the market is grossly overestimating the impact of shadow banking on the top two or three Chinese banks. There are legitimate concerns further down, and there will be city and provincial banks that fail but it is extremely unlikely that the top tier banks will fail.'

Consumer bets

With the consumer discretionary space the fund's biggest overweight sector, Titherington has also been increasing his exposure to the Chinese consumer through Macau-based casino companies as well as to car makers such as Great Wall.

The autos sector is the fund's largest individual consumer bet, with Korea's Kia representing almost 4% of the fund and India's Tata Motors also a significant holding.

After a year in which car sales actually dropped in India, Titherington tipped the Indian market, and Tata Motors in particular, to bounce back as it added to its Land Rover and Jaguar product range.

'Tata is not a dividend payer but it is a very cyclical company and should have a strong year.'

While Titherington remains wary on South Africa and Turkey where prolonged currency weakness has been a feature over the past nine months, he does think that the recent sharp period of Chinese currency weakness is almost over.

'I think the renminbi period of weakness is coming to an end and that the renminbi is the last shoe to drop.'

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