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Current 12 months forward PE versus Five-year High | Source: Financial Dynamics
Extent of fall in forward PE from Five-year High | Source: Financial Dynamics
be closely monitoring those companies,
whose ratings and underpinning financial
metrics rely on assumptions that may no
longer be achievable.”
The rating agency assumes that the
Gulf is “highly interventionist” with regard
to the financial health of its flagship
organisations, saying that 94% of all
Moody’s-rated corporate debt in the GCC
is with government-related issuers. The
ratings for these issuers include always
the opinion that government support is
guaranteed in times of crises.
PASSIVE INVESTORS
Aside from the SWFs being passive
long-term investors and wanting to
prioritise investments in their home
economies, the Financial Dynamics (FD)
also said the state-owned funds are
now cautious about supporting further
bailouts of distressed companies. These
funds, however, are set to “re-enter
the global equity markets” soon, said
Charles Watson, the company’s group
chief executive officer. He noted that
“compelling valuation propositions” are
emerging across the North American and
Western European equity markets.
“The bottom has yet to come,” an FD
study released in February quoted one
SWF executive as saying. “We are ready to
re-enter the market in a major way – but
not for several months...” said another.
Some funds have even reduced their
exposure to the equity markets since 18
months ago, FD said in February. It added
that the executives also emphasised the
need to improve corporate governance and
management quality.
A part of FTI Consulting Incorporation,
a global corporate communications
consultancy, FD conducted one-on-one
interviews with senior executives from a
number of the world’s SWFs, whose total
assets accounted for over 50% of the
$5-trillion worth of collective global funds
held by the SWF asset class.
Released in February, the findings
also showed the majority of the funds
not wanting to have majority stakes in
companies or make 100% acquisitions.
“We are increasingly interested in seeing
how it might be possible to secure a
cheap entry into an investment either by
buying the debt or structuring some form
of convertible instrument,” said an SWF
executive, “but our intention in doing so
is purely to create value, not to seek any
form of control.”
PROMISING REGIONS
Asia and South America, especially Brazil,
are the two regions which the SWFs
found to be the most attractive, both for
qualitative and quantitative reasons. By
measuring the current price-to-earnings
(P/E) ratios of the top 800 companies in
major markets worldwide, and comparing
these valuations to market highs, FD
found the “deepest value” in North
America and Western Europe. The P/E ratio
is a measure of the price paid for a share
vis-à-vis the annual profit earned by the
firm per share.
The biggest PE discount relative to
five-year market high is found in North
America at over -48% and about -47% in
Asia-Pacific. Companies in the Asia-Pacific
fell to 13.2% from a high of 25.1%, FD said,
but the market is still expensive, owing
to the belief that the region promises
strong economic fundamentals. It added
that various industries, such as media
and entertainment, mining and steel and
other metals are showing the largest topto-bottom
falls across all regions.
Despite the current market conditions,
FD said, Western Europe and North
America were named the best investment
regions in financial terms. “Although the
data revealed Asia to have one of the
two deepest discount areas alongside
North America,” it added, “its actual P/E
is the highest, and, therefore ... the most
expensive option currently for investors.”
The rating agency
assumes that the
Gulf is “highly
interventionist”
with regard to the
financial health
of its flagship
organisations,
saying that 94%
of all Moody’srated
corporate
debt in the GCC is
with governmentrelated
issuers. The
ratings for these
issuers include
always the opinion
that government
support is
guaranteed in times
of crises
March 2009 The supply chain and logistics link 33