Strategy Note /

Tellimer's top picks: December 2022

  • We present five of our best current calls across economies, sectors, stocks and bonds for December

  • This month's picks: China and Hungary equities, Buy Egypt and Mozambique bonds

  • We have high conviction that EM football franchises will benefit from greater investor attention on intangible assets

Tellimer's top picks: December 2022
Tellimer Research
1 December 2022
Published byTellimer Research

1. Buy Egypt eurobonds

The Central Bank of Egypt hiking its policy rate and devaluing EGP, and the IMF announcing a staff-level agreement on a 46-month extended fund facility worth US$3bn, should help reduce the risk of crisis for now (although Egypt is still not out of the woods given its large external funding needs).

EGYPT 7 ⅝ 05/29/2032s

And we continue to think there is upside for Egyptian eurobonds and that they offer attractive value. We reiterate our Buy recommendation.

Report: Egypt – IMF agreement and currency devaluation reduce risk of crisis

2. Buy Mozambique bonds

We also reiterate our Buy recommendation on the MOZAM 5% 2031 bond, one of our top picks for 2022 (and, indeed, for H2 in July).

MOZAM 5% 2031 – price (US$)

Our positive view on Mozambique (Caa2/CCC+/CCC+) is based on the onset of LNG production and its strong ability to pay (debt service on the bonds is very low), together with the government's prudent approach to macro-management. The IMF programme, which improves the outlook for donor funding, is the icing on the cake.

Report: Mozambique – Notes from the 2022 IMF Annual Meetings

3. Revisit China equities

China has long since fallen out of favour of the consensus of emerging market investors and this is reflected in its deep discounts to its historical average valuation.

China and HK equities cheaper than US and EM peers

China equity valuations are at c10% discounts to the five-year median (trailing PB and PE, forward PE).

That discount is now large enough to prompt a revisit of the enduring strengths of the investment case – China’s scale in global manufacturing is irreplaceable, exports continue to grow despite ongoing US tariffs, China's representation in global equity indices remains far lower than its share of global market capitalisation or GDP – and the things that might go well – zero-Covid policy should ultimately relent, and a zero real interest rate implies capacity for policy stimulus.

Report: China protests – The start of something big?

4. Hungary equities – our top regional pick

Our top pick in Eastern Europe, should there be any de-escalation in the Russia-Ukraine War, is Hungary, which is the most reliant on imports of Russia gas (17% of total energy supply) and the cheapest relative to history (trailing PB at a 35% discount to the five-year median).

In European EM, this performance is similar to Poland (down 38%) but substantially worse than Greece, Iceland and Romania (all down in the range of 13-16%).

  • The FX rate is down 19% ytd, compared with down 14% in Poland.

  • Trailing price/book of 0.7x (for 16% ROE) is at a 40% discount to the five-year median, compared with a 25% discount in Poland.

  • Forward consensus dividend yield is 5.1%, compared with 3.5% in Poland.

Hungary equities cheaper vs history than EM Europe peers

Report: Russia-Ukraine War spills over into Poland but hints of de-escalation too

5. Emerging market sports franchises could benefit from greater investor interest

Recent ownership changes at UK’s Chelsea and Newcastle United, and the news that Liverpool and Manchester United are in talks with potential investors, could prompt investors to seek out other sports franchises with large catchment areas and a strong emotional attachment with their fans.

For investors looking to gain exposure to association football, Turkey appears to be the most accessible market. The 'big three' Istanbul clubs (Besiktas, Fenerbache and Galatasary) are all based in this 15mn-strong metropolis that straddles both Europe and Asia. Trabzonspor is another option. One big advantage these clubs have is the opportunity to access the lucrative UEFA Champions League competition.

Further afield, Bali United, founded in 2015, competes in Indonesia’s Liga 1 (‘Super League’), a competition it won in 2019 and 2022. This firm trades at the highest multiple of sales within our sample.

Listed football franchises

Report: For the love of the game – A spotlight on emerging market sports franchises