Strategy Note /
Global

Tellimer's top picks: January 2023

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

  • This month's picks: China equities, Buy Nigeria and Ghana bonds; deep value in Ebang, I-Mab, LianBio, Pagaya, REE

  • We also have high conviction that global military spending is set explode

Tellimer's top picks: January 2023
Tellimer Research
29 December 2022
Published byTellimer Research

1. Buy Ghana 8.125% 2032

Despite a looming restructuring, we have a Buy on Ghana bonds (with the '32s one of our Top Picks for 2023) on the basis that we expect recoveries to be higher than implied by current prices, although the government's decision to suspend payments on certain external debt, including foreign bonds reaffirms our view that bondholder negotiations could take time.

Ghana 8.125% 2032 - price (US$)

Report: Fixed Income Strategy – Top picks for 2023

2. Buy Nigeria 7.875% 2032

Nigeria has comfortably outperformed the market since the inception of our Buy recommendation on 21 June, with the Bloomberg Nigeria Sovereign Index returning 10.7% in total return terms through 22 December versus 3.2% for the Bloomberg EM Sovereign Aggregate and 5.5% for the Bloomberg EM Sovereign High Yield Index.

While we remain negative on Nigeria’s longer-term fundamental story, we reiterate our Buy recommendation, based on attractive valuations and limited near-term default risk.

Nigeria

Report: Fixed Income Strategy – Top picks for 2023

3. Revisit China equities

Chinese equities, measured by MSCI China (Tech stocks Tencent, Alibaba, Meituan, JD, Baidu and Netease collectively make up almost one-third of the index) or the Shanghai Shenzhen CSI 300 (locally listed A-shares) are up c20% since the end of October 2022 low.

But both are still down over 20% year-to-date.

  • MSCI China is on trailing PB of 1.3x (for 10% ROE), a 22% discount to the five-year median, while forward PE is 12.2x (alongside 2.5% dividend yield), a 10% discount to the five-year median.

  • CSI 300 is on trailing PB of 1.8x (for 12% ROE), a 4% discount to the five-year median, while forward PE is 13.5x (alongside 2.5% dividend yield), a 3% discount to the five-year median.

  • Hong Kong's HSI is on on trailing PB of 1.1x (for 9% ROE), an 8% discount to the five-year median, while forward PE is 11.0x (alongside 3.4% dividend yield), a 7% discount to the five-year median.

  • The Chinese renminbi real effective exchange rate is at its 10-year median.

Note: All figures as of 7 December

China and HK equities cheaper than US and EM peers

Report: China's pragmatic policy turn signals an end to self-harm

4. Five beaten-up names that will rally strongly

EM equities are down 23% year-to-date, but some investors have experienced much bigger declines. Looking at stocks with a market cap in excess of US$100mn, around 10 of these have declined by at least 90% from their one-year peaks (meaning that they were, recently, US$1bn+ stocks).

By sector, the highest incidence of these big losers has been in Technology; by market, China has the biggest weighting.

Biggest EM share price falls over the past year

We identify five beaten-up names that could rally strongly: Ebang International Holdings Inc, I-Mab, LianBio (China); Pagaya Technologies, Ree Automotive (Israel).

Report: The 90% club – The search for deep value in EM equities

5. Military spending looks set to explode

Despite news headlines being dominated by stories of conflict and strife, global military spending, as a percentage of GDP, is close to historically low levels.

Global military spending is close to trough levels

This is unsustainable – military spending has significant headroom and, even at today’s depressed levels, it tops US$2tn globally, equivalent to the GDP of Brazil or Italy. With the US’s declining ability to police the world encouraging both friends and foes to lift their defence resourcing, global military spending looks set to explode.

We highlight the emerging market firms most exposed to a secular increase in military spending in the full report. Investment opportunities outside China can be found in Russia, India, Brazil, Turkey and the UAE.

Report: In a multipolar world, military spending looks set to explode