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Three global investment themes to watch


Prospects for economic growth appear to be higher in global markets than Australia. For instance, domestic GDP is forecast to be just 0.8% by 2020, whereas this figure is predicted to be 2.0% for the US in the same year.



For self-managed super fund (SMSF) investors what this means is that now is an opportune time to consider investment opportunities in global markets. Here are three ideas for SMSF trustees to consider.

1. Global energy offers opportunity

Nader Naeimi, head of ASX-listed Dynamic Markets Fund (DMKT) at AMP Capital, says his first high conviction theme for global markets is global energy.

“The global energy sector went through quite a significant cleansing process in 2014 and 2015 as oil prices came under pressure. You don't pick fights with downtrends. But there is a point at which the downtrend is likely to exhaust itself and present an opportunity,” he explains. This time could be imminent.

There has also been a turnaround in global energy sector earnings, with scope for a further improvement. This is another reason Naeimi believes this sector could produce interesting investment opportunities in the near term.  

2. Agriculture exposure avoids market noise

Naeimi notes markets have been overly focused on the new US presidential administration. But that is far from the only theme playing out. For instance, he suggests agricultural commodities are one area that is largely immune from this noise that could be an interesting idea for SMSFs to consider. 

“They trade on their own fundamentals. When you look at agricultural commodities, wheat is the most high conviction part of the agricultural market. Wheat prices are trading towards historical lows. When prices are low relative to cost of production, then you have a cheap valuation signal,” Naeimi explains. 

“US farmers have cut back on wheat plantation to the lowest levels on record, a response to falling prices. The last time we had a situation like this was in 2012 when production dropped about 5%, but prices rallied about 19%. In 2010 we had a 5.5% drop in production, and we had prices climbing 47%. So we believe this is an opportunity that is independent of macro-economic trends investors could consider,” he adds. DMKT gains exposure to this via futures. 

3. Global transportation a proxy for global growth

The industrial part of the market has underperformed for several years due to concerns about global growth, a slowdown in China and a drop in global trade. These conditions support the opportunity to find well-priced investments in global transport at the moment. 

“We had a big drop in global trade in 2014 and 2015, which reflected the fall in commodity prices, the significant rise in the US dollar and the big drop in global trade,” says Naeimi. 

Now, however, the context is different. Global growth is on the rise and is broad-based. 

“Global trade has rebounded quite strongly, led by Asia. Yet, values of trade-sensitive, transportation stocks have not recovered,” he adds.

However, it’s also important not to invest in a sector that's just cheap and gets cheaper. 

Says Naeimi: “Contrarian investing works when the fundamentals are no longer deteriorating. That's what we're seeing in global transportation and shipping.”

There are many different factors affecting global markets at the moment. The idea for SMSF investors is to maintain a watching brief on macro-economic trends and when deciding to invest with fund managers, invest with those that have long-term experience assessing opportunities in global markets.  

Nader Naeimi is constantly assessing the global investment landscape to identify undervalued opportunities which can be accessed by investing in the ASX-listed Dynamic Markets Fund (DMKT)
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