Evaluating global stocks as the recovery takes hold

After years of outperformance, U.S. equities still have room to run, a portfolio manager for global funds says, but tech valuations offer a reason for caution.

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“As much as we like the U.S., we are conscious of the fact that technology plays an oversized role in the U.S. relative to any other market,” said Amber Sinha, senior portfolio manager for global equities at CIBC Global Asset Management.

Because of U.S. tech stocks’ outstanding performance, particularly in the second and third quarters last year, the U.S. market is now heavily represented in technology names, Sinha said in a recent interview.

Those stocks have lagged to start this year and that’s dragged on the U.S. market’s overall performance, he said.

The S&P 500 is up 4.11% for the year this week. Europe’s Stoxx 600 index has gained 5.89%, while the MSCI Asia Pacific index has returned 3.18% this year.

But there’s more to the U.S. market than technology. The rotation to value and cyclical stocks since Covid-19 vaccines received approval late last year has created other potential winners.

“What we like about the U.S. in particular is it hosts the most high-quality defensive franchises — global multinationals — that are out there,” Sinha said, adding that those companies are “steady hands” during periods of market volatility.

One U.S. company he likes is Home Depot, a pandemic winner that he expects will continue to thrive in the post-Covid economy. Even when restrictions on mobility are lifted, Sinha said he expects people to spend more time at home as some workplaces shift permanently to more flexible schedules.

“Home improvement retailers are going to reap the benefits of that over a multi-year period,” he said.

Sinha likes the Asian market for a combination of cyclical upside and technology exposure, and because many countries are further than the rest of the world in dealing with the pandemic. Valuations also appear reasonable, he said.

“If you line up the fundamentals, the opportunities, the valuation issues, [Asia] probably is … most attractive to us right now,” he said.

One company he likes is Korean manufacturer Samsung SDI, which makes batteries for electric vehicles. After a recent pullback, he said his team has tried to buy the stock “across the board in our global mandates.”

“I think electric vehicles are here to stay, and the adoption of electric vehicles by all accounts is happening faster than most people had expected,” said Sinda, who manages the CIBC European Equity Fund and the CIBC Asia Pacific Fund.

Samsung SDI is “a tier-one” battery supplier to the automakers, he said. “I think that’s a great place to be.”

While Sinha said European valuations are attractive, he didn’t find much else to recommend stocks from the region.

“If you’re trying to build global portfolios with the best quality franchises out there, this time I would look to the U.S. and Asia before I would look to Europe,” he said.

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