Hedge Fund Finds Trade War Safe Haven in Southern Europe Stocks

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(Bloomberg) -- Last year’s rally in southern European equity markets has more room to run. So says Joseph Oughourlian, the founder and managing partner of London-based hedge fund Amber Capital, who sees upside in local stocks he considers relatively immune to risks surrounding the global economy.

Oughourlian’s picks in countries like Italy and Greece -- whose equity benchmarks beat the Stoxx Europe 600 Index last year -- are poised to benefit from rising domestic demand and are less exposed to “China, trade and technology,” topics that could prove complicated in the months to come, he said an interview in London.

“The more beaten up the country, the more excited I am -- southern Europe has its own dynamics from an economic standpoint,” Oughourlian said. “We like anything that’s more domestically-oriented, that’s more internal-demand oriented, whether it’s local utilities, local financials, hotel chains. We are worried about stocks related to the global economy and want to stay away from that right now.”

Investor jitters over a trade conflict between the U.S. and China, the world’s two largest economies, have helped push the Stoxx Europe 600 Index down about 10 percent from a January high. Tensions escalated last week after Beijing announced its first retaliation against metals levies hours after U.S. President Donald Trump outlined fresh tariffs on $50 billion of Chinese imports and pledged there’s more on the way.

Oughourlian, whose firm has roughly $1.7 billion of assets under management, says he likes “out of fashion” shares including names in the media and telecommunications industries. Amber Capital holds shares in Spanish publisher Promotora de Informaciones SA as well as in Telefonica SA, Telecom Italia SpA and Hellenic Telecommunications Organization SA.

The investor’s financial sector picks include UniCredit SpA and a number of smaller Italian banks whose valuations he finds attractive. His firm has stuck with its Italian stock bets through the March parliamentary elections -- while not pleased with the results, Oughourlian says politics will not interfere with the country’s economic recovery, which is instead fueled by domestic demand and a newly functioning financial sector.

The hedge fund founder, who declined to share Amber Capital funds’ performance on compliance grounds, isn’t alone in shunning cyclical stocks. A growing number of strategists are turning cautious on equities tied to the global economy due to weakening growth momentum.

Meanwhile, the Bank of Spain last week raised its growth projections to reflect a more optimistic outlook for the economy due to a smaller impact from the Catalan independence crisis than previously expected. In Greece, a gauge of manufacturing rose to its highest in more than 17 years in February as the country’s economy slowly recovers from a slump.

“The White House keeps changing advisers every day -- it’s difficult to say where they are going,” Oughourlian said. In southern Europe, “there is a domestic recovery on the way beyond the global growth theme, beyond the overall economy accelerating.”

©2018 Bloomberg L.P.

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