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Hargreave Hale looks to overseas earnings

26th April 2010, Bradley Gerrard, Investment Adviser (Strategy)

Chief executive nominates foreign plays as uncertainty over election tests UK market
Hargreave Hale is expanding its overseas earnings footprint as levels of confidence in UK market continue to be tested ahead of the upcoming general election.
Giles Hargreave, chief executive, said his preference at present was for overseas earnings as opposed to the UK, and that the ratio in favour of the former could grow.
He called the UK deficit “massive” and said that the next government would inherit a “nightmare”.
Regarding restoring confidence in the UK market, he said: “If we get a decisive Conservative majority, and they move quickly to cut the deficit in a very serious, significant manner through a combination of sharp increases in tax and less spending, that would regain the confidence of the market and would take the worry away from sterling.”
“The worry about being invested in the UK is [the question of] how are we going to lose a significant amount on the currency, if measures are too feeble?”
“But if the Conservatives are very tough, that could have an effect on corporate profitability.”
“I would prefer the tough route compared with the feeble route.”
Of the company’s top 20 holdings, 10 have no UK earnings while the average for the other 10 is 75 per cent. This is balanced against around 50 per cent non-UK earnings, which has potential to increase.
“We have not been too keen on buying stocks in the UK earnings, as it is impossible to see how the UK consumer won’t be badly affected,” says Mr Hargreave.
“It is worse than what is happening in Greece. It cannot be good for UK earnings.”
“When you read about the strength of South American countries, why would you not want to invest?”
Mr Hargreave said that the company was not an emerging market expert, but instead found individual stocks that happened to be in emerging markets.
He named Ocean Wilson, a Brazilian company, and CSF Group, a data centre developer, manager and operator in Malaysia, as examples of this in the Marlborough Special Situations fund. He said the political situations in these countries was one of the drivers for investing overseas.
“It sounds rather crazy that people think of these markets as dangerous compared with ours,” he said.
“That is not the case, especially when you have got 5 per cent plus growth, rising interest rates to make sure inflation is kept in control and a significant increase in wages, which is a benefit to the population.”
Talking of the theme for investment, Mr Hargreave said he continued to like small caps and was also looking for resource shortages across the emerging markets, such as in water and iron ore.