The global equities market is comprised of two mispriced groups, one over-valued and one under-valued, global equities manager are saying.
Wingate Asset Management chief investment officer Chad Padowitz said certain sectors were approaching multi-year highs while others languished.
"Companies regarded as being a step away from global economic gyrations, with track records of stability and growth, are being bid up significantly. Examples include shares in the consumer staples sector like Wal-Mart, Colgate, US utilities and tobacco companies," he said.
These companies and sectors were trading at levels generally seen in a stable and growing economy. "Clearly this isn't the current macro-economic situation, and the risk premium we should be seeing appears absent from valuations," Padowitz said.
PM Capital global portfolio manager Ashley Pittard said the group had been positive on equities since the global financial crisis came to a head in 2009, but also said the market would move in "fits and starts" as sentiment on the economy waxed and waned.
Threadneedle Investments head of global equities William Davies agreed that while the global economic outlook was uncertain, one benefit of investing globally was the ability to go anywhere to seek out undervalued stocks.
For Certitude Global Investments chief executive Craig Mowll global equities offered very low valuations almost without any bias to region, sector or stock.
Many corporations since the GFC had reduced debt, cleaned their balance sheets, employed new management and diversified income streams.
Padowitz said one explanation for the market's bifurcation was investors seeking risk aversion while staying in equities. Another reason was the relative attractiveness of dividends versus the low yields or uncertain returns of sovereign debt.
On the other side were the "forgotten, unloved and discarded companies" in oil, gas and coal as well as many healthcare, financial and consumer discretionary businesses which had high operating leverage to commodity prices, bad debts, increasing regulation, and uncertain consumer spending patterns.
"Many companies in these sectors trade on price to earnings ratios below 10, offer high dividends and operate highly accretive share repurchase programs," Padowitz said.
He saw "extremely attractive opportunities" in out-of-favour sectors such as oil. Companies such as BP, Total, Halliburton and Occidental Petroleum traded on single digit price/earning ratios (P/E ratios), paid growing dividends and had strong growth outlooks.
Davies said emerging market consumers were strong themes through investment in stocks such as BMW and Swatch. "BMW has strong brand prestige and has been successful in growing sales to aspirational Chinese consumers," Davies said.
Growth headwinds were priced into the stock with the share trading on a PE of 8.5, and the company was attractive at these levels.
Watchmaker Swatch traded on 12.8x and had also performed well as Asian luxury goods sales had grown, spurred by rising incomes and a tradition of gifting.
"We think the brand power of its watch portfolio and barriers to entry in the industry make it attractive at current levels," he said.
Another theme was the growth of smartphones and mobile communications.
Davies said Apple Inc, which was trading on an ex-cash full year profit to earnings ratio for 2012 of about10x, reflected a lack of confidence that the company could continue to deliver growth.
Certitude Global Investments chief executive Craig Mowll said many companies overseas were trading at PE ratios between 8 and 10 times and so with the Australian dollar still valued above the US dollar, Australian investors had the buying power to increase their long-term returns.
"What is scaring investors off one of the best buying opportunities in a decade is the continued volatility of the markets, coupled with growing concerns on the Eurozone, the US fiscal cliff and the slowing down of China," Mowll said.
He added that the global ageing population would boost healthcare stocks.
Emerging consumers in Brazil, Russia, India, China and Indonesia would bring 3.5 billion new consumers into the market driving sales in consumer staples, luxury goods and construction as this segment of the middle-class strived for greater living conditions and lifestyle.
"Australian equities do not have the diversity to make the most of these high-quality opportunities since we are so overweight resources and financials, going global is your best opportunity and valuations right now have not been this good in a very long time."
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