View from London: OMBA’s Perchtold on investing in Japan, SA, banks, AI and “Sell in May…”

Mark Perchtold is one of the South Africans establishing a considerable reputation in the world’s financial centre. In this interview, the London-based founding director of OMBA shares his perspective on the boom in valuations of artificial intelligence-related stocks and the investment appeal of banks and shares in Japanese and South African companies. He also offers some thoughts on other emerging investment opportunities that excite him. Perchtold spoke to Alec Hogg of BizNews.

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Excerpts from the interview

Mark Perchtold shares OMBA’s market predictions

Are we going to go into a deep recession? Our view is no. Could we have a mild recession? Possibly. The US is growing just over 1%, so it’s not firing on all cylinders, [but] employment there is great, people have jobs. But the pinch from higher interest rates hasn’t yet passed through fully. And I think because of that, [what] you’re seeing now in the banking sector, [you’re] going to start seeing it in households and in corporate earnings where they’re over levered and they’ve got a lot of debt and they need to service that debt at higher rates or refinance themselves. So we’re not out of the woods, but we had such a pessimistic expectation last year in terms of the world’s view on where things go. [And] it hasn’t materialised to be that bad, and therefore we could just trend modestly upwards towards the end of the year with gyrations along the way. A 5% correction here and there wouldn’t be a surprise at all. Will there be a 20% correction? Our view would be no. 

Read more: Mark Perchtold: Do your ETF homework – names of funds don’t always agree what’s in the tin

Perchtold on whether or not to “sell in May and go away”

It depends on your time horizon. If you’re about to buy a house and you need the money you’ve just made to pay for your deposit in the next six months, I would sell now, capture that gain and save the money for your house deposit. If your investment horizon is for retirement or for your kid’s education or north of five years [or] north of ten years, [would I sell?] Absolutely not. You need to invest throughout the cycle and remain invested.

It’s about repositioning your portfolio [and] not just selling equities and waiting, because in doing so you might miss another 5 or 10% rally. If the Fed do turn to dovish and talk about cutting rates, [then] markets could easily run another 10%. And coupled with that, [and] it may be where we’re wrong in our tech move to trim back a little, tech stocks are growth stocks and so the higher interest rate environment [would] hurt them. Similarly if we move to a more dovish environment with rates cutting, tech stocks can continue to run more. But from a valuations point of view, [tech stocks have] run very hard, very quickly. They’re back to fair value and there are other pockets in the market that we think look cheaper.

Read more: Mark Perchtold’s wealth building advice to global investors – diversity, don’t watch the ticker and you’ll sleep easy

On what excites him and OMBA

Things like the clean energy revolution [are] exciting. There’s a lot taking place there. Clean energy ETFs have actually come off recently, but had a very strong year last year as everyone thought about how the world will more urgently need to have less reliance on places like Russia for their energy and move towards clean, wind and solar and all the rest of it. So clean energy is something we think longer term is quite exciting.

We’ve previously owned esports and gaming, which is a massively growing market. I mean e-sports is a very competitive [industry]. It’s bigger than the NFL. That whole gaming revolution and all of the ancillary companies that form part of that ecosystem, whether it’s game developers, whether that’s the video and the chip developers, the semiconductors [are interesting]

Read more: “At Omba, we’re active managers, but our tool set is ETFs” – Mark Perchtold, Omba director

And then artificial intelligence. But I think a lot of the companies that are direct players trade at ridiculous valuations now [so] one needs to be careful with that. Robotics is another one. Automation in general is something that’s sort of new. Automation has been taking place for decades, but there’s another sort of a theme attached to it. Robotics continues to develop, so there are pockets throughout the world that one can look at that are quite exotic to us.

But you don’t need to reinvent the wheel. Sometimes owning European autos, like we’ve done, is boring at the headline level. But if you look under the hood, a lot of the companies are very innovative and moving to electric vehicles. Tesla led the charge in electric vehicles, and now we’re seeing the big German and other auto companies around the world build and design fantastic cars that are electric. So there’s a lot of excitement happening often within boring sectors and companies. One just needs to understand that.