Credit Suisse strategist’s road to relevance

Hasan Tevfik has come a long way from Melbourne’s gritty Broadmeadows to the towers of Sydney’s 1 Macquarie Place.

Credit Suisse’s Hasan Tevfik: ‘We are probably seeing some kind of tech-type euphoria again’ Picture: Renee Nowytarger

It’s a long way from Melbourne’s gritty Broadmeadows to the lofty towers of Sydney’s Macquarie Place.

And for Hasan Tevfik, it's a journey that has been worth ­taking.

These days, hundreds of millions of dollars could be traded on a single recommendation from the Credit Suisse Australian equities strategist. But it hasn’t always been that way.

As tensions rose before the Cypriot coup d’etat in 1974, his parents migrated to Australia with three young children and ­another on the way.

They settled in Broadmeadows where his father worked in the Ford factory and has been a “Ford man” ever since. Tevfik’s mum worked at the Yakka factory, sewing the iconic King Gee and Hard Yakka brands.

Now the biggest investors in the world take notice when the younger Tevfik casts judgment on financial markets.

But in the notoriously cutthroat world of investment banking, his research is driven by a constant fear of being deemed ­irrelevant by clients already overloaded with information.

“I’m in a constant state of paranoia,” Tevfik tells The Australian. “Maybe this is because almost all my career has been against the backdrop of a bear market in investment banking. Those who aren’t relevant get turfed out.”

After graduating with an honours degree in economics from Melbourne’s La Trobe University, Tevfik began his career in 1997 as a junior strategist with Credit ­Suisse before moving to London with the firm in 1999.

There he grappled with the dotcom bubble, which pushed all things tech, media and telco to dizzying heights before the bubble burst spectacularly in 2001.

It was a seminal period for Tevfik, teaching him to be sceptical and wary of bubbles. “Maybe that’s the enduring message from the TMT (tech, media and telco — otherwise known as dotcom) bubble,” he says. “It was my first real introduction to the success of the sceptics.”

Tevfik took no chances when the bubble burst, relocating to Sydney with Morgan Stanley.

With European markets recovering somewhat earlier than expected, he moved back to London, this time with Citi. Those were formative years as he was tutored by gurus such as Morgan Stanley’s former chief US investment strategist Steve Galbraith and Citi’s chief global equity strategist Rob Buckland.

Tevfik was a global strategist at Citi until 2013, before being snared by Credit Suisse again in Sydney.

Since then his views have been more closely followed than ever. Investors have been hungry for guidance in the post-financial crisis world where “yield” has ruled supreme as quantitative easing and record low interest rates pushed bond yields into negative territory in Europe and Japan.

Amid weak economic growth after the financial crisis and China slowdown, Tevfik noted “selfies” (self-managed super funds) and “de-equitisation” (share buybacks and takeovers) were pushing up share prices as interest rates hit record lows.

Early this year, as panicky markets fretted about China’s economy and financial markets policies and plunging oil prices, Tevfik said a “gummy bear” market in Australian shares would be followed by a 20 per cent rally. The S&P/ASX 200 share index fell a little further, then surged 19 per cent before Tevfik cooled his jets.

As the Reserve Bank cut interest rates to a record low of 1.5 per cent in August, Tevfik identified a virtuous cycle whereby rate cuts led companies to raise distributions and cut capital expenditure to keep marginal investors happy, causing less employment and wages growth, which kept a lid on inflation and led the central bank to keep cutting rates.

More recently, Tevfik has warned of a potential “bondcano” — a bubble in bonds. He says that view has naturally got quite a lot of resistance from clients.

“We are probably seeing some kind of tech-type euphoria again and that’s influencing some parts of the equity market via the hunt for yield,” Tevfik says.

Of course, it’s always risky for analysts, and potentially costly for investors, to predict a bubble until it has been pricked. China’s property market is a good case in point.

The consensus has predicted three bubbles in the past 10 years or so, but there’s been no bust. The US subprime mortgage bubble did eventually burst, but it took longer than anyone expected to stop expanding, making the ensuing downturn even bigger.

“Just like the euphoria in the tech boom, people say these companies are going to change the world, their earnings are sustainable, and we’re in a low growth/low inflation world for a very long time, and we very well could be,” Tevfik says.

“That’s why many people don’t believe our bondcano call.”

However, the sharemarket has more recently grown cautious. Bond-like equities such as property trusts, infrastructure and utilities experienced some sharp mid-year pull-backs, exacerbated in some cases by disappointing earnings and a bounce in bond yields off record lows.

Just as quickly, it seems as though the yield plays are being snapped up on dips as analysts have started to upgrade.

AGL Energy has announced a major share buyback and higher dividend payout ratio, appeasing yield-hungry investors.

But if the bondcano continues to erupt and yields in that market push higher still, investors should tread cautiously in stocks at the top of the pile.

“These stocks have high valuations, high financial leverage and high payout ratios,” Tevfik wrote in a report last week. “They will not like higher bond yields.”

In his view, it would be safer to rotate to stocks at the bottom of the bondcano — reducing exposure to some of the darlings including Sydney Airport, APA Group, Healthscope, Tatts and IAG, while buying growth stocks such as Qantas, Rio Tinto, Caltex and Macquarie Group.

Tevfik is also a big fan of the resources sector in general after the multi-year fall in share prices, the stabilisation in China’s economy and the relentless cost-cutting in the sector.

If he’s right, long-suffering ­investors certainly shouldn’t be giving up on BHP Billiton as it ­recovers to 11-month highs.

Tevfik isn’t afraid to get his hands dirty to find the data he needs to back his calls. By masquerading as a self-managed super fund owner, he was able to confirm selfies are now wading into riskier property-related assets such as senior debt, mezzanine debt and preferred equity.

His tip for them? It’s way better to stick with equities such as Macquarie Group, AGL Energy, BHP and Eclipx — they offer similar rates of return with much better liquidity and lower fees.