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发表于 2008-3-19 20:24:12
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Specific recommendations for 2003
Specific recommendations for 2003
From a longer-term point of view we like investments in Asia, since the Asian economies are not only recovering from the 1997 crisis but remain extremely competitive in the manufacturing and, increasingly, in the tradable service sector, while their stock market valuations remain relatively low.
Sunday, February 09 - 2003 at 20:04
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In particular, I should like to mention that the current US dollar weakness in no way alters the Asian economies' competitive position, since the Chinese Renminbi is pegged to the US dollar at a time when the other Asian economies are increasingly feeling the threat from the colossal Chinese export machine, which is eating into their export markets.
So unless China revalues its currency (which is not very likely, for now), it is unlikely that the other Asian exporting nations would wish to have strongly appreciating currencies. And while US economic policy makers will continue to stimulate credit growth and consumption in the US by increasing the indebtedness of households, the wealth transfer to Asia via the US trade and current account deficit will continue and stimulate industrial production in Asia and other emerging economies.
To an unbiased observer it would seem almost that US economic policies are designed to impoverish the United States and to enrich Asia, since in a deflationary environment and amidst globalisation it is inevitable that production must shift to the lowest-cost producers, which then flood the high-cost Western industrialised countries with low-cost goods.
Moreover, it is only a matter of time before knowledge- and science-related services will also be exported from Asia, since the cost of establishing and maintaining research labs is far lower in India and China than in Western countries. Consequently, I remain quite positive about investments in Asia - in particular, because investors around the world remain underweight the Asian region.
So, while US international mutual funds had over 4% of their assets invested in Asia between 1993 and 1997, today, these funds have less than 1% of their assets in this region. However, considering that Asia is not only growing more rapidly than Western countries, but is also home to 56% of the world's population, and that many of its markets - such as for TVs, radios, motorcycles, cellular phones, steel, etc. - are far larger than in Euroland or the US, even a 4% exposure would seem to be extremely low and a less-than-1% asset allocation almost irresponsible.
Therefore, it is my belief that it is only a matter of time before the world's savings, which between 1997 and 2001 flowed largely to the United States, will be redirected towards Asia and lead to fairly strong rallies in the region. And although Asian markets have outperformed the US over the last two years, they remain extremely depressed by historical standards. In US dollar terms, many Asian markets are still down by 70% from their highs, but, unlike the Nasdaq, they have now built bases since 1998 and therefore offer lower-risk entry points than the TMT sector, the S&P 500, and Western European markets, which, although down percentage-wise by a similar amount, have at this point not built any longer-term bases.
I am repeatedly asked about investments in Asia and, as I have suggested in the past, there are numerous avenues to participate in the Asian region. For retail investors, there are a number of closed-end Asian funds available, such as the Singapore Fund (SGF), the MSDW Asia Pacific Fund (APF), and the Asia Pacific Fund (APB), which are all listed on the New York Stock Exchange and sell at discounts of between 10% and 20% of net asset value.
The India Fund (IFN), the India Growth Fund (IGF), the Jardine Fleming India Fund (JFI), and the Morgan Stanley India Investment Fund (IIF) are also listed on the NYSE. For an exposure to China, the following funds, which are listed on the NYSE, could be considered: the China Fund (CHN), the Greater China Fund (GCH), the JF China Region Fund (JFC), and the Templeton China World Fund (TCH).
For those investors who are more value-oriented, I recommend the following funds. The Apollo Asia Fund, run by Claire Barnes (www.apolloinvestment.com), which was up by 38% last year and compounded 30% since its inception some five years ago, is a long stock fund only and specialises in Asian small value stocks. Richard Lawrence's Overlook Investment Company invests principally in smaller and mid cap value companies around the Asian region. The minimum investment in Overlook is US$250,000 (rlawrence@overlookinv.com).
For an exposure to India, Jon Thorn's India Capital Fund (up 28% in 2002) is particularly recommended (www.indiacapitalfund.com). For a hedged strategy in Asia, I recommend Michael Sofaer's SCI Asian Hedge Fund, which, although a hedge fund, has a long bias (www.sofaer.com). In Thailand, Doug Barnett manages the Thai Focused Equity Fund (www.questthai.com) using a disciplined long-short strategy, which over the last ten years has generated very impressive results in a poor market environment.
In terms of individual stocks, I like to play the potential of rising commodity prices, further strong growth in China, India, and Vietnam, and moderate growth of about 4-5% around the Asian region. In particular, as prices for manufactured products and services continue to decline, the consumer markets in Asia will continue to expand rapidly as goods and services become affordable to a larger and larger segment of the population. In turn, this will fuel an increased demand for industrial commodities, which will lift commodity prices and also benefit the stocks of basic industries.
In terms of services, which will continue to thrive thanks to their cost advantages and affordability, I am thinking in particular of the Indian software industry and the tourism industry in Asia. Chinese outbound tourists increased last year by 25% to more than 12.5 million travellers and cushioned somewhat the impact from fewer arrivals from the US and Europe, due to fears of terrorism.
As our regular readers will know, I am not particularly optimistic about the US economy, its stock and bond market, and the US dollar. Still, on a relative basis, I like some basic and resource stocks, which are likely to outperform the indexes in the next two to three years. I believe that we are at the beginning of a better relative performance, which could last for several years.
In this spirit, I recommend the accumulation of oil servicing and drilling companies such as Schlumberger (SLB), Diamond Offshore Drilling (DO), and IMC Global (IGL), a fertilizer company. In the mining sector, stocks such as Harmony Gold (HMY), Newmont Mining (NEM), Glamis Gold (GLG), Durban Roodepoort (DROOY), Pan American Silver (PAAS), Apex Silver (SIL), and Coeur d'Alene (CDE) should be part of a portfolio.
I have to point out that, in the near term, mining stocks may not perform particularly well and may decline 20-30%. Considering the strong performance of gold, these shares haven't acted well recently and failed to exceed their highs in 2002. This technical non-confirmation raises a warning flag. As a play on rising grain prices, the Argentine company Cresud (CRESY) could be used, as well as global agribusiness and food company Bunge (BG).
Moving to Asia, the following stocks should be accumulated: in India, where the economy is performing above expectations, Reliance Industries (RIL IN), State Bank of India (SBI IN), Dr. Reddy (RDY), Z Telefilms (Z IN), and Infosys (INFY). Individuals may find it difficult to purchase Indian stocks and, therefore, I suggest that they use the India Capital Fund, which holds a number of these issues (www.indiacapitalfund.com).
In Indonesia, a country whose economy is performing better due to rising commodity prices, P T Telekomunikasi (TLK), Indofarma (a pharmaceutical company yielding 9%; INAF IJ), Kalbe Farma (KLBF IJ), and our old favourite, Sampoerna (HMSP IJ), can be used. In Singapore, we believe that Singapore Telecommunications (ST SP) has been grossly oversold (it now yields 4%). For an exposure to China, the following stocks should be considered. Tsingtao Brewery (listed in Hong Kong: 168 HK) produces and distributes beer and is now also moving into the wine business.
Its P/E is about 13 and it yields 5%. The attraction of Tsingtao, as well as of Sampoerna in Indonesia, is market share gains. Since 1998, Tsingtao has been able to increase its market share from just 3% to almost 14%, while Sampoerna continues to gain market share in Indonesia at the expense of Gudang Garan and other cigarette producers. This is an important factor that investors should consider when investing in Asia.
Another play on China is People's Food Holdings (listed in Hong Kong: 708 HK), a well-managed meat processor and marketer selling for about five times earnings and yielding more than 5%. A somewhat controversial company is Brilliance China - China's largest minibus producer, which has favourable growth prospects (listed in Hong Kong: 1114 HK). Finally a play on China's growing inbound and outbound tourism are the Hong Kong-listed hotel chains Shangri-la Asia (69 HK) and Hong Kong & Shanghai Hotels (45 HK).
What is also important to understand is the current rise of a new entrepreneurial class in Asia, which is not connected to the political elite and is likely to play an increasingly important role in shaping Asia's economic and political future.
My friend Jimmy Lai fits perfectly into this category. After founding Giordano and successfully building it into one of the region's most successful apparel retail chains, he sold it and built a publishing business, first in Hong Kong and now also in Taiwan. His company, Next Media Limited (listed in Hong Kong: 282 HK), should reward investors in the long term. It is also a play on a regime change in China some time in the future, which would enable Jimmy Lai to enter the Chinese newspaper and magazine market.
Then, there is Japan, whose economy is not performing well but where corporate earnings are improving as a result of cost cutting and the move of production facilities to countries with a lower cost base. In addition, Japanese stocks have now a higher dividend yield than government bonds, which yield less than 1%. Therefore, as a 'reflation trade' and 'extreme contrarian trade', we would be looking to buy the Nikkei Index and to short Japanese JGBs. Japanese shares are not as inexpensive as Asian stocks, but my sense is that in 2003 they could all surprise us on the upside.
In Thailand, we like Thai Stanley Electric (STANLY TB), Thailand's leading supplier of auto lighting equipment, Thai Reinsurance (THRE TB), Dynasty Ceramics (DCC TB), and Bangkok Dusit Medical Services (BGH TB). Lastly, while I don't like financial stocks in the US, Thai banks look quite attractive. Therefore, a basket of Siam Commercial Bank (SCB TB), Bangkok Bank (BBL TB), and Thai Farmers Bank (TFB TB) is also recommended.
There are three caveats I must mention with respect to Asian investments. The first would be that the US consumer really caves in (as I believe is likely). Lower consumption in the US would lead to slower export growth from Asia, or even to an export contraction. And while I don't think that this would be a devastating blow for Asian economic growth, it would nevertheless have a negative impact on foreign investors' appetite for Asian equities.
Therefore, markets may not perform particularly well under such a scenario. The second concern I have is that, although economic growth looks superficially strong, Asian consumers are increasingly purchasing goods on credit, which may in the long-term lead to some problems among financial institutions.
Finally, there is a potential geopolitical problem. I don't regard North Korea's decision to restart a nuclear reactor and a plutonium reprocessing plant that had been mothballed under a 1994 agreement with the US, along with its decision to withdraw from the nuclear nonproliferation treaty, to be a major problem per se. The problem lies in the question of who made the call to North Korea's Dear Leader Kim Jong Il and suggested that he use the current US engagement and paralysis in the Middle East as a golden opportunity to restart his nuclear program.
For sure, it wasn't one of the Western European nations, the US, Japan, or any of the Latin American countries, but what about Iran, Iraq, China, Russia, or even South Korea? Both Iraq and Iran have an interest in creating as much geopolitical trouble for the US as possible and in shifting the attention of the US away from the Middle East. The Chinese are also a likely candidate for such a call, since they may wish to use North Korea in future in the same way the Soviet Union used Bulgaria during the Cold War to carry out dirty jobs.
Russia could also be interested in North Korea as an ally, fearing the increased Chinese presence and influence in Far East Russia. Finally, the South Koreans know that unification with North Korea is only a matter of time. So, why not seize the opportunity to have the North bring into the marriage nuclear weapons, given Korea's small size and military vulnerability when compared to its powerful neighbours such as China, Russia, and Japan?
In any event, this new 'situation' is most embarrassing for the US, because it makes a war in Iraq more difficult to justify if the US fails to take any military action against North Korea, which seemingly is also interested in acquiring weapons of mass destruction.
In the course of 2002, we have repeatedly warned that US dollar weakness was only a matter of time. Since the summer of 2002, the dollar has weakened considerably and we feel that the 1995-2002 bull market has definitely come to an end and that, after a brief technical rally, more dollar weakness should be expected in 2003, as the US economy continues to disappoint. |
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