Buying the Same Again - Asia Tech Manager will pay for growth-Bloomberg
Mutual Funds Column
Fri, 18 Feb 2000, 9:16am EST
Asia Tech Managers Will Pay for Growth (Update1): Mutual Funds
By Chan Sue Ling
(Updates performance figures in fourth paragraph.)
Singapore, Feb. 18 (Bloomberg) -- Samir Arora and Hiroshi Motoki, whose Asia Technology Fund almost tripled in value last year, don't mind paying high prices for companies that have proved their earnings growth can outpace rivals. ``We don't buy just because you're a dot com,' said Arora, who helps manage the $250 million fund at Alliance Capital Management Ltd. ``We are not buying concept companies, where there are no track records. We want something real.'
Alliance studied more than 300 companies in Asia, though just 60 made it through the managers' checklist. Infosys Technologies Ltd., an Indian software developer, and Softbank Corp., a Japanese Internet investment company, are among its biggest holdings.
By focusing on a few well-established companies, Asia Technology Fund has been a consistent outperformer. It returned 11.5 percent so far in 2000, versus a decline of almost 3 percent for Morgan Stanley Capital International's All Country Asia Pacific Index, which tracks major stock prices in the region in U.S. dollar terms. The Asia Tech fund surged 183 percent in 1999, versus a 58 percent gain for the index.
The performance of technology funds in Asia is attracting new money. Indian mutual funds raised $9.9 billion in the 10 months ended Jan. 31, according to the Securities and Exchange Board of India. Japan passed Italy in December to the No. 3 spot among the world's biggest mutual fund markets. Alliance, itself, raised $156 million in December alone for three specialized funds it started marketing at the end of last year.
Buying the Same Again
India is Arora's responsibility. He also oversees Korea, India and Thailand from his office in Singapore. Motoki monitors Japan from Tokyo. The fund, based in Luxembourg, is open to non-U.S. investors, though New York-based Alliance has a family of funds open to U.S. residents as well.
China.com Corp., a provider of Chinese-language Internet services traded on the Nasdaq Stock Market, Satyam Infoway Ltd., the second-largest Indian Internet service provider, and Korea Thrunet Co. Ltd., one of the largest broadband Internet providers, are also key holdings.
``When the new money comes, we'll be buying the same stocks again,' Arora said.
These stocks don't come cheap. Infosys, for example, is trading near a record high level at 9,980 rupees, surging from 3,000 rupees just five months ago. At today's price, Infosys trades at about 248 times expected earnings for the year ending March 31.
Even by another measure, Infosys is at expensive levels. The ``peg' ratio, derived by dividing the price-earnings ratio by the average expected growth in earnings for the next two years, is 3.61 times. Electronic Data Systems Corp. of the U.S. has a peg of 1.72 times, by contrast.
Infosys, Softbank
Infosys, India's second-largest software developer by market value, recorded a 96 percent rise in its third-quarter profit, buoyed by demand from new customers. Profit rose to 737.9 million rupees ($16.9 million) before an extraordinary gain of 23.5 million rupees in the three months ended Dec. 31, from 377.4 million rupees, in the year-earlier period.
The managers like Softbank because of its investment in Yahoo! Inc. of the U.S. ``It has a meaningful investment in Yahoo,' Motoki said. ``We believe that Yahoo has a successful business model and that there is quite a bit of upside from here.' Softbank is up to 169,000 yen, also near a record, from just 40,000 in October.
Price won't deter the fund's managers, as long as they judge the stock a buy. ``We pick companies that have very high growth rates in terms of profit,' Arora said. That's the case even if prices relative to earnings per share -- the price earnings multiples -- are high.
``If you believe those growth rates should be maintained for a two to three year period, the compounding effect of the growth rate is so high, it takes care of the high multiples.'
Growth Outlook
Asia Technology Fund could push even higher in the year ahead because U.S. orders from Asian manufacturers are likely to grow, fueling the boom in computer technology businesses. As capital flows into Asian online businesses, so should their marketing and use of the Internet.
``There is a very strong case for U.S. companies to outsource software from India,' Arora said. ``More than 202 fortune 500 companies outsource some form of software from India and Infosys is one of the leaders in that.'
The fund has about 44 percent of assets in Japan, 16 percent in India and 11 percent in Hong Kong. South Korea accounts for 10 percent of its holdings while 9 percent is invested in Taiwan.Five percent of its assets are in Singapore.
Alliance has eight analysts who are based in four markets: India, Hong Kong, Tokyo and Singapore. ``We don't think anybody else in Asia has that kind of research on the ground, in the four major markets in Asia,' Arora said.
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