Where to Put Your Money - Part 1
Asiaweek profiles 16 of the most respected stockwatchers ...
THE 'RED-HEADED DEVIL'
Analyst: Daniel Fineman, 38
Company: JPMorgan
Stock picks: DBS, OUB, Dao Heng Bank
Daniel Fineman still remembers the newspaper story that made him briefly famous in Thailand in 1996. The article reviled him as a "red-headed devil" for warning about the precarious state of the baht. "I was basically telling people to sell Thailand a year before the devaluation," recalls Fineman, 38, who is the regional equities strategist for JPMorgan. The Kentucky native with a Ph.D. in history from Yale and a master’s from the London School of Economics takes no particular joy in the fact that the Thai currency collapsed as he predicted.
He’s back with more dire warnings. "The bulls think that technology earnings will turn around in the second half of the year, so you should be buying now," says Fineman. "We’re skeptical. Tech earnings will still be weak in the second half of the year." Wait until the middle of 2001, he advises, when stock analysts will have downgraded earnings forecasts. "Companies are providing very little guidance (on expected sales and profits), and analysts don’t like to make big changes without guidance," explains Fineman. "They tend to wait until the quarterly results come out."
This holds true for most other industries. "If you look at the consensus numbers for the region as a whole, for every stock and every market, analysts are still expecting earnings-per-share growth in the teens this year," says Fineman. "That’s pretty unrealistic. I think we’ll be down to the low-to-middle single digits." The biggest risks lie in South Korea and Taiwan, which are both technology-dependent. Fineman is more positive about China, Hong Kong, India and Singapore.
He has a "buy" on banks – DBS and OUB in Singapore and Dao Heng in Hong Kong – and property, such as Sun Hung Kai in Hong Kong. "Affordability has become very attractive in Hong Kong and the property market has probably bottomed out," says Fineman. "We have been fans of office space, but we’re nearing a point where people should be looking more at residential developers." He also likes mainland telecom company China Unicom, which he thinks is cheaper and has better growth prospects than market leader China Mobile. In technology, Fineman advises focusing on the least cyclical shares such as Taiwan’s Hon Hai Precision, which makes computer parts and connectors.
But no one can perfectly time the markets. "I wish Ihad called the bottom right in August 1998," Fineman says ruefully. "I thought (the recovery in Asian markets) was a dead-cat bounce. I did turn positive in January of ’99, so I was able to cash in on most of the rally." Fineman will need all his skills and experience as a historian, economist and strategist to call this bottom right.
By CESAR BACANI
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A PERENNIAL BULL
Analyst: Steven Li, 35
Company: JPMorgan
Stock picks: Dao Heng Bank, Dah Sing Bank
Poke around Steven Li’s cluttered office and you will find evidence of his jam-packed lifestyle. There’s the cereal bowl the Hong Kong strategist for JPMorgan uses for breakfast. Pictures of his 10-month-old daughter cover the wall. And hidden among the mounds of paper on Li’s desk are a muffin – "never more than a day old" – to sustain him through his long working day and a box of Huggies baby wipes that he uses to clean his face before going home.
This analyst works hard – and looks good, too. Those familiar with the boyish 35-year-old, who prefers open-necked shirts to a suit and tie, describe him as a lookalike for Canto-pop heartthrob Leon Lai Ming. "That’s an insult to Leon," jokes Li. But Li didn’t earn his loyal fans by flashing a superstar smile. It is his spot-on predictions about the Hong Kong market that have won him rave reviews among fund managers.
In January 1999, when investors were worried the peg between the Hong Kong dollar and the U.S. greenback would be broken, Li took a contrarian view. "The Hang Seng Index was at about 10,000," he recalls. "We upgraded the market just when everyone was selling. We predicted it would go up to 15,600 by the end of the year. In the end, we were only a couple of points off."
That daring call won Li the credibility that most analysts crave. They need it badly at times when their predictions don’t pan out. That happened to Li last year when he again went against the tide, forecasting a rosy year for Hong Kong stocks. "We were plainly wrong, but we still got credit for our analysis because we were telling investors to overweight Hong Kong in Asia." Hong Kong still performed better than Seoul or Taipei, two markets that many other analysts had been talking up.
Li has been covering Hong Kong since 1991 and is widely regarded as the market’s perennial bull. "If you had put money in Hong Kong 10 years ago, you would have earned four times the investment today," he says. This year, though the Hang Seng has sunk to a 17-month low, he remains upbeat. "We like the market even more. While we realize the sentiment is poor globally, the correction means we now have lots of attractive equities."
Among Li’s current favorites are bank stocks such as Dao Heng, Dah Sing and the Bank of East Asia, which he says will benefit from an improvement in loan growth and a fall in the cost of credit. Li is also going for utilities such as electric company China Light & Power. These picks, he says, "are trading at an attractive price-to-earnings ratio and offer good dividend yield."
Li is also keeping a close eye on developments in the U.S., reasoning that the American economy’s performance has a strong bearing on Hong Kong’s. That’s one eye firmly on two markets. Li keeps the other trained on his growing family: He and his wife are expecting their second child in August.
By YULANDA CHUNG
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AUSTRIAN ANALYSIS
Analyst: Jim Walker, 43
Company: CLSA Emerging Markets
With his thick Scottish accent and his emphasis on economic theories, Jim Walker comes across more as an obscure university professor than as an Asia expert at a major investment bank. Yet the soft-spoken chief economist for CLSA Emerging Markets is among Asia’s most talked-about financial analysts, having correctly predicted the growth surge of Asian economies in the early 1990s and then the financial crisis of 1997. His knack for making spot-on forecasts has enabled Walker to top more polls than any other economist in the region. Not bad for someone who doesn’t even live in Asia anymore.
Having spent eight years in Hong Kong and Singapore in the 1990s, Walker (or "Dr. Jim" to friends and colleagues) now works out of his country home on the outskirts of Edinburgh, the second-largest fund-management center in Europe after London. But he does not feel detached from Asia. His daily routine includes reading wire reports on the Bloomberg terminal, surfing the Internet, sending e-mail and talking over the phone with clients and colleagues around the globe. "I am as clued in as anyone sitting in an office tower and staring at his screen somewhere in Asia," he says. "The only thing I do miss are the morning meetings in Asia."
Walker, 43, bases his analyses on a theoretical approach that departs from the usual monetarist, Keynesian or neoclassical models. "I look at the economies from the perspective of the Austrian school of economics, which focuses on things like credit cycles, business cycles and relative price movements," he says. "The Austrian approach is very skeptical about what governments can do to manage economies through things like fiscal stimulus."
That analytical framework has led to many correct predictions, including the capitulation of the baht in 1997, but Walker’s refusal to pull punches in his negative reports has made him unpopular with some Asian governments ("Malaysians are very sensitive, and they just can’t seem to stomach any form of criticism," he says). For 2001, he remains pessimistic about the region’s prospects, mainly because of the slowing U.S. economy and the downturn in global tech spending. "On average, Asian economies grew just under 8% last year, and this year I am looking at that rate halving."
The slowdown, he says, will be compounded by the fact that banking sectors in the region are still in a terrible mess. "Look everywhere – Taiwan, Korea, Thailand, Indonesia, and I don’t even want to talk about Japan. The governments will obviously try to pump-prime the economies, but I don’t think that will be enough to stop the slowdown."
The silver lining is that Asian leaders will be forced to turn once again to the unfinished agenda of corporate restructuring and rationalization. "But it’s a pity that it has to come through the stick rather than the carrot," remarks Walker. Better late than never.
By ASSIF SHAMEEN
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MOTHER KNOWS BEST
Analyst: Tan Sin Mui, 35
Company: Merrill Lynch Singapore
Stock picks: ST Engineering, SIAEngineering
Tan Sin Mui copes with two full-time jobs. The 35-year-old business administration graduate is head of research at Merrill Lynch Singapore. She’s also the parent of a one-year-old toddler. That means a hectic life, with no time for hobbies or sports. "All my spare time is taken up by my little boy," says the doting mom, who started her career as a junior analyst with the now-defunct Chin Tung Securities more than 13 years ago. "It isn’t easy being a full-time professional and a mother."
But Tan seems up to the challenge. In Singapore, she has built a reputation as a strong-willed and competent leader of an award-winning team of four analysts, small compared with most other brokerages. She is quick to credit her coworkers for making their boss look good. "Without their support and effort, I wouldn’t be where I am," says Tan, who specializes in covering the Singapore banking sector. "We have a balanced team where analysts complement each other. We may not have big stars as many of our rival houses do, but we put out consistent, reliable quality research every day."
The pressure to deliver is particularly tough on a small team like Tan’s. She and her colleagues do their own legwork, crunch their own numbers and run countless economic models, but must also spin investment ideas for the Merrill Lynch sales force to communicate to their clients. Tan takes on her share of marketing duties. "I try to do no more than three trips a year, but I don’t like to go on a road show when I have nothing to say. Some analysts are perpetually on the road trying to sell a theme or story. That’s not our style."
Tan prefers to focus on digging as deeply as possible to get an accurate view of a company. "No corporation is an open book or wants to divulge sensitive information to analysts," she concedes. "There’s a limit to what the management can tell you. Where we add value is through our own checks with (the firm’s) suppliers, customers or principals." Tan asserts that the key to producing an airtight analysis that clients can use is to "piece everything together, rather than depend solely on the company management, which tells the same thing to everybody."
For 2001, Tan has pieced together a mixed picture of the Singapore market. The Straits Times Industrial Index will range between 1,700 and 2,000 points, she predicts. "There isn’t too much downside left unless there is major adversity in the U.S. that pushes us way below current levels." Tan anticipates that corporate earnings will be weak, reflecting slower domestic growth – Merrill Lynch is forecasting a 4.5% rise in Singapore’s GDP – and the dip in the American economy. "How the Singapore market does over the next 12 months depends basically on how the world does," she concludes.
Tan’s current stock picks include "defensive ones with visible earnings." Two standouts are ST Engineering, a unit of the Singapore Technologies group, and SIA Engineering, part of Singapore Airlines. Both government-linked corporations have healthy order books – busy companies tracked by a super-busy working mom.
By ASSIF SHAMEEN
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THE CHINA TRACKER
Analyst: Vincent Chan, 35
Company: UBS Warburg
Stock picks: Sinopec, Beijing Capital Int’l Airport, Giordano
He owns just two suits and a few ties, none of them carrying a designer’s name, lives in an old apartment in Hong Kong’s Happy Valley district, gets around in taxis and reads history books in his spare time. Hong Kong bachelor Vincent Chan, 35, might easily be mistaken for a frugal academic, but he’s head of research for China economics and strategy at European stockbrokerage UBS Warburg. In a Reuters survey last year, fund managers cited the 10-year veteran as one of Asia’s best China analysts.
It’s easy to see why. In January, Chan completed a report that featured comprehensive tables and charts on China’s various industries. He had been collecting and cross-checking the data since 1998, when the Chinese government started publishing industry figures. Chan, who has a healthy skepticism for mainland numbers, continues to validate his stats with on-the-ground visits. "The absolute numbers are always questionable," he says. "The trend is what is useful. The direction is more important than whether GDP growth is 7% or 8%." But Chan does not think there is a deliberate attempt in Beijing to fudge statistics. "The central government’s Statistics Department is very professional," he says. "The problem is the reporting at lower levels. Even the emperors never really knew what exactly was happening in the villages."
For 2001, Chan forecasts GDP growth of 7.2%, down from last year’s 8%. China’s membership in the World Trade Organization would help bring in more foreign direct investment, but he also expects imports to rise, so the net effect is a mild slowdown. But Chan is not as positive on most Chinese shares. "This year, if you buy a stock and don’t lose money, you’re already doing well," he says. The fact is that the economy has little to do with the earnings prospects of many large Chinese companies. "The driver for PetroChina is international oil prices, which we think will fall," says Chan of the mainland’s largest producer of oil and gas. "We are more keen on downstream companies such as Sinopec (China Petroleum and Chemical Corp.). Sinopec is cheap and we think it will be less affected by lower oil prices."
Chan also likes Beijing Capital International Airport: "It has enough capacity to satisfy (passenger and cargo) demand in the next few years, so there’s no need for capital spending." As a consumer spending play, he cites Hong Kong garments retailer Giordano, which generates 23% of its sales in the mainland. Chan thinks computer-maker Legend is a good company but expensive at HK$5.30 ($0.68) a share: "I’ll definitely buy at HK$4." He may have made a bundle in bonuses last year, but Chan insists on value-for-money in stocks – not to say in suits and ties.
By CESAR BACANI
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BESTRIDING THE NEXUS
Analyst: Roy Ramos, 42
Company: Goldman Sachs
Stock pick: National Australia Bank
The banking industry is one nexus where economics and politics collide – especially in Asia. So Roy Ramos and his team of banking researchers at Goldman Sachs in Hong Kong are familiar with fielding angry calls from finance ministers and banking chiefs. "Some banks really take it personally," confirms Philippine-born Ramos.
The managing director for Asia-Pacific investment research calmly explains the methodology behind his reports, but sometimes his analysis can set off far-reaching tremors. Two years ago Ramos reported that Thailand’s then-finance minister, Tarrin Nimmanahaeminda, viewed Bangkok Bank as the "biggest risk factor in Thailand’s banking system." Its shares then fell 8.1%. Tarrin later denied having made the statement, and Goldman Sachs publicly apologized. Ramos, 42, won’t comment on the affair, but it’s clear that Goldman Sachs’ wheeling-and-dealing image and a high personal profile can work against him. "The higher-ranking the analyst, the greater the degree of bias," says one fund manager who focuses on banking stocks. "We don’t pay that much attention to their research."
Yet many find analysis by Ramos, who has an MBA from Wharton, compelling. Since 1996 his team has consistently topped regional surveys; its reports are considered must-reads by banking and government heavyweights. It’s not easy to keep a level head at such heights. But Ramos seems to manage. "Mistakes tend to do that," he says with a grin. "Analysts tend to be stubborn and overstay (an erroneous call). I think I’ve learned better."
Last year Ramos won raves for going bullish on Singaporean banks, two of which outperformed the city-state’s index by a substantial margin. By contrast, his upbeat 1998 call on the Thai Farmers Bank had to be hastily corrected. The bank had a much higher ratio of non-performing loans than Ramos’s team had calculated. "Did we make the call early enough?" Ramos asks. "Probably not. The best policy is to cut your losses early."
Ramos’s eight-person team covers banking throughout Asia, but he currently focuses on banks in Hong Kong and Thailand. Reform has been patchy since the crisis, which Ramos says makes it impossible to generalize in a regional sense. For example, market-driven banking sectors such as Hong Kong’s are suffering from low growth, which has Ramos on full alert for potential mergers and acquisitions. "Smaller banks can see the writing on the wall," he says. China has "surprised with its ability to reform," but has many other issues to address. Japan is making only halfhearted stabs at restructuring. "A lot of what is feasible is determined by the social and cultural context of the country," notes Ramos. "But you can’t sustain economic growth if you can’t fix your banking system."
By JEREMY HANSEN
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