AWSJ(10/5) Heard In Asia: Fund Managers Uncover Some Gainers
October 4, 2001
Dow Jones Newswires
By SARAH MCBRIDE
Staff Reporter
HONG KONG -- Everyone knows the big equity losers of the past few weeks: airline stocks, hotels, electronics makers. Surprise: There are also some winners out there, and fund managers say many of them have steam left yet.
Weeding out companies with market capitalizations under $200 million, UBS Warburg came up with a list of stocks that have posted gains in selected Asian markets between Sept. 10 and Oct. 2. Some markets garnered slim pickings - in South Korea, the only gainer was Hite Brewery. In Taiwan, only Taishin Bank rose.
But in Singapore, four stocks gained, ranging from 3.7% for Singapore Land to almost 10% for Singapore Telecommunications. And in Hong Kong, 21 stocks made positive returns, with more than a third of those gaining over 10%.
In Hong Kong, China-based companies led the gainers. Many investors have raced to shift money into mainland companies, believing China is something of a safe haven. "What you wanted to do was go to those places where you had the most insulated economic growth, the most insulated from world events," says Zaheer Sitabkhan, a Hong Kong-based fund manager for Eaton Vance Corp. and Lloyd George Asset Management. "China was seen as an outlyer in what was a global event."
That doesn't mean it is too late for long-term investors to buy in, says Mr. Sitabkhan. He likes consumer stocks. They're more defensive in earnings, he says, and China has been encouraging home ownership, which helps drive up demand as new owners spend money on everything from furniture to cars to stereos. "What we've seen is the continuation of an ongoing trend, and the trend was reinforced by the events of the past few weeks," he says.
The biggest gainer, Industrial and Commercial Bank of China (Asia), is a small Hong Kong bank 75%-owned by the Beijing-based Industrial & Commercial Bank of China. Partly, it is regaining lost ground, clawing back to levels last seen in May, when China shares in general reached highs for the year. But investors also like its new managing director, and perhaps the possibility of merger opportunities, says Robin Evans, London-based manager of the FPK Far East Financial Fund, who doesn't own the stock.
China Mobile saw impressive gains, 18% over the three-week period, as did SmarTone Telecommunications, up 13%. Even beleaguered Pacific Century CyberWorks managed to eke out a 2.1% rise, which brings it back to just about where it was before the terrorist attacks of Sept. 11. But this group has investment professionals wary.
"If you've got a monopoly, and then you get some competition, there's only one way to go in terms of market share," says Raymond Foo, regional strategist at BNP Paribas Peregrine, speaking about China Mobile. He's had an underperform rating on the stock since August, and an underweight rating on the telecommunications sector in general since the beginning of the year.
But Mr. Foo likes the other broad groups in China that did well last month: transportation (but not airline) and utility stocks. Companies such as Yanzhou Coal Mine and Zhejiang Expressway remain undervalued, despite recent gains, he says. He also likes select consumer stocks, such as Denway Motors, which gained 2.5% in the three-week period.
Mr. Foo's opinions carry a lot of weight in investor circles: At the end of May, when China stocks were at their highs, Mr. Foo was one of the few strategists to recommend that investors reduce their positions. Shortly afterward, the sector started to tumble.
In Singapore, the biggest winner was Singapore Telecom, but that in part reflected a rebound from the stock's latest steep decline that started in early September, before the terrorist attacks. Then, it was in disfavor because its weighting in the Straits Times Index was cut, it was rumored to be buying an Indonesian telecommunications company, and it was about to list on the Australian Stock Exchange, where investors feared an immediate sell-off (it didn't happen).
Mr. Sitabkhan says SingTel is expensive, as does Mr. Foo, who says the company overpaid for Australian acquisition Cable & Wireless Optus. SingTel announced its bid in March.
Instead, Mr. Foo favors the number-three company on the list of Singapore stocks, SembCorp Industries, because of its diversified earnings base. The company's activities range from utilities to engineering to logistics. But most of all, he likes the Singapore property sector, which he says is trading at a 50% discount to net asset value.
"The valuations suggest property will have to decline by 50%, which I don't think is likely," he says.
In Taiwan, top performer Taishin Bank is a reasonable stock, in part because it is a private-sector bank, says Mr. Evans, whose FPK Far East Financial Fund has gained 24% over the past year, according to Standard & Poor's Fund Services. "Taishin has much less of a problem with nonperforming loans than the larger, state-owned banks," he says.
And in South Korea, Mr. Sitabkhan still likes Hite Brewery, which has been a stalwart of his portfolios for months. "You are seeing more consumption in Korea as interest rates fall, and people spend a bit more," he says. Given that the beer maker was the only Korean stock in the group to squeeze out a positive return, its shareholders may have reason to drink a bit more, too.
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