Asia Tech Managers Will Pay for Growth
Mutual Fund News
Fri, 18 Feb 2000, 12:01pm 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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