Drop in Asian Funds' Value Opens Buying Opportunity
By SARAH MCBRIDE
Staff Reporter of THE WALL STREET JOURNAL
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At the end of the second quarter, it seemed that fund performance couldn't get much worse. Then the third quarter came along. Asian equity funds dropped even further; the few markets that improved on their second-quarter performance typically went from a negative return to a slightly less negative return. In other parts of the world, the picture wasn't much better.
Grit your teeth and hold on; this is what financial types mean when they say investments may decrease in value. "Markets go up and markets go down, and that's quite normal," says Henrik Mikkelsen, director of the Singapore office of financial-planning firm Cameron Butler. When panicked investors call him, he tells them to look beyond the absolute return of the fund and check on how it did compared with other funds in its group. The fund may be worth less than a few months ago, but if it is outperforming its peers, it has done well.
"There are two issues that are weighing on markets," says Mark Konyn, director of Dresdner RCM Global Investors Asia Ltd. "Firstly, there has been a recognition of an increased chance of a U.S. hard landing," because of factors such as high oil prices and the possibility of further interest-rate increases. Second, investors who had been saving to invest when conditions stabilized aren't coming back to the markets soon. "Investor sentiment now is lower than it has been anytime this year," Mr. Konyn says.
Regionally, "there's definitely a sense that Asia is scraping the bottom of the barrel," he adds. Believing that markets have finally reached their low is a bright spot, he says, albeit a fairly dim one. "Is it compelling?" he asks. "No, it's not ... It's difficult to see now what it's going to take for investor sentiment to recover."
Buying on Dips
But when it does -- and it always does, eventually -- people may wish they had used the dip to put more money into funds. "This is a good time to invest," says James Campion, director of business development at the Hong Kong office of Schroder Investment Management. "People who are prepared to sit out the short-term volatility have the chance to be seen as quite astute investors."
For people who can't live with the ups and downs, he recommends bond funds. "You go for safety, and there's a reasonable yield," he says. He likes European funds, but says the euro's weakness is puts off many investors.
By the Numbers
For people with steadier nerves and a lump sum of money, he recommends staggered investments in an equity fund. "Split it into three," he says. "Put something in this week, something in two weeks later." That way, if the market drops a bit more, investors won't regret putting all their money in too soon; if it rises a bit, they wouldn't have waited too long.
A variation on that theme: monthly savings plans, where an investor contributes a fixed amount of money, say $1,000, every month to a fund, regardless of what markets are doing. When markets are down, that $1,000 buys more. "You're going to benefit from that when the markets turn around," says Mr. Mikkelsen of Cameron Butler.
He also advises that customers put some money in alternative investments, such as guaranteed-return funds. These promise that at least the initial investment will be returned at the end of a fixed period -- say, three or five years. For more affluent customers, he recommends hedge funds. "If you use hedge funds in the way they are meant to be used -- to hedge your bets rather than make wild speculation -- in this market they are very good, because they have the possibility of making money when the market is going down as well as up," he says.
Exclusive Group
Some regular equity funds eked out gains, but they made a pretty exclusive group. For example, of 210 Asian regional funds, just four made gains in the last quarter; of 45 China funds, just five did. You would think that those fund companies would be trumpeting their returns, but they aren't.
"If you're just highlighting the short term, that's dishonest," says Mr. Campion of Schroders, whose Hong Kong fund beat all of its peers last quarter. "You ought to show the medium and long term as well." Luckily for Mr. Campion, the fund also has an excellent five-year and 10-year track record. Anthony Moody, Asia managing director for Scudder Investments, takes the same tack when it comes to Scudder's Proequity Japan Fund, leader in its category for the quarter. "Our clients are long-term investors, so they look beyond following this on a day-to-day basis," he says.
Looking ahead, low price/earnings ratios are attracting Asian fund managers to equity markets in Australia, China, Hong Kong and Singapore, according to the latest Merrill Lynch survey. While they're also buying in South Korea and Taiwan, they remain underweight in both countries; South Korea on concerns about the reform efforts of big companies, and Taiwan on the weakness of the new government and the semiconductor industry. Lack of political stability is inspiring continued selling in Indonesia and the Philippines.
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