Where to Put Your Money - Part 2
Asiaweek profiles 16 of the most respected stockwatchers ...
This year, if you buy a stock and don’t lose money, you’re already doing well
THE INSIDER OUTSIDER
Analyst: Yamakawa Tetsufumi, 44
Company: Goldman Sachs
Sector picks: Food and other defensives
"I like to think I can read the Bank of Japan’s mind," says Yamakawa Tetsufumi. The economist – he has a master’s degree and a Ph.D. in economics from Brown University in the U.S. – monitored capital flows for the central bank for 14 years. He left to become director of economic research in Tokyo for Goldman Sachs in 1994. Yamakawa, 44, correctly forecast the central bank’s move last year to raise interest rates. After the BOJ made a U-turn in March, he says it is not likely to raise rates again.
But the economist worries that the credit easing won’t do Japan much good. The banking system remains in shambles, despite having set aside more than $260 billion in loan-loss reserves since 1997. Most of the bad loans remain distressed and few have been written off. So the collateral, mostly real estate, cannot be bought or sold, sucking liquidity from the property market and keeping the economy in the doldrums.
Yamakawa expects GDP growth of 1.1% for the current fiscal year, but only if the government continues to boost public spending despite a frightening debt load equal to 120% of GDP. If there is no fresh fiscal stimulus, he sees growth decelerating to 0.7%. He cannot make a forecast beyond that: "The Japanese economy is standing on the edge. We can go either way." A lot depends on the banks writing off bad loans and releasing the pledged assets. So the prudent investor should focus on defensive sectors like food.
Yamakawa concedes there will be great pain if the banks bite the bullet. Homeowners could see their property fall in value by 20% to 30% as the banks auction off homes and office buildings at fire-sale prices. A string of indebted retailers, property firms and construction companies would fold as the banks foreclose on their assets. With elections for the Upper House due in July, the ruling Liberal Democratic Party will not be eager to push the needed housecleaning. "But there is no other way out," says Yamakawa. He recently bought a house, so he will get hit by a property meltdown, too. But he thinks it’s a small price to pay for a brighter future for his daughter, 3, and her one-year-old sister.
By CESAR BACANI
The Japanese economy is standing on the edge
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THE THAI WAY
Analyst: Amarit Sukhavanij, 33
Company: Merrill Lynch Phatra Securities
Stock picks: Advanced Info Service, DTAC
Amarit Sukhavanij, a literature buff-turned-financial analyst, is either full-on or full-off. When it is the latter, he can be found scuba-diving off the Similan Islands, near Phuket, far from the frenzy of phone calls and presentations. But most of the time it’s full-on. As vice president of corporate strategy and research at Bangkok-based Merrill Lynch Phatra Securities, Amarit spends 12 hours a day, seven days a week, covering Thai and Philippine telecommunications and media companies. His focus is on encouraging investors to put their money into these growing sectors by providing them with unbiased reports on the state of the industry and the companies competing in it.
Part of his job is coaxing information from the companies he follows. Amarit, 33, may have been brought up in the U.S., but he is fully attuned to the Thai (read: diplomatic) way of doing things. "For example," he says, "I might say to a company, ‘Your competitors have been disclosing this type of information publicly, so maybe you should do the same.’" Such adroitness in dealing with managers has helped him become a star in Thai finance, with a reputation for reading firms well and translating his finds into well-considered advice for investors.
Because of the constant need to be on good terms with the companies, Amarit likens his job to another occupation. "I think an analyst’s job is like being a politician," he says. "You have to be well-liked." But that does not mean he resorts to sugarcoating. Amarit stresses that company managers often appreciate plain talking from an unbiased third party. "They need me to talk straight, even if they don’t always appreciate what they hear."
At the moment, the news Amarit bears is of the unappreciated kind. Thailand’s economic recovery remains fragile, and GDP growth this year, he says, "could be less than expected." He would welcome anything better than 3%, but he is cautious because of the slowing U.S. and Japanese economies.
Still, he thinks Thai telecom and media companies have some potential. "The thing about the Thai telecom sector is that it is still growing and at a faster clip now, especially on the cellular side," he says. "You see a penetration rate of only 6.5% with cellular phones, which is quite low." His stock picks are the two main mobile-phone operators, Advanced Info Service and DTAC.
Due to be posted to Hong Kong to cover telecom and satellite, Amarit is confident he will be able to handle bigger responsibilities. And when the pressure becomes too much, he will no doubt trade it temporarily for the underwater pressure off the west coast of Thailand.
By JULIAN GEARING
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THE ENERGY GURU
Analyst: PaulBernard, 33
Company: GoldmanSachs
Stock pick: PetroChina
Two red dice – showing snake eyes – rest on Paul Bernard’s computer. But lest anyone gets the wrong impression about his decision-making, the Goldman Sachs executive director of Asia-Pacific research makes clear that the Las Vegas baubles are nothing but a prop. "They were a gift from a friend," he says, pointing out the label: Paul’s Casino. "I only wish reading the energy market was as easy as rolling dice!"
It’s not, of course. But since joining Goldman Sachs’ Hong Kong office in 1995, the amateur saxophonist has become Asia’s pre-eminent energy analyst – despite Goldman’s rather unsettling practice of involving its analysts in the investment-banking arm’s initial public offerings. Bernard, 33, led the team that floated oil giant PetroChina on the Hong Kong bourse in 2000.
Conflict of interest? "There is none because our analysts are forbidden from writing and publishing reports during the IPOperiod and 30 days after the company has listed," argues Peter Rose, Goldman’s director of corporate communications. "Whether or not Goldman Sachs has underwritten a particular company, our analysts have to remain completely objective." Asian investors seem to agree. Separate surveys last year by Reuters wire service and specialist magazine Institutional Investor ranked Bernard and his team first among Asia’s energy analysts.
And, as if to underline his objectivity, five months after its listing, Bernard took PetroChina off his "buy" list because it had become too expensive. But the stock is on his list this year as his only outright buy. "Its valuation has normalized and it still has a very attractive name which, along with internal restructuring, gives the company a strong defense against a volatile market." He cannot say the same of Gulf Indonesia Resources. Goldman’s "buy" on the oil and gas company in 1997 proved a major error as the Asian crisis began to bite. Goldman offered a public postmortem of its missteps. "Our clients appreciated that we were able to list where we went wrong," says Bernard. He scotches the notion that energy is slightly passé – an Old Economy market. "Energy is central to anything that happens in the world," he says. These days, even the folks in California, at the epicenter of the New Economy, would agree with that.
By MARIA CHENG
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EDUCATING EXECUTIVES
Analyst: Rukhshad Shroff, 32
Company: JPMorgan
Stock picks: Hindustan Lever, HDFC, BHEL
Less than a year in his new job and Rukhshad Shroff was already in the freezer. It was 1994 and he had just written a "sell" report on Indian tobacco giant ITC for Jardine Fleming India Securities, now known as JPMorgan. "ITC was extremely upset," the 32-year-old cost accountant recalls. "I didn’t get to meet with them for a year." But his clients were happy – ITC’s stock price later fell by 40%, so those who followed his advice and sold at the peak locked in their gains. ITC subsequently lifted its informal ban. "I now have a friendly relationship with executives there," says Shroff. "They have become realistic about the fact that there will be sells and buys on the company."
In another controversial call, he downgraded India’s software sector last August. Because GDP growth was slowing, the intuitive response was to pile into software companies, which are delinked from the local economy. "But I believed that software had become too expensive," says Shroff, who advised clients to switch to consumer staples and other defensive sectors. He was proved right when America’s Nasdaq later keeled over, bringing down Indian tech stocks.
Shroff remains overweight on consumer staples and pharmaceuticals. "Government privatization and deregulation will also drive sector and stock performance," he says. Among his top stock picks: Hindustan Lever, which makes shampoo and other personal-care items; home-mortgage company HDFC, which is diversifying into wealth management; drug firms Sun Pharmaceuticals and Cipla; and BHEL, an industrial-engineering firm that Shroff expects to benefit from reform initiatives in the power sector. He also has a "buy" on his former nemesis, cigarette-maker ITC, which is a prime consumer play. Shroff puts his money where his mouth is – he personally owns shares in HDFC, Sun Pharma and Cipla. He is obliged under Indian law to disclose any interest in securities he recommends.
By CESAR BACANI
Privatization and deregulation will drive stock performance
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COOL CUSTOMER
Analyst: Tim Storey, 33
Company: Goldman Sachs
Stock picks: China Mobile, VSNL
Leave it to a hotshot analyst like Tim Storey to buy a sporty car at the height of the Asian crisis. "I got a very good price for it," insists the Goldman Sachs telecom analyst and managing director for Asia-Pacific investment research. The Canadian-born economist splurged on a Saab more than three years ago. That was after he had played a pivotal role in the Goldman team that helped China Mobile (previously known as China Telecom), the world’s second-largest mobile-phone company, sell off 23% of the state-controlled enterprise – the first time a mainland company raised money in the global equity markets. "That deal, more than any other, continues to make me proud," says Storey.
His firm’s policy on public offerings forbids analysts from publishing any comment on a stock until 30 days after it starts trading. Storey remains a China Mobile fan. It continues to be "a very strong buy," he says. "It’s one of only a handful of Asian companies that non-Asian investors consider owning, and its size and significance make it relevant to any educated investor." China Mobile has aggressively expanded its subscriber base, while preserving profitability despite falling margins.
Storey, 33, joined Goldman in 1990 as a conglomerates analyst. After working on a series of Indonesian telecommunications deals, he made a switch to cover that sector. The move involved a change in strategy. "No two conglomerates are the same, but with telecom, there’s a kind of cookie-cutter approach. Essentially the same business factors go into every company." Not that Storey’s job is an easy one. "The biggest challenge right now is that the market is being driven by sentiment," he says, which means there is a risk premium. A year ago, investors were upbeat about the industry. Now, the opposite is true. "There’s a lot of money to be made in telecom, but most people are just waiting for someone else to do it first." Besides China Mobile, Storey’s current choices are Hong Kong’s Asia Global Crossing and VSNL of India.
Determining a counter’s actual value, independent of market sentiment, Storey says, is the key to making the right calls. Investors can put their money in established telcos like SingTel or Australia’s Telstra. "There’s no ‘buy’ rating on these, but while they won’t go up a lot, they probably won’t go down either," he explains. The tough part is reading the signs to sell. "I would have loved to have been able to see the downturn last fall a lot quicker than I actually did," Storey admits. "Whenever a stock falls 10% or 15% and you didn’t see it coming, it’s a failure."
To avoid such mistakes, Storey spends nearly half the year crisscrossing Asia, visiting companies and meeting clients. But when it comes to writing his reports, he prefers the quiet of his apartment in Hong Kong’s Mid-Levels residential district. To keep focused, he takes brisk runs around the neighborhood. Producing sharp analysis is "really just a matter of concentration," he says. And having a cool car parked in the garage is a good way to stay focused.
By MARIA CHENG
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THE RELUCTANT TECHIE
Analyst: Jay Chang, 29
Company: Credit Suisse First Boston
Stock picks: Rediff.com, AsiaInfo
Jay Chang calls his unlikely career path serendipitous, which is a nice way of saying he got thrown in the deep end. In July 1999, his first assignment as technology analyst at Credit Suisse First Boston’s Hong Kong office was a secondary share placement for a little-known local company called Pacific Century Group. Back then, the company was a disparate collection of Internet properties owned by Richard Li, the son of Hong Kong’s richest tycoon. In the next few months, the firm renamed itself Pacific Century CyberWorks, quadrupled its share price, took over Hong Kong’s largest telco and stole the spotlight from every other tech play in the city. "It was a crash course," says Chang of that first project. "I learned basically everything in two weeks."
It was indeed a steep learning curve for Chang, who, unlike fellow Seattle native Bill Gates, was never a computer geek and had originally planned to be a jazz musician until his father, a mainland Chinese emigrant to the U.S., intervened. Keeping a cool head allowed Chang to survive the whole Internet frenzy. "People had to put faith in these valuations, which were crazy," says the 29-year-old. "It was so volatile and momentum-driven."
Chang made his name as an analyst not so much through his official reports, but through a sporadic e-mail column that he sent to friends and contacts and posted on the website GorillaAsia.com. "Jay’s strength is his network of contacts," says a Hong Kong fund manager who covers the tech sector. "He has a good understanding of the industry as a whole." Chang’s pick among Internet portal stocks is India’s Rediff.com, which he thinks has some upside despite a mediocre performance over the past year. He also likes AsiaInfo, an Internet infrastructure and software company from China. "China right now is doing a lot of I.T.-sector development," he says. "It has a big market and a big manufacturing base."
Chang enjoys the new sanity that surrounds the Internet sector: "The people who are sticking with it now are the ones who are there for the right reasons. Now I don’t have to listen to someone who has been running a website for two months saying they want a half-a-billion-dollar valuation." Will the sector ever return to the boom days? "I don’t think we can ever go back to the same expectations we had before," he says. "That would not be learning from our lessons." But there is a bright side – at a personal level anyway. The downturn means that Chang has more time for his passion: snowboarding.
By JEREMY HANSEN
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AHEAD OF THE GAME
Analyst: Stephen Hagger, 36
Company: Credit Suisse First Boston
Stock pick: British American Tobacco
Leisure, gaming and conglomerates are Stephen Hagger’s specialties. So it’s no surprise that the director of Malaysian research for Credit Suisse First Boston finds a spot of polo the perfect counterpoint to job demands. Hagger, 36, keeps two ponies at the Selangor Polo and Riding Club. "The language on the field is pretty foul – and you can hit things very hard," he says fondly. "That’s a very good antistress exercise."
London-born Hagger trained to be a farmer before a backpacking adventure led him to Asia in 1989. With an MBA from the University of Durham, he has spent the past nine of his 15 working years in Kuala Lumpur, establishing his reputation during the boom years of the early 1990s. As investment poured in and stocks soared, Hagger promoted companies such as the politically connected telecom firm Technology Resources – a huge success at the time. "I was lucky being quite naïve," he says. "I was able to capture the liquidity bull run without being too cynical."
The crisis brought a painful period of adjustment. Government-linked stocks that Hagger had championed plunged. The roller-coaster ride taught him to be realistic about the ties between politics and business in Malaysia. Today he wishes that less-successful cronies – "and that’s the majority" – had been weeded out. He picks British American Tobacco as his favorite long-term stock. "There are very few Malaysian companies that you can buy and hold for the long term," he says. "We have to look for strong management, a sustainable franchise and minimal dependence on politics."
Hagger’s other recommendations include Resorts World Bhd., which recently bought loss-making tourism line Star Cruises, and plantations and property group IOI Corp. He also likes newcomer Courts Mammoth Bhd., an electrical and furnishing retailer that is majority-owned by its British parent, Courts Plc.
Hagger spends at least 20% of his time on the road. He says information gleaned from a cleaner may be just as pertinent as a chairman’s report. Predicting a further slowdown in the Malaysian economy, Hagger says: "Until the political situation is sorted out the market is going nowhere." But he has no plans to leave. "All meetings are good-natured and great fun," he says. Though not necessarily on the Selangor polo fields.
By ARJUNA RANAWANA
There are very few Malaysian companies that you can buy and hold for the long term
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A PURITANICAL NON-CHRISTIAN
Analyst: Franklin Lam, 40
Company: UBS Warburg
Stock picks: New World, Wharf, Hang Lung
Franklin Lam, 40, sounds like an evangelist thundering against a society of sinners. He preaches honesty and urges people in his trade to develop the backbone to stand up for justice. He bemoans the excesses of the financial community – how even junior executives fly first-class and have limousines waiting at the airport, and how his former colleagues used to party every Friday and go through four bottles of red wine. "It was a seven-day workweek because you needed to spend your weekend recovering from the booze," he notes sardonically.
Unlike some of his peers, discipline and backbone are something Lam has plenty of. He attributes his character to 12 years at a Jesuit-run school – even though he is an atheist. As head of regional property research at UBS Warburg in Hong Kong, Lam has ruffled many feathers by making unpopular property calls in a place where real estate is virtually a secular religion. "In 1998, we were the only bull on property," he says. "In 2000, we were the only bear. We were right both times." Last October, Lam downgraded the Hong Kong market from a "strong buy" to a "sell." He predicted a 10% fall in housing prices and a drop in transaction volumes to financial-crisis levels. Property prices in Hong Kong have slid ever since.
Neither the government nor the influential property developers are grateful. The day after his bearish call, an official accused his brokerage of "deliberately misleading the public." Lam jokes he is lucky not to be in mainland China: "Otherwise it might be considered treason." His penchant for controversy notwithstanding, even Lam’s critics admit he knows his stuff. Says one fund manager: "He can tell you how many tiles (property developer) Sun Hung Kai has used, how many plots of land it has in the land bank."
Lam says the worst is yet to come and expects the housing market to be further dragged down by interventionist and inconsistent government policy. However, he likes many office rental stocks such as New World and Wharf. "We anticipate a four-year bull market for office developers as more multinationals base themselves in Hong Kong to do business in China," he says. "But we’d sell big guys like Sun Hung Kai and Cheung Kong."
Lam, who likens his job to a "24-hour Nintendo," intends to continue standing up to vested interests. "If you are a soldier and you’re afraid to die," he says, "then inevitably you take the first bullet." In that case, Lam will probably be the last man standing.
By YULANDA CHUNG
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DYNAMIC ON POWER
Analyst: Michelle Ring
Company: Merrill Lynch
Stock pick: KEPCO
When she isn’t paddling furiously in a dragon boat or practicing her boxing skills, you might find Michelle Ring talking about her other passion: Asian utilities and power companies. "To some people utilities might be boring," concedes the managing director of Merrill Lynch’s Asian power and utilities research team. "But utilities is actually a fairly dynamic sector in Asia in that it is changing so much due to technology and deregulation."
An Australian with 10 years’ experience in utilities – six of those in Hong Kong and Singapore – Ring stands out among her peers. She doesn’t have a business degree – she graduated with a mathematics major from Sydney University – nor is she a chartered financial analyst. But last year, Ring’s power and utilities research team was ranked No.1 by all leading investor surveys. She is now responsible for Merrill Lynch’s overall power and utilities research throughout Southeast Asia.
Her secret? Strong communications skills. "Communications is not just being nice to somebody on the phone," Ring says. "It’s also being able to keep investment ideas, stories and concepts simple." That means Ring calls a spade a spade if necessary. "I don’t tailor my reports or recommendations to what management wants to hear," she says. "The important thing is to remain objective."
In 2001 she expects Asian utilities to continue performing against the market trends – "but whether they will outperform the market again this year will depend on whether U.S. will have a V-shaped or U-shaped recovery." Issues to watch include continuing deregulation of the sector, new power technology and acquisitions. "Asian utilities like Hong Kong Electric and Singapore Power are making acquisitions to diversify their exposure," she notes.
Ring has returned to Sydney for personal reasons (she is pregnant with her first child), but will continue to cover Asia. Her sporting interests, however, have had to be put on hold. Ring started dragon-boat racing about 10 years ago in Sydney and continued her love affair in Asia. Boxing kicked in as a means to stay fit. "But right now I am probably a bit out of shape," she chuckles. Still right on top of her game, though.
By ASSIF SHAMEEN
Asian utilities like Hong Kong Electric and Singapore Power are making acquisitions to diversify their exposure
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KEEPING THE FAITH
Analyst: Bhavin Shah, 35
Company: Credit Suisse First Boston
Stock picks: Infosys, UTS Starcom
Strangely for an analyst, Indian-born Bhavin Shah says his life has been full of wrong calls. Personal ones, that is. His biggest "mistake" was switching careers. He used to be a microprocessor designer with three patents to his name. After completing his MBA at the University of Chicago, he became head of Asian technology research for Credit Suisse First Boston in Hong Kong in 1996. His 12- to 14-hour days mean restricted time with his two sons, aged five and three. "If I had the choice to wind the clock back five years, I wouldn’t do this job," he grumbles. "Sometimes when I go home my kids are already asleep."
It isn’t that Shah, 35, lacks job satisfaction. "My favorite part is making insightful calls and being recognized for getting them right," he says. "But it’s not as much fun when things are in a downturn." Shah has made spectacular picks, particularly his January 2000 "buy" on Indian software company Infosys Technologies. The stock soared 893% later that year. All those gains have melted away with the Nasdaq’s plunge – the share price is 40% lower now than in January 2000. Some semiconductor shares have fallen as much as 80% from their peak. Shah says things could get worse in the second quarter: "We underestimated how fast the U.S. economy was going to slow."
But he still professes faith in technology. Long-term investors who hang on will reap their reward in time, says Shah. A few weeks ago, he had to buy a new computer and a digital-subscriber-line modem so he could watch India play Australia in cricket. The Net broadcast was too much for his old dial-up connection. "The things that drive the growth of technology have not gone away," he says. "The Internet is still a killer application." Shah maintains a "buy" on Infosys, especially since its price has fallen so low, and on UTS Starcom, which makes wireless and wireline telecom equipment in China.
He was in India in January when a massive earthquake struck Gujarat state. "It was terrifying," Shah recalls. "I thought I was going to die." The quake hasn’t diminished his love for his country. He makes an annual three-week pilgrimage to India with his wife and children, so his sons can learn to love the place their father still calls home.
By JEREMY HANSEN
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