Repost: What Barron's says on Asia this week:
------------------------------
Monday, January 19, 1998
Among the Ruins
U.S. companies look for bargains in Asia; many other investors hold off
By Jay Palmer
Since the Franco-Prussian war in the 1860s, the secret of contrarian investing has been to buy "when blood is running in the streets," in the words of British financier Nathan Rothschild. But even the most intrepid contrarian has to avoid buying too early. Otherwise, the blood in the streets may be his own. That is the worry confronting foreign investors looking for value in Asia right now.
Still, as Asia's economic crisis deepens, and as stock markets and currencies around the Pacific Rim continue to fluctuate wildly, some strategists are looking beyond today's economic calamity and seeing what they say will be the best buying opportunity of the 1990s.
"There's a lot of interest in buying assets, especially from companies that want to expand in Asia anyway," says John Devine, chief financial officer of Ford Motor, a company that is itself viewing expansion possibilities in South Korea. "Right now, the investment bankers and consultants smell money. From Kuala Lumpur to Seoul, you'll find airports and hotels crowded with Americans and Europeans looking for bargains. It's not clear if now is too early, but it is clear the opportunities have increased."
That's an understatement. Since last July, when Asia's malaise began, the combination of plunging stock markets and collapsing currencies has slashed the value of Pacific Rim assets in U.S. dollar terms. The impact can been seen from the Philippines and Thailand to Indonesia, Malaysia and Korea. Worst hit is Indonesia, where stock values have dropped some 75% in dollar terms since mid-1997. Korea, Malaysia, the Philippines and Thailand have all seen stocks fall by more than 60%.
"Everywhere you look, Asia is suddenly a lot cheaper than it used to be," says David Hale, Zurich Group's Chicago-based global chief economist, who is now in Singapore on a trip across Asia. "For someone with a five-year time horizon, it's the time to shop around. Values today approach the lowest in a quarter-century, almost to the point that you'll probably never see such bargains ever again."
Still, Asia is not for everyone right now. What is attractive for corporate merger-and-acquisition teams may not be right for portfolio managers or individual investors. The problem is that the region's stock markets could fall further. Few strategists are confident that the economic crisis has ended, and many suspect the decline in stock markets and currencies could continue for months.
"If you are a bottom-fisher, it's not time to get into Asia because the market is still not at its bottom," says Carl Weinberg, chief economist at High Frequency Economics, a consulting firm in Valhalla, New York. "We learned from the Latin American situation that when countries enter adjustment programs, there can still be up to a year to go in stock-market and currency declines."
For most stock investors, that's reason enough to wait on the sidelines. Still, some early birds are jumping in. Sir John Templeton, the global-investing pioneer who founded the Templeton Fund, recently revealed that he had been pumping some of his personal fortune into South Korean mutual funds. The 85-year-old Templeton told The Wall Street Journal he was buying "at the point of maximum pessimism."
U.S. companies looking to buy Asian operations are also bullish. Such corporate deals can take months to put together, so waiting for an absolute bottom in the stock market doesn't make much sense. On top of that, corporate executives tend to view investments differently than professional money managers do. Says Albert Edwards, global strategist at Dresdner Kleinwort Benson in London: "If you wanted to expand in Asia before, you want to do so now even more. Corporate investors have the luxury of being able to take a long-term view."
For the most part, the buying in Asia right now is on the corporate side, with some companies moving a lot faster than others to take advantage of the situation. Procter & Gamble bought a paper-making operation from Korea's Ssangyong Group, while Royal Dutch Shell is in talks to buy a refinery from Hanwha Group. Separately, Germany's BASF bought a stake in a chemical venture from Hanwha. And, earlier this week, speculation increased that Hong Kong conglomerate First Pacific might be about to move on San Miguel, the flagship Philippine brewery.
Most of the attention has been focused on South Korea, the world's 11th-largest economy and a country that many see as the ideal jumping-off place to the rest of Asia. Korea was one of the first to loosen its curbs on foreign ownership, and it remains much more receptive than other Asian countries to the idea of foreigners moving in. Both General Motors and Ford are looking around in Korea. Said to be among the top prospects are two large, if indebted, auto makers, Daewoo Group and Kia Motors. Meanwhile, Citicorp, which has already offered to buy a 51% stake in Thailand's First Bangkok City Bank, is reportedly also thinking about bidding for a part of the Korea First Bank, when the government's holding in that indebted institution goes on the block over the next few months. Chase Manhattan is believed to have its sights set on a rival institution, Seoul Bank.
A flurry of deals is likely. Around Christmas, Allied-Signal CEO Lawrence Bossidy told Barron's ("Mixed Signals," December 29) he was considering acquisitions in Asia, and he added that he was disappointed his company never took advantage of the Mexican crisis to snare bargains South of the Border: "We missed the boat there.. . We won't have that problem in Asia."
One problem with the gathering wave of new Western investment is that the welcome mat isn't always out. While Asian companies remain strapped for cash, fears are already being voiced about modern forms of economic colonialism and ugly American carpet-bagging. "Those who show up on a company's doorstep waving a check won't get very far," says Tim Dattels, a Hong Kong-based managing director with Goldman Sachs. "To get anywhere, you have to start thinking in terms of a much longer-term relationship."
Given that America needs Asia's economic growth and Asia needs America's capital, such relationships will likely proliferate this year.
Copyright c 1998 Dow Jones & Company, Inc. All Rights Reserved. |
