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In the Carnage That Is Asia, There Are
Survivors, And Morgan Stanley Dean Witter
Picks 20 of Them
By Peter C. Du Bois
The bloodbath in Asian stock markets continued apace last week. For the
gory details, see below. Meanwhile, in the belief that these bourses eventually
will hit bottom, but maybe not soon, Morgan Stanley Dean Witter has
compiled a list of 20 companies that it deems the most attractive long-term
investment opportunities in the region.
Not only will they survive the continuing economic and financial crisis, the firm
says, but they already enjoy a competitive edge over all other companies in
the region. Call this a watch list, a shopping list, whatever. Morgan Stanley
calls them Timely Ideas.
From 500-plus companies under research coverage, it identified 110 with a
sustainable competitive advantage. In 50 cases, the edge isn't reflected in the
stock price, and 20 look especially promising. This bottom-up, stockpicking
exercise ignores country and stock-sector weights. Thus, there are no entries
from Malaysia, Korea, Thailand or New Zealand.
Dow Jones Global Indexes | Emerging Markets | Global Stock Markets
So where are the 20 best bets? Nine are in Japan, three in Hong Kong, two
apiece in China, India and Taiwan, and one each in Indonesia and Singapore.
Alexander Kinmont, Morgan Stanley's Japan strategist, won't pick a low in
this cycle for the Nikkei index (15,022.33 Friday) or for the number of yen
per dollar (144-plus Friday). But for investors who must own a stake in Japan
and see, as he appears to, further yen weakness, his top three picks
(alphabetically) are Bridgestone, Fuji Photo Film and Sony.
Bridgestone is "the most efficient tire producer in Japan." Its export growth is
climbing, and it was the only auto-related Japanese company to post higher
sales and earnings in the March 31 fiscal year.
Fuji is the world's second-biggest film producer (after Kodak), with a 35%
global market share. It makes film in Japan, the U.S. and Europe.
Sony enjoys "a virtually unmatched brand name, a progressive and
internationally-minded management and a strong hardware/software base for
the multimedia age."
Other Japanese stock picks are Kao (consumer products), Sankyo (drugs),
Shin-Etsu Chemical (polyvinyl chloride resins, silicones, semiconductor
silicones), Sumitomo Bakelite (semiconductor sealants), TDK
(magneto-resistant recording devices) and Tokyo Ohka Kogyo
(semiconductor manufacturing equipment).
This list is a team effort. Hong Kong names on it are HSBC Holdings
(banking), SmarTone (cellular telephony) and Sun Hung Kai Properties. The
latter boasts the biggest portfolio of development and investment properties in
HK and enjoys "substantial recurring income." HSBC's "competitiveness has
been achieved at several levels: capital, technology, management, product
breadth and geographic diversification." SmarTone combines "exceptional
management" with "access to cheap capital."
In China, Beijing Datang Power is "the most attractive play" on electricity
generation. "What it lacks in financial muscle, it makes up for in local
knowledge and connections -- often the difference between success and
failure in China." Quingling Motors is a niche player in the light truck and
rapidly growing pick-up truck markets, with an edge versus domestic and
multinational competitors.
Hindustan Lever is "India's largest fast-moving consumer goods --FMCG --
company, with arguably the most extensive and cost-effective FMCG
distribution system in India, especially in rural areas." Housing Development
Finance is India's largest mortgage finance company, with an estimated 65%
market share. It boasts "impeccable asset quality, superb efficiency and
well-managed credit risks."
The two Taiwan entries are Siliconware Precision Industries ("one of the
fastest-growing and most-profitable integrated circuit packaging companies in
the region") and Taiwan Semiconductor ("global leader in the integrated circuit
foundry business").
Indonesia's, Asia Pulp & Paper is a leading "producer in one of the world's
fastest-growing paper markets, with strong cost advantages and a foothold in
Asian markets." Singapore's DBS Land boasts "a diversified and high-quality
portfolio of assets ... and a healthy financial position."
Overseas stock markets generally fell last week, but less so in Europe (16
off, three -- Copenhagen, Dublin, Lisbon -- up) than in the Pacific Basin (all
16 off). While Russia (off 14.2% in dollars) was staggered by a massive flight
from emerging bourses, the next biggest declines (in local currencies) were in
Zurich (off 3.7%) and London (off 3%).
It was far worse in Asia. In local currencies, Bangkok plunged 12.2%, Seoul
11.6%, Shanghai 7.7% and Hong Kong 7.6%. Manila and Singapore both
dropped 6.6%, while Kuala Lumpur and Wellington both fell 6.5%. Taipei
declined 5.2%, Shenzhen 5.1%. By contrast, Sydney (off 2.7%), Tokyo (off
1.97%) and Jakarta (off fractionally) were relative pillars of strength.
Psychologically, events in Tokyo caused the most damage. The yen sank to
an intraday low of 144.69 to the dollar Friday (before recovering fractionally)
from 139.70 (New York closing) on June 5, and the Japanese economy now
officially is in a recession.
With the yen in a free fall, apparently headed for 150, many traders feared
that the Chinese yuan and the Hong Kong dollar soon could be devalued,
setting off another round of competitive currency debasement in Asia. This
scenario again was denied by officials in Beijing and Hong Kong. Their vow
to hang tough makes sense to at least one economist.
Jay H. Bryson of First Union Capital Markets doubts that China will devalue
before autumn, and sees only a 25% chance of such a move by yearend. In
his view, China doesn't want to scuttle its most-favored-nation trading status
with the U.S. and really wants to be admitted to the World Trade
Organization. Devaluation now would hurt the chances of both. He says that
Japan largely has abandoned its role as the locomotive for Asian economic
growth, and China is trying to pick up the slack with a variety of steps.
Meanwhile, amid a jittery climate for Asian stocks, technical analysts see
further downside risks. Bob Brogan of Fahnestock & Co. believes that Hong
Kong's Hang Seng Index (7915.44 Friday) could drop to 6000. In his view,
the Singapore Straits Times Industrial average, now at 1091.49, could hit
802, and Tokyo's Nikkei-225, now 15,022.33, could test the
14,266-14,056 level. |
