Recommended money managers

Recommended Funds and Fund Managers in Asia (February 2003)

From a longer-term point of view, I find the Asian markets attractive since the Asian economies are not only recovering from the 1997 crisis but remain extremely competitive in the manufacturing and, increasingly, in the tradable service sector, while their stock market valuations remain relatively low. In particular, I should like to mention that the current US dollar weakness in no way alters the Asian economies’ competitive position, since the Chinese Renminbi is pegged to the US dollar at a time when the other Asian economies are increasingly feeling the threat from the colossal Chinese export machine, which is eating into their export markets. Therefore, unless China revalues its currency (which is not very likely, for now), it is unlikely that the other Asian exporting nations would wish to have strongly appreciating currencies. So, while US economic policy makers will continue to stimulate credit growth and consumption in the US by increasing the indebtedness of households, the wealth transfer to Asia via the US trade and current account deficit will continue and stimulate industrial production in Asia and other emerging economies.

To an unbiased observer it would seem almost that US economic policies are designed to impoverish the United States and to enrich Asia, since in a deflationary environment and amidst globalisation it is inevitable that production must shift to the lowest-cost producers, which then flood the high-cost Western industrialised countries with low-cost goods. At a recent presentation, I was told that this wealth transfer would eventually benefit the US, since China would in the future import far more goods and services from the US than in the past. However, this seems to be wishful thinking. Whereas Chinese exports to the US continue to expand at a rapid clip, imports from the US have hardly increased, while imports from Asia are soaring. In other words, China exports to the US, Japan, and Europe, and imports its raw materials and commodities requirements largely from Southeast Asia. Moreover, it is only a matter of time before knowledge- and science-related services will also be exported from Asia, since the cost of establishing and maintaining research labs is far lower in India and China than in Western countries. Consequently, I remain quite positive about investments in Asia - in particular, because investors around the world remain underweight the Asian region.

So, while US international mutual funds had over 4% of their assets invested in Asia between 1993 and 1997, today, these funds have less than 1% of their assets in this region. However, considering that Asia is not only growing more rapidly than Western countries, but is also home to 56% of the world’s population, and that many of its markets - such as for TVs, radios, motorcycles, cellular phones, steel, etc. - are far larger than in Euroland or the US, even a 4% exposure would seem to be extremely low and a less-than-1% asset allocation almost irresponsible. Therefore, it is my belief that it is only a matter of time before the world’s savings, which between 1997 and 2001 flowed largely to the United States, will be redirected towards Asia and lead to fairly strong rallies in the region. And although it is true that, over the last two years, Asian markets have outperformed the US, they remain extremely depressed by historical standards. In US dollar terms, many Asian markets are still down by 70% from their highs, but, unlike the Nasdaq, they have now built bases since 1998 and therefore offer lower-risk entry points than the TMT sector, the S&P 500, and Western European markets, which, although down percentage-wise by a similar amount, have at this point not built any longer-term bases.

I am repeatedly asked about investments in Asia and, as I have suggested in the past, there are numerous avenues to participate in the Asian region.

For retail investors, there are a number of closed-end Asian funds available, such as the Singapore Fund (SGF), the MSDW Asia Pacific Fund (APF), and the Asia Pacific Fund (APB), which are all listed on the New York Stock Exchange and sell at discounts of between 10% and 20% of net asset value. The India Fund (IFN), the India Growth Fund (IGF), the Jardine Fleming India Fund (JFI), and the Morgan Stanley India Investment Fund (IIF) are also listed on the NYSE. For an exposure to China, the following funds, which are listed on the NYSE, could be considered: the China Fund (CHN), the Greater China Fund (GCH), the JF China Region Fund (JFC), and the Templeton China World Fund (TCH).

For those investors who are more value-oriented, I recommend the following funds. The Apollo Asia Fund, run by Claire Barnes (www.apolloinvestment.com), which was up by 38% last year and compounded 30% since its inception some five years ago, is a long stock fund only and specialises in Asian small value stocks. Similarly, Richard Lawrence’s Overlook Investment Company invests principally in smaller and mid cap value companies around the Asian region. The minimum investment in Overlook is US$250,000 (rlawrence@overlookinv.com). For an exposure to India, Jon Thorn’s India Capital Fund (up 28% in 2002) is particularly recommended (www.indiacapitalfund.com).

For a hedged strategy in Asia, I recommend Michael Sofaer’s SCI Asian Hedge Fund, which, although a hedge fund, has a long bias (www.sofaer.com).

For Asian fixed interest securities, the Asian Hedge Fund, managed by Income Partners, is recommended (www.incomepartners.com). In Thailand, Doug Barnett manages the Thai Focused Equity Fund (www.questthai.com) using a disciplined long-short strategy, which over the last ten years has generated very impressive results in a poor market environment.