Asian Markets May Beckon After Two-Year Slump
Naturally, nobody wants to avert his or her eyes from the streaking U.S. stock market this year. But sometimes the smartest long-term investment moves are made away from the pack--buying what’s down rather than what’s already up.
For disappointment or just plain dullness, it’s been hard to do worse than in key Asian stock markets over the past two years. And therein lies an opportunity, some Wall Streeters say.
In 1994, five of eight major Asian markets suffered steep declines. So far this year, every Asian market is severely under-performing the U.S. market, which has surged 24.2% as measured by the Standard & Poor’s 500-stock index.
The best Asian market this year, Hong Kong, is up 13.3% using the Hang Seng stock index as a proxy. It gets a lot worse after that. Singapore is down 5.2%; Taiwan’s key index has crashed 27.9%.
What ails Asian stocks? One problem is largely technical: The momentum that pushed these markets sky-high in 1993 (remember the last international-investing mania?) abruptly reversed in 1994 when the Federal Reserve Board began raising interest rates.
Hot markets that lose momentum so quickly often have a hard time regaining investor interest, although Mexico has been a glaring exception.
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Asia’s bigger problems have been market-specific in 1995: Japan’s economic woes are well-known; Taiwan and Hong Kong have been hurt by political worries, many tied to fears about China’s next moves, politically and economically; in Malaysia stocks have been clipped by concerns about higher interest rates as the country’s central bank tries to restrain inflation.
Meanwhile, the rising dollar may be keeping some U.S. institutional investors out of Asian markets. Dollar strength can mean instant devaluation of U.S. investors’ foreign securities, although that’s a minor issue for many smaller Asian markets because their currencies often are pegged to the dollar and thus float with it.
For money managers Thomas Tuttle and Jack Mussey, all of these issues are just so much background noise. Their mutual fund, Colonial Newport Tiger, has racked up the best five-year gains of any Pacific-region stock fund--15.9% annually through June 30, according to Morningstar Inc.--by focusing on the biggest values among Asia’s leading blue-chip firms.
And the fundamental attraction of those big-name stocks--as a direct way to cash in on Asia’s legendary economic growth--hasn’t deteriorated over the past two years despite the markets’ gyrations, Tuttle says. “In fact, the fundamentals have actually improved,” he argues, as corporate earnings have advanced while stock prices have fallen or stagnated.
But Tuttle and Mussey’s bullish views don’t extend across all Asian markets. One reason their performance since 1990 has been exceptional is because they have avoided Japan’s collapsing stocks almost entirely. Even now, while some pros wax bullish about Japan’s market, Tuttle dismisses it as “still overvalued.”
Instead, Newport Tiger has 42% of its assets in Hong Kong stocks--long Tuttle and Mussey’s favorites--and 20% in Singaporean issues. The rest of the fund is spread among a relatively small number of shares mainly in Malaysia, Thailand and Indonesia. Year-to-date the fund is up about 9%.
Tuttle views his blue-chip Hong Kong holdings, including Hong Kong Telecom, Hong Kong & China Gas and banking giants Hang Seng Bank and HSBC Holdings, as simple but very compelling value plays. The average big Hong Kong stock now sells for less than 10 times estimated 1996 earnings per share, Tuttle says. “Only three other times in the last nine years has the [price-to-earnings] ratio been this low,” he says, and all three proved to be great buying opportunities.
What about the fresh political angst over China’s looming 1997 takeover of Hong Kong? Tuttle repeats what all Hong Kong bulls have insisted for years: It’s absurd to think China will do anything to hurt the leading Hong Kong companies that are so key to China’s future development. As those worries dissipate, he says, Hong Kong stocks will return to levels more appropriate for companies producing 15% to 20% annual earnings growth.
The fund’s Singaporean holdings, including DBS Bank and engineering giant Keppel, are in the same class as the Hong Kong issues, Tuttle says: high-quality stocks that are relatively undervalued after two years of weak market action even as the economy, and earnings, have grown.
The Newport Tiger fund’s investment thesis is disarmingly straightforward: Buy and hold the most successful companies in the world’s fastest-growing region; avoid speculative markets (like Taiwan) and individual speculative issues.
The fund, which is sold in various share classes (long-term investors probably are best-served buying the “A” shares, which carry a 5.75% upfront load) is available through Colonial Investment Services in Boston. Phone number for information: (800) 248-2828.
Most investors may not feel right in a regional fund like Newport Tiger. Its short-term volatility can be nerve-jangling. But for those who want a direct stake in Asia--and who like to buy out-of-favor markets--the fund is an intriguing alternative to chasing red-hot U.S. stocks.
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The Lagging East
Every major Asian stock market is lagging the U.S. market’s performance this year, and five of the eight markets fell sharply last year after soaring in 1993. Price changes of principal stock market indexes, in local currencies: *--*
Market 1993 1994 1995 Hong Kong +115.7% -31.1% +13.3% Indonesia +114.6% -20.2% +4.6% Malaysia +98.0% -23.8% +1.3% Singapore +59.1% -7.7% -5.2% Thailand +88.4% -19.2% -5.9% South Korea +27.7% +18.6% -7.2% Japan +2.9% +13.2% -10.7% Taiwan +79.8% +17.1% -27.9% U.S. (S&P; 500) +7.1% -1.5% +24.2%
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Source: Reuter
