Asian Stocks May Be Ripe for Pickin’ by Bargain Hunters
Healthy economic growth isn’t everything when it comes to fueling stock market gains. In fact, good growth hasn’t counted for much of anything in Asia since 1993.
For the third straight year, the majority of Asian stock markets are lagging far behind the U.S. market’s gains. So far in 1996, only three Asian markets--Taiwan, Hong Kong and Malaysia--are beating the 13.9% gain in the U.S. Standard & Poor’s 500-stock index.
And while most European stock markets have hit news highs recently--despite Europe’s pathetic snail’s pace of economic growth--the Thai, Singaporean and Korean markets are actually down sharply this year, even though their economies are growing at rates that Europe would kill for.
The situation has become so depressing for global fund managers who’ve bet on the Pacific region that they’re raising a question never heard before: Is there something fundamentally wrong with Asia, something big enough to keep Asian stock markets in the basement for years to come?
Of course, the simple fact that such a question is being asked ought to raise the antennae of “contrarian” investors who like to buy in the darkest moment before a new dawn for an out-of-favor market.
Anthony Cragg, manager of the Strong Asia Pacific stock fund in Milwaukee, puts it this way: “Either you have to say the disease is terminal and the Asia ‘story’ is over, or this is one of the best places in the world to put your money now.”
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Why, exactly, have many Asian markets performed so miserably since 1993? Some problems have been specific to individual countries.
South Korea, for example, has been slammed by the plunge in world semiconductor prices over the last 12 months. Thailand is struggling with political uncertainty ahead of Nov. 17 elections, while Indonesia has been dogged by the question of who will succeed aging strongman President Suharto. Japan’s economic woes are well-known. Hong Kong is facing takeover by China next July 1.
Then there is China itself, the greatest developing economy on Earth, but one struggling under a government-mandated austerity plan for the last two years--though it seems odd to Westerners when austerity means “only” 10% real annual growth.
For many of Asia’s economies, the most worrisome issue has been a marked slowdown in exports this year, after years of booming shipments of myriad products to the rest of the world.
“Export growth has slowed across the region, and particularly in the electronics businesses,” notes Paul Matthews, manager of the Matthews Pacific Tiger stock fund in San Francisco.
That slowdown reflects weaker demand from the anemic economies of Japan and Europe and, to some extent, the U.S. economy’s deceleration. And as exports have slowed from Asia, many nations--including Thailand, the Philippines and Korea--have seen their trade current-accounts shift to deficits. That, in turn, has pressured some governments to limit imports so as to keep their economies from being thrown completely off balance.
The upshot, says economist Joseph Quinlan at Dean Witter Reynolds, is that “we think many nations in developing Asia will confront an era of adjustment and slow growth” in the near term.
Money managers pounding the table for stocks of developing Asia don’t deny that economic growth will be less impressive in the region. They just note that slower growth is relative: “If we’re talking about 6% to 8% annual growth [for most Asian economies], that’s still better than what you’ll seen in Europe, the United States or Japan,” says Cragg.
Then the question becomes, what are Asian companies worth in a slower-growth era--and are their stocks now cheap or expensive based on the companies’ intrinsic value? Matthews expects the average company in his fund to post 24% earnings growth this year. Yet the fund’s average stock price-to-earnings ratio is 17, he says. In the U.S., that would be considered undervalued.
Mark Madden, manager of the Pioneer Emerging Markets fund in Boston, says three years of weak stock performance in most Asian markets have made for bargains in such issues as Thai and Korean banks. He thinks investors looking for cheap assets worldwide should ask themselves where they really expect to make more money over the next two to three years--in the high-flying U.S. market, or in now-depressed markets whose underlying economic fundamentals still are the envy of the world.
If you’re interested in betting on developing Asia via a Pacific-region mutual fund, check how the fund divides assets. Some invest in Japan as well as the rest of Asia, and Japan’s problems arguably are more structural and harder to solve than those affecting most of the developing economies.
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Lagging Markets
Most Asian stock markets are badly trailing the U.S. market this year--as they did in 1995 and 1994 as well. A look at key indexes:
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Percentage change in native currency Market/index 1994 1995 1996 Taiwan/weighted +17.1% -27.5% +23.3% Hong Kong/Hang Seng -31.1% +23.0% +21.0% Malaysia/composite -23.8% +2.5% +16.6% Philippines/compos. -12.8% -6.9% +12.0% Indonesia/composite -20.1% +9.4% +10.5% China/world NA -16.9% +10.0% Japan/Nikkei-225 +13.2% +0.7% +5.5% Australia/All Ordin. -12.0% +15.2% +5.3% India/Sensex-30 +16.8% -20.8% +5.0% Singapore/Straits Times -7.7% +1.2% -9.0% Korea/composite +18.6% -14.1% -13.2% Thailand/SET -19.2% -5.8% -27.8% U.S./S&P; 500 -1.5% +34.1% +13.9%
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Source: Bloomberg Business News
