ad info




Asiaweek
 home
 intelligence
 web features
 magazine archive
 technology
 newsmap
 customer service
 subscribe
 TIMEASIA.COM
 CNN.COM
  east asia
  southeast asia
  south asia
  central asia
  australasia
 BUSINESS
 SPORTS
 SHOWBIZ
 ASIA WEATHER
 ASIA TRAVEL


Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

Asiaweek Agenda Personal Finance

RISKY BUSINESS

Even the pros are stashing cash


PICKING STOCK WINNERS IN Asia used to be about as tough as hitting a dartboard from close range. Close your eyes and fire away. Southeast Asian stock markets from Bangkok to Jakarta to Manila more than doubled in 1993, and mutual fund managers routinely struck gold. Times have changed. The dartboard has shrunk to roughly the size of a bottle cap; and the foul line has been pushed back a dozen meters or so. In other words, good luck hitting a bulls-eye.

"In times like these, we really have to be extra cautious," says Teo Kwee Liang, a fund manager with Dresdner [SEA] Thornton in Singapore. His strategy is to watch and wait, even as others tout the opportunities available in the region's down markets: "We are not going out of the way to look for bargains because we believe the currency turmoil is far from over. We are neither big buyers nor sellers."

Note well the prudence. In Asia, where families represent the predominant mutual fund investors -- in numbers if not raw monetary strength -- fund managers know their jobs depend more on preserving value than hitting the mother lode. After all, the core investments of small investors are probably designated for college educations or retirements. It is not the kind of money that managers can feel free to gamble with.

In practical terms, that means many professional money managers have turned to cash -- typically denominated in U.S. dollars -- as the safest way to preserve capital. "Right now, 10% to 20% of the money in various Asian funds is in cash," estimates Kim Teo Poh Jin, fund manager for Nicholas-Applegate Capital Management Asia in Singapore. That's an unusually high amount for mutual funds that normally seek to be fully invested but for a small cash reserve -- often less than 6% -- set aside to accommodate redemptions.

Says Kim Teo: "In the past we have used cash as a passive element in our investment strategy, but now we are using it as an active element." Considering the beating many Asian currencies have taken since June, the increasing importance of dollar-denominated cash holdings is understandable. "Let's say you pick a stock today and someone throws all the data at you -- earnings, cash flow, etc.," says Hugh Young, a Singapore-based fund manager. "Tomorrow, the currency plunges 5% in the first half hour. All the numbers are meaningless."

For fund managers trained to beat the market average, falling stocks combined with falling currencies are deadly. In an up market, the professional investors are often willing to take risks on stocks that may outperform the average. But it is a double-edged sword. The same risky stocks tend to fall more rapidly when the market heads south.

Young's solution is to scrutinize potential investments with less concern for typical statistical measures such as price-earnings ratios and more attention to balance-sheet fundamentals. "It really is back to basics," he says. "We are looking not just at debt levels but at what currency the debt is in. For manufacturing companies, we are looking at where they get raw materials from and where they export to. Stock selection has become more difficult, and we are using a fine-tooth comb."

Rosanna Lam, who manages several regional funds for HSBC Asset Management Singapore, has virtually stopped trying to sift for winners, at least in ASEAN markets. She says her fund has been shifting money to Hong Kong and North Asia markets, including Taiwan, Korea and China, since early this year. "Some of these markets have done very well over the past year, and some of the Southeast Asian markets have done pretty badly," she says. No kidding. Outside of Japan, more than half of the 28 worst-performing country-specific funds in Asia as ranked by the Asiaweek Bottom 50 mutual funds are in ASEAN-member countries.

Many badly burned fund managers aren't keen on jumping back to these markets anytime soon, at least while currencies remain under pressure. The Indonesian rupiah, for example, fell more than 8% against the dollar in two days October 3 and 6 before bouncing back slightly. Its Monday low of 3,850 to the $1 represented a swing to the dollar of nearly 60% since June 23. Of the overall currency turmoil, Kim Teo says: "Nobody really imagined it would be this bad and would be so prolonged. I don't think the dust has settled. I think over the next 12 months we will still see the ramifications of the currency crisis, with the possible exception of Singapore. We are not about to become buyers of Southeast Asian stocks until we have seen how the devaluations impact economic growth, inflation, consumer spending and corporate earnings."

So, how will the experts decide when enough is enough? Kim Teo says a turnaround could come in less than a year -- but he isn't betting on it. He sees his fund remaining more heavily invested in North Asia than Southeast Asia for as long as the next 18 months. HSBC's Lam says she'll look early next year at the end-of-year corporate earnings results, but she doubts she'll see improvement before mid-1998 results come out nearly a year from now. Clearly, safety is in the eye of the risk taker. Currency fluctuations can make big losers of even the best stock pickers. Until stability comes to the Asian markets, experts say the best way to play the market is to pick with extra care, or just sit it out entirely.

-- By Tim Healy and Assif Shameen


This edition's table of contents | Asiaweek home

AsiaNow


   LATEST HEADLINES:

WASHINGTON
U.S. secretary of state says China should be 'tolerant'

MANILA
Philippine government denies Estrada's claim to presidency

ALLAHABAD
Faith, madness, magic mix at sacred Hindu festival

COLOMBO
Land mine explosion kills 11 Sri Lankan soldiers

TOKYO
Japan claims StarLink found in U.S. corn sample

BANGKOK
Thai party announces first coalition partner



TIME:

COVER: President Joseph Estrada gives in to the chanting crowds on the streets of Manila and agrees to make room for his Vice President

THAILAND: Twin teenage warriors turn themselves in to Bangkok officials

CHINA: Despite official vilification, hip Chinese dig Lamaist culture

PHOTO ESSAY: Estrada Calls Snap Election

WEB-ONLY INTERVIEW: Jimmy Lai on feeling lucky -- and why he's committed to the island state



ASIAWEEK:

COVER: The DoCoMo generation - Japan's leading mobile phone company goes global

Bandwidth Boom: Racing to wire - how underseas cable systems may yet fall short

TAIWAN: Party intrigues add to Chen Shui-bian's woes

JAPAN: Japan's ruling party crushes a rebel ì at a cost

SINGAPORE: Singaporeans need to have more babies. But success breeds selfishness


Launch CNN's Desktop Ticker and get the latest news, delivered right on your desktop!

Today on CNN
 Search

Back to the top   © 2000 Asiaweek. All Rights Reserved.
Terms under which this service is provided to you.
Read our privacy guidelines.

ÿ