Although the global financial crisis is far from over, real value of asset prices have started to emerge, planting a sign that it is already the right time to buy quality stocks and bonds.
Singapore-based Aberdeen Asset Management Asia Limited business development director Donald Amstad said while the fund manager did not advise investors on when to enter the market, he believed it was good time to start investing selectively in good quality stocks and corporate bonds.
“If you have RM100, don’t put all of it into the market today. You probably want to put RM10 this month and another RM10 the following month. But the bottom line is, it is okay to start nibbling at certain stocks and corporate bonds,” he told The Edge Financial Daily in a recent interview.
However, he cautioned that investors should be careful and selective in choosing the equities and bonds to invest in, especially in an environment when the de-leveraging of asset prices was not over.
“We still expect further de-leveraging in asset prices, especially among the G-7 nation banks, as defaults are still rising in mortgages in the US, including the good mortgages segment and in new market sectors,” he said.
Nevertheless, Amstad said Aberdeen was generally not concerned about the vagaries of the market or if the market crisis had bottomed out, as it was always on the lookout for good companies.
“The companies that will do well will be those that are cash-rich. This is because these companies will be able to buy assets at distressed prices, from the over-leveraged investors that are selling these assets, which they overpaid two to three years ago,” he said.
He expects share prices of good companies to recover within the next five years.
Aberdeen Asset Management Asia Ltd strategist Peter Elston said the fund manager did not invest from a “top-down perspective” and hence, did not have any preference for investing in any particular region.
“We would look for companies with good corporate governance to minority shareholders, good balance sheet and give excess returns on capital, as well as sustainable competitive advantages that a company has,” he said.
Elston said the fund manager would generally aim at outperforming the MSCI Emerging Markets Index in three to five years, given that Aberdeen held a medium- to long-term view on its investments.
Amstad said Aberdeen had broad confidence in Asia because of its large current account surpluses, sound government fiscal policies and generally low debt and leverage that would form a good foundation to recover from external shocks.
Nevertheless, he said Aberdeen had always invested in Malaysia, Singapore, Hong Kong and India, but not Japan, China, Korea and Taiwan.
“We like companies that always act in the best interests of their minority shareholders, which we are not always able to find in these places. For instance, in Japan, there is a strong sense of social obligation, while in China, there are many state-run banks where the government dictated on when they should lend.
“We want the management to decide on these issues and lend at sensible prices, and we find that banks in India, Malaysia, Hong Kong and Singapore generally lend money to people at sensible prices,” he said.
Elston said Aberdeen had 3.2% of its funds invested in local stocks, including Bumiputra-Commerce Holdings Bhd and Public Bank Bhd. “We like these two banks because we think they are well-managed and we like the banking model, as well as the barriers of entry implemented by the regulators,” he said.
He also believed that emerging markets would play a key role in the global economy arena, as demand in the West collapsed.
“This is the century of emerging economies, where they will take over the developed economies. Forecasts have suggested that the gross domestic product (GDP) of emerging markets will exceed the GDP of developed countries by 2030.
“Even then, the emerging economies would expand even larger, given that these economies cover 85% of the world’s population,” he said.
Elston believed that many emerging economies would be able to stand on their own, and that these emerging economies would have a higher intra-region dependency, and wean off dependency on consumption by the West and developed economies.
“In the last two years, many economies still have not decoupled, but we are now seeing true decoupling, since end-October last year.
“China has the pent-up demand that will enable the country to absorb the demand, which was traditionally consumed by the US.
“For instance, there is one car per 100 people in China, compared with 80 cars per 100 people in the US. Hence, it is important for Malaysia to align itself to the Chinese economy,” he said, adding that, nevertheless, it would take a few more decades before China would overtake US as the global economic superpower.
However, he did not find Eastern Europe as attractive, given that these markets were strained by high levels of foreign debt. “The good news is that these are long-term debts, which give them time to unwind their positions,” he said.
This article appeared in The Edge Financial Daily, April 20, 2009.
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