| Managers of South
East Asia regional funds have had a torrid time
of late. Through 1997, and particularly in
September, the endemic problems of the Asean
markets were the focus of attention and most
managers were directing their attention towards
Hong Kong and China and the North Asian markets
of Korea and Taiwan. Perhaps this move northwards
was most evident in September itself when the
average South East Asian offshore fund Hong
Kong/China weighting advanced to 47% - against a
benchmark neutral position of 39%. It seemed
obvious at the time that Hong Kong would be the
safe haven. Very few managers could have
predicted the attack on the Hong Kong Dollar and
the other events which undermined the Hong Kong
market. As a result, almost all South East
Asia regional funds were caught. Few managers had
built up any sensible cash position. The average
fund featured a 11.3% weighting at a time when
redemptions were on the increase. Those managers
who moved towards Korea have now been affected
with the problems with the Won and the deep
rooted issues affecting the Korean economic
infrastructure.
Perhaps some semblance of normality is
beginning to return but most of the leading
managers remain sanguine about the prospects for
South East Asia in the next year. Whilst the IMF
have bailed out Indonesia, there still remain
major structural issues in Thailand and Malaysia
and it may be some time before we see investors
return with any enthusiasm to these markets.
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Hong Kong is likely
to be the favoured focus largely on safety and
liquidity grounds. Most fund managers take the
view that the Hong Kong Dollar peg will remain
intact and there is a strong focus on the blue
chips which were heavily sold down recently. What
type of fund should investors be looking for and
is style an important issue at present. Whilst
the markets were enjoying the solid advance in
the early 1990s the emphasis was clearly towards
growth investors. It was not difficult, however,
to make money in a region which saw all markets
powering ahead. Little heed was paid to the
intrinsic value of companies. Earnings growth was
the main attraction. All this has now changed. We
will need to see managers being much more
disciplined and careful about stock selection. We
could be moving into the era of the value manager
and several of the leading exponents of this
culture have been buying what they see as
companies selling at bargain basement prices.
We take the view that investors who follow
value driven managers will reap sound long term
rewards. Further, those funds which can be nimble
in moving between markets as opportunities arise
should also do well. These are likely to be the
small to medium sized funds rather than the
"ocean liners" which cannot actively
change emphasis between markets.
Further information can
be obtained from Forsyth Partners on 0181 649
9440
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