The tragic events of 11 September initially affected markets indiscriminately as they priced in the ...
The tragic events of 11 September initially affected markets indiscriminately as they priced in the heightened risks to investments in stocks generally, but thereafter became more selective with airlines, tourism, insurance and media being particularly hard hit.
The consensus view is to become more defensive with the events over the past few weeks pushing the US into recession and delaying the Asian export recovery. However, there are now many attractively priced companies whose exposure is to the domestic consumer for example and they are a good buy at these distressed levels.
An example is TAC, the Thai Mobile phone operator. The company trades on a prospective PE of 7.5x 2001 and 5x 2002. This area would seem to be fairly immune to any slowdown in the world economy given the low penetration rate of mobile phones in Thailand. It is particularly heartening that a significant number of companies are taking the sell-off as an opportunity to buy back their shares.
For example, within the Atlantis Asian Recovery Fund portfolio, 10 of the 38 stocks held have had buy-backs either from a major shareholder or the company itself. Therefore, although some re-organisation of portfolios is probably required, a move into utilities and cash is probably the wrong call if one takes even a six-month view.
When there is an Asian recovery, it is likely to be modest. Asia's traditional engines of growth are exports and investment and neither is likely to perform well next year. This is because Asian exports are geared towards business investment in the US, which we think will continue to remain weak.
The exception remains China where the prospect of a vast market opening up continues to attract investment and where domestic consumption and investment is likely to remain strong, supported by the Government's pro growth policies.
The technology sector is still very weak as hopes for a recovery were delayed again. To a certain extent, we agree that the technology sector is due for further negative shocks but its continuing underperformance will be down more to its overvaluation than any further bad news.
One of the areas that has contributed to recent weakness is the property sector. Prior to September, low cost housing was showing signs of strength in the Philippines, Thailand and Malaysia, while lower interest rates and government policies were making residential property in Singapore and Hong Kong more attractive. Typical discounts to NAV of 50% plus were also compelling. Stocks have since been savaged, however, on the basis that a recovery of consumer confidence has been postponed, with Filinvest Land falling 40% for example. At least in the low cost housing area, people will continue to take advantage of low mortgage rates to start on the housing ladder.
The markets in Hong Kong and Singapore are more reliant on consumer confidence and will be more severely affected. However, all the bad news is already priced in and we are looking for a sharp recovery next year.
Stocks attractively priced for recovery.
Domestic consumer stocks favoured.
China-related stories are compelling.
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