Fund managers are increasingly positive on the longer-term outlook for Asia's New Economy stocks, des...
To the start of May, the Asia technology sector had fallen around 15% since its high at the end of March, compared with the Nasdaq which stood around 27% off its peak.
Robert Conlon, fund manager at Investec Guinness Flight, believes the sector in Asia has to some extent been unfairly de-rated, given its number of profitable businesses.
He says: "The correction in the Nasdaq has largely been down to the much-hyped dot.com stocks which were effectively valued on a 'price-to-concept' basis and some of which have now seen falls of 80%.
"However, most of the businesses in Asia's technology sector are of a higher quality than this and have real earnings. In addition, Asia has no connection with the problems Microsoft has been having.
"But technology stocks have been climbing for the last 12 months, so a correction is probably a healthy thing as it is never good to have a consensus on the outlook for a sector."
Conlon believes the New Economy is five or more years behind the US, but many Asian companies have now got the message and, as a result, the pace of development is explosive.
"The underlying growth dynamic is certainly present. The number of Asian internet users almost doubled in 1999 to 18 million and over 100 million are expected to be online by 2005," he remarks.
The sector is also relatively cheap, Conlon points out. Samsung, the world's largest manufacturer of memory circuits as well as the number one global manufacturer of flat screens for TVs and PCs, is also the world's fourth largest maker of mobile phones. It recently reported first quarter profits up 354% year on year and is currently trading at a P/E of 9.3x 2001 earnings, compared with Nokia at 18x or US based Motorola at 27x.
Conlon is also positive on companies that will profit from moving either all or a portion of their business onto the internet. A classic example is Singapore Press Holdings.
He says: "The company has the traditional newspaper operation, which is not strictly speaking a new economy play but which is incidentally doing well out of selling ad lineage to internet providers and mobile operators.
"In addition, however, the company has its website, AsiaOne, and also owns a 30% stake in Singapore mobile phone operator M1. All three of the underlying businesses are doing well and last year saw a share buy-back as well as a significant increase in dividend."
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