| BUSINESSWEEK ONLINE : JUNE 26, 2000 ISSUE | ||||||||
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| COVER STORY
For Careful Shoppers, Bargains in East Asia In spite of instability, the long view is promising With all the talk about America's strong economic growth, it's easy to overlook one important fact. East Asia, with the notable exception of Japan, is actually the world's fastest-growing region. It expanded by about 5% in 1999, and is expected to grow some 6% this year. Of course, those figures are cold comfort for global investors, given the market gyrations across the region since February. First came the global train wreck in dot-com shares, which hit the Tokyo and Seoul exchanges particularly hard. Then, a round of U.S. interest-rate hikes punished dollar-linked economies such as Hong Kong. On top of that, there's still a sizeable corporate-, bank-, and government-debt overhang in South Korea, Thailand, Indonesia, and China. Looking ahead, the question most global investors are asking is whether U.S. stock market instability--or worse, a hard landing in Asia's vital export market--will touch off another round of indiscriminate selling. It's easy to imagine good Asian companies dragged down with the bad. Plus, the heavy deficit spending that is jump-starting demand in Japan, Korea, Thailand, Indonesia, and China will have to end one day. If domestic consumption slows as export demand falters, these markets could be in trouble. CRASH DIETS. But the hope is that Asia will be less vulnerable to market swings on Wall Street and slowing economic growth on Main Street as their own domestic-led recoveries take hold. The way to invest in Asia now is to latch on to credible restructuring plays, information-technology and telecom leaders, and Internet startups. Money pros say that plenty of companies are dead serious about their crash corporate diets. And, believe it or not, some Net stocks still have a lot of life in them. The impact of Wall Street's spring funk was felt keenly in Tokyo, where the benchmark Nikkei index has fallen 20% since early April. David Scott, a fund manager with Jardine Investment Trust & Advisory Co., thinks investors may have overreacted. Indeed, the slide in two big-name Internet stocks, Softbank Corp. and Hikari Tsushin Inc., by 70% and 90% respectively over the past three months, has scared off a lot of investors. But consider Yahoo! Japan, the nation's biggest portal. Its profits soared sixfold last year, to $11 million, thanks to a surge in online advertising. Its stock, down 50% since February, still trades at an incredible $394,000 a share. ''It is clearly one of the winners,'' says Scott. He also likes Drake Beam Morin-Japan Inc., which designs company outplacement programs. It recently reported a 170% jump in half-year net income, thanks to a corporate restructuring wave. And HSBC equity strategist Garry Evans recommends Kirin Beverage, now trading near a 52-week high of $26 per share. It is buying up other soft-drink makers in Japan's fragmented food industry. Japanese consumer stocks are one thing. But, analysts say, it is best to steer clear of smokestack players in the shipbuilding and steel industries. They are burdened with heavy debt and face leaner rivals in South Korea. Ditto for the banks. Although major banks, such as Sakura and Sanwa, are back in the black, that's largely due to one-time gains in their stock portfolios, warns ING Barings analyst James Fiorillo. Better to look at regional players moving faster to fix their balance sheets. Fiorillo likes Joyo Bank, now trading near a year high of $4 per share. The market is just as bipolar in Seoul, where the benchmark Kospi index has shed 18.6% of its value since Jan. 1. The mighty Hyundai Group and Daewoo Corp. are suffering a cash crunch. But Kang Shin Woo, chief investment officer at Templeton Investment Trust Management, says there is still a ''rosy spot in old-line businesses.'' His picks: Pohang Iron & Steel Co., one of the most efficient steelmakers in the world, and Korea Electric Power Corp., which Kang figures is the best utility buy in the region. Pohang's share price has fallen 5% this year to $95; its earnings per share could reach $19.10 in 2000, up 32% from 1999. Korea Electric's earnings per share should rise 30% to $2.70 this year. Samsung Electronics has also impressed analysts by cutting a third of its workforce and saving $3 billion by shedding noncore units. It's now benefiting from the global computer-chip boom and increasing demand for liquid-crystal displays. Hence, the 32% runup in its shares this year to $313.40. Another favorite is SK Telecom Co. (SKM), which boasts a 58% share of Korea's fast-growing wireless phone market. Chang In Whan, president of KTB Asset Management in Seoul, thinks the company's earnings per share will jump 130% this year, from $3.50 in 1999. NO SURPRISE. The prospect of continued credit tightening by the Fed, even in small increments, has darkened the outlook for most property and bank stocks. No surprise then that Hong Kong's Hang Seng index, which is dominated by such companies, is off 6.5% on the year. Still, Anil Daswani, an equity strategist with Salomon Smith Barney in Hong Kong, likes two big conglomerates: CITIC Pacific and Hutchison Whampoa. But that's because of their tech strategies. CITIC is set to capitalize on its newly laid fiber-optic system, while Hutchison looks strong thanks to its focus on third-generation wireless technology. CITIC was trading at $5.15 on June 9; Daswani believes it could go as high as $6.42. The global shortage of computer chips and Taiwan's critical role as a supplier for all manner of high-tech manufacturing pushed the Taipei market up 10% so far this year. That has meant good times for Taiwan Semiconductor Manufacturing Co. (TSM) and United Microelectronics Corp. of Taiwan. Analysts say that Taiwan Semiconductor's earnings per share could double this year. The Thai market, which has dropped 30% since January, offers a few bargains too, says Sriyan Pietersz, head of research at SG Asia Credit Securities. Advanced Info Service, Thailand's leading cellular service provider and handset seller, should benefit from the growing demand for Net-linked smart phones. He expects the stock to jump 40% over the next year, from $12.56 on June 9. Pietersz also likes Thai Farmers Bank and Siam Commercial Bank. They have strengthened their balance sheets and are fully provisioned against dud loans. He thinks both stocks will double in value over the next year. Thai banks may not be for everybody. And the regional recovery may be nascent. But despite the day-to-day lurches in the markets, East Asia is moving to more solid ground. Most global investors can't afford to ignore that. By BRIAN BREMNER With Frederik Balfour in Hong Kong, and Moon Ihlwan in Seoul _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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