After struggling to restructure and retool their economies, Asia's markets purred this year. And the good news will continue into 2000.
That's the assessment of a sampling of portfolio managers running Asian equity portfolios.
Asian tech companies - along with traditional businesses forging strong ties to the telecommunications industry and the Internet - will continue to dazzle next year, the managers said.
"The whole region has had a phenomenal recovery this year," said Frank Chiang, a principal with Montgomery Asset Management LLC in San Francisco and portfolio manager of the firm's $45 million Emerging Asia Fund mutual fund.
Montgomery has about $600 million invested in Asia. The firm manages $10 billion overall, $6 billion of which is from tax-exempt institutional investors.
Subtracting Japan, Asia is likely to see economic growth this year in the range of 6% to 7%, he said. That encompasses countries such as Indonesia, which probably will see its gross domestic product grow between 1% and 2%, and South Korea, which could have growth as high as 10%.
And indexes tracking Asian markets, although not at their peek levels of 1997, have bounced back from 1998 lows. For the year-to-date, Morgan Stanley Capital International's Pacific Ex-Japan index was up more than 29% at the end of last month. And MSCI's Emerging Markets Free Asia index almost doubled that, gaining 57% over the same period.
In Hong Kong and China, shipping companies and ports should benefit from the World Trade Organization's agreement to let the world's largest communist nation join its ranks, managers said.
Good news for China
Mr. Chiang's mutual fund's top holding is China Shipping Development Co. Ltd., which he calls a "WTO play." "It's the largest shipping company in China," he said. He argues that it's bound to benefit from an increase in international trade in the wake of a WTO agreement.
He added that there was a risk of China's entrance to the WTO not passing the U.S. Congress. But Canada and Japan have already approved China's entrance, he said. China's progress is inevitable, he argued. "The ball has rolled so far down the path, China has to open its economy," he said, even if it suffers such a setback.
Another Chinese company he owns, Cheung Kong Holdings Ltd., is a diverse company with a variety of business lines. Cheung Kong is "the largest real estate company in Hong Kong, and a majority shareholder in Hutchison Whampoa Ltd., a seaport operator and telecom company," he said. Hutchison, a holding company, in turn is the largest shareholder of Mannesman AG, the German telecom company that's in the middle of a hostile takeover bid by the U.K.'s Vodafone AirTouch PLC.
Mr. Chiang holds about 80 companies in the mutual fund's portfolio. He has no exposure to Japan, Australia or New Zealand.
He also picks stocks for Montgomery's $1 billion global emerging markets fund, which is split evenly between retail and institutional assets.
Other technology or telecommunications companies he owns include: India's Infosys Technologies Ltd., a leading software company, and Videsh Sanchar Nigam Ltd., the country's monopoly phone company, which is branching into the Internet; Taiwan's Yaego Corp., which makes computer parts; and Korea Electric Power Corp., an electric monopoly, that's also expanding into the Internet.
He added that he was underweight cyclicals in the region such as petrochemical and pulp and paper companies as well as in producers of plastics.
Still attractive
Other portfolio managers agree that Asian tech companies, although many are getting expensive, are still attractive. Carmel Peters, a senior portfolio manager with Putnam Investments Inc. in Boston, said that one of her key holdings, China Telecom Ltd., is trading at a price-earnings ratio of 41. The company, however, has "almost a monopoly on the cell phone business in China," she said, and is adding 400,000 subscribers per month.
Likewise, Hutchison has a p/e of 38, while Cheung Kong's is a more down-to-earth 22.
Another of her favorites is Hong Kong's Johnson Electric Holdings Ltd., a manufacturer of micromotors used in machines and automobiles. Big U.S. carmakers such as General Motors Corp. and Ford Motor Co. buy parts from Johnson, she said.
Another believer in Asian tech stocks is Roger Sit, deputy chief investment officer with Sit Investment Associates Inc., Minneapolis. He owns Korea's Samsung Electronics as well as Taiwan Semiconductor Manufacturing Co.
The demand for tech stocks in the United States is making its mark overseas, he said. "A lot of these tech names serve companies. And the U.S. market is on fire for tech names."
In Singapore, Mr. Sit owns NatSteel Electronics Ltd., which makes circuit boards for computers, and Venture Manufacturing Ltd., an electronics manufacturer.
Sit Investment runs close to $100 million in Pacific Basin, ex-Japan, accounts, and $900 million in its Europe Australasia Far East fund. Most of those assets are from tax-exempt, institutional investors.
Some managers also pointed to HSBC Holdings, the Hong Kong bank that scooped up failing banks during the recent Asian contagion, as an important stock in their portfolios.
High ratios
Despite the high p/e ratios of some high-tech companies, value-style managers are still finding opportunities.
Singapore's Asia Pulp & Paper Co. Ltd. should benefit from the broad recovery in many countries in the region.
"There's a global tightness in paper," said Paul Ehrlichman, a managing director with Brandywine Asset Management Inc. in Wilmington, Del. Because of demand for books and manuals, Asia could see its "tightest paper market in 20 years," he said.
The company, however, does have its downside. "It's hugely indebted, but it's paying down debt," he said.
He's also been whittling back the portfolio's position on tech stocks by close to 10%. Many hit the fund's target price, he said.
And in Brandywine's EAFE portfolio, Singapore has a 4% weight vs. 1% of the benchmark, he said.
Indian auto sales
In India, he owns Bajaj Auto Ltd., a car and scooter manufacturer. The company was trading at 10 times earnings at the end of last month, he said: "Auto sales are beginning to recover" in India.
And the good news in Asia's markets should continue, although they might not reach such heady levels. Growth could taper off slightly next year, some managers said.
"Asia's recovery is sustainable," said Mr. Chiang of Montgomery, pointing to low interest rates and inflation that's under control. Governments are not likely to risk indulging in large amounts of capital spending on big-ticket items like highways, airports and power stations, he said. "We'll have a good year next year."
