Investors tend to think of pan-Asia as a growth story — and with good reason. Most Asian countries are growing their GDPs at double or more of the annual growth of developed markets. Most investors go to Asia in search of this growth story. But in our experience, Asia offers equal and perhaps superior opportunities for value investors.
It seems counterintuitive. How is it possible for economies that experience double-digit growth to present deep value opportunities for investors who follow the tenets of Graham & Dodd? Several factors combine to make this so. First, companies in Asia are judged almost solely on their growth prospects, and the markets have little patience for stocks of companies that are growing but miss lofty quarterly targets (expanding, say, at 12% to 15% instead of 18% to 20%-plus annually). So these stocks can get beaten up very quickly. Second, many companies in Asia pay solid dividends, with yields as high as 6% to 10%. Taking the opportunity to invest in good companies with good earnings streams at good value provides the value-minded investor with rewards over the long term.
The nature of many high-growth Asian markets provides an unusual opportunity for the value investor. Because most outside investors go to Asian markets for growth, and most local investors focus on growth and momentum investing as well, one ends up with a situation where high-quality companies can be significantly mispriced. As a matter of fact, in our experience these markets offer the value investor a level of opportunity not seen in the more developed markets, where value investing is typically practiced.