Asian investment specialist Mark W. Headley will long remember his last trip to Malaysia.
It came in September, when the country's brokerage community was riddled with fear. Local brokers and other financiers, he recalled, were being tainted as lackies of evil foreign speculators. Governmental "internal security was questioning brokers and analysts about their communications." At the time, "there was a national crusade to blame everything" going wrong with the economy on a conspiracy. And "brokers were really scared. They were whispering to me and looking over their shoulders at restaurants. They were worried about being followed and were sure their phones were tapped," recalled the managing director of Matthews International Funds in San Francisco.
In fact, after discussing his observations with a local journalist -- including his view that "Big Brother is trying to run the (Malaysian) stock market" -- the reporter offered Mr. Headley some chilling advice. He suggested Mr. Headley "might want to be careful about coming back to Malaysia," the money manager said.
That's not advice Mr. Headley and others at Matthews International plan to follow. But the episode does dramatize the difficulties for Asian investment specialists now.
Besides coping with some governments' paranoia about foreigners, managers in Asia also have exceptionally serious financial developments to grapple with. These include the meltdown of Asian markets, the plunge in value of portfolios and the need to assuage clients' concerns.
This year, Matthews' Pacific Tiger fund, a mutual fund that invests in Asia excluding Japan, fell 33% through Nov. 30. During that same period, the Morgan Stanley Capital International All-country Far East ex-Japan index tumbled 38%. And T hailand's market, the region's worst performer, dove 70% in dollar terms.
Looking ahead, good times aren't right around the corner, although financial markets should recover before the overall economies. Indeed, Matthews sees the region's financial markets stabilizing soon. "Confidence will return to the markets of the region as currencies stabilize and the risk premium being attached to Asian companies declines," said G. Paul Matthews, president of Matthews International Funds. He feels the market stabilization could occur in the next couple of months.
But for now, unruly conditions require extra attention. For Matthews International, this has required more extensive monitoring of the situation as well as portfolio adjustments. As its overall tactic, the firm has been taking bigger bets on companies expected best to weather the financial storm. For example, about 38% of the Pacific Tiger fund is invested in its 10 largest holdings.
In stock picking, Matthews managers have been downplaying Asia's financial sector and has almost eliminated property holdings.
Instead, they have honed in on companies providing necessary services, such as electric utilities and telephone companies, and exporters, which should benefit from the weakened currencies. For example, in Malaysia, the firm owns the stock of Star Publishing Co., a newspaper publisher, and Berjaya Sports Toto Berhad, a casino company. Among midcapitalization companies, it likes Hong Kong's Vitasoy International Holdings Ltd., which sells packaged soy milk and tofu, and exporters Venture Manufacturing in Singapore and Samsung Electronics in South Korea, said Mr. Matthews.
Among countries, the firm now favors China, and has raised the Pacific Tiger fund's weighting to that market to about 26% from about 15% at the beginning of the year. In the short-term, firm officials believe China holds the best economic prospects in the Asian region.