Sector Idea : Short Hong Kong Developers
‘The recent rise, bordering on euphoria, in Hong Kong developer stocks is setting up a very promising
opportunity to take profits or to short.
The seductive twin arguments of falling US interest rates and more friendly government policies have
seen developers like Sun Hung Kai Properties and Henderson Land approach their former price highs long before we have had market clearing and let all the air out of the near 30 year-old asset bubble
100
90
Sell
SHK Properties
-28.9%
The market has yet to recognise that Hong Kong
developers are in the midst of a very painful and very
lengthy transition. They are still seen purely as
cyclical animals as opposed to beasts whose
fundamental nature must change
80
70
60
50
40
30
20
Jun-00
Henderson Land
Their business has to change from having high
margins and low volumes in land-scarce Hong Kong
to having lower margins and high volumes in landplentiful China. This is at least a 5-10 year process
during which overpriced landbanks in Hong Kong
have to be run down before the benefits of
expansion from China drive the full recovery.
-34.7%
Dec-00
Jun-01
This is a structural issue that the market has ignored
and hence mispriced.’
8 March Hong Kong Developers
Market Idea : Thailand
‘About To Come Right’
Dollar Adjusted Indices
• '7-Year Bear Market
Ending'
140
120
SET
• '5-Year Bull Market Ahead'
• 'Solid Positives Ignored'
100
STI
80
Hang Seng
60
Jan-01
Jul-01
Source: Reuters
• Misconceptions
- Economy Stalling
- Reform
- Earnings
- Market and Value
- Politics
• Thailand's Strengths
September 2000
Big Idea : Overweight Southeast Asia
• Overweight Southeast Asia - we are not joking - for its relatively defensive qualities until
the US recovery is in sight.
• Domestic resilience, supported by recovering natural resource-based incomes and by
much higher local content in Southeast Asian exports, is likely to see the region in the
second half again outperform Northeast Asia.
Index Targets: 2001-2003
16 Aug
01
Thailand
318
Philippines 1,325
Indonesia
436
Malaysia
656
End 01
380
1,450
480
800
% Chg
Below
High
End 02
19.5
9.4
10.1
22.0
(59.0)
(57.9)
(35.2)
(37.1)
500
1,700
550
900
% Chg
Below
High
End 03
57.2
28.3
26.1
37.2
(46.0)
(50.7)
(25.8)
(29.2)
600
1,900
600
900
% Chg
Below
High
88.7
43.4
37.6
37.2
(35.2)
(44.9)
(19.0)
(29.2)
Source : Research-Works estimates
2 Aug Overweight SE Asia
Big Idea : Overweight Southeast Asia
Getting Exports In Perspective
of Exports
NaturalResources
Resources **
% of%Exports
Natural
• Why Overweight Southeast Asia? :
Defensive
% of Exports *
0
0
60
20 20 4040 60
80
80
100
100
Indonesia
78.8
Indonesia
78.8
Thailand
64.7
Thailand
64.7
Malaysia
55.1
Malaysia
55.1
Philippines
50.9
Singapore
Philippines
50.9
26.2
Singapore
26.2
Korea
11.2
Korea
11.2
Taiwan
4.4
Taiwan
4.4
* Adjusted for
local content and value-added in exports
* Adjusted for local content and value-added in exports
2001’sAsia
Unexpected
Stockmarket RelativeOutperformer
Performance
- Seek relative safety of exporters with higher
local content : natural resource-rich SE Asian
economies
- SE Asia's commodities with +90% local
content show signs of ending 10-15 year
declines : palm oil up 50%, coconut oil up 30%
: major income sources in Malaysia, Indonesia,
Philippines.
- Tourism a consistent hard dollar earner,
beneficiary of improving social stability
130
110
• Political events are giving Southeast Asians a
sense that after four very difficult years they
have a second chance to recover from the
Asian Crisis and its after effects.
3
90
Korea,Taiwan
Safe Havens
ASEAN 4
70
Jan-01
Jul-01
Source: CEIC
2 Aug Overweight SE Asia
Big Idea : China
• ‘The most important long term decision that fund managers can make this year is to
spend much more time getting to know China. Not only is it nearly 30% of regional
market cap but 13 China Mega Trends will support some of Asia's best performance.
Investors' perceptions lag reality or are fogged by out-dated experience. No longer can
China be ignored.’
First Time Since 1949…
• Mega Trends will change China beyond recognition:
Historic Moment In 2002
% Share of Industrial Output
80
70
60
- Private Property: critical to private sector-led economy
Private Sector
- Housing Reform: creates instant wealth
Mortgage Market Developing: 20% of urban new loans
TVE
- Consumerism Taking Off: $500 bn market larger than
Korea, Taiwan, Hong Kong and Singapore combined
50
50
40
30
20
State
Enterprises
10
0
80 90
- Private Sector Dominance: overtakes state in 2002
94
98
02E
Research-Works Forecast
Source: 2000 China Statistical
Yearbook
- New Mindsets: post Cultural Revolution generation
- End of Deflation: investment, consumption boosted
- More Taiwans: Taiwan companies pouring capital and
people into Mainland at an accelerating rate
15 May China – The Most Important Decision
Macro Idea : Asian Currencies
Broad Dollar Index
130
120
Dollar
Weakness
Ahead
• ‘The recent weakness of Asian currencies, with
everything in thrall to the strong US dollar, strikes
us as a misconception about what lies ahead
over the rest of 2001’
110
• ‘Don't assume strong US dollar is permanent’
100
• ‘US imbalances unlikely to be ignored forever’
90
• ‘Only 20-30% US dollar fall can rebalance trade’
80
• ‘China could surprise: more flexibility,
appreciation’
73 77 81 85 89 93 94 01
19 April Asian Currencies