Pioneer Investments opened a Singapore office in 2001 to complement its investment centres in Dublin and Boston. Sergio Delle Cave, senior vice president and head of Asian equities in Singapore, is part of a team of three investment managers and five analysts running $2 billion in Asian and Japanese equities. He told FinanceAsia why he thinks Asia has a promising and relatively stable future.
What marks Pioneer's investment style?
Delle Cave: We have a global process where we put a lot of emphasis on research and put it together with quant analysis that's mostly done out of Dublin and Boston. We can define it as being bottom-up driven. Of course when it comes to emerging markets you have to take a view of political and macro considerations, but currently we see emerging markets are not at a particularly high or low point. We see normal macro conditions in Asia, which means we can concentrate on stock-picking. We believe a careful, medium- to long-term bottom-up approach pays off.
Asia's been known as more a trader's market.
It was true in the past. Sometimes a buy-and-hold strategy requires discipline. But volatility is becoming a global trend. This year Germany's DAX has been the most volatile market in the world, and Asia has been relatively stable. Buy and hold can work here, especially when you deal with blue chips like Samsung Electronics or Posco. I've been investing in Asia since 1996 and it's the place to be.
Why?
It's a combination of things: interesting valuations, and many companies are becoming leaders of their own sector worldwide. Everyone's familiar with Samsung Electronics or Hyundai Motors or Taiwan Semiconductor. There's better corporate governance and transparency. The earning power of companies here is steadily growing. Asia's made huge inroads in the electronics sector, for example, and in mobiles. It's well positioned in flat panel displays and digital cameras - not just Japanese companies but Korean and Taiwanese ones too.
Another interesting phenomenon is pharmaceutical companies in India like Dr. Reddy's or Ranbaxy. They're not in a position to challenge the big global names, but are gaining as developed companies cut costs. Infosys is a good example of a software company that has gained international investor attention, and these pharmaceutical companies can do the same.
What are your country over- and underweights?
We're massively underweight Australia. We simply find better opportunities elsewhere. Many stocks there are expensive or at a different point in the earnings cycle. We're overweight banks in Asia but underweight them in Australia. We've been overweight Hong Kong, Singapore, Taiwan and Korea. We have recently gone overweight Thailand, which is consensus, and Indonesia, which entails more risk but the market is fairly priced. Telkom Indonesia, for example, is a cheap growth company.
You like Asian banks. In countries like Japan, Korea and Taiwan, it seems people there are good at manufacturing and electronics, but their banking systems are a mess.
Well, we know they're not great bankers, we've seen what the Koreans have done with credit cards, for example. But their valuations are cheap, and their banks are improving. It's encouraging to see private equity deals and foreign banks express M&A interest in the likes of KEB or Hana Bank. A lot of foreign firms are spending money in Japanese private equity and leveraged buyouts. There are a lot of challenges but the bank sector is improving.
Hong Kong and Singapore are recently back in vogue but you say your overweight has been in place for some time.
Yes, since the start of the year. Their role as middlemen is diminishing, but their economies will benefit from the region's improved growth outlook. And you find very well run companies in these two markets. The banks, for example, are really well positioned for long-term growth.
And Hong Kong property stocks?
We saw the best of the property market in 1997 and I don't think we'll see it soon again. The sector will grow in line with the general economy. There's been a rise in valuations but they were very cheap during the Sars crisis. Mainland people are starting to buy property in Hong Kong. And the property companies here, and in Singapore, are really well run. No major property companies went bust, did they?
Asia's beginning to see capital inflows. Is there a risk of a return to silly money?
Our firm globally is doubly overweight Asia and Japan. In terms of market cap and GDP, the stock markets here are still underrepresented in the global investment universe. This will change, slowly, I hope. It would be fantastic to wake up in five years and find we'd doubled our money.
Except this is Asia, says the jaded cynic, it doesn't seem to happen that way.
But now even the US and Europe are that way. And there's much more discipline in how investments are made in Asia. There are exceptions, of course: China is full of misallocations of capital, and Korea had its credit card mess, but the trend is favourable. Even Taiwanese tech companies are showing signs of restraint in how they invest. I hope the embryonic M&A activity in Asia gains ground. Intra-regional trade is gaining ground; even Singapore and Malaysia are a touch more liberal with each other than in the past. And there's just so much liquidity now. If there isn't another major crisis, that liquidity in the banking system will feed itself either into equities or into real economic activity. Either way, it's a positive thing.
