When they talk, other experts listen
Naomi Rovnick, Jasper Moiseiwitsch
Newspapers and financial television channels feature talking heads giving opinions on the latest trends. But who do professional money managers view as truly influential?
We put this question to a random sample of 20 fund managers, senior traders, financial planners and retail stockbrokers. Their answers illustrate whose advice retail investors seeking to follow stock market momentum should make sure they listen to, given their words or actions are likely to move prices.
The following list reflects the feedback of this informal survey, and includes a dollop of editorial judgment. One finding is apparent: those who speak up about unpleasant facts tend to eventually win recognition for credibility and an independent point of view.
David Webb, editor, Webb-site.com
'For the people since 1998', goes the tag line for Webb-site.com, which is edited by David Webb. The free site has a stripped down, non-profit look to it. There are no fancy graphics, the design has largely been fixed since launch and there is no advertising.
This campaigning private investor, who works from a spare bedroom in his Mid-Levels home, is known for spotting questionable goings-on at companies and going public with his findings. Webb, a former investment banker, gets most of his facts from a Talmudic poring over of stock exchange filings and other public data. The information is freely available. But few sell-side analysts pick up what Webb sees.
And, armed with little more than the internet and the help of one assistant, Webb's impact can go far beyond the best brokerage research teams.
In February 2009, Webb publicised an unusual distribution of thousands of PCCW shares to new owners, just weeks before a vote to approve a buyout of the telecoms operator led by chairman Richard Li Tzar-kai. The Securities and Futures Commission went to court to block the privatisation, arguing the vote was rigged. The firm never admitted wrongdoing but the court eventually blocked the privatisation, following an investigation by the Securities and Futures Commission.
In March 2004, Webb homed in on a tiny property developer called Grand Field, questioning its investment in a Chongqing gas pipeline. Six years later, a Hong Kong district judge said the investment was a vehicle to fleece shareholders, finding the chairman and his wife guilty of fraud.
A scathing report July 26, 2007 on EganaGoldpfeil, a jeweller, was followed by a 48 per cent share price fall the next day. The company delisted from the Hong Kong exchange in January this year.
The list goes on and on. Webb has investigated and reported on scores of Hong Kong-listed firms, often with a devastating effect on the share price. He does not profit from his calls by short-selling the stocks ahead of releasing his research, although he reserves the right to do so.
Webb also used to write the occasional positive report, what he called his Christmas pick. These were avidly followed by investors. Between 1999 and 2008 investors would have made a compounded return of 1,118 per cent (Webb's calculation) if they rotated out of each investment each year to buy his latest recommended stock.
Carson Block, head of Muddy Waters
Block is an American private investor and former corporate lawyer who makes his living from short-selling Chinese companies. Through an investment vehicle named Muddy Waters, he issues critical research about mainland firms after placing a bet the stock will fall and in the hope of profiting from that decline.
Last June, Block claimed Sino-Forest, a timber company that was the largest Toronto-listed Chinese firm by market capitalisation, had faked its accounts. Since then, Sino-Forest, which is suing Block for defamation, has been declared insolvent and shareholders have lost over US$3 billion.
While he is yet to report on any Hong Kong traded firm, Block has had an influence over fund managers who invest in the territory. As a local hedge fund manager explains, Block has inspired investors here to scrutinise Chinese firms' accounting methods. Muddy Waters began issuing sceptical research about US-listed Chinese companies in late 2010. 'It was not a huge intellectual leap to look into whether Hong Kong traded firms had problems, too,' the hedge fund manager says.
Sino Forest was Muddy Waters' most spectacular attack. Block has also issued damning reports on the mainland digital ad firm Focus Media and Taiwanese chip designer Spreadtrum Communications, resulting in large and immediate price falls. The Hong Kong-listed pork supplier China Yurun dropped 20 per cent on June 27, 2011, on the rumour that Muddy Waters was preparing a report on the firm (it never materialised).
'Sino-Forest got us looking more forensically at Chinese companies, instead of relying on the opinions of auditors,' says a mutual fund manager who requested anonymity.
Cheah Cheng Hye, chairman, Value Partners
This Malaysian Chinese Wall Street Journal reporter turned fund manager founded Value Partners, a Hong Kong-listed asset manager, with Executive Council member V Nee Yeh in 1993.
Cheah is not high profile. But his stock picks are closely covered by the local press, at least when he is required to file his trades with the Hong Kong exchange.
'Retail investors closely follow what Value Partners is buying on the Hong Kong stock exchange because they assume its stock picks will be very well researched,' says Kenny Tang of AMTD Financial Planning.
Apple Daily picked up on a stock exchange filing to report that Cheah bought shares in Brilliance China Automotive in September 2010. Three months after that purchase, the stock rose 20 per cent.
Cheah sold shares in Zhaojin Mining in April 2011, as reported by Economic Digest and three months after the fact the stock was down 13 per cent.
In another example, Cheah bought shares in Hisense Kelon Electrical in October 2010, as reported by Sing Tao Daily and disclosed in exchange filings. The stock climbed 38 per cent over the next three months.
And so on ... Cheah's record is not 100 per cent. Trades disclosed on the stock exchange reveal lots of bad bets. But his moves are diligently recorded in the local press as examples for the public to follow.
Since inception in 1993, the firm's oldest investment vehicle, the Classic Fund, has returned an average annualised return of 17 per cent. The return since launch is more than 1,900 per cent.
Cheah and his team visit 2,500 companies each year, according to Value Partners' 2011 annual report.
Lee Shau-kee, chairman, Henderson Land
Known for his pithy sound bites, Lee was an active cornerstone investor on large China privatisation listings. He punted US$200 million on the China Life IPO in 2003, and US$100 million on China Shenhua's 2005 Hong Kong listing. Both paid off.
In 2004 he launched a personal trust, Shau Kee Financial Enterprises, with HK$50 billion in seed capital. Its value swelled to HK$200 billion at the height of the market in 2007.
Lee's reputation as a star stock picker soared, winning him plaques from investment banks describing him as a 'God of Stock Investment'.
At the height of his reputation, he frequently went on the record discussing stock calls and index predictions, and the public eagerly followed his tips.
Things have calmed down since then. As with many star stock pickers, Lee fared better in bull markets than in bear periods, and his reputation has dimmed of late. In May 2008, for example, he said the index would rise to the 30,000 level by August, the month of the Beijing Olympics, which was a bad call (the index dropped 19 per cent by the end of August and it finished 2008 at the 14,000 level).
Lee does not talk about investing these days and does not commonly come up as a cornerstone investor on new listings. His stock-picking status has become less godlike. But given the market's performance in recent years, his retreat seems another shrewd call.
Liu Yang, chairman, Atlantis Investment Management
This mainland fund manager oversees about US$3 billion of investments at the helm of Atlantis Investment Management, which is also the largest asset manager in Asia controlled by a woman.
An alumnus of Citic Group, Liu has been a fund manager for two decades and has a loyal following among Hong Kong retail investors. 'They perceive her as having good connections in the mainland and a detailed knowledge of policy,' says Kenny Tang, general manager of AMTD Financial Planning.
Her Atlantis China Fund, with US$342 million under management, has risen roughly fivefold in value since its inception in 2003.
An exuberantly outspoken woman who favours large pieces of jewellery and bouffant hair, Liu appears regularly on television discussing her trades.
On April 30, 2008, Liu said she was 'taking a rest' from Chinese equities. Good call. The Hang Seng China Enterprises Index dropped 45 per cent during the rest of that year.
She told Bloomberg last July that she short sold the Hang Seng Index in October 2010, when it was trading at around 24,900, and closed out her position last June after the market had fallen 3,000 points.
But not all her predictions work out so well. In that same Bloomberg interview, Liu insisted the Hong Kong stock market would 'turn around' within three months, because mainland stocks were oversold. This presaged a huge slump in the Hang Seng that continues to this day.
David Cui, China strategist, Bank of America Merrill Lynch
Cui is gaining a reputation as China bear. Recent market performance has vindicated that view.
He started to go negative on the mainland in early 2010, citing the usual factors such as inflation, bad debt in the banking system and distortions in the property market.
In September 2011, he hosted a conference call with investors, during which he spoke about systemic risks within the mainland and the possibility of a hard landing for the economy. The call, which was followed by a detailed report, was influential. It was picked up widely in press reports. Cui became the man most identified with the bear view of the mainland economy.
It goes without saying that banks generally do not like to be associated with overly negative calls on large economies. It's bad for business. Had Cui been wrong on his forecast he might have had to brush up his resume, or think about returning to his old career as an internet stock analyst.
Instead, the mainland economy grew 8.1 per cent in the first quarter, its slowest pace in nearly three years, amid weak demand in key export markets and sluggish construction activity at home. Predictions for the second half of 2012 are increasingly looking at less than 8 per cent growth. Cui's forecast was on the money and investors who followed his advice - selling down China equities in 2010 through 2011 - would have saved themselves a lot of money.
Confirming his credibility among fund managers Institutional Investor magazine recently ranked the Shanghai-based Cui as its top China strategist for the second year running.
- Value, in millions of US dollars, of Liu Yang's Atlantis China Fund. It has gone up five times in value since launching in 2003