World investment paid off in 1997

PUBLISHED : Sunday, 08 February, 1998, 12:00am
UPDATED : Sunday, 08 February, 1998, 12:00am

A PACIFIC Ocean of red ink was not something that many managers of Asian funds, or investors, were contemplating a year ago.

World markets had continued to track nicely upwards. Asian stocks, outside Japan, continued to hold steady after a satisfactory 1996.

Big funds continued to pile into the region accepting the story of the Asian economic miracle and, in Hong Kong, the China bull market was starting anew as red chips were snapped up by funds and private investors alike.

Many players had reached that stage of suspended disbelief which is often the last danger signal before the reckoning.

A fairly chunky correction in the Asia market appeared to have worked its way through by July. 'A healthy cooling' was the optimists' consensus.

Edward Kong, an independent manager based in Hong Kong, thought otherwise. He watched markets stretching ever further ahead of economic fundamentals and decided it was time to go defensive.

In the first half, he admits, his EK Investment Management's Asia Fund was not performing spectacularly. His caution, plus a real aversion to red chips, a suspicion even of Hong Kong blue chips, proved right. By the year-end, as turmoil spread through the region, EK Asia was the only fund investing in the Asia-Pacific outside Japan, and measured by Micropal, which was still showing a gain over the year.

At less than one per cent, it was not much, but at least his clients were not losing money.

Not that there are too many who could enjoy the performance. The EK funds are not aimed at retail investors.

The best performing fund accessible to general investors was the Citi PF Ind Asia Pacific ex Japan which fell 19 per cent on the year.

The only other Asia-wide fund to finish the year on the right side of profit - albeit by the narrowest of margins - was Jardine Fleming's JF Pacific Securities, which includes Japan in its portfolio.

At the other end of the performance tables there was real pain. None was greater than at ImPac Asset Management, where the Asia Fund lost 70 per cent of its value in 12 months, one of seven funds in the Micropal Asia-Pacific ex-Japan universe which plunged more than 50 per cent over the year.

ImPac's individual country funds also emerged as some of the worst hit in the region. Its Asia Green Chips lost around 60 per cent. In Indonesia, its investments plunged by almost 80 per cent, by 70 per cent in Malaysia and, in Thailand, by 75 per cent.

Did this general shrinking of investors' funds mean, then, that Asian-based fund managers failed to earn their fees last year? Not if it is accepted that, in investment, all things are relative as far as performance measurement is concerned.

While Asian markets, excluding Japan, slumped 36 per cent last year, around 25 of the 83 funds in Micropal's grouping for the region managed to limit their losses to less than that.

This will be of small comfort to those investors who placed most of their money in the former miracle economies, especially as the once-stuffy Western markets produced some bumper returns last year.

Funds targeted on the United States, Europe and Latin America led the world performance stakes, with 30 per cent plus returns not difficult to find. There was nothing theoretical about the relative performance of the top global investor last year. Global Asset Management's GAM Global US$ Fund led the field with a 49 per cent gain, hammering home a practical lesson that spreading the risk can also mean maximising the reward.

In Hong Kong, the one fund in the Micropal list which kept its investors ahead of the money game was the local division of Barclays Bank's global investment group. The Barclays ASF Hong Kong Fund added a couple of percentage points over the year. Close to break-even, along with Govett Hong Kong Safeguard A, was the EK Hong Kong Fund, once again benefiting by steering clear of the once-fashionable red chips. The relative performance of the majority of Hong Kong-centred funds was ahead of the market, which fell around 26 per cent on the year. Of the 27 Hong Kong funds measured by Micropal, 20 matched, or did better than the index, which should make investors feel relatively better.