'Dr Doom' turns bullish on discounted regional stocks

PUBLISHED : Monday, 13 July, 1998, 12:00am
UPDATED : Monday, 13 July, 1998, 12:00am

'Dr Doom' Marc Faber - the pessimists' pessimist when market forecasting - has turned bullish on Asian stocks, describing them as 'the buy of the century'.

In his latest release to clients, Mr Faber said after the dramatic falls of the past 12 months many stocks across the region were attractively priced relative to the perceived risks.

Asian stocks were likely to outperform developed-market shares in the coming years should companies fully repudiate their debt burdens, he said.

'I feel Indonesian as well as other equities in Asia are attractively priced, given the risks,' he said. 'In fact, one could argue the worse the economic and social conditions become, the more attractive equities would be . . . because with further deterioration of the Asia economies, debt repudiation would become the only available option.' Indonesia's lead index has fallen 89.79 per cent in US dollar terms over the past 12 months, while Thailand is down 69.3 per cent, South Korea 73.01 per cent and Hong Kong 46.12 per cent.

Mr Faber argued that investors could now pick up hugely discounted assets and access to brands and products with good potential.

He highlighted Indonesian clove-cigarette manufacturer Sampoerna, which had combined debt and market capitalisation of US$560 million.

'According to the Sampoerna family . . . the value of their assets [inventories of tobacco and cloves, machinery, buildings, and land] amount to about $600 million,' Mr Faber said.

'Thus, a buyer of the entire company at current valuation could get an ongoing business at cost without paying anything for its extremely well-established brands.' The potential for investor gains would increase if Sampoerna - and other Asian firms which do not have US-dollar earnings streams - were subject to some debt forgiveness by overseas lenders.

'I am convinced some form of debt restructuring and reduction will be implemented . . . [and] under the conditions, Sampoerna's stock could easily rise between three and 10 times,' Mr Faber said.

The Indonesian Government brokered a voluntary corporate debt deal in early June that allowed for a three-year grace period on the repayment of principal followed by a five-year roll-over.

There was no explicit debt forgiveness, a matter which Jakarta says should be handled directly between creditors and debtors.

Mr Faber's bullish case for selecting Asian investments was buttressed by an argument that developed share markets could easily come under pressure in the next few years.

'In London, New York, Frankfurt and Zurich, confidence and optimism regarding equities is as it was in Asia a year ago,' he said.

'Psychology can change very quickly indeed, and since financial markets behave quite irrationally, further shocks should at least be taken into consideration.'