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SCMP Reporter

MANY PEOPLE BELIEVE the world will never be the same again after the events of September 11.

By ramming airliners into the World Trade Centre and the Pentagon, Osama bin Laden's terrorists have brought home the vulnerability even of the mighty United States.

Roger Yates, managing director of Henderson Global Investors, prefers to take a more optimistic view.

Stock markets had rebounded after all kinds of traumas since World War II, including president John Kennedy's assassination, the Cuban missile crisis and the Korean War, he said.

'There are those people who believe that globalisation is sort of over' in the wake of the attacks, said Mr Yates.

'[They believe] it is going to be harder to do business worldwide. People won't fly as much. World trade which has been a major driver of economies over the past few years will suffer. I don't really believe any of those things. Globalisation and the impact of technology are here to stay.'

Mr Yates acknowledged that this was a different kind of conflict from the Gulf War, where Iraqi dictator Saddam Hussein was ultimately put back in his cage.

But the insidious threat of further terrorist attacks was something investors would get used to, he said.

'How do you win this sort of war? I don't think you can,' he said. 'But it is amazing what markets get used to. For Europeans who have lived with terrorism for 30 to 40 years, markets go up, they go down, but people live with it.

'America is the most resilient place in the world. People are voting with their feet in the stock market. What are they doing? They are buying it.

'If there were further terrorist activities, I don't think it would seriously change the basic direction of the economy and the basic direction of the stock market.'

Mr Yates is a believer in the power of the US Federal Reserve to turn around the world's biggest economy with its aggressive interest-rate cuts.

The Fed has lopped a further 100 basis points off rates since September 11.

'It is not unreasonable for investors to look forward into 2002, especially the back half of 2002, and anticipate a reasonable economic recovery,' he said.

'Why can they do that? Because the Fed has made it absolutely clear that it will do what is required to generate that.

'That is why the yield curve is so steep and positively sloped. You find me a period when the yield curve is so positively sloped like this and you haven't had an economic recovery. Maybe the 1930s. Maybe. But it is a completely different situation to the 1930s.'

The US will probably go into a technical recession with negative growth in the third and fourth quarters of this year. The numbers in the first half of next year will probably be flat before a recovery in the second half.

The prospect of a recession should not worry investors unduly because 'I think the stock market knows all that'.

The US has been the main locomotive for the world economy since Japan's bubble economy blew up in 1990. A recovery in the US would be particularly good news in export-oriented Asia, which Mr Yates considered a 'warrant on the US'.

Investors should not expect a smooth ride, though, if past experience was anything to go by.

'Does that mean that in the short term stocks can't go down? Of course it doesn't,' said Mr Yates. 'The [US] market has rallied 20 to 25 per cent from its lows. It would be extremely rare if the market went straight down and back up again. The normal pattern is for stocks to revisit their lows and that could happen in the short term. But investors should be buying into that.'

Stocks may be cheaper than they were before September 11 partly because the equity risk premium, that is the return investors expect for taking on the risk of stocks, has risen. The spread of corporate bonds over government treasuries also has gone up as investors hunker down amid the geopolitical uncertainty.

'What do you do in that situation?' said Mr Yates. 'I think you stick to liquid, large-cap stocks that have been knocked down. It doesn't matter if it is in consumer staples, media, tech names.'

Telecommunications has become a virtual no-go area for some, with US$750 billion invested by the sector globally in networks equipment and licences halving in one of the financial world's greatest bouts of capital destruction.

Despite that, Mr Yates sees value in selected mobile-phone operators.

'Everyone was a buyer of telecoms at the top and now nobody wants to know,' he said.

'For the strong players who you know are going to survive, where there isn't a debt mountain, some of the hammering of these stocks is probably a bit too much. But you have to be careful.'

The wreckage of telecoms equipment-making companies also was worth sifting through, with many of the stocks 80 or 90 per cent down from their highs.

'You won't see the scale of the capital investment boom that you saw in the last few years. Basic underlying growth rates in the telecoms industry, even if they are 2 to 3 per cent, not 22 to 23 per cent, there is still a living to be made by these companies,' Mr Yates said.

Many technology and telecoms companies were 'clearing the decks' by writing off as many one-time items as they could this year. Next year's results should be much cleaner, setting the stage for rising stock prices.

Though he takes care of the corporate side of Henderson, Mr Yates also takes a keen interest in its investment strategy.

Henderson has US$160 billion under management and has been the global asset-management arm of Australian giant AMP since the 1998 takeover.

The house took a catholic approach to investing, Mr Yates said. It does not subscribe only to growth or value-investing, or favour a top-down or bottom-up approach to stock selection.

Henderson did not want to be a 'one-club golfer', he said.

'We try to manage people's money in a whole set of types of environment with no religious beliefs. What the clients want is someone who can make money for them.'

Roger Yates

1978: Graduated with a degree in history from  Oxford University.

1981: Completed a PhD in Anglo-South African  relations; started work as a fund manager  with GT Management.

1987: Promoted to investment director at GT.

1988: Moved to Morgan Grenfell as chief invest ment officer.

1994: Switched to LGT as chief investment officer  in charge of all non-US investments.

1997: On team which sold LGT to Amvescap, then  chief investment officer for Invesco.

1999: Joined Henderson Global Investors as man aging director.



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