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SCMP Reporter

Kes Visuvalingam

1989: Graduated from the University of Wales  with a degree in economics and interna tional politics.

1990: Began work at Brinson Partners in Lon don as an analyst and fund manager.

1996: Moved to Brinson's Chicago office.

1997: Fund manager with UBS Brinson Asset  Management in Singapore.

1998: Appointed investment director at Murray  Johnstone Asia in Singapore.

2001: Moved to First State Investments as di rector of Asian equities.

ASIAN MARKETS COULD REALLY take off once global investors come out of the bunkers they have been driven into by accounting scandals in the United States, according to Kes Visuvalingam.

Having already gone through a cleansing process during the financial crisis five years ago, the region now looked a safer bet than the developed markets, the director of Asian equities for First State Investments said.

Non-Japan Asia accounted for less than 5 per cent of global benchmarks so if just 1 per cent of the money in developed markets was moved into the region, stock markets could shoot up by 20 per cent, he claimed.

'It will only take a few disaffected investors in America and Europe,' said Mr Visuvalingam, who is based in Singapore.

'We are already seeing the first nascent signs of that money coming into the region.'

Asia produced its share of corporate shocks in the aftermath of the financial crisis that began a full five years ago. Among them was the US$13.9 billion bond default by Asian Pulp and Paper and the collapse of regional investment bank Peregrine Investments Holdings. With the passage of time, most of the bad corporate citizens in Asia had either been exposed or had shuffled off the stage, not that regional companies should be given a blanket bill of corporate governance health, Mr Visuvalingam said.

'Asian companies still have a ways to go but the trend is unambiguously in the right direction,' he said.

First State was still alert to practices which were not in the interests of shareholders. For example, the fund house has disposed of its holdings in Posco, despite the South Korean company being the most efficient producer of steel in the world.

The sale was triggered when First State discovered Posco was investing in a biotech venture run by the university in its home town, Pohang. By punishing the company for making an unwarranted shift away from its core business, 'investors are sending a strong message', Mr Visuvalingam said.

There were plenty of other companies in Korea to like, said the fund manager who was born in Malaysia and grew up in Britain. Good examples were leading banks Kookmin, Shinhan and Hana, which had done the hard yards of reform and were trading below two times book value, while producing a handsome return on equity of 15 per cent. That they were not trading on three times book attained by global leaders such as HSBC reflected how investors were still wary about a recurrence of Korea's bad corporate habits.

'People are worried that Korean companies will go and do something silly once they are flush with cash,' Mr Visuvalingam said.

If they could instead establish a good track record, the market would get a further re-rating, which would boost his Korea Growth Fund.

It has been a wild ride for investors in Korea so far this year, with the benchmark Kospi piling on 35 per cent by April only to give back all but 10 per cent of those gains. Korea is seen as both the biggest regional beneficiary of a global economic recovery and its biggest loser if the rebound fails to show up. Mr Visuvalingam remains in the bull camp.

'Korea's pull-back has been an opportunity to add to existing positions,' he said.

There are a number of attractive companies in the Taiwan electronics sector that should benefit from both the cost-cutting trend of global out-sourcing and an economic recovery.

For example, Hon Hai Precision was now manufacturing mobile phones for Nokia from factories in China.

'Western companies want to focus on proprietary research and development and outsource the manufacturing,' Mr Visuvalingam said.

With the benefit of hindsight, First State may have gone into some of the Taiwanese electronics too early, though the house remained convinced they would be good investments over the next one to three years.

Mr Visuvalingam and a team of seven other fund managers and analysts are charged with overseeing the investment of the US$1 billion that First State clients have allocated to Asia and the regional portion of the additional US$1 billion put to work in emerging markets.

The focus is on finding companies with the potential for consistent earnings growth. On the corporate side, Mr Visuvalingam's team looks for a good management track record, the ability to make efficient use of capital and high and defendable operating margins. At a stock level, First State takes particular note of earnings growth, valuation and return on equity.

'For every stock we buy we have an expected price and an expected return. When a price is hit, we sell it or review it,' Mr Visuvalingam said.

'It is a proven strategy in Australia where First State is the biggest and most successful fund manager.'

Some fund houses have been accused of being too conscious of their benchmarks, resulting in stocks being included in portfolios because of their size rather than investment merits. That was not an accusation that should be levelled at First State, Mr Visuvalingam claimed.

'I think there is a lot of focus in the industry on benchmarking and tracking error as a measure of risk,' he said.

'I think it is important to look at return and risk. There is a trend in the industry, particularly in the consultant community, towards that.

'Risk relative to a benchmark doesn't help you or me or any of our clients. What people are interested in is absolute return adjusted for risk.'

For example, First State had benefited by avoiding most of the Hong Kong property stocks even though they are some of the larger stocks in the region. Of the developers, only Amoy Properties looked attractive thanks to good timing on land acquisitions and project launches, he said.

The flagship Asian Growth Fund he manages has, however, performed quite closely in line with its benchmark, the MSCI AC Far East Free ex-Japan index. The fund has lost 17.8 per cent over the two years to May 31 against a 19.3 per cent loss by the benchmark.



Region on verge of economic renewal