Moderator
Andrew BallingalPartner, Ballingal Pacific
PANEL
Doug Barnett
President and chief investment officer, Quest Management Thailand
EdmondEng
Chief executive officer, SBI E2-Capital China Holdings
Ian McLennan
Managing director, head of Asian equity strategy, UBS
Ajay Sagar
Senior structured finance specialist, Asian Development Bank
Neal Stovicek
Strategic advisor, SinoPac Securities
Andrew Ballingal: Asia Pacific is very much top of the pops again. There are planes full of people flying in from Europe and North America to try to take advantage of the move in the markets. The big question is, “Are they a year too late?” and if they're not, where do the best opportunities now lie?
Ajay Sagar: At Asian Development Bank, we would want to see more regional cooperation – so it's not just only north Asia, it's the entire Asia, and that could be achieved through removing trade barriers. There seem to be no trade barriers in undertaking sub-regional business in the greater China region, that is China, Hong Kong, Taiwan.
We would want to promote from the ADB standpoint a similar situation in other developing countries such as Bangladesh, Sri Lanka, Nepal, Bhutan and also the Mekong Region. At some point we would also want to see Afghanistan fully developed. I think there is tremendous opportunity. Asia has the highest savings rate. This money can be used within Asia for economic activity. There is so much potential.
Neal Stovicek: First, from a top-down point of view, in Taiwan going forward, we are expecting increased capital inflows on the back of global equity index providers re-weighting in favour of Taiwan in their regional indices and the emergence of more small-cap Asia funds and dedicated Asian hedge-fund managers. We estimate foreign investor weightings in Taiwan will jump from 24% of the total market cap of the Taiwan Stock Exchange now to 34-35% over the next few years. In US-dollar terms, this translates into US$34 billion in forecast foreign net inflows in Taiwan. We base this partly on the relative increase in foreign investor percentage shareholdings in South Korea and subsequent capital inflows following its major re-weighting in Asian regional indices. In Taiwan, foreign institutional investors have net bought about US$14 billion in Taiwan shares in the year to date. [Taiwan corporations have also raised about US$17-18 billion through international offerings such as Euro-CBs and DRs in the year to date.].
From a bottom up point-of-view, we find that the valuations of a number of Taiwan small and mid caps are attractive relative to the large caps in Taiwan from PE and PEG ratio [price-to-earnings per share/EPS growth] viewpoints, and return on capital to cost of capital. We approach these firms on themes such as increased electronics outsourcing, China plays improving production yields, and technology-intensive small caps versus capital-intensive large caps.
Edmond Eng: I am very optimistic. Our business is mainly Hong Kong-listed companies although not all the companies are based in Hong Kong.
Market interest in China is pretty apparent. We cover about 100 listed companies in the small mid-cap sector in Hong Kong. About 90% have some China component or story to them and I think those are the ones our clients are most interested in.