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Markets

Investors trawl for bargains in depressed Asian markets

While many crowd on the sidelines, low valuations prove tempting for brave buyers

Many market observers expect pressure on companies could still get worse before a real recovery.   © Reuters

HONG KONG -- The Indian managers of PPFAS Mutual Fund have been putting its cash to work since late March, buying beaten up technology and consumer stocks on domestic and international markets.

"Everyone is glued to their television screens and focused on the harmful impact of the coronavirus," said Rajeev Thakker, chief investment officer of the $320 million fund. "Positives such as low valuations, massive (government) stimulus and low energy prices are all being completely ignored."

"We aren't saying prices are at rock bottom but what we are saying is, it is a great time to buy into companies that have the capacity to easily weather the shock," he said. Cash accounted for about 12% of the fund's holdings at the end of the February but most of that is now being deployed in reinforcing existing stock positions or building new ones.

PPFAS counts drugmakers including Dr. Reddy's Laboratories and Sun Pharmaceutical Industries among its largest Indian holdings. Its offshore portfolio includes Nestle, Suzuki Motor, Amazon.com and Facebook.

Thakker's approach is playing out from Mumbai to Sydney as retail and other institutional investors sift through the market carnage of recent weeks for potential bargains, even as stocks continue to gyrate wildly.

To be sure, cautious investors are staying on the sidelines. Hamish Douglass, chief investment officer at MFG Asset Management in Sydney, said the cash holdings of its global equity portfolio have climbed to 15% from 6% since mid-March.

"The most likely outcome of the efforts to contain this health emergency is a near-total shutdown of the world's economy over the next two to six months," he said. "This is likely to lead to a near-total collapse in demand for many businesses over this period."

Still, the recent plunge in stock prices is luring some retail investors in alongside fund managers like Thakker.

"The time to buy stocks has begun," said Masatoshi Kurusu, a resident of Kobe, Japan. He is looking forward to the upcoming Japanese results reporting period. "I will look at the companies' earnings guidance and plan on buying new stocks as well as raising my stockholding for some firms."

Limited buying, along with the firepower unleashed by government authorities to limit the damage from the lockdown of cities to stop the spread of COVID-19, has allowed some risk assets to rebound from recent lows. The MSCI Asia ex-Japan stock index rebounded 12% between March 19 and April 1 while Japan's Nikkei 225 index rose 8%.

The coronavirus pandemic caused the fastest and steepest equity market decline ever, with some $20 trillion wiped off global stock values in less than two months. Emerging Asian markets bore the brunt, with Thai, Indian and Indonesian shares all falling 29% over the first three months of the year.

That has spurred some investors to jump into assets they believe will emerge stronger from the virus shock.

Lung Yen Life Science Corp., Taiwan's biggest funeral service provider, added some $20 million worth of shares in domestic companies including chipmaker Taiwan Semiconductor Manufacturing Co. and iPhone component maker Largan Precision to its investment holdings in March to take advantage of low valuations, according to exchange filings. Officials at Fubon Financial Holding said in a conference call said that their company had invested about $2.3 billion in domestic stocks in recent weeks and could soon buy more.

In China, surging demand for funds that invest in offshore stocks and bonds resulted in managers including China Asset Management Co. having to stop taking subscriptions after hitting regulatory limits. Mainland investors also deployed a record $18 billion into Hong Kong-listed stocks in March through a controlled channel into the city's exchange.

Japan meanwhile has seen a record surge in account openings at online brokerages. Retail investors were net buyers of Japanese stocks for six straight weeks through March 19. Of particular interest have been real estate investment trusts, with the J-REIT index rebounding 28% since March 19.

Singapore investors have also focused on property. Shares in Ascendas REIT rose 24% between March 23 and March 31, while Mapletree Commercial Trust's units climbed 13%. Private home sales in the city-state meanwhile surged 57% in February even as prices dropped more over the quarter than they had in four years.

In Thailand, locals have gone bargain-hunting among blue chips such as telecommunications operators True Corp. and Total Access Communication and food processor Charoen Pokphand Foods. True and TAC are up 17% and 24% respectively from their March 6 lows while CP has risen 16%.

Australian pension fund manager Unisuper meanwhile has been picking up shares in toll-road operator Transurban Group. Chief Investment Officer John Pearce said that even if the company did not pay any dividend in the first half and traffic on its roads took six months to recover to pre-pandemic levels, he expected the stock to produce an average dividend yield of 6.5% over the next five years.

Nonetheless, many market observers expect pressure on companies could still get worse before a real recovery. Said S&P Global Ratings this week: "While China has shown some signs of emerging from the current crisis, having contained the outbreak, Europe and the U.S. aren't yet past the peak. We have also yet to see the full effects on vulnerable emerging markets."

IAdditional reporting by Jada Nagumo in Tokyo, Kentaro Iwamoto in Singapore, Masayuki Yuda in Bangkok and Cheng Ting-Fang in Taipei

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