The most significant feature of the mini-crash last October, when the Hong Kong stock exchange went into freefall, and from which it has not fully recovered, is that unlike previous stock market crises, it did not simultaneously bring down the rest of the world's markets. Lessons, it seems, really were learned from the 1987 meltdown (and the other, subsequent falls in the early 1990s) when brokers and computer-driven selling programmes lost their heads.
This time, cooler counsel prevailed, and while many analysts are still waiting for "the dead cat bounce" the knock-on effect of the Asian crash on western companies with considerable exposure in the Far East, there is also a sense that the group of original Tiger economies is not a spent force and will recover. When it will happen is the big mystery, and many fund managers are keeping their exposure to far eastern markets at a minimum until there are clearer signs of recovery or the real impact is better known in the west.
Two Dublin financial advisers who believe that Japan, Hong Kong, Malaysia and Singapore will turn themselves around though it might not happen for another five years are Gerry McCoy and Niall O'Doherty of the independent fund managers, Asset Management Trust. They have just launched a new far eastern investment product called the "Recovery Portfolio", which is aimed mainly at small company pension funds, self-administered schemes or high net worth individuals who are interested in investing long term in the Far East, but are keen to limit the risk. You will need a minimum of £10,000 to buy into the funds; entry costs are 3 per cent and the annual management charge is 1 per cent.
Asset Management Trust believes it has limited that risk by providing clients with a choice of two of the leading far eastern international fund managers HSBC Asset Management and Invesco. The client chooses one or the other to manage the Recovery Portfolio which is weighted between a number of different funds representing different countries in the region.
In the case of the HSBC Recovery Portfolio, it is a balanced mix of the following HSBC funds: Chinese Equity, Singaporean Equity, Hong Kong Equity, Asian Equity, Malaysian Equity and Japanese Equity. In the case of the Invesco Recovery Portfolio, the balanced mix is between four Invesco funds its Global Emerging Markets, Greater China Opportunities, Nippon Enterprise and Asia Tiger Growth funds.
Mr McCoy says whichever fund manager you choose, the balance will be changed over the period as circumstances on the ground change. Invesco and HKSB's successful track records in these volatile markets are because both companies have a direct presence in these countries and have far more intimate knowledge of the company stocks than any far eastern fund managers based here in Ireland. A portfolio like this is not designed for either a very conservative or a very aggressive investor, say Messrs McCoy and O'Doherty. "We wouldn't advise this fund to make up more than 10 per cent of any pension or personal portfolio," they say. With serious debt problems in places like Malaysia, Indonesia, Thailand and Korea and the banking scandals in Japan, they predict a relatively long recovery: "I think we're looking at least five years," says Mr O'Doherty, AMT's investment and research director, "it could even be 10 years. Chances are the market will go up and down over that period so this has to be a long-term investment."
"The Asian crisis has been principally caused by over-confidence, over-investment and over-leveraging by corporates, plus high short-term offshore debt problems in Korea, Thailand, Indonesia and the Philippines." If these countries introduce the sort of reforms that the IMF and the US are calling for banking re-structuring and recapitalisation, tougher Central Bank supervision, more transparent governance and greater emphasis on shareholder's reward, "then it is likely to lead to a renaissance in the long term, with expectations of more sustainable growth," says Mr O'Doherty.
