Wednesday, November 28, 2007
Asia's best money manager says China is not a bubble.
Wong Kok Hoi is the chairman and chief investment officer of APS Asset Management in Singapore. His China A Share Fund has returned average annual gains of 88% for three years.
Put another way, if you'd invested in the fund at inception in 2004, you'd have already made six times your money, more than double the rate of return for the China A Share Index (a composite of Shanghai and Shenzhen's A Share Indexes).
These returns won Kok Hoi Asia Asset Management's Best of the Best Award for China Equities in 2006. Great Britain-based Global Investor ranked him Best Asia Manager. And his firm, APS, has placed in the top three for Singapore's Enterprise 50 Awards – given to the best Singapore-based companies – for the last three years.
I had the privilege of meeting Kok Hoi earlier this year in Singapore. I like to check in with him regarding investment ideas in Asia. Currently, I'm planning a trip to China in December. But with many analysts forecasting that China's set to implode, I wanted to make sure something would still be there when I arrived.
Amazingly, Kok Hoi is still buying Chinese stocks. "Graham, China is one of my favorite markets right now," he told me last week.
"I know Alan Greenspan and Li Ka-shing predicted in May 2007 that the bubble in China would soon burst. However, the market has since risen another 35%. They may be right eventually, but I am currently bullish short-term and long-term in China."
In the short term, Kok Hoi explained, earnings will continue to rise: 40% this year and about 20% next year. "This would bring down the market's price-to-earnings multiple to the 20s. That's still high, but you have to pay a higher multiple for stronger growth."
So Kok Hoi's not worried about the next year or so. After all, he remarked, "Will you have a bear market when corporate profitability continues to be robust?"
But surely China's market mania has to come to an end soon?
Not necessarily. "As real interest rates have been negative in China, stocks have been a good inflation hedge. To some degree, the millions of new account shareholders may not be as dumb as they seemed. I think the re-emergence of China as an economic superpower is irreversible..."
China needs infrastructure, Kok Hoi explained, so capital investment will be one of three major growth drivers, along with consumption and exports. "In a nutshell," he said, "China's GDP will grow anywhere between 8% and 11% per year for at least another 10 years. At the very least, China will be one of the few growth markets in the next five years."
China's markets certainly have soared, but Asia's best money manger makes a compelling argument that there won't be a major slowdown anytime soon. If I had to pick between Alan Greenspan and Wong Kok Hoi for investment insight, I'd take Kok Hoi hands-down.
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