|  Ajay Kapur is a Managing Director at Morgan Stanley in Hong Kong and the firm's Asia/Pacific equity strategist. He is ranked as #1 equity strategist in 2001 by Institutional Investor and the Greenwich (US) survey. Prior to working at Morgan Stanley, he was the Asia equity strategist at UBS Securities, the Chief Economist at Peregrine Securities in Hong Kong, and an economist for WEFA Group in the USA. Investing in Asian equities -
Ride the cycle - don't freewheel. Asian equities are trading, not trending markets. Buy and hold, and you will fold. Corporate profitability in Asia is extremely cyclical, being linked with the global business cycle. Margins are compressed by replicated capacity, more assertive labor and a lack of franchises - hence, the need for the cycle to be positive. -
When global growth is low, let the Asia money flow. Asia's cyclical equities bottom with global growth (time to buy), and peak when global activity is strongest (time to bye-bye). Follow the US yield curve, the NAPM new orders index, the Australian dollar, and the stock/bond relative performance to track expected moves in global activity, in addition to global monetary growth and interest rates. -
Country beats sector. Don't go out without your passport. In Asia, unlike Europe, country prevails over sector in stock-picking. The region is a patchwork of different monetary and fiscal policies, political cycles, development levels and regulatory risks. Lesson: know the country. -
Know the price of everything. Don't pay $1.50 for $1. With the exception of technology, value triumphs over growth in secular fashion in Asia. There is no value-growth cycle, unlike in the US. Why? Investors overpay for the latest growth concept, or fashion, that emerges. Competition and capital raising attracted by the latest fashion crush excessive enthusiasm and multiples for growth stocks in Asia. -
If the barn-door is open , don't scramble through the skylight. In other words, don't ignore the big and obvious. Larger companies have higher returns on equity, a lower cost of capital, longer histories, greater survival skills, stronger political connections, rent-seeking abilities , and also attract the best talent. Small gems can be mined, but are only for those with time and a tolerance for pain. -
Crises don't just happen. Be a macro maven. You wouldn't check into a luxury hotel that violated fire safety regulations and construction codes and was located in an earthquake-prone zone. Likewise, you'll want to avoid the financial crises that convulse Asia about once a decade . Monitor lending booms, the ratio of short- term external debt to international reserves , the current account balance, and the ( generally ) under- regulated non-bank financial sector where the mischief usually begins. -
Don't follow the herd - it may be heading to the slaughterhouse. The herd instinct is extremely powerful in Asia. Both local retail and foreign institutional investors fall prey to it. Tracking investor sentiment is extremely profitable, if you remember that happy masses precede crashes. Bubbles come and go in Asia with regularity. Know when to get off by monitoring volatility, small cap relative performance, the ratio of market capitalization to money supply and inflows to equity mutual funds. -
Cool today is cruel tomorrow. Leave the fads to the amnesiacs. Restructuring, mega-growth, and unbounded prosperity from the latest fad/theme resonate at market peaks, are conveniently forgotten at troughs, and are shamelessly repeated in the next upswing. The plot lines are similar, a few characters change. Stories based on large populations hungry for the next cool product should be treated with suspicion. -
When the political wind changes, expect the windfalls to stop. Do not underestimate the impact of politics, corruption and malpractice on stock performance. Many Asian democracies are young, the rule of law is tender, and political transitions are tricky. Cronyism and sharp practices often lead to excess returns in the short term, but can inflict large losses when political winds shift. Diversify across political factions. -
Follow the central banks. That's where the money is. Track the central bank balance sheet, not just company balance sheets. Asian equity markets move closely with the liquidity cycle. Track the gap between narrow money growth and nominal activity - when rising , it is positive for Asian equities, when contracting it is negative. www.morganstanley.com 'The IPO market is never in equilibrium. It's either too hot or too cold. Buy in the cold periods.' ”Jay Ritter |  |
