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Hyundai's Hairy but Fundamentals Fabulous
Market Q&A with Tim Greaton, senior portfolio manager with CMG First State Investments
November 10, 1999
Web posted at 8 p.m. Hong Kong time, 7:00 a.m. EDT

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Q: We already know from your interview with Asiaweek's Assif Shameen that you're bullish on Taiwan--so I'm sure Monday's "stonking" trade figures just served to amplify that sentiment. But you've recently taken on Korea as well. Seoul today witnessed the Daewoo doomsday that wasn't. It was the day Koreans were supposed to be lining up in paranoid droves outside Investment Trust Companies to redeem 80% of the face value of their Daewoo bonds. That, however, is not happening. Is this similar to Malaysia's foreign fund exodus that wasn't on Sept. 1, or is it something more sinister--as Assif put it, "Apocalypse postponed"?
A: Well, no one expected the outflow to be as dramatic as they originally thought it was going to be. Which means, all the ITCs that have raised large amounts of cash to cover the redemption blitz now have to turn around and put their money back in the market again, which is why ITCs have been net buyers this week and retailers have been net sellers. Foreigners have also been net buyers.

CNNfn: Nikkei hits 26-month high
Strong futures boost Tokyo blue chips by 275 points, pulls up HK, Singapore
- Wednesday, Nov. 10, 1999

Market Q&A: Break Out the Truffles for Taiwan's Trade Figures
With Phillip Smyth, economist, Paribas Asia Equity
- Tuesday, Nov. 9, 1999

Market Q&A: "Landmine" Shares Sink Taiwan
With Andrew Lin, chief of electronics research, Jardine Fleming
- Friday, Nov. 5, 1999

Letter from Japan: Hats Off
Here's to a little guy who made it big
- Wednesday, Nov. 10, 1999

Asia Buzz: Microserf
Just what Microsoft needs: a damning book about its practices in China
- Tuesday, Nov. 9, 1999

The story behind today's news from the editors of Asiaweek

Daily Briefing
Today's headlines from across the region

Q: But I've heard that 40% of the foreign buying was actually done by Koreans.
A: Offshore? Yes, and that's mainly been buying of Hyundai names by other Hyundai names. It's in Hyundai's interest right now to get its share prices up because Hyundai group rights issues are going to be priced at significant discounts. An analyst came in once with a diagram of Hyundai shareholding structure and it looked like a diagram of telecoms infrastructure or something...

Q: What does that look like?
A: A mess.

Q: So Hyundai is a bit hairy. But everybody seems to point to these fabulous fundamentals. Like today's Q3 GDP numbers--a "stonking" 12% year-on-year.
A: Fundamentals are good because chaebol haven't had a whole lot of capacity taken out of them. Lots of companies are still operating. There are a lot of Daewoo companies that are still operating. They just keep borrowing money and getting money from the government.

Q: Is that a good thing?
A: It's good for politicians.

Q: So you're pretty bearish.
A: I'm underweight in Korea and have been since the Daewoo thing broke out.

Q: But there are some good restructuring stories, like Samsung (click here to read Asiaweek's story about Samsung, "best of a bad lot.")
A: And like the LG Group. Most LG Group companies have entered into joint ventures with large multinationals. LG Electric and Philips started a 50-50 joint venture manufacturing LCD screens, and they just announced that they'd be investing $1.2 billion for expansion. LG Industrial Systems and Otis Elevators formed a joint-venture business facilities business. Most of the LG names have brought in capital, expertise and also managers from outside the country, and they've actually exceeded their foreign investment goal for the year, which was $2.7 billion.

Q: And big multinationals don't throw money into JVs to make themselves look good.
A: Right, companies that have got foreigners on the board are forced to focus on returns, the bottom line--rather than market share and being big.

Q: You're overweight in Taiwan. A lot of funds are. Do you think there's enough pressure on Taiwan to liberalize and remove the limits on foreign investment?
A: Definitely. With the MSCI Asia-ex-Japan index increasing its Taiwan weighting to 29%, a lot of funds are going to need to invest more than the $600 million limit.

Q: Hence the news today that MSCI isn't just postponing Taiwan's new weighting because of the leap year, which I found to be a completely convincing excuse for delaying the move for two and a half months. But apparently MSCI wants Taiwan to lift that limit before their index gets cranked up a few notches.
A: The quota is quite a stumbling block. When it's removed, Taiwan will have a lot of potential to grow. If you look at the U.S. semiconductor index it's grown dramatically, whereas Taiwan chipmakers have been drifting since the earthquake.

Q: But the growth is outrageous, right?
A: Motorola is planning on whittling down its chip manufacturing by 50% between now and 2005. That alone is enough to fill Winbond, TSMC and UMC already. Then, you're seeing a lot of fabless plants [plants that develop chips but don't actually have fabricators to manufacture them] within Taiwan that are going to foundries. Of course, you're also seeing a few new foundries pop up and joint ventures start up in other countries, like TSMC's Singapore and Malaysia ventures.

Q: How about the rest of the hardware world?
A: What is going to be really key to growth is breaking into Japan. Which, with the yen as strong as it is, is happening faster and faster. But most of Taiwan's partnerships are with American companies like IBM, Compaq, Motorola. Hardware is so broad, though; I think that one of the areas that will grow the fastest is data storage. Which is why companies like Ritek that do recordable compact disks are doing so well right now.

Q: Ritek, by the way, may list on Hong Kong's not-yet-opened Growth Enterprise Market (GEM) board. Which brings me to the subject of Hong Kong. What do you make of the wildly popular Tracker Fund, TraHK?
A: Mixed feelings. If you look at the Hang Seng Index, it's 28% HSBC. It is dominated by three stocks, basically--China Tel, Cable and Wireless HKT, and HSBC. In that sense, it's not really a fund. If HSBC makes one wrong move, there are going to be a lot of Hong Kong investors who have gotten burned and for most of them it will be the first time they've invested in a fund. And if you take the universe of Hong Kong funds out there, most of them have handily outperformed the HSI. On the other hand, it's being offered at a pretty good discount.

Interviewed by Maureen Tkacik/TIME Asia

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