Matthews: The Experts' Choice
02/13/2004 12:00 am EST
Paul Matthews gets the highest praise from his peers. Neil George says "If I had to pick one fund family to trust it would be Matthews." Richard Band adds, "Paul is a straight-shooter and I recommend him highly." Here's Paul Matthews' outlook and some favorite stocks.
"I think everything looks pretty good in Asia right now. What frightens me is just how good things do look. It's been a long time since I can remember that almost all major Asian economies are forecast to achieve reasonable GDP growth- and that includes Japan. Frankly, hearing all those optimistic forecasts is the only thing that frightens me.
"We should also consider reflation. For the first time in a number of years, some Asian companies are worrying about shortages and worrying about prices. I was recently visiting a Thai construction company, which five years ago after the Asian crisis had wisely moved into a 'just in time' mode for its inventories. Well, this year they've realized that they need to keep a little more inventory and other essential industrial commodities for their construction business because they are worried that prices are rising and some shortages are emerging. I visited a shipping company in Bangkok where shipping rates had gone from $4,500 to $12,000 a day just in the last 18 months. So I think we are starting to see the first signs of reflation in some parts of the world. I think what that means for US investors, is that we do have to be cautious about what the Federal Reserve might do later in the year. If this trend continues, I think the Fed will have to make a pre-emptive move to raise rates before inflation becomes a problem. I think that is one of the biggest uncertainties.
"Outside of that, I think we should watch very carefully what is happening in China, which is now embarking on a new round of bank reforms- a move that is absolutely critical before it can truly open its markets to the world. China is committing between $45 and $90 billion from their foreign exchange reserves to recapitalize their major banks. This is a huge move by any standards, and if it is successful it could lead to the floating of the remnembi within five to ten years. It is only with the floating of the remnembi that we'll get a true understanding of the value of Chinese assets relative to the rest of the world.
"As a general theme, we know so little about the future. However, something we do know is that over the next ten or 20 years, living standards in Asia will rise faster than elsewhere. If that's true, then the great story in Asia will be domestic consumption. If these economies continue to do what they have been doing, we are going to see dramatic increases in consumption in Asia. I think the common theme amongst the stocks I am going to mention is that they are primarily domestic Asian names. These are not firms that are dependent on exporting. These are long-term holdings in our portfolio. We've held them for some time and we expect to hold them for some time:
"Kookmin Bank (KB NYSE) is the largest bank in Korea. We think this is the best-managed bank in Korea. We also like HSBC (HBC NYSE), or Honk Kong Bank, which is a household name in the region. It is the best-managed, cheap bank in the world. It is still a big beneficiary of growth in Asia. We also like two stocks, which have been relatively disappointing performers in recent years. However, the more I travel, the more I realize that the cell phones are more than just for personal communications. It's the primary source of news for many people and I think data is going to be a much bigger factor in Asia than it is in the US. My picks in this market are China Mobile (CHL NYSE) and Korean-based SK Telecom (SKM NYSE). Finally, I would note that for the first time in many years, Japan is looking good again. Every time we visit a company in Japan now, instead of talking about their problems within Japan, they are talking about their opportunities in the rest of the region. That's a very different attitude than we've been used to in Japan. They are looking particularly toward China, but they are also looking at the entire region. I believe that corporate Japan is getting its act together again."