Aberdeen finds good value in RI firms

Aberdeen finds good value in RI firms

SINGAPORE (Dow Jones): It might seem a bit contradictory that a fund management firm executives describe as a "conservative sort of Scottish house" is invested in Indonesia, one of Asia's most volatile markets.

But Aberdeen Asset Management Asia Ltd. sees no contradiction, as long as it sticks with its long-standing practice of investing only in companies it knows well.

In Indonesia, "scratch beneath the surface and you find lots of very well-run companies," said Peter Hames, a director for Aberdeen in Asia.

And Aberdeen tries hard to scratch beneath the surface wherever it invests. The firm doesn't invest in a company until it has met with management several times and is convinced the company is well run and highly transparent, Hames said recently in Aberdeen's Singapore office. The firm typically expects to hold shares five years.

In Indonesia, Aberdeen finds good value in companies such as PT Unilever Indonesia and other locally listed units of multinational corporations.

Aberdeen, based in Scotland, applies its investment philosophy throughout Asia. In fact, it still holds most of the same stocks it held before the Asian economic crisis hit in 1997, Hames said. Asia makes up about 8 percent of Aberdeen's global assets of about S$45 billion (US$26.4 million).

"Although prices fell, we felt quite comfortable" that investors would return to the region, he said.

"We're still fairly comfortable with the markets," although some sectors are "quite frothy," Hames said.

The technology sector, for instance. Although Aberdeen has technology holdings, it has avoided the more speculative newcomers with no earnings and mountainous valuations.

The firm also passes on companies that have relied on government favoritism. "We don't buy politically connected stocks," which keeps Aberdeen out of many big companies in countries such as Malaysia and Indonesia.

Its holdings are widely spread around the region and among sectors, without adhering to any benchmark weightings, he said. Aberdeen particularly seeks midsized companies and "the old- economy stocks that have been sold down."

Aberdeen's preference for stock picking, instead of relying on benchmarks, means its funds can underperform in bull markets. Its Indonesia Equity Fund has returned 60 percent in the year to Feb. 4, according to Standard & Poor's Fund Services, while Jakarta's JSX Composite Index is up 88 percent.

"A lot of the companies are in the index that we just wouldn't touch," Hames said, such as financial stocks and government- connected conglomerates.

While the firm holds many high-flying technology shares, it doesn't put big bets on them, preferring a diverse portfolio, Hames said.

Among its top holdings in Asia are Hong Kong's Giordano International Ltd., B.A.T Indonesia, and Robinson & Co. in Singapore.

While Aberdeen relies heavily on the larger, steadier markets of the region, it isn't afraid to be adventurous. Sri Lanka is "probably the cheapest market in Asia" and Aberdeen is investing there, though modestly, he said.

Aberdeen is more wary of Hong Kong, where the firm sold down its holdings in the city's big property giants before the crisis. "It seemed illogical" to hold pricey property stocks at the expense of fast-growing technology shares and other companies elsewhere in the region, Hames said.

Aberdeen sees hazards in Asia. A slowdown in Japan or the U.S. could slow regional growth, he said. The slow restructuring process also is a problem.

"What worries me as an investor is the possibility of backtracking on reforms" prompted by the 1997 crisis, Hames said. If the regional recovery lulls governments and businesses into abandoning reforms, then flaws may worsen, he said.