Emerging market fund manager loads up in Indonesia
Emerging market fund manager loads up in Indonesia
NEW YORK (Dow Jones): Emerging markets hedge fund manager Edward Bozaan is quietly loading up on shares of undervalued companies in Indonesia despite the country's escalating political tension.
For Bozaan, who manages the US$15 million Global Stabilization and Recovery Fund, civil strife presents a rare opportunity to buy good companies cheap.
"On big selloff days, I try to add as much as possible," he told Dow Jones. A first-generation Syrian, Bozaan started his private partnership -- Waterford Partners -- with $1 million in November 1996.
Hedge funds, private investment partnerships for clients who can invest more than $1 million, can make speculative bets in various markets and face little regulation from the Securities and Exchange Commission.
To be sure, opportunities to buy Indonesian stocks cheap have been plentiful. In the past year, the Indonesian rupiah has shed more than 70 percent in a domino effect following Thailand's devaluation of the baht last July.
Student protests against President Soeharto are becoming increasingly violent and have sent the country's stock market reeling.
The sharp decline in Indonesia's currency and markets has saddled banks and corporations there with mountains of debt.
Foreign creditors are negotiating to tackle the nation's debt problems. Indonesia's total external debt stands at $131.7 billion, according to Bank Indonesia, the nation's central bank, while private sector debts tally $66.3 billion.
This turn of events has all the makings of a prime buying opportunity for Bozaan. To a manager of what he calls an "extreme contrarian fund" that shops for bargain stocks in areas that are undergoing severe crises, things couldn't look better.
"I've been slowly building up toward putting 15 percent of the fund in Indonesia," he said. Bozaan decided to increase allocations to Indonesia early in the week when Soeharto flew to Egypt despite the riots at home.
Indonesian officials said Soeharto plans to return Thursday, cutting the trip short by one day because of the demonstrations, but talk that the president may not return continues to swirl around the markets.
Global
Currently, about 12 percent of Bozaan's Global Stabilization and Recovery Fund is invested in Indonesia -- second only to Thailand, where he has put 20 percent.
Among the sectors he prefers are Indonesian exporters and small- and medium-cap stocks. Most of the companies he invests in have fallen off the radar screen since the decline in the rupiah reduced their value. "Some of my picks are too small to matter but are perfectly fine companies," he pointed out.
Bozaan likes Dynaplast -- a manufacturer of plastic parts and containers for Procter & Gamble Co. The company's annual revenue of about $200 million is growing at a breakneck pace of 20 percent to 40 percent a year, he said.
Another Bozaan favorite is Lippo Securities. The hedge fund manager expects shares of this firm to more than triple when and if Indonesia's economy gets back on track. He just began buying the stock -- which is down 85 percent -- in the past few months.
Looking ahead, he would like to beef up holdings of companies like PT Matahari Putra Prima -- the nation's largest retailer.
"I'll probably keep adding over time in the retail sector," he said.
One area he is steering clear of is companies run by members of the Soeharto family. "I don't think I should step out on a limb like that," he said.
The ruling family's ownership of a company could prevent him from making his usual quick exit when things start looking up. "I only buy when prices are low and run like hell when everybody thinks it's wonderful," he said.
That may not be possible, however, with Soeharto-family holdings if the going gets rough.
Although Bozaan won't predict when the clouds will clear in Indonesia, he said past experience has shown that returns usually start trickling in within 18 months. And that's exactly how long he requires investors to keep their funds committed.
Internal research has shown that his investment strategy is successful with up to $150 million, Bozaan said, so he hopes to expand his fund to that level in years to come.