A senior Hong Kong fund manager with an impressive track record has advised Thai investors to put a lot of effort into understanding the companies in which they are planning to invest, as well as considering high yield from securities with growth potential.

The investment advice comes from Stuart Winchester, senior fund manager of Allianz Global Investors Hong Kong, whose 20-year track record with Allianz GIS RCM Oriental Income Fund speaks for itself.

In a recent interview with The Nation, Winchester analysed factors affecting the outlook for investment in the Asia Pacific region, which he believes is "an incredible market".

Many local investors, for instance, are worried about risks posed by North Korea's nuclear posturing, believing that it could destabilise the region. Winchester thinks otherwise.

"China will ensure that bad things don't happen," he says, adding that a big concern would be aggressive action by the United States against North Korea.

While Thai investors may needlessly see risks in buying Asia Pacific stocks, Winchester believes the real risk in the close future could be surprise inflation in the United States.

As for Thailand, he expects more foreign funds will flow into the country when a new elected government is in office.

The Hong Kong fund manager is hugely optimistic about investment in Asia Pacific equities over the next three to five years.

As a whole, the region is much better than it was 20 years ago, when he began his management of asset funds. Hong Kong, Singapore, Indonesia and Malaysia are attractive places for investment opportunities, and "China and India form two cornerstones of the region."

He says stocks in the tech sector in Taiwan are currently cheap, and he believes tech companies making or dealing in computer parts will benefit from Microsoft's launch of new products.

Many Japanese stocks are also cheap, and few investors pay attention to them, although they can generate high returns for long-term investors.

However, he says investment in Japan is not yielding high returns this year.

The problem lies in the fact that Japan is in a transition from a deflationary to an inflationary period, and he claims the Bank of Japan has made a policy mistake by sharply reducing money supplies. He predicts that if the move is not corrected, Japan could slip back into deflation, but he believes the Bank of Japan is under government pressure and is likely to correct the policy. In this case, cheap stocks of many Japanese firms will offer high yields over the next two or three years.

Winchester recommends his so-called "turnaround strategy", investing in companies that are in the process of restructuring or are bringing in new management teams.

Usually most investors ignore these firms, but the returns are high when an investor runs against the market and finds that the stocks rally after other investors see positive changes in these "turnaround" companies.

He says his company gathers information on these companies by conducting careful research and talking to management to get an accurate picture, which leads to wise investment.

Another important strategy is looking for shares in high-yield firms in order to diversify risks in an investment portfolio.

Winchester also believes that Asian currencies will move up in tandem and, as the market anticipates the strengthening of Asian currencies, investment in the region will benefit.

He says his portfolio has only 10-per-cent exposure to the US dollar, because the greenback is expected to be weaker over the next two years. However, views of the US dollar will change with US elections in 2008. The direction of the currency will depend on the policy of new US government, which is widely expected to be led by the Democrats.

Although a global economic slowdown is expected to affect investment during 2007, Winchester believes the high risk will come from the US economy. If it experiences unexpectedly high inflation, then the Federal Reserve will not lower its policy rate and may even raise it to counter inflationary pressures. Contrary to this picture, markets currently expect the US Fed to lower interest rates in the second half of next year to boost the economy, he says.

While Thailand's Government Pension Fund has preferred to invest in the United States and Europe, where stock markets are mature and offer stable returns, Winchester holds a different view.

He mentions pension funds in Chile that are looking for investment opportunities in Thailand and other Asian countries, and advises: "Stay in Asia Pacific. The region is incredible."

Wichit Chaitrong

The Nation