Download Making money in a mature bull market – Business News | The Star

Making money in a mature bull market – Business News |
The Star Online
MALAYSIA (14 May 2016) - Fortress Capital director Geoffrey Ng (pic) was previously
CEO/executive director of Hong Leong Asset Management where he oversaw assets under
management of US$1.8bil. He was previously senior vice-president, Global Emerging Markets
with Dubai Investment Group with assets of US$2.2bil, as well as chief investment officer with
Pacific Mutual Fund where he managed US$500mil in assets. Ng is currently a member of the
CFA Institute’s Education Advisory Committee. He shares some insights on the market
withStarBizWeek.
The world is now undergoing slow growth. We’ve had 8 years of a bull market, low
commodity prices, concerns on China, improving job data from the US and a prolonged
environment of low interest rates. Under such circumstances, how do you view markets
now?
The “bull market” really has shown its horns only in countries and markets that have exhibited
fundamental economic growth. Despite this, fund flows have been very selective. Take the
Asia-Pacific region as a barometer, where despite decent general economic growth, the MSCI
Asia-Pacific Index is at the same level as it was five years ago.
The key question today is investors’ perception on the quality and sustainability of economic
growth. Investors are praying for continued fiscal and monetary support for economic growth
but not seeing enough private sector or consumption-led economic growth. Hence, broad equity
markets are challenged to move higher since the quality of earnings from companies are
susceptible to disappointment at this time. Without a macro trend in the market, we believe that
good stock-picking is more important than ever.
What are the main trends or changes you foresee happening in the economy over the next
one-two years?
For the Malaysian economy, almost two decades of government-led fiscal spending has
resulted in a dependency on the public sector for growth as well as crowding out of private
sector innovation and competitiveness. The government recognises this, which it is trying to
rectify through greater focus on enabling SMEs and innovation.
However, structural change in the private sector sometimes takes years, even decades to
achieve. With historically high leverage in the federal government and in the average
Malaysian household coupled with sluggish exports from a slowing global economy, it will be
challenging to find a new source of growth that will be material to the economy.
Hence, we expect a gradual decrease in the rate of GDP growth for Malaysia in the next couple
of years unless commodity prices and/or exports recover quickly.
And under those circumstances, are you buying more stocks now?
We are maintaining our equity allocations, but focus heavily on individual stock-picking to
generate outperformance.
What is your investing strategy like now? How do you search for alpha when the bull
market is already so matured?
Yes, the “bull market” is mature, but the inherent volatility allows for alpha generating
opportunities via stock selection and trading the “price range” of individual stocks.
How do you spot trends ahead of their time?
We don’t invest to spot trends, but search for fundamentally attractive companies that are
mispriced and exhibit sustainability of operations and earnings.
Higher returns
What other asset classes are you bullish on now besides equities? Any bearish views on
any of the asset classes?
We are not particularly bullish on any asset class at the moment, but prefer to identify securities
within each asset class that we find attractive for our risk-adjusted return requirements. Having
said that, the fixed income asset class continues to confound investors as interest rates in most
parts of the world fall to levels not explained by economic or financial theory! In fact, investors’
search for higher returns and who remain focused on the fixed income asset class may be taking
additional risks by allocating increasingly more of their capital to longer tenured or lower credit
quality bonds – exposing them to surprises in the market such as changes in interest rate trends
and deteriorating corporate or government financial health. We remain derisive of this asset
class.
On investing in newer companies, how do you choose winners? What are the red flags
you sense in a company that may not do well?
Newer companies that lack a public operating track record are assessed primarily on the
sustainability and uniqueness of their business models, management quality and fundamental
ability to generate cash flow and earnings growth.
Red flags generally appear when a company exhibits a trend of margin squeeze, asset
revaluations, higher levels of debt (gearing), weaker operating cash flow generation, using
leverage to sustain dividend pay-outs, corporate governance failures, etc.
Source : The Star