APAC Issue 7 2018

APAC / Issue 7 2018 27 But that doesn’t mean we can’t take advantage of these calculated fears. How? What do we have that the price-setters in the market lack? Patience. I do not argue that investors that are selling are doing so illogically, but they are doing so with a shorter-term time horizon than we have. It is the marginal investor who sets the price, the investor who is most emotionally driven, the investor who palpably feels Greed and Fear. These emotions are amplified when you look at the short term. I have often thought their calculations are guided by the same kind of thought process that author Douglas Adams taught us was the key to flying: “You must learn how to throw yourself at the ground and miss.… Clearly, it is the second part, the missing, which presents the difficulties.” And for the marginal investors now, they are mostly concerned with trying to miss the ground. You have to focus elsewhere. I try to remember at times like this that monetary cycles are a “fluttering veil” that can hide or disguise the underlying real forces in an economy. So long as entrepreneurialism, investment, good governance flourishes underneath that veil, it will only temporarily be hidden from view. With that in mind, I do see opportunities arising for the patient investor. For the long-run secular trends in Asia all remain in place. These include high savings, productivity growth, infrastructure spending, openness to trade, and the pursuit of institutional and market reform. The medium-term cycle of credit, profits and wages has largely been subdued in Asia, with the exception of Japan. And so there are not really any cyclical excesses built up in the economic system—not to the extent that corporates are over-indebted or that political and class tensions are awoken, or that banking systems are stretched. The medium- to long-term cycles both look favorable. It is only the monetary cycle that has brought what I see as a temporary halt to the macroeconomic tailwinds for the region. The focus on short- term rewards has also caused a great divergence in market prices, where those companies that are able to meet short-run expectations and feed those emotional desires have been bid up. Those companies that require patience have seen their share prices languish. In the reversal of sentiment we have seen lately, therefore, I do believe that opportunities are arising for long-term investors. Parts of Southeast Asia appear to have been unnecessarily acutely sold down. Some of the bank stocks, while always the most vulnerable in a monetary cycle, look quite cheap. There are opportunities, too, in some of the companies that will patiently accumulate returns, as their stocks seem to be trading now at outright cheap valuations. Certainly, I find in my conversations with my investment team colleagues that they see real value and opportunities in some good-quality businesses. We don’t focus our attention trying to guess where the bottom of the market is. Rather, we continue to focus on the businesses that we believe will survive through the bad times and prosper in the good, and we take our opportunities where we find them. Matthews Asia’s Horrocks on Asia’s markets amid the clamour of trade wars and politics g