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SARS Fear Creates International Opportunities

Severe Acute Respiratory Syndrome, or SARS, has infected already-jittery investors with the fear of putting money in Asian markets, but there are several encouraging signs that the continent may not be as scary an investment region as some have suggested.

There is also the notion that sensational journalism and dishonesty by government officials in China have helped exacerbate the public's fears. The disease itself has killed hundreds and infected thousands in several nations throughout the world. It has also hit the financial sector, as many airlines have restricted flights in and out of heavily infected regions of the world and corporations have suspended business travel to select regions.

China is the most heavily infected area with 4,409 infections of the disease and 214 deaths as of May 6, according to the World Health Organization. Hong Kong had 1,646 infections and 193 deaths. In all, there have been 478 deaths and 6,727 cases worldwide, many in the Asian countries.

"It doesn't surprise me that people overreacted to the SARS outbreak," said Jeff Keil, vice president of the Global Fiduciary Review at Lipper of New York. He said that in general the markets are very "skittish," but if fund companies and investors examine the fundamentals, there are some bargains to be found in the Asian markets. Keil said anything relating to the airline and travel industry probably has gotten beaten up pretty bad in the wake of the SARS outbreak and there could be some extremely cheap stocks.

SARS is expected to depress the economic growth in Asia by 0.1 to 0.2 percentage points this year, the Asian Development Bank said in late April. However, the region and its 41 economies are expected to have an aggregate growth in its gross domestic product of 5.3% if the outbreak doesn't reach uncontrollable proportions. And while that represents a decline from the 5.7% reached last year, this year's projections represent a world "economic bright spot," according to the ADB.

The ADB expects the aggregate GDP growth to reach 5.9% in 2004. Industrialized nations, such as the U.S., Japan, and other European areas, should have a modest upturn in 2003, the report concluded. It forecast a 1.5% to 1.7% GDP growth in 2003 and 2.7% to 2.9% next year.

"The region's strong fundamentals are reflected by the high level of reserves and low rates of inflation, leaving it in a good position to weather an uncertain external environment and the SARS outbreak," said ADB's Chief Economist Ifzal Ali

Mark Headley, co-manager of the Matthews Pacific Tiger fund and the Matthews China fund, said that countries with very healthy financial systems will be able to completely manage the effects of the SARS outbreak on the economy. He said that in China, where first quarter growth was 9%, having the full year come in at 7% is not too shabby.

Further raising eyebrows in the region was investment guru Warren Buffett's purchase of a large stake in PetroChina, China's largest oil state-run producer. In three separate installments, Buffett added 197 million more shares to his stake in the company.

The Berkshire Hathaway CEO, who is not known to be a fan of risky foreign investments, said he owns several other Asian securities and would consider additional purchases in the region, though he noted that bargains have been tough to come by. However, experts don't see his investment as an endorsement of the region, rather a calculated long-term, well thought out move by the old pro.

Most common airborne viruses survive only 15 minutes in the open air, so the fact that the virus is so virulent and that it can survive a full 24 hours, has driven fears, said Rupal Bhansali, manager of the Mainstay International Equity fund.

"I think - assuming this disease can be controlled - the valuations seem extremely compelling for someone with an extremely high tolerance for risk. These markets are at seven-to-10-year lows."

Bhansali, who said she has a disproportionate amount of European equities in her international fund, added that recent prices in Asia are compelling her to look into that region more closely. "For those that are not pure dedicated Asian, there is an opportunity. Investors like us can take the risk as a percentage of the portfolio, but it is always going to be a very small bet. For someone else who is dedicated in the Asian market, there are a whole lot of losses to be had. Even on a risk-adjusted basis, I would still be very cautious about investing in Asia. The Asian markets might be taking it on the chin."

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