AI #9: From wealth to poverty in fifty yards

I know from my first visit that Jakarta can be a real culture shock - much more so than most Asian capitals. Arrival is still jarring.I’m writing this from the 10 th floor of a well-appointed four star hotel that’s still cheap enough for the parsimonious Asia Investor travel budget. On the skyline, I can see a row of expensive new condominiums.

I know from my first visit that Jakarta can be a real culture shock - much more so than most Asian capitals. Arrival is still jarring.

I'm writing this from the 10 th floor of a well-appointed four star hotel that's still cheap enough for the parsimonious Asia Investor travel budget. On the skyline, I can see a row of expensive new condominiums. But just across the road from the hotel is a slum. Not as bad as you'll see in the cities of India, but still a sign of poverty.

Pollution is terrible and the traffic noise is incessant, due to old motorbikes and bajaj (auto rickshaws). The muezzins of the local mosques have to use heavy-duty loudspeakers to be heard above the din as they call the worshippers to prayer five times a day. Rush hour reduces the traffic to gridlock. Public transport depends on buses. Plans for a monorail system fell apart during construction a few years ago, leaving dozens of concrete pillars dotted around the city like obelisks.

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The currency has a familiar "monopoly money" aspect common to countries with a history of high inflation. That's thanks to its low face value: one pound currently buys over 14,000 rupiah. There has been talk of redenominating the currency and lopping off the excess zeros. But no-one is enthusiastic about explaining to tens of millions of uneducated rural Indonesians spread across thousands of islands that their savings will still have the samevalue.

So are we mad to be looking at investing here? Not at all. I certainly wouldn't want to live in Jakarta yet although the job market in my line of work sounds temptingly strong: demand and pay for financial analysts are apparently soaring as the big international brokerages start to look at the market again . But often the best investments are in places where conditions are difficult but improving.

Invest when economies are in the grip of change

Things in Indonesia are getting better, but in ways you sometimes wish they wouldn't.

The traffic is even worse than it used to be but that's a sign of growing wealth and wider vehicle ownership. New construction is going on around the city in a way that seems reasonably healthy. Developers are clearly optimistic. Supply might be a bit high in some areas, but there doesn't seem to be any sign of the glut that you usually see when a boom has already turned into a bubble. I'm told that good office space in particular is in shortsupply.

And all the data indicates that consumers are confident and sales are booming. But as I mentioned in MoneyWeek Asia this week, it's important not to forget that the middle class with real disposable income is still a small part of the population.

However, incomes are rising and while other people may spend everything they earn, they are spending more and on new goods they couldn't previously buy. For example, almost everyone now seems to have a mobile phone. And in a meeting earlier, we looked at motorcycle sales. These of course, are the first vehicles that a low earner can afford to buy and my contact says sales are up from under a million a year a decade ago to over seven million a year now.

As I've written before, the problem with Indonesia is access. Foreign investors can buy Indonesian shares, but it's not something UK brokers usually offer, at least at reasonable rates. So I don't expect that many Asia Investor readers have the facilities in place to buythem.

Unless you read Indonesian, getting information can be difficult. But the largest firms generally publish in English as well. As I also wrote in MoneyWeek Asia, investor-relations communication is often limited or non-existent.

I had a couple of consumer firms on my target list. These were local KFC franchise Fastfood Indonesia and Mayora Indah, a confectionary and biscuit firm that ranks second to our portfolio stock Petra Foods in the chocolate segment.

Neither is investable for Asia Investor, but they could have provided useful background. They might also have been of interest to the few of you who do invest directly in Indonesia. Unfortunately, I couldn't get a contact at either, whatever way I tried.

Fortunately, there are some interesting ways to invest in Indonesia listed outside the country who are a bit more motivated to talk with investors. We've already added Petra Foods to the portfolio. And I'm currently looking into an interesting healthcare play.

A high-end opportunity in healthcare?

This company currently operates a handful of high-end hospitals in Indonesia, with more likely to come into the business soon. History suggests that spending on healthcare should rise strongly as incomes grow, while improving standards should mean that more treatment can be done within the country At present, if you have the money you usually go to Singapore for anything complicated.

While this firm doesn't cater to the mass market, it should see a steady increase in income as more people can afford its higher quality services. It offers a very attractive yield that should be extremely solid and should rise steadily for years to come.

This stock is the main focus of my research on this part of the trip. I'm meeting an analyst who knows it well this afternoon, and will be touring one of its facilities tomorrow morning. I should have a meeting with the CEO on Friday. If all goes well and I decide that it's suitable for the portfolio, I will give you all the details in two weeks' time.

But I also have a few other prospects in the pipeline once I move on from Jakarta.

Putting in the footwork for future tips

I've lined up a meeting with an education company in Singapore and Malaysia. It's a small business at the moment. But I think it may have the right stuff to deliver some pretty good gains for patient investors in the long run.

There's another medical firm that I'm hoping to catch up with in Kuala Lumpur. I'll be visiting Thailand afterwards to see an upmarket furniture firm and disposable nappy manufacturer. Both of these should benefit from rising incomes and consumer spending.

I'll also be aiming to drop in on a couple of our portfolio stocks for an update on their current business and outlook. However, this brings me to a question about what you want from Asia Investor.

The core strategy of the service is to focus on firms that are listed in Hong Kong and Singapore, with a few listed overseas in Western markets. My standard is that anyone should be able to set up and easy low-cost account to buy these shares, with the minimum account being a provider like TD Waterhouse.

But I know from feedback that some of you already have accounts that will let you deal in markets like Thailand and Malaysia, and are interested in doing this. So what I'd like to know is whether you would like me to provide some recommendations for these markets as well.

Please let me know your thoughts about this on

How important are company meetings?

One question I've been asked a few times is: "how much does it help to meet a company's management?" And it's a very good question especially since I am spending so much time meeting management on of potential and existing Asia Investor companies on thistrip.

I know some investors who would never put a penny into a share before having several meetings. And I know others who rarely meet management. I've even heard people argue that personal contact clouds their judgement, encouraging them to make exceptions.

Generally speaking, the extra information you get from company meetings is a small part of the overall picture. If the company is good at keeping its investors up to date, there is a vast amount of information in annual reports, quarterly filings and other regulatory announcements.

You may need to look back through years of these to build up a detailed picture. If the company has listed in the last few years, you can often still get hold of the listing prospectus for the IPO, which is normally long and hugely detailed. These are an underused resource by investors, who rarely bother to glance through them.

Broker research can be a useful semi-official addition as well. I pay no attention to the actual recommendation or price target on this, but they are often valuable background. Analysts are in frequent communication with management and are given regular guidance on the firm's conditions and plans.

This has a downside. James Montier, the former Socit Gnrale and Dresdner Kleinwort strategist who's now at GMO, has been known to describe equity analysts as glorified note takers for management, rather than critical thinkers. Prudent investors should generally read research in that light. As such, it can be a useful, quick summary of management's view on the outlook or at least what they're willing to say publicly.

So what else can a meeting add to this? One thing it shouldn't provide is information that, if released publicly, would be likely to affect the company's share price significantly. Management shouldn't give out information like that privately and investors shouldn't act on it: doing so would be insider trading. So if everyone is playing by the book, you should never be told that there's a hush-hush deal in the works that will double the size of the investment.

The crucial information for an investor

I think the most useful side of company meetings is that it helps you get a feel for how well the firm's strategy ties together and how on top of things management are. It can also give you useful details on a company's position in a given market or its situation versus its competitors. It's not exactly private information, but is rarely mentioned in company updates because it's too specific.

Some investors will also say that it gives you a feel for how honest management are. Personally, I think this is unusual. If someone is lying in shareholder communications, they'll lie in person. And if it's easy to catch out in person, the giveaways are usually in the details of the accounts as well.

Personally, I always want to meet recent start-ups and small firms that are planning to grow. Eredene Capital is an example of this. It's at such an early stage that I need to check in with management to discuss projects and progress. For the education company on my list at the moment, I've now met management twice and am lining up at least one more. Where there's little history and track record to go by, there's a lot to be got from a detailed conversation with management.

The same is also true for established companies in markets where information is limited. Indonesia would be an example of this. Take Fastfood Indonesia as an example. Even if the stock was investable there's no way I could recommend it without speaking to management at length. Because detailed supporting information in English just isn't available.

At the other extreme, firms like ICICI Bank are too big for me to secure one-on-one access, although I can listen in on conference calls. In any case, I can usually get all I want from company announcements and notes by the dozens of brokers that cover it.

The typical Asia Investor stock falls somewhere in between. Most are quite good about providing information in their company filings, but are too small to attract much broker research and coverage. Because they're listed in Singapore and Hong Kong, most have reasonably good investor relations teams and are helpful about providing information.

A meeting or conference call with management is unlikely to provide me with much that I don't know but it can still be useful. So I try to catch up with some of them when I'm around for an update, as I'll be doing this time. I doubt that it will mean any changes to the portfolio but I'll keep you posted.

That's it for me this week I must run to my next meeting. I'll be back in a fortnight. In the meantime, I'm available as usual on And remember, if you're interested in the possibility of those add-on recommendations, send me your feedback and let me know which markets in particular you're interested in.

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ASIA Investor Portfolio
StatusStockTickerExchangeAI DateAI Issue No.Offer Price ThenBid Price NowChange %Buy Limit
BuyEredene CapitalERELondon26/05/10Report18.5p18.8p1.35%22p
BuySilverlake AxisSILV, SLVX, 5CPSingapore26/05/10ReportS$0.29S$0.3520.69%S$0.4
HoldHsu Fu Chi InternationalHFCI, HSFU, AS5Singapore08/06/10#1S$2.32S$3.0531.47%S$2.85
BuyVitasoy International Holdings345Hong Kong22/06/10#2HK$6.00HK$6.152.50%HK$7.00
BuyARA Asset ManagementARA, ARAM, D1RSingapore06/07/10#3S$1.09S$1.319.27%S$1.35
HoldICICI BankIBNNew York20/07/10#4US$ 37.97US$51.3235.16%US$44.4
BuyPetra FoodsPETRA, PEFO, P34Singapore03/08/10#5S$1.44S$1.482.78%S$1.60
BuyXinhua Winshare Publishing and Media811Hong Kong20/08/2010#6HK$4.28HK$4.24-0.93%HK$5.00

(Singapore tickers vary between brokers. The three common ones are listed for each stock.)

Sources used in preparing this report:

Chart of the Day: Whoops - A Better Car Chart - UBS 30/06/10

The Auto Theory of Everything Revisited - UBS 03/09/10

China Aug car sales surprisingly robust, policy helps - 01/09/10

Car sales in India rise 33% to record on Nissan, Volkswagen's new models - 09/09/10

Indonesia's car sales up 35 pct in Aug frm yr ago - 24/09/10

YHI International annual reports 2003-2009

YHI International listing prospectus June 2003

YHI International second quarter earnings announcement 2010

Temasek Holdings to take up 6.16% stake in YHI International - SGX regulatory announcement 02/03/04

NTAsian Discovery Fund investments update July 2010

Data from Bloomberg

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