AI #20: Your final issue of Asia Investor

By now, you should have seen my publisher Toby Bray’s announcement that we are closing down Asia Investor and this will be my last update on the portfolio.Obviously, I deeply regret that the letter has ended this way after nine months.

By now, you should have seen my publisher Toby Bray's announcement that we are closing down Asia Investor and this will be my last update on the portfolio.

Obviously, I deeply regret that the letter has ended this way after nine months. But as Toby says, unfortunately we were unable to win over enough subscribers to make continuing cost-effective.

Those of you who liked it seemed to like it a lot. But it turns out that direct investment in Asian shares is still more of a niche interest than we anticipated when we began working on this two years ago.

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The Asia Investor email address will remain open for three months and I'll be available to answer any questions you have. Unfortunately, I can't give specific individual advice on what you should personally do, but I will try to answer any questions I can about the portfolio.

What to do with your shares now

My previous issue (AI #19 on 3rd March) included a full update on the latest news for each stock in the portfolio and nothing has changed since then. So below I'm going to give my final recommendations for what you should do with each remaining position.

In most cases, I believe the best option is holding to see how the stocks develop. I had intended to run Asia Investor for some years and so most of my recommendations were long-term investments and are very much still a work in progress.

However, if you are intending to do this, you will have to keep an eye on company news and monitor developments yourself. If you don't feel comfortable doing this, unfortunately I must recommend that you close out all positions now. This is because you will no longer be receiving updates from me to keep you adequately informed about what's going on with these companies.

Some of the portfolio stocks are significantly easier to monitor than others. I'll indicate this in each summary below.

My view on stop losses

I'm only going to suggest you put in a stop loss for one stock Xinhua Winshare for reasons I'll explain below. As a general rule, I never use stop losses when investing and I don't think it would be helpful for me to change that now.

Stop losses are an important part of trading strategies, especially when you're using leverage. You can easily be wiped out if you don't employ them. But Asia Investor has never been about trading, but rather about long-term fundamentals-orientated investing.

If you're investing on fundamentals, then saying that you'll sell just because a stock drops 20% makes no sense at all. If the business is still fundamentally sound, then it represents better value at the lower price than before so why sell at that point? Conversely, if you no longer have confidence in the fundamental story, why wait until it drops 20% to sell why not sell immediately?

That doesn't mean that I think you should ignore what the price is doing. If a share is falling much harder than the rest of the market with no obvious reason, that can be a sign that you're overlooking something and should reassess your position. But mechanically deciding to sell simply because it's fallen a certain distance is not useful for this. Risk management with investing comes from keeping up to date on what the companies you hold are doing in their businesses, not just what their shares are doing.

How to keep up to date

If you intend to do this, you will need to keep an eye on what's going on with these stocks. One of the easiest ways to do this is to set up alerts using the free Google Alerts tool, available here: (it's best to set up a Google account and sign in, since that gives you more options to manage your alerts).

This will notify you each time the company's name is mentioned in a news story or on the web. I use it on all my portfolio stocks and find it a very effective way of following the news, catching many stories that I might otherwise not have seen.

Ideally, company announcements such as earnings releases should be posted on company websites but not all stocks do this. In each update below, I'm including the firm's website address and some comments on how good they are at disclosing information.

All firms have to release their announcements to the stock exchange, so for those that are bad at updating their own site, this is the place to check.

For the Singapore stock exchange, the relevant page is:

And for Hong Kong, the relevant page is:

And now, onto the updates

Eredene Capital

As an infrastructure investment company that's starting from scratch, Eredene requires a bit of patience while its projects are completed. But I think the next 12 months or so will mark a turning point.

Most of its investments should be generating revenue by the end of 2011. This should mean the firm becomes cashflow positive, which in turn should allow dividends to start relatively soon - not this year, but probably next year in my opinion.

With the bulk of its projects complete, the stock's risk profile should shift from moderately high (due to execution risk on these projects) to relatively low, thanks to the stable cashflows these kinds of developments offer.

There are still a couple of overhangs over the stock. One is a pending rights issue or more likely - private placement to a new strategic shareholder to raise more capital for new projects such as the Ennore project development. The other is ongoing court case with the former CEO and minority shareholder of its Matheran affordable housing project; this is holding back both the speed of development since Eredene isn't allowed to use debt to fund it and plans ultimately to sell off this project as non-core. But I think both or these are more than reflected in the price.

Overall, Eredene still looks to me a very interesting play on India's growth and the payoffs for shareholders should be starting soon. I would suggest holding, in the expectation of shares getting to at least 30-35p over the next couple of years; the stock should also ultimately be an attractive income play and may be worth continuing to hold for the dividend. Eredene's disclosure standards are pretty good and the website at should keep you up to date.

Silverlake Axis

The next 12 months should be significant for this banking software stock as well. Based on recent contract wins, I expect good earnings growth. In addition, if my opinion that the stock is preparing for a move to the main board of the Singapore exchange is correct, it should have a higher profile and so probably trade on a higher valuation.

The downside is that the firm's disclosure standards are not fantastic. The company website at doesn't provide very frequent investor updates, although you can keep up on news releases through the SGX website, as explained above.

My suggestion for investors who are willing to continue monitoring this themselves is to hold and see what develops. If it fails to show continuing strong growth and make a move to the main board in the next year, that would suggest that this interesting story is not playing out as I'd hoped and its long-term prospects may be limited. But the stock has the potential to roughly double or better to at least S$0.6 over the next couple of years in my view, meaning that this looks well worth holding for now.

Hsu Fu Chi

I don't expect any major developments at Hsu Fu Chi; I hope it will just continue making snacks and growing profits at 15-20% per year. I regard this is a long-term hold that I believe will either grow considerably larger over time or be bought out for a good price by another food and beverage group when the family are ready to sell up and retire.

Disclosure standards aren't great here either: the English language website at is rarely updated and very poorly designed (the Chinese part is better, but that's probably not much help). Again, however, news releases are available on the SGX website. The presence of respected independent directors makes me reasonably confident that the firm is being properly run.

We have seen quite a good paper gain of around 60% on Hsu Fu Chi. And if you have quite a bit of money in this or are worried about the prospect of monitoring a stock like this yourself, it makes sense to take some or all of the profit. But if you can afford to gamble a bit, I think there's a good argument for salting this one away for a few years, not worrying too much about the ups and downs, and seeing what transpires.


Like Hsu Fu Chi, I regard Vitasoy as a long-term hold as part of an Asia consumer portfolio. The website at has good investor relations information and interim and annual results announcements are accompanied by a webcast presentation from management.

There's not really a great deal else to say about what has long been one of my favourite Asian stocks, except again this one may well be worth sitting on for years, hopefully continuing to pick up a decent 4% yield and see good growth. If you're choosing between Hsu Fu Chi and Vitasoy on this score, I would say that Hsu Fu Chi has greater long-term growth prospects, but Vitasoy is quite a bit safer.

ARA Asset Management

This real estate fund manager has attractive growth prospects, as I outlined last week. Disclosure is good and the website at should make it easy to keep up on what's going on.

However, ARA's shares are not cheap anymore which is why it's on hold in the portfolio. I would continue to hold because I think plans for new real estate investment trusts and private funds will drive strong earnings growth but if the shares were to get over S$2 in the near future, I might be inclined to take some profits.


India's largest private-sector bank is suffering from general weakness in the Indian market. Underneath this, the picture is much more positive, with earnings continuing to recover well.

Disclosure is decent: this is a major business with plenty of coverage and the website at provides detailed investor information. If you want to keep up to date with what's going on, it won't be difficult.

My view remains that we could be looking at a share price of around RS1,600 (equivalent to around US$70 on the ADR at current exchange rates) in three years or so as profitability returns to normal. Hence I would suggest holding for now. However, while I don't attempt to trade in and out of most stocks, I would suggest selling when you think we've reached the top of the market next time. Banks are cyclical and usually not worth holding through a downturn.

Petra Foods

This chocolate and cocoa specialist is also worth holding for the long term on the back of its extremely strong position in the very promising Indonesian chocolate market, as well as its newer operations in the Philippines.

Disclosure standards are decent, with the website at providing enough information to keep up with what's going on.

Xinhua Winshare

This book publisher and distributor is my biggest headache when it comes to advising you what to do, because its public disclosure standards are so poor. Its English language website at is virtually useless.

Announcements are available through the Hong Kong Stock Exchange and are the best way to follow it. But it updates infrequently, through annual and interim reports that are turgid and require a lot of work to interpret.

Based on past years, I would expect it to declare final results at the beginning of April. These are unlikely to be exciting, but it should declare a dividend, amounting to a yield of around 7-8%, payable in July. Half-year results, probably in August, are when we should start to see whether the growth I expect is coming through.

So my recommendation is to hold for the next six months; I believe that you have a good chance of picking up a healthy dividend and a respectable capital gain totalling around 25-30% over this period. Thereafter, you should probably sell, unless you are willing to do a lot of careful scrutinising of its infrequent updates.

Because of the risks surrounding this, I'm going to break with my usual habit and suggest imposing a stop loss. I would suggest that around HK$3.7 is a fair level, amounting to a maximum loss of around 15%.


This auto wheel and battery distributor and manufacturer has good growth prospects in the next few years and looks like a very attractive small cap value play. My biggest concern is whether the management will funnel too much cash into the less attractive manufacturing business and destroy the shareholder value created by distribution.

The website at is adequate and has reasonable investor information. Disclosure standards are fair, although I always get the impression that management will talk up the best news and avoid mentioning things that haven't gone so well.

I think you could double your money in this stock over the next few years, hence it makes sense to hold. But if it gets to a p/e of 12.5-15 at any point, I would probably be inclined to take profits: unglamorous firms such as this are not usually rewarded with high valuations for very long and that may well mark the peak of the cycle.

First Reit

Our Indonesia-focused real estate investment trust offers a yield of almost 9% with relatively little risk to the dividend - healthcare is a defensive business. I would suggest continuing to hold for the income.

The share price may be more volatile; although an income play, reits don't typically hold up well during downturns, in part because of fears over their refinancing risks (many reits use relatively short-term debt and need to roll over quite frequently).

It's hard to say what the lowest yield an investment like this should trade on, but I think that if it were to get down to 6% or so, that might be a sign that we're approaching a market peak. Given the yield we bought on, I would be inclined to hold it through any downturn and continuing collecting the income. But if you feel inclined to trade in and out, that might be a good point to watch.

Disclosure standards here are very good I wish all firms provided as much information as it does. The website at should keep you up to date.


This bakery and restaurant group has only been in the portfolio for a short while and it's hard to judge progress, but on the whole I'm encouraged. There are good growth prospects here and I would consider holding the main thing to watch out for is any signs that it may be overstretching itself by expanding too quickly. At present, I would probably be inclined to take some profits if shares go over S$1.00 in the next couple of years.

The website at provides pretty good information for investors.

Uni-President China

This Chinese soft drinks and noodle group should report full-year earnings towards the end of April. I'd be looking for some early evidence that the turnaround strategy is working ie earnings in line with my estimates or not too far below.

Next year is more crucial though and I'd want to see strong earnings, even if they were to miss my estimates somewhat. If things seem to be developing well at that point, this could also be another long-term consumer-play hold. But if it still seems to be struggling to regain the position surrendered to peers such as Tingyi, I would probably consider selling at that point.

The company's website at contains recent releases and annual reports, but is not well-provisioned with extra content to keep investors informed.

CSE Global

My timing on this provider of software services to the energy industry was truly awful; the stock has been hammered on the back of developments in the Middle East fears that look largely unjustified to me at present. I would continue to hold I think it should recover well over the next few months.

Long-term growth prospects are good in its core markets and the shares look cheap on current valuations. I might be inclined to take some profits if the price gets up around S$2 in the next year or two, depending on how earnings grow.

What happens next

That's it from me for the final time. As mentioned above, please email me on if you have any queries.

Just to let you know, I shall be contributing some ideas to the Profit Hunter newsletter we're working on a few and I hope to have my first piece in there very soon. It's possible that some existing Asia Investor recommendations will be suitable for Profit Hunter and I'll be able to continue covering them there, although I can't make any commitments on that at this point. My free weekly email MoneyWeek Asia will continue, at least for the time being.

Thank you for subscribing to Asia Investor over the last year. It's been rewarding writing it and I hope you've found some of the ideas useful.