focus on high quality stocks. For this column, I would like to talk about how
to select global "star" stocks through a mutual fund.
To select global "stars", fund managers will focus on two key factors. The first
is country valuation, which is based on economic outlook, political risk, stock
market outlook, and stocks valuation. For the next two years, the main stock
markets forecast to generate good returns with cheap valuation are those
of developed countries' (including US and Japan), due to their large market
capitalisation with cheap valuation coupled with a high international growth
potential of multinational companies. Although Japan is now recovering from
natural disasters, this should only be a short-term phase. Given an investment
period of approximately two years, the Japanese stock market still looks
attractive.
The second key factor in stock selection is sector valuation - selecting sectors
that have high potential growth and whose stock valuations are lower than
the companies' fundamentals. Attractive sectors currently include technology,
financial institutions, retail, and multinational companies with global revenues.
_ Technology: The growth of industrial production will drive more investment
in technology as well as consumer purchasing power of high-tech gadgets.
The technology business covers industrial technology and computer
technology, software, hardware, server tech, telecommunication equipment
and information technology services, networks, and online services and
media. In addition, biotechnology and medical technology offer life-enhancing
and life-saving forms of medical treatment.
_ Financial institutions will benefit from the growth of investment and the
expansion of industrial production capacity, and the rising interest rates due
to economic growth in Asia.
_ The retail sector will benefit from the growth of consumption in Asia
and emerging-market countries, where density of population is driving up
purchasing power and consumer demand.
_ Multinational companies receive revenues from business operations
internationally and are seeing the benefit of global economic recovery
and growth in each region. Although the European and US economies are
still fragile, these companies are operating successfully in other regions.
Generally, there are some constraints for individual investors wishing to
invest in leading international stocks. For example, a large investment
minimum is required. Access to information such as investment analyses
and recommendations is limited. Investors must know how to manage
foreign exchange risk by themselves. Given these issues, I would recommend
investing in global star stocks through mutual funds, which will have a fund
management team expert in selecting securities and the practise of risk
management. Retail investors will get the most benefit from this alternative.
Win Udomrachtavanich is senior executive vice president/chief investment
officer for Asset Plus Fund Management.
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