ING Investment Management’s offices in Hong Kong have a commanding view. With views of the harbor on one side, where wooden fishing boats jostle for space with sleek hydrofoils, and glistening upward-marching high-rises on the other, it is easy to see why Chris Ryan, regional director for north Asia, finds this an exciting and vibrant financial center.
‘I love it here,’ declares Ryan. ‘Hong Kong hasn’t changed [post-handover]. It is still looked upon by the rest of Asia as something of a role model because of its clean living in terms of financial regulation and stability management. It has evolved as a market in the last seven years: from one that was operating at a similar level of regulation as the UK to having its own identity as a financial market. In some ways it has created leading thinking in both regulation and management of financial markets and services.’
ING IM began its Asia-Pacific business in 1997, during a time when most businesses were fleeing the region. Yet it did not scale down any of its Asian activities during the Asian crisis and is very proud of that fact. Today, ING IM manages assets in excess of $32 bn from its Asia-Pacific offices in Hong Kong, Singapore and Australia.
The ING IM investment philosophy is that of ‘price for growth’ or growth at a reasonable price. It is an approach that ING views as being neither a pure value style nor an exclusively growth-oriented style.
Back to fundamentals
‘We believe both growth and value stocks can be too expensive. Instead it is our objective to find underpriced earnings and cash flow growth in the market by making an assessment of a reasonable price the market would pay for the anticipated earnings and cash flow growth,’ Ryan explains. This assessment is made by the ING IM investment teams in a fundamental, bottom-up approach, reaching a ‘one-house view’ of model portfolios.
‘We have a stock rating system on our intranet system,’ expands Chuak Chan, regional business development director. ‘We have a regional equities team based in Singapore that manages Asian off-shore funds, and they liaise with Taiwan and Japan and share these views. It is a global local approach.’
These views are then upheld in all client portfolios unless the decisions conflict with the specific requirements of a client. The ING IM goal is to outperform the market over three to five years.
Currently, the global ING IM portfolio is overweight in US and UK equities, underweight in Japanese equities and generally overweight in emerging markets. ‘This is a market for fundamentals; we are not going to have another tech burn this year, another market based on very long-term projections of uncertain revenue. Any market that goes ahead this year will have to demonstrate rock solid fundamentals or a major change in its approach to the fundamentals,’ Chan observes. ‘With stock prices, we believe they will follow EPS growth more closely than they would have in the 1990s. Investors want to see real growth now rather than future growth.’
The financial situation of a company is of course imperative to ING’s analysis but, as Ryan puts it, ‘We do more than a whistle stop at the IR desk. We are interested in how transparent they are, how reliable the information is that they are putting out to the market, and what their track record is in terms of disclosure of relevant events. It is about trust. If we feel we can trust the board and the management of the company then we are more inclined to follow what they say.’ Investor relations in Asia, Ryan says, has come a long way in the last five years, though there is always room for more improvement.
The quality of corporate governance in a company is also a major investment trigger for ING. ‘The transparency, frequency and quality of communication is very important,’ confirms Ryan, before adding this caveat: ‘You must make sure that throughout this process [of implementing good corporate governance], the company is not so paralyzed that it loses its creativity. A company has to be allowed to change strategy and to develop ideas so that these are not stolen by competitors; and it must be allowed to engage in mergers and acquisitions that add value to stakeholders including the shareholders. Companies that are afraid to make a mistake become so risk averse that eventually they won’t take any risk. What we are talking about at the end of the day is share investment, which is risk capital. You want the company to take some risk with that money, otherwise there is no value-add.’
ING IM currently manages funds for investing institutions, the ING group’s insurance companies, retail mutual funds and unit trusts. In addition, it has recently started moving into the Asian pensions market, taking advantage of pensions deregulation in various countries in the region. In Hong Kong, ING has a growing Mandatory Provident Fund (MPF) and occupational retirement schemes ordinance business.
Recently, ING IM was one of the first to step into the Japanese market to establish a defined contribution business under new Japanese regulations. Next on the pensions radar are Korea and Taiwan. ‘We believe that in addition to the recent developments in Japan, Korea and Taiwan are also looking at the defined pension fund developments in the region with interest and may move in a similar direction in the near future,’ Ryan predicts.
The China pull
Another area where ING IM sees tremendous potential is China. ‘Our exposure to China tells us that the economy is genuinely booming,’ enthuses Chan. ‘It is hard to find many places in the world where the economy is growing above 5-6 percent reliably, but China has done that over the last ten years, with the exception of one year. A lot of projects there will have a long payback period, but China’s growth is certainly going to help the rest of Asia recover once the western markets recover. We expect export volumes to pick up in China, especially under the WTO scenario, and this will see benefits and challenges for Asia. Economically we are bullish on China.’
ING IM has joined the first pack of foreign management companies, including Fortis Investment Management and HSBC, in vying for the estimated $850 billion of Chinese savings by joining up with Chinese asset management firms. One of the first sectors to open up under the WTO, the fund management industry is touted to grow to $1 trillion by 2010. IMG IM’s commitment in China so far has been in the form of a technical cooperation agreement with a series of partners for the establishment of a joint venture fund management company, the lead partner being Shenzhen-based China Communications Securities.
On the quality of Chinese assets and markets, Ryan remains optimistic, despite the many scandals plaguing the markets recently. ‘The major point is that China is changing. We are seeing the China Securities Regulatory Commission (CSRC) issuing guidelines for a higher level of independent directors for fund management and securities companies. Anyone who has anything to do with the capital markets in China is being encouraged to be more transparent and stakeholder focused. Chinese companies are getting better and they’re on a steep learning curve, as is the CSRC, which has been taking a lot of international examples into account when forming their regulations.’
Ryan describes the CSRC as approachable. ‘They are willing to listen to ideas and views that can help Chinese companies manage themselves in an open and effective way,’ he acknowledges. ‘And the good thing is that they are using international best practice to measure their own standards by. They are not seeking to do things in an exclusive way; they are looking to include the experiences of other countries to form their own rules.’
But can China, with its own legal system and customs, implement western-style concepts of governance? ‘China is paying more attention to the concept of the rule of law,’ observes Ryan. ‘The predictability and the rationality of the legal system in the corporate environment is increasing. Of course everyone wishes to be at the end destination now, but outside of Star Trek, that doesn’t happen. You have to go on a journey to get there and they are on a journey. The regulators are very aware that they are being viewed by the rest of the world, including potential investors in China.’
