By Peter Pham
A fund manager discusses the macroeconomic concerns and fundamental criteria driving portfolio development.
Equity returns follow a natural cycle from growth to income. A successful startup company often needs external financing from both debt and equity markets to build operations and capture or expand market share. Once operations become successful, a firm generates free cash flows that can be used for dividends, acquisitions, or share repurchases.
Investors should seek — and indeed, expect — higher-risk returns in the form of capital appreciation during a firm’s relatively short growth stage and seek lower-risk returns in the form of higher dividends and repurchases during a firm’s indefinitely long mature phase.
These simple observations form the basis for a professional portfolio-development and alpha-capturing regimen. This article will examine investment selection and stock-evaluation criteria, along with a historical back-test of the approach.
Vietnam’s banks have $162 billion in outstanding loans on their books, hence mounting concern about the economy.
With a booming economy and foreign direct investment flowing in, Vietnam was the poster child for frontier markets in the early part of this century. But that status is being undermined by a banking crisis.
Vietnam has a GDP of $155.8 billion and the World Bank forecasts GDP growth of 5.4% this year compared with an average of 7.2% for east Asia and the Pacific. It is a far cry from 2000 to 2009 when annual GDP growth averaged 7.1%. Still, with a gross national income per capita of $1,550 by World Bank estimates, the country will remain a magnet for foreign investors looking to take advantage of low labour costs in the wake of China’s recent wage increases. According to Edit Hauszknecht of MSCI, Vietnam accounted for 2.29% of the MSCI Frontier Market Index at the end of 2013.
Bright spots remain, the most obvious that the government will be spurred into action to clean toxic debts in the domestic banking system. If everything goes to plan that might entice investors keen to grab a piece of the action from debt auctions and fuel M&A activity among Vietnam’s local banks. The ‘if’ is a big one…
Phoenix Capital’s Peter Pham discusses the economic implications of the recent tensions between China and Vietnam and his strategy for investing in the region. He speaks with Zeb Eckert on Bloomberg Television’s “On The Move Asia.”
Discussing Twitter’s Asia strategy with John Dawson on Bloomberg Television’s “On The Move Asia.”
Eaton Corporation (NYSE:ETN) is a power management company that provides energy-efficient solutions that help clients effectively manage electrical, hydraulic, and mechanical power. Eaton’s latest quarter was quite impressive, with the company posting good revenue growth, outpacing the industry average of 10.4%. Earnings per share have also improved, although they’re expected to slow some in the next quarter.
Despite the impressive numbers, Eaton trimmed its outlook for 2013 primarily due to the NAFTA Class 8 truck market and the persistent weakness in the hydraulics markets. Investors, however, maintain their upbeat outlook on this company, clearly looking at the long-term potential of Eaton. The sunnier outlook of investors is helping shares gain more than 4% on the earnings day. Investors are looking at Eaton’s 3% organic growth and its 7% increase in bookings. These numbers — along with management’s positive outlook on the end market, raising the forecast from flat to up 3% to 4% in 2014 — may have boosted investors’ confidence to a level that made the lower outlook for 2013 seem like a passing affair.