Asian telecoms, roads offer safer havens in market storm
Utilities hold less appeal on tighter regulation
HONG KONG — Telecoms, infrastructure and toll road companies are among the best defensive stocks for Asian investors who fear that the downturn since the start of the year is shaping up to be a full-blown bear market.
Strategists and fund managers said utilities, traditionally seen as a low-growth safe haven in troubled markets, hold less appeal than in the past because of less favorable regulation and rising input costs.
“The sectors I would be focusing on would be telcos, pretty much across the space, and some infrastructure stocks, particularly the Chinese ones,” said Tim Rocks, equity strategist with Macquarie Securities.
The Hong Kong-based strategist said investors should favor infrastructure plays, particularly in China, including toll road operators Shenzhen Expressway and Zhejiang Expressway, and be wary of utilities.
“Regulatory regimes are generally tougher, so that companies aren’t being allowed to pass some price increases because countries are worried about inflation,” Rocks said.
“Even though they’re defensive in that their revenue line may not move that much, the problem is their costs are going up, so they may not be as defensive as it would initially seem.”
Asian telecoms carriers including Taiwan Mobile Co., Singapore Telecommunications Ltd., Globe Telecom in the Philippines and South Korea’s SK Telecom were other potential defensive plays, he said.
Investors are hunting for safe havens as Asian stock indexes have tumbled after Citigroup’s record loss and weak US retail sales heightened fears of a US recession that would cut global growth.
But investors who might in the past seek the stability and dividends of utilities need to take a closer look before buying Hong Kong utilities like CLP Holdings Ltd. and Hongkong Electric, said Louis Wong, research director with Phillip Securities.
A recently revised Hong Kong regulatory agreement will lower the cap on potential returns “so their resilience or their function as a safe haven may be undermined,” he said.
CHINA SPENDING SUPPORTIVE
The Hong Kong-based analyst instead favors infrastructure plays including China Communications Construction and China Railway Group Ltd. which, he said, will benefit from multiyear, multibillion dollar commitments China has made to communications and transport spending.
He also liked Hong Kong’s Link REIT, which rents retail outlets and parking spaces in the territory’s government-owned housing estates.
Apex Capital Management fund manager Tat Auyeung said he also held China Communications Construction, as well as Shenhua Group, China’s largest coal producer, because they are relatively immune to slowing global growth.
He also pointed to China’s top telecoms firms, China Mobile, China Unicom Ltd., China Netcom Group and China Telecom Corp. Ltd. as likely to do better in a downturn.
“Conventional wisdom is to put the money into sectors where they have very little to do with the US economy, more domestic-related names like infrastructure,” he said.
In India, stocks perceived as defensive include the locally listed arms of food and drug multinationals such as Nestle India Ltd., Hindustan Unilever Ltd., GlaxoSmithKline Consumer Healthcare Ltd., and Bhaskar Laxminarayan of Pictet & Cie.
The Asia chief investment officer of the Swiss bank, who declined to disclose its stock recommendations or holdings, said government-run banks like State Bank of India and Punjab National Bank were also seen as safe havens.
Given the continued risks to international banks and financial markets from the US subprime meltdown and global credit crunch, investors may simply be better off moving to cash or other asset classes, said Kirby Daley, strategist with the Fimat division of Societe Generale.
“Investors have to think outside the box in this period where we’re entering uncharted territory. Simply moving to defensive stocks or buying on dips in equities is not necessarily going to be prudent,” he said.
Yet some strategists think crowding into defensive stocks, if such a category exists, would be a mistake given this is where the herd is moving.
“Fear has taken over, and really what you should be doing is going and buying those high beta risky stocks that have been driven down very hard,” said Adrian Mowat, chief Asia equity strategist at JPMorgan in Hong Kong.
“I wouldn’t be giving people a list of defensive names … it’s a hedge against a bull market, and you own equities because your expectation is equities are going to go up.” Editing by Ian Geoghegan
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Source: http://business.inquirer.net/money/breakingnews/view/20080117-112960/Asian-telecoms-roads-offer-safer-havens-in-market-storm