The global economy is dangerous for investors these days, said Weijian Shan (單偉建), chief executive of the Hong Kong fund management firm PAG Asia Capital (PAG, 太盟投資集團).
Years of easy money from central banks have helped inflate the prices of just about everything an investor can buy, like stocks or property.
“I think that clearly we are in an asset bubble,” Shan said in a telephone interview from Hong Kong.
So what should investors do?
Shan recommended a return to the basics.
His firm, with US$16 billion under management in funds that specialize in fields like private equity and real estate, is looking for value in areas still growing in a sluggish world economy.
“We are not chasing bubbles as many of our peers do,” said Shan, a former professor at the Wharton School of the University of Pennsylvania in Philadelphia. “I only want to look at the fundamentals. I want to know how much money this business makes.”
In that, Shan is positioned well. PAG focuses mainly on investments in or related to Asia, where the fortunes of China, India and other countries remain buoyant even as the global economy sags.
“If you look around the world, Asia is where the growth is,” he said.
Shan said that China, where he was born, “is the most interesting market because of its growth.”
However, that growth has declined. In the third quarter of this year, China’s GDP rose 6.7 percent, in contrast with the 9 to 10 percent the country enjoyed for years.
The downturn has intensified the struggles of what Shan called China’s “bad economy” — mainly manufacturing and heavy industries, which have too many factories and too much debt.
However, Shan also sees a “good economy” in China. As the government tries to shift the country’s engine of growth away from investing in steel mills and apartment blocks, it is encouraging more private consumption. That is opening opportunities in areas that cater to Chinese consumers.
“China has a split personality at this moment,” but “the good economy remains quite resilient in spite of the bad economy,” he said.
Shan, who once served as a senior partner at the investment firm TPG Capital LLP, is focusing his money on companies that can benefit from China’s rising consumerism.
Last month, PAG’s private equity arm invested an undisclosed amount in the Paradise Group, based in Singapore, which operates restaurants across China and Southeast Asia.
In August, it spent about US$250 million to acquire Golden Apple Education Group (金蘋果教育集團), which runs a chain of private schools from Chengdu, China’s western metropolis.
In its most prominent deal, PAG in April joined Apex Technology Co (艾派克科技), a Chinese producer of ink cartridge components, and others in the acquisition of the printer maker Lexmark International Inc, based in Kentucky, a transaction valued at US$3.6 billion. The deal was appealing to PAG in part because the new owners hope to raise the profile of Lexmark printers in the Chinese market.
Shan also wants to take advantage of some of Asia’s bad economy. With debt levels continuing to rise in China, PAG is developing a strategy for buying and profiting from bad loans at Chinese banks.
He also said his firm has generated good returns from buying distressed debt backed by real estate in the region.
PAG, which has 30 percent of its capital in real estate, is still sniffing around for reasonably priced property as well.
“We invest in real estate where the price is not out of whack,” he said.
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