Pick the stocks, not index, says fund manager

Not all blue-chip index stocks, usually the safest bets, will survive the global financial crisis.

Fund managers could be better off managing their portfolio actively to pick winning stocks and not bet on a particular index, Aberdeen Asset Management Asia Ltd business development director Donald Amstad said.

"The next couple of years will be a matter of winners and losers. Shares and bonds of the best-run companies in the world are trading at fantastic prices today, (and) it's a wonderful opportunity to buy them now," Amstad said, even as the macro outlook is still gloom and doom.

"Don't take the index approach, because some index stocks can go bust and go down to almost zero in price," Amstad said at an investor's forum organised by the Securities Industry Development Corp in Kuala Lumpur yesterday.

The UK-based fund manager manages over US$158 billion (US$1 = RM3.59) of third party assets.

Aberdeen, which has US$4 billion invested in UK stocks and holds another RM3.5 billion shares in North America at the end of last year, could not invest in any US or UK banking stocks because of its investment policy.

Its last investment in a bank in the two continents was HSBC plc, which it sold in 2002 when HSBC bought Household International in the US, Amstad said. The lender recently admitted that Household International was a bad investment decision.

He said the global financial crisis, which started from the US subprime mortgage issue, will not be over until house prices in the US stop falling. But there are still more supply than demand in the US housing market.

"If the houses are worth RM100,000 today and RM80,000 tomorrow, the banks won't know how much is the value of these assets on their balance sheet. Only when the prices stop falling, then we can look at a real recovery," he said.

He said the problem of the global financial market is "very deep" and "very structural", especially in the Group of Seven economies.

"The bubble took 20 years to build. It's not going to take weeks or months to settle. It will take years," he said.

Amstad said he will avoid investing in the G-7's bonds and most of the banks there. Asia offers better investment opportunity because it is merely a victim of the crisis.