HT Capital was established in 1997 and is owned by Ophelia
Tong and Karl Hurst. Tong is the fund manager and has been
running it since January 1999. The HT Asian Catalyst Fund
is the only fund that HT Capital runs.
HT Asian Catalyst Fund is an Asia excluding Japan, long/short
equity hedge fund. Stock selection is described as based on
fundamental valuation grounds with technicals being used for
market timing. Company visits are extensive and important.
The Fund currently has USD34.7 million in assets and is +0.42%
ytd as of May 01 2003.
Interview with Ophelia Tong
- The Fund was not a major participant in the Korean
rally during April. What are your current views regarding
South Korea and did you make money there during May?
Korea had a strong rally early in April, fell sharply
and then had a strong bounce again towards the end of
the month. I missed this move altogether but I did not
want to chase as the fundamentals still have not improved.
Admittedly the market is driven by liquidity at the moment
so it would be dangerous to short. We only made small
additions in selective counters in May as we are wary
of a short term correction given that the N Korean issue
remains unresolved and recent economic figures still point
to a slowing economy.
- You are very open in using cash (ie keeping gross exposure
less than 100%) as a hedging tool. Why do you find this
as an effective tool?
In Asia, there are not many good hedging tools due to
the lack of depth and breadth of most markets. Cash is
an effective hedging tool because it is cost effective
and quick to implement. Shorting is also expensive in
Korea and Taiwan so we tend to be very careful with our
shorts there. In situations whereby we believe fundamentals
are not improving but valuations are attractive, we prefer
to use cash as an effective hedge, such as Korea at the
What is your current view on the deterioration of
Hong Kong's economy and fiscal budget. Is there a realistic
chance that the government will de-peg the Hong Kong dollar
in the next 12 months?
We are very concerned about the Hong Kong economy and
the ballooning fiscal budget deficit. The government does
not seem to have an effective policy to tackle this problem
and the SARS outbreak has added to the woes of the local
economy. Nevertheless, Hong Kong has a sound financial
and economic infrastructure , which should help it weather
the storm but the structural economic problem can only
be solved by an effective government policy which is still
lacking. We do not believe the Hong Kong dollar link will
be removed in the next 12 months although we have a hedge
against the Hong Kong dollar in the Fund as a prudent
measure since the cost of hedging is low.
- In the April monthly report you stated that the preference
remains to invest in Hong Kong/China shares instead of Taiwanese
stocks to capture the China growth story. Has this view
changed at all with the recent rally in the Taiwanese market?
This view has not changed as the HK/Chinese H share
valuation is far more attractive to capture the growth
in China. However, some of the technology counters in
Taiwan are cheap outsourcing plays to the global technology
sector recovery. At the present time, we are not paying
any premium for this growth if the recovery materializes.
- What themes for both the long and short books do you
find interesting in China at the moment?
On the long side, we continue to like the power &
toll road sectors but the valuations are a bit full at
present after the recent bounce. Energy sector still remains
attractive as China's long term demand for energy is without
doubt and the valuation for this sector still remains
cheap despite the recent rally. At the same time, they
pay attractive dividend yields! On the short side, some
of the consumer stocks are still overpriced but finding
available stocks could be tricky. In general, there are
not that many good shorts in China stocks especially if
the much anticipated QDII ( Qualified Domestic Institutional
Investor) scheme gets implemented.
Have you resumed company visits in Hong Kong, China
and Taiwan during May? What is the general feeling are
you getting from management? What effect has Sars had
We have resumed company visits in Hong Kong but not
China and Taiwan during May as the latter two countries
are still trying to keep SARS under control. However,
we have been able to get update on companies in China
and Taiwan through conference calls and virtual forum.
Most companies are sounding caution regarding SARS impact
and in some cases, the impact is still being felt in May
and earnings are going to be impacted adversely.
- Many brokers in Asia have mentioned that Spring 2003
may have represented the cyclical bottom for markets in
Hong Kong, Taiwan (April) and Korea (March). Would you concur?
On a near term basis we probably have seen the bottom
but the overall economic picture is not a rosy one so
one needs to be careful with stock selection beyond the
current liquidity driven rally.
- If so, will you employ any derivative products to leverage
the fund's performance in a general market rally?
Over my 22+ years of investment career, I have not used
gearing to leverage the fund's performance. Our philosophy
is that leverage can work both ways and our job is to
add value at each stage of our investment process ie top
down/bottom up so that if we get each stage of our decision
making process right at the country, sector and stock
levels, the Fund will perform well without using leverage.
However, we do look at warrants if it is cheaper way to
invest in the underlying equity in a general market rally.
- For your research driven, fundamental approach to
stock selection, is it necessary to run a small fund in
order to remain flexible? In the current environment, how
big will you let the fund grow?
Our Fund is invested in both big cap and small cap stocks
and we normally invest about 70% of the Fund in big cap
stocks to provide liquidity. This approach dovetails with
our active investment strategy and allows the Fund to
grow without compromising on performance. We know small
caps are the flavour of the month in the current investment
climate but the risk/return profile is very different
and when the tide turns, the window for exit is very small
for small caps. Our target is to grow the Fund to circa
USD 200-250m as this size will allow us to invest in both
big cap and small cap stocks on an active basis. In reality
we would close the Fund to new subscribers when it reaches
the USD100m mark.
- Where are you currently situating the fund to make
profits over the summer months?
The Fund has built good core positions in recent market
correction. The Fund's net long exposure has increased
from the low 20% earlier this year to over 50% at present.
We would continue to identify companies which will provide
good earnings growth potential whilst trading at reasonable
valuations in a slow growth environment. We are mindful
of a near term correction and the traditional market corrections
over the Summer months, hence we are cautious towards
getting more fully invested at the present time. Our investment
theme remains largely unchanged going into the summer
months, ie focus on value stocks ( low p/e, high yield
stocks), global outsourcing beneficiaries and domestic
- How have corporate earnings announcements in Japan
during May affected the companies you hold?
This is not relevant as our Fund is an Asia ex-Japan
fund. We include a commentary on Japan provided to us
by our associate based in Tokyo. As Japan becomes more
interesting or when there is sufficient demand for us
to include Japan, we would then include Japan in our investment
HT Capital International Ltd
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