Harvest Investment Partners manages the Harvest Asia Fund,
an Asia ex-Japan, long / short equities fund. Singapore-based
Harvest Investment Partners was established in July 2003 by
Tiong Jin Yan, Michelle Tan-Chian and Michael Liang. The fund
has generated returns of 2.33% year-to-date and 5.51% since
inception (November 2003).
Please briefly explain your investment process and
how you combine a bottom-up equity investment approach
with a macro overlay?
We believe that Asia is essentially a stock picker's region
with information inefficiencies that can be uncovered
through a combination of a thorough understanding of the
factors that drive different industries and fundamental
research on a company-specific level. As such, we divide
our stock-picking responsibilities along sector lines,
and not the more typical country or North/South regional
split. However, recognising that local market effects
could, at times, account for a significant portion of
stock returns, we have a dedicated portfolio manager who
spends his entire time analysing and managing the portfolio's
country and currency risk exposures as an overlay on the
underlying stock positions.
- Is the macro overlay only to hedge out inherent risks
in the equity long / short book?
Our macro overlay manager runs a proprietary quantitative
macro model, combined with a qualitative assessment of
non-quantifiable factors and technicals, to determine
whether and where there are pockets of risk or opportunity
at a country level. Given the underlying portfolio of
long and short stock exposures, he then makes an active
decision on hedging. This active hedging accounts for
a majority of his trades. A small portion of risk capital
is allocated towards active macro trades where our macro
model shows opportunity but where we may not have any
underlying stock positions.
You have three senior managers on the team. How are
differences of opinions both over stock selection and
sector/country weightings finalised so the portfolio does
not become static by inaction?
We believe there is value in independent thinking. Therefore,
we have chosen to take a "multi-manager" approach
to investment and have carved out our portfolio into three
distinct sub-portfolios. Each of the two stock-pickers
(Jin & Michelle) makes his/her own investment decisions
within his/her assigned sectors, given certain investment
and risk parameters. Mike, our macro manager, then applies
a macro overlay as he sees fit. There is some fungibility
between sub-portfolios so that capital is not idle for
lack of opportunity in a particular carve-out. However,
where risk management is concerned, we have two levels
of control. Firstly, Mike through his macro overlay manages
risk on a daily basis. Secondly, we sit down together
as a team on a weekly basis to review the portfolio in
its entirety, discuss overall investment views and prospective
actions. In practice, because we've worked together in
a buy-side team for many years before starting this hedge
fund, and we sit three feet away from each other, we tend
to use each other as sounding boards for our ideas before
putting them into action although consensus is not required.
- Is being based in Singapore a disadvantage in following
companies based in North Asia?
Of course there is nothing like being on the ground
in whichever country you are investing, but there is no
way we could be in 11 or 12 countries at the same time!
So, Singapore is as good a place as anywhere else in Asia
to cover the region. With a critical mass of fund managers
on the ground here, and the Singapore government itself
being an important global investor, Singapore is a key
stopover for company roadshows for both North and South-east
Asian companies. We do go on the road regularly to "kick
tyres", or otherwise a well-placed phone call or
email usually gets a reasonable response from corporate
- Moving on to your current market views, are there
any specific sectors where you see earnings surprises for
the third quarter?
HK/China consumers are coming in slightly better than
expected. The early tech reporting is in-line to lower
against recently lowered 3Q expectations, and guidance
Indices in the "exporting countries" like
South Korea and Taiwan are down this month by 3% and 1.2%,
respectively (as of October 25) and H shares in Hong Kong
are down 3.37%, after rising substantially in September.
Is this just a short-term correction due to flows, or
do you believe we are seeing a fundamental, multi-month
decline for markets in North Asia?
We believe the short-term correction in these "tradable
economies" is partly liquidity and partly fundamental.
Regional inflows drove markets higher in August and September
after the summer lull, and, given the rally we've seen
in these markets, it is not surprising to see some profit-taking.
Fundamentally, slowing external demand is affecting Asian
export momentum, and we expect more headwinds ahead. We
think these markets will remain range bound and volatile
into year end. Forthcoming economic data (i.e. China,
OECD growth) will likely scatter inconclusively around
a weakening trend, while liquidity ebbs and flows will
exacerbate market movements.
- The macro economic data out of the United States shows
a clear slowdown, while the country is in a rising interest
rate cycle. This is similar to the conditions in the first
quarter of 2000; do you believe that Asian equity markets
in 2005 will be a repeat, maybe at a more subdued level,
We think there are several fundamental and technical
reasons to suggest why 2005 is unlikely to be a repeat
of 2000. First, in late 1999, policy-driven Y2K easy liquidity
created valuation excesses that corrected painfully in
2Q00. Clearly, liquidity flows this year have been nowhere
as exuberant as in 1999. Second, the absolute level of
interest rates in 2000 was much higher than rates today.
We believe that for this current cycle, the US Federal
Reserve's primary objective is to bring abnormally low
rates back to a more normal level, and that they will
do so only gradually. Disinflation is more of a concern
now, in contrast to the 1990s which was a period of inflationary
pressure: thus, we expect the Fed to allow inflation to
drift higher. Third, we think Asian central banks are
more likely to lag and only partially match Fed rate hikes
for domestic reasons, and therefore, the overall policy
stance is likely to remain relatively accommodative in
- How are you hedging the portfolio against higher oil
prices and are you taking off US dollar hedges with the
fall in the dollar against Asian currencies?
We have market hedges in oil-sensitive economies like
India and Korea. We have been hedging out currency exposures
during periods of event risk (e.g. during the Indonesian
election) but have generally been comfortable staying
long Asian currencies as we feel that Asian currencies
are asymmetrically biased towards the upside given their
balance of payment surpluses.
- It appears that the commodity theme is returning among
Asian managers; are you following this trend?
Not really. With most metals trading at or near all-time
highs, we believe there is more downside risk to this
sector than upside. Some commodities producers, e.g. steel,
have announced new capacity additions and typically this
signals the top of the cycle. If China or global demand
were to decline, even slightly, the price of the marginal
tonne of most commodities is likely to decline sharply,
as we have seen recently in the volatility of some of
the metals. There is probably less risk to coal and paper
/ timber at this point; however, the metals, steel and
petrochemicals sectors look fully priced.
Tiong Jin Yan
Harvest Investment Partners
+65 6254 8386