valutation

Value investing in emerging Asia over the 1999-2012 period

Value investing is a bumpy ride, but if you are a long-term investor, there are few better ways to invest.
Joel Greenblatt, 2009

-Introduction

In reply to the publication by Dr. Marc Faber of our study Value and the rest we were asked to document the returns to value investing in emerging Asia. In this contribution we present the results over the 1999-2012 period.

The methodology can be summarized as follows:

* companies need a public track-record of at least five years;

* annual stock portfolios are established at the end of July, i.e. taking into account a time lag of 7 months to account for delayed availability of the annual reports;

* companies with a market capitalization less than $250 million (in 2012 terms) are removed from the analysis;

* value and growth decile portfolios are established using the methodology of Chan and Lakonishok (2004) (refer to Value and the rest);

* value+ is an investment strategy where the value decile is purged from companies with a weak financial position (refer to Value and the rest);

* we include the following Asian countries in our dataset:

Singapore from 1987;
Hong Kong and South-Korea from 1989;
India, Indonesia, Malaysia, Philippines, Taiwan and Thailand from 1994;
Bangladesh, Sri Lanka and Vietnam from 2005.

* annual portfolio returns are measured in US dollar.

-Number of companies

TABLE I shows the number of companies for each country at the end of July over the 1999-2011 time period using the methodology explained above. There are only few companies in the database that meet the required criteria before the year 1999. In 1999 the number of companies taken into consideration is 289. This implies 29 companies per decile portfolio, an absolute minimum in order to achieve typical results. At the end of July 2011, in the twelve Asian countries there are 1743 appropriate companies that meet the requirements. Over the 1992-2011 period, the dataset contains 12,255 companies.

TABLE I:
NUMBER OF COMPANIES PER COUNTRY

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Total

Singapore

37

43

52

39

40

58

71

84

114

99

88

87

113

1185

Hong Kong

50

64

73

75

93

111

150

163

233

190

191

223

275

2141

South-Korea

36

38

37

55

70

80

148

161

266

212

161

172

232

1872

India

32

39

38

56

70

88

161

186

220

232

250

293

324

1989

Indonesia

6

13

13

18

22

24

34

43

64

66

67

77

105

552

Malaysia

50

59

57

60

67

76

90

89

133

111

92

115

134

1133

Philippines

16

19

13

15

16

17

20

28

46

38

38

53

56

375

Taiwan

48

82

56

63

65

137

174

189

338

271

220

296

360

2299

Thailand

14

10

15

25

35

51

50

53

76

69

54

88

111

651

Bangladesh

6

10

16

Sri Lanka

7

15

22

Vietnam

12

8

20

Total

289

367

354

406

478

642

898

996

1490

1288

1161

1429

1743

12255


-Annual returns to value and growth decile portfolios

TABLE II and GRAPH I give an overview of the annual returns to value, value+ and growth investing over the 1999-2012 period. The 2011 portfolio runs from the end of July 2011 to the end of July 2012. The row “#stocks” indicates the number of companies in the annual value and growth deciles on the one hand and the remaining companies in the annual value+ portfolios on the other.

TABLE II: RETURNS TO VALUE AND GROWTH INVESTING IN EMERGING ASIA

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1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Mean

Value

-29.6%

-0.6%

69.7%

45.8%

32.5%

84.9%

18.4%

99.1%

-16.7%

-3.1%

38.0%

37.0%

-25.3%

26.9%

#stocks

29

37

35

41

48

64

90

100

149

129

116

143

174