Giant on the move
How cheap is cheap?
How cheap is cheap?
That was the most frequently asked question among bankers and private equity experts attending a recent forum in Hong Kong, as they swapped strategies about how to pick up stressed assets during the financial crisis.
But one year on, many global markets have bounced off the bottom and some have recovered quite nicely. The Shanghai benchmark index, for instance, has gained more than 50 percent since the beginning of this year. As a result, views among bankers and top investment strategists about ongoing risks to the business outlook have started to diverge.
“Valuation is still a big threat,” said Michael Kim, a former senior Carlyle executive who founded MBK Partners after leaving the U.S. buyout giant.
“If a W-shaped recovery is going to happen, I think it will be a tremendous buying opportunity,” said Kim, referring to the possibility of a “second dip” market correction.
Andy Xie, former chief Asia economist at Morgan Stanley who earned his reputation in the financial industry as one of the most bearish analysts in Asia, forecast that a “second dip” in China’s market could occur next year.
“Markets will come down seriously, and China needs to increase money spending again, then you will see another rally,” said Xie, adding that speculative hedge funds could earn big profits in the subsequent rally.
But not everyone expects or is eager to see “a second dip”, especially those dealmakers who have already jumped onto the deal flow and believe they have successfully bet on the quick recovery early this year.
“How cheap is cheap? I think the price level is now reasonable, and in fact we already missed the bottom level, which was the time when Lehman Brothers went bankrupt,” said one forum delegate.
Another financial industry executive, who explained his outlook on valuations to reporters at the forum, said: ”To those who missed the chance to take advantage of the recovery in this round to buy some cheap assets early this year, they will definitely tell the public that the valuation is not yet cheap because they haven’t bought anything yet.
“To those who bought something early this year, now is the time for them to defend their investments so they keep saying prices will rise soon.”
He smiled, and posed a question for other dealmakers: ”How greedy is greedy?”
Photo caption: A man sitting at the Exchange Square in Hong Kong. REUTERS/George Chen