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
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 |
|
Value+ |
-23.1% |
-5.9% |
79.8% |
43.1% |
27.2% |
66.8% |
14.9% |
105.8% |
-16.4% |
-5.3% |
37.6% |
39.9% |
-23.9% |
26.2% |
#stocks |
21 |
30 |
25 |
28 |
32 |
38 |
67 |
74 |
112 |
84 |
66 |
87 |
104 |
|
Growth |
-6.5% |
-33.1% |
-3.4% |
10.2% |
18.7% |
42.8% |
22.0% |
73.2% |
-32.2% |
-8.7% |
27.8% |
20.6% |
-12.5% |
9.2% |
#stocks |
29 |
37 |
35 |
41 |
48 |
64 |
90 |
100 |
149 |
129 |
116 |
143 |
174 |
In accordance with the US data (refer to Value and the rest) we find poor performance of value stocks over the period 1999-2000, the period 2007-2008 and in 2011. Nevertheless the results again indicate that patience will be rewarded. The value decile portfolio realizes an average annual return of 26.9% over the sample period. The value+ portfolio realizes an average annual return of 26.2%. For growth investing we document an average annual return of only 9.2%. As explained in our previous contribution A note on the difference between academic and Grahamite value we advise investors to always implement Grahamite value rather than academic value.
It should be noted that the average market capitalization of the selected companies is significantly lower compared to the ones in the study Value and the rest. In this latter study we focus on US companies ranked in the top six deciles of market cap based on NYSE breakpoints. The above returns also don’t take transaction costs into account, no doubt costs that for the majority of investors will be higher compared to the transaction costs on US stock exchanges. Finally we would like to remind investors that emerging Asia experienced a dramatic decline in the 1997-1998 period.
GRAPH I: RETURNS TO VALUE AND GROWTH INVESTING IN EMERGING ASIA
–
-Conclusion
In this contribution we document the returns to value and growth investing in twelve emerging Asian countries over the 1999-2012 period using the same methodology as Chan and Lakonishok (2004) on the US dataset. Value stocks significantly outperform growth stocks over the sample period. In a next contribution we will perform a robustness analysis on the Asian dataset, extending the sample period to the 1994-2012 period. In this way the historical returns during the Asian crisis of 1997-1998 are introduced in the empirical analysis. In addition we will show the results to (diversified) global value investing over the 1995-2012 period, providing an update to the study Going Global: Value Investing Without Boundaries by James Montier (2008).