How to invest overseas
In 2007, I joined an investment tour of Ho Chi Minh City to see for myself whether Vietnam was truly the next China. Showing their Confucian tradition, the Vietnamese are eager to learn and compete with their neighbors. The government has an aggressively open policy to attract foreign investment. Still, risks remain as the country is still in an early developmental stage. Asset prices are inflated, raising concerns about bubbles. Too much money has been funneled in over too short a period.
On the last day of the tour, our guide bid us farewell and thanked us for having interest in Vietnam. But he advised us to be cautious in our investment plans. Some of the potential investors, already dreaming of making fast fortunes after seeing the country’s industrialization and modernization process, lashed out at the guide. The scene on the bus suddenly turned ugly.
Looking back, it was a time when the popularity of Vietnamese funds peaked. The funds were hastily arranged amid a lot of hype over Vietnam’s potential. But the country’s own troubles, coupled with the global financial meltdown the following year, turned into a nightmare for investors. The economy crashed as fast as it went up. The market has never entirely recovered since.
Looking outward can lead to good investments. The Korean economy is mired in a structural slowdown. Fast-developing economies could be the wiser choice for placing money while interest rates are still so low at home. But investing in the middle of an obvious buying spree is definitely risky, as the Vietnamese crisis has proven. The crash of Chinese and Brazilian funds all generated the same bitter lesson for local investors, especially those who joined the frenzied buying just before the bubbles burst.
Timing is crucial in investments. Local investors often have exactly the wrong approach. The direction of a stock market does not always reflect the underlying economy. The best performance in Korean shares did not happen when the economy was growing fast. Investors are misled and believe investing in funds of countries making rapid growth will generate high returns. They must place their money in individual companies, not the overall market or economy.
For instance, although Vietnam’s composite stock index has halved from its 2007 peak, Vietnam Dairy Products has seen its stock grow steadily over the years thanks to improvement in living standards in the country. There can be enormous difference in the results when one looks at individual companies and not the whole market.
I stuck to three principles while investing overseas over the last eight years. First, there are greater choices of good and affordable investments in the global market compared with the limited selection of 1,900 companies listed at home. We have to study each and every one of them, and my analysts and I take time to visit companies that interest us.
Second, we prioritize regions and industries we are familiar with. Ignorance is the biggest drawback in overseas investment. Since Brazil differs greatly from us in culture and climate, we are more likely to err when investing in Latin America than in Asia. It is also better to invest in consumer-related companies than those specializing in business-to-business transactions.
Third, we look for overseas investments that are better than our own. There is no need to look elsewhere if our own market is attractive enough. Instead of companies similar to ours, I am more thrilled to discover those with unusual growth potential. Some of the Chinese Internet and Southeast Asian retail companies have bold ideas not found in local companies.
Past mistakes shouldn’t scare one off. Investors cannot expect long-term returns entirely from home. One will avoid major losses if you avoid jumping on a bandwagon when there is a crowd. I would advise investors look both at home and abroad for investment targets.
JoongAng Sunday, Oct. 25, Page 21
The author is the chief executive of VIP Investment.
by Choi Jun-cheol