I had a discussion with Michael Fritzell of Asian Century Stocks, a Swede who has been living and investing in Asia for 15 years. He runs a Substack specializing in Asian value stocks (here).

In most of Asia, investing directly in real estate is complicated for non-residents and non citizens. It’s possible in a few markets, but they are rarely attractive. Investing in local stocks on local stock exchanges is therefore an interesting alternative to get long term exposure to the region.

In the video we discussed:

00:00 Which Asian stocks Michael invests in
01:15 Why invest in Asian value stocks
02:35 Percentage of Michael’s portfolio in Asian value stocks
04:10 How to avoid value traps
07:45 Adapting one’s portfolio to the energy and food crisis
09:00 Very high dividend yields in some Asian value stocks
10:20 Correlation with Western markets
12:10 A key risk in investing in Chinese stocks
17:30 Which brokerage accounts to access South East Asian markets
20:20 Investing in REITS in Asia

Alternatively, you can read the transcript below

My favourite brokerage to buy stocks is IB as it gives me access to most of the major stock markets in the world, including Singapore, Japan, and Korea.

To a World of Opportunities,

The Wandering Investor

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Full transcript of Investing in Asian value stocks

LADISLAS MAURICE: Hello, everyone. Ladislas Maurice from thewanderinginvestor.com. So today, I’m very excited to be speaking with Michael from Asian Century Stocks. Michael, how are you?

MICHAEL FRITZELL: Pretty good. How are you, man?

LADISLAS MAURICE: Good. Good, good. So Michael has a very interesting substack called Asian Century Stocks. So he’s been living in Singapore for many years. I think we’re chatting offline eight years or so. And on that substack, he just finds all of these companies all over Asia, mostly East and Southeast Asia, and writes analyses on these companies, and he has a portfolio, etc. And what’s particularly interesting about what he does is not, he doesn’t write about, you know, Tencent and Didi, and all that, but rather little known value stocks across that region.

So just as an example, some recent reports he wrote, he wrote about a Japanese railways company, some Chinese instant noodles company, a goldmine in the Philippines, a casino operator in Singapore, some Indonesian baby diapers, a conglomerate in Hong Kong, some palm oil plantation in Malaysia. So it’s very varied. But the main focus seems to be value. So Michael, why value stocks in that part of the world?

MICHAEL FRITZELL: Well, as far as I’m concerned, the Asia region or the Asia Pacific region is just a very large part of the world. It’s, of course, a fast-growing region. And there are many ways you can justify investing in the region. But for me, at least, it’s just an opportunity set. It’s a place where you can find inexpensive and undervalued equities. So that’s why I think you should invest in the region. And you can also diversify away from Europe and the United States, that’s another reason to invest in the region. But as far as I’m concerned, I’m investing in individual stocks. And what I’m interested in, personally, is investing in companies that are really inexpensive and also high quality.

You mentioned some of the stocks that I had invested in personally, and that I’ve also covered on the substack. And they are in completely different industries. And there’s no really, there’s no connection between them, other than the fact that they are undervalued for a variety of different reasons.

LADISLAS MAURICE: So if I may ask, how did you get there? Because it’s pretty niche, going from, you know, being in Sweden to being in Singapore investing in value stocks and writing about them. And what percentage of your own portfolio is allocated to these Asian value stocks?

MICHAEL FRITZELL: Well, yeah, it is random, you know, for me, as a European to have ended up in Asia. I came here 2009. So I’ve been here for about 13 years now. And I’m going to stay here for the long term. The first time I came to Asia was as an exchange student to India of all places. And that was a great experience. I ended up wanting to go back. I did so by studying Chinese in Peking University in China. And after that, I found a job in Shanghai working for a fund. And then I spent over 10 years working on the buy side for different funds, family office, hedge fund. And now I’m running a substack full-time since April last year.

My personal portfolio, I think, roughly 75% of my personal equities are in Asia. And that’s mostly because this is what I spend my time on. I spend a lot of time analyzing and thinking about them, and I want to have the greatest portion of my assets in stocks that I really have conviction in. So that’s the reason.

The risk of value traps in Asian value stocks

LADISLAS MAURICE: I’ve invested in that part of the world as well, and one of the learnings I’ve had was that when you see some of these companies, particularly in, I’d say, Japan, Korea, you know, they’re amazing companies that have, you know, they have great market share, they dominate the market, they’re profitable, they pay out some, you know, all-rightish dividends, they sit on tons of cash, and they have very little debt, but somehow the stocks don’t move forward.

Management just likes to– you’re waiting and waiting for special dividends, you’re waiting for share buybacks, you’re waiting for something to happen, because I mean, the numbers are fantastic, but then nothing ever happens. So my learning is that a lot of these stocks are value traps in many ways. So what are your thoughts on this and how do you avoid investing in such stocks?

MICHAEL FRITZELL: Well, you know, if one were to define cheap as being low price book multiple or low PE ratio, then that’s very easy to find such stocks, you can just run a screen on them and you will probably end up with a large portion of that, you know, of the output in Japanese equities or Korean companies they’re just mismanaged in terms of capital allocation. Because if a stock is really undervalued and the management cares about it, they can easily just repurchase shares, and that undervaluation will go away in a few months. But for some reason, they aren’t. So if there’s a stock that’s always been cheap, and there’s just cash building on the balance sheets, and management is clearly not making the right decisions, then you should not expect that to change unless there’s specific catalysts like a new management team or something like that.

So what I’m hoping for, personally, is to find a company that’s both undervalued and has a catalyst that’s, you know, something happening in the next year or, like, say, two years, that will change the situation. Perhaps it’s a good company, it’s been trading at high levels in the past, but it’s experiencing some short-term problems that are going to be resolved. So those are the situations that I will look for. And in terms of these cheap stocks that are just mismanaged, what you can do is you can invest in companies that have activist investors in their shareholder register, and they may be able to affect change in them. And that’s what I would like to enter.

So if you are a minority investor in these companies that are currently targeted by activist investors, then you could potentially make money in these, you know, stocks that have been cheap for a very long time. But yeah, you’re right, I would say, in Japan, especially, they often have very poor capital allocation. And since growth is so slow, economic growth is weak in Japan, you can end up with a stock that’s just going nowhere for a very long time. So I would say always look for a specific catalyst.

Impact of energy and food crisis on Asian value stocks

LADISLAS MAURICE: Clear. That makes sense. And how are you– because I mean, the whole situation right now is very complicated in the world with the energy crisis, with the food crisis. Prices are shooting up for the two. And quite a few countries in your region are net importers of both. So how are you– is that impacting your portfolio? Are you reallocating? How are you approaching the situation?

MICHAEL FRITZELL: Yeah, I’ve reallocated a little bit towards commodity companies, for example, plantation companies in Malaysia, or oil producer. I own a Chinese company called CNOOC, which is a state-owned oil and gas exploration and production company. So I’ve tried to reallocate to such companies because they are enjoying windfall earnings, and they haven’t moved up that much in price either. I know the US energy stocks have moved up immensely, up until a few weeks ago, whereas that’s not really the case here in Asia. So I think there’s good value there. And you can also see the high commodity price as a catalyst, because some of these companies will have amazing dividend yields. I’m talking both plantation companies and also oil companies.

LADISLAS MAURICE: What sort of numbers are we talking in terms of dividend yields?

MICHAEL FRITZELL: Well, so the plantation company I own could probably provide maybe 14% dividend yield forward looking for next year. And I think CNOOC, I forgot the exact number, but it should be something like 11% or– depending on how they think about special dividends. But I think definitely double digits, I think. So pretty attractive.


MICHAEL FRITZELL: I think the PE ratio on CNOOC should be three or four times PE. And this is a good company, like it’s a well-managed company. They used to have a PE ratio of 11 times, roughly.


MICHAEL FRITZELL: Very decent as far as Chinese SOEs are concerned. So I’ve been trying, but of course, also has some losses in terms of having exposure to Japanese equities. The Yen has been weak for different reason. But it is an importer, and the Philippines is often an importer, the currency has also weakened. So if you want to have exposure to countries that benefit from the current commodity boom, then you probably want to have exposure to Indonesia and Malaysia, to be honest.

LADISLAS MAURICE: Clear. And how has your portfolio reacted to the washout that’s been happening in western equity markets?

MICHAEL FRITZELL: Down a little bit. But before this, before the last two weeks or so, it’s been very stable and up a little bit over the past six months. So in fact, this volatility that we’ve seen globally over the past year, we haven’t really seen that in Southeast Asia. For some reason, this has been a calm, you know, in a global sea of volatility. That hasn’t been the case, historically, but at least now, it’s been very stable, very stable markets, potentially, because some of these countries are commodity exporters, that could be part of the reason, but also the fact that there are almost no large active investors in the region.

And when they are de-grossing, they don’t need to sell their shares in this part of the world. Instead, they’re selling US tech stocks, or maybe, you know, Chinese tech stocks. So in fact, yeah, it’s been quite a contrarian, I think, trade to invest in these markets, and continues to be the case.

LADISLAS MAURICE: Interesting, yeah. I see the same with my shares on various small African exchanges, and in Uzbekistan, as well. So the markets in the West were taking a serious hit and then, generally speaking, in Africa and Uzbekistan, things were pretty much flat, maybe down 1% or something, but no real discernible impact whatsoever. And then the high dividends keep coming in. So that’s been interesting to observe.

Sanctions risk on Chinese and Hong Kong equities

LADISLAS MAURICE: So you mentioned that Chinese stock. Look, I had a learning, about two, three months ago, I was all over YouTube buying Russian stocks, as the Russians were having a go at Ukraine, and I’m now frozen out of all of my positions. Not because, as a Westerner, theoretically, Russia doing something against Ukraine, actually, it’s none of my business, but somehow, my governments decided that it is my business, and then put sanctions on Russia. And there were retaliations, and now my governments are forbidding me from buying more Russian stocks, and the Russians now don’t let me sell my Russian stocks.

So when I look at China, and I look at Chinese stocks, and I look at some of these, especially the value ones that you mentioned in your substack, that are very attractive, very well managed, they have operations all over the world, etc., my worry is that if there were ever something to happen between China and Taiwan, we know what the game plan is. Western retail investors are going to get immediately locked out of their Chinese stocks, not just by the Chinese, but also by their own governments in the West. And this potentially could apply to Hong Kong as well.

So personally, I have a brokerage account in Hong Kong, and I transferred approximately 85% of my assets in Hong Kong to other brokerage accounts in countries where I would be unlikely to have my assets frozen, just because of that geopolitical risk, not because I want to, but because of my citizenship, I feel that now, we, as investors, we have to take sides with our money, unfortunately. Because as soon as something happens, boom, you get frozen, and you get punished.

MICHAEL FRITZELL: Yeah, I couldn’t agree more. I think you’re absolutely right. And if there is a rift, if there are sanctions imposed on China, perhaps, they’ve been cut off from the SWIFT system, for example, that will be detrimental to– I mean, the thing is, capital controls are coming back. And I mean, Russia is just, you know, the most vivid example, but there are many countries that have imposed restrictions on capital outflows. And if there is an Iron Curtain being erected or, in Asia, they call it Bamboo Curtain, it could well happen. And I think there’s a good reason to invest in countries that are kind of allies to your home country. If you’re Russian, of course, you should invest in Russian stocks. Otherwise, it will be stupid to keep all the money in bank accounts, you would lose purchasing power. But if you’re a Westerner, that hasn’t been a good decision. And I agree with you, you probably do not want to have too much exposure to Chinese equities as a foreigner versus as a Chinese, yes, of course, you should invest in your local market.

So yeah, I’m also thinking that way. Like in terms of CNOOC, personally, I see it as a trade, and I plan to sell it at some point. And then I will probably not reinvest in Chinese equities. Like a strategy that I’ve had over the past two years or so is to invest in state-owned enterprises. Because I think the private companies are increasingly at risk of being targeted by the states. And we’ve seen that. I mean, that’s, frankly, what’s happened to Alibaba, for example, but also many other companies. Jack Ma has pretty much quit. And I’m not sure exactly who controls Alibaba anymore. But that’s just one example.

So state-owned enterprises is definitely preferable. But if you get capital controls being erected, again, I mean, if there are capital controls suddenly imposed in Hong Kong, for example, that would probably only happen in a war. But if there is some kind of contingency, Taiwan contingency, if there’s some military action on Taiwan, of course, that will lead to severe consequences. So in Asia, the markets that I’m personally quite favorable towards are Singapore, Indonesia, and Malaysia, and also Japan and Korea. Those are, for the most part, democracies and they are not necessarily US allies, but more so.

Which broker to use to invest in Asian value stocks

LADISLAS MAURICE: Yeah, it’s a tragedy, because now, yeah, you have to invest alongside your passport, even if you just don’t care. I’m not very political. I want to invest where I think my capital is going to be treated the best. But now, because of the passport I carry around, or the citizenship I have, that I invest with, I can find my capital being frozen. And so in terms of access to all of these markets, so personally, I like IB. There’s an affiliate link below, because it gives me access to the markets in Singapore, Australia, Japan, Korea, and Hong Kong. But how do you go about accessing markets like Indonesia, Malaysia, etc., or the Philippines? Or, do you invest, do you buy Indonesian companies that are listed in Singapore, or Hong Kong, or Australia? How do you navigate this? Because they have their own stock exchanges, but they’re not easy to access.

MICHAEL FRITZELL: Right. So IB is the cheapest and the broker with the best execution for the markets that it offers access to, which is Japan, Hong Kong, Singapore. And the other markets in Asia are not easy to get access to. And typically, the brokers that do offer access, they charge quite a lot, both commission and also every time you convert currency back and forth. So you could pay 7%, as much as 3% or 4%, or even more on a round trip transaction for, you know, going from USD to, let’s say, Philippine pesos, buying a share, selling the share, and converting back to USD. It’s just very costly. And therefore, I think if you invest in the region, you have to be long term. Because otherwise, it doesn’t make sense to trade when transaction costs are this high.

And commission, by the way, is typically maybe not more than half percent, but that’s half a percent buying, and half a percent selling, so it adds up. And you definitely want to be long-term if you invest in the region. I, personally, have an account with KGI Securities. It’s a small brokerage firm here in Singapore. I would say most people who invest in the region are not retail investors. They’re either local investors, and they have their own local brokerage accounts, like Saigon Securities in Vietnam, or maybe they have a brokerage account in Indonesia. There aren’t that many retail investors who invest across the region, but the brokers that do have access include Boom Securities in Hong Kong. They have a web-based platform which offers access to all of these markets. It’s not necessarily super cheap, but it’s okay. So Boom Securities, I think, is the best choice for most.

And then you also have Maybank which offers access to not all, but some of these markets, especially Southeast Asia. And there’s a number of Singaporean brokers that offers access to most Southeast Asian markets. And those brokers include Phillip Securities and the banks here.

LADISLAS MAURICE: Cool, fantastic. Look, this has been very interesting. As an investor, I want exposure to Asia. So I do a lot of real estate, and I’m kind of known for that, but it’s hard, as a foreigner, to invest in a lot of real estate, actually, in Asia, generally speaking, especially Southeast Asia. You can go buy in Thailand, but that’s not an investment, that’s more of a lifestyle decision. Malaysia constantly has oversupply. The Philippines are not that cheap. Indonesia is not that easy to invest in as a foreigner, same thing with Vietnam. Singapore is insanely expensive. So it’s a hard market to get exposure to real estate in your own name.

So I know that, in your substack, you’re discussing some REITs in the region, which is quite interesting, which would be one way of being able to get exposure to real estate in that part of the world. So that’s pretty cool. I think they have decent yields, right? What yields were you, that you mentioned, that REIT when we were talking offline?

MICHAEL FRITZELL: Yeah, it’s Japanese hospitality REITs. So they have business hotels in cities across Japan. And I think the yield, when I invested in it, was something like 10%, assuming a full recovery from COVID. I think before the crisis, it was probably close to 5%, 6%.

LADISLAS MAURICE: Cool. Okay. So that’s one way of playing the market, and then buying all of these companies having a small exposure, you know, putting a few percentage points of one’s net wealth in, you know, Indonesian baby diaper companies. I could see how that, long-term, that would do well with their good demographics. You know, casinos in Singapore, with people in the region who love to gamble, I could see how that would be a profitable business. So it’s a good way to play that region, and getting direct exposure to specific small businesses, rather than just buying ETFs.

I’m always a bit wary of buying ETFs, because when you buy the ETF, you buy all the crap that’s in there. But if you do a minimum amount of research, generally, you can find a little bit better than the average. Especially when people pay for a substack such as yours. At the end of the day, it’s not a lot of money if people are going to allocate some of their savings to Southeast Asia, it makes sense to pay for analysis and good information. Can you give us two words about your substack, please?

MICHAEL FRITZELL: Sure. Okay, so my substack is called Asian Century Stocks. And the idea is to look for companies that have long-term potential, that are going to stick around for, hopefully, another century. And most of the stocks that I’m interested in are value companies that offer, you know, some stability, competitive advantage, and, hopefully, low share price. So that’s pretty much it. And I look across the sectors across East Asia and Southeast Asia. So that’s pretty much my niche.

LADISLAS MAURICE: Cool, fantastic. So thank you very much, Michael. So the link is right below to his substack. And Michael, it was a real pleasure talking to you today. Really appreciate your time.

MICHAEL FRITZELL: Yeah. Thank you so much.