Seek out hidden gems among local stocks

P/E ratios of many shares make them an attractive option, says expert

Looking inward may not be the most saleable advice in this age of globalisation and foreign investment funds, but that is the kind Niwes Hemvachirava-rakorn would dispense, particularly during this widespread slowdown.

Niwes, a financial executive-turned-academic and now also an adviser to the Thai Investors' Association, said yesterday that the familiarity and low price-to-earnings (P/E) ratios of local equities make them look more attractive than overseas investments.

Expounding on the value of selecting the right growth stocks, Niwes said that a food and beverage stock he bought for Bt50 just after the 1997 financial crisis is now worth about Bt500.

He thought then that the company's cash-cow product - instant noodles - would perform well as people tightened their purse strings.

"I wouldn't want to invest in, for example, a Chinese stock now with the P/E bubbling at such a speed," he said.

Even after Vietnam's recent 50-per-cent market correction it looks too expensive there for the time being, he said. The "noodle stock" - Thai President Foods - had a P/E ratio of about 6 then.

While many bitten investors are still wary of re-entering the stock market, this is still the time to find hidden gems, he said. But one has to be selective, like finding beautiful ladies in a harem.

"You would only want, not just the most beautiful, but the best," he said.

The beauty for him lies in a company's earnings potential - "products that will be used by people for generations to come" - and its financial soundness.

"Profits must be consistent and companies ought to be debtless," he said.

This advice might sound fundamental and even simplistic, but Niwes believes that besides the principle, investors must also carry a "business owner" mentality.

Niwes, who only started to invest seriously in his 40s, said that for the past 10 years he has put all his money in equities. Now he could make a comfortable living off his stock dividends.

For many who shun equities, Tanop Eiamamornpan, who runs his family watch company, suggests investing in diamonds, which have appreciated by 50 per cent in three years.

Long favoured for their mobility - Imelda Marcos left the Philippines with enough blings to last her whole exile in Hawaii, according to Tanop - diamonds must be selected for their size and investment grade. As a rare commodity, diamonds will appreciate, but the timeframe would vary, he said.

Investors should also look closer at products with tax deductions.

Life insurance, interest payments on home mortgages and the usual long-term equity mutual funds and retirement mutual funds can all be used to minimise the damage wreaked by rampant inflation - investors' ultimate foe.