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SCMP Reporter

FUND manager Guinness Flight, whose Global Privatisation Fund has so far succeeded nicely by focusing on Europe, plans to shift its sights to Asia.

  Only 17 per cent of the fund's portfolio was invested in Far East privatisations as of July 1, but company chairman, Timothy Guinness, predicted that could rise to 40 per cent in as little as three years.

  The current weighting reflected a 'paucity of supply to date', he said, but the situation was bound to change as Asia invested in infrastructure and China spun off state-owned assets.

  'I believe China will be the largest privatisation market in the world,' said Andrew Couch, who manages the Guinness Flight fund.

  The Organisation for Economic Co-operation and Development reports global privatisation proceeds totalled US$62.3 billion in 1995 and will reach $85 billion this year.

  So far, European privatisations have given investors a bumpy ride to riches.

  Although Guinness Flight's fund outperformed dollar and sterling-denominated equity indices, Britain's two biggest European-privatisation trusts have not fared so well. One managed by Mercury and the other by Kleinwort Benson, have traded at steep discounts.

  But Mr Guinness attributed this to the other funds' closed-end structure rather than the performance of their underlying assets.

  He said his own fund's shift towards Asia was not a rejection of European-style privatisations but rather a pursuit of higher Asian-style returns.

  'There's lots of value to be had [in Europe], and it's low risk,' he said.

  'You balance that with an increasing exposure to the reasonably high rates of growth you can get in Asia.'   Mr Guinness said much of Europe's privatisation was driven by the demands of impending monetary union. 'Governments in Europe look at privatisation as a way to balance their books.'   Asian governments' motivation was different, he said. They invested relatively little in infrastructure over the years, and their neglect was now catching up with them. Massive infrastructure investments required over the next five years promised to strain government finances.

  Privatisation not only helped the finances of governments but also relieved their responsibility for raising money for infrastructure projects, Mr Guinness explained.

  Considerations such as these would cause utilities, postal services and port facilities in the region to be put on the block, providing investors with excellent opportunities.

  'These are relatively lower-risk companies to be investing in,' he said. 'The consumption of energy, the use of telephones, the use of airports is naturally rising steadily every year.

  'Most of the companies that you're investing in are large, have large market shares, tend to be asset rich, and have high dividend yields,' Mr Guinness said.



Eyeing Asia's privatisation potential