When we constructed the Finance Asia Composite Internet Index (Facix) at the start of the year, the internet bestrode the investment firmament like a god. Our index began the year at 1000 and saw some heady times. It contains 57 stocks, although the weighting is skewed towards big stocks such as PCCW.
Today, it is a dog – definitely not a god – and heaven help any investor who sought to track it. Today the index is at 172 and is down 83% on the year.
This makes our index easily the worst performing in Asia. The only other index that can touch it is the Kosdaq Composite Index which is down 67% - and has a heavy internet flavour itself. Jakarta is down 49%, Thailand 48% and the Philippines 41%, but truly our index creams them all.
While it is certainly not a source of pride that FinanceAsia’s first attempt at creating an index has proved a monumental dog, it certainly displays that we have a nose for drama, if not investment returns.
Will the Facix ever recover, or has the Asian internet sector finally found fair value?
Boom-boom bust
Clearly, the reversal in sentiment towards the internet in Asia is on a scale rarely ever seen. The boom lasted barely six months, and has since burst with a frightening violence.
My own view on this is that the whole thing reflects more on Asia than the internet itself. In the US, the internet was given several years to work through at least two boom-bust cycles.
Here in Asia, the speculative nature of our markets jumped well ahead of any reality. Ignoring the fact the countries such as Thailand only had 3% of the population online, Asia was seeking to emulate a US model with very little of the infrastructure in place.
And when the tech boom crashed in the US, Asia – being the speculative lapdog that it is – aborted its own internet boom in the most premature of manners. Very few good companies could have had the chance to form in such short space of time, and very few did. Can anyone name an Asian equivalent of Yahoo?
Winners and losers
What did form was a whole array of family-controlled vehicles that raked in the cash. And who has lost in the subsequent crash? Not the families. Richard Li got an established telecoms company – Hong Kong Telecom – that he couldn’t even have dreamed of owning a year earlier. The investment banks didn’t lose either. They raked in fees from inflated IPOs.
No, the people that have lost are the retail investors and the more lemming-esque fund managers who bought into the research that put a near-term target on PCCW at HK$35 ($4.49).
These are the people who will look at the performance of our Facix, and know the results are close to home.
