Translation to English

Growing novel coronavirus fears in the markets creates opportunities to buy at a low price...pay attention to stocks expected to benefit from industry changes

 Young-yeon Kang  for Korea Economic Daily
February 13, 2020

Founder, CEO and Chief Investment Officer of TCK Investments Ohad Topor - a leading global investor 

The global stock market rose by 40% during the SARS epidemic.  Assuming that the situation involving the 'Novel Coronavirus' is contained by the end of the first quarter, there will be no significant impact on the global economy. At present, the Novel Coronavirus epidemic is of a similar level to that of influenza in the U.S. 

“The drop in stock prices triggered by the Novel Coronavirus (2019- nCoV) epidemic is in fact an opportunity for long-term investors to buy stocks at a low price.” 

In an interview with Korea Economic Daily on February 12, CEO of TCK Investments Ohad Topor noted, “Back in 2003 when the World Health Organization (WHO) declared an international health emergency due to SARS (Severe Acute Respiratory Syndrome), global equity prices rose by 40% by the time 12 months have passed following such a declaration.” 

Mr. Topor is a global investor who established TCK Investments in 2012 by joining forces with the Charman of Oaktree Capital Howard Marks. TCK Investments specializes in offering asset management services to high net worth individuals and entrepreneurs and has been serving the Korean market since 2012. 

“In 2020, too, the U.S. equity market will be driving the global market.” 

CEO Topor forecast that if the situation involving the Novel Coronavirus calms down by the end of the first quarter, there will be no material impact on the global economy. He noted, “As of now, the fatality rate is lower compared to that of SARS or MERS (Middle East Respiratory Syndrome), with 80% of those who died being in their 60s or older.” Mr. Topor, however, added a caveat, saying “If the situation 

continues to grow significantly into the second quarter, it will deal a blow to the economy of emerging countries in Asia.” 

In such a less than ideal scenario, too, however, Mr. Topor is of the opinion that the U.S. and Europe will be impacted by a small degree but the U.S. market will continue to be attractive and will lead the global equity market in 2020. His forecast is based on the factors of an easing of global currencies, improved performances of U.S. corporations and a trade agreement between the U.S. and China. 

CEO Topor went on to comment, “During times of economic expansion accompanied by low inflation, like the one we are seeing now, the equity market tends to rise more. In the past ten years or so, amidst the ongoing trend of a strong market, U.S. technology stocks rose by eight-fold. But there were even cases in the 1990s where they rose by a whopping 18-fold as well.” 

He also singled out healthcare as a promising industry to look out for. According to Mr. Topor, “As we move further into an aging society, the spending on healthcare will continue to increase over the next ten years. American corporations have technological competitiveness, with profits seeing a consistent rise, too.” 

As for the Korean market, Mr. Topor advised that it might be worth taking an interest in industries that would benefit from structural changes, such as 5th generation mobile telecommunication (5G), artificial intelligence (AI) and autonomous cars. However, he viewed semiconductor stocks such as those of Samsung Electronics as having entered a price range that poses a great burden. He pointed out, “While there is an expectation for a recovery in the industry, this expectation seems to have already been baked into the stock price we see today. In addition, since the industry is so sensitive to economic cycles and is exposed to fluctuations in the demand from China, the chances of profitability worsening cannot be ruled out.” 

Precaution is needed regarding the bubble in private market 

Mr. Topor recommended to individual investors that they invest in highly liquid assets that are easy to understand such as equity or bonds, and added, “Alternative investments usually have low liquidity and tend to be highly structured. What’s more is that they are highly leveraged, increasing the exposure to risk. It is not a category that lends well to investment done by a casual investor lacking expertise. If research on individual stock items overseas is difficult to carry out, it is better to invest in ETFs.” 

Once again emphasizing the need to watch out for private equity funds, Mr. Topor pointed out that at the moment, with the entry barrier to the private equity market lowered, there has been a mushrooming of private equity funds that lack the necessary competency. In his opinion, such substandard private equity firms have developed incomplete investment products, which has lowered the anticipated return. Mr. Topor analyzed that “One of the reasons issues with DLF tied to German sovereign bonds or the scandal involving Lime Asset Management broke out in Korea is because capital was funneled into products with a higher return, even if higher by a very small margin. Investors should be particularly wary of private equity funds that blindly promise excessively high returns without an explanation to back up such a rosy promise.”