Asian Eclipse (Michael Backman) 0 comments

It's been a while since I updated this blog; I have still been reading voraciously though but some of the books I've read are not related to investment so there's no point writing about them. What I'm reviewing here is one that I read quite some time back, and which shaped my entire thinking about the nature of Asian business practices and its stock markets. (Note that I have done a review on the follow-up to this book, The Asian Insider, earlier; however, it is nothing compared to Asian Eclipse.)

Asian Eclipse was written in 1999, just after the Asian financial crisis of 1997-98 that decimated the emerging markets of Asia that until then boasted some of the highest growth rates in the world. The author, Michael Backman, is highly familiar with the Asia-Pacific, having worked in Indonesia and travelled widely around Asia: the corporate narrations and commentaries he delivers in his book is highly detailed and displays a high level of insight, though sometimes dripping with cynicism.

There are two key threads running through the entire book. One is the view that Asian companies tend to be family-run conglomerates with cross-holdings all over the place, with plenty of inter-related transactions that take advantage of the minority shareholder, by various practices such as laxity of borrowing from banks that are owned under the group umbrella, dodgy accounting, and selling of lousy assets to public listed subsidiaries (while keeping the good ones private). A key insight is that minority shareholders are seen as "outsiders", and therefore could be exploited; this is of course antithetical to the Western idea of the stock market which advocates transparency and fairness, but that's the way it works in Asia (or if one is kind, the way it used to work). The other is the idea that corruption is an evil that is rampant in Asia, as a result of weak legal and corporate frameworks. The author points out that the issue of corruption is more rampant in some countries than others, pervading up to the highest level of government in some cases (Indonesia), which abuse their positions as lawmakers to cobble together business deals and enrich their families. In others, there is general tolerance of the corporate corruption issue from above, with key institutions (the media, the auditors, the bureaucrats) having to compromise their integrity given the size and connections of the business groups involved.

The author is especially critical of Indonesia, perhaps partly because he stayed there and hence was familiar with the ins and outs of business dealings. Of course, since Soeharto was then already marginalised, Michael Backman did not have to fear any backlash. The reader will be familiar with many of the characters mentioned (with some described in detail) in the book, ranging from politicians -- Soeharto and his family, Mahathir et al, various politicians in Japan; to businessmen --- Liem Sioe Liang (Indonesia's Salim Group), James Riady (Lippo Group, recently building up a presence as a property developer in Singapore), the Widjajas (of Sinar Mas, and of whom Oei Hong Leong is a part of), the Soeryadjajas (former owners of Astra), etc (note that the author quotes widely from Indonesian businessmen).

There are at least two chapters that the share investor in Asia should read --- Chapter 7: "Lambs to the Slaughter: Investing in Asia's Stock Markets"; and Chapter 10: "China: Rising Star or Black Hole". The former will make the reader more aware of the possible corporate maneuvres on the stock market to exploit minority shareholders, while the latter gives a good perspective on the state of the China economy (Hong Kong and Taiwan included): public (SOEs) and private, together with the key problems and challenges which I believe have not changed over these few years.

A book I would highly recommend to attenuate some of the bubbling optimism nowadays over the (re-)emerging markets of Asia.