Allan Lam was one of the original pioneers of Templeton Emerging Markets Group, joining me back in 1987 as my first analyst when we had only a handful of emerging markets in which to invest. He is based in Hong Kong and today co-manages a number of our emerging market portfolios; his research responsibilities encompass the real estate and oil and gas sectors. I thought you should get to know this key member of my team, so read on for my brief interview with Allan.
Allan Lam: Having been born and raised in Hong Kong, I had the advantage of being brought up at a place where “East meets West.” Hong Kong is one of the world’s busiest commercial and financial markets today and a major manufacturing center and container port, but began as a sparsely populated island with a few fishing villages. Upon the completion of my secondary education, I wanted to gain further international exposure. I qualified for admittance to Rutgers University in New Jersey (originally Queen’s College, founded in 1766), one of the oldest and finest schools in the United States, especially in accounting and business administration. During my years at Rutgers, I learned an important lesson that still resonates with me today: hard work + dedication + consistency = success. At the time, I had taken a number of part-time jobs and internships and served as president of the Chinese Student Association while carrying up to 24 credits each semester. Yet I still managed to graduate with honors and magna cum laude. I believe that if you put in the time and effort, you will see the results. I wanted to bring my experiences abroad, and especially my new-found work ethic, back to Hong Kong, and apply them to Hong Kong, a global gateway to China.
Mark Mobius: Well done! Your educational background is in accounting and also computer sciences. How does this experience benefit you or apply to your current role as an investment manager?
Allan Lam: Accounting and information technology are integral parts of investing and are a strong foundation to my investment management career. Patience, the understanding of accounting standards and accounting trails, and detailed footnotes are so important. Analysts willing to do detailed and in-depth analyses will get a better insight into a company and the underlying sector. Advancements in information technology facilitiate, and the dissemation of important information helps us make investment decisions, and implement those decisions in an efficient manner. When we started our Templeton Emerging Markets team from scratch, I wrote our first database program in dBase II, which moved away from a spreadsheet approach toward a genuine relational database. That efficiently kept track of portfolio transactions, and calculated weighted average costs for each portfolio holding as well as net asset value. Over the years, I think we have built an excellent IT team that has expanded our customized programs to support our research and fund management processes. Those vast leaps were just beyond our imagination in our early years.
Mark Mobius: What first attracted you to asset management as a career, and emerging markets in particular?
Allan Lam: Asset management has always seemed exciting and glamorous to me. I enjoy traveling a lot and have never been disappointed with my career choice. However, the job requires a lot of hard work! In the ’80s and ’90s, I remember taking a flight to Latin America that required three legs and more than 40 hours of flight and transit time. It was demanding, including many odd hours in those early days; I recall waiting at the hotel’s facsimile room for research information or sending out buy and sell orders at 4 or 5 a.m. in order not to miss any trading sessions in other time zones. It also takes courage and full commitment and dedication to fight hard for our shareholders’ rights in case of management malpractices whenever it is necessary. In the old days, companies in emerging markets were not always friendly toward foreign asset managers—particuarly American asset management firms. There was one extreme case when I went to visit a Turkish steel company but was forced to leave the premises at gunpoint because the workers’ union was strongy opposing further privatization and purchases of their shares by foreign asset managers.
Mark Mobius: Yes, I remember that. You arrived at the plant before I did so I was lucky not to be caught in that situation! You clearly faced a lot of obstacles in those early days, but what is the single biggest challenge currently facing the group as you see it?
Allan Lam: In the early years, when the team was much smaller, we were able to make decisions quicker. We now have 52 analysts in 18 different emerging markets, with different cultural backgrounds, and are covering many more companies and gaining great insights into companies, sectors and countries. We have many talented individuals within the team, all of whom contribute excellent investment ideas, achieve good results and help promote our global reputation as a whole. However, there are also younger and less experienced members who need support and guidance. We continue to focus on developing strong leaders toward bringing out the best from our investment team members around the globe, always with a focus on delivering strong long-term performance.
Mark Mobius: What are you most excited about as an investor in emerging markets right now?
Allan Lam: Emerging markets remain very exciting and colorful. These descriptions undoubtedly have positive connotations, but I would echo a quote from one of the speeches by the late Sir John Templeton in 1994, which I think is still true today: “The next 50 years offer great hope and glorious promise—maybe a new golden age of opportunity.” Worldwide productivity has been rising so rapidly that the average standard of living keeps improving in terms of literacy rate, longevity and average household disposable income. We presently see a larger middle class than ever whose standards of living keep improving as disposable income and savings have grown beyond meeting their basic needs. In many countries, including emerging markets, retail investment vehicles are already established and recognized, or are in the process of becoming so. We, at Templeton, are not only investing in emerging markets companies, but are talking to and beginning to serve more and more emerging markets clients.
On the development side, I am thrilled to be part of a team that develops and launches new products and am confident that we can apply our value-oriented, bottom-up approach to stock selection.
Mark Mobius: Your research responsibilities include companies in the real estate and oil and gas sectors. How did you develop expertise in these areas, and can you share a few thoughts on investing in these sectors today?
Allan Lam: I have been following these sectors for nearly 30 years! For me, they are generally not too difficult to analyze. A company’s land-bank or oil and gas reserves can provide concrete bases for revenue, earnings and cash-flow streams that have higher visibility than others. The oil and gas sector is impacted most by geopolitics. In an upcycle, many importers worry about shortages, continuing higher prices and even national security. In a downcycle, high-cost producers begin to incur losses and negative cash flows that can contribute to high-risk profiles and borrowing costs. However, weak periods may eventually speed up mergers and acquisitions, and we have seen this in the past two decades.
Meanwhile, real estate developers may face economic downturns as well as government-imposed austerity measures, making the property market overheated. For example, the property markets in South Korea and Thailand significantly recovered after the South Korean government reversed its austerity measures and Thailand became political stable.
Mark Mobius: You joined Templeton Emerging Markets Group back in 1987. Can you share an anecdote about those early days working with me? What were your initial impressions, and what was your first day like?
Allan Lam: I take pride in being your first pupil and analyst. I found you to be smart, hard-working and decisive! I remember meeting you one Saturday morning for a job interview and was given a test to calculate the fully diluted earnings per share of a Hong Kong-listed company, which was not too difficult for an accounting major. I received a call from you a few hours later and got the offer to be your first analyst. I went to meet you the following morning and was shown the prospectus of our very first fund. I was very worried that I had to look for investors to subscribe to the fund in order to get the job and was relieved when you told me that the fund was fully subscribed. I took some time off before I started working for Templeton, which seemed a smart move in hindsight. The role required long hours in the office and extensive traveling to meet company management and visit factory complexes. From then on, I never looked back and began to enjoy and grow my investment career.
Mark Mobius: Is there anything about your job or the markets that still takes you by surprise from time to time?
Allan Lam: Life is full of surprises, so being a portfolio manager is no exception. Six months after I joined Templeton, I saw the global stock market crash and first felt the extreme panic among investors in October 1987. At the beginning, there were only a handful of markets we could invest in. Over the years, I observed the gradual opening of stock markets, the privatization of state-owned companies, and the rapid growth in those markets with increasing participation from foreign investors. With our proven investment methodology, we have had a lot of successes. However, emerging markets investment is intrinsically volatile and requires a lot of patience and discipline. We have seen crises around the world over the years, but crises bring opportunities; these sorts of moments are when our analytical skills and patient approach are most needed and can add value for investors.
Mark Mobius: Is there a key piece of advice you’ve received during your career that you still rely on today?
Allan Lam: The late Sir John Templeton once said, “to buy when others are despondently selling and to sell when others are avidly buying requires the greatest fortitude… and pays the greatest reward.”
Mark Mobius: We found out on LinkedIn that you love trophies. If that is true and not just a joke for your friends, if you could get a trophy for anything in your life so far or in the future, what would you want it to be? What would you like it to look like, and where would you display it?
Allan Lam: Indeed, but I would say that my wife, Christina, who I treasure dearly, is more important than any trophy. In high school, I was on the swimming team and won medals for my school in inter-school competitions. I played chess as a pastime and won a number of trophies, too. Workwise, I have been fortunate enough to receive a number of trophies/awards over the years from various agencies and publications in the industry. All these trophies from work are proudly displayed in the trophy cabinet at home.
Mark Mobius: Can you share some accomplishments or interests outside of work that you have enjoyed?
Allan Lam: My wife and I enjoy golf, so we play regularly during our free time. To force ourselves to play better, we plan to enter a tournament in the near future.
Mark Mobius’s and Allan Lam’s comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. The information provided in this material is rendered as at publication date and may change without notice, and it is not intended as a complete analysis of every material fact regarding any country, region market or investment.
Data from third party sources may have been used in the preparation of this material, and Franklin Templeton Investments (“FTI”) has not independently verified, validated or audited such data. FTI accepts no liability whatsoever for any loss arising from use of this information, and reliance upon the comments opinions and analyses in the material is at the sole discretion of the user. Products, services and information may not be available in all jurisdictions and are offered by FTI affiliates and/or their distributors as local laws and regulations permit. Please consult your own professional adviser for further information on availability of products and services in your jurisdiction.
What Are the Risks?
All investments involve risks, including possible loss of principal. Foreign securities involve special risks, including currency fluctuations and economic and political uncertainties. Investments in emerging markets, of which frontier markets are a subset, involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Because these frameworks are typically even less developed in frontier markets, as well as various factors including the increased potential for extreme price volatility, illiquidity, trade barriers and exchange controls, the risks associated with emerging markets are magnified in frontier markets.