Steve Forbes Interview: Jim Oberweis, President Of Oberweis Asset Management, Part 2? ~ MAKE MONEY BLOG$

Jim Oberweis is the president of Oberweis Asset Management and editor of The Oberweis Report, a top-rated growth-stock investment advisory letter. Recently, he sat down with Steve Forbes to talk about investing in China, international markets, and what stocks he’s buying. Video and a transcript of the second half of their conversation follows. Watch the first half of their conversation here.

Forbes: In China, how do you know what the political winds are? Somebody connected today could be on the outs tomorrow.

Oberweis: That’s true. Although it tends to move –

Forbes: Glacially?

Oberweis: Yeah, it tends to move slowly. What we look for is – read the five year plans. In the 2012 five year plan, we see money being funded for environmental protection, environmental cleanups, so we’re investing in companies that clean up waste water. It isn’t rocket science, it just requires some detail thinking. For most of the companies we’re investing in, they’re needles in haystacks. They’re unlikely to –

Forbes: Get the wrath of the government.

Oberweis: Yeah, exactly. It tends to be more in some of the larger companies, where it is a little bit more important. They’re also entrepreneurially owned, which helps to eliminate some of the political influence. If I was investing in a bank in China, I would be concerned because if the government says, “Loan,” you loan.

There’s no opportunity to take shareholder value as a reason to disobey the government. In a more entrepreneurial company, they kind of stay out of it a little bit. That’s why we really try to focus on some of the smaller names where state ownership isn’t really as much of a factor.

Forbes: How do you navigate waters like capital gains? You’ve observed in the past that, yes, they may be on the book somewhere, but nobody pays attention to them.

Oberweis: I understand what you’re saying. So we talked a lot to our tax people on this, as well. As it currently stands, nobody pays it and you have to be aware of it. I think you’re going to see clarification on it, though. I think, within the next couple years, there’ll be much sharper clarification.

It’s not only a question of China, but what about other companies that are listed elsewhere or = have part of their business elsewhere? Or companies where their headquarters are elsewhere, but all the businesses are in China?

That’s one of the challenges of investing in China, is the lack of clarity with respect to tax positions. We have experts on our team who try to help advise us. I’ll be the first to tell you, it is not a crystal clear area and you have to make the best decisions you can under the circumstances that you know.

Forbes: Do you get a feeling when you go to China – are there people there that the government really appreciates? That the real juice of that economy, the real push, comes from the 40 million small businesses? Here today, maybe gone tomorrow, but by golly they get a return on equity – despite paying horrific loan costs because the regular banks don’t deal with them – rather than the big state-owned companies. Is there a growing realization, the more they can do to bring these people out of this netherworld into the sunshine of a world of law that the economy would really be helped?

Oberweis: Yeah, I think for sure there was a shift in the last several months. I don’t know if the government was even aware to the extent that financing – how much of it was kind of gray market financing. All of a sudden, when it dries up and companies are on the verge of bankruptcy, I think it’s become very clear.

I think it’s been put at the forefront, from the very highest level of government, that they need to help those businesses to sustain. We invest in public companies with the average market cap in China north of $1 billion U.S. and they tend to be equity financed.

A lot of times, debt isn’t the main issue. So for us, it hasn’t really affected the companies in our China Opportunities Fund. But certainly, for smaller businesses – especially when there’s an export-related component and lots of debt – some of those are really big issues. Especially in areas like Wenzhou, where it’s so prevalent to see those types of finances.

Forbes: Are there other countries that interest you in Asia?

Oberweis: I’m going to Jakarta for an exploratory reason in February.

Forbes: Do you fear you’ve missed it?

Oberweis: Maybe. It’s been on fire. I don’t know, I don’t know. We’re going to go visit companies and look and see. We were in Vietnam two years ago looking at the same types of things. Vietnam is a great place to be. It’s a really hard place to play public equity markets, just because it’s such a small public equity marketplace and it’s a relatively corrupt insider trading environment. So it’s not a place where we think we can add a lot of value.

We’re certainly seeing more ideas in Japan than we’ve seen in a long time. Part of that is currency, part of it is rebuilding and part of it is, I think, increasing trade with China. You would expect that, with the exception of the cultural barriers that are so high, but I think you’ll see a little bit more of that in the decade to come. Money has a way of trumping even the gravest of enemies over time.

India has always been an area of interest for us. Until recently, it’s been hard to find the valuations that we like. Like many emerging markets, though, valuations are coming in and we’re starting to see names that are beginning to make sense for us.

Forbes: Do you worry about coming back here, home? Do you worry about the environment for small businesses? I mean, even in the terrible 1970s companies that could hang on could blossom in the 1980s because there was a fundamental change.

Oberweis: That’s a loaded question coming from Steve Forbes, isn’t it? Yeah.

Forbes: You think? I was quite objective.

Oberweis: Yeah, right, exactly. Look, I think I’m as worried as anyone else on the direction of the country. I think we’ve got a long way to go. Part of the reason we started investing in China and investing internationally is that we’re – this was six years ago – we were worried about the direction the U.S. was going. (continued)

source: forbes.com

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