"At Home in the Casino"

After 15 years in Taiwan's stomach-roiling, tech-dominated stock market, Jack Pan has adopted a simple philosophy: Keep your eye on quality stocks. That paid off in the first quarter of 2001. Pan's $84 million JF Taiwan Trust Fund, part of J.P. Morgan Fleming Asset Management's stable, topped the 500 offshore investment funds that BusinessWeek tracks--with a 29.35% rise through Apr. 2. That beat the benchmark Taiwan Weighted Index, which gained 22.27%.

Pan, a Taiwan native who joined the fund in 1996, has skippered it through two market crises and now a global tech-stock downturn. Each year, he has outstripped the benchmark adjusted for exchange-rate movements. So volatility doesn't faze him. For the 12 months ended Apr. 2, the fund was down 43.05%. Pan's five-year average yearly gain of 7.66% masks a 73.2% rise in calendar 1999 and an 18.8% drop in 1998, according to Standard & Poor's. "I feel at home in the casino-like atmosphere," says Pan.

With his gambler's tolerance for risk, he enhances his gains with a hedge-fund tactic: borrowing to build a stake in pet companies. His picks last quarter were tech stocks--which may be lepers elsewhere, but not in Taiwan. Investors say local companies have an edge as low-cost producers.

ORPHANED STOCKS. Pan foresaw the first-quarter rebound late in 2000. By yearend, political uncertainty and a gloomy outlook for semiconductors had driven the Taiwan market down 53% from its February, 2000, high. He borrowed 10% of the fund's value to buy chip designer Realtek Semiconductor Corp. and Via Technologies Inc., Taiwan's leading maker of chip sets (which link a PC's microprocessor to peripherals). "At the end of last year, nobody wanted these stocks," Pan says. Via and Realtek rose 95% and 103%.

Now, Pan, sensing the fragility of the gains, has sold broadly and repaid his loans. With 10% of his holdings in cash, he's waiting for the next sharp dip to buy more of Taiwan Semiconductor Manufacturing Co.--his single largest holding--and United Microelectronics Corp. He likes their management and financials. "The valuations are quite low historically, close to [their] level during the trough of the last chip cycle," he says. Pan also likes motherboard maker Asustek Computer Inc., which is cultivating local clients to hedge against falling U.S. orders. Its shares were up 55% this year as of Apr. 13.

Asked about his chances of scoring first again, Pan demurs: "I'll be happy to stay in the first quartile. If you always try to be No. 1, you'll end up last someday." It takes that mix of serenity and aggression to make it in Taiwan.

By Frederik Balfour in Hong Kong

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