yahoo.businessweek.com/magazine/content/05_34/b3948472.htm
Online Extra: The Riches of the Orient CHINA AND INDIA -- THE NEW CORPORATE MODEL/Online Extra The Riches of the Orient Investors in China and India can benefit from a guide who knows the terra in. Here are a few tips from some old hands For years now, investors taking the Orient Express have had a profitable ride. Of the 82 Asia-Pacific funds followed by Morningstar, the Chicago fund tracker, the typical portfolio in the group is up 37% in the past y ear. And during the past three years, the category (which doesn't includ e Japan) has delivered annualized gains of more than 21%. Heavy weightin gs of China and India stocks have helped drive those stellar returns. Going forward, however, many experts don't think it will be so easy to ma ke money on Asia shares. China's red-hot economy is losing a little stea m -- and in India, it's getting harder to find good stocks at reasonable prices. "There was a time when you could buy stocks fairly chea ply, especially in India, but also in China," says J Mark Mobius, emerg ing markets guru at the Franklin Templeton fund group. That's why investors who want to put money to work in these two countries over the long haul (read: at least five years) should stick with a prof essional money manager who knows the ins and outs of the Asian markets a nd can ride the volatility endemic to the region. The ideal manager is a pro like Mark Headley of San Francisco-based Matthews Funds, who has sp ent many years studying Asian corporations and markets -- resorting to h efty doses of tea and melatonin to make it through 20-course dinners wit h Chinese brokers on just three hours of sleep. Finding a good fund that invests in China, India -- and in some cases bot h -- takes some digging. Look at the holdings of most of the funds in th e Asia-Pacific (ex-Japan) category, and you'll see that many take a broa dly diversified approach, investing in countries throughout the region, including South Korea, Taiwan, Malaysia, and Thailand. However, by buyin g into these smaller markets, investors are tapping the China market, si nce the broad Asia funds typically pick companies that benefit from Chin a's growth. The field is much narrower for investors who want pure plays in either country. For China, there are currently about five open- end funds, as well as a few closed-end funds, to choose from. Since it's still tough, and often unwise, for foreigners to buy stocks directly in the mainland, these funds tend to bulk up on Chinese companies listed i n Hong Kong.
MCHFX ) focuses on companies tapping the newly fat wallets of Chinese consumers, who are spending by the boatload on everything from houses to cell phones to online gaming. The $400 million fund's largest holding is China Mobile, the cellular pho ne company. "It's a growth utility," says Headley, the fund company's pe ripatetic co-manager. "After five years of falling revenues per user due to competition and price cuts, revenues are starting to improve." Altho ugh Headley is "fascinated" by the mainland's Internet companies, "China Mobile is the safest way to tap consumption in China," he says. Headley and his colleagues are steering clear of mo st luxury real estate companies. One exception is China Vanke, a condomi nium developer that caters to the middle class. "They build houses for t he factory managers who are seeing wages rise rapidly, rather than the y oung millionaires who want marble walls," Headley says. Another fund family with a niche focus on Asia is Guinness Atkinson Funds .
IASMX ), a more diversified portf olio with assets of $34 million. For his China investments, Harriss is a voiding cyclical sectors such as cement, steel, and aluminum, which he t hinks have peaked. Like his rivals at Matthews, he favors consumer-sensitive stocks, such as Hong Kong-based retailer Esprit Holdings. And although auto sales have slowed, he's still bullish on Denway Motors, a longtime holding that pro duces Hondas in a joint venture with the Japanese company. "There are ab out 200 million people now in the middle-class bracket," Harris says. "A car is the aspirational item for the young, upwardly mobile Chinese." Templeton's biggest China mutual fund is the China World Fund, with $176 million in assets, managed since 1993 by H Allan Lam. I t boasts a diverse portfolio of holdings, from Hong Kong-based grocery-s tore chain Dairy Farm International Holdings to Taiwan computer maker Ac er. In China, "there are lots of growing companies coming to the market, " says Mobius, "but you still need to be very selective."
GCH ) is one of the oldest to invest in China: It was introduced in 1992. Wilford Sit, the f und's Hong Kong-based manager at Baring Asset Management, is a big fan o f energy stocks, including PetroChina and Hong Kong & China Gas. And he likes transportation companies, such as Cosco Pacific.
What also makes this fund especially enticing is the fact that the management team has run the fund for almost a decade. Co-manager Frances Dydasco i s based in Singapore and focuses on South Asia and Southeast Asia, while Mark Edwards, based in Hong Kong, covers North Asian markets, including South Korea. The fund is heavily invested in India, though Dydasco re cently cashed in some of the fund's most profitable India equities, taki ng the weighting in that country from 20% to 14%. But for investors who want a diversified fund with some India exposure, this is by far the bes t option. She has been drawn to industries where there's a large enginee ring component, including aerospace, automotive, and, to some extent, el ectronics manufacturing. "The outlook for manufacturing in India is an untold story," Dydasco says . "India is as competitive on China on cost," Dydasco says. Its companie s "are better managed, and they are seeking to add value through researc h and development and engineering." "We believe the economy is going to slow," Dydasco sa ys. Notwithstanding Dydasco's bullish view, it remains difficult to find mutu al funds that concentrate on India. Just one fund -- Eaton Vance Greater India -- focuses on the country, although several others say they are l ooking at launching India funds.
"GlaxoSmithK line has restructured its business, improved margins, sold noncore asset s, and now is completely focused on long-term growth in India," Mehta sa ys. Even better, the company has manufacturing and product-related paten t protection. "We think it is a long-term growth story because of the growing Indian appetite for oil and gas," he says. The fund continues to own Rel iance Industries, India's largest company, with big holdings in petroleu m and chemicals. "The underlying value of its assets and cash-generation ability were overshadowed by a family dispute, which has now been resol ved," Mehta says. Considering that funds focused on India and China hav e posted spectacular returns as of late, Donald Cassidy, senior research analyst at fundtracker Lipper Analytical Services, advises investors to wait until the next bout of market turmoil to get into some of these po rtfolios. "The next time something bad happens and the emerging markets have a scare is when I'll go in," Cassidy says. That's a discipline most investors don't have the stomach to follow. But buying on the dips -- and there are bound to be some in new markets like China and India -- is a strategy likely to pay off for years to come.
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