In an Atlantic storm should you head for the Asia Pacific?
As Western markets see-saw, Angelique Ruzicka looks at the case for backing the buoyant Far East
Sunday 07 October 2007
With the US economy looking dicey and the UK stock market proving volatile, is it time to go East to boost your investments?
"The Far East represents better value than the West in terms of property, equities and currencies," says Patrick Armstrong at fund management group Insight Investment. "We expect to see a continued slowing and potentially recessionary US economy, while Asia will experience much better prospects in 2008."
"In September, Asia was the best sector and the best funds were 15 per cent up," says Mark Dampier, head of research at independent financial adviser Hargreaves Lansdown.
The Far East has performed well because many countries in the region have gone through a rapid economic transformation and become more accessible to foreign investors. China's stock market, for instance, barely existed in 1996 and was limited to domestic investors. Since then the government has initiated massive reform, including privatising state-owned enterprises and opening its capital markets to foreign investors.
There are plenty of ways to invest in the region. You can either buy into a global fund or a Bric (Brazil, Russia, India and China) fund, both of which give a degree of exposure to the Far East. Alternatively, there are funds that concentrate on Asia and ones that invest in single countries. "You could go for Aberdeen Asia Pacific or buy straight into Jupiter China, which has virtually doubled since it was launched over a year ago," says Mr Dampier.
However, investing in only one country could be very risky. For example, if Chinese equities fell, there would be no place to hide.
Opinion is split on how much of their portfolio investors should allocate to Asia. Usually the advice is around 10 per cent, but returns have been so good that some experts are advocating closer to 20 per cent. "Of course, it does depend on your investment time frame and how old you are," says Mr Dampier.
Other advisers counsel caution. "As a general rule for core investments, stick to what you know. The danger for Far East investors is not having enough information," says Ashley Clark of Needanadviser.com.
Remember, there are risks in investing in Asia, as shown by the turmoil in Burma. And although China is expected to keep growing, it is not immune. "If you wanted to look for a single act to focus on, there is the Beijing Olympics; China could experience a 'hangover effect' from an event like that, although any big fall there is more of a buying opportunity than anything," says Mr Dampier.
He adds: "I would go for an Asian fund that excludes Japan, which is the opposite of the other Asian countries: it has an ageing population and it's slow to change."
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