Manager makes case for long-term prospects in Asia
Europe is struggling with a debt crisis. As investors worry that it could spread across the Atlantic, recession fears mount on both sides of the Atlantic. That’s plenty incentive to look elsewhere for opportunities to put your money to work.
Taizo Ishida says he’s fortunate that he focuses on investing in Asia, home to 60 percent of the globe’s population, and many of its fastest-growing economies. The Japanese native manages the Matthews Asia Growth and Matthews Japan mutual funds, whose strong records have each earned a 4-star rating on Morningstar’s 5-star scale.
Ishida sees solid long-term prospects in Asia. For example, China’s economy is growing at an annual rate of 9 percent, about 10 times faster than the lumbering US economy. China is expanding at that rapid clip despite recent moves by its government to curb inflation and moderate growth.
Still, Asian economies are hardly sheltered. Stocks in many Asian markets have fallen more than twice as much as this year’s 8 percent decline in the Standard & Poor’s 500 index.
Matthews Asia Growth and the Japan fund are down 13 percent and 5 percent this year. Those declines reflect fears that potential recessions in the United States and Europe will crimp demand for exports from Asia. Investors also worry about slower growth within Asia.
Ishida takes a long-term view. Once he finds a stock he likes, he tends to keep it for years. It’s an approach that’s helped Asia Growth outperform all other funds in its Asia and Pacific stock category, with an average annualized return of 4.5 percent over the Past 5-year period.
Ishida discussed the prospects and pitfalls of Asian investing in a recent interview. Here are excerpts:
Q. Last week, investors around the world were spooked after a report from China indicated a slowdown in manufacturing. What did the resulting decline in the markets say about the China’s role in the global economy?
A. That data simply showed that China’s growth is slowing a bit. But it should have been expected, because the government has tried to slow the economy.
Everyone is paying too much attention to China. They think China will be a superhero that saves the world economy, which is completely overblown.
Q. How strong are prospects for growth in Asia compared with the United States?
A. Asia is still growing solidly. Asian governments are in good fiscal shape, and Asian consumers in general have low levels of debt. That’s not the case with US and European consumers.
Q. Then why have Asian stocks fallen more sharply than US stocks lately?
A. It’s unfair. But it’s a reality that emerging markets are more volatile - when stocks in developed markets decline, many Asian stocks fall further. Everything is linked globally, especially market sentiment.
Consider Thailand, for example. Unemployment is only 1 percent there. The economy is growing at around 4 percent a year. A recent election has stabilized the political situation.
But Thailand’s stock index is down 15 percent the past three months. It’s strange, given the strength of the Thai economy. Stocks are down because global investors’ appetite for risk has declined. People are just taking money out of stocks in general.
Q. What are the key factors that will drive Asian stock performance in coming years?
A. Asia has been an export story for the last 20 years. But now it’s a consumption story. Growth at Asian companies depends on demand for goods and services within Asia. Consumption is rising because the middle class has become a huge portion of the population. About 600 million people are now considered middle class in the Asian countries I invest in. That’s twice the total US population.
Q. Both your funds invest primarily in growth stocks of large companies. In the United States, investors think of Apple and Google. Where do you find such stocks in Asia?
A. There are plenty of growth stocks in industries that American investors wouldn’t associate with rapid earnings and revenue growth. Take food and beverage companies. In the US, people think of these companies as slow-growing, consumer staples companies. But in frontier markets where many people are still poor, these companies can be growth stocks. The Asia Growth fund invests in a company called Vietnam Dairy Products. It’s got about a 30 percent market share in Vietnam, with revenue growth averaging nearly 40 percent the past five years.