Hunting for tigers

By DAILY MAIL REPORTER
Updated: 19:00 EST, 31 July 2003

ASIA is on the way up after several years in an economic wasteland following the financial crisis of the late Nineties.

Around $60bn (£37bn) in foreign investment - essentially, the building of factories - is estimated to have been channelled into China alone as Western firms shift manufacturing to cheaper countries.

And far from hurting the rest of the region with increased competition, China's rapid growth is benefiting even laggard economies such as Japan, says Adam Matthews, Asia strategist at fund managers JP Morgan Fleming. 'Many Japanese companies are seeing significant improvements in business because of orders from mainland China and the need for new roads, railways and so on,' he says.

There are two major problems, however. The area is vulnerable to political risk, such as religious conflict or arguments between states with nuclear capability.

And the US, the biggest market for Far Eastern goods, needs to experience an economic recovery for the Asian revival to continue.

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They chose the Far East because of its potential for strong capital growth - they also have some money in JPMF Asian investment trust. But the investments are small because of the risk involved.

Stuart, an actuary from Beckenham, Kent, says: 'If it comes good, it could be spectacular, but it is a high risk investment. I only invest what I can afford to lose.'

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Countries such as Malaysia, Taiwan and Singapore particularly depend on exports, according to Matthews. Other nations, especially Thailand, are doing well on increased growth at home and so can be independent of the West.

Despite the upturn for the Far East as a whole, Japan is likely to benefit only in the short term because it is still suffering from corporate and government red tape.

Michael Thomas, who runs the Martin Currie Japan fund, says share prices could go up between 30% and 50% in the next two years.

But this is only because demand is finally outrunning supply for firms where cost-cutting has helped profits and ultimately payouts to shareholders. He says: 'For a sustained rally for more than two years the economy needs to pick up, which is not on the horizon. But the successful companies - Honda, Canon and Toyota - should grow in line with or even faster than the world economy.'

Mark Dampier, at independent financial adviser Hargreaves Lansdown, says the Far East is less risky than the West right now. 'They went through hell and high water and have emerged fitter and leaner,' he adds. 'All the debts are paid off and they are more securely based than five or six years ago.'

His favourite funds are Aberdeen Far East Emerging Economies or Templeton Emerging Markets investment trust. You could try single country funds such as JPMF Chinese or JPMF Indian investment trusts, but they are much higher risk, he warns.

For this reason, investments in this area should comprise a small part of your total savings, says Gavin Haynes at IFA Whitechurch Securities.

A single country should be no more than 5% and the Far East should be no more than 10%. He also favours the area, saying: 'Compared with the West, share prices in the East are much better value, and also cheap relative to their own previous prices.' His choice of funds is First State Asia Pacific and First State Global Emerging Markets (including Eastern Europe), and the relatively cautious Lincoln Far East.