Asian investment trusts have performed strongly in recent months. Is there more to come?
The FTSE may be perking up, but it's not a patch on China's Shanghai Composite index, which rose more than 40% in the four months of 2009.
Asia Pacific (excluding Japan) is where the fast money is being made these days, and plenty of people believe it is going to stay that way.
The credit crunch appears to have cemented the historical shift of wealth and power from west to east, and this means that rising Asian powers such as China are set to eclipse the US and Europe. There is something appealing in the idea, perhaps because it feels like the decadent west is getting its just desserts.
While the US and UK were borrowing and spending to the max, Asian countries stuck to old-fashioned virtues such as making stuff and selling it, and banking their profits rather than blowing them. Or rather, lending the cash to us. Which we then spent on even more of their cheap exports. No wonder they are set to come out of the recession in much better shape than us, and why the smart money is heading east. And so is mine.
Go east, young man
Most of my money is still invested in the UK, US and Europe, but I'm throwing more and more at the Asia Pacific sector, excluding Japan.
I have spent far too long waiting for a Japanese recovery, and I'm not waiting any longer.
You have to be a lot cleverer and braver than me to invest directly in Asian companies, particularly on mainland China. So I have been investing in investment trusts instead.
On 23 April, I put some money into Scottish Oriental Smaller Companies (LSE: SST), and have since watched it rise by 8%, which is a nice start.
One reason I chose this fund is that it is managed by First State Investments, whose Asia Pacific unit trust filled my portfolio with gladness before the bust.
I bought the trust at a 14% discount, which is pretty wide considering its recent performance.
It was ranked second out of 17 funds in its sector over both three years (up 23%) and five years (up 104%), according to Trustnet.com, and has a dividend yield of 3.6%. I also liked the fact that it has been managed by Susie Rippingall since January 1995.
Or try these
I don't mean to plug this particular fund, it just happens to be the one I put my money in first.
There are plenty of other big-name investment trust managers in this sector, including Aberdeen, F&C, Fidelity, Henderson, Invesco and Schroder, and I'm wondering which one to invest in next.
Aberdeen is highly rated in this sector, and boasts three long-established and successful trusts, Aberdeen New Dawn (LSE: ABD), Aberdeen Asian Smaller Companies (LSE: AAS) and Edinburgh Dragon Trust (LSE: EFM), which are up 94%, 87% and 86% respectively over five years.
Or I might spread my risk by investing in an emerging markets fund, which also cover Eastern Europe, Latin America, India and Africa.
JP Morgan Emerging Markets (LSE: JMG) invests in Brazil (18%), South Africa (13%) and India (11%), as well as China, Hong Kong, South Korea, Taiwan and others. It is up 33% in the last six months, and 14% in the last month. Not that you should judge a fund on past performance, of course.
Buy at a discount
I like investment trusts because you can trade them cheaply and easily, many are trading at a hefty discounts, and they tend to move faster (in both directions) than unit trusts.
I know that gearing is a dirty word these days, but that's what investment trusts do, and it can work in their favour when markets recover. And that's what I'm banking on them doing.
Interestingly, Asia Pacific volatility has fallen in the last couple of years, from more than 25% to around 17%, further confirmation of the growing strength and stability of the region.
In units we trust
Plenty of unit trusts also invest in Asia. Jupiter China has grown by almost 50% in the last six months, according to Moneyspider.com, which puts China at the "more robust end of emerging market economist", thanks to its domestic strength, and its $568 billion fiscal stimulus package.
It's not a done deal
I remember in the 1970s that people were getting very nervous about the rise of that new superpower Japan, and the threat it posed to the declining west. We aren't worrying anymore.
These days we are more concerned that we may follow Japan into a lost decade of deflation and stagnation.
China may be booming, but it still faces major challenges, including a huge population, limited natural resources, environmental overload and competition from abroad. And that's quite apart from the demographic shock that the one baby policy will eventually unleash.
An apology
With hindsight, I should have been tipping Asia and emerging markets at the end of last year (sorry!).
The Asia Pacific (excluding Japan) investment trust sector as a whole is up 23% in the last three months. You can't expect that pace of return to continue, although with China, of course, you never know.
I'm not saying you should shift your entire portfolio into Singaporean telecoms and Taiwanese semi-conductors, but if power and profits really are shifting east, you would be wise to follow.
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