Spring in step for Asian stock funds


Malaysia is now the focus for many investors looking for gains in Southeast Asia, where experts say interest is back

By Alex Frew McMillan

HONG KONG, China (CNN) -- After a torrid 2001, investors in Asian markets are getting stellar returns in 2002.

Even allowing for Thursday's sharp slide, stock pickers in South Korea have seen strong gains this year. In four months, mutual funds devoted to the Seoul market have returned 38.1 percent.

The same funds are up 81.0 percent since April 2001 -- a performance international fund managers attribute to corporate reforms in South Korea paying off.

But punters in Indonesia are outdoing Korea's strong run. Country funds there have gained 64.4 percent year to date, according to mutual fund tracker Lipper.

A small universe

Of course, there are only 10 funds devoted to the Jakarta market. But they have doubled since this time last year.

Lipper created a universe of Asian mutual funds for CNN. All country-specific Asian funds were included as long as they were available for sale somewhere in Asia.


Financial planners warn that country funds are tricky to pick, with Japan and Hong Kong currently lagging

Anthony Muh, Asian head of Citigroup Asset Management, notes that Asian markets have outdone all other regions year to date and over 12 months. He told CNN he credits that to their "extreme undervaluation" and an expected rebound in exports.

For Indonesia, the funds posted a combined leap of 99.0 percent since April 19, 2001.

This time last year, Indonesia was in crisis as the government ousted former president Abdurrahman Wahid. Overseas investors fled in droves.

Southeast Asia in general is attracting much more interest this year. With U.S. markets struggling, investors are looking overseas for returns.

"These markets are back on investors' radar screens," Daniel Lian, Southeast Asia economist with Morgan Stanley, wrote in a recent report (full story).

No longer the pits for PITs?

Lian cites a desire for permanent stock-market investment in Southeast Asia, meaning the bad times for the "PITs" -- broker jargon for the Philippines, Indonesia and Thailand -- may be over.

Thailand funds have put on 36.6 percent in 2002, with almost all their action this year. The gain since April 2001 is a more disappointing 34.7 percent.

Philippines funds are up 21.7 percent. But they're still down 5.0 percent from this time last year.

Because the gains in the PITs have been outsize, attention is shifting to underperformers like Malaysia.

"Foreign investors have become significantly more positive on Malaysia," Credit Suisse First Boston wrote in an April 9 report, 'Malaysia: Back On The Investment Map. "Indeed, we believe that it is foreign investors that have led the market upwards."

Malaysia driven by overseas interest

Since the beginning of 2002, the 100 Malaysian funds on sale in Asia are up an average 19.3 percent. They are up 43.0 percent since April 2001.

Domestic institutions are "reluctant investors," the report states. Retail investors in Malaysia hardly participated.

Thanks to overseas interest, "the equity capital markets are in effect alive for the first time since 1998," CSFB stated.

Many investment advisers warn individuals not to buy country-specific or even region-specific funds, unless they are experts on that region. And Asian stock markets are certainly not equal.

Indian stock funds are up 10.7 percent this year. Funds for the subcontinent, including Bangladesh, Pakistan and Sri Lanka, are up just 7.3 percent.

Japan, Hong Kong last

Japan continues to lag, as Tokyo tries to work out of a slump that started in the late 1980s. The average Japan fund is up 5.5 percent this year, and down a massive 22.4 percent over April 2001.

Optimism was riding high as reformist Prime Minister Junichiro Koizumi took office. His popularity is now at its lowest point.

Hong Kong's market still looks the gloomiest. The Hang Seng was the world's worst-performing major index for 2001.

Hong Kong funds are up just 1.8 percent in 2002 and down 8.9 percent over 12 months.