Finding Bargains in Asia
By: Benjamin Shepherd
As the Chinese economy tries to grapple with the consequences of the euro zone crisis, the meager economic growth of the US and its own domestic challenges, investors are spooked about the entire region of Asia.
Nonetheless, I continue to believe that China in particular and Asia as a whole offer the promise of outperformance in the years to come. The Chinese economy still faces many hurdles, but it’s in better shape than many analysts believe.
The Middle Kingdom’s gross domestic product (GDP) is set to deliver a solid growth rate of 8 percent in 2012. The government significantly boosted infrastructure spending in the beginning of the first quarter, a stimulus that should ensure relatively robust Chinese growth well into 2013.
I view the negative sentiment over the region as a contrarian opportunity. Investors should use the recent selloff as an opportunity to pick up shares in Asia on the cheap.
Despite this generally positive view, the Asian slowdown has weighed heavily on iShares MSCI All Country Asia ex Japan (NSDAQ: AAXJ). The fund has a 30.9 percent weighting towards China, with a focus on growth sectors such as financials and information technology. Consequently, the fund now significantly lags the S&P 500 and the Dow Jones Industrial Average so far this year, a major departure from years past.
However, Matthews Asia Dividend (MAPIX, 800-789-2742) has weathered the storm compared to domestic indexes, despite the fact that China is the fund’s single largest country weighting, at 28.2 percent of assets. That’s because manager Jesper Madsen’s preferred hunting ground is dividend-paying stocks, which have enjoyed favored status both in emerging markets and in the US.
Favoring high-quality dividend payers that are trading at cheap valuations, Madsen has used the selloff in China as an opportunity to pick up names such as utility stock China Mobile (NYSE: CHL) and Cheung Kong Infrastructure Holdings (HK: 1038), a major player in the energy infrastructure market. By locking in their impressive dividend yields, he has provided the fund with a measure of stability.
As a result, it’s one of the top performing diversified Asia/Pacific funds available, having outperformed the category by almost 10 percent on a 1-year, 3-year and 5-year basis, despite the fact that Madsen also favors Japanese dividend-paying companies with a 22.4 percent allocation to the country.