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“Miracle.” That was the word that rolled off the lips of investors and economists in the 1980s and the first half of the 1990s to describe the remarkable economic growth of Asia, particularly the “tiger” economies of China, Hong Kong, Taiwan, Thailand, Indonesia, South Korea, the Philippines, Malaysia and Singapore. Through the mid-1990s, these countries enjoyed growth rates of nearly 8% a year, several times faster than those in the United States and many other Western industrialized nations. And from 1977 to 1993, investing in the Asian tigers rewarded investors with double-digit compounded returns with only two losing calendar years (1981 and 1990). Emerging markets in Asia were the envy of the world, harboring ten-year annualized returns in excess of 18% per annum.  Why then, don’t we hear much about these “tigers” today—other than China, of course, the “800-pound gorilla” of Asia?  Mostly, it’s a matter of perception. Growth in Asia continues robustly, albeit at a somewhat slower pace than a decade ago. But, more importantly, for a memorable 12-month period, beginning in mid-1997, the “Asian miracle” came to a screeching halt.  Catalyzing the downturn was a sharp appreciation of the U.S. dollar. Devaluation of Asia’s currencies made it impossible for Asian businesses and banks to pay back dollar-denominated debts. A surge of defaults followed, resulting in mass bankruptcies and collapsing equity markets. Wave after wave of panic selling crushed Asian equity markets along with regional currencies as the “domino-effect” spread like wildfire from one country to the next.  Indeed, through December 28, 2004, the Morgan Stanley Capital International EM Asia Index ranks as the world’s worst-performing regional benchmark with a -2.8% annualized return since 1994. More Investor Options = Greater Safety + Competitive Returns In the 1990s, most retail investors had no choice but to invest in Asian common stocks since the selection of income-based securities was either non-existent or simply too small. While Asian stocks provided huge potential returns, those profits came only with high commensurate risk.  Since 1998, though, there’s been a quiet but revolutionary transformation in Asia markets. Perhaps no other region in the world has seen its capital markets develop more rapidly than the Pacific Rim in those six years. This dramatic transformation has turned the world’s fastest-growing economic region into a melting-pot of securities, ranging from common stocks, convertible bonds, corporate bonds, preferred securities and distressed debt.

The Author  - Eric Roseman is a member of The Sovereign Society’s Council of Experts The Sovereign Society, headquartered in Waterford, Ireland, was founded in 1998 to provide proven legal strategies for individuals to protect their wealth and privacy, lower their taxes and to help improve their personal freedom and liberty. The Society's highly qualified contacts recommend only carefully chosen banks and investment advisors as well as financial and legal professionals located in select tax and asset haven jurisdictions around the world. The Society provides advice concerning the establishement and operation of offshore bank accounts, asset protection trusts, international business corporations (IBCs), private foundations, second citizenships and foreign residency, as well as practical safeguards for financial, Internet and personal privacy. The Sovereign Society stands alone in fulfilling this singular, international offshore service role for its members.  To learn more about our organization and how you too can become a member, please click here.

To Contact The Author  - Eric Roseman is a member of The Sovereign Society’s Council of Experts and editor of Commodity Trend Alert, which focuses on winning investments in this red-hot investment sector. Indeed, in just the last six months, Eric’s closed out six investments for profits exceeding 100%! For more information on Commodity Trend Alert, please visit - www.commoditytrendalert.com -

And, that’s exactly what happened. By mid-1998, local regulators and domestic investment banks were launching securities with income features, such as convertibles, preferred securities, and corporate bonds. At the same time, some shrewd foreign investors began to take major stakes in distressed Asian assets. 

The results have been spectacular. Asian markets are once again booming, although the “bubble” in Asia—with the possible exception of China—is clearly over. 

Playing the China Card for Regional Profits

Historically, Asian economies have been closely tied to the United States and Japan. That’s beginning to change, however, due to the emergence of China as a global economic superpower. China is gobbling up exports from Asia’s Tiger economies at a breathtaking pace. And, if China succeeds in cooling off its overheated economy without suffering a “hard” economic landing as it did in 1994–96, the region’s near-term outlook remains very bullish. 
 

One conservative way to profit from this trend is to invest in Asian currencies. Regional currencies in Asia, excluding the Japanese yen, remain undervalued compared to the U.S. dollar and especially in relation to European currencies. Over the last year, the U.S. government and Treasury have applied relentless pressure to encourage the Chinese to revalue its currency, the yuan or renminbi). China is obligated under its agreement to enter the World Trade Organization to float the yuan on international markets by 2007, although it’s likely to occur sooner. Indeed, it’s likely we’ll see a revaluation later this year, although perhaps not of the magnitude that some economists predict.  China is dragging its heels on revaluation, because its market-savvy leadership realizes that a significant currency revaluation would result in economic hardship across China. This could lead to chaos as millions of displaced workers demand jobs and a stronger currency weakens Chinese competitiveness. China will revalue, but it will happen in small increments.  But the yuan is not the only undervalued currency in Asia. Other regional Tigers have also pegged their currencies to the U.S. dollar and are now also undervalued to the American dollar. Over the next few years, the Hong Kong dollar and other Asian currencies will appreciate versus the U.S. dollar, probably much more than European currencies such as the euro.  Since hitting lows versus the dollar in January 2002, European currencies have soared in value; e.g., the euro has surged 58% over the last three years. Today, there is far better value in the currency markets of Asia (excluding Japan) where the G-7 is applying stiff pressure for currency appreciation.

To profit from this trend, with relatively low risk, you can invest in several regional currencies, collecting modest interest income and playing the Asian currency revaluation theme. Everbank WorldCurrency Markets in the United States offers four Asian Tiger currency accounts, including the yuan (synthetic renmimbi currency), Thai baht, Singapore dollar and the Hong Kong dollar. As an investor, you also get FDIC deposit protection on your foreign currency accounts. Toll-free: (800) 926-4922. Link: http://www.everbank.com/sovereign/start.ast. 

The Best Asian Growth & Income Funds 

Moving slightly up the risk scale—but also offering the potential for significantly higher returns—you can buy a mutual fund diversified in regional stocks and income-producing securities. Over time, this strategy will not only probably yield greater risk-adjusted returns than a fully invested stock portfolio, but also cushion you from another economic shock or global bear market. 

Since 1998, several mutual funds specializing in Asian growth and income have become available. One of the best is the Ashmore Asian Recovery Fund (ARF), domiciled in Guernsey. This is the best-performing Asian growth and income fund in its class since May 1998. The Fund was specifically created in the aftermath of the Asian financial crisis and was one of the first retail investment funds to invest in the distressed region. Ashmore Group specializes in emerging market fixed-income securities and is probably the best investment house analyzing credit risk in Asia and other developing economies. 

Over the last seven years, ARF has earned an impressive 17.4% per annum versus 11.2% per annum for the JP Morgan Emerging Markets Bond Index. It gained 18.7% in 2004, more than doubling its regional stock index benchmark. The fund maintains approximately 65% less standard deviation or risk than regional stock benchmarks and 33% less volatility than the JP Morgan Emerging Markets Bond Index.  What’s remarkable about this product is its uncanny ability to protect capital, even in secular bear markets. In 2002, the worst calendar year for global stocks since 1974, ARF gained 24%. The MSCI EM Asia Index (excluding Japan), declined 9.2% in 2002.

ARF invests in a combination of Asian (excluding Japan) stocks, convertible bonds, corporate bonds and preferred securities. It can also use leverage to boost returns, thus classifying ARF as a hedge fund. As of November 30, 2004, the Fund’s largest country weightings include Indonesia (32.2%), the Philippines (19.8%), Singapore (11.6%), Thailand (9.6%) and South Korea (9.1%). Ashmore is over-weighted in U.S. dollar-based securities at 63% of the portfolio with the remaining 37% spread across regional currencies. 

The minimum investment is $25,000. Shares are redeemable once a month with dealing cycles for purchases available every two weeks. Non-U.S. investors can purchase this fund directly from Ashmore in London at +(44) 207-557-4131. Link: http://www.ashmoregroup.com. ISIN: BG0003526828. 

While the fund is not available for direct purchases by U.S. investors, Americans can buy shares through any offshore private bank. However, for tax reasons, U.S. investors should invest in this fund only through a retirement plan or other tax-sheltered structure. In the United States, the best Asian income and growth fund is the Matthews Growth and Income Fund (MACSX). No other U.S. fund targeting Asia offers a better risk-adjusted product. Unfortunately, Matthews closed this gem in 2003 to new investors, leaving a major void for prospective U.S. investors. 

The bottom line: Asia is home to the world’s most dynamic economies. Along with appreciating currencies, the stellar performance of its capital markets will continue to attract global investors in years to come. 
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To Contact The Author  - Eric Roseman is a member of The Sovereign Society’s Council of Experts and editor of Commodity Trend Alert, which focuses on winning investments in this red-hot investment sector. Indeed, in just the last six months, Eric’s closed out six investments for profits exceeding 100%! For more information on Commodity Trend Alert, please visit - www.commoditytrendalert.com -  Let Commodity Trend Alert show you how to profit from some of the strongest global trends in commodities based securities including stocks, fnancial markets, physical commodities, currencies, interest rates, precious metals, semi-precious metals and more.

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