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By Jason Stipp | 07-20-2010 03:54 PM

Southeast Asian Countries on the Comeback

Matthews Pacific Tiger Fund manager Richard Gao sees a lot of growth opportunities in Indonesia and Vietnam, as debt levels have been cut and corporate balance sheets improve.

Jason Stipp: I'm Jason Stipp with Morningstar. We're out in San Francisco visiting with Matthews Asia Funds, and I'm here with Richard Gao. He's a Fund Manager on the Matthews Pacific Tiger and the Matthews China Fund. He's here to tell us a little bit about this increasingly important area of the world, and also where he is finding opportunity.

Richard, thanks for joining us.

Richard Gao: Thank you.

Stipp: So the first question I wanted to ask you is, the Matthews Pacific Tiger Fund is a little bit more wide ranging than lot of the funds in its category, both on a regional basis and also on a market cap basis.

Earlier this year in your report to shareholders you mentioned that you had been finding some opportunity in Southeast Asian markets. They presented some opportunities for what you saw is more robust and sustainable growth than maybe some other areas in Asia where growth was moderating. Can you expand a little bit on the types of regions and also maybe the types of companies where you've been finding this opportunity in this area?

Gao: Sure. When people think about Asia, they tend to focus mostly on China and India and Korea and Singapore, etc. Southeast Asia is the place where investors tend to ignore. Naturally, there's been a lot of positive things changing in the Southeast Asian countries.

This area has been one of the hardest hit during the Asian financial crisis in 1997. In the early 1990s, the Southeast Asian countries have undergone through a process of overinvesting in lot of areas in their countries. So they have been building up debts, foreign debts, and also expanding in terms of market share rather than focusing on the company profitability. So as a result of that you see in 1997 Thailand is the first country that went through a bubble burst, and then it triggered the whole Asian financial crisis.

And over the past years, the Southeast Asian countries have been learning a hard lesson from them and then trying to recover, and they have been pretty successful I would say in terms of recovery. And they have been cutting down the debt levels very substantially and improving the corporate balance sheet, and corporate earnings have also been growing very fast.

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