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By Jason Stipp | 07-20-2010 01:12 PM

Services Will Drive Growth in Asia

Andrew Foster of Analyst Pick Matthews Asian Growth & Income says the fund has been focusing on the emerging services economy in Asia and sees valuation opportunity in some Japan stocks, including a pharma pick.

Stipp: Moving to look at the regional exposures of your funds. Have you found that you – in your research and looking for good investments, that there are any themes to where you've been investing recently? Anything bubbling up about areas of opportunity that you're seeing, versus maybe some other areas where it looks a little bit rich to enter into a new position now?

Foster: I think valuations as a whole are tricky across the region. I think we entered the year a little overvalued for my taste and after a great deal of fluctuation, we're right now in the middle of July, about where we started the year. I was very comfortable with valuations at the low points in June, but we've already seen quite a recovery since that point.

So I think valuations are fair, but they don't take into account some of the risks that might emerge over earnings. We are seeing inflation really pick up and that's impacting the wages and other raw material costs for companies, and I don't think that's really factored into what are still very high consensus earning estimates for the end of the year.

But I think on the positive side, where we're really looking especially in the fund and at Matthews, more broadly, is focusing on one area in particular, which is the emerging services economy in Asia and the consumer-oriented sectors that are service-dominated.

I think Asia's growth over the last decade or two is really being fueled by heavy investment in export sectors, in manufacturing sectors. I think these areas of growth will continue, but I think the real marginal growth will accrue in the service sectors of the economy like health care, consumer stocks.

And on the geographical basis, I think the fund is highlighting Japan right now, too. We have an oversized position in Japan, a little over 10% relative to history, and it's not because we're incredibly bullish on the big picture in Japan, but I found valuations there on individual companies that I think are quite compelling.

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