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Asia 100 2005

Money managers are buoyed by the region's growing economies, strong stock markets and steady asset inflows.

"We're in the right place at the right time," says Lau Wing Tat, chief investment officer of DBS Asset Management in Singapore, which reports 10.3 billion Singapore dollars ($6.3 billion) in Asian assets. "We have every confidence that asset management in Asia has enormous potential."

Like Wing Tat, most Asian money managers are a remarkably confident and cheerful bunch these days, buoyed by the region's generally growing economies, strong stock markets and steady asset inflows. With the exception of Taiwan, all Asian equity markets are up this year in local-currency terms. South Korea and India posted gains through late August of 21.2 percent and 13.0 percent, respectively. The MSCI Asia-Pacific ex-Japan index was up 9.7 percent, versus a 0.19 percent loss for the Standard & Poor's 500 index. Analysts expect this to be the fifth consecutive year that the index outperforms the S&P 500. As for Japan, the Nikkei 225 index hit a four-year high on August 24.

The assets of the Asia 100, Institutional Investor's annual ranking of the region's biggest money managers, increased from $7.4 trillion at the end of 2003 to $7.7 trillion at the end of 2004, a 4 percent gain. The rise, fueled by robust gains in the volume of assets devoted to China (a 31 percent increase), South Korea (24 percent) and India (20 percent), would have been even greater if not for a 1.4 percent decline in the assets of the top 25 investment managers in Japan, which account for 61 percent of the Asia 100's total.

Asia business has been especially sweet for international money managers. Assets in the region held by the 20 leading international managers rose 27 percent, to $1.4 trillion, last year. Leading the surge was Barclays Global Investors, which reported $191 billion of Asian assets at the end of 2004, up from $135 billion a year earlier, a gain of 41 percent. Second-place State Street Global Advisors increased its Asia assets by 27 percent, to $161 billion. A little further back, ING Group expanded its Asia holdings by 33 percent, to $95.5 billion, and moved up one place to fourth. Tenth-place Alliance Capital Management grew its Asia holdings by 34 percent, to $60.5 billion, holding steady in the ranking.

Underpinning the growing confidence is recovery in Japan as well as the boom in China, whose GDP grew 9.5 percent last year, and India, whose economy grew 6.9 percent for the fiscal year ended March 31, 2005. After more than a decade of unrelenting recession, Japan's economy should grow by 1.8 percent this year and 1.7 percent in '06, predicts the International Monetary Fund. South Korea grew 4.5 percent last year and is expected to grow 4 percent in 2005. Add to that Asia's huge savings pool, and there's small wonder that money managers are feeling bullish about the region.

"Current market valuations are even cheap relative to other markets around the world," says Singapore-based Mark Mobius, who oversees $17 billion in assets as head of Franklin Templeton Investments' emerging-markets funds. For the MSCI Asia-Pacific ex-Japan index, the average trailing price-to-earnings ratio at the end of July was 13.2, compared with 19.4 for the S&P 500.

Certainly, investor confidence in China was strengthened by the government's long-awaited currency revaluation on July 21. The move revalues the renminbi by 2.1 percent and allows it to float in a narrow range against a basket of currencies. "The Chinese authorities handled the revaluation pretty well," says Mark Konyn, chief executive officer of Allianz Global Investors in Hong Kong, which manages $19 billion in the region. Nevertheless, the Chinese stock market could use a boost. Through August 24 the Shanghai composite index fell 7.8 percent in local-currency terms.

Yet foreign investors are still hungry to claim status in China as qualified foreign institutional investors, or QFII -- only with this title may they buy Chinese stocks. In 2002, $4 billion in purchasing rights was allocated to the QFII scheme; in May 2005, Beijing announced plans to allocate an additional $6 billion in buying rights.

UBS, the leading QFII in China, with $800 million of the initial $4 billion of QFII allocations, is determined to get at least some of that new allotment. Says Nicole Yuen, head of China equities at UBS Global Asset Management, which has $67.8 billion in regional equities, "The fact that the A-share market has gone down makes the QFII allocation even more compelling."

In India the Bombay Stock Exchange 30-share index was up 15.3 percent in local-currency terms through late August. In February, Fidelity Investments entered India with the launch of an open-ended equity fund. But most foreign money managers are still uncertain how best to invest in the country. "A proven approach that brings success is not evident at this stage," says Konyn of Allianz.

In Japan market conditions are a bit in flux, despite the recovery. Prime Minister Junichiro Koizumi had attempted to push through legislation to privatize Japan's postal service and eventually transfer management of its $3 trillion of savings deposits and life insurance to the private sector. But on August 8, Japan's Upper House rejected the plan, prompting Koizumi to dissolve Parliament and call a Lower House election for September 11. Markets, though, weren't spooked -- a sign that Japan's Lost Decade is becoming history.

Yet one of the biggest challenges for foreign investors in Asian markets, including Japan, is to understand political and other market subtleties. "There are nuances that need to be taken into account, and you have to have local savvy," points out Allianz's Konyn. "The risk is that if you don't take that on early, you can spend a lot of time and resources with very little success."

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