Betting on Continued Growth in Asia

The manager of Wells Fargo Advantage Asia Pacific expects the markets in China and India to bounce back from a rotten year.

This has been a dreadful year for most stock markets in Asia. China and India, the two giants, have been two of the world's worst performers. Of course, that comes after several bull-market years.

But Anthony Cragg, manager of Wells Fargo Advantage Asia Pacific (symbol SASPX), likes what he sees. Speaking at the Morningstar Investment Conference, in Chicago, June 26, Cragg says the growth story in Asia is still largely intact. The problems of the U.S. and Great Britain (Cragg is British)-property collapse, mortgage meltdown, consumer indebtedness, economic stagnation-are largely absent in Asia. A year ago, he says, most investors viewed Asia as more risky and the U.S. as less risky. "The last year has destroyed that perception."

Asia, he says, is no flash in the pan, but rather increasingly the center of the world economy. "Next year, the pendulum will swing back to Asia from Brazil and Russia," predicts Cragg. "Asia is where the growth is."

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Cragg has run Advantage Asia Pacific for 15 years. Over the past five years through June 27, the fund returned an annualized 23%, an average of eight percentage points per year better than the MSCI All Country Asia Pacific index. His portfolio includes an eclectic mix of stocks of companies of all sizes and types.

Cragg is currently working on a few themes. One is that the Japanese market is undervalued and will play catch up. He's increased his Japan weighting in the portfolio from 6% to 19% this year, partly by buying stakes in big trading houses, such as Mitsui & Co., Mitsubishi and Marubeni.

Another theme is tapping into Asia's emerging prosperity and the growth of the middle class. He does this, for example, by investing in for-profit education. "Chinese and Indians are obsessed with education," he says. Raffles Education of Singapore is one holding.

Increasingly affluent Asians will pay for better drugs and health-care services, hospital operator stocks, such as Bumrungrad Hospital of Thailand and Parkway Holdings of Singapore.

The new middle-class lifestyle in Asia demands more companies that provide fund management and consumer banking -- which is why he holds Edelweiss Capital of India, a diversified financial-services company.

The largest risk in Asia now is inflation, says Cragg. Even so, he says, investors should feel comfortable allocating a good chunk of their long-term stock portfolio to Asia. But his suggestion of 20% to 25% is a bit aggressive for most Americans. This fund is available without a load but carries a fairly heavy annual expense ratio of 1.65%. The initial minimum investment required is $2,500.

Contributing Writer, Kiplinger's Personal Finance