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Asian Markets Are Hit And Miss

- Alan Lavine and Gail Liberman

What's up with China and the rest of Asia?

Over the past year, mutual funds that invest exclusively in this region are up over 18 percent, according to Morningstar Inc., Chicago.

Over the past 10 years, however, you would have been better off investing in good old-fashioned U.S. government bonds.

Of course, interest rates declined dramatically over the past decade. So bond prices rose. Going forward, if interest rates rise, bond prices will decline.

Investing in Asia can be rewarding. But it also can be risky. For example, in 1998, funds that invest in the Asia Pacific Region lost -27 percent. They gained 71 percent in 1999. But they lost -32 percent in 2002.

Needless-to-say, you need a strong stomach to invest overseas. If you invest in one of these mutual funds, make it a small part of your holdings. The fund may give your total return a boost when your U.S. funds lag. Invest too much, and you could lose your shirt.

Depending upon how long you have to invest, an Asia stock fund could make up about 2.5 percent to 5 percent of your stock holdings.

There are several types of Asia stock funds to consider. There are funds that invest in single countries. These are riskiest because you are not diversified. Your fortunes rise and fall with the economic and political events of a specific country.

You might invest in diversified Asia funds. These funds invest in a large number of countries, including Japan, Korea, Thailand, India, China, Hong Kong and others.

There also are funds that invest in the Asia and Pacific regions, excluding Japan.

Want to play it safer? Invest in a fund that owns stocks worldwide. This gives you greater diversification. You also might consider international funds that exclude the United States or global funds that own U.S. stocks.

Economic development in China makes a great story. But there are a lot of "ifs," when you invest in place like China. The markets tend to perform well when U.S. investors pile into Hong Kong companies through mutual funds.

Edmund Harris, manager of the Guinness Atkinson Asia Focus Fund, believes that the Asian markets should see future gains this year. But his prognostication is no sure thing. He says China's efforts to slow the economy have been working. The economy is growing at about 11 percent, while inflation is 5 percent. Consumer spending in China is strong. Hong Kong's economy is recovering. Meanwhile, the Korean market is under pressure due to slowing export growth.

Be advised, however. Investing in China and other Asian markets is risky. You face currency risk, political risk, and economic risk. The stocks are thinly trade. So if investors dump stocks, your investments could decline dramatically.


Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books). Al and Gail's new book is Rags to Retirement, (Alpha Books).

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