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"All of Asia will run on the back of China and India to some degree," says Edmund Harriss, who manages Guinness Atkinson's Asia Focus Fund.
But Southeast Asia's economies have their own stories, too. Singapore has become a center of banking and financial services. Thailand has a young and growing consumer market. Living standards in Indonesia and Malaysia are improving as financial reforms take hold and high commodity prices boost export earnings.
Harriss, who has 15% of his fund's assets in those four countries, finds Thailand the most interesting now. Its market is cheap -- trading at 10 times trailing earnings, versus the S&P at 17 times.
Part of that can be attributed to recent political upheaval: In April Prime Minister Thaksin Shinawatra resigned under pressure from vocal opponents. (He has since returned in a caretaker role.) Some portions of the country are still rebuilding from the devastating tsunami that hit the region in 2004. Rebel groups in the south have caused havoc of late.
Harriss, whose fund has returned 17% annualized in the past five years through the end of May, versus 9% for the MSCI EAFE index, believes that Thailand's political situation provides more opportunity than threat. Thai companies are strong, he says, and are generating cash.
"You're going to be left with a market where stock prices are not only cheap," he says, but also "the underlying economy isn't doing too badly." Thailand's gross domestic product is expected to grow 5% this year (net of inflation). Harriss is pleased that several Thai banks have been restructured.
One example is Bangkok Bank, the country's largest commercial bank. Its nonperforming assets are estimated to fall to 7% of gross loans this year, Harriss says, from 48% six years ago, while operating profit remains healthy. Another pick: Kasikornbank, the third-largest Thai bank by assets.
With a population of 65 million, half under the age of 32, Thailand has a "population bulge," says Harriss, in which younger consumers are buying items such as mobile phones, motorcycles, cosmetics and even homes. That will give Thailand consumer-driven growth for the next five to ten years, he reckons.
Thailand is also more of a manufacturing base than any other country in the region, notes Andrew Foster, portfolio manager at Matthews Asian Funds. He points out that a number of U.S. and European automakers now have assembly plants there. In sum, it's more economically well-rounded than its Southeast-Asian neighbors.
For investors with a smaller risk appetite, Singapore provides "a stock market you can have faith in," says Timothy Dickson, portfolio manager at Scottish Widows Investment Partnership, with $3 billion invested in far east Asia.
The city-state once relied on low-end manufacturing, but Singapore is now moving into higher value-added manufacturing. It has also developed its banking sector. One example: $113 billion (assets) DBS, the largest bank in Singapore and fifth-largest in Hong Kong following its 2001 acquisition of Dao Heng Bank. DBS now operates in 14 countries. Among its latest incursions into China: a June purchase of a 33% stake in Changsheng Fund Management, one of China's first asset management companies.
Harriss likes Singapore Telecom. Also with operations throughout the region, it claims 78 million customers -- the largest count in Asia, outside of China. SingTel reported $8.1 billion in sales in the year ended March 2006.
Malaysia and Indonesia both depend on commodities for much of their economic growth. Harriss says that since Mahathir Mohamad stepped down as prime minister in 2003 after running Malaysia for two decades, there has been a push for more transparency in government and more freedom of the press.
Another big change: The ringgit last year was unpegged from the dollar. Indonesia, the only OPEC member in the region, has sizable oil and gas reserves. That nation's GDP growth has picked up in recent years, from 3.8% in 2001 to an expected 6.2% this year.
While two Indonesian telecom companies, Indosat and Telekom Indonesia, trade as American Depositary Receipts, ADRs for the region are rare. Alternatives include iShares exchange-traded funds -- one each for Singapore and Malaysia -- the Asia Focus Fund and the Matthews Asia Pacific Fund. These two open-ended funds have expenses of 1.87% and 1.34%, respectively.
Contenders in the Pacific
The combined capitalizations of the main indexes in Singapore, Malaysia, Thailand and Indonesia are two-fifths of China and Hong Kong's -- but these rapidly growing economies hold investment potential.