Demand from emerging-market consumers
top picks top pro gao shroff
Gao, at right, with Shroff
Fund: Matthews Pacific Tiger (MAPTX)
Manager: Richard Gao and Sharat Shroff
Tenure: 7 and 5 years
Fund type: Asia ex-Japan

The strategy

While the emerging markets are often associated with highfliers, Matthews Pacific Tiger's managers prefer to invest in companies that take a measured approach. "Often we see managements that set their goals around 30%-plus growth, but that can lead to bad financial outcomes," Shroff says.

This fund is different in other ways. China often gets the lion's share of the attention in Asia, but Gao and Shroff don't hesitate to look throughout the region, in places such as Indonesia and Malaysia. "We've found valuations that were a lot less expensive in these markets," Shroff says. That value-minded approach helped the fund generate gains of nearly 4% annually over the past five years while its peers lost nearly 2% a year on average.

The opportunities

Both managers see a big shift taking place in China, the region's largest economy. Rather than focus just on exports, businesses there are cultivating local consumer demand. "In that sense, we're finding opportunities in service-oriented industries," Gao says, such as health care, tourism, and insurance.

And though Gao and Shroff expect China to keep slowing, other countries could take off. "Indonesia and the Philippines are trying to stimulate investment in infrastructure," Shroff says. As a result, "you can choose from a diversity of businesses that was perhaps not easy to find five years ago."

Their picks

Perusahaan Gas Negara (PGAS: Indonesia Stock Exchange): PGN operates the largest pipeline for natural gas in Indonesia. Demand for the fossil fuel has been growing. As a result the company, which collects a toll when the gas is distributed, has been reaping big profits.

Sinopharm Group (1099: Hong Kong Stock Exchange): Government spending on health care is rising 15% to 18% annually in China. That should benefit the country's largest pharmaceutical distributor, which has expanded into more than half the major cities in China. "We expect sales to grow above the industry average for the foreseeable future," Gao says.

SM Prime Holdings (SMPH: Philippine Stock Exchange): The Philippines' largest shopping center developer and operator already runs 50% of the malls in the country, Shroff says. But there's room for growth beyond Manila -- and in China, where SM Prime has four malls with plans to grow to 10.


  @Money - Last updated February 05 2013 09:19 AM ET
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