This article is part of Morningstar’s Guide to Investing in Asia where we navigate the potential risks for the chance of fantastic rewards from across the region.
Richard Whitehall: Investing in Asian equities can be very beneficial for investors. It can provide them with much needed portfolio diversification and enhance risk adjusted returns.
However Asian equity markets are very diverse and investors must understand what they are investing in. We think of MSCI Asia as a proxy for the market. Japan accounts for 50% of that index. It's a mature developed economy, but with that comes problems like demographic issues and also it's been wrestling with deflation for many years.
Also many Japanese companies have not necessarily been run with shareholder returns in mind. However we are seeing change in that regard and that can provide opportunity for investors. Outside of Japan the markets has Australia around 20%, and that market itself is dominated by financials at 50% and materials at 15%. Chinese equities as you'd expect is also large part of the market ex-Japan around 20% and along with South Korea and Taiwan it does provide exposure to some of the largest Asian companies particularly technology companies.
However those North Asian markets have also got some of the demographic problems currently been experienced by Japan albeit at the moment not to the same extent. And therefore we see many of the fund managers that we really like, are being excited by opportunities in South Asian equity markets most recently in India.
And therefore I conclude by saying exposure to Asian equities can be really beneficial to investor's portfolio, but they must understand what they are investing in.
