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Managers see more gains for investors in Asian demand

MUTUAL FUNDS REPORTER

The world is struggling to meet Asia's insatiable appetite for resources, commodities and consumer goods, a thirst that may mean great gains still remain for savvy investors, fund managers said yesterday.

"There has been a discernible shift in the pattern of growth that Asia is enjoying . . . from an export-manufacturing-led model to one that calls for more domestic consumption," Paul Matthews, chairman of Matthews International Capital Management, said in a conference call. In China, for example, demand for automobiles and dairy products has soared in recent years, he said.

Rising income levels and the urbanization of the region means "these kind of changing consumer patterns . . . are a 10-year story," said Mr. Matthews, who is based in San Francisco.

The catch is commodity and resource companies -- oil producers, mining companies and others -- have been slow to react, said Wally Kusters, managing director of Toronto's Barrantagh Investment Management.

For example, the oil and gas sector has been hesitant to invest in the development of new reserves, leading to flat growth over the past 10 to 20 years, he said.

Asia's heated demand "has taken everybody by surprise and supply can't necessarily respond," Mr. Kusters said.

While Mr. Matthews and Mr. Kusters, fund managers for Toronto's Guardian Group of Funds Ltd., are bullish on Asia and the spinoff benefits to the resource sector, the region has been a difficult and volatile market for mutual fund investors.

Asian funds, excluding Japan, gained 4.1 per cent for the 12-month period ended April 30 and were up a slender 2.7 per cent over three years, but lost 2 per cent over five years.

Meanwhile, there is growing speculation that the Chinese economy, the region's growth engine, is starting to cool. In a Merrill Lynch & Co. Inc. survey released yesterday, 41 per cent of global fund managers expect China's economy to weaken over the next 12 months. In comparison, 22 per cent of managers expect growth and 33 per cent expect the economy to stay the same.

"It all depends on where we are at in the Chinese cycle," said Jamie Colliver, a partner with Integra Global Advisors in Toronto. Fund managers "start to see signs of demand waning and perhaps it is time . . . to go neutral or possibly underweight."

© 2007 The Globe and Mail. All rights reserved.

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