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Booming Pacific Rim key to fund's strategy

Manager Tim Leung cites rapid growth of Chinese economy

INVESTMENT REPORTER

Fund manager Tim Leung sees plenty of reasons to be upbeat about the prospects for the Pacific Rim, not the least of which is China's continuing uncommonly rapid growth.

China's gross domestic product surged 11.3 per cent year over year in the second quarter, the fastest pace in more than 10 years, thanks to rising exports and investments in manufacturing, said the Hong Kong-based vice-president and head of Asian equities for I.G. Investment Management (H.K.) Ltd. Retail sales in China have been particularly strong, climbing 14.2 per cent year over year in May from 13.6 per cent in April, as the Chinese used their rising incomes to buy more cars, furniture and electronics. And China's trade surplus swelled to $14.5-billion (U.S.) in June from May's $13-billion.

Not surprisingly, all the funds managed out of his Hong Kong office that can invest in China issues are overweight that region.

Mr. Leung also noted that the Indian economy is still firing on all cylinders, helped along by infrastructure development, global outsourcing and urbanization. Moreover, the Japanese economy has emerged from the deflation that has troubled it for the past decade, noted the manager of the Investors Pacific International Fund and a number of other funds. "The [Japanese] banking sector has largely recapitalized and resumed lending to local and international customers [and] corporate balance sheets are in the best shape since 1990," he said.

The $198.6-million fund, which Mr. Leung has run since July, 2003, is up 8.73 per cent so far this year. Its one-year return to July 31 was 9.13 per cent, and three year, 14.61 per cent annualized. Longer term, it hasn't done as well. Its 10-year return is a negative 1.92 per cent and 15-year return, positive 3.61 per cent.

But many Canadian investors are shying away from overseas markets because of strong domestic markets, the high-flying Canadian dollar and concern about increasing interest rates in the Asian region, Mr. Leung said. However, he said those rate adjustments are needed to manage those countries' growth. "More than a few times in the past, people have been worrying about whether China would have a hard or soft landing," but history suggests that a few years from now "these questions or worries would be a forgotten wiggle on [China's] impressive growth path." Besides, he added that if the markets in the region weaken in the near term as China and India raise interest rates, he plans to take the opportunity to bargain hunt in the natural resource, energy and capital goods sectors particularly.

Some of his current stock picks reflect his interest in those sectors. Among them are Keppel Corp. Ltd., a Singapore-based firm whose subsidiary, Keppel FELS, is the world leader in the fabrication of offshore oil drilling platforms. Keppel has seen orders increase sharply as international oil companies step up their efforts in deep sea drilling, Mr. Leung said. The shares trade on the Singapore exchange under the symbol KEP.

BHP Billiton PLC, the world's largest diversified resource company, is another choice. Its key products include copper, iron ore and petroleum. Mr. Leung noted that the firm's sales into China increased more than tenfold in the three years ending June. BHP Billiton shares are listed on the Australian and London exchanges and its American depositary receipts trade on the New York Stock Exchange under the symbol BHP. The ADRS ended yesterday's session at $41.28 (U.S.).

China Shipping Development Co. Ltd. (1138-Hong Kong) is involved in the expanding business of transporting crude and refined oil, coal and other dry bulk materials along China's coast and inland rivers.

Mr. Leung said the firm recently was awarded a contract from oil giant China Petroleum & Chemical Corp. (Sinopec) to transport up to four million tonnes of crude from the Middle East to China. The volume under that contract is expected to increase to 10 million tonnes by 2010, he noted.

China Life Insurance Co. Ltd. (2628-Hong Kong), another pick, stands to benefit from the increasing market for life insurance in China, he said.

"Its extensive office network in the country gives it the competitive edge against international insurance firms which tend to be concentrated in the coastal areas," he added.

Investors Pacific International
ManagerI.G. Investment Management Ltd.
Inception date September, 1990
Total assets $198.63 million
Fund typeOpen-ended
Management expense ratio 3.03%
Returns (as of July 31, 2005)
6-month2.31%
1-year9.13%
3-year14.61%
5-year9.22%
10-year-1.92%
Since inception 4.67%

SOURCE: GLOBEFUND

Surging growth

11.3%

Year-over-year growth in China's gross domestic product in the second quarter.

© 2007 The Globe and Mail. All rights reserved.

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