G. Paul Matthews Sees Riches in Asia

It remains the case that the macro story in China is much better than the micro story. But the micro story in Hong Kong is much better than the macro story in Hong Kong. Perversely, we think some of the best investments related to mainland China will be through Hong Kong-listed and other Asian-listed companies.

That theme is becoming increasingly important, not just for non-Japan Asian companies but also for Japan. China's growing role in the region has started to have an impact on the performance of individual companies in Japan.

Can you provide an example?

Thinking in broad terms, the outsourcing trend is an example -- Sony(SNE Quote) moving more than 50% of its manufacturing to mainland China is the kind of trend that I'm discussing.

2. How have you managed to outperform your peers in the Asian mutual fund arena?

We're very much bottom-up focused. Over the last five years, we've been finding more companies with exposure to their domestic markets than some of our competitors have found.

The tendency when looking at Asian is to focus on what happens externally -- the sense that Asia is merely a warrant on the rest of the world. The big change over the last five years is that Asia is increasingly looking internally and generating growth internally.

We've been quite successful at finding a number of companies that are benefiting from these trends. The growth of consumption in parts of Asia has been dramatic.

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Many Asia watchers have noted the region's growing middle class as a bullish investment trend. What sectors might benefit from this trend?

I think it's early days, but one of the areas that we're looking at is the whole media/entertainment industry in the region. It's staggering to me that in the last two weeks, more than 3 million Koreans have seen Lord of the Rings. It's spent two weeks at the top of the box office in Seoul. That indicates there is this tremendous middle-class demand for many of the things that we take for granted in the U.S.

Is there a cluster of indigenous companies that will be able to perform well against the U.S. multinationals?

It's not clear yet -- not in terms of content, but in terms of distribution, maybe. The beneficiaries in Asia may be the distributors; the content producers are still going to be in Southern California, primarily. Although, the whole Bollywood thing in India is growing in importance.