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Across the Atlantic, Stocks Look Cheap

Japan

Herro's attraction to European stocks is evident in his fund's allocation to those regions. Three-quarters of the $1.6 billion in assets are invested in that part of the world.

And his fund's small 9% weighting in Japan, compared with its 21% weighting in the benchmark MSCI-EAFE index, illustrates Herro's belief that the country will continue to struggle. The stock market is trading near a 20-year low, and the economy is not improving. And the country hasn't done anything drastic to get out of that funk.

Ultimately, Herro looks for solid companies whose stocks are undervalued. And he's still having trouble finding those in Japan. "The purpose of a publicly traded company is to make money for the shareholders -- not be part of an industry group, to employ people or make new products," Herro says. And Japanese companies "foolishly allocate capital. What they do makes cultural sense. But it doesn't make economic sense, like sitting on huge sums of cash instead of buying back stock."

Elsewhere in Asia

However, Herro is attracted to other parts of Asia, despite the threat of SARS to the region's growth. "Before SARS, the China region was booming for a number of reasons: There's a large amount of foreign investment, and Chinese consumers are really starting to spend," he says. "SARS has been a temporary setback, but companies will continue to invest in China, and people will get back to spending again."

Although it's tough to find Chinese stocks to buy, you can invest by buying Hong Kong companies with exposure to China, like retailer Giordano (GRDHY).

"People wonder where growth in the world will come from in the next five to 10 years? Right there."

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