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Invest More, Risk Less in Asian Funds

NEW YORK ( TheStreet) -- Asian mutual funds have soared 68% this year, leaving some investors in a quandary.

They want to bet on Asia's long-term growth but fear the rise has been too fast, too soon. One solution may be to invest in relatively low-risk funds. Top choices have delivered above-average long-term returns and only suffered limited losses in downturns. By investing gradually into one of the best performers, shareholders can tap into Asia's boom.

While Asian markets remain volatile, the case for investing in the region is intriguing. Based on estimates for 2010, Asian stocks sell for a price-to-earnings ratio of 14, about the same as that of the S&P 500 Index of U.S. shares. For Asia, that's slightly richer than in the past, but the stocks deserve to sell at premiums, argues Frederick Jiang, manager of Ivy Pacific Opportunities (IPOAX).

Jiang figures Asian gross domestic product will grow at a 7% annual rate for the next five years. Corporate earnings tend to increase at double the pace of GDP, so Asian earnings should climb about 15% a year. U.S. GDP may grow only 2% or 3%. "Returns in Asia should be much higher than in the U.S.," Jiang says.

Is Jiang too optimistic? Perhaps. But after suffering only limited damage from the global downturn, Asia seems to be powering ahead. Helped by a government stimulus, retail sales are climbing at double-digit rates in China. Auto sales are soaring in Indonesia, Korea and Taiwan. While banks in the U.S. struggle with toxic loans, Asian lenders remain on sound footing. Loan volume is climbing in China, encouraging sales of cars and consumer goods.
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