NEW YORK (TheStreet) -- India's attractiveness has dimmed, Korea is as important as China and Australia isn't to be forgotten among emerging-market countries, says Graham Muirhead, manager of the Nomura Partners Asia Pacific Ex-Japan Fund (NPAAX) .
Even if China's demand for Australian commodities weakens, the rest of the developing world will pick up the slack, he says. The fund manager had 18% of assets in India at the end of the third quarter, 13% in China, 12% in Korea, a bit less than that in Australia and 9.7% in Indonesia.
The Nomura Partners Asia Pacific Ex-Japan Fund has returned 23% over the past year, better than 60% of its
The fund's top-10 holdings shape up like this:
Dongfeng Motor Group
Larsen & Toubro
Hengan International Group
, 2.8%; and
Welcome to TheStreet.com's Fund Manager Five Spot, where America's top mutual fund managers give their best stock picks and views on the market in a five-question format.
One concentrated theme in your portfolio is Australian miners like BHP Billiton. What happens to these companies if Chinese demand decreases?
About 18% of the portfolio is in Australian resource stocks at the moment. China may slow slightly but other countries like India, Indonesia and the Philippines are showing increasing demand for commodities as they growth their infrastructure. Additionally, we are becoming more positive about global growth, particularly U.S. and Europe. That would be an additional demand for commodities that would keep prices high.
One of the big problems in the global economy is that Chinese consumers are tempering buying. It is too much of an export-dominated country? And might that change in the coming years?
Not only the Chinese government but other Asian governments realize that the mercantilist model of development has a "use-by" date. And now they are implementing policies to try and redirect growth toward domestic demand and infrastructure expenditure. In China, for example, they are increasing minimum wages substantially, 18% to 20% per annum. And they are looking to introduce better universal health care and pension funds, so Chinese will be able to save less for their old age or their health and spend more.
It was a tough year in the stock market for India last year. What is your theme for India and do you expect to change it?
We have been reducing our exposure to India. In the long term we like India. There are a lot of very well-run companies with very good management. Our theme of domestic consumption plays well in India because they have over a billion people and anybody who has been to India knows there is a desperate need to spend money on infrastructure. But in the short term, there are issues with inflation, and corporate profits are starting to come up against those infrastructure restraints. So, long term, we like it but, in the short term, we are finding other opportunities.
A lot of people are saying that Indonesia should be added to the so-called BRIC countries. Would you agree?
Indonesia is an interesting market for us. We do have a good position there. It's a country with a lot of resources like food, oil and copper. And it is normalizing as a country. We are finding a lot of opportunities there in the resources sector in areas like coal and cement.
Korea has been known as one of the leaders of the "Asian tigers." Most of your investments are in two companies, Samsung and Hyundai. What are they doing right?
These big conglomerates had a model for development, which was to grow their market share by offering good-quality products at low prices. That was great for their sales, but not good for minority shareholders. They are now at the stage where their market share has grown and they have a perception, or brand awareness, of quality. At the same time, these companies have grown their market share so much, they can raise their prices and, as a result, profitability is growing very strongly.
-- Reported by Gregg Greenberg in New York.
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