Why Asia

First Asia

Investor

Our investment thesis for Asia is founded upon a single principle: we believe Asia will continue to be the world's premier growth region. Our belief is derived from four central tenets:

Asia is a large and globally significant market

Asia's economies are on a sustainable, high-growth trajectory

Asia's fundamentals are attractive

Asia is home to many world-class companies

Asia is one of the world's largest regions by any measurement. Nearly one half of the world's population resides in Asia. 24% of the world's economic output is currently produced in Asia.* 17% of the world's total market capitalization is found on Asia's stock exchanges.* Asia is a major global force, and we believe its relative status will only improve.

*Source: MICM and Goldman Sachs

Asia has a remarkable record of high and sustained economic growth. Over the past 20 years, the region has posted an average growth rate of 4.4%, significantly above the world average rate of 3.3%. Asia's expansion has surpassed both the United States and the European Union, with growth rates of 3.2% and 2.3% respectively. As a result, the region's collective economy has attained an absolute size that is on par with the European Union. We believe Asia's strong growth will continue.

¹Compound Average Growth Rate.

Source: MICM, IMF, U.S. Federal Reserve, Asian Development Bank, Goldman Sachs

Since 1960, economists and analysts have consistently noted Asia's sound investment characteristics. The region has been lauded for its high savings rates, its advanced levels of educational attainment, and its collective emphasis on hard work and enterprise. However, despite these positive fundamentals, the region's growth potential was hindered by structural weaknesses. Those weaknesses were the root cause of the recent financial crisis, which led the region into a severe economic downturn.

We believe the crisis is over now, and many of Asia's structural impediments have been removed. The crisis prompted many governments and corporations to address structural problems. As a result, the region's financial markets have shown vast improvements, and we believe the region's investment potential has been further solidified.

Asia's Structural Problems (Pre-Crisis)	Ramifications	Evidence of Reform (Post Crisis)
Local Currencies Artificially Linked to the U.S. Dollar	Declining export competitiveness Rising current account deficits Artificially low cost of capital distorted investment decisions	Free-floating, stable currencies Rising current account surpluses Strong foreign reserve positions
Misallocation of Capital & Investment in Unproductive Sectors	Over-optimistic growth forecasts lead to build-up of excess capacity Aggressive lending by financial sector fueled dubious expansion Governments artificially boosted growth through over-reliance on export industries	New emphasis on decentralized economies Efficient capital markets impose constraints on expansion Economic growth increasingly fueled by domestic consumption
Weak Financial Institutions	Banks focused on growth and market share, not profitability Poor lending practices lead to overexposure to risky sectors Poorly developed capital markets prompted companies to rely on non-transparent sources of funding, i.e. bank loans	Reforms including re-capitalization and management changes Management focus shifted to profitability over growth Better regulation and disclosure Increased foreign bank participation
Poor Corporate Governance & Transparency	Weak regulatory controls fostered environment of poor corporate transparency Management conducted dubious transactions (i.e. off-balance sheet liabilities, high-risk projects, excessive debt) Minority shareholders denied fair representation in company affairs	Regulatory reforms, including quarterly financial disclosures Greater reliance on professional management teams Higher foreign ownership levels

Source: MICM

Asia's companies are the most compelling reason to invest in the region. Asia is a hotbed of entrepreneurial innovation. Recent market reforms and technological innovation have accelerated entrepreneurial growth: 1999 witnessed historic levels of new-company formation. Asia's entrepreneurial drive has given birth to some of the world's most competitive companies, especially in the areas of technology, finance, and retail consumption. In our opinion, many global and international portfolios maintain low weightings in Asia due to the region's perceived status as an emerging market. We have a different view: we believe Asia's companies offer an excellent combination of solid fundamentals and strong growth potential. Like a collection of "hidden jewels," we believe Asia's companies are well-positioned to sparkle over the long run.

Investing in foreign securities may involve certain additional risks, including exchange rate fluctuations, less liquidity, greater volatility and less regulation.

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