A Singular Focus on Investing in Asia - Matthews Asia

A Singular Focus on Investing in Asia - Matthews Asia

A Singular Focus on Investing in Asia - Matthews Asia


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A <str<strong>on</strong>g>S<strong>in</strong>gular</str<strong>on</strong>g> <str<strong>on</strong>g>Focus</str<strong>on</strong>g> <strong>on</strong><br />

<strong>Invest<strong>in</strong>g</strong> <strong>in</strong> <strong>Asia</strong>

S<strong>in</strong>ce 1991, the year <strong>Matthews</strong><br />

<strong>Asia</strong> was founded, <strong>Asia</strong>’s ec<strong>on</strong>omic<br />

growth has outpaced that of<br />

the rest of the world. A s<strong>in</strong>gular<br />

focus <strong>on</strong> <strong>Asia</strong>– and help<strong>in</strong>g<br />

<strong>in</strong>vestors share <strong>in</strong> that growth–<br />

is what dist<strong>in</strong>guishes us am<strong>on</strong>g<br />

<strong>in</strong>vestment managers.

Our missi<strong>on</strong> is to deliver soluti<strong>on</strong>s<br />

for global <strong>in</strong>vestors to participate<br />

<strong>in</strong> the <strong>Asia</strong>n opportunity.<br />

C<strong>on</strong>sider a few eye-open<strong>in</strong>g statistics:<br />

• In 2009, Ch<strong>in</strong>a surpassed the U.S. <strong>in</strong> auto sales, and by 2011<br />

had 100 milli<strong>on</strong> passenger cars<br />

• South Korea leads the world <strong>in</strong> broadband access, with<br />

more than 80% of households hav<strong>in</strong>g a c<strong>on</strong>necti<strong>on</strong><br />

• <strong>Asia</strong> has the largest community of people <strong>on</strong>l<strong>in</strong>e by total<br />

number of Internet users<br />

• In 1990, there were just two nati<strong>on</strong>ally broadcast televisi<strong>on</strong><br />

channels <strong>in</strong> India. Today, there are several hundred<br />

These surpris<strong>in</strong>g facts are mere glimpses <strong>in</strong>to a much larger<br />

story: <strong>Asia</strong>’s extraord<strong>in</strong>ary pace of change, modernizati<strong>on</strong> and<br />

ec<strong>on</strong>omic growth over the past 20 years. Ris<strong>in</strong>g pers<strong>on</strong>al wealth<br />

and c<strong>on</strong>sumpti<strong>on</strong>, comb<strong>in</strong>ed with gradual ec<strong>on</strong>omic liberalizati<strong>on</strong><br />

and the spread of technology, have transformed <strong>Asia</strong>’s<br />

markets. Today, <strong>Asia</strong> stands poised to become the dom<strong>in</strong>ant<br />

eng<strong>in</strong>e of global ec<strong>on</strong>omic growth.<br />

<strong>Matthews</strong> has watched this story unfold firsthand. S<strong>in</strong>ce 1991,<br />

we have provided <strong>in</strong>vestors with strategies for tapp<strong>in</strong>g <strong>in</strong>to the<br />

regi<strong>on</strong>’s excepti<strong>on</strong>al growth. Today, our <strong>Asia</strong> <strong>in</strong>vestment soluti<strong>on</strong>s<br />

are available to <strong>in</strong>vestors around the world.<br />

Below: Pud<strong>on</strong>g District, Shanghai, Ch<strong>in</strong>a<br />

matthewsasia.com 1

<strong>Matthews</strong> was founded <strong>on</strong> the<br />

c<strong>on</strong>victi<strong>on</strong> that <strong>Asia</strong>’s growth would<br />

outpace the rest of the world, and<br />

that a specialized focus was the<br />

best way to participate.<br />

When Paul <strong>Matthews</strong> first visited <strong>Asia</strong> <strong>in</strong> 1978, most countries<br />

were closed to foreign <strong>in</strong>vestment. And, with the excepti<strong>on</strong>s<br />

of H<strong>on</strong>g K<strong>on</strong>g, S<strong>in</strong>gapore and Japan, most were poor. However,<br />

work<strong>in</strong>g <strong>in</strong> the regi<strong>on</strong> over several years and witness<strong>in</strong>g its<br />

transformati<strong>on</strong>, Paul developed the c<strong>on</strong>victi<strong>on</strong> that <strong>Asia</strong>’s<br />

growth was likely to outpace that of the rest of the world.<br />

In 1991, Paul founded <strong>Matthews</strong> and, over time, the firm attracted<br />

a team of people who shared his c<strong>on</strong>victi<strong>on</strong>. Notwithstand<strong>in</strong>g<br />

the occasi<strong>on</strong>al setback—and a full-blown currency crisis <strong>in</strong><br />

1997—history has largely borne that c<strong>on</strong>victi<strong>on</strong> out.<br />

<strong>Asia</strong> is an <strong>in</strong>tricate and evolv<strong>in</strong>g regi<strong>on</strong>, requir<strong>in</strong>g careful<br />

analysis and specialized knowledge to identify the companies<br />

and issues that stand to benefit from the changes tak<strong>in</strong>g place.<br />

We believe that by focus<strong>in</strong>g entirely <strong>on</strong> opportunities <strong>in</strong> <strong>Asia</strong>,<br />

and adher<strong>in</strong>g to an <strong>in</strong>vestment philosophy that has been tested<br />

over 20 years, we offer <strong>in</strong>vestors a proven pathway <strong>in</strong>to this<br />

dynamic market.<br />

Above: The Taj Mahal, India<br />

2 <strong>Matthews</strong> <strong>Asia</strong>

Our Belief: Capitaliz<strong>in</strong>g <strong>on</strong><br />

the <strong>Asia</strong>n opportunity requires<br />

a l<strong>on</strong>g-term perspective.<br />

To capitalize <strong>on</strong> <strong>Asia</strong>’s potential, <strong>Matthews</strong> takes a l<strong>on</strong>g-term<br />

approach. Rather than seek<strong>in</strong>g results from hot trends or<br />

opportunistic trad<strong>in</strong>g, our portfolio teams adopt a multi-year<br />

view that requires patience and c<strong>on</strong>fidence, grounded <strong>in</strong><br />

relentless research.<br />

We believe that a l<strong>on</strong>g-term outlook helps <strong>in</strong>vestors better<br />

understand and withstand the regi<strong>on</strong>’s <strong>in</strong>herent volatility.<br />

Most <strong>Asia</strong>n countries are subject to the political, social and<br />

ec<strong>on</strong>omic uncerta<strong>in</strong>ties that characterize emerg<strong>in</strong>g markets.<br />

In many places, the <strong>in</strong>stituti<strong>on</strong>s required for orderly, efficient<br />

and transparent markets are still develop<strong>in</strong>g. With our l<strong>on</strong>g<br />

experience <strong>in</strong> navigat<strong>in</strong>g this chang<strong>in</strong>g landscape, we believe<br />

that <strong>in</strong>vestors who can rema<strong>in</strong> <strong>in</strong>vested through the <strong>in</strong>evitable<br />

difficult markets are likely to benefit from <strong>Asia</strong>’s growth over<br />

the l<strong>on</strong>g term.<br />

Above: Peacock alcove at the Taj Mahal, India<br />

matthewsasia.com 3

Identify<strong>in</strong>g <strong>in</strong>vestment opportunities<br />

that stand to prosper from <strong>Asia</strong>’s<br />

transformati<strong>on</strong> calls for <strong>in</strong>-depth,<br />

<strong>on</strong>-the-ground, bottom-up research<br />

and active management.<br />

<strong>Invest<strong>in</strong>g</strong> <strong>in</strong> <strong>Asia</strong> is about look<strong>in</strong>g forward. However, we<br />

believe that many of the <strong>in</strong>dices comm<strong>on</strong>ly used as proxies<br />

for <strong>Asia</strong>n exposure are backward-look<strong>in</strong>g, reflect<strong>in</strong>g a bias<br />

toward companies or sectors that have performed well <strong>in</strong> the<br />

past. With respect to the regi<strong>on</strong>’s debt <strong>in</strong>dices, we believe they<br />

are representative of the most <strong>in</strong>debted countries as opposed<br />

to the most creditworthy.<br />

Identify<strong>in</strong>g <strong>in</strong>vestment opportunities whose potential has yet<br />

to be fully recognized by the market requires a research-driven,<br />

bottom-up approach, mean<strong>in</strong>g <strong>on</strong>e that puts <strong>in</strong>dividual<br />

companies and issuers and their fundamentals ahead of<br />

regi<strong>on</strong>al or country trends <strong>in</strong> the decisi<strong>on</strong>-mak<strong>in</strong>g process.<br />

And realiz<strong>in</strong>g their potential calls for active portfolio<br />

management, rather than a passive <strong>in</strong>dex-based approach.<br />

Above: Tokyo skyl<strong>in</strong>e fram<strong>in</strong>g Mount Fuji<br />

4 <strong>Matthews</strong> <strong>Asia</strong>

Take a closer look at <strong>Matthews</strong>’<br />

equity <strong>in</strong>vestment process.<br />

Idea Generati<strong>on</strong><br />

Investment ideas beg<strong>in</strong> with our collective experience <strong>in</strong> <strong>Asia</strong> and<br />

knowledge of emerg<strong>in</strong>g developments that will have a structural<br />

impact <strong>on</strong> <strong>Asia</strong>’s ec<strong>on</strong>omies, <strong>in</strong>clud<strong>in</strong>g:<br />

• The growth of pers<strong>on</strong>al <strong>in</strong>come and its impact <strong>on</strong><br />

domestic spend<strong>in</strong>g power<br />

• The evoluti<strong>on</strong> of f<strong>in</strong>ancial markets, <strong>in</strong>clud<strong>in</strong>g credit<br />

and bank<strong>in</strong>g<br />

• Improv<strong>in</strong>g standards of corporate governance<br />

and transparency<br />

• The adopti<strong>on</strong> of technology, lead<strong>in</strong>g to further<br />

<strong>in</strong>novati<strong>on</strong> and productivity<br />

• Demographic changes throughout the regi<strong>on</strong><br />

• Political reforms and ec<strong>on</strong>omic deregulati<strong>on</strong><br />

Aga<strong>in</strong>st the backdrop of these and other macro developments,<br />

we are able to narrow <strong>in</strong> <strong>on</strong> bus<strong>in</strong>esses that stand to benefit<br />

from the regi<strong>on</strong>’s evoluti<strong>on</strong>.<br />

Above: Sh<strong>in</strong>juku District, Tokyo, Japan<br />

matthewsasia.com 5

Fundamental Research & Due Diligence<br />

In evaluat<strong>in</strong>g a prospective portfolio company, we look for<br />

str<strong>on</strong>g <strong>in</strong>dicators of survivability and susta<strong>in</strong>ability. We seek<br />

solid companies with sound fundamentals, str<strong>on</strong>g balance<br />

sheets, viable bus<strong>in</strong>ess models and the ability to ma<strong>in</strong>ta<strong>in</strong><br />

reas<strong>on</strong>able growth rates over the l<strong>on</strong>g term.<br />

We also seek competent management with a credible strategy<br />

and the ability to execute. C<strong>on</strong>sistent with our multi-year<br />

orientati<strong>on</strong>, we assess the value of the bus<strong>in</strong>ess as a whole,<br />

look<strong>in</strong>g through the lens of future growth potential. Attractive<br />

valuati<strong>on</strong>s grounded <strong>in</strong> realistic future expectati<strong>on</strong>s are a must.<br />

Each of our <strong>in</strong>vestment professi<strong>on</strong>als travels regularly <strong>in</strong> <strong>Asia</strong><br />

for research. A typical visit might entail meet<strong>in</strong>g with up to<br />

50 companies over a two-week stretch, and take us bey<strong>on</strong>d the<br />

big cities to remote <strong>in</strong>land reaches. We also host representatives<br />

from <strong>Asia</strong>n companies regularly at our offices <strong>in</strong> San Francisco.<br />

This adds up to more than 1,800 company visits annually.<br />

Face-to-face meet<strong>in</strong>gs are critical not <strong>on</strong>ly <strong>in</strong> the evaluati<strong>on</strong><br />

of <strong>in</strong>dividual companies, but <strong>in</strong> keep<strong>in</strong>g a f<strong>in</strong>ger <strong>on</strong> the pulse of<br />

the market as a whole.<br />

Below: Grand Palace, Bangkok, Thailand<br />

6 <strong>Matthews</strong> <strong>Asia</strong>

C<strong>on</strong>victi<strong>on</strong><br />

Once we make an <strong>in</strong>vestment decisi<strong>on</strong>, we will often <strong>in</strong>itiate a<br />

small positi<strong>on</strong>, buy<strong>in</strong>g more as we grow <strong>in</strong>creas<strong>in</strong>gly c<strong>on</strong>v<strong>in</strong>ced<br />

of management’s ability to meet bus<strong>in</strong>ess targets and milest<strong>on</strong>es.<br />

Because survivability is critical to our l<strong>on</strong>g-term approach, we<br />

c<strong>on</strong>t<strong>in</strong>ually revisit our thesis, debat<strong>in</strong>g the merits of c<strong>on</strong>t<strong>in</strong>ued<br />

ownership <strong>in</strong> weekly team meet<strong>in</strong>gs, and ma<strong>in</strong>ta<strong>in</strong><strong>in</strong>g positi<strong>on</strong>s<br />

<strong>on</strong>ly when our c<strong>on</strong>victi<strong>on</strong> level rema<strong>in</strong>s high.<br />

Portfolio C<strong>on</strong>structi<strong>on</strong><br />

In c<strong>on</strong>struct<strong>in</strong>g our portfolios, we look across a broad universe<br />

for companies that meet our str<strong>in</strong>gent criteria. We are particularly<br />

focused <strong>on</strong> uncover<strong>in</strong>g smaller-cap and smaller-market<br />

opportunities for diversificati<strong>on</strong> and growth potential. As a result<br />

of our bottom-up stock selecti<strong>on</strong> and active management style,<br />

the compositi<strong>on</strong> of our portfolios tends to be very different than<br />

that of the regi<strong>on</strong>’s benchmarks.<br />

Portfolio Risk Management & Sell Discipl<strong>in</strong>e<br />

We c<strong>on</strong>t<strong>in</strong>ually m<strong>on</strong>itor a variety of risks with<strong>in</strong> each portfolio,<br />

at both the security and macro levels. Bus<strong>in</strong>ess risk is the most<br />

important risk merit<strong>in</strong>g attenti<strong>on</strong> throughout our <strong>in</strong>vestment<br />

process. If significant c<strong>on</strong>cerns arise, we will re-exam<strong>in</strong>e the<br />

affected hold<strong>in</strong>gs. And we will revisit a current positi<strong>on</strong> when a<br />

new idea offers a more compell<strong>in</strong>g risk/return trade-off.<br />

Below: Golden garudas at the Grand Palace, Bangkok, Thailand<br />

matthewsasia.com 7

<strong>Matthews</strong>’ open work<br />

envir<strong>on</strong>ment reflects our firm<br />

culture: collaborative, diverse<br />

and well-<strong>in</strong>formed.<br />

We have assembled a deep and diverse team with a range of<br />

perspectives and expertise. Each of our professi<strong>on</strong>als c<strong>on</strong>tributes<br />

a unique viewpo<strong>in</strong>t drawn from pers<strong>on</strong>al experience, yet<br />

together we are united by our shared belief <strong>in</strong> <strong>Asia</strong>’s l<strong>on</strong>g-term<br />

growth potential.<br />

Most of our professi<strong>on</strong>als have lived, studied or traveled<br />

extensively throughout <strong>Asia</strong> Pacific. They are c<strong>on</strong>versant <strong>in</strong><br />

local languages and dialects, <strong>in</strong>clud<strong>in</strong>g Mandar<strong>in</strong> and<br />

Cant<strong>on</strong>ese, Japanese, Korean, Vietnamese, H<strong>in</strong>di, Punjabi,<br />

Bengali and S<strong>in</strong>halese.<br />

We made a strategic decisi<strong>on</strong> to base our headquarters and<br />

<strong>in</strong>vestment team <strong>in</strong> San Francisco rather than <strong>in</strong> <strong>Asia</strong>. Our<br />

Pacific Coast locati<strong>on</strong> allows us to follow <strong>Asia</strong> closely while<br />

ma<strong>in</strong>ta<strong>in</strong><strong>in</strong>g objectivity and a global perspective.<br />

We have chosen to rema<strong>in</strong> an <strong>in</strong>dependent firm with significant<br />

employee ownership, which we believe best aligns our <strong>in</strong>terests<br />

with those of our clients. We have also placed our clients’ needs<br />

at the forefr<strong>on</strong>t by c<strong>on</strong>t<strong>in</strong>uously scal<strong>in</strong>g our resources to levels<br />

that align with the firm’s growth.<br />

Below: Green tea fields, Bose<strong>on</strong>g, Korea<br />

8 <strong>Matthews</strong> <strong>Asia</strong>

For <strong>in</strong>vestors who seek<br />

diversificati<strong>on</strong>, growth potential<br />

and <strong>in</strong>come opportunities, we<br />

offer a range of opti<strong>on</strong>s across<br />

the risk/return spectrum.<br />

Serv<strong>in</strong>g both <strong>in</strong>dividual and <strong>in</strong>stituti<strong>on</strong>al <strong>in</strong>vestors globally,<br />

our strategies range from country-specific to pan-regi<strong>on</strong>al<br />

soluti<strong>on</strong>s that provide diverse exposure across sectors, themes<br />

and market capitalizati<strong>on</strong>. They <strong>in</strong>clude both growth- and<br />

<strong>in</strong>come-oriented portfolios. Though <strong>in</strong>vestors often associate<br />

<strong>Asia</strong> with growth <strong>in</strong>vest<strong>in</strong>g, we recognized early that market<br />

forces <strong>in</strong> the regi<strong>on</strong> were becom<strong>in</strong>g more supportive of<br />

dividends, and were am<strong>on</strong>g the first to launch dividendfocused<br />

<strong>Asia</strong> strategies.<br />

We are careful to <strong>in</strong>troduce new strategies <strong>on</strong>ly when we see a<br />

compell<strong>in</strong>g, l<strong>on</strong>g-term <strong>in</strong>vestment opportunity, not merely<br />

when c<strong>on</strong>diti<strong>on</strong>s seem ripe for asset gather<strong>in</strong>g.<br />

Below: Bamboo forest and green tea garden, Damyang, Korea<br />

matthewsasia.com 9

We aim to be <strong>in</strong>vestors’ most<br />

valuable resource for <strong>in</strong>formati<strong>on</strong><br />

<strong>on</strong> <strong>in</strong>vest<strong>in</strong>g <strong>in</strong> <strong>Asia</strong>.<br />

At <strong>Matthews</strong>, we strive to educate and <strong>in</strong>form <strong>in</strong>vestors with<br />

frequent <strong>in</strong>sights and perspectives <strong>on</strong> <strong>in</strong>vest<strong>in</strong>g <strong>in</strong> <strong>Asia</strong>, market<br />

updates and special reports.<br />

The bus<strong>in</strong>ess community frequently turns to us for our views<br />

<strong>on</strong> the regi<strong>on</strong>. Whether the topic is currency c<strong>on</strong>trols, ris<strong>in</strong>g<br />

<strong>in</strong>flati<strong>on</strong> or <strong>on</strong>go<strong>in</strong>g wage hikes <strong>in</strong> Ch<strong>in</strong>a, we are prepared to<br />

provide thoughtful analysis based <strong>on</strong> <strong>in</strong>-depth knowledge<br />

and experience.<br />

Above: H<strong>on</strong>g K<strong>on</strong>g skyl<strong>in</strong>e<br />

10 <strong>Matthews</strong> <strong>Asia</strong>

<strong>Matthews</strong> <strong>Asia</strong>: Stay<strong>in</strong>g the course<br />

<strong>in</strong> <strong>Asia</strong> for 20 years.<br />

Over the years, through all types of market envir<strong>on</strong>ments, we<br />

have stayed committed to our dist<strong>in</strong>ct philosophy for<br />

harness<strong>in</strong>g <strong>Asia</strong>’s growth. The firm’s steady growth has mirrored<br />

the evoluti<strong>on</strong> of <strong>Asia</strong>’s markets. And, while volatility is a way of<br />

life <strong>in</strong> develop<strong>in</strong>g markets, we ma<strong>in</strong>ta<strong>in</strong> our fundamental faith<br />

<strong>in</strong> <strong>Asia</strong>’s l<strong>on</strong>g-term potential. Our unwaver<strong>in</strong>g focus is what<br />

makes <strong>Matthews</strong> unique.<br />

Change creates opportunity, and nowhere has change been so<br />

profound <strong>in</strong> the past 20 years as <strong>in</strong> <strong>Asia</strong>. No <strong>on</strong>e can forecast<br />

<strong>Asia</strong>’s future with certa<strong>in</strong>ty, but with our knowledge, experience<br />

and <strong>in</strong>sights, we will c<strong>on</strong>t<strong>in</strong>ue to seek out susta<strong>in</strong>able opportunities<br />

for <strong>in</strong>vestors created by <strong>Asia</strong>’s <strong>on</strong>go<strong>in</strong>g transformati<strong>on</strong>.<br />

Above: Pavilli<strong>on</strong> of Absolute Perfecti<strong>on</strong> <strong>in</strong> the Nan Lian Garden, H<strong>on</strong>g K<strong>on</strong>g<br />

matthewsasia.com 11

The subject matter c<strong>on</strong>ta<strong>in</strong>ed here<strong>in</strong> has been derived from several sources<br />

believed to be reliable and accurate at the time of compilati<strong>on</strong>. <strong>Matthews</strong><br />

Internati<strong>on</strong>al Capital Management, LLC does not accept any liability for<br />

losses either direct or c<strong>on</strong>sequential caused by the use of this <strong>in</strong>formati<strong>on</strong>.<br />

You should carefully c<strong>on</strong>sider the <strong>in</strong>vestment objectives, risks, charges and<br />

expenses of the <strong>Matthews</strong> <strong>Asia</strong> Funds before mak<strong>in</strong>g an <strong>in</strong>vestment decisi<strong>on</strong>.<br />

A prospectus with this and other <strong>in</strong>formati<strong>on</strong> about the Funds may be obta<strong>in</strong>ed<br />

by call<strong>in</strong>g +1 (415) 954-4510, or visit<strong>in</strong>g matthewsasia.com. Please read the<br />

prospectus carefully before <strong>in</strong>vest<strong>in</strong>g as it expla<strong>in</strong>s the risks associated with<br />

<strong>in</strong>vest<strong>in</strong>g <strong>in</strong> <strong>in</strong>ternati<strong>on</strong>al markets.<br />

An <strong>in</strong>vestment <strong>in</strong> the <strong>Matthews</strong> <strong>Asia</strong> Funds is not available to <strong>in</strong>vestors <strong>in</strong><br />

all jurisdicti<strong>on</strong>s. This document does not c<strong>on</strong>stitute an offer to sell or a<br />

solicitati<strong>on</strong> of any offer to buy the <strong>Matthews</strong> <strong>Asia</strong> Funds <strong>in</strong> any jurisdicti<strong>on</strong>s<br />

<strong>in</strong> which such an offer or solicitati<strong>on</strong> is not lawful. No representati<strong>on</strong> is<br />

given that shares, products or services menti<strong>on</strong>ed here<strong>in</strong> are suitable for<br />

any particular <strong>in</strong>vestor.<br />

No part of this document may be reproduced <strong>in</strong> any form, or referred to <strong>in</strong><br />

any other publicati<strong>on</strong>, without express written permissi<strong>on</strong> of <strong>Matthews</strong><br />

Internati<strong>on</strong>al Capital Management, LLC.<br />

© 2012 <strong>Matthews</strong> Internati<strong>on</strong>al Capital Management, LLC BR007_Global


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