The volatility of China's sharemarket may drive Australian investors from the Asian region despite the opportunities, says one of Australia's most astute investors.
But Paul Moore, founder of PM Capital, a Sydney boutique fund manager, says Asia is host to the biggest growth story in the history of civilisation and that Asia is much more than just China.
During the meltdown in Chinese shares in the middle of last year, Chinese authorities placed controls to stop panic selling.
That backfired and Chinese share prices have fallen about 40 per cent.
PM Capital is finding good opportunities in companies in the rest of Asia that cater for the rising tide of local consumption.
Kevin Bertoli, who runs PM Capital's Asian shares portfolio, says the Asian middle class, which was estimated at 525 million people in 2009, is forecast to grow to 3228 million by 2030.
That is a six-fold increase in less than one generation.
Across North America and Europe, middle-class growth is slow, stagnant or going backwards depending on whose data you follow.
PM Capital's Asian funds are focused on online classified advertising, ecommerce, gaming, consumer, infrastructure and technology companies. They buy Chinese shares listed in Hong Kong, as well as companies listed throughout Asia.
The investment philosophy, though hard to apply with success, is simple to state. It is to buy good companies at value prices and hold those businesses over a reasonable period, usually three to five years.
Two of PM Capital's Asian investments have paid off particularly well.
The fund manager sold its shares in Malaysian-listed Jobstreet after a share price gain of 187 per cent. JobStreet.com has employment websites throughout south-east Asia.
PM Capital sold its shares in iProperty Group after a gain of 466 per cent.
Headquartered in Malaysia, iProperty owns real estate websites in south-east Asia, Hong Kong and India. The Australian-listed company was bought recently by REA Group.
Moore is a bold investor. He did well for investors in the Global Companies Fund, when, starting in 2010, he played the recovery in US house prices.
He invested in the lenders and property developers with exposure to house prices in Las Vegas, the epicentre of the house price crash in the US.
Property prices there have recovered somewhat and Moore went on to repeat the strategy in Ireland and Spain, where the recovery in real estate prices has a long way to go.
PM Capital's investment style means the returns of its funds can differ significantly from the returns of the markets in which the funds invest.
Most DIY super fund trustees have a strong bias to Australian shares. Asian shares may be a good diversifier – though investors have to understand that Asian sharemarkets can be volatile.
Moore says there is the higher risk of corruption in Asia, which does not have the same regulatory standards as fully developed markets.
Portfolio diversification is always a good idea, but in developing markets it is even more important. That is one of the benefits of investing through a managed investment.
Twitter: @jcollett_money
