American mutual funds investing in non-Japan Asian stocks enjoyed robust returns in the second half of last year. Yet while the United States' top fund managers say they like the region's long-term growth prospects, they believe these bubbly markets may be ripe for a mid-cycle correction this year.
'The sweet spot for emerging markets is when [interest] rates come down,' says Brad Durham, managing director of Boston-based EmergingPortfolio.com Fund Research, a company that tracks fund flow data from 5,000 international, emerging market and US funds.
But as central banks raise interest rates, he warns, emerging markets 'tend to trail off'.
Non-Japan Asian stock funds have had a good ride so far. According to Standard & Poor's Corp, the average stock fund investing in non-Japan Asia gained 53.55 per cent over the last five-year period, to December 29. That is a significantly better gain than the average stock fund investing in US assets, which posted a 3.72 per cent return over the same period.
Over the past three-year period, non-Japan Asian stock funds gained 21.32 per cent, while, on average, US stock funds lost 2.87 per cent. On a one-year basis, the average non-Japan Asian stock fund gained 43.24 per cent.
A nascent global macroeconomic recovery, higher exports, intraregional trade and domestic consumption growth have driven the region's buoyant returns.