Pitfalls, Perils and Possibilities of Investing in Asia–A Fund Manager’s Perspective

August 2012

Teresa Kong, CFA and Portfolio Manager at Matthews International Capital Management, spoke to a full house at the jointly sponsored FWA and Federal Reserve
Bank of San Francisco event on May 15th. Teresa’s
talk highlighted the differences between the U.S. and China’s interpretation and implementation of international accounting, and corporate and securities laws.

Much has been written about the property market
in China. For example, Teresa provided insight on
the complexity of land rights jurisdiction among
the various levels of the Chinese government. Government owned land creates ambiguity in China’s other industries such as natural resources and media wherein investors often own assets through offshore entities known as “variable interest entities” (VIEs).The VIE holds only the servicing contracts of the actual asset, thereby leaving investors with little recourse when something goes wrong..

Yet, investment opportunities do exist
in China. In fact, default and recovery rates in China are similar to those of U.S. high yield bonds. Weighing the risks and rewards of investing n China is complicated – but if an investor does significant research and asks the right questions, there are plenty of possibilities.

A video of Teresa’s remarks and a PDF of her presentation are available here: http://www.frbsf.org/ banking/asiaprogram/events/2012/0515/agenda.html

—Contributed by Erin McCune