One Guy's Investments

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Thursday, August 09, 2007 -- Subscribe free

Closing some Asian positions

Just a quick note that I'm closing my positions in a couple of Asian funds -- I've liquidated my holdings in the Morgan Stanley China A Shares Fund (CAF), and in the South Korean iShares Index (EWY).

CAF I bought because the pessimism over the domestic China market was overwrought, and the discount was too steep. Since then, the shares have gone up about 45%, and the discount has closed to about 11-12% depending on the price you use. I'm willing to sell here, since this was intended to be a short term trade to take advantage of what seemed to me to be too much pessimism. I agree with most people who believe that the A shares market is bound to correct significantly at some point, though I expect it will be later than anyone thinks right now (I can't see the shares really correcting until Chinese residents get permission to invest elsewhere). Still, I wanted a short term gain and got it, so I've sold.

EWY I bought a long time ago, because at the time Korea was nearly on par with the developed world in terms of the sophistication of its best companies and the stability of its economy, but it was being priced at fire sale levels. It was an easy way to buy into Samsung, Posco, a few Korean banks and shipbuilders, and Hyundai, all companies I thought would do well.

Well, with the exception perhaps of Samsung in very recent times that has come true -- and Korea is not a bargain anymore. It's probably still a decent investment, especially as a way to play one of the stronger economies that's likely to benefit from Chinese consumption (I like Korea for that more than Japan), but I'm no longer quite as enamored of the huge Korean megacaps as I was a couple years ago. They've been recognized, they're not cheap anymore, and since this index is essentially a play on the top ten Korean companies I'm going to take my 100%+ gain on this one and go home.

I continue to have pretty heavy exposure to Asia in my portfolio -- Naspers, Swire Pacific, The China Fund, the India iShares ETN, and Keppel Corp., along with options on NetEase, Gigamedia, Huaneng Power, Home Inns, CDC, and Satyam. But in these two cases, I have seen returns that exceeded my expectations and I think the risk/reward ratio has shifted out of my favor. Time will tell if I'm right, but sometimes it's comforting to hold a little cash in hand.

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