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Matthews sets up India fund; 'Dr. Doom' prescribes Asia

By Barbara Kollmeyer, MarketWatch
Last Update: 12:03 AM ET Nov 9, 2005
LOS ANGELES (MarketWatch) -- The lure of India has drawn one of the best-known mutual-fund families investing in emerging Asia.

Matthews International Capital Management added the Matthews India Fund (MINDX: news) last month to its roster of seven no-load funds focused on Asian investments. The new fund is one of the few offering U.S. investors a direct route to this rapidly growing market.

The fact that Indian stocks have been on a strong multi-year run - the Bombay Stock Exchange's benchmark Sensex 30 Index almost doubled from May 2004 until it started to sell off in early October -- didn't play a part in the firm's decision to introduce an India fund, said Andrew Foster, lead portfolio manager of the new Matthews offering.

"We've been looking at this market for a long time, over five years," Foster said. "We've convinced ourselves that it has covered enough ground in terms of reforms it has undertaken, which began over a decade and a half ago." He praised the "breadth, depth and quality" of the Indian market.

Still, Foster added, investors need to be aware of India's potential for unpredictable price swings.

"It's very much for someone looking for dedicated exposure and participation in this market, but also has the stomach to sit out some of the volatility that may characterize the market going forward, and also has an appropriate time horizon in which to invest," Foster said of his fund.

Foster declined to discuss the stocks and sectors that form the new portfolio. The fund's prospectus said it will invest in Indian companies that derive at least 50% of revenue or profit from assets located in India, or have primary trading markets for their securities in India, or are government entities, states or provinces of India.

Targeting those opportunities is a work in progress, however, as India's market matures.

"We're trying to participate in the growth of these economies' living standards and rising income levels," Foster said. "Companies which we'd like to hold may not be yet listed."

Matthews India is hardly crowding the field. Eaton Vance Greater India (ETGIX: news), also a no-load fund, is about the only alternative for U.S. fund investors looking for a pure play on India.

But India's volatility is clear: The Eaton Vance fund rose 25% so far this year through Monday, following a gain of 18% in 2004 and a 114% surge in 2003, according to investment research fund Morningstar Inc.

Bill Rocco, a senior fund analyst at Morningstar, said few investors really need a fund that invests solely in Indian stocks -- or a single-country emerging market fund at all, for that matter.

"My concern is that because India's trendy, people would go and try to rush into this without understanding the risk -- without understanding that India has been hot for the last several years but might not be hot for the next few years," he said.

"Where a single country market fund makes sense," Rocco added, "is for a sophisticated investor who already has a well-rounded portfolio, who has a belief and interest in the confidence in the markets."

A better way for most investors to gain exposure to India and other developing Asian markets, Rocco said, would be through a regional fund, such as Matthews Pacific Tiger Fund (MAPTX: news) or a diversified emerging market portfolio, like Oppenheimer Developing Markets Fund (ODMAX: news).

"All that said, Matthews is the best Asia shop and without a doubt, good at what they do," Rocco noted,
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