Morningstar Advisor - October/November 2009 - 52

Morningstar Conversation The missing link in Asia Pacific has been deep and robust bond markets to efficiently and transparently finance long-term infrastructure projects. The bond market is one of the important developments that people need to pay attention to over the next five and 10 years. Andrew Foster overheat or has other problems, what will be the ramifications on the emerging markets? My second concern is inflation ticking back up, but I don’t see that happening for quite awhile. Divecha: I agree. I also worry about another downturn, which is not out of the question. But I worry mainly about protectionism coming out of the developed markets. It could be catastrophic both for developed markets and emerging markets, but the impact on emerging markets would be worse, certainly in the short term. Foster: Another concern—related to your point, Johnson: A large part of the resource bases and the wealth in emerging markets are still controlled by governments. Almost every emerging oil company you can think of, excluding Lukoil LUKOY, is state-controlled. Wealth-creation in emerging markets is moving toward the economies that are less democratic, making it inevitable that there’s going to be more political interference. Sometimes, the political intervention, as in China’s case, has been massively supportive. They didn’t save the world, but they certainly saved China and a good bit of the emerging market. The other thing that has become more apparent is that political risk or political intervention is sometimes asymmetric. When inflation is falling and economies are good and there’s no social strain, governments tend to stay out of the equation. But when inflation is on the rise and there were food shortages, the policy response of governments became much more Draconian. To some degree, it is warranted, but my point is that the political interference ebbs and flows. Dutta: What about some of the positives? What are some of the opportunities that you’re seeing? Divecha: We are primarily value managers, so that times of crisis present the best opportunities to pick up stuff that’s cheap. As I like to say, you make more money when things go from truly awful to merely bad than when they go from good to great. Foster: We’re following the same premise that we followed before the downturn. We look for areas, markets, and economies that are not well represented in the benchmark indexes or in the capital markets, but that are substantial in the underlying economy and are continuing to grow. To illustrate, about a decade ago, China in Morgan Stanley Capital International’s Far East Asia benchmark had about a 1% weighting. Taiwan has a little over a 20% weighting. The reason for it was that even though China was large and growing rapidly, it didn’t have a whole lot of capitalization associated with it and it was very difficult to access. Taiwan was much easier to do. This might have seemed logical at the time, but it was entirely the wrong premise on which to invest for the next decade. Arjun—is that some of emerging-markets countries that have recently opened up their economies will backslide in their efforts. I think there’s a danger that all of the questions overhanging free-market capitalism will cause officials in these countries to turn away from open-market models. I’m also still concerned about good, old-fashioned political risk. I think that Pakistan is one of the scarier places on Earth in terms of the stability of the government and the fact that it has a nuclear arsenal. I worry that the relations with India could deteriorate and cause greater strife in the region. Likewise, there appears to be a transition in power under way in North Korea, and I worry about that as well. Political risk is something that people don’t talk about much anymore because it’s hard to measure. But it’s a serious source of risk. we look for stuff that’s cheap. The countries that are cheap to us right now are Korea, Turkey, Thailand, and Russia. Korea has links to the rest of the world, but the other ones clearly have turbulent economies. But we think Today, what is underrepresented are some of the key growth drivers of the economy. Health care, for example, gets about a half percent weighting in emerging Asia benchmarks. It’s a relatively small industry and it’s difficult to access, but it’s very difficult for me to believe that given the amount of investment that’s going into health care and its burgeoning demand that it isn’t going to be a very substantial market in a decade’s time. These kinds of portions of the market that are underrepresented are very attractive to us. 52 Morningstar Advisor October/November 2009

Morningstar Advisor - October/November 2009

Table of Contents for the Digital Edition of Morningstar Advisor - October/November 2009

Morningstar Advisor - October/November 2009
Contents
New on MorningstarAdvisor.com
Letter from the Editor
Contributors
How Do You Use Behavioral Finance in Your Practice?
Investing in the Moment
Investment Briefs
How the Best Large-Cap Managers Rise Above the Rest
Don’t Give Up on Stocks Just Yet
Makeup of the Mind
A Top-Down Approach
In Practice: Patterns of Investor Irrationality
A Call for Nudges
The Furious Comeback of Emerging Markets
Junk-Bond Pioneer
Four Picks for the Present
Consumer Staples Hold Up in the Kitchen
Familiarity Can Breed Bad Investment Decisions
Leave the ‘Junk Rally’ Behind and Look for Quality at a Reasonable Price
Mutual Fund Analyst Picks
50 Most Popular Equity ETFs
Undervalued Stocks
New at Morningstar
Meet the New Boss, Same (School) as the Old Boss
Morningstar Advisor - October/November 2009 - Morningstar Advisor - October/November 2009
Morningstar Advisor - October/November 2009 - Cover2
Morningstar Advisor - October/November 2009 - 1
Morningstar Advisor - October/November 2009 - 2
Morningstar Advisor - October/November 2009 - Contents
Morningstar Advisor - October/November 2009 - 4
Morningstar Advisor - October/November 2009 - 5
Morningstar Advisor - October/November 2009 - New on MorningstarAdvisor.com
Morningstar Advisor - October/November 2009 - 7
Morningstar Advisor - October/November 2009 - 8
Morningstar Advisor - October/November 2009 - Letter from the Editor
Morningstar Advisor - October/November 2009 - Contributors
Morningstar Advisor - October/November 2009 - 11
Morningstar Advisor - October/November 2009 - How Do You Use Behavioral Finance in Your Practice?
Morningstar Advisor - October/November 2009 - 13
Morningstar Advisor - October/November 2009 - 14
Morningstar Advisor - October/November 2009 - Investing in the Moment
Morningstar Advisor - October/November 2009 - 16
Morningstar Advisor - October/November 2009 - 17
Morningstar Advisor - October/November 2009 - 18
Morningstar Advisor - October/November 2009 - Investment Briefs
Morningstar Advisor - October/November 2009 - 20
Morningstar Advisor - October/November 2009 - 21
Morningstar Advisor - October/November 2009 - How the Best Large-Cap Managers Rise Above the Rest
Morningstar Advisor - October/November 2009 - 23
Morningstar Advisor - October/November 2009 - 24
Morningstar Advisor - October/November 2009 - 25
Morningstar Advisor - October/November 2009 - 26
Morningstar Advisor - October/November 2009 - Don’t Give Up on Stocks Just Yet
Morningstar Advisor - October/November 2009 - 28
Morningstar Advisor - October/November 2009 - 29
Morningstar Advisor - October/November 2009 - Makeup of the Mind
Morningstar Advisor - October/November 2009 - 31
Morningstar Advisor - October/November 2009 - A Top-Down Approach
Morningstar Advisor - October/November 2009 - 33
Morningstar Advisor - October/November 2009 - 34
Morningstar Advisor - October/November 2009 - 35
Morningstar Advisor - October/November 2009 - 36
Morningstar Advisor - October/November 2009 - 37
Morningstar Advisor - October/November 2009 - 38
Morningstar Advisor - October/November 2009 - 39
Morningstar Advisor - October/November 2009 - In Practice: Patterns of Investor Irrationality
Morningstar Advisor - October/November 2009 - 41
Morningstar Advisor - October/November 2009 - 42
Morningstar Advisor - October/November 2009 - A Call for Nudges
Morningstar Advisor - October/November 2009 - 44
Morningstar Advisor - October/November 2009 - 45
Morningstar Advisor - October/November 2009 - 46
Morningstar Advisor - October/November 2009 - 47
Morningstar Advisor - October/November 2009 - The Furious Comeback of Emerging Markets
Morningstar Advisor - October/November 2009 - 49
Morningstar Advisor - October/November 2009 - 50
Morningstar Advisor - October/November 2009 - 51
Morningstar Advisor - October/November 2009 - 52
Morningstar Advisor - October/November 2009 - 53
Morningstar Advisor - October/November 2009 - 54
Morningstar Advisor - October/November 2009 - Junk-Bond Pioneer
Morningstar Advisor - October/November 2009 - 56
Morningstar Advisor - October/November 2009 - 57
Morningstar Advisor - October/November 2009 - Four Picks for the Present
Morningstar Advisor - October/November 2009 - 59
Morningstar Advisor - October/November 2009 - 60
Morningstar Advisor - October/November 2009 - Consumer Staples Hold Up in the Kitchen
Morningstar Advisor - October/November 2009 - 62
Morningstar Advisor - October/November 2009 - 63
Morningstar Advisor - October/November 2009 - Familiarity Can Breed Bad Investment Decisions
Morningstar Advisor - October/November 2009 - 65
Morningstar Advisor - October/November 2009 - Leave the ‘Junk Rally’ Behind and Look for Quality at a Reasonable Price
Morningstar Advisor - October/November 2009 - 67
Morningstar Advisor - October/November 2009 - Mutual Fund Analyst Picks
Morningstar Advisor - October/November 2009 - 69
Morningstar Advisor - October/November 2009 - 70
Morningstar Advisor - October/November 2009 - 71
Morningstar Advisor - October/November 2009 - 50 Most Popular Equity ETFs
Morningstar Advisor - October/November 2009 - 73
Morningstar Advisor - October/November 2009 - Undervalued Stocks
Morningstar Advisor - October/November 2009 - 75
Morningstar Advisor - October/November 2009 - 76
Morningstar Advisor - October/November 2009 - 77
Morningstar Advisor - October/November 2009 - 78
Morningstar Advisor - October/November 2009 - New at Morningstar
Morningstar Advisor - October/November 2009 - Meet the New Boss, Same (School) as the Old Boss
Morningstar Advisor - October/November 2009 - Cover3
Morningstar Advisor - October/November 2009 - Cover4
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