RIDE THE TIGER: Invest in emerging markets - with less risk

RIDE THE TIGER: Invest in emerging markets - with less risk

Are you tempted by the boom in Asian economies but worried about risking your savings?

Investing in Asia can be fraught with peril - companies based there are notoriously risky and there can be political instability.

Investors can make big profits one year, then massive losses the next. One way to enjoy some of the benefits with less of the risk is to invest in British companies doing business in Asia.

UK firms are hungry to tap into the massive marketplaces in Asia. China has a population of 1.3 billion, Indonesia 243 million and India 1.17 billion. These countries are desperate for goods and household essentials that many British firms specialise in. For example, with no national health service and improving care, demand for over-the-counter medication and grooming products is huge.

Darius McDermott, from advisers Chelsea Financial Services, says: 'The people in these countries have seen what people in other countries have got and they want that, too. There is no going back for these economies.'

Some 70 pc of earnings for FTSE 100 listed companies comes from overseas sales. And around one-fifth of the earnings for all UK firms come from emerging markets.

Here are three ways you can tap into the growth in Asia:

Buy shares in UK companies

Astrazeneca, which develops new medicines, is one of the companies brokers tip to benefit from growth in Asian markets. In much of east Asia, there is no national health service and so drug companies have seen this as an opportunity to grow their business.

Rising standards of personal care also mean that goods including toothpaste, sold by UK companies such as GlaxoSmithKline and Unilever, could also do well.

Others tipped to benefit include bank Standard Chartered, miners BHP Billiton - due to a constant demand for natural resources - and telecoms firm Vodafone.

Plus there are little-known companies such as Aggreko, which makes mobile electricity generators, heaters and freezers. In countries where a supply of electricity from the grid is unreliable, these can be vital.

Share trading is not cheap. Some brokers levy a fee of 1 pc of the amount you trade, others charge a flat fee of around £10. You may also need to pay for a dealing account, which can cost from £ 2.50 a quarter. And remember, buying individual shares can be risky.

Invest in European and US shares

Some funds invest in a mix of shares from UK, European and U.S. companies that stand to benefit from Asian expansion. One pick is M&G Global Basics.

Adviser Brian Dennehy, from Dennehy Weller, says: 'This is the fund that has exploited the potential of emerging markets more than any other, without actually investing directly in them.'

The FTSE World Index is down 5 pc over the past decade, but in that same period manager Graham French has achieved a return of 232 pc. He identified companies that would benefit mainly from growth in China, such as Colgate and KFC.

This is a steady fund, but spicier, according to advisers Hargreaves Lansdown, is JM Finn Global Opportunities. Just under half of the fund is invested in the UK and the U.S. Much of the money is in companies which are involved with food production and transport.

Manager Anthony Eaton believes commodity demand, and hence the need to distribute them, will remain high for some time. It is up 87 pc over five years and 27 pc over one year.

Use a UK fund to reduce the risk

The most adventurous savers could consider investing directly in Asian companies via a broadbased fund which can spread the risk. The fund manager should choose companies with which he or she is familiar. It should mean a slump in one country should not impact on all of your investment. First State Asia Pacific Leaders is a popular choice among advisers. It is up 129 pc in five years and 23 pc over the past 12 months investing in banks, insurance companies and computer firms.

Investec Emerging Market Debt has grown by 80 pc over three years, and 22 pc over one year. This buys gilts, essentially debts issued by the governments of other countries, and bonds issued by companies.

These sound like a risk. But Mr McDermot t says : ' Thes e countries have not had a banking crisis and they are expecting their currencies to grow. They are strong and have surpluses.'

Or try newton Asian Income, says Brian Dennehy. It's paying an income currently of 4.9 pc and has increased this while UK invested funds have cut payouts by up to a third.

Remember these funds can be exceptionally volatile because they hold foreign companies. For example, the First State fund grew by 31 pc three years ago and 55 pc last year, but two years ago it bombed 22 pc

Check out the funds before you buy. A good website is www.trustnet.com or advisers www.h-l.co.uk. Both have factsheets about funds, including what type of companies the manager invests in and where these firms are based.

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