The first thing that most people will notice when they touch down in Jakarta is the almost overwhelming volume of traffic that turns what should be a fairly short ride from the airport to the city center into a two-hour epic journey. The Jakarta road network is bursting at the seams. And its not just roads that need investment. Indonesia is rich in terms of natural resources and, although reserves remain high, getting coal and petroleum products out of the ground at an efficient price has also proved a tricky task over the last decade.

Chinas small companies are vibrant forces that are driving the countrys economy. Despite the challenges to investing in newer and unseasoned firms, small companies in China can present attractive long-term opportunities, and are increasingly playing a key role as China evolves as a service-oriented economy. On-the-ground research is a vital step in our investment and risk management process. This involves face-to-face visits with a firms staff to try to discern the health of a companys daily operations and the reliability of its managements claims.

Vietnam, may be something of an acquired taste for investors these days. It is going through its own trials and tribulations. The banking system is clearly stressed with very low levels of deposit growth, given recent nominal economic growth rates. This suggests a lack of confidence in the system after many years of high rates of credit growth. Symptoms of these strains can be seen in the high annual inflation rate of about 13%, a weak currency and borrowing rates of between 15% to 22%. I suspect that many smaller companies are also unable to get any access to capital.

As investors, we are presented with an expanding universe of small- and medium-sized entrepreneurial firms with innovative business models in China. At the same time, competitive pressures are also increasing with the growing presence of both domestic and international companies in the market. It has become increasingly critical to identify and differentiate companies with sustainable business models and viable long-term strategies.

Phue Thai?s campaign, ?Thaksin Thinks, Phue Thai Acts? ran on a platform which tapped on Thaksin?s populist program for the rural poor. Thailand is one of Asia?s structurally polarized societies with divisions running along the lines of the affluent population in Bangkok and the South and the rural poor (often farmers) in the North. These divisions have been reinforced by one of the highest ratios of rural poverty in Asia. Although recent increases in agriculture commodity prices have led to a mini boom in the northern region, the income gap is still the widest in Southeast Asia.

The machinery industry in China still lags that of Japan, Germany and the U.S. Different from the information technology sector, the machinery industry requires extensive resources, including mechanicals and electronics. The management of one Chinese machinery company has the ambition to become a global leader. While many other Chinese firms may share the same goal, what differentiates this company from others is that the management thoroughly understands not only the global competitive landscape, but also its own strengths and weaknesses.

Investors may be well served to look up the value chain in other industries where products may be trendy or have short cycles. Given this, we recently met with a leading manufacturer of mobile phone speakers and receivers that commands about a 30% market share in a duopolistic industry. Seeking exposure to the growing mobile phone industry in this way reduces the difficulty of having to identify the next winning handset maker but still taps the growth in mobile handsets. While companies that supply world-class brands may not receive much fanfare, investing in these companies can make sense.

I recently spent two weeks meeting with management teams from various firms across Japan during my first trip back since the March earthquake. My overall impression was that the environment there post-disaster is still quite mixed.

China's power usage has grown along with the GDP. Overall power consumption rose by about 12% in the first four months of this year?in line with average growth rates. However, the availability of power is an increasing concern for some Chinese manufacturing companies. The issue is particularly serious for China's eastern and central regions during peak power consumption months. While there are a number of factors affecting power shortages, chief among them are government regulations. China is determined to become more energy efficient, and power shortages may spur efforts toward that goal.

Investors tend to be a fairly excitable bunch, always looking for the latest trends and themes to try to make a profit. But many trends have little relevance or impact over the longer term. During the past 12 months, one of those more ?exciting? topics that have been discussed is the initial stages of renminbi (RMB) liberalization in Hong Kong?a concept that allows foreigners to get their hands on, and trade in, Chinese currency for the first time. But how excited should long-term investors be? A roundtable discussion among Matthews? managers, on the same topic, is also included.

On my recent trip to China, one common focus I found among the companies I met with was product branding. Chinese firms have been swift to recognize more sophisticated consumer patterns, researching consumer segments for their varying preferences.

As the U.S. economy continues to stutter, the rumblings of discontent from senior U.S. politicians over the Chinese government?s pegged exchange rate policy and closed capital account continue to garner momentum. But this is only one side of the story. One of the most important developments within Asian capital markets over the last 12 months has been the moves of the Chinese government to utilize the world financial center of Hong Kong in a bid to begin globalizing China?s currency, the renminbi.The most transformational of these steps is the allowance of foreigners to get their hands on RMB.

Inflation has been one of the big buzzwords in Asia's markets this year. Wages, interest rates and prices for commodities, assets, goods and food have all been on the rise. The problem with much of the discussion is that it treats inflation in all these areas as though they were the same?a single phenomenon that is an unqualified evil. In my view, not enough has been done to distinguish between cause and symptom. Perhaps this is because when one does try to distinguish between cause and symptom, the topic of inflation becomes much more complex.

During my recent travels and meetings with investors around the world, I have found that interest in Asia is abundant. But what has struck me most is that certain perceptions about investing in Asia permeate regardless of whether we speak with investors in Europe, the U.S. or even Asia itself. I find this an opportune time to address three of the common "misperceptions" about investing in the region. 1: The best way to invest in Asia is by investing in multinational companies 2: To invest in Asia, I must accept higher valuations and 3: When investing in Asia, market timing is very important.

The use of both the U.S. dollar and Vietnam?s currency, the dong, is widespread in Vietnam. Just as easily as you might pay for a new pair of jeans with cash or with credit in the U.S., you could do so in either dong or dollar in Vietnam. Over the last two decades, currency depreciation, in combination with bouts of hyperinflation, has led to Vietnam?s use of the U.S. dollar and gold as primary stores of wealth. Unlike China, which has experienced appreciation relative to the U.S. dollar over the last two decades, Vietnam has seen a drastic depreciation of its currency over the same period.

Taiwan?s economy has been known for its strength in technology-related hardware manufacturing. An intricate network of vendor and supplier relationships, coupled with a relentless discipline to be cost-efficient, has allowed Taiwan to spearhead the global growth of the hardware supply chain. While that has provided growth in past decades, Taiwan faces new challenges for sustainable economic growth. While Taiwan is unlikely to surpass Hong Kong's in tourism anytime soon, it is encouraging to see the amount of economic activity that Taiwan could possibly derive from attracting more tourists.

On a research trip to South Korea and Taiwan, I had the chance to compare the social, cultural and economic characteristics in both countries. Both enjoy educated workforces and a similar per capita GDP of about US$20,000 though South Korea?s population (50 million) is double Taiwan's. Both face challenges of low birth rates and a aging society. They also share similar economic development models, which focus on exports and specific industries. One key difference, however, is that Taiwan?s economy has been led by strong small and medium-sized enterprises while Korea?s large conglomerates.

China?s health care reform has seen positive changes to the industry since the government announced its US$125 billion health care reform plan in 2009. One major change has involved improvements to the intellectual property protection for new pharmaceutical products, which are broadly defined as drugs that have never been marketed in China, including ?first-to-market? generics. Demand is strong for generic drugs in China and account for 70% of all drugs prescribed. A new breed of smaller and medium-size pharmaceutical firms have become specialty players in ?first-to-market? generics.

While many of my colleagues have experience working through Indonesia?s economic cycles, I recently made my first trip there. During past research assignments related to Japan, I have noted Indonesia?s increasing importance in the Asian economy. For instance, its natural resources aided the sales of Japanese mining equipment makers and this arguably led those Japanese firms to climb out of the recent global recession earlier than their U.S. competitors. About 70% of Indonesia?s landmass is occupied by rainforest, and the country is the largest exporter of thermal coal and natural gas.

Energy is a fundamental building block of all modern economies. As such, it should not be an overstatement to say that the availability, or lack of energy has been a primary driver of growth. This is why it has been imperative for all nations, to secure stable sources of energy. With Japan?s current nuclear crisis and high oil prices causing concern, the topic has drawn recent attention. And as Asia's population continues to climb, the region?s energy demands are also set to soar. China and India, are expected to develop ever greater appetites for energy sources, such as nuclear power.

During a recent research trip to Southeast Asia, I spent time meeting management teams in Bangkok, Jakarta, Singapore and Kuala Lumpur. I always find it valuable to be able to compare growth opportunities and challenges facing various industries and companies within the region while I am on the ground. Compared to a decade ago, these Southeast Asian cities have all developed relatively high levels of urbanization, affording residents and visitors the modern comforts and conveniences of such things as public transportation, financial services and easy access to fast food chains.

During my recent company visits in China, management discussions continued to include the topics of wage inflation and manufacturing labor shortages. As we have previously written, the phenomenon of rising wages for a declining young generation is expected to last into the foreseeable future and should profoundly impact China.

Mattel?s Barbie store in Shanghai closed March 7, 2011. The sudden closure of the Barbie store left many baffled. The U.S. toy maker has stated that it is reorganizing its China strategy. Others, however, argue that the store is closing because Barbie?s classic western appeal has not caught on in China where girls tend to prefer cute animated characters, such as Hello Kitty, over a womanly life-like doll. Barbie?s price point (US$15 to US$30) has also been criticized as too high, particularly for a toy with limited brand recognition or nostalgic factor for parents who hold the purse strings.

As reports of Japan?s nuclear crisis grew bleaker this week, Japan and the world continued to grapple with one of the country?s worst natural disasters. While fears are high, thus far, elevated radiation readings have not been recorded outside the government-imposed exclusion zone around the nuclear plant in Fukushima.

On Friday March 11, 2011, the largest earthquake on record in Japanese history struck northeastern Japan. A devastating tsunami followed with 30 foot waves swallowing entire cities across the Pacific coastline. The full scope of the damage is still unknown, though the confirmed death toll has already exceeded 1,600, and is expected to rise significantly. Several cities and villages remain completely isolated, accessible only by helicopter. I was on a flight over the Pacific heading into Tokyo when all of this was happening. Passengers were informed of the tragedy an hour before landing.

I recently spent about two weeks in Asia, primarily visiting technology-related companies in Beijing, Seoul and Tokyo. It was nice to be able to contrast these firms in the context of the three capital cities?each at distinctively different stages of their development. Even the difference in air quality levels was visibly evident. While traffic in Beijing wasn?t as bad as I had feared following the recent lunar holiday, it was obvious that China?s automobile culture has taken off, and air quality has suffered as a result. Japan, on the other hand, seemed the most orderly and clean.

There are many ways one might define ?growth? and go about uncovering it. There are a few key elements I look for: main drivers of growth, sustainability and scope of growth, and market expectations. Many global investors today are seduced by the last several years of strong stock performance in China and India, fueled by robust economic growth. However, economic growth alone does not guarantee good stock performance. In fact, many studies argue that, historically, there has been little correlation between stock market performance and economic growth.

After touching down in Malaysia last week, I was greeted with the less-than-welcoming sight of an apparently never-ending immigration line. As I progressed toward the front of the line, I began to realize the structural source of the problem?only two staff members were manning immigration booths for hundreds of passengers coming off a number of different flights. Although clearly a minor grievance, it did serve as a strong metaphor for the constraints and inefficiencies that foreigners still face when doing business in Malaysia

During the past decade, consumers (and central bankers) in developed economies have grown accustomed to the cost benefits of outsourcing their manufacturing to Asia. This resulted in lower prices at the cash register, which in effect gave households in the U.S. greater purchasing power. The outsourced manufacturing model has historically hinged upon the availability of relatively cheap labor, undervalued currencies, access to preferential tax treatments and ongoing improvements in productivity. However, it has become apparent that this model may be under some strain.

Imagine the United States in the early 1920s. Henry Ford had just developed the moving assembly line to build the Model T, leading to an era of rapid growth in the automobile industry. This further stimulated industries such as oil, glass and road building. Tourism soared and consumers with cars had a much wider radius for shopping. Many people abandoned agriculture to seek new opportunities in fast-growing cities. During these ?Roaring Twenties,? the construction of urban offices, factories and homes were booming and new buildings sprouted up everywhere.

Foreign investment plays a significant role in India?s economic growth, which has historically been constrained by supply factors, and most notably, the availability of capital. Domestic savings in India have risen, but high government deficits still don?t leave enough for the private sector. The result has been a vicious cycle in which the high cost of capital prevents many businesses from flourishing, which further limits India?s capacity for capital formation. Let us examine the ways in which India can use foreign capital to emerge from this low-growth equilibrium.

Asian markets have gotten off to a rocky start in 2011, and inflation appears to be among the chief culprits. Many seem to be treating inflation as a single phenomenon with similar effects everywhere. In truth, the effects of inflation on different countries can be quite distinct and in some cases quite positive. We can get an idea of how inflation impacts different countries in a different way by looking at four big economies dominating the Asian investment scene at the moment: China, India, Japan, and the U.S.

To help manufacturers with factories in China cope in an environment of rising wages, labor shortages and a rising renminbi, one leading Chinese industrial automation device producer we spoke with described a trend of investments in industrial automation to reduce the reliance on labor and boost profitability. Furthermore, Chinese manufacturers will need to shift from business models based purely on pricing, and evolve into producers of higher margin, value-added products. We believe this trend should benefit not only Chinese automation firms but also automation companies abroad.

While developed nations are now craving a bit of inflation, emerging markets such as India regard inflation as their formidable enemy. Ironically, a small dose of inflation can actually indicate unmet demand that could incentivize production and catalyze economic growth in one situation, while a little excess inflation can erode purchasing power in another. In India?s case, where the majority of its vast middle class is skewed toward the poverty line, high and sustained rates of inflation can dampen real growth and widen economic disparity.

The analysis surrounding Chinese President Hu Jintao?s trip to Washington has so far focused on the subdued tone of the visit, the lack of major policy initiatives and the reverence for vague ideas such as harmony. The obvious conclusion is that President Obama and President Hu don?t have much to talk about. Perhaps this is unfair.

It is not the headline rates of growth in Asia that excite me?it?s the profit-making opportunities within those economies that are necessary to sustain reasonable rates of growth and support the changing lifestyles of Asian households. And that, I hope, is a sentiment with which both the old and the reformed Scrooge might embrace.

Few are optimistic that Beijing will be able to solve its traffic problems any time soon. Many locals I met with lament that there are simply too many wealthy individuals in Beijing to curtail the growing car consumption. Analysts also agree that government measures related to auto sales in China will have limited impact; and they note that Beijing accounts for only about 7% of the total new car market in China. With car penetration still at low levels in China, the trend for car consumption should only increase.

Automation is one of the many possible solutions for China. There is plenty of room for China to catch up with its industrialized Japanese neighbor. China?s current level of industrial automation is comparable to that of Japan in the early 1980s, based on the percentage of computerized machine tools, the market size of the core machinery components needed for factory automation, and the level of automation in vehicle manufacturing.

While some foreign investors may consider Bangladesh a ?frontier? market, its market capitalization already surpasses that of Pakistan, Vietnam, Sri Lanka and New Zealand. I believe there is a good chance that this market will be a more integrated part of the Asian investment landscape soon.

I recently spent several days in Bangkok, visiting companies during what was my first trip back to Thailand since 2008. Tourism (which is 6% to 7% of total GDP), has been a chronic issue of political unrest since the military coup in 2006. Political risks in Thailand have posed concerns for many foreign and domestic investors in the past several years, and a stable political environment is undoubtedly crucial for economic growth. However, company fundamentals are arguably just as important for the bottom-up investor.

Emerging market equities? particularly those sectors most associated with decoupling themes?are now subject to elevated valuations. It appears that some investors have grown overly convinced that decoupling is a one-way, short-term bet. Don?t bet on it. Instead, take your time, and set any expectations for decoupling over the longest horizons.

Thanks to its abundant natural resources, Australia managed to escape the recent global financial crisis largely unscathed as it has enjoyed a wave of industrialization from emerging Asian countries. Economic ties between Australia and Asia have broadened from the resources sector to other sectors. Australian financial companies have formed joint ventures and subsidiaries in emerging Asia. One Melbourne-based insurance firm I met with on my recent trip entered into an agreement with the largest bank in China to jointly develop and distribute life insurance products there.

North Korea remains a constant thorn in the side of Asia and an irritant to regional peace?this much is clear to South Korea, Japan and the U.S. Perhaps this is also increasingly clear to China, which has thus far given the impression of being too tolerant of the North's actions.

South Korea can be a frustrating place for investors. The country?s companies exhibit such potential and yet many of them trade at a significant discount to their peers both globally and in Asia. My last visit to Korea reminded me of why equities of Korean companies are often not priced in line with the value they create. There have been many attempts to rationalize the discount, with explanations ranging from threats posed by an unpredictable North Korea to the cyclicality of many Korean businesses. However, I believe the issue of corporate governance merits most attention.

For a decade now, corporate capital expenditure in Indonesia has grown at a rate much faster than that of the overall economy, but from a woefully small base. Even today, such expenditure hovers near 2% of GDP. By contrast, India?another county that has suffered from chronic underinvestment in the past?has managed to expand its investment to 7% to 8% of GDP. If Indonesia is to meet its potential and live up to the lofty expectations of investors, there is no time to lose: rubber must hit the road.

China's banking reform has effectively transformed its state-owned banks into commercial banks running under international practices.

While the U.S. intends to stimulate its domestic economy with quantitative easing, the actual effect of QE has been to turbo-charge emerging markets, especially the markets of Asia. There is some concern that short-term portfolio flows or 'hot money' could cause sharp price volatility, and we will continue to monitor these effects and their implications on Asia.

As much as two-thirds of Vietnam's GDP can be attributed to strong personal consumption in a country of 86 million (with an average age of 26). Over the past 20 years, the country has shown impressive economic expansion, averaging 7.1 percent growth per year, which has pushed GDP per capita up to just over $1,000 U.S. Although Vietnam still faces potential problems with inflation, it is still encouraging to witness the real changes taking place in the country's consumer behavior.

The stereotype held by many overseas investors is that Japanese companies have slow growth, low margins, low capital efficiency and lots of cash but nothing to use it on. Investors must not forget, however, that Japan is still the third-largest economy in the world. With a gross domestic product of more than $5 trillion U.S., there is more than enough room for small entrepreneurial companies with innovative ideas to achieve growth, even in Japan's domestic market. Although these companies are still the exception, they are growing in numbers, representing the emergence of a new Japan.

The recent verdict by an Indian high court over an age-old religious dispute has brought some of the challenges associated with investing in India back into the limelight. India's legal and political legacy systems do impose delays in resolving such conflicts, but the country is making some notable progress on clearing up some of these issues.