Morningstar Advisor - December/January 2012 - (Page 7)

Letter From the Editor The Sun Never Sets ... To create this issue’s Spotlight on China, we needed information from three continents. Fortunately, Morningstar has built up a force of equity and fund analysts stationed all over the world. Jerry Kerns Follow Jerry on Twitter @ jerrykerns When we needed big-picture articles on China’s economy and investment opportunities, two of Morningstar’s Chicago-based equity analysts—Sumit Desai, an associate director of research development; and Daniel Rohr, who covers basic-materials companies, most of which do business in China—were able to provide in-depth, institutional-quality reports. Rohr’s article is on China’s drivers of economic growth and the imbalance between the country’s investment and consumption (“Unsustainable Investment Boom,” Page 34). He concludes that if China wants to avoid low- to midsingle growth rates, the country’s upper- and middle-class households better get to spending, big time. China is taking steps to boost the country’s consumption levels, and Morningstar’s analysts are finding plenty of investment ideas in consumptionrelated companies. Desai thinks that firms based outside of China that have established moats in certain sectors of the country are well-positioned to benefit from increased consumer spending (“Digging Moats in China,” Page 38). When we wanted to take a look sectors and companies based in China to get a view from the inside, we called up Iris Tan, who heads a team of equity analysts in Morningstar’s Shenzhan office. She and her team started analyzing China-listed companies in 2009 and follow more than 100 companies in a less-than-ideal situation for a stock analyst. Whereas Desai highlighted companies located outside of China, Tan and her team focus on local firms that could benefit in an economy that is being transformed by a boom in consumer spending (“Where China’s Domestic Companies Stand to Benefit,” Page 42). I realized how valuable it is to have analysts working in China when I read Tan’s section on China’s spirits industry. Chinese companies completely dominate the market; foreign liquor companies have virtually no market share. Tan higlights two top-tier local brands, one of which has become the “unofficial” official drink that is served at most military and political gatherings. This type of insight would be hard to get unless you were in China and had an understanding of the country’s culture and traditions. We always strive to get opinions of experts from outside of Morningstar. It’s always good to get a fresh perspective of the topics we spend a great deal of time studying. To this end, we wanted to get the views on China of professional investors. So, we marshaled Morningstar’s mutual-fund analysts based in Chicago, Europe, and Asia. Analyst Sunny Ng, a Canadian who earlier this year moved to Hong Kong to head up Morningstar’s fund research efforts there, shepherded the project, getting the views of a dozen managers from around the globe (“China Still Strong Long Term,” Page 46). We also asked Yale economist Zhiwu Chen to discuss China’s economic past and future with Peng Chen, president of Morningstar’s global investment management division (“Keys to China’s Fortune,” Page 54). Their fascinating discussion about China’s place in the world illuminates that when analyzing China, a global presence helps. MorningstarAdvisor.com 7 http://www.MorningstarAdvisor.com

Table of Contents for the Digital Edition of Morningstar Advisor - December/January 2012

Morningstar Advisor - December/January 2012
Contents
Contributors
Letter From the Editor
Seduced by Complexity
Is China Exposure Important for a Portfolio?
A Niche Built on Trust
How to Find Your Client’s Investment Style
Taking the Long View
Consensus on Europe Elusive
Four Picks for the Present
Investment Briefs
Is Perception Reality for Active Managers?
Be Alert for Basic-Materials Bargains
Investment Boom Unsustainable
Digging Moats in China
Where China’s Domestic Companies Stand to Benefit
Arising Opportunities
China Strong Long Term
From Currency Manipulation to International Acceptance
The Keys to China’s Fortune
Wedgewood’s Lessons Pay Off
Reading the Evidence on Indexing
Scouting for Investments Abroad
Yield, Please (Hold the Europe)
Mutual Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
China Fund Managers Eat Elsewhere

Morningstar Advisor - December/January 2012