Look to the economic powerhouses in Asia

China – now the world's second largest economy (after the US) – is expected to enjoy 9.9 per cent GDP this year. In 2009 it saw an exceptional rate of expansion and the Chinese authorities have decided to cool the economy by cutting infrastructure spending and bank lending. Chinese regulators have also requested that major Chinese banking institutions undergo stress tests based on a 60 per cent fall in property prices. Fears of spiralling inflation have receded and the latest forecasts estimate 2.9 per cent inflation compared to earlier ones of 3.3 per cent. Japan has moved down into third place globally but India is likely to overtake it by the middle of this decade. Between China and India, technological change and urbanisation are present in both but the private sector is far more powerful in India. There are three ways to invest in Asia: buy shares directly, which is difficult and expensive on dealing costs, through collective funds and by following a tracker index of shares. Funds may cost slightly more but should benefit from a professional stock picker. Among unit trusts and open-ended investment companies (OEICs), according to Lipper research for the Yorkshire Post, the top performers over five years were: Invesco PRC Equity, up 164.4 per cent; Neptune China, up 151.4 per cent; HSBC GIF Chinese Equity, up 125.7 per cent; Smith & Williamson Far Eastern Growth, up 78.8 per cent; Invesco Perpetual Pacific Acc, up 77.2 per cent. The first three focus on China and last two on the Far East including Japan. However, you could unfortunately have lost money by backing Japan: Newton Japan GBP down 36.5 per cent, Melchior Japan Opportunities (concentrating on smaller companies), down 39.4 per cent and Legg Mason Japan Equity, a loss of 64.8 per cent. Investment trusts should also be considered with their ability to borrow when a good opportunity occurs and boards of independent directors. Over the last five years, the stars are impressive, perhaps because they all excluded Japan. After deducting a nominal 3.5 per cent expenses, according to AIC research using Morningstar, the top trusts are: Scottish Oriental Smaller Companies, managed by First State, up 137.3 per cent; Aberdeen Asian Smaller Companies, up 123.2 per cent; Edinburgh Dragon, managed by Aberdeen, up 114.9 per cent; Invesco Asia, up 106.9 per cent; n Fidelity Asian Values, up 105.6 per cent. Bestinvest stockbrokers regularly review funds and in this sector like both First State Asia Pacific Leaders A and Aberdeen Asia Pacific & Japan A but rate four as 'dog funds' for consistent under-performance: Lloyd George Asia Pacific A, Premier Alliance Trust Asia Pacific Equity A, Henderson Asian Dividend Income (ex New Star) and Baring Eastern. China should clearly be part of a Pacific investment despite concerns over its growing pains. Jonathan Watts in his recently published When a Billion Chinese jump: How China will save mankind – or destroy it describes a "3,000-year-old civilisation in the body of an industrial teenager". He sees a land obscured by smog and transformed by cranes. There is the constant risk that China may impose new taxes on investments made by foreigners whilst in the short term, some economists talk of a bubble in its property and stock markets. The average cost of a home there has tripled since 2005 and the Shanghai Composite Index jumped 80 per cent last year. To counter speculative thoughts, unlike the UK or US, it is usual to place a 30 per cent deposit on a first property and half on a second. Loans have not been repackaged but held by their original lenders. JP Morgan Asian is one of two investment trusts tipped by Martin Payne of stockbrokers Brewin Dolphin in Leeds. China forms 40 per cent but the trust has fair sized positions in India, South Korea, Singapore and Taiwan. It can be purchased at an 11 per cent discount currently. Payne also likes Scottish Oriental Smaller Companies, trading on an eight per cent discount with no gearing (borrowing). It invests in firms with market capitalisations below US$1bn and has had the same Hong Kong based manager for 10 years. India is enjoying a strong economy, expanding by 8.8 per cent with a pro-business mentality from the government. It ended state control over petrol prices in June which will be a boost for the country's vast trucking fleet. First State Indian Subcontinent A is among the top-performing funds to consider. It has jumped 34.5 per cent in three years. Managed from Edinburgh, it can be placed in an ISA and there is a monthly subscription scheme available from 50 which reduces volatility. HSBC's GIF Indian Equity, launched in 1996, is well established and has shown 103 per cent growth in five years but only risen 8.9 per cent in the last three. Franklin India and two investment trusts – JP Morgan Indian and New India – are also worth considering. To gain a basket of securities or commodities which form an index, look at exchange traded funds (ETF), most of which are eligible for an ISA or SIPP. They are free of stamp duty and often cost only 0.5 per cent to buy or sell. Discount brokers like Stocktrade, The Share Centre and Hargreaves Lansdown are good for such execution-only purchases. Consider such indices as: ishares MSCI AC Far East ex Japan which tracks Asia omitting India and Japan; ishares DJ Asia/Pacific Select Div 30 for the 30 highest dividend-paying stocks from Asia and the Pacific; LNFT Lyxor ETF India which tracks the S&P CNX Nifty index. DECISION TO DIVERSIFY SAVINGS Graham Codd, pictured, from Hull recently decided to diversify part of his savings into Asia and has selected the Aberdeen Asia Pacific & Japan Fund. Graham, a 65-year-old retired accountant with a healthcare company, said: "I was looking for different sectors. Aberdeen has a good perspective on Asia with a good record." Over the last five years it has grown by 72.5 per cent and over 10 years by 139 per cent, according to research by Lipper. This is his first time investing in Asia as his favourite areas have been Europe and special situations. Since 1994 he has invested through Garrison Investment Analysis of Beverley, part of Charles Stanley stockbrokers. Garrison offer large discounts against initial fees as well as a loyalty bonus for those who use the Fundchoice platform to store their investments. John Shires, Garrison's managing director, said the bonus equates to 30 per cent of the trail commission and is paid monthly but savers can opt to have the money reinvested. The firm makes no charge for re-registering clients' existing funds. Apart from collective investments, Graham has an investment in Pennon Water. Married to June, the couple have one daughter. Contact: Garrison Investment Analysis 01482 861455.