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March 8, 2004

Asia Insight

February 2004

The Asia Pacific Universe

By Mark W. Headley, President and Portfolio Manager

Regional investing has emerged from the SUMMARY OF INVESTABLE

shadows recently as investors consider UNIVERSE
the possible benefits of an investment
universe that is broad and deep, yet Number of Market
Daily Prices as of based on some connection. We have long Country Companies1 Capitalization
3/05/04 argued that U.S. investors instinctively
Australia 300 $574
Fund NAV Chng have U.S. "regional" specialists run their
MAPTX $14.09 -0.02 domestic portfolios, while then turning to China 215 $470
MACSX $14.65 +0.01 generalists to run international portfolios.
Hong Kong 272 $363
MAKOX $ 4.63 -0.02 We have nothing against generalists, but
MCHFX $15.42 +0.02 the consultant’s notion that there is no India 276 $255
MJFOX $13.63 +0.06 place for regional specialists outside the
Indonesia 71 $49
MATFX $ 5.14 +0.02 US seems based on the desire for a
MPACX $10.90 +0.05 simple asset allocation pie chart rather Japan 1,899 $3,093
Click on symbol for than logic. So what does a regional
more information. Malaysia 236 $154
specialist following the Asia Pacific region
have to work with? Quite a lot: New
2003 Year-end Fund 46 $29
Distribution click here. Zealand
4,366 publicly listed companies and $5.9 Pakistan 19 $10
trillion in market cap is not a bad
universe. The Asia Pacific universe Philippines 39 $24
represents approximately 19% of global Singapore 138 $141
market cap. Japan remains by far the
largest market with 1,899 companies and South Korea 250 $293
a market cap of over $3 trillion. This has Taiwan 454 $390
always presented a challenge for Asia
Pacific funds, when hugging the Thailand 151 $110
benchmark means having close to 60% TOTAL 4,366 $5,957
in Japan. Since we manage money with
an eye to the future rather than being Source: Matthews International Capital Management,
LLC and Bloomberg
chained to the past, we are glad to have
this huge pool of companies and yet are (1) Data includes only those companies with a market
content to risk underperformance by capitalization in excess of US $100 million at 12/31/03.
All Chinese A shares are excluded from consideration.
underweighting Japan or any other
country as we strive to build a well-
balanced portfolio.

As one drills into the universe interesting data abounds. Asia Pacific has 189
healthcare-related companies. There are only 241 companies with market caps over

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Matthews Asian Funds Page 2 of 2

$5 billion, and 3,422 with market caps between $1 billion and $100 million. Our
favored hunting ground, the mid caps, has only 703 companies. Over the coming
months we will elaborate on both the industry and market cap nature of the universe.

The most important element for us is not the size or shape of the Asia Pacific
universe, but that it is ever more interrelated. While each country maintains its own
unique social, economic, political and financial characteristics, companies are
"regionalizing" at a very rapid rate. Some of this will undoubtedly end in tears, but
the overall effect is that companies are presented with a dramatically broader
opportunity set than just a few years ago. Japanese cosmetics are being sold in
China. Australian organic foods are all over Hong Kong store shelves. Thai resorts are
filled with mainland vacationers. As we outlined in January 2002, Asia is becoming
one large economic zone.

Mark W. Headley
President and Portfolio Manager
Your Market Commentary comments are welcome by clicking here.

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Investing in foreign securities may involve certain additional risks, including exchange
rate fluctuations, less liquidity, greater volatility and less regulation.

Other fees and expenses apply to a continued investment in the funds are described
in the prospectus.

For more complete information about the Matthews Asian Funds, including fees and
expenses, please obtain a prospectus by calling 1.800.789.ASIA (2742). Please read it
carefully before you invest or send money.

Distributor: PFPC Distributors, Inc.

DFU: 2/23/04

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Matthews Asian Funds are not available for sale outside the United States and Puerto Rico.

For more complete information about the Matthews Asian Funds including all charges and expenses, please call 1-
800-789-2742 to request a prospectus. Past performance is not indicative of future results. Share prices and
returns will fluctuate and when redeemed, shares may be worth more or less than their original investment.
Please read the prospectus carefully before you invest or send money as it explains the risks associated with
investing in international markets. These include risks related to social and political instability, market illiquidity
and currency volatility. Matthews Asian Funds are distributed by PFPC Distributors, 760 Moore Road, King of
Prussia, PA 19406

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