According to legend, King Midas gained the power to turn everything he touched into gold. Delighted with this power, he touched the branch of a tree and it turned to gold. But he soon found himself unable to drink or eat as anything that touched his lips aurified instantly. His final tragedy came when, heedless of his despairing protests, his daughter embraced him and thus was transformed into a priceless, lifeless golden statue. Midas managed to deprive his life of true value.

I see parallels in the current market environment. Cash, cash and cash-it is all that anyone seems to care about. European nations need it to pay down debt as do US homeowners and China's local governments. This scramble for cash has left machines to idle and rust while labor languishes unemployed. Midas eventually starved for his love of gold - love of cash is starving the world of economic activity.

A "risk on, risk off" narrative has also added a short-term mentality to this love of cash. It has brought valuations in Asia's markets down to levels that are below historic 20-year averages. At the end of the second quarter, a broad-based universe of Asia-ex Japan stocks trades on about 10X forward 12-month earnings, about a 20-percent discount to that 20-year average. Asia's low valuations are based on subdued forecasts for the near term.

For some portfolio managers, it can mean that there is more value in the markets than there has been in a while. The frustration, of course, that at the very time when there are so many enticing options, fund managers often don't have the cash to capture that value. It is not that one should not care about cash.

Portfolio managers should be interested in cash only to immediately put it to work. For those investing in Asia, that means seeing a greater value in the underappreciated potential of Asia's four billion people. In the past, extreme demand for cash has often been transitory- which is not the assumption that markets seem to be making about today's world. The "new normal" and similar discussions of a loss of potential output in the global economy make sense to me only if they are a surrender to the idea that this love of cash will be much longer-lasting. Whether or not that assumption is right, it seems to be less appropriate for Asia, where the proximate cause of demand for cash may be the fact that policymakers and central banks have been following relatively tight policies. Compare this policy conservatism with the rest of the world in which one can blame the accumulation of excessive debt over years, even decades. For me, it remains a view that seems to be at odds with the broad sweep of Asia's development. During these times, when everyone is focusing on cash, short-term trends and the macro picture, I believe it is best to take a view which the market may view as contrarian.

In Asia, we have seen some effect of the slowdown in global growth. Nevertheless, many companies are focused on domestic demand and are somewhat insulated from the weakness in Europe and the US. These are businesses that I believe will grow profitably over the coming decades from the growth in spending of Asia's households, the development of new products, the enjoyment of new services and the enhanced expression of individual tastes and preferences.

The author is Chief Investment Officer of Matthews International Capital Management, LLC. The views expressed here are entirely his own.

(HK Edition 08/21/2012 page2)