Asia - all consuming?

Teera Chanpongsang
Teera Chanpongsang
Portfolio Manager, Fidelity Asia Fund12 October 2017

I remain a big believer in the investment opportunity in Asia ex Japan. The region continues to offer long-term growth prospects driven by low penetration of products and services and strong economic growth potential. The regional stock markets are supported by relatively attractive earnings growth prospects, which are suited for bottom-up stock picking and long-term investment. In recent years, we have also observed meaningful, positive shifts such as increasing shareholder returns gaining emphasis in the region. In addition, several key economies now have reform-focused governments committed to support GDP growth.

I have a disciplined mosaic approach to investing, and meeting managements and experts is a key part of my process. In my recent company meetings, I have found managements to generally be more confident as domestic currencies in Asia have been stable. Domestic reforms such as the success of the Chinese supply side reforms and implementation of a standardised Goods & Services Tax (GST) regime in India have been received well as these are expected to boost economic growth in these markets. However, in India, there is also some concern about a delay in the next investment cycle. Here, the banking sector, especially the state-run banks and some select private lenders continue to face unresolved issues of nonperforming loans in infrastructure sectors such as power plants and steel.

I continue to maintain strong conviction in selected internet-led opportunities in China, where the shift towards eCommerce, online payments and streaming entertainment is unprecedented and substantial. The development of internet-led businesses in China is even more advanced than in some developed countries. For instance, the Chinese eCommerce market in 2016 was nearly twice as large as its US equivalent.

The sharp surge in the shares of Chinese internet giants Alibaba and Tencent is mainly driven by significant earnings upgrade on rising advertising, spending and a widening user base. Both companies have generated strong free cash yield over the last decade, while their valuation is still within the trading range of the past decade. As part of my investment process, I have consistently revisited my long-term investment opportunities such as Alibaba and Tencent.

In the ASEAN region, I am positively inclined towards Thailand. I expect a stable term for the new government, which would be beneficial for long-term economic policies. At a corporate level, Thai earnings are bottoming, and I have been focusing on opportunities that benefit from the country’s well-established advantages. For instance, tourism is a priority area of every Thai government as the country is a well-priced and attractive destination for international tourists. This also includes select medical tourists from economies with weaker clinical care facilities, who derive a better value-for-money health care proposition compared to their own countries.

Meanwhile, the uptrend in consumption in Indonesia did not materialise as expected. I do continue to favour the long-term prospects of this market given the strong demographic advantages. For now, I am focusing on selected banking holdings that have a clear, long-standing competitive advantage. On the other hand, economic activity remains healthy in the Philippines supported by consumption as well as a strong pick up in property sales and I prefer the prospects for consumer-oriented businesses.

The other key markets of South Korea and Taiwan have also benefited from earnings upgrade in technology sectors driven by strong demand for memory and dual cameras and the launch of the iPhone 8 and iPhone X. I prefer long term winners such as Samsung Electronics, Taiwan Semiconductor and SK Hynix. These companies have strong core competencies and moats to benefit from the demand uptrend. Early this year, a new government was elected in South Korea. It has been emphasising chaebol reforms and better corporate governance, and we have seen an improvement in dividend payouts from bellwether names on the Korean market. I believe further adoption of better corporate governance policies will help improve Korean stocks’ valuation.

In conclusion, I would like to re-emphasise the importance of active stock picking based on a sound and proven investment philosophy. As an active stock picker supported by a large team of analysts in Asia, I have always focused on long-term returns from sound investments based on my considerable experience in the diverse Asian markets. I believe the best way to navigate the diverse range of opportunities is to have a consistent investment approach.

Teera Chanpongsang is the Portfolio Manager of the Fidelity Asia Fund

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