Up close in Asia

Teera Chanpongsang
Teera Chanpongsang
Portfolio Manager, Fidelity Asia Fund10 July 2018

After a very strong 2017 - where Asian equities returned around 30% in GBP terms - the broader market has struggled to make headway over the first six months of the year. In this respect, a repeat of last year’s rally was always unlikely to materialise, although more recently sentiment has been impacted by mounting concerns over a Sino-US trade war.

In these times, it is worth reflecting that uncertainty has always been a close accompaniment of investing in the region. Navigating uncertainty is almost a day job for me but having a clear investment philosophy and a consistent process can often create opportunity at the individual company level.

I exercise considerable discipline to separate noise from reality and uncover undervalued businesses that have a strong franchise, structural growth prospects and good management teams. History has shown that such companies tend to provide a cushion to portfolio performance during volatile times and deliver gains when fundamentals re-establish themselves.

The long-term case remains compelling

Indeed, the fundamental outlook for Asia remains well supported by the multi-year structural change that is already underway in these economies. The signs are encouraging - we see attractive demographics, ongoing reform processes to revamp both social and private enterprise, rising wealth, infrastructure development and urbanisation to name a few.

An interesting development I’ve seen over recent years has been the structural growth in the penetration of banking services. For instance, in 2008, India and Indonesia had 9 and 7 commercial bank branches (per 100,000 adults) respectively. By 2016, this number had increased to 14 in India and to 17 in Indonesia.

I have always maintained that private sector banks with strong and experienced management teams will be beneficiaries as financial product penetration expands from low levels in these key markets. HDFC Bank in India is a case in point and a company that I view as best in class in its market.

China’s shifting landscape

Elsewhere, the move from offline to online consumption continues apace and is reshaping the investment landscape across the region and particularly in China. A few years ago, investing in department stores was the norm to capitalise on strong consumption growth. Now it is the online delivery mechanisms that are areas of opportunity - rather than physical infrastructure - and this is a long-term trend that is here to stay.

I view Alibaba and Tencent as long-term winners in the growing online ecosystem that includes areas such as e-commerce, payments and streaming entertainment. They are also well-placed to capture the growth opportunity in cloud computing and artificial intelligence given their strong business models.

China remains the fund’s key exposure and its size and diversity continues to provide a large number of stockpicking opportunities across both Hong Kong and mainland-listed names. Fidelity has one of the largest China research analyst teams based out of Shanghai and Hong Kong that supports my search for the best investment ideas in both the offshore and onshore markets. Looking at the latter, the fund retains exposure to the likes of Midea and Zhejiang Supor, which are market leaders in consumer appliances with a considerable breadth of products.

Outside of the consumer space, Wuxi Biologics is a high conviction holding which I consider to be a long-term winner in the Chinese pharmaceutical industry. It is the largest biologic outsourcing services provider in China, run by a reputed management team and has a high barrier of entry with client trust over intellectual property protection.

Such examples illustrate the fact that Asia remains suited for bottom-up stock picking and long-term investment. The role of the active investor will be more important going forward given last year’s rally and some of the macro uncertainty we face. Nonetheless, I believe the region offers opportunities underpinned by attractive earnings growth prospects, trading at inexpensive valuations compared to many developed markets. I aim to continue to identify such opportunities ahead of the market to deliver consistent returns.

More on Fidelity Asia Fund

Five year performance

(%)

As at 30 June

2013-2014

2014-2015

2015-2016

2016-2017

2017-2018

Fidelity Asia Fund

3.5

15.9

9.3

32.2

14.2

MSCI AC Asia ex Japan

2.1

11.8

3.5

30.4

8.1

Past performance is not a reliable indicator of future returns

Source: Fidelity International, Morningstar, 30.6.18. Basis: bid-bid, income reinvested in GBP. The fund’s primary share class according to the IA is shown. Holdings can vary from those in the index quoted, for this reason the comparison index is used for reference only.


Important information

The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.