Fidelity Asia Fund Manager Teera Chanpongsang answers some of the key questions facing investors in the region. He discusses the structural shifts that are impacting the landscape and outlines how he goes about monitoring and identifying opportunities in a region where change is the only constant.

•  Forecasting macro events is notoriously difficult and the best way to navigate external uncertainty is to focus on stock selection.

•  Sound ideas come from consistently monitoring the investment landscape to ensure the robustness of individual investment theses.

•  Asian stock markets are reflecting what is unfolding at ‘ground level’ and the rising representation of China is a prime example of this.

We live in a time of significant macroeconomic uncertainty and the recent re-escalation of US-China trade tensions is a prime example of this. Given the inherent difficulty in forecasting such short-term shifts in policy or politics, I believe that the best way to control risk is to fully understand the companies that I’m investing in.

As a result, I spend more time focusing on individual stock selection – rather than fixating on the latest headline or tweet – to ensure the robustness of individual investment theses of the companies I hold in the Fidelity Asia Fund. My strategy is to identify high quality stocks with robust business models and strong management teams, where the current stock price does not reflect these fundamentals.

Change is constant

Sound investment ideas come from consistently monitoring the investment landscape and identifying how new business models and even new industries are emerging.

Change is the only constant when it comes to investing in Asia and nowhere is this more apparent than in China. For instance, domestic consumption opportunities have changed from investing in traditional bricks and mortar department stores and supermarkets to investing in e-commerce, social networking apps, gaming and so on. The listing of Alibaba, the flagship Chinese e-commerce company, in 2014 and its subsequent growth as a stock market giant is emblematic of this.

The stock market is reflecting what is unfolding at ‘ground level’ and the rising representation of China in broader Asian and emerging markets indices is an acknowledgment of the size and importance of the Chinese economy. For example, China’s weighting in the MSCI Asia ex Japan Index has increased from less than 1% in 1999 to around 37% now. This is set to rise further when the MSCI scales up the A-share inclusion by the end of 2019.

Change is the only constant when it comes to investing in Asia and nowhere is this more apparent than in China.

The portfolio has significant exposure to the Chinese market with several key holdings related to the structural shifts we are seeing occur in consumption related areas. Baiju (Chinese liquor) producer Kweichow Moutai is one such example. I invested in the company at a relatively undemanding valuation when it was out of favour amid a demand downtrend a few years ago. Its unique product, strong brand, well-developed distribution network and aspirational consumption value have made this an attractive investment opportunity and while it has performed strongly over recent times I remain positive on the outlook.

The opportunity in financials

The consumption story in China and the rest of Asia is still at a relatively early stage and has a long runway of growth as incomes rise and spending habits change. This is impacting a range of stocks and sectors – particularly financial services where there is a significant growth opportunity given the low penetration of services and products like insurance, loans and even bank accounts in some countries.

Notably, financials represent the largest sector weighting in the fund today with exposure spanning several different countries across the region. Insurer AIA Group is a key holding in the portfolio. It has a strong regional presence and benefits from structural growth in Asia’s underpenetrated insurance markets.

Among private sector banks, HDFC Bank and Bank Central Asia are held for their strong market positions. They also have robust deposit franchises that support low cost of funds and high asset quality. I view both of these banks as beneficiaries of the structural growth in the penetration of financial products in their respective markets.

 

 

 

This information is for investment professionals only and should not be relied upon by private investors. Past performance is not a reliable indicator of future returns. Investors should note that the views expressed may no longer be current and may have already been acted upon. The Fidelity Asia Fund has the potential of having high volatility either from its composition or the techniques used to manage it. The fund can use financial derivatives which may expose it to a higher degree of risk and can cause investments to experience larger than average price fluctuations. Investments in small and emerging markets can be more volatile than other more developed markets. Changes in currency exchange rates may affect the value of investments in overseas 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.