Asia Pacific Leaders

The second largest contributor was Taiwan Semiconductor Manufacturing (TSMC), the leading semiconductor foundry, as recent earnings results were stronger than expected. With AI demand driving higher profits and strong guidance for the year ahead, the company announced new capital expenditure plans to try and narrow the gap between its supply of advanced nodes and customer demand.

The third largest contributor to performance was another Taiwanese firm, Delta Electronics, which manufactures power-supply systems. Like Samsung and TSMC, Delta has seen surging profits thanks to AI demand, as the company has a dominant share in power-supply solutions for Big Tech firms. New AI chips consume more power, and Delta’s dominant market share means it is well positioned to earn more revenue from its existing customer base as data-centre construction continues. While Delta’s electric vehicle (EV) division has suffered of late due to sluggish demand, this weakness is increasingly overshadowed by the strength of its data-centre business.

On the negative side, HDFC Bank was the largest detractor from performance, as the bank continued to face a challenging operating environment and improvement in net interest margin has been slower than expected. The resignation of the chairman also led to concerns. However, we have spoken with the management and joined a call with the new interim chairman Keki Mistry, who we respect. We feel comfortable about the governance and the quality of its franchise – in particular, its deposit franchise and underwriting culture/capability remain solid and a standout amongst banks. Valuations have declined to levels not seen before, even during the Global Financial Crisis or the Covid-19 pandemic, and we find this to be very attractive, given HDFC’s leading deposit franchise and pristine balance sheet. We believe returns can improve and book value can compound at a mid-teens rate which is attractive in absolute terms

The second largest detractor from performance was Tencent, the biggest social media network and online gaming company in China, with growing businesses in online advertising, cloud services, e-payments/e-commerce and overseas gaming. The share price declined after the company announced it would reduce its share buybacks to support accelerated investment in AI. We recently met the company to discuss its AI strategy, and came away with our conviction strengthened. Tencent has been hiring experts in the field and is developing an in-house LLM. Over the longer term, we believe Tencent should benefit from AI thanks to its unique advantages: a massive user base across WeChat, games and payments; rich first-party data; and integrated advertising and content systems.  We have been using the recent weakness to build up a meaningful position in the company.

The third largest detractor was Trip.com, China's dominant online travel platform, with around 70% market share. The company fell sharply in January following news of an anti-monopoly investigation by Chinese regulators (the company is cooperating fully with the investigation). This was compounded by investor fears that large language models (LLMs) could disrupt its business. However, the company’s proven track record in handling the real-world complexities of payments, cancellations and customer service, not to mention relationships with hundreds of thousands of hotels and other travel providers, give it key competitive advantages. Recent earnings results have been positive, and we expect Trip.com to benefit from continued travel demand in China.

New purchases over the quarter

SK Hynix is a leading semiconductor company in Korea. It has a solid position in the DRAM and NAND memory markets, but more importantly, it is the leader in High-Bandwidth Memory (HBM) that is now being optimised for AI use. While traditional DRAM and NAND memory has become commoditised and commands little pricing power, HBM is built around annual contracts, long lead times, and high capital intensity. Customers like NVIDIA must commit to volumes well in advance, and vendors must make investment decisions based on those commitments. This order-based model introduces more predictability and customer stickiness (though it also increases execution risk and dependence on a few large buyers).

Quanta Computer is a major manufacturer of laptops and telecommunications equipment. Having successfully anticipated shifts in the computing industry, the company has in recent years become a leader in server design. It is now the second-largest supplier of general servers to major cloud-service providers such as Meta, Google, Amazon Web Services and Microsoft. It also has significant market share in advanced AI servers.

XCMG Construction Machinery is a leading construction equipment maker with market-leading positions across its comprehensive product portfolio. Due to legacy state ownership, lack of alignment and core businesses being kept outside of the ListCo, XMCG had not performed well in the past, but the recent mixed shareholding reforms (in 2022) provided a positive catalyst for change. XCMG has introduced an employee share ownership plan (ESOP) and is focused on improving its operational efficiency and shareholder returns. We believe XCMG can become a much stronger company in time, which could drive meaningful earnings growth.

Complete sales over the quarter

We continued to sell out of expensive holdings in India where the risk/reward looks poor compared to other, more compelling opportunities. Complete sales over the quarter included Bajaj Auto, a leading automotive manufacturer focused on 2- and 3-wheelers; Info Edge, a leading recruitment and real estate classifieds platform; and Marico, a leading consumer business with a dominant share in branded coconut oil.

While all of them have attractive franchises with decent growth prospects and are helmed by management teams we like and respect, we would want to own them at cheaper valuations. We believe an important contributor to returns over the longer term is to stay disciplined on valuations.

Looking forward

We remain optimistic on the outlook for Asian equities. While the Middle East conflict, and its impact on energy prices, will likely result in elevated short-term market volatility, our quality bias means that our holdings should remain fundamentally resilient. Although Asia is heavily dependent on the Middle East for its energy needs, the emerging markets universe has historically operated in a more inflationary and volatile environment, and we have taken this into consideration in our stock selection.

In the long run, we believe Asia should continue to benefit from the shift towards higher value services-led growth, digital transformation and the ongoing financialisation across the region. Valuations look attractive in comparison to developed markets like the US, while low ownership of Asian equities in global portfolios provides a good backdrop for absolute returns as global liquidity flows eastwards.

As markets start to broaden from their narrow focus on AI, we believe quality businesses owned in the portfolio should do well. We have invested in companies with high-quality management who think long term and counter-cyclically, operating in industries with deep moats that support predictable and strong returns on capital. They are running businesses with solid pricing power due to strong brands, high switching costs, or strong network effects, and with conservative balance sheets where cash exceeds debt. We are confident that their strong fundamentals will translate into attractive shareholder returns in the long run.

Latest insights from the FSSA team

We have written short articles on companies, investment trends and market themes across our various strategies, which are available to read on the FSSA website.

Our latest piece “Against the current” discusses the reasons why high-quality companies are being overlooked amid the artificial intelligence boom and resurgence in cyclical stocks. FOMO is beating fundamentals; but these trends are creating opportunities for quality-focused investors in Asia and emerging markets to accumulate attractive businesses at lower valuations. 

Rizi Mohanty is a Portfolio Manager at FSSA Investment Managers. He joined the team in 2016 and focuses on the Southeast Asian markets as well as Asia ex-Japan equities more broadly. He is the lead manager of the FSSA ASEAN All Cap and FSSA Asian Growth strategies. Rizi has more than 14 years of investment experience and is also based in Hong Kong.  

Martin and Rizi are supported by a broader team of investment analysts, with an average of 14 years of investment experience and 8 years tenure with the team. All 15 members of the FSSA investment team are analysts first and foremost, including the portfolio managers, and we spend the majority of our time meeting companies, writing research and seeking quality companies to invest in. 

How we invest

FSSA’s investment philosophy, which shares its genesis with SI, has remained broadly unchanged since the First State Stewart team was established in 1988. We focus on identifying quality companies, buying them at a sensible price and holding them for the long term. Most importantly, we invest our clients’ capital as if it were our own. As long-term investors and owners of businesses on behalf of our clients, we look for founders and management teams that act with integrity and risk awareness, and dominant franchises that have the ability to deliver sustainable and predictable returns over the long term.  

As a team, we conduct over 1,000 direct company meetings each year across Asia and other emerging markets. The most significant source of investment ideas comes from these company visits and country research trips. We find that our reputation as patient, long-term investors has given us unparalleled access to management, which allows us to gain valuable insights and a thorough understanding of the businesses we want to invest in. 

As a result of our long-term time horizon and conservative investment approach, our portfolios – and our performance – can look very different to the index. We shy away from “flavour of the month” themes (such as the current AI-driven boom), and instead look for high-quality companies that can deliver attractive returns for much longer than the market expects – and extend our investment time horizon to capture that advantage. When you own quality businesses, time isn’t a risk – it’s an asset. 

Our performance may lag in very buoyant or momentum-driven markets, but we usually compensate very quickly once such bubbles burst. Based on historical data, our long-term track record shows that our portfolios tend to perform better in “normal” markets (-15% to +15% returns over one year) and bear markets (more than 15% decline), than in steeply rising markets (defined as over 15% returns over one year). 

A smooth transition 

Given the significant overlap in SI’s and FSSA’s investment philosophy and portfolios, we know all the holdings well. As part of the transition, we made a few changes to tilt the portfolio towards companies with stronger cash generation, higher returns and better long-term growth prospects. In general, we are adding to holdings in China, where we have found leading businesses like Tencent, with strong competitive advantages and attractive growth at reasonable valuations. We are reducing exposure to India, mainly in cyclical businesses like Tube Investments of India and Motilal Oswal, where valuations are expensive and the growth outlook has deteriorated. 

Below, we highlight a few of the key additions and disposals over the fourth quarter of 2025.  

New purchases:

Tencent Holdings is the largest social media network and online gaming company in China, with growing businesses in online advertising, cloud services, e-payments/e-commerce and overseas gaming. Tencent has created an ecosystem of businesses which are unrivalled and should continue growing over the medium term. It has continued to develop new functions within WeChat (such as Video Accounts and Mini Shops), which should slowly improve monetisation and enhance the quality of the franchise. At FSSA, we have been shareholders of Tencent since 2005 and have consistently found the management to be effective long-term stewards of the business. In recent times, we have been impressed by Tencent’s AI strategy and its disciplined approach to technology investments, which aligns with our conservative view on AI capex spending. 

Realtek is an integrated circuits (IC) design company based in Taiwan which focuses on connectivity solutions such as WiFi, Ethernet and Bluetooth. While wireless technology is relatively mature and seemingly commoditised, there does seem to be some differentiation between providers. With rising competition from Chinese chip designers who often undercut on price, Realtek is focusing more on value-added products and has targeted applications with higher tech requirements, such as Edge-AI devices and AI glasses. We are optimistic that Realtek will be able to fend off the competition with higher barriers to entry as it moves up the value chain, and that margins should improve due to the product mix. The company has a long history and good track record and should benefit from the broadening use of AI in on-device AI agents. 

H World is the second largest hotel chain in China. The company has emerged as a dominant force in China’s hotel industry, with a strong brand portfolio and deep operational expertise. H World is widely regarded as an industry innovator, with a strong focus on digital infrastructure and IT systems. These investments have helped it become a cost leader in the sector, while its membership programme has emerged as a key driver of organic traffic and customer retention. We believe H World has a long runway of growth as it taps into China’s rising domestic travel demand, urbanisation and upgraded consumer preferences. H World’s significantly larger economies of scale – and its pricing premium over other hotels in similar locations – should drive outsized profit in the long run. 

Complete sales:

SF Holdings is a leading express logistics company in China with directly managed model. However, we question the sustainability of the franchise in a highly competitive and somewhat commoditised industry. From a regional portfolio perspective, we believe there are better opportunities elsewhere. 

Tech Mahindra was sold on expensive valuations. It appears to be priced for a turnaround, while the IT services industry is undergoing a period of weakness due to AI disruption and a halt in discretionary spending. We believe there is better risk/reward elsewhere.

Glodon is a leading construction software vendor in China. We have known the company for many years. The challenges related to the property sector mean that the growth outlook is unattractive. Based on the current near-term weakness, we believe the valuation does not adequately account for the risks. 

Performance and outlook

With our long-term investment time horizon, we tend not to pay much attention to short-term market fluctuations. We invest on at least a three-to-five-year view, though we often hold on to companies for much longer. In an industry rife with short-termism, we believe our long-term approach stands out from the crowd. 

What we have seen, over the past few decades, is that average holding periods for stocks have fallen from over eight years in the 1960s to less than six months today.  Yet this shift has come at a cost: it reduces investors’ ability to generate outsized returns that are materially different from the broader market. The reason is simple — as investment horizons shrink, so does the return dispersion between the best- and worst-performing companies. With less time in the market, investors end up tracking the index, not beating it. 

While the list of portfolio-management responsibilities within our team looks different now than it did when the quarter began, on a deeper level, nothing has changed: the philosophy and approach that has defined Stewart Investors since 1988 is deeply engrained and continues to define what we do. Our structure is flat. Every member of the investment team is first and foremost an analyst and our collective focus is on identifying high-quality companies, with resilient financials, guided by ambitious stewards. This is the bedrock on which returns from all our strategies, including Asia Pacific Leaders, have been built.

We cherish our team-based approach to identifying high-quality companies

Before being appointed as the lead manager of the Asia Pacific Leaders strategy, Doug Ledingham was already the manager of a number of Stewart Investors’ other Asia Pacific strategies, including the UK-listed Pacific Assets Trust. Those strategies invest in many of the same companies as Asia Pacific Leaders. Doug, meanwhile, continues to apply the same principles to managing this strategy that have guided it since its launch, working as part of the same tight-knit group of investment analysts and drawing on a common pool of investment ideas. He recently wrote a piece explaining why we consciously resist the growing pressure to focus on the short term:

“At Stewart Investors, we have always sought to occupy a space that protects our clients’ capital. One of the threats we are striving to protect it from is short-termism: from the incessant distraction provided by 24-hour news, from the temptation to digest every morsel of noise, from the danger of trying to react to every macro data point or tweet, and from the pressure to fixate on quarterly earnings. That’s increasingly important in a world where long-term thinking is in increasingly short supply.”

You can read the rest of the piece here: Slow has all the power: why we invest alongside long-term owners. 

Investing in the ‘picks and shovels’ of the AI boom while focusing on the long term 

Our clients have understandably been keen to discuss the changes that have taken place within our business. Set against that, however, we have been careful to ensure that the majority of our time and attention remains on companies. As part of this, we have been discussing the broader forces being felt by companies across the Asia Pacific region, particularly the extraordinary surge of investment in the build out of AI infrastructure. Although AI is often viewed as a US-focused phenomenon, many of the leaders in this space are actually found in Asia rather than America. They include the manufacturers of the advanced semiconductors that supply computing power to AI data centres, the companies whose technology tests those semiconductors for reliability, and the suppliers of essential components to data centres, such as uninterruptible power supplies. 

Many of the immediate financial beneficiaries of the AI infrastructure boom have, therefore, been suppliers of its ‘picks and shovels’. We are cognizant of the intense geopolitical pressures that surround some of these companies, such as the desire of the US to ‘nearshore’ production of semiconductors or to keep the most advanced chips out of the hands of its perceived strategic enemies. These carry the potential to influence corporate behaviour in a way that may not necessarily be to the advantage of long-term shareholders. This is something we are debating and watching closely. 

To deepen their understanding of this subject, two members of our team recently visited South Korea, which, along with Taiwan, is at the heart of the global semiconductor industry. Korea is also enacting corporate governance reforms designed to improve shareholder returns. Recent trip reports from Indonesia, India and the Philippines are available on our Insights page, and a report from South Korea should be available next quarter.

A final illustration of continuity over the past quarter: turnover within the portfolio remained typically low. We added three new holdings while selling five. The final section of this update describes the reasoning behind those changes. Our longstanding clients have grown accustomed to seeing modest levels of turnover within the portfolio and, while there may be periods when turnover waxes and wanes, they should not expect that to change. 

Looking ahead

Today, our companies generally enjoy lower leverage (less debt) and generate higher free cashflows than the benchmark index. This gives them a buffer against any renewed macroeconomic volatility or geopolitical instability. We believe they can use their financial strength to take advantage of any renewed short-term uncertainty and to extend their advantage relative to their peers. Those companies also have multi-year opportunities for growth in front of them. 

At a time of change in markets, trade and geopolitics, our underlying approach remains consistent: we continue to focus on generating attractive returns over the long term rather than attempting to outperform through every short-term period. We look forward to demonstrating the fruits of that approach over the years and decades to come.

Activity

New holding: AIA (Hong Kong: Financials)

Over the course of more than a century, AIA has steadily developed a distinct culture combining a conservative approach to investment with an entrepreneurial structure. Its business is built around a high-quality salesforce who foster long-term relationships with its customers. AIA demands higher levels of professionalisation from its agents than many of its peers, who often rely on armies of part-time agents. Although this means there have been times when AIA has grown more slowly than its peers, putting the needs of its customers above drive for short-term expansion has enabled it to build a premium brand. It now has an opportunity to grow by fulfilling unmet insurance needs across China, India and Southeast Asia. While those countries are getting richer, they lack social safety nets, making insurance products a necessity. This is especially true in China, where the regulator has recently allowed AIA to expand into new regions beyond its historical areas of strength in Beijing, Shanghai, and the Pearl River Delta.

New holding: Jardine Matheson (Hong Kong: Industrials)

Jardine Matheson is a complicated company whose journey towards greater simplicity and professionalisation has the potential to reward patient investors. The current chairman, Ben Keswick, took over from his uncle in 2019. He inherited a sprawling Asian conglomerate whose interests span retail, property, financial services, healthcare, autos, construction equipment, hotels and mining. He has steadily divested non-core assets in a way that would have previously been unthinkable. One result is that debt, excluding financial services operations, fell by more than a fifth over the first half of 2025.¹ His vision is to appoint high-quality professionals to run the company’s business units, give them well-defined targets and then grant them autonomy to hit those targets. He keeps a deliberately low profile and acknowledges the missteps the business made over the past decade. Both are valuable signals of humility and an openness to change. 

A new chief executive, Lincoln Pan, is due to join later this year. His initial focus seems likely to be on Astra, the listed Indonesian conglomerate, in which Jardine own a majority stake and which is a major contributor to group cashflows. Political uncertainties are an overhang in Indonesia. But as we discussed in a recent report– Is Indonesia still ‘at a crossroads’? – investing in companies who have been able to grow and refine their franchises, and to generate returns for their shareholders irrespective of the wider flux in Indonesia’s economy and politics, is an exciting prospect. Astra currently trades on price-to-book and price-to-earnings multiples not seen since the global financial crisis; one of Mr Pan’s goals will be to change that. Jardine Matheson is some distance from being the highest quality company in our portfolio, but we believe that will start to change over time.

New holding: Singtel (Singapore: Communication Services)

Adding up the market value of Singapore Telecommunications’ (‘Singtel’) various businesses produces an interesting result. The combined value of its shares in Globe Telecom of the Philippines, Indonesia’s Telkomsel, India’s Bharti Airtel, Thailand’s AIS and its parent Intouch along with its holdings in Singapore Post and fibre optic network Netlink gives a total implied valuation above Singtel’s current market value. That implies that its two core businesses, SingTel and Optus, an Australian telecoms network, have a negative value, despite having 4.5 million and 10.7 million mobile customers respectively.² This is suggestive of the extent to which Singtel remains out of favour among investors despite the fact that, under the leadership of Kuan Moon Yeun, we believe it is better-managed than it has been for some time. Since 2021, he has been refocusing on its core telecoms businesses by disposing of non-core assets acquired under the previous leadership, which made an ill-fated and costly attempt at diversification by venturing into unrelated areas such as digital marketing and online advertising. While the growth potential of its core units is undeniably limited, they deliver steady, predictable and diversified cashflows. Given that Temasek, Singapore’s state-owned investment arm, is its majority owner, it would appear to serve the interests of the government to ensure that Singtel keeps generating cashflows and healthy dividends.

Sold: Advantech (Taiwan: Information Technology)

Amid market exuberance towards parts of the technology sector, we have trimmed our exposure to it by selling the holding in industrial ‘internet-of-things’ company Advantech, where our levels of conviction were dwindling and whose valuation had begun to appear demanding.

Sold: Dabur (India: Consumer Staples)

Dabur directly contributes to improving the health and wellbeing of the Indian population by selling herbal and Ayurvedic products covering hair care, oral care, health care, skin care, home care, food and beverages. A net cash balance sheet and emerging franchises outside of India provide resilience and potential for further growth. But how much more growth can we reasonably expect? Our sale was a recognition that the valuation being awarded to its shares left no room for disappointment.

Sold: Tata Communications (India: Communication Services)

Tata Communications is in the midst of a transformation, evolving from a utility company into a technology business partner, offering a range of digital services and solutions to its clients. While profitable, this is also a highly competitive area and the valuation of its shares left little room for disappointment. As a result, our conviction here has weakened. We can now find stronger ideas – and better homes for our clients’ capital – elsewhere.

Sold: Tokyo Electron (Japan: Information Technology)

Tokyo Electron sells manufacturing equipment to semiconductor foundries such as Samsung Electronics and TSMC. Having grown increasingly concerned about the valuation on which its shares trade, we believe we can find better homes for our clients’ capital elsewhere.

Sold: Unicharm (Japan: Consumer Staples)

Through the 2010s, Unicharm sold an increasing number of nappies to an aging Japanese population, but we failed to anticipate the difficulties it would encounter in replicating its success in other parts of Asia. With the benefit of hindsight, we misidentified the challenges that confront Unicharm. We believed it was encountering shorter-term, cyclical pressures; in reality, those headwinds are structural. After meeting the company’s management, we concluded it is not responding to tougher competition and decreasing brand loyalty sufficiently quickly. We should have sold our holding sooner.

[1] Source: Jardine Matheson Analyst Presentation: 2025 Half-Year Results, pg 15.

[2] Source: Singtel: Annual Report 2025.