Asia Pacific and Japan All Cap

Most notable was the extent of the divergence in returns between markets in India (down) and China (up). Investors’ enthusiasm for Chinese equities came in response to DeepSeek’s impressive demonstration of the progress the country is making in AI, some market-friendly rhetoric from the government in Beijing and hopes that the United States’ trade tariffs might not prove too onerous. In contrast, while there was relatively little news from India, share prices fell back from elevated levels, as they did in many other parts of the world; returns from the Indian market over the quarter were broadly in-line with those from markets in the United States.

During the quarter, we added new positions in S.F. Holding (China: Industrials), Mindray (China: Health Care) and Alibaba (China: Consumer Discretionary). S.F. Holding is China’s number one provider of logistics and is well placed to benefit from the growth in time-sensitive logistics across Asia more broadly. Mindray is a global leader in affordable medical devices and is steadily climbing up the value chain. Alibaba has an important role to play in China’s new emphasis on increasing national self-reliance, particularly in the realms of AI and cloud computing. In recent years, the stewards of Chinese companies have, often for the first time, been tested by genuine economic and political adversity. They have applied the lessons learned, strengthening their franchises and balance sheets. This, in combination with valuations that appear modest by global standards, means we have been identifying a greater number of new investment ideas in China.

Elsewhere, we added a new holding in Ayala (Philippines: Industrials), a high-quality, family-owned conglomerate whose new management is focused on improving lacklustre returns. In India, we added new holdings in Triveni Turbines (India: Industrials), a leading manufacturer of steam turbines and Bajaj Auto (India: Consumer Discretionary), a leading manufacturer of motorcycles, scooters and auto rickshaws backed by a high-quality steward. These are high-quality franchises whose share prices had been weak.

Most notable was the extent of the divergence in returns between markets in India (down) and China (up). Investors’ enthusiasm for Chinese equities came in response to DeepSeek’s impressive demonstration of the progress the country is making in AI, some market-friendly rhetoric from the government in Beijing and hopes that the United States’ trade tariffs might not prove too onerous. In contrast, while there was relatively little news from India, share prices fell back from elevated levels, as they did in many other parts of the world; returns from the Indian market over the quarter were broadly in-line with those from markets in the United States.

During the quarter, we added new positions in S.F. Holding (China: Industrials), Mindray (China: Health Care) and Alibaba (China: Consumer Discretionary). S.F. Holding is China’s number one provider of logistics and is well placed to benefit from the growth in time-sensitive logistics across Asia more broadly. Mindray is a global leader in affordable medical devices and is steadily climbing up the value chain. Alibaba has an important role to play in China’s new emphasis on increasing national self-reliance, particularly in the realms of AI and cloud computing. In recent years, the stewards of Chinese companies have, often for the first time, been tested by genuine economic and political adversity. They have applied the lessons learned, strengthening their franchises and balance sheets. This, in combination with valuations that appear modest by global standards, means we have been identifying a greater number of new investment ideas in China.

Elsewhere, we added a new holding in Ayala (Philippines: Industrials), a high-quality, family-owned conglomerate whose new management is focused on improving lacklustre returns. In India, we added new holdings in Triveni Turbines (India: Industrials), a leading manufacturer of steam turbines and Bajaj Auto (India: Consumer Discretionary), a leading manufacturer of motorcycles, scooters and auto rickshaws backed by a high-quality steward. These are high-quality franchises whose share prices had been weak.

During the last few days of the quarter the Chinese central bank and government announced monetary and fiscal stimulus measures for the economy, causing Chinese stocks to rally significantly. Whilst it is heartening to see the Chinese authorities attempting to address the problems within the economy it remains unclear whether this stimulus will adequately address broader structural issues like the lack of consumer demand.

The portfolio purchased Yiheda Automation (China: Industrials), China’s leading supplier of factory automation components. This is a model we have seen create large, profitable businesses elsewhere in the world. Due to the capital intensity of these businesses and the close relationships they form with customers the early leaders tend to be difficult for newcomers to catch up with. Whilst Yiheda are currently affected by falling industrial demand, in the long run we believe they have the opportunity to consolidate a growing market that is still largely dominated by small family run businesses.

During the quarter we added to Aavas Financiers (India: Financials). We also took advantage of lower valuations in businesses exposed to China to add to AirTAC International (Taiwan: Industrials) and Inovance (China: Industrials).

We sold RBL Bank (India: Financials) and Hamamatsu Photonics (Japan: Information Technology), both of which were smaller positions where conviction waned over time. We also sold Kotak Mahindra Bank (India: Financials) to fund better ideas elsewhere.

We controlled the position size of our large holding in Mahindra & Mahindra (India: Consumer Discretionary), and trimmed Fisher & Paykel Healthcare (New Zealand: Health Care) and Unicharm (Japan: Consumer Staples).

During the quarter the portfolio initiated a position in Samsung Electronics (South Korea: Information Technology). The company is a leader in consumer electronics and chip manufacturing. Over the past 50 years Samsung has emerged as a leader in its cyclical markets due to the conservatism and longtime horizon that is has been managed with. During the good times management set aside cash to be used to acquire and outlast rivals when the cycle turns. This simple, yet effective, approach sets them aside from rivals and has allowed them to consolidate previously fragmented semiconductor markets. Recently we have been pleased to see governance improvements within the Samsung Group and have initiated a position at a reasonable valuation.

We took advantage of a lower valuation to add to SHIFT (Japan: Information Technology) and elsewhere, reflecting our conviction in their quality and long-term prospects, we continued to add to our positions in AirTAC International (Taiwan: Industrials), Voltronic Power (Taiwan: Industrials), Techtronic Industries (Hong Kong: Industrials), MonotaRO (Japan: Industrials), Japan Elevator Service (Japan: Industrials), Mainfreight (New Zealand: Industrials), Aavas Financiers (India: Financials), Samsung Electronics (South Korea: Information Technology), and Anest Iwata (Japan: Industrials).

We trimmed Mahindra & Mahindra (India: Consumer Discretionary) and CG Power (India: Industrials) to control the size of their position within the portfolio. We trimmed Marico (India: Consumer Staples) due to valuation concerns and reduced Tech Mahindra (India: Information Technology) to invest in better ideas elsewhere.