Asia Pacific Leaders

Within a matter of days, however, a fall in the US dollar and the threat of a rout in the US government bond market encouraged the president to impose a 90-day moratorium on introducing many of his tariffs. As the world pulled back from an outright trade war, Asian markets rallied, with the gains being led by markets in the export-dominated economies of South Korea and Taiwan. Given our enthusiasm for a number of India’s high-quality, entrepreneurial companies, we were pleased to see share prices in that country starting to rally off the lows seen earlier in the year. The rally was aided by a cut in interest rates but also, we would argue, by valuations that appear attractive in view of those companies’ long-term growth potential.

Although share prices in some parts of Asia have recovered from the sell-off seen at the start of the quarter, the on/off discussions on tariffs have undoubtedly created lingering uncertainty. Some of the companies we have met are looking ahead to a potential resumption of talks on trade through the summer. Although we won’t try to predict their outcome, we would note that business leaders are often preparing for the worst while hoping for the best. While the market waits for greater clarity on trade, we continue as usual: seeking companies led by high-quality stewards, with strong franchises and resilient financials. We have found this combination provides resilience during periods of uncertainty.

We added three new holdings to the portfolio during the quarter. SM Investments (Philippines: Industrials) is the holding company of the Sy family, who own substantial stakes in property, retail and banking companies, including one in BDO Unibank. Trip.com (China: Consumer Discretionary) is an online travel agency. It offers excellent and fully comprehensive travel services across a multilingual and multi-currency platform. It has emerged as China’s leading online travel agency, with a 60% market share¹. Sea (Singapore: Communication Services) is the dominant e-commerce platform and internet ecosystem across Southeast Asia and parts of Latin America. There were no complete sales during the quarter.

Most notable was the extent of the divergence in returns between markets in India (down) and China (up). Investors’ enthusiasm for Chinese equities was, in part, a response to DeepSeek’s impressive demonstration of the progress the country is making in AI. Market-friendly rhetoric from the government in Beijing and hopes that the United States’ trade tariffs might not prove too onerous also helped to underpin the gains. 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). We believe all three companies have the potential to benefit from China’s new emphasis on national self-reliance. Over the last five 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 during this period of adversity, 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.

We are also finding quality companies at attractive valuations in the Philippines and India. The competition between new ideas for a place in the portfolio has rarely been this intense. The result was a busier-than-normal quarter. As part of this, and in addition to the Chinese names mentioned above, we added Bank of the Philippine Islands (Philippines: Financials) and BDO Unibank (Philippines: Financials). Both banks are family owned and professionally managed. They complement our existing investment in Ayala (Philippines: Industrials), to which we also added over the quarter. In India, we added a new holding in Bajaj Auto (India: Consumer Discretionary), a leading manufacturer of motorcycles, scooters and auto rickshaws backed by a high-quality steward. 

Chinese equities gave back some gains from the dramatic autumn stimulus which challenged comparative performance in the third quarter of 2024. The performance of the Indian market index struggled after some of the largest companies in India faced governance issues that became subject to enquiry by the regulator in the United States. The re-election of Mr Trump also seemed to distract global investors from Asian equities. At Stewart Investors we continue to concentrate on bottom-up stock selection rather than overly focus on unpredictable macro news flow.

The portfolio purchased Naver (South Korea: Communication Services), South Korea’s dominant internet search engine which has significantly improved its capital allocation in recent years. We also bought Wesfarmers (Australia: Consumer Discretionary), an Australian conglomerate managing an evolving portfolio of retail and healthcare assets, and Tube Investments (India: Consumer Discretionary), a conglomerate of industrial businesses stewarded by the high-quality Murugappa family.

To control position sizes, we trimmed Mahindra & Mahindra (India: Consumer Discretionary), Kotak Mahindra Bank (India: Financials), Tata Consumer Products (India: Consumer Staples), Marico (India: Consumer Staples), Godrej Consumer Products (India: Consumer Staples), HDFC Bank (India: Financials), Tech Mahindra (India: Information Technology), Fisher & Paykel Healthcare (New Zealand: Health Care), OCBC (Singapore: Financials), Hoya (Japan: Health Care), CSL (Australia: Health Care).

During the quarter, we sold our position in Samsung C&T (South Korea: Industrials) to fund better ideas elsewhere.

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 initiated a position in ICICI Lombard (India: Financials), a conservatively run insurer set to potentially benefit from rising insurance penetration in India. We also purchased a new position in Ayala (Philippines: Industrials), a 190-year-old Filipino conglomerate stewarded by the Ayala family who in recent years have appointed the first ever non-family CEO.

During the quarter we continued to add to Techtronic Industries (Hong Kong: Industrials) and increased our position in Kasikornbank (Thailand: Financials) and Dabur (India: Consumer Staples).

We trimmed our position size in Midea (China: Consumer Discretionary). Whilst we continue to be impressed by Midea’s management team, the efficiency of their production base and their capital allocation, we are wary of the risk US and European tariffs may pose to the 40% of the business which exports goods.¹ We also trimmed HDFC Bank (India: Financials), Kotak Mahindra Bank (India: Financials), and Fisher & Paykel Healthcare (New Zealand: Health Care) to fund better ideas elsewhere.

We sold Vitasoy (Hong Kong: Consumer Staples) for liquidity reasons and to fund better ideas elsewhere.