Asia Pacific and Japan All Cap

Martin Lau is one of the Managing Partners of FSSA Investment Managers. He has been with the team for more than 23 years (since 2002) and worked closely with members of the SI team before the 2015 reorganisation. He is a well-known and experienced investor and is lead manager of a number of FSSA strategies, including FSSA Asian Equity Plus, FSSA Asia Focus, FSSA China Growth and FSSA Hong Kong Growth. Martin has more than 30 years of investment experience and is also based in Hong Kong.  

Rizi and Martin are supported by a broader team of investment analysts, with an average of 16 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. 

Kotak Mahindra Bank (KMB) is one of India’s leading financial services companies – it has consistently improved the strength of its deposit franchise and maintained better asset quality than peers through the business cycle. While the founder, Uday Kotak, has stepped down from his managing director/CEO role due to the central bank’s limits on leadership terms, he remains closely involved as a board director and should ensure that the bank’s risk awareness and long-term thinking is maintained. Meanwhile, the new CEO (Ashok Vaswani) aspires to grow the business further by focusing on consumer banking and digitisation. We expect to see a growing trend of formalised financial savings, benefiting KMB’s insurance, mutual funds and asset management businesses. 

Mediatek is one of the largest chip design companies globally. We have been following Mediatek for many years and have witnessed its performance through the cycles. Throughout the ups and downs in its history, its talented engineers and well-aligned management team usually find a way through to the next “big thing”. From optical drives for computers to scan CDs, it entered the smartphone supply chain with 2G modem chips and benefited from technology upgrades each year – until it collapsed in 2015-17 amid poor execution and competition from both low- and high-end competitors. In 2018 Rick Tsai joined Mediatek from TSMC and focused on getting the basics right again. We believe Mediatek has been transformed under his leadership into a better-quality company. In recent years, the company has improved its competitiveness, and we believe its market share will likely remain stable. With the smartphone market now in the mature stages, the company is investing into new areas (ASIC, auto, augmented reality/virtual reality, Internet of Things, artificial intelligence) to diversify and internationalise its business in the long run. 

Complete sales: 

Milkyway Intelligent Supply Chain is a chemical materials logistics company in China. We sold out of the position on concerns about leverage and poor cash generation. 

Naver was sold on strength to consolidate the portfolio into higher conviction ideas. While the shares have bounced due to excitement around Korea and AI, we believe the business faces structural challenges in terms of slowing e-commerce growth, and we have been concerned about their lack of financial discipline in the past. 

Motilal Oswal Financial Services is a non-bank financial company (NBFC) in India. We sold out of a lower conviction holding to raise cash for better ideas elsewhere. 

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 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 the returns of all our strategies, including Asia Pacific and Japan All Cap, have been built.

This strategy’s manager has not changed. Doug Ledingham 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 two new holdings while making no complete sales. 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.

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