Asia Pacific All Cap

Motilal Oswal Financial Services (India: Financials) is a financial conglomerate operating in retail and institutional broking, asset management, wealth management, investment banking, and housing finance. It is led by an ambitious-but-conservative steward and should benefit from meeting the savings and investment needs of India’s growing middle class. ICICI Lombard (India: Financials) is a private-sector general insurance provider. General insurance is one of the lowest penetrated services in India but Prime Minister Modi is committed to a programme of delivering ‘insurance for all’ by 2047; we believe it will benefit from this drive. Lastly, we added SM Investments (Philippines, Industrials), a conglomerate stewarded by the Sy family. It has investments in property, banking, and retail while also venturing into new areas such as logistics and geothermal energy.

To fund these purchases, we sold Hangzhou Robam (China: Consumer Discretionary), Bajaj Housing Finance (India: Financials) and Dr. Lal PathLabs (India: Health Care). We also sold Unicharm (Japan: Consumer Staples) due to concerns over its growth prospects.

We estimate that, of the holdings in our Asian portfolios, roughly three-quarters are primarily focused on selling to their domestic markets, offering them a useful buffer amid ongoing concerns about potential disruptions to international trade. With valuations across Asia currently standing at what we regard as extremely attractive levels, we remain confident in the prospects for returns from our carefully selected high-quality companies.

1 Source: Straits Times, 21 December 2023 ‘China is world’s second-largest economy but its passport is ranked 63rd. Are things looking up?’.

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.

We sold out of ResMed (Australia: Health Care) partly for valuation reasons and partly due to its potential susceptibility to changes in US tariff policy. Similarly, we sold out of Syngene (India: Health Care), Dr. Reddy’s Laboratories (India: Health Care) and Cyient (India: Information Technology) because of their vulnerability to policy changes from the White House. We sold the holding in Tata Consumer Products (India: Consumer Staples) on valuation grounds. Finally, we sold ICICI Lombard (India Financials), IndiaMART (India: Industrials) and Koh Young Technology (South Korea: Information Technology). These were small positions and we had better ideas elsewhere.

To help finance the additions mentioned above, we trimmed our holdings in companies whose cashflows we believe are at greatest risk from the imposition of new tariffs by the Trump administration, such as CSL (Australia: Health Care), Fisher & Paykel Healthcare (New Zealand: Health Care) and Tech Mahindra (India: Information Technology). We continued to reduce the holding in TSMC (Taiwan: Information Technology) as evidence continued to mount that it is losing its discipline around capital expenditure.

As the long period of US exceptionalism draws to an end, we hope investors will begin to pay attention to the abundance of attractively valued companies to be found in the Asia Pacific region. Clearly, if the US economy falters and global demand falls, then economies across Asia will be impacted, albeit to differing degrees. We are also conscious that political risks appear to be rising in many Asian countries. Those risks, however, are far from uniform. The region’s technology complex, centred around Taiwan, South Korea and China, would appear to be particularly vulnerable to a global slowdown. India, by contrast, remains a domestically driven growth story and, as such, is somewhat isolated from the tumult in the global economy. The Philippines, meanwhile, could receive a significant economic boost if a global slowdown results in a meaningful fall in oil prices.

Predicting how any of today’s economic and geopolitical challenges will play out lies beyond our remit and our skillset. Fortunately, the Asian companies we invest in tend to have long memories; they still have the scar tissue formed during previous crises. These businesses have been forced to learn, to adapt and to become resilient. As a result, we believe they are set up not only to perform when conditions are fair but to navigate through whatever political and economic turbulence lies ahead.

Views on investment opportunities in Asia have not changed; the strategy continues to look to invest in high-quality companies that are aligned with sustainable development. We look for stewards who are low profile, competent, long-term decision makers, franchises free from political agendas and financials that are resilient, not frail. Our focus is on quality, and we remain indifferent to many of the large, well-known companies, regardless of lower valuations.

Views on investment opportunities in Asia have not changed; the strategy continues to look to invest in high-quality companies that are aligned with sustainable development. We look for stewards who are low profile, competent, long-term decision makers, franchises free from political agendas and financials that are resilient, not frail. Our focus is on quality, and we remain indifferent to many of the large, well-known companies, regardless of lower valuations.