Asia Pacific and Japan All Cap

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 over the quarter. Trip.com (China: Consumer Discretionary), a leading online travel agency, is set to benefit from the growth in the number of Chinese tourists travelling both domestically and overseas. Similar companies in the US and Europe have shown how attractive the economics of online travel platforms can be and have shown the tendency for market leaders in this industry to dominate their smaller rivals over time. Sea (Singapore: Communication Services) is the parent company of the Southeast Asian e-commerce retailer Shoppee. It has built a strong presence across the region by offering attractive prices, a wide selection and reliable delivery. We expect it to benefit from the growth of e-commerce across the region, from its expansion into the Brazilian market and by offering credit to Shoppee users and merchants. 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.

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).