Asia Pacific Leaders

The third largest contributor to performance was Lite-On Technology, which reported better-than-expected earnings results, with operating profits ahead of forecasts on strong data centre demand. Management has lifted guidance on full-year sales growth, based on order visibility from AI clients, with strong momentum expected to roll forward into next year.

On the negative side, SK Hynix, Samsung Electronics and Silergy declined alongside a broader sell-off in technology companies. Concerns about high valuations and unfunded capital expenditure plans fuelled negative market sentiment and led to the unwinding of margin trades in these crowded sectors.

New purchases over the quarter

We initiated a position in Samsung Electronics (preferred) by switching from the ordinary shares. The two classes have essentially the same economic exposure, but we believe the discount should narrow between the two, and the preferred shares trade at a lower price and therefore offer a higher dividend yield.

Bajaj Finance is India’s leading non-bank financial company (NBFC). Bajaj Finance began with vehicle finance and consumer durable lending and has now expanded into other areas; this presence across different market segments makes it distinctive among India’s NBFCs. The company has a solid track record of high return on assets, strong growth and resilience through crises such as the Covid-19 pandemic. It is currently undergoing changes which we believe should support future growth, such as increased use of AI to deliver productivity gains.

Luxshare Precision is an electronics contract manufacturer that counts Apple as its largest client. In recent years the company has been diversifying its business away from smartphone assembly towards automotive components and segments related to AI data centre infrastructure, such as connection components, optical components and cooling systems. Luxshare’s disciplined management and track record of scaling new businesses give us confidence in its prospects.

Complete sales over the quarter

The only complete sale over the quarter was Ayala Corp. We have been switching to Bank of the Philippine Islands (BPI), an Ayala subsidiary where we have higher conviction. BPI operates with one of the leanest cost structures in the Philippine banking sector, supported by its scale, automation and relatively high productivity per branch. It has delivered a steady improvement in returns over the past few years, reflecting its stronger operating leverage, improving margins, and relatively stable asset quality. Structurally, we think the long-term investment potential is attractive, as the Philippines is one of the most under-penetrated banking markets in emerging markets relative to its economic size and demographics. With a population of ~114 million and a GDP of US$505bn, it is among Southeast Asia’s larger economies, yet its household credit to GDP remains close to frontier market levels.

Looking forward

Asian equities continue to offer a compelling combination of structural growth and improving earnings prospects. We see attractive opportunities in India, supported by favourable demographics and rising incomes, while in China, the shift towards higher-value industries and globally competitive businesses continues to create a rich opportunity set for long-term investors.

In the near term, markets are likely to be influenced by the path of US interest rates, global trade policy developments, Chinese policy support and the sustainability of AI-related capital expenditure. But we believe valuations across much of Asia remain reasonable relative to long-term earnings potential, particularly in parts of China and ASEAN where sentiment remains subdued. 

Meanwhile, though returns have been driven by a narrow group of AI beneficiaries over the past two years, there are encouraging signs that market leadership is beginning to broaden. We are confident that our portfolio holdings – high-quality businesses with strong governance, resilient balance sheets and durable competitive advantages – should continue to deliver attractive shareholder returns in the long run.

The third largest contributor to performance was TSMC, which rose after reporting strong earnings results. Its position as the most technically advanced fabricator of leading-edge semiconductor chips is clear, despite whispers of rising competition from Intel and Samsung. TSMC enjoys more than 90% share of leading-edge nodes, and with AI demand driving higher profits and strong guidance for the year ahead, the company is accelerating capital expenditure plans to try and narrow the gap between its supply and customer demand. Meanwhile, tight supply should support higher prices and feed into gross margins and profitability, with good visibility through to 2027-28.

On the negative side, Tencent was the largest detractor from performance. The company posted earnings results that were broadly consistent with forecasts, as weaker-than-expected gaming revenue was offset by robust performance in its online advertising business. We believe the decline in the share price reflects ongoing concerns over the perceived slow pace of Tencent's monetisation of AI. Nevertheless, we believe the company's vast WeChat ecosystem and access to data will provide it with strong advantages in the AI era.

The second largest detractor from performance was AIA Group, which declined despite solid earnings results. Although its Thailand business dragged on performance – as it fell from a high comparable base in 2025 – the Value of New Business grew strongly in other markets, particularly Mainland China and Hong Kong. We believe the weakness is due to concerns about greater regulatory clampdown on cross-border capital flows, which would affect new business from mainland China visitors.

The third largest detractor was Bank Central Asia (BCA), as it declined on concerns about Indonesia’s macro weakness. However, the fundamentals haven’t changed: BCA remains one of the best banks in the country – credit costs are low, which leads to high net interest margins and return on assets. Despite the challenging backdrop, BCA’s recent earnings results were resilient: CASA growth was robust, while loans to corporates and SMEs grew modestly.

New purchases over the quarter

Lite-On Technology is a leading Taiwanese power supply maker which has benefited from the explosive growth in AI data centres. As server power and power density continues to rise, Lite-On should benefit from higher selling prices and improved margins.

Sunny Optical is a leading Chinese supplier of optical components. The company is gaining market share in camera modules for the automotive industry, and this segment now accounts for a growing proportion of its revenue. Sunny Optical also sees growth opportunities in other areas, such as augmented-reality glasses and industrial cameras for warehouse management. We believe the risk-reward looks attractive.

Contemporary Amperex Technology Ltd (CATL) is a leading manufacturer of electric vehicle (EV) batteries and energy storage systems. The company is a technology and cost leader in its field and has continued to grow its global market share in recent years, mostly in Europe. We believe CATL should continue to benefit from the growing demand for electric vehicles and renewable energy.

Complete sales over the quarter

We sold out of Alibaba on concerns about its multipolar business structure and lack of strategic stability. Alibaba continues to suffer from organisational fatigue driven by constant restructuring; and while it admittedly represents the most credible Chinese parallel to the US "Big 4" hyperscalers, we remain sceptical of the company’s true "North Star".

We sold SM Investments to consolidate the portfolio into higher conviction ideas.

Looking forward

We remain optimistic on the outlook for Asian equities. While the Middle East conflict, and its impact on energy prices, has led to elevated short-term market volatility, our quality bias means that our holdings should remain fundamentally resilient. Although Asia is heavily dependent on the Middle East for its energy needs, the emerging markets universe has historically operated in a more inflationary and volatile environment, and we have taken this into consideration in our stock selection.

In the long run, we believe Asia should continue to benefit from the shift towards higher value services-led growth, digital transformation and the ongoing financialisation across the region. Valuations look attractive in comparison to developed markets like the US, while low ownership of Asian equities in global portfolios provides a good backdrop for absolute returns as global liquidity flows eastwards.

As markets start to broaden from their narrow focus on AI, we believe quality businesses owned in the portfolio should do well. We have invested in companies with high-quality management who think long term and counter-cyclically, operating in industries with deep moats that support predictable and strong returns on capital. They are running businesses with solid pricing power due to strong brands, high switching costs, or strong network effects, and with conservative balance sheets where cash exceeds debt. We are confident that their strong fundamentals will translate into attractive shareholder returns in the long run.

The second largest contributor was Taiwan Semiconductor Manufacturing (TSMC), the leading semiconductor foundry, as recent earnings results were stronger than expected. With AI demand driving higher profits and strong guidance for the year ahead, the company announced new capital expenditure plans to try and narrow the gap between its supply of advanced nodes and customer demand.

The third largest contributor to performance was another Taiwanese firm, Delta Electronics, which manufactures power-supply systems. Like Samsung and TSMC, Delta has seen surging profits thanks to AI demand, as the company has a dominant share in power-supply solutions for Big Tech firms. New AI chips consume more power, and Delta’s dominant market share means it is well positioned to earn more revenue from its existing customer base as data-centre construction continues. While Delta’s electric vehicle (EV) division has suffered of late due to sluggish demand, this weakness is increasingly overshadowed by the strength of its data-centre business.

On the negative side, HDFC Bank was the largest detractor from performance, as the bank continued to face a challenging operating environment and improvement in net interest margin has been slower than expected. The resignation of the chairman also led to concerns. However, we have spoken with the management and joined a call with the new interim chairman Keki Mistry, who we respect. We feel comfortable about the governance and the quality of its franchise – in particular, its deposit franchise and underwriting culture/capability remain solid and a standout amongst banks. Valuations have declined to levels not seen before, even during the Global Financial Crisis or the Covid-19 pandemic, and we find this to be very attractive, given HDFC’s leading deposit franchise and pristine balance sheet. We believe returns can improve and book value can compound at a mid-teens rate which is attractive in absolute terms

The second largest detractor from performance was Tencent, the biggest social media network and online gaming company in China, with growing businesses in online advertising, cloud services, e-payments/e-commerce and overseas gaming. The share price declined after the company announced it would reduce its share buybacks to support accelerated investment in AI. We recently met the company to discuss its AI strategy, and came away with our conviction strengthened. Tencent has been hiring experts in the field and is developing an in-house LLM. Over the longer term, we believe Tencent should benefit from AI thanks to its unique advantages: a massive user base across WeChat, games and payments; rich first-party data; and integrated advertising and content systems.  We have been using the recent weakness to build up a meaningful position in the company.

The third largest detractor was Trip.com, China's dominant online travel platform, with around 70% market share. The company fell sharply in January following news of an anti-monopoly investigation by Chinese regulators (the company is cooperating fully with the investigation). This was compounded by investor fears that large language models (LLMs) could disrupt its business. However, the company’s proven track record in handling the real-world complexities of payments, cancellations and customer service, not to mention relationships with hundreds of thousands of hotels and other travel providers, give it key competitive advantages. Recent earnings results have been positive, and we expect Trip.com to benefit from continued travel demand in China.

New purchases over the quarter

SK Hynix is a leading semiconductor company in Korea. It has a solid position in the DRAM and NAND memory markets, but more importantly, it is the leader in High-Bandwidth Memory (HBM) that is now being optimised for AI use. While traditional DRAM and NAND memory has become commoditised and commands little pricing power, HBM is built around annual contracts, long lead times, and high capital intensity. Customers like NVIDIA must commit to volumes well in advance, and vendors must make investment decisions based on those commitments. This order-based model introduces more predictability and customer stickiness (though it also increases execution risk and dependence on a few large buyers).

Quanta Computer is a major manufacturer of laptops and telecommunications equipment. Having successfully anticipated shifts in the computing industry, the company has in recent years become a leader in server design. It is now the second-largest supplier of general servers to major cloud-service providers such as Meta, Google, Amazon Web Services and Microsoft. It also has significant market share in advanced AI servers.

XCMG Construction Machinery is a leading construction equipment maker with market-leading positions across its comprehensive product portfolio. Due to legacy state ownership, lack of alignment and core businesses being kept outside of the ListCo, XMCG had not performed well in the past, but the recent mixed shareholding reforms (in 2022) provided a positive catalyst for change. XCMG has introduced an employee share ownership plan (ESOP) and is focused on improving its operational efficiency and shareholder returns. We believe XCMG can become a much stronger company in time, which could drive meaningful earnings growth.

Complete sales over the quarter

We continued to sell out of expensive holdings in India where the risk/reward looks poor compared to other, more compelling opportunities. Complete sales over the quarter included Bajaj Auto, a leading automotive manufacturer focused on 2- and 3-wheelers; Info Edge, a leading recruitment and real estate classifieds platform; and Marico, a leading consumer business with a dominant share in branded coconut oil.

While all of them have attractive franchises with decent growth prospects and are helmed by management teams we like and respect, we would want to own them at cheaper valuations. We believe an important contributor to returns over the longer term is to stay disciplined on valuations.

Looking forward

We remain optimistic on the outlook for Asian equities. While the Middle East conflict, and its impact on energy prices, will likely result in elevated short-term market volatility, our quality bias means that our holdings should remain fundamentally resilient. Although Asia is heavily dependent on the Middle East for its energy needs, the emerging markets universe has historically operated in a more inflationary and volatile environment, and we have taken this into consideration in our stock selection.

In the long run, we believe Asia should continue to benefit from the shift towards higher value services-led growth, digital transformation and the ongoing financialisation across the region. Valuations look attractive in comparison to developed markets like the US, while low ownership of Asian equities in global portfolios provides a good backdrop for absolute returns as global liquidity flows eastwards.

As markets start to broaden from their narrow focus on AI, we believe quality businesses owned in the portfolio should do well. We have invested in companies with high-quality management who think long term and counter-cyclically, operating in industries with deep moats that support predictable and strong returns on capital. They are running businesses with solid pricing power due to strong brands, high switching costs, or strong network effects, and with conservative balance sheets where cash exceeds debt. We are confident that their strong fundamentals will translate into attractive shareholder returns in the long run.

Latest insights from the FSSA team

We have written short articles on companies, investment trends and market themes across our various strategies, which are available to read on the FSSA website.

Our latest piece “Against the current” discusses the reasons why high-quality companies are being overlooked amid the artificial intelligence boom and resurgence in cyclical stocks. FOMO is beating fundamentals; but these trends are creating opportunities for quality-focused investors in Asia and emerging markets to accumulate attractive businesses at lower valuations. 

Rizi Mohanty is a Portfolio Manager at FSSA Investment Managers. He joined the team in 2016 and focuses on the Southeast Asian markets as well as Asia ex-Japan equities more broadly. He is the lead manager of the FSSA ASEAN All Cap and FSSA Asian Growth strategies. Rizi has more than 14 years of investment experience and is also based in Hong Kong.  

Martin and Rizi are supported by a broader team of investment analysts, with an average of 14 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. 

Realtek is an integrated circuits (IC) design company based in Taiwan which focuses on connectivity solutions such as WiFi, Ethernet and Bluetooth. While wireless technology is relatively mature and seemingly commoditised, there does seem to be some differentiation between providers. With rising competition from Chinese chip designers who often undercut on price, Realtek is focusing more on value-added products and has targeted applications with higher tech requirements, such as Edge-AI devices and AI glasses. We are optimistic that Realtek will be able to fend off the competition with higher barriers to entry as it moves up the value chain, and that margins should improve due to the product mix. The company has a long history and good track record and should benefit from the broadening use of AI in on-device AI agents. 

H World is the second largest hotel chain in China. The company has emerged as a dominant force in China’s hotel industry, with a strong brand portfolio and deep operational expertise. H World is widely regarded as an industry innovator, with a strong focus on digital infrastructure and IT systems. These investments have helped it become a cost leader in the sector, while its membership programme has emerged as a key driver of organic traffic and customer retention. We believe H World has a long runway of growth as it taps into China’s rising domestic travel demand, urbanisation and upgraded consumer preferences. H World’s significantly larger economies of scale – and its pricing premium over other hotels in similar locations – should drive outsized profit in the long run. 

Complete sales:

SF Holdings is a leading express logistics company in China with directly managed model. However, we question the sustainability of the franchise in a highly competitive and somewhat commoditised industry. From a regional portfolio perspective, we believe there are better opportunities elsewhere. 

Tech Mahindra was sold on expensive valuations. It appears to be priced for a turnaround, while the IT services industry is undergoing a period of weakness due to AI disruption and a halt in discretionary spending. We believe there is better risk/reward elsewhere.

Glodon is a leading construction software vendor in China. We have known the company for many years. The challenges related to the property sector mean that the growth outlook is unattractive. Based on the current near-term weakness, we believe the valuation does not adequately account for the risks. 

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.