Asia Pacific Leaders

Within a matter of days, however, a fall in the US dollar and weakness in the US government bond market encouraged the president to impose a 90-day pause 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 share prices that appear attractive in view of those companies’ long-term growth potential.

Although markets in some parts of Asia have recovered from the falls seen at the start of the quarter, the on/off discussions on tariffs have undoubtedly created 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, we continue as usual: seeking high-quality companies to invest in for the long term.

We added three new holdings during the quarter. SM Investments (Philippines: Industrials) is the holding company of the Sy family, who own substantial interests in property, retail and banking. Trip.com (China: Consumer Discretionary) is an online travel agency. It offers excellent and fully comprehensive travel services across a multilingual 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 contrast in returns between India (which was down) and China (which was up). Investors’ enthusiasm for Chinese equities was, in part, a response to artificial intelligence (AI) company DeepSeek’s impressive demonstration of the progress the country is making in that area. And while there was less news from India, share prices fell back from high 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 the United States (US).

During the quarter, we bought S.F. Holding (China: Industrials), Mindray (China: Health Care) and Alibaba (China: Consumer Discretionary). We believe each of these companies has the potential to benefit from China’s new emphasis on national self-reliance (producing more of its own goods and services and reducing its reliance on imports). Over the last five years, the leaders of Chinese companies have, often for the first time, been tested by genuine economic and political instability. They have learned valuable lessons and many have become financially stronger, reducing their reliance on borrowing. 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 attractive investment opportunities in the Philippines and India. The competition between new ideas for a place in the portfolio has rarely been this intense and we made more changes to the portfolio than normal over the quarter. As part of this, and in addition to the Chinese companies 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. 

Many Chinese stocks lost some of the performance gains that they made in the third quarter of 2024 when the government announced positive economic events. 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 in the United States election in November also seemed to distract global investors from Asian equities. At Stewart Investors we continue to concentrate on companies rather than unpredictable economic and political news.

During the quarter we bought Naver (South Korea: Communication Services), South Korea’s dominant internet search engine which has significantly improved how it allocates and spends its financial resources in recent years. We also bought Wesfarmers (Australia: Consumer Discretionary), an Australian business group (conglomerate) with retail and healthcare assets, and Tube Investments (India: Consumer Discretionary), a conglomerate of industrial businesses led and stewarded by the high-quality Murugappa family.

To control company 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 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 changes to public spending and taxation rates to boost the economy. This caused Chinese stocks to rise significantly. Whilst it is heartening to see the Chinese authorities attempting to address the problems within the economy it remains unclear whether the changes will adequately address broader issues like the lack of consumer demand.

We bought ICICI Lombard (India: Financials), a leading private general insurance company in India. The company is conservatively managed and should benefit from increased access to insurance products for people in India. We also purchased Ayala (Philippines: Industrials), a holding company in the Philippines with a diverse range of underlying businesses. Ayala has been led and stewarded by the Ayala family since 1834. In 2002, they appointed the first ever non-family member as the Chief Executive Officer.

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). We continue to be impressed by Midea’s management team, the efficiency of their production base and how they spend money. However, we are wary of the risk that United States and European taxes may pose to 40% of their business which exports goods internationally. 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) to fund better ideas where there is the opportunity to grow the position size within the portfolio.