Asia Pacific 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 falls 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 high-quality companies to invest on for the long term.

During the quarter, we added five new investments. The first, Trip.com (China: Consumer Discretionary), is China’s largest online travel-booking platform. It survived the sudden stop in tourism in the covid pandemic and now seems primed to take advantage of a shift to booking travel online. While only about 10% of the Chinese population currently has a passport that proportion is expected to increase¹. Sea (Singapore: Communication Services) benefits from the growth of e-commerce, entertainment and digital financial services in demographically advantaged markets across Southeast Asia and Latin America. At this stage, we believe that its proven franchises would be almost impossible for would-be challengers to replicate.

Many Chinese stocks lost some of the performance gains that they saw 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 DFI Retail Group (Hong Kong: Consumer Staples), a pan-Asian retailer led and stewarded by the Keswick family. We also purchased MANI (Japan: Health Care), a Japanese medical device company, Wesfarmers (Australia: Consumer Discretionary), an Australian business group (conglomerate) with retail and healthcare assets and 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 took advantage of attractive valuations to increase the size of our positions in AirTAC International (Taiwan: Industrials) and Yiheda Automation (China: Industrials).

Due to lower confidence, high valuations, or finding better ideas elsewhere, we sold Pentamaster (Malaysia: Information Technology), Advanced Energy Solution (Taiwan: Industrials) and Samsung C&T (South Korea: Industrials).

To control position sizes, we trimmed holdings in Mahindra & Mahindra (India: Consumer Discretionary), CG Power (India: Industrials), Marico (India: Consumer Staples), TSMC (Taiwan: Information Technology), Unicharm (Japan: Consumer Staples), Chroma ATE (Taiwan: Information Technology), CSL (Australia: Health Care) and Dr. Lal PathLabs (India: Health Care).

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. Finally, we also bought Yiheda Automation (China: Industrials), China’s leading supplier of factory automation components. Yiheda should help consolidate a growing market that is still largely dominated by small family-run businesses and is well-positioned to grow from the increased automation of Chinese factories.

During the quarter we continued to add to Techtronic Industries (Hong Kong: Industrials) and increased our position in Tata Communications (India: Communication Services).

We controlled the position size of our large holding in Mahindra & Mahindra (India: Consumer Discretionary), and also trimmed Cochlear (Australia: Health Care), Chroma ATE (Taiwan: Information Technology), Syngene (India: Health Care), Fisher & Paykel Healthcare (New Zealand: Health Care), and Unicharm (Japan: Consumer Staples).

We sold RBL Bank (India: Financials) and Unilever Indonesia (Indonesia: Consumer Staples), both of which were smaller positions that we struggled to build confidence in. We also sold Kotak Mahindra Bank (India: Financials) to fund better ideas elsewhere.