Asian ex-Japan Equity Fund

Investment involves risk. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Overview

Manager's Outlook

Our long-term outlook for Asia ex-Japan equities remains constructive despite the economic headwinds to global financial markets brought about by rising interest rates, higher inflation, and the impact of Russia's invasion of Ukraine. This is supported by our belief that the long-term trends in Asia ex-Japan that will potentially enhance the depth and breadth of the region's investment universe remain intact.

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The substitution of imports with local products and services, strength of domestic consumption, and rising intra-regional trade are among the long-term trends in Asia ex-Japan that we believe continue to offer attractive investment opportunities. We think that the Russia-Ukraine conflict has served to underline the benefits of self-sufficiency among companies and import substitution in a less globalized world.

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We recognize that the lingering conflict between Russia and Ukraine and the ensuing sanctions by the West have increased uncertainty for the global economy. Though the Asia Pacific region has been spared the worst of the humanitarian crisis resulting from the fighting, the region is not immune to the conflict's immediate spillover effects in the form of higher energy and commodity prices. However, we believe that our focus on investment opportunities with pricing power will help our holdings defend their margins and offset inflationary pressures.

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We are cautiously optimistic about China, where the sell-off has lifted the implied risk premium. But it also reduced valuations to more attractive levels and opened up opportunities for us to own growth companies that were previously too expensive. We look favorably on the efforts of the government and the central bank to support the economy as it starts to recover from the effects of the COVID-19 lockdowns, including measures to finance infrastructure projects to drive investments and increase employment.�

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We think that Asia appears to be better positioned to stave off slowing growth and rising inflation due to the strength of its domestic consumption. The reopening of these economies amid easing COVID-19 restrictions in the region should bolster domestic demand. Some parts of Asia, such as India and southeast Asian countries including Vietnam and Thailand, may benefit from deglobalization and the shift in the region's manufacturing base over the longer term.

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Amid the ongoing macroeconomic and geopolitical challenges, we continue to set our sights on finding potential market leaders or those companies with secular growth prospects and resilient fundamentals. Businesses that will likely benefit from the heightened focus on environmental protection, increased industrial infrastructure spending, and innovative businesses that can compete globally are areas of interest. In China, we are positive about the dynamism and depth of the market as businesses continue to climb the innovation curve, providing active investors with new opportunities.

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While the coronavirus remains a concern, there are reasons for optimism. Fiscal and current account balances across the Asia ex-Japan region are generally sound, in our view. While major central banks have embarked on a tightening cycle, China has the will and the capacity for monetary and fiscal easing, providing liquidity to stabilize growth, as evidenced by recent measures.

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We remain vigilant in monitoring key risks for the portfolio including potential future coronavirus variants, prolonged COVID-induced lockdowns, geopolitical instability, supply chain disruption, and more severe enforcement of Chinese regulations that may lead to a sharper-than-expected slowdown in the economy.

Strategy

Fund Summary

Actively managed and invests mainly in a diversified portfolio of shares of companies in Asia (excluding Japan).

OUR VIEWS ON EMERGING MARKETS

Performance - Net of Fees

Past performance is not a reliable indicator of future performance. Performance returns are calculated on a NAV-NAV basis, net of fees, with distributions reinvested. Returns for the current year performance is cumulative. Benchmark returns are shown with reinvestment of dividends after the deduction of withholding taxes. The Excess Returns are shown as Fund % minus the Benchmark %. Performance returns for share classes less than 1 year old (and associated benchmarks) are cumulative rather than annualised.

30-Nov-2023 - Anh Lu, Portfolio Manager,

Asia ex-Japan equities rebounded in November, lifted by a turnaround in global investor sentiment and a surge in North Asian technology names. Within the portfolio, our choice of consumer discretionary stocks was a relative detractor. Shares of a fast-food restaurant operator in China slid after it reported lower-than-expected margins and earnings growth. We still expect new store openings to lift its earnings over time. From a country perspective, stock selection in South Korea hindered relative performance, as did our underweight position in one of the region’s strongest markets. An e-commerce company’s shares fell; while it achieved strong revenue growth, increased investments contributed to weaker-than-expected margins. Nonetheless, we believe it has a highly differentiated business model that is likely to boost its market share and valuation over the next few years. Conversely, stock selection in China bolstered relative returns. Our underweight exposure to the market also helped as it lagged the region. A supplier of power management integrated circuits was a major contributor. It posted better-than-expected earnings and forecasts following a stretch of disappointing performance. We expect its business to recover and are confident in its long-term growth prospects as China pursues self-sufficiency in certain key technologies.

30-Nov-2023 - Anh Lu, Portfolio Manager,

We lowered our absolute position in consumer discretionary, although it continued to be one of our biggest sector allocations in November. We sold shares of a Chinese e-commerce company. While we view it as an attractively valued proxy for China’s economic recovery, we also see uncertainty arising from its ongoing restructuring efforts. Communication services was also a sizeable absolute allocation, and we increased our exposure here. We invested in an internet company, taking advantage of the stock’s decline. It is among the leading e-commerce players in Southeast Asia, and we expect its sales to accelerate on market share gains.

30-Nov-2023 - Anh Lu, Portfolio Manager,

Our largest absolute country exposure in November was to China, where we remained underweight against the benchmark amid subdued consumer and corporate confidence. We exited our position in a lithium battery equipment supplier as we saw its risk-and-reward profile turning less attractive. Conversely, we bought shares of a fast-food restaurant operator. Our outlook for its long-term growth remains intact despite its recent valuation decline, and we invested in what we think is a high-quality franchise. India was another significant absolute position. We bought shares of an online classifieds company, which we like for its diversified set of businesses.

30-Jun-2022 - Anh Lu, Portfolio Manager,

We purchased shares of Tingyi (Cayman), an attractively valued food and beverage maker whose margins we think can benefit from a potential normalization of raw material costs beyond 2022 as well as an improving competitive environment within the instant noodle industry. We think it may be able to sustain a high single-digit dividend yield over the next three to four years. Aside from its rich dividend yield, its beverage price hikes can potentially be a positive catalyst for the stock.
We took advantage of share price weakness and bought shares of Tsingtao Brewery. We believe that the market underappreciates the brewer's premium portfolio and the product momentum driven by increasing interest in domestic brands. We think that the company will continue to benefit from the premiumization trend and pricing discipline.
Samsung Electronics is one of the world's largest memory chip makers. We sold some shares of the company and remain underweight relative to the benchmark as we believe there will be better memory margin stability from 2023 following the sector's downturn.
We bought shares of HDFC Life Insurance, a high-quality insurer that is taking market share in an under-penetrated market, thanks to strong execution and solid branding. We think it has one of the best track records among private insurers with a balanced product mix and distribution capability. The insurer will likely benefit from the secular shift towards higher margin, protection-based product.
ICICI Bank is a private Indian lender. We bought shares of the company as we think it is well-positioned to accelerate loan growth and gain market share as it has addressed its asset quality issues.
We took advantage of share price weakness to buy Ping An Insurance as the Chinese life insurer may benefit from the easing of COVID-19 restrictions. We think there is still substantial market opportunity in health insurance in China. The focus of policymakers towards growth should also be supportive of the sector.
We bought shares in Sungrow Power Supply, one of the world's largest solar and wind inverters suppliers, which gets half of its revenue from China and the other half from overseas. In our view, the company will likely gain from the potential increase in solar installation demand following President Biden's decision in June to waive tariffs on solar panels from four Southeast Asian nations where U.S. utility operators traditionally source their solar modules.
Zhejiang Hangke Tech is a lithium battery back-end equipment supplier. We purchased shares in the company because we believe it will likely benefit from margin recovery, driven by the strong capital expenditure cycle ahead in the global lithium battery industry. Major lithium battery manufacturers have announced capacity expansions driven by strong demand from electric vehicles (EV) and energy storage systems.� Hangke's order backlog acceleration and margin recovery will likely be driven by the capex cycle of Korean battery makers, which are among its major clients.
Zhejiang Sanhua is a maker of thermal management components used in home appliances and automobiles. We bought shares because we believe the company will benefit from rising EV penetration.
We bought shares of Hongkong Land, which owns and manages prime commercial properties in the Central Business District of Hong Kong, due to its attractive valuations and the potential return of demand should borders reopen. Hongkong Land is part of the cash-rich Jardine Group which has a lot of room to increase dividends and buybacks, in our view. We picked Hongkong Land as the company appears most committed to capital management going forward.

30-Jun-2022 - Anh Lu, Portfolio Manager,

KE Holdings, an integrated online and offline platform for housing transactions, was a key contributor as it delivered consensus-beating first-quarter results. We believe KE Holdings will benefit from the potential recovery of the property cycle in the second half.
Shares of Meituan, a food delivery platform, rose on better-than-expected results in the first quarter and encouraging food delivery margin guidance for the second quarter. We believe Meituan has better growth prospects than others in the e-commerce space. It is a beneficiary of a COVID-off environment, and we think that Meituan's core growth engines, its in-store business and food delivery, are robust but underappreciated.
Li Auto, a maker of electric vehicles, was among the key contributors as its shares reached a record high following the unveiling of its new smart sport utility vehicle (SUV) which received strong orders from customers. The successful launch demonstrates the auto maker's strong execution from product definition, supply chain management to marketing. We view the stock as an attractive idiosyncratic opportunity with a good setup for the next 18 months as it launches another three new products. We think it has the potential to become a leading EV original equipment manufacturer (OEM) in China.
Shares of H World, formerly known as Huazhu and one of the top hotel chain operators and franchisors in China, recorded solid gains as it is seen to benefit from the return of inter-provincial travel with easing COVID restrictions.
Shares of Naver, a South Korean search engine, fell following substantial gains in the last three years. Concerns about margin compression and the growth of the e-commerce market as the impact of COVID-19 abates weighed on the stock. We think Naver's fundamentals remain solid, and we view it as an earnings compounder.
Sea Limited, an internet platform company, held back fund performance. Its shares reflected mixed first-quarter results that showed weaker-than-expected game cash revenues and margins while e-commerce and fintech were in line with expectations.

Risks

Typical Investor