Asian Opportunities 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

We see incrementally positive signs that Asia ex-Japan equities are turning the corner, even as overall investor sentiment remains cautious. Amid concerns about persistent inflation, rising interest rates, and the odds of a recession globally, China's easing of strict COVID lockdowns is a welcome development from our perspective. We expect potentially improving conditions in China to augur well for the region's stock market given the Chinese market's significant weighting.

Importantly, we consider China's countercyclical nature of policymaking to be intact. With the economy under pressure, the government has switched to a pro-growth stance, introducing a series of monetary and fiscal stimulus measures. Among these are lower mortgage rates, which we think reflect the government's bid to stabilize the property sector. Regulatory action in the internet industry has also eased, reinforcing our belief that we are likely past the peak of the regulatory cycle. These moves, combined with China's economic reopening, lead us to expect a steadier path ahead for the economy.

From a valuation standpoint, we believe that Chinese equities have broadly priced in expectations for a weak first half of the year. Across Asia ex-Japan, we see compelling valuations for several companies whose structural growth prospects remain visible to us. We believe that indiscriminate sell-offs create opportunities for long-term investors like us to gain exposure to high-quality companies with solid management teams that care about shareholder returns.

We are monitoring the impact of rising inflation in Asia ex-Japan, even though our portfolio positioning is not centered on a particular view on price trends. Rather, our focus is on company-specific factors, and we continually assess the ability of individual businesses to withstand higher costs or pass them on to their customers. At the macroeconomic level, certain central banks facing stronger price pressures have preemptively pursued monetary tightening, whereas China is in a relatively distinct position where inflation remains modest. In general, we think that the region's economic fundamentals remain healthy, with current and fiscal accounts still looking resilient.

Apart from inflation, other potential market headwinds we are watching out for include material economic slowdowns globally, renewed coronavirus lockdowns in China, and geopolitical instability. We expect market recoveries to be uneven, which we think underscores the importance of active management in positioning for an upturn.

Strategy

Fund Summary

Actively managed and invests mainly in a diversified portfolio of shares of companies in Asia.

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 - Jihong Min, 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, South Korea hindered relative performance, due to our stock preferences and underweight allocation in a market that outpaced the broader region. Shares of an e-commerce company fell; while it achieved strong revenue growth, increased investments contributed to weaker-than-expected margins. We still believe it has a highly differentiated business model that is likely to boost its market share and valuation in the coming years. At the sector level, stock selection in consumer discretionary held back relative returns. Our overweight position also hurt as the sector lagged its peers. A fast-food restaurant operator in China detracted as it reported lower-than-expected margins and earnings growth. Nonetheless, we expect new store openings to lift its earnings over time. Conversely, our stock choices and overweight stance in communication services helped. Shares of a China-based online music platform rallied as its results boosted investor confidence in its prospects. We view a shift in its business mix toward music subscription favourably for its earnings visibility and valuation.

30-Nov-2023 - Jihong Min, Portfolio Manager,

Consumer discretionary remained one of our largest absolute sector allocations in November, even as we reduced our exposure. We sold shares of a fast-food restaurant operator in China amid intensifying competition in a weak consumption environment, although we still regard it as a high-quality company. Information technology was also a major absolute position and we added to our holdings, including a semiconductor packaging and testing company. We think it was reasonably valued, while offering exposure to the smartphone market’s cyclical recovery and the longer-term growth of artificial intelligence applications.

30-Nov-2023 - Jihong Min, Portfolio Manager,

We pared some holdings in China and turned underweight against the benchmark, although the market remained the largest in absolute terms. Bottom-up stock selection drove our country positioning, even as we incorporated macroeconomic factors into our investment analysis. For example, we reduced our holding in an e-commerce company given longer-term market share concerns, although we still think it is an attractively valued proxy for China’s economic recovery in the near term. In India, we sold shares of an automaker as our expectations for improved earnings began to materialise, while investing in a motorcycle company that we believe can benefit from recovering demand.

30-Jun-2022 - Jihong Min, Portfolio Manager,

We bought shares of construction software company Glodon amid a sell-off in technology-related stocks. We see substantial room for automation and software penetration in China's construction industry to increase, and we believe that Glodon's market dominance should benefit it. We also like the company's steady business in cost estimation and its growth potential in construction management.
Sunny Optical Technology is among the world's top makers of smartphone lens sets and camera modules, as well as vehicle lens sets. Concerns about softer demand and increased competition in its smartphone-related business put pressure on the company's share price; we took advantage of this weakness to invest in it. Our structural growth outlook for its vehicle lens set business remains intact given the rise of assisted and autonomous driving. We also expect margins in its smartphone-related business to improve.
We invested in Bank Central Asia (BCA) as broad risk aversion held back the stock. BCA is a leading private-sector lender in Indonesia, and it stands out to us for its solid deposit base, competitive transaction banking business, and prudent lending culture. We think that it shows visible potential as a long-term earnings compounder. �
BDO Unibank is a major universal bank in the Philippines. We bought the stock in the belief that it had not fully priced in the potential of a post-pandemic recovery. We view BDO as a likely beneficiary of economic growth and rising interest rates in the Philippines, and we expect improved earnings to support a valuation re-rating for the stock.
We sold shares of India-based housing loan provider Housing Development Finance Corporation, which announced a merger with Indian private-sector lender HDFC Bank. HDFC Bank is a high-conviction holding and we thought it was prudent to manage our exposure to the post-merger entity, while raising funds for other investments.
Jollibee Foods owns fast-food restaurant chains in the Philippines and abroad, including the U.S. We were mindful of the size of our holding, so we reduced it to fund other investments, even though our long-term outlook for the company remains positive. We have conviction in the strength of Jollibee's core domestic business and the turnaround in its international business.
We purchased shares of Haier Smart Home, a major home appliance maker in China. We anticipate potential market share gains for the company. Haier has a strong presence in the premium market segment, and we believe it is well-placed to benefit from consumers' growing interest in quality brands.
We sold shares of oral care product company Colgate-Palmolive (India). While we considered its fundamentals to be solid, we are concerned about its muted growth in a competitive market and concentrated product portfolio.
Hindustan Unilever is a major FMCG company in India. We bought shares in the company because we view it as a high-quality business with a strong management team, a diverse product portfolio, and market leadership across various product categories. Weak rural demand, rising raw material costs, and other market concerns undercut the stock's valuation, which created a better-priced entry point for us.

30-Jun-2022 - Jihong Min, Portfolio Manager,

Shares of fast-food restaurant operator Yum China rallied as easing coronavirus curbs bolstered the outlook for consumer spending. The company operates KFC and Pizza Hut chains in China, and we view it as a high-quality business whose fundamentals have stayed solid despite pandemic disruptions. We like its competitive lead, its management team's strong track record, and its potential to ramp up store expansion.�
We benefited from our underweight exposure to Samsung Electronics, one of the world's leading memory chip makers, which fell sharply over the quarter. Worries about weaker chip demand and prices overshadowed the company's consensus-beating financial results. While we see room for a further deceleration in the memory chip cycle, we remain positive on Samsung's ability to benefit from the next industry upturn. We think it is among the select South Korean companies possessing visible long-term earnings growth potential and other characteristics aligned with our investment philosophy.
Songcheng Performance Development is a theme park operator in China. Looser mobility restrictions in China, including a shorter quarantine period for inbound travelers, buoyed the stock. Notwithstanding COVID's disruptions on Songcheng's operations, we think that the company's fundamentals remain healthy, and its earnings are likely to recover with the return of leisure travel. We also expect the expansion of theme parks to drive its future earnings growth.
Shares of internet platform company Sea Limited fell as investors shifted away from growth-oriented stocks. It also reported mixed financial results. We see a path to profitability for Sea and we consider the stock to be oversold. In our view, the company's online gaming business remains well-positioned to gain market share in Southeast Asia and expand in other emerging countries, while its e-commerce platform Shopee also has a long runway of growth. We expect cost-cutting efforts to further support the business.
ASML is a semiconductor equipment maker with key markets in Asia. The stock retreated amid fears of slowing momentum in the semiconductor industry. ASML is the sole supplier of extreme ultraviolet (EUV) lithography technology, which is used to print the most advanced chips, and we expect the increasing adoption of this technology to drive solid long-term growth for the company.

Disclosure on Vendor Indices can be found here.

Risks

Typical Investor