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.