Looking to the year ahead, Fidelity Asia Fund portfolio manager, Teera Chanpongsang believes investors face a new set of norms given a meaningful shift in the Sino-US dynamics and its impact on global growth. Encouragingly, however, Teera explains that Asian economic activity continues to outpace the West as long duration structural changes look to unfold in the year ahead.
All change in Asia
I believe that change is the only constant factor, and this has become more evident in the last 18 months. A new global order has begun to manifest itself, as the nature of the Sino-US relationship has clearly changed. While we have been waiting for these new norms to unfold, we have seen large swings in investor sentiment, with the effects of the trade dispute being felt worldwide, particularly in global trade.
Nonetheless, Asia continues to be home to structural changes, despite these headwinds to near-term growth. Intra-Asia demand now makes a significant contribution to domestic revenue generation. Selected Asian technology companies, like Taiwan Semiconductor Manufacturing and Samsung Electronics, have emerged to become global technology leaders.
China continues to lead the region's e-consumption, as well as an overall premiumisation in consumption. Urbanisation and the rising middle class across Asia is the secular growth story that is driving Asian consumption.
Governments in India and Indonesia are expected to continue to steer domestic reforms, which is positive for these markets' long-term economic growth. Asia policymakers remain pro-growth with fiscal stimulus and monetary easing.
Discipline can reward investors in 2020
It is evident that the ongoing Sino-US trade dispute has impacted regional markets and global trade - and this trend could continue in 2020. The trade dispute represents an ongoing risk to sentiment and earnings' expectations, given its impact on the pace of economic growth. While it is widely understood that a straightforward resolution will not be forthcoming, it would be a substantially positive surprise if the two trading partners were to arrive at a deal.
Investors with a clear investment discipline will use this uncertainty to find undervalued opportunities. I maintain my view that there is no going back on regional structural shifts that have already been set into motion.
Thus, I believe that it is essential to rely on my investment edge and focus on what I can assess to find new ideas and reassess existing holdings. Understanding the core of a business is a crucial and non-negotiable aspect of my investing discipline, as it helps me to find structural growth beyond cyclical swings in demand.
Avoiding the pitfalls
I am steering the Fidelity Asia Fund away from companies where I do not have high conviction in the underlying management teams or where the business model does not offer a competitive edge. I also prefer companies that do not have high gearing or high debt.
The portfolio is also underweight materials and industrial sectors, and I prefer exposure to high quality holdings with sustainable return prospects.
The portfolio will continue to rely on my well-established mosaic investment approach, as well as my experience in navigating uncertainty. There is a clear focus on domestic exposure to benefit from strong local demand and I look to target long-term winners at attractive valuations. I also prefer exposure to companies that benefit from the secular growth of e-consumption, a rising middle class and premiumisation.
The portfolio also maintains conviction in preferred positions across the market where management teams are experienced and are in a position to capitalise on the underlying structural growth prospects.
I continue to favour taking a long-term view of things. This approach allows the investment thesis to develop, unfold and be recognised by the market. It differentiates the winners from the mediocre.
My focus is not just on alpha generation but on striking a balance between generating returns and managing the risk for our investors. The returns delivered by the portfolio over my tenure and the liquidity if offers endorse the success of this balanced, long-term thinking.
This feature comes from a new series of Asia focused thought-leadership from Fidelity. You can view more content covering a broad range of investment ideas from across the region from the links below.
This information is for investment professionals only and should not be relied upon by private investors.
The value of investments can go down as well as up so investors may get back less than they invest. Past performance is not a reliable indicator of future returns. Investors should note that the views expressed may no longer be current and may have already been acted upon. The Fidelity Asia Fund has the potential of having high volatility either from its composition or the techniques used to manage it. The fund can use financial derivatives which may expose it to a higher degree of risk and can cause investments to experience larger than average price fluctuations. Investments in small and emerging markets can be more volatile than other more developed markets. Changes in currency exchange rates may affect the value of investments in overseas markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Investments should be made on the basis of the current prospectus, which is available along with the Key Investor Information Document and current and semi-annual reports, free of charge on request, by calling 0800 368 1732. Issued by Financial Administration Services Limited and FIL Pensions Management, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM1119/25220/SSO/NA