Our investment philosophy has been consistent and continues to focus on owing good businesses, run by competent and honest people and buying them with margin of safety. We firmly believe that if we truly stick to this clear process and stay disciplined, we should be well rewarded in the long-term, irrespective of market and style cycles.

Identifying mispriced opportunities

The strategy remains anchored in a disciplined value-investing framework, with a focus on identifying mispriced opportunities in underappreciated markets. A key pillar of our process is taking a contrarian view - seeking value where others see risks and avoiding areas that have driven purely by market momentum.

As a result of this stock selection-driven portfolio construction, the portfolio currently has a significant allocation in China and Indonesia, where valuations remain at historically attractive levels. In recent years, China has been deeply out of favour with investors. While the current narratives of weak macro environment and geopolitics are doing the rounds, I believe China’s quality of workforce and technological expertise will remain its competitive advantage.

It is also important to recognise that China’s economic importance extends beyond its domestic market, with Chinese companies gaining significant global market share in several industries. One striking example is China's dominance in Africa’s truck market, where it has grown from an insignificant player to holding 70-80% market shares. Another example is the overwhelming cost advantage that Chinese firms have in polysilicon, a crucial material for solar panel production. With production costs significantly lower than their American and German counterparts, China now commands more than 95% of the global polysilicon market, underscoring its engineering strength and supply chain dominance.

History suggests resilient companies typically emerge from downturns with better market positioning and competitive advantages. The best time to invest in such businesses is when they are out of favour and trading at valuations that protect your downside as an investor.

As a result, we have been investing in Chinese domestic consumption-led names, where the market is overlooking strong franchises, whose deep moats are a competitive advantage. One example is our holding in Yihai International, the largest condiment producer for Chinese soup-based hotpot cuisine that can be prepared at home and is also popular in the restaurant segment as well. Yihai is the main supplier of soup bases for Haidilao, a leading Chinese hotpot restaurant chain that relies on Yihai for nearly 80% of its domestic demand. While Chinese consumption is currently weak, Yihai is a fundamentally sound business selling a staple product and the management team has a strong record of execution. Yihai is gaining market share in both the business-to-business (B2B) and business-to-consumer (B2C) segments.

Beyond China

Indonesia is another market where we are finding a number of opportunities in our pan-Asia ex Japan portfolios. Indonesia offers a combination of well-managed, high-quality companies that dominate the segment they operate and trade at very reasonable valuations. Moreover, with a young population and conservative fiscal policies, Indonesia provides a stable environment for high quality companies to thrive.

One such high quality business we hold is Surya Pertiwi, the leading distributor and manufacturer of sanitary ware in Indonesia. It has over 3,000 dealers in its network and is the exclusive distributor in Indonesia for the Japanese brand TOTO. The company has a 65%-70% domestic market share in sanitary-ware and a 40%-50% market share in sanitary fittings.

Given the nature of sanitaryware as a product - fragile and high-volume, but low-value - it is hard to transport over long distances and, as a result, this segment faces limited competition from Chinese peers. Our research estimates that the Indonesian sanitaryware market could expand by 7%-8% in volume terms, supported by improvements in affordability. The current market penetration of sanitary ware in the country is 50%, which is relatively low and provides a tailwind for demand.

Elsewhere, we are currently more cautious on India and Taiwan, two regional markets which have seen considerable momentum over 2024 and that has led to expensive valuations. Given the euphoria around artificial intelligence, Taiwan’s technology heavy index composition has driven strong market performance, but most companies trade at levels that leave little room for future upside.

In both of these markets, the portfolio is invested in companies higher up the market cap scale, where valuations are more reasonable than in small caps, and such exposure supplements the overall liquidity profile of the portfolio. For example, we hold a position in Taiwan Semiconductor Manufacturing (TSMC), which benefits from its “toll road” status in the technology supply chain, i.e. no matter which technology dominates, semiconductors remain a core component. In India, financials have been an unloved area of the market and we retain positions in good quality lenders with encouraging prospects.

Navigating uncertainty

We have always maintained that macroeconomic trends and market movements are difficult to forecast. We know that stock markets can move sharply - often driven by sentiment swings - and the key to navigating these market and economic cycles lies in maintaining a focus on intrinsic business value, rather than being influenced by short-term sentiment.

Ultimately, our approach remains consistent - seeking out good businesses running run by competent management teams and available at compelling valuations. While market cycles may fluctuate, this fundamental investment philosophy has proven its ability to generate sustainable long-term returns.

News & Insights - Asian Values PLC

Half-Yearly Results for the six months ended 31 January 2025

During the six months ended 31 January 2025, Fidelity Asian Values PLC (“the …


Fidelity

Fidelity

Research team

Focus on Value amidst market momentum

Nitin Bajaj, portfolio manager of Fidelity Asian Values PLC spoke to Citywire…


Nitin Bajaj

Nitin Bajaj

Portfolio Manager, Fidelity Asian Values PLC

ANNUAL GENERAL MEETING

The AGM of the Company will be held at 11.00 am on Thursday, 21 November 2024…


Fidelity

Fidelity

Research team