Funds for Asia

Asia is in recovery. It emerged later than Western economies from the shadow of Covid and its economies are now starting to pick up. After a period of relatively disappointing stock market returns for the region, the future looks brighter, but investors need the right fund manager to navigate the market.

Investors can find plenty of opportunities in Asia, with economies such as India and Indonesia sitting alongside Taiwan, Singapore and South Korea.

Overview: Asia stock market

Asia is home to fast growing economies with young, dynamic populations like India and Indonesia, and wealthy countries such as Taiwan, Singapore and South Korea that have built strength in the key industries of banking, insurance and semiconductors.

Asia contributes around 70% of the world’s growth¹ – and its fast growth, with the region’s economy expected to expand by 4.6% in 2023, up from 3.8% in 2022².  In general, governments, businesses and consumers have less debt than Western economies, which is helping growth flourish.

Investors can harness Asian stock market growth at reasonable prices

The MSCI Asia ex Japan index shows that Asian stock markets trade at lower valuations than global stock markets³. While the recent weakness of Chinese markets has influenced this, it is still possible for skilled fund managers to find fast-growing companies trading at lower levels than their Western peers.

Nevertheless, there are caveats:

• China has been the engine for Asian growth – the International Monetary Fund (IMF) estimates that for every percentage point of higher growth in China, output in the rest of Asia rises by around 0.3%⁴. The country’s recovery has been lacklustre, and it continues to experience a number of structural problems, from weak demographics to an over-indebted property sector. It may not be as strong a force for growth in future.
• China forms a significant part of the index – over one-third of the MSCI Asia ex-Japan index. Fund managers need to take a view on China’s strengths and weaknesses. China has a vast population and a strong track record on technological innovation, so it is possible to find interesting companies at lower valuations, but managers need to navigate the risks carefully.

Bestinvest has identified three funds where the fund managers have a strong track record of finding compelling opportunities across Asia, while also managing risk successfully. From the Best™ Funds List, these are our top choices for investors:

1. Schroder Asian Total Return

Launched by managers Robin Parbrook and King Fuei Lee in 2007, its success meant that in 2013 the pair were granted management of an investment trust, now also named Schroder Asian Total Return.  Parbrook and Lee run the strategy with a highly differentiated approach and an absolute return mindset. Alongside Schroders’ large analyst team – based throughout the Asia Pacific region – they invest in a concentrated portfolio of high-quality companies they believe are long-term value creators with sustainably high earnings.

The fund’s holdings include Taiwanese semiconductor maker TSMC, Chinese tech group Tencent and Indian IT Services firm Infosys. Parbrook and Lee also have a well-established process in place for lowering volatility and risk. Given their lengthy experience and long-term track record of outperformance, we believe the fund could be an attractive option for investors.

2. Stewart Investors Asia Pacific Sustainability

The fund aims to deliver capital growth by investing in large and mid-sized companies based in or having significant operations in the Asia Pacific region excluding Japan. Fund manager David Gait invests in the shares of high-quality companies that are positioned to benefit from, and contribute to, the sustainable development of the countries in which they operate.

Gait takes a bottom-up investment approach, looking at areas such as a company’s quality of management and finances as well as its social usefulness and environmental impacts. His experienced team is particularly sensitive to corporate governance issues and engages with management on both direct business and socially responsible practices. Few companies pass Gait’s criteria, but those that do typically stay in the portfolio for many years. The fund’s holdings include Indian car manufacturer Mahindra & Mahindra and Japanese consumer products group Unicharm.

3. Federated Hermes Asia ex-Japan Equity

Manager Jonathan Pines takes a contrarian approach, selecting stocks that are currently out of favour, but he believes are likely to perform better in the future. He looks at company fundamentals such as consistent revenue growth and identifies those trading at attractive valuations relative to their quality. He strives to hold stocks for the longterm – between 18 and 24 months – putting up with price volatility during that time.

The fund benefits from Pines’ lengthy knowledge and experience – he has managed the strategy since it started in 2010. We also like his investment process and philosophy and believe it provides genuine diversification to many of the growth-focused funds in the sector.

Bestinvest can help you invest the way you want

Want to see more of our favourite funds? You can download your copy of our Best™ Funds List. For an expert review of your portfolio and financial goals, you can book a free coaching session with one of our financial planners, with no ongoing commitment.

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Source

1. Regional Economic Outlook (imf.org)
2. Asia and Pacific Economic Outlook - At a Glance - IMF Data
3. Asia and Pacific Economic Outlook - At a Glance - IMF Data
4. Asia and Pacific Economic Outlook - At a Glance - IMF Data

 

Important Information

By necessity, this briefing can only provide a short overview and it is essential that you seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

The value of investments, and the income from them, may go down as well as up and investors may not get back the amount originally invested.

Underlying investments in emerging markets are generally less regulated than UK ones. There is an increased chance of political and economic instability with less reliable custody, dealing and settlement arrangements. The market(s) can be less liquid. If a fund investing in markets is affected by currency exchange rates, the investment value could both increase and decrease. These investments therefore carry more risk.

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