While China is our largest geographical allocation for many of our portfolios, we believe there are plenty of exciting companies in the wider Asia region.
The advantages of a flexible investment approach
Over the years, different geographies have served our Henley-based Asian and Emerging Markets Equities team’s portfolios well. We have invested in countries such as South Korea, Hong Kong, Taiwan, Indonesia, and opportunistically, Australia. Our investment universe is vast and flexible as we can invest in all sectors, themes, and large and smaller companies.
That flexibility paid off for us coming out of Covid when the turnover, or more simply the buying and selling, of holdings picked up as we sought to capitalise on the opportunities available. For example, we took profits from tech and internet holdings that had outperformed, rotating into more economically sensitive names that had the potential to recover strongly as economies reopened, such as Indian engineering & construction conglomerate Larsen & Toubro.
More recently we’ve been able to take some profits from some of those economically sensitive companies that have outperformed, and where we believe share prices now reflect our estimate of fair value. For example, we’ve now sold Korean steel manufacturer Posco and Indian auto conglomerate Mahindra & Mahindra. Areas we’ve been adding to include Korean memory chip stocks where valuations had fallen to what we believe is a particularly attractive level, and Vietnam, where market weakness has proven to be an invitation to unearth possible undervalued opportunities.
The value of “on the ground” meetings
After a long period of travel restrictions, one of the most valuable exercises we’ve been able to reinstate is on the ground meetings with companies we invest in, but also those we are keen to explore. A recent example is a trip to Jakarta, where the 2024 election and the national drive to grow Electric Vehicles (EV) ecosystem were hot topics for discussion.
I travelled there with Ian Hargreaves, Co-Head of the Asian and Emerging Markets equities team and my co-manager on the Invesco Asia Trust plc, and we met with some very exciting entrepreneurs in the EV and fintech industries. It’s an extremely competitive sector, so a selective approach and an in-depth understanding of the whole supply chain was required.
While Indonesia has one of the most vibrant digital ecosystems in southeast Asia, with its largest internet companies having enjoyed meaningful growth in recent years, we do see some near-term challenges. We note that some internet companies may look to raise capital, given that cash levels on their balance sheets, and e-commerce companies would likely see a decline in gross merchandise value (total value of sales over a given time period) as free shipping and discount coupons are withdrawn.
There is grounds for optimism though. As Ian summarised after our trip: “Given the improved governance and risk management of the largest bank in Indonesia, Bank Negara, and busy retail areas,” he says, “the vibrancy of the economy and the reforms of Joko Widodo’s administration left us confident on Indonesia’s long-term prospects.”
Investors need to consider many things when investing in Asia or emerging markets. While becoming hotbeds of consumption and innovation following decades of rapid industrialisation, one must still be mindful of geopolitical risks and the global economic cycle – think trade and exports.
But as economies such as China re-open and governments across the region get behind industry with pro-growth reforms and supporting measures, we are optimistic about what the region can offer investors.
Want to find out more?
Fiona Yang is a fund manager within the Henley-based Asian & Emerging Markets Equity team. Click the links below to find out more about the investment trust she manages:
Invesco website: Invesco Asia Trust plc
Latest Edison Research Note: Invesco Asia Trust
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
The Invesco Asia Trust plc invests in emerging and developing markets, where difficulties in relation to market liquidity, dealing, settlement and custody problems could arise.
The use of borrowings may increase the volatility of the NAV and may reduce returns when asset values fall.
The Invesco Asia Trust plc uses derivatives for efficient portfolio management which may result in increased volatility in the NAV. In addition, some companies are suspending, lowering or postponing their dividend payments, which may affect the income received by the product during this period and in the future.
Data as at 7 July 2023 unless otherwise stated.
This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.
Views and opinions are based on current market conditions and are subject to change.
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