Asian Opportunities Equity Fund (2024)

We see incrementally positive signs that Asia ex-Japan equities are turning the corner, even as overall investor sentiment remains cautious. Amid concerns about persistent inflation, rising interest rates, and the odds of a recession globally, China's easing of strict COVID lockdowns is a welcome development from our perspective. We expect potentially improving conditions in China to augur well for the region's stock market given the Chinese market's significant weighting.

Importantly, we consider China's countercyclical nature of policymaking to be intact. With the economy under pressure, the government has switched to a pro-growth stance, introducing a series of monetary and fiscal stimulus measures. Among these are lower mortgage rates, which we think reflect the government's bid to stabilize the property sector. Regulatory action in the internet industry has also eased, reinforcing our belief that we are likely past the peak of the regulatory cycle. These moves, combined with China's economic reopening, lead us to expect a steadier path ahead for the economy.

From a valuation standpoint, we believe that Chinese equities have broadly priced in expectations for a weak first half of the year. Across Asia ex-Japan, we see compelling valuations for several companies whose structural growth prospects remain visible to us. We believe that indiscriminate sell-offs create opportunities for long-term investors like us to gain exposure to high-quality companies with solid management teams that care about shareholder returns.

We are monitoring the impact of rising inflation in Asia ex-Japan, even though our portfolio positioning is not centered on a particular view on price trends. Rather, our focus is on company-specific factors, and we continually assess the ability of individual businesses to withstand higher costs or pass them on to their customers. At the macroeconomic level, certain central banks facing stronger price pressures have preemptively pursued monetary tightening, whereas China is in a relatively distinct position where inflation remains modest. In general, we think that the region's economic fundamentals remain healthy, with current and fiscal accounts still looking resilient.

Apart from inflation, other potential market headwinds we are watching out for include material economic slowdowns globally, renewed coronavirus lockdowns in China, and geopolitical instability. We expect market recoveries to be uneven, which we think underscores the importance of active management in positioning for an upturn.

Our Asia-based investment team employs bottom-up, fundamental analysis to identify established companies with leading market positions, characterised by returns-focused capital allocation, and run by good management teams who care about shareholder returns. We believe taking a long-term view can exploit mispricings in the region caused by short-term investing. The promotion of environmental and/or social characteristics is achieved through the fund's commitment to maintain at least 10% of the value of its portfolio invested in Sustainable Investments, as defined by the SFDR. Additionally, we apply a proprietary responsible screen (exclusion list). The manager is not constrained by the fund’s benchmark, which is used for performance comparison purposes only.