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Asian equities: more growth, more diversified, more sustainable

March 2021

Three reasons to invest in Asian equities ex Japan

Our Asian Equities ex Japan strategy aims to invest in companies with sustainably high or improving cash generation and returns, which we think are undervalued and have a strong potential for growth.  Find out how to capture the investment potential of Asia.

Reasons to invest in our Asian equities ex Japan strategy

  1. An inefficient market creates investment opportunities
    We believe Asia ex-Japan is inefficient, as market participants often focus on the short-term over the long-term and earnings (which can be manipulated) over cash. 
    We aim to capture investment opportunities primarily across two broad areas where we think the market is either underestimating:
    structural growers – companies that are able to sustain their above average/above market growth rates and returns 
    companies that are going through an inflection – where temporarily depressed returns are extrapolated into the future  
  2. A focused approach 
    An active, research intensive investment process helps to identify the best investment opportunities. While we like growth stories, we won’t overpay for them. Our investment philosophy incorporates a focus on cash generation whilst maintaining a strong valuation discipline. We believe a portfolio made up of companies like this should be able to outperform across market cycles.
  3. Strong local knowledge and presence 
    The strategy is run by an experienced investment team including regional specialists based in Hong Kong. Together, they hold over 900 company visits a year.

Why invest in Asia ex Japan?

Asia is the fastest growing region in the world thanks to its highly diversified economies, its demographic advantages as well as structural reforms; and in our view is today far more resilient due to its better management of the pandemic. The region is also among the most advanced in terms of themes such as e-commerce and fintech with its companies investing more than many developed peers in research & development1, which would drive future growth.

Despite their superior growth potential, Asian assets are under-represented in investor portfolios. We believe Asian equities are attractive due to the strong earning potential of companies and attractive valuations, especially relative to developed markets.

A pick-up in global activity, better corporate earnings, and receding currency and debt risks across the region all contribute to a positive outlook. Against this backdrop, we continue to find companies with strong cash flow, earnings growth higher than the market and compelling valuations.

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How we manage the portfolio

We have over 30 years’ experience investing in Asia equity markets, with offices throughout the region. We take an active approach believing that Asia equity markets are inefficient. Therefore fundamental analysis and judicious stock selection are paramount to success. Arguably this is now the case more than ever as markets open up to foreign investors and disruptive technologies rapidly change industries. 

We seek companies, with the best growth potential, using a valuation approach based on cashflow rather than simple earnings. Asia is a complex market and we also take into account Environmental, Social and Governance (ESG) criteria, making us multidimensional stock pickers. Finally, we believe this analysis is best achieved through meetings and engagement with company management using qualitative criteria to score businesses.