04 Dec 2023
What is your investment outlook for 2024 given the prevailing macro environment?
We are at a stage of extreme capitulation of investor sentiment towards China, where the market is being oblivious even to absolute fundamental strength of blue-chip stocks. Meanwhile, the Chinese government is expected to persist in its efforts to change the narrative about domestic employment and consumption, which will be crucial to alter the market mood. The market has become used to China’s bazooka stimulus approaches deployed in the past. Thus, global investors are not appreciative of the long-term impact of consistent but milder policy shifts in China, which are more attuned to the country’s economic and demographic realities. We are seeing Chinese corporates exercise prudent cost control and a rational competitive mindset, with emphasis on improving margins and profitability.
Meanwhile, it is evident that domestic demand driven regional economies such as India and Indonesia are better placed than markets where economic activity tracks developed world demand. Based in Asia, we have witnessed the steady positive transformation in these markets over the last decade. With global businesses diversifying their base outside China, both India and Indonesia are benefitting from new capacity creation as well. However, the Sino-US relationship is likely to remain strained and uncertainty stemming from fears about extreme events will continue to affect market sentiment.
What do you think could surprise markets in 2024?
A sustained improvement in Chinese employment and/or an unexpected improvement in Chinese consumer sentiment would surprise the market. Given the strong performance of Indian equities in the region, any signs of slowdown in domestic activity would dampen sentiment. 2024 is election year not only for India and Indonesia, but also for the US, which can also swing market sentiment.
What has worked well in your portfolio over 2023?
We are focused on maintaining the integrity of our investment discipline across all market environments. Over the long-term, this has translated into strong portfolio outcomes. At the start of 2023, we initiated a new holding in Shriram Finance, which is a leading specialist lender for pre-owned commercial vehicles, as we took a positive view of the business restructuring.
Elsewhere, we maintain exposure to preferred semiconductor manufacturers, despite market concerns about inventory buildups, and within this segment, the fund has a relative preference for Samsung Electronics. We continue to avoid stocks associated with less robust standards of corporate governance. These decisions have supported performance outcomes and considerably offset the impact of the indiscriminate sell-off in China on portfolio performance.
Where are the key areas of opportunity in 2024?
The portfolio has always been structured to benefit from the ongoing evolution of regional economies, which investors get distracted from in periods of extreme market sentiment. The fund has three distinct pillars, which we view as long-term opportunities. These are our Indian and Indonesian financials’ exposure, as well as our conviction in AIA, which remains the best-in-class regional insurer.
Asia remains home to global technology bellwethers that continue to provide leading-edge products driving the next generation of innovation. We view this as a diverse sub-universe that will be able to sustain a long-term demand trajectory. Consequently, technology bellwethers at the heart of global supply chains remain a pillar of the fund. Finally, our high conviction holdings in China have been reassessed consistently to ensure there is both earnings support and valuation support.
Important information
This information is for investment professionals only and should not be relied upon by private investors. Past performance is not a reliable indicator of future returns. Investors should note that the views expressed may no longer be current and may have already been acted upon. Changes in currency exchange rates may affect the value of investments in overseas markets. Investments in emerging markets can be more volatile than in other more developed markets. The Fidelity Asia Fund has the potential of having high volatility either due to its composition or portfolio management techniques. It can also use financial derivative instruments for investment purposes, which may expose it to a higher degree of risk and can cause investments to experience larger than average price fluctuations. Reference in this document to specific securities should not be interpreted as a recommendation to buy or sell these securities and is only included for illustration purposes.