Latest / Merryn Talks Money / Diversification Play: Why It's Not Too Late to Buy Asia

Transcript

Diversification Play: Why It's Not Too Late to Buy Asia · Merryn Talks Money

0:02
Speaker 1: Bloomberg Audio Studios, podcasts, radio news, Marin Talks Money listeners.
0:09
Speaker 1: Are you a Bloomberg subscriber? If you are not, here
0:12
Speaker 1: is why you should be. You will get add free
0:15
Speaker 1: episodes of this podcast and access to my Marin Talks
0:18
Speaker 1: Money newsletter. You'll also get access to John's award winning
0:21
Speaker 1: newsletter Money Distilled. And you'll get access to subscriber on
0:25
Speaker 1: the events like the one we are going to be
0:26
Speaker 1: hosting on March the seventeenth. See the link in the
0:28
Speaker 1: show notes to sign up to that. Finally, of course,
0:31
Speaker 1: you will get unlimited access to Bloomberg dot Com and
0:34
Speaker 1: the Bloomberg App, including exclusive stories and premium market tools.
0:37
Speaker 1: Subscribe now at Bloomberg dot com slash podcast offer. Welcome
0:52
Speaker 1: to Marin Talks Money, the podcast in which people who
0:55
Speaker 1: know the markets explain the markets. I am Maren Somerset Web.
0:58
Speaker 1: This week I am speaking with Fion Yang, portfolio manager
1:01
Speaker 1: on the Invesco Asia Dragon. Fiera specializes in Asian equities
1:05
Speaker 1: and she is the perfect person to help us all
1:08
Speaker 1: understand where Asia fits into our portfolios this year. Fiona,
1:12
Speaker 1: Welcome to Marin Talks Money. Hello Marion, thank you for
1:14
Speaker 1: having me on a show. Well, it's going to be good. Now. Listen,
1:18
Speaker 1: your space is absolutely huge. You're covering pretty much all
1:23
Speaker 1: of Asia bar Japan, right, all of that counts is
1:25
Speaker 1: emerging Asia. So you're covering this vast area which international
1:30
Speaker 1: investors were not paying nearly enough attention to until relatively recently.
1:35
Speaker 1: So until even you know, a year ago, it was
1:37
Speaker 1: all America, America, America, American exceptionalism. And now we've begun
1:41
Speaker 1: to see this rotation out of the US and into
1:44
Speaker 1: every other interesting market there is, which is quite a
1:47
Speaker 1: lot of the ones that you cover, and your your
1:49
Speaker 1: trust had excellent performance last year partially as a result.
1:53
Speaker 1: Now these markets aren't looking quite as cheap as they were, right,
1:57
Speaker 1: but maybe you could just talk us through the way
1:59
Speaker 1: that rotation is working for your market. Yeah.
2:02
Speaker 2: I think twenty twenty five was a year of rebalancing,
2:06
Speaker 2: I would like to call it because of external factors
2:09
Speaker 2: like the weak US dollar, as well as domestic adding
2:13
Speaker 2: like the central banking Asia basically cutting into straight to
2:16
Speaker 2: try to stumulate economic growth that just perpected a lot
2:20
Speaker 2: of tension combined with Asia, just Taiwan and Career being
2:25
Speaker 2: the engine behind the global ai revolution. I do think
2:30
Speaker 2: Ernie's growth, combined with evaluation rating has really driven the
2:34
Speaker 2: Asia market to outperform a lot of the other developed market.
2:39
Speaker 2: And we're heading into twenty twenty six, a lot of
2:41
Speaker 2: investors are thinking about rebalancing their global portfolio. Increasingly they
2:45
Speaker 2: want to racify further into Asia. Animal Asia.
2:51
Speaker 1: It's not just age obviously, it's musing markets around the world.
2:54
Speaker 1: But for purposers of this podcast, where we're sticking with
2:56
Speaker 1: the Asia. But again, we've already made this mistake almost
2:59
Speaker 1: before we be and started by referring to Asia as
3:02
Speaker 1: one big homogeneous mass, which of course it isn't. And
3:06
Speaker 1: a lot of people when they think about the Asian
3:08
Speaker 1: markets or the emerging Asian markets, they will think about
3:11
Speaker 1: China and they'll forget about all the other markets. So
3:14
Speaker 1: these are all very different, right, We have to look
3:16
Speaker 1: at them as very separate countries in separate markets.
3:19
Speaker 2: Yeah. Absolutely, I think one of the biggest misconceptions about
3:23
Speaker 2: Asia is this is China and the rest. But reality,
3:26
Speaker 2: as you pointed out, there are so many different countries
3:29
Speaker 2: there for a different sectors within Asia. Look at India,
3:32
Speaker 2: It's a country that can generate ten percent nominal GDP growth,
3:36
Speaker 2: you can't really find very rare to finding the developed market.
3:40
Speaker 2: And then you look at the East Asia block, there
3:42
Speaker 2: are just so many countries that benefit from the diversification
3:46
Speaker 2: of manufacturing hut away from China or more of a
3:49
Speaker 2: China plus one strategy. And then the tech sector is
3:53
Speaker 2: Asia is not just emerging technology, it's more like the
3:58
Speaker 2: uncompested leaders a lot of the global act sector in
4:02
Speaker 2: memory foundry and or all of this just make Asia
4:06
Speaker 2: extremely exciting place to invest.
4:09
Speaker 1: Okay, well, why don't we start I tell you what
4:11
Speaker 1: before we move on to looking at what's referred to
4:14
Speaker 1: as the emerging economies in China, although sort of slightly
4:16
Speaker 1: ridiculously the very idea that South Korea could be considered
4:19
Speaker 1: emerging at this point as ridiculous, of course, but Japan
4:22
Speaker 1: is not included in that. So let's briefly, if you
4:26
Speaker 1: don't mind, talk about is there any spillover effect from
4:30
Speaker 1: the election in Japan? So we have this supermajority now
4:35
Speaker 1: for Takeichi, and that means that she will be able
4:37
Speaker 1: to drive forward all her priorities inside Japan. And I
4:40
Speaker 1: know that one of the worries there if there are
4:43
Speaker 1: that many worries around it, but there're worries to do
4:45
Speaker 1: with with Japan's fiscal position, and there of course worries
4:48
Speaker 1: to do with any ratcheting up of tension in the
4:52
Speaker 1: whole region as a result of defense spending and talking
4:55
Speaker 1: about China and in Japan. Is there anything in that
4:58
Speaker 1: that might spill over to change the conversation that we're
5:01
Speaker 1: about to have.
5:02
Speaker 2: I think though in the China and Japan relationship is
5:05
Speaker 2: always being a bit tricky. So I've actually in Japan
5:08
Speaker 2: for holiday earlier this year. One of the main things
5:11
Speaker 2: happening is Chinese tool groups are not flying into Japan
5:15
Speaker 2: and more. That's definitely a big head to the Japanese
5:18
Speaker 2: tourism industry. But then at the flip side, it's just
5:22
Speaker 2: they might have found the Australians or the other nationals
5:25
Speaker 2: want to go to Japan because of course exactly, I
5:31
Speaker 2: think the vacancy at a skiing resort I go to
5:33
Speaker 2: pretty much get filed immediately when they release those vacancies,
5:38
Speaker 2: so there could be a bit of a transition period,
5:41
Speaker 2: but I think the impact is manageable. And in terms
5:44
Speaker 2: of you know, the competitive dynamics. What happened to the
5:46
Speaker 2: NISI en Lusus security one is something that I probably
5:50
Speaker 2: monitored more because for my portfolio, we do have significant
5:53
Speaker 2: exposure to the Korean ex borders and the current sy
5:57
Speaker 2: always play a part in terms of the pricing competitive nurse.
6:01
Speaker 1: So the current portfolio, I guess this.
6:03
Speaker 2: Concentrated a lot in the Korean memory space. I do
6:06
Speaker 2: you think Japan at this point doesn't really have this
6:09
Speaker 2: strong consentder as compared to the Korean memory producers. So
6:13
Speaker 2: I feel relatively comfortable with that ex culture in Korea.
6:17
Speaker 1: Okay, that's the first elephant in the room for this area,
6:20
Speaker 1: and the second is demographics. So I just wanted to
6:23
Speaker 1: get that talk about that a little before we move
6:25
Speaker 1: on in that. Historically, say twenty years ago, even ten
6:28
Speaker 1: years ago, when a room was looking at the investment
6:30
Speaker 1: opportunities across Asia, one of the things would be said
6:33
Speaker 1: would be growing populations, growing middle class populations, a rising prosperity,
6:38
Speaker 1: et cetera. And then that began to be people going, oh,
6:40
Speaker 1: I don't know, maybe China is going to get old
6:42
Speaker 1: before it gets rich. And then we've had this much
6:45
Speaker 1: faster than anyone ever expected fall off in fertility rates
6:50
Speaker 1: and I'm sure we both saw those numbers in China
6:53
Speaker 1: showing fewer than eight million berths in China last year,
6:56
Speaker 1: which was a bit of a shock to the system,
6:58
Speaker 1: even for people who'd been very worried about demographics. And
7:00
Speaker 1: we have Taiwan, Korea, all these countries have written up
7:04
Speaker 1: every low fertility rate and even places like you know, Vietnam,
7:07
Speaker 1: et cetera, where we thought fertility would remain higher for longer,
7:10
Speaker 1: falling below replacement rate. Does that sort of massive macro
7:17
Speaker 1: first change anything about the way you see the region.
7:21
Speaker 2: Yeah, the great question and a very long term question.
7:24
Speaker 2: And I do of the sitting here in Singapore. No,
7:28
Speaker 2: it's one of the places I have one of the
7:30
Speaker 2: lowest bust rate in the region, and in China as well.
7:34
Speaker 2: Looking at my peer groups, the incentives the government has
7:37
Speaker 2: introduced for them to have two babies or even three
7:39
Speaker 2: kid is just not enough to incentivise to have more.
7:44
Speaker 2: So this structural trend is undeniable. I think that's why
7:48
Speaker 2: a lot of the countries are trying to evolve their policies.
7:52
Speaker 2: Instead of you know, labor focused manufacturing, they're trying to
7:55
Speaker 2: move up the value added tay. They try to do
7:58
Speaker 2: more electronics using more or of robotics as well as
8:01
Speaker 2: the automation try to move away from the label sector
8:05
Speaker 2: to two different drivers. Why the structural challenge remains and
8:12
Speaker 2: we need to be selected in terms of the sector
8:14
Speaker 2: we might want to have expoke to. And then there
8:17
Speaker 2: is the added sort of silver investment theme that increasingly
8:23
Speaker 2: you start to see companies that are just attragging to
8:26
Speaker 2: the need of the retire read because instead of trying
8:31
Speaker 2: to pay their to the kids, now everyone is trying
8:34
Speaker 2: to say the hospitality industry as well as even retire
8:38
Speaker 2: re education, re education industry, all of this are gaining
8:42
Speaker 2: more affections in Asia. I think the good thing is,
8:45
Speaker 2: again it's a diverse region with many countries, and there's
8:50
Speaker 2: just every single country had the different stage of their
8:53
Speaker 2: aiding population. Career could be the first one and China
8:56
Speaker 2: follow food for Asia Fund manager myself, then there are
9:00
Speaker 2: just different sort of tracks you can tech to and
9:04
Speaker 2: imply what could happen to some of the other countries
9:08
Speaker 2: when they enter the aiding demographic a bit later on.
9:12
Speaker 1: Anyway, that's probably a bigger and different conversation. Maybe we'll
9:14
Speaker 1: pick that one up another time, but let's go on
9:17
Speaker 1: to why don't we talk about how you invest. When
9:21
Speaker 1: I look at what you do and what your trust does,
9:24
Speaker 1: it's very kid. This is a valuation driven and valuation
9:27
Speaker 1: focused method of investing across this insanely big region. So
9:30
Speaker 1: tell us a little bit about how you do that.
9:33
Speaker 2: Yeah, very happy to chat about that or something that
9:36
Speaker 2: I do every single day. So I would say we
9:39
Speaker 2: probably differentiate by three key points. The first one is,
9:44
Speaker 2: as you correctly point out, is valuation discipline. It's just
9:48
Speaker 2: we try to find unvalued miss priced opportunities. Everything basically
9:54
Speaker 2: has a fair value and we try to buy it
9:57
Speaker 2: at a point. As you know, market is few full,
10:00
Speaker 2: which are the buyer when the stock price is significantly
10:04
Speaker 2: below the fair value assessment that we have is estefinished
10:07
Speaker 2: for the company itself. And the second point is we try.
10:11
Speaker 1: To be long term. I think a lot of times.
10:14
Speaker 2: Too much actively itself is non desirable. The market extremely volatile.
10:21
Speaker 2: I think a frequent activity will not really help a
10:26
Speaker 2: lot of investors.
10:29
Speaker 1: So what we do.
10:29
Speaker 2: The typical holding period is around three to five years.
10:34
Speaker 2: We just want to be patient with our investment case,
10:37
Speaker 2: try to grow together with the portfolio company. And this
10:41
Speaker 2: so called evaluation GAT really need to give them time
10:44
Speaker 2: to close. If you look at our portful companies, a
10:48
Speaker 2: lot of them we have been holding them for more
10:50
Speaker 2: than a decade. Then that Eve is a good example.
10:54
Speaker 2: Is a gaming company in China, we have holded more
11:00
Speaker 2: more than a decade. If you hold on to the
11:03
Speaker 2: stock over the past ten years is pretty much has
11:05
Speaker 2: gone through a lot of volatility or in the market
11:09
Speaker 2: in terms of regulations as well as surprise. But marketcab
11:13
Speaker 2: has grown over six times. But that just shows that
11:18
Speaker 2: the power of stay in the seat, understanding the stock
11:23
Speaker 2: level drivers behind a single company. And last but not Lesia,
11:27
Speaker 2: we are comparing vests. This follows a more classic capital
11:32
Speaker 2: cycle if we try to find areas of the market
11:36
Speaker 2: that the other investors might not like. If a sector
11:41
Speaker 2: or company is staffed of capital, staft of investment, that's
11:45
Speaker 2: exactly when the remaining winners of the sector could enjoy
11:50
Speaker 2: higher return as well as having the price and power
11:53
Speaker 2: over that customers. So those are the three t pulars
11:58
Speaker 2: I would say about how we Asia and generally are
12:01
Speaker 2: for our investors.
12:04
Speaker 1: Okay, and in the region with thousands and thousands of
12:06
Speaker 1: listed companies, how do you narrow your universe down to
12:09
Speaker 1: even begin to analyze those companies. I think, in contrary Wetter,
12:14
Speaker 1: a lot of times we would try to identify opportunity
12:17
Speaker 1: in the sectors in the countries that other people might
12:22
Speaker 1: say not investable. I think a good example to look
12:26
Speaker 1: at is China, probably twenty four months ago, but most
12:29
Speaker 1: glowing investors were shown away from that market.
12:33
Speaker 2: But we are actually seeing world leading companies being thrown
12:38
Speaker 2: out of the bath water trading at extremely cheap multiples. Yes,
12:43
Speaker 2: there are macro conferms, but it doesn't really impact the
12:47
Speaker 2: fundamental of the company that we invest in. They still
12:52
Speaker 2: gain market share, they still try to improve their margin.
12:56
Speaker 2: A good example that we have picked up over the
12:58
Speaker 2: path few years h World. It's one of the leading
13:02
Speaker 2: hotel chain operator in China, so a bit like HILT
13:05
Speaker 2: them and what they did in China was extremely good.
13:10
Speaker 2: Throughout the extended COVID lockdown. They tried to gain more
13:13
Speaker 2: market share as well as improved their operating efficiency. So
13:18
Speaker 2: they come out of the whole CHRISTI being much lainer,
13:22
Speaker 2: operation much higher margie. So we are very happy with
13:28
Speaker 2: the operational performance of the company, but with what's going
13:32
Speaker 2: on with the macro noises. HROs training out an extreme
13:36
Speaker 2: discount as compared to the global gears. Okay, interesting, and
13:41
Speaker 2: what about dividends and income? And I see the trust
13:45
Speaker 2: has a reasonably high dividend yield three and a half.
13:48
Speaker 2: How important to that is that to you when you
13:51
Speaker 2: are stop picking? Yeah, so I think that's another common
13:54
Speaker 2: misconception maybe of some of the investors of Asia. The
13:58
Speaker 2: might think Asia is more growthy less dividend. We have
14:02
Speaker 2: really seen a partigm shift in that over the past
14:05
Speaker 2: five years. Korea is a good example. We've discussed briefly earlier.
14:11
Speaker 2: The value our initiatives is really trying to drive the
14:14
Speaker 2: Korean corporate to increase their shareholder return in the form
14:18
Speaker 2: of dividend as well as buyback, so that has their
14:21
Speaker 2: significant improved that markets dividend yield. And then if you
14:26
Speaker 2: look across Asia, similar stories could be found in Singapore
14:30
Speaker 2: as well as even the Chinese state owned enterprises. They
14:33
Speaker 2: have all driven up their shareholder return over the past
14:37
Speaker 2: few years. The Asia as a region, we can get
14:40
Speaker 2: a dividend yield about two percent on the bus and
14:44
Speaker 2: then for the trust, we actually have a bonus scheme
14:47
Speaker 2: in the sense that we pay out four percent of
14:49
Speaker 2: the need to our trust holders, so that give it
14:55
Speaker 2: a bit more gig on top of the regional index field.
15:00
Speaker 1: Okay, so this is using this ability that is peculiar
15:03
Speaker 1: to the investment trust industry, where you can pay out
15:05
Speaker 1: part of the capital as income and a lot of trust.
15:08
Speaker 1: Now do this paying out four percent a year to
15:10
Speaker 1: give investors maybe aimed particularly at older investors, to make
15:13
Speaker 1: sure they get a regular income every year, regardless of
15:16
Speaker 1: the actual income level of the trust exactly.
15:19
Speaker 2: And the majority of that dividend is funded by the
15:22
Speaker 2: trust dividend received from world Fuller company, but the additional
15:25
Speaker 2: come from the capitol.
15:48
Speaker 1: Why don't we have a look at some of your
15:50
Speaker 1: biggest markets individually. So you said earlier that you were
15:55
Speaker 1: invested in China when everyone else was running slightly scared
15:58
Speaker 1: a little while ago. Are you still pretty bullished on
16:01
Speaker 1: China or is that move gone as far as it's
16:04
Speaker 1: going to go. Do you think?
16:06
Speaker 2: I think China might not be the bargain vein like
16:09
Speaker 2: what we have seen two years back, given how much
16:12
Speaker 2: the market has rallied. But then again, I think it
16:16
Speaker 2: is a big market with steps as well as bread
16:19
Speaker 2: for bottom up stock pickers like ourselves to really find
16:23
Speaker 2: the attractives value for our trust holders, so we remain
16:30
Speaker 2: invested in the market. I actually brought the trust border
16:33
Speaker 2: directors to train the trip and of last year. I
16:37
Speaker 2: think everyone was just amazed by the level of development
16:41
Speaker 2: that we have observed over the past two years, because
16:45
Speaker 2: we do the trip every other year and it's just
16:48
Speaker 2: amazing to see some of the robotics company, look at
16:52
Speaker 2: the Eedy company on the progress that they have made
16:56
Speaker 2: in terms of products, in terms of their cops. So again,
16:59
Speaker 2: there there is just so many opportunities for us to
17:03
Speaker 2: pick from. That's why we remain excited about investing.
17:08
Speaker 1: Yeah, I suppose that the pushback against that would be
17:11
Speaker 1: that it's not necessarily the case that either economic growth
17:15
Speaker 1: or that technological development will translate into rising share prices
17:19
Speaker 1: in a difficult political environment. Yeah, I think this.
17:23
Speaker 2: Political environment actually that's probably one of the main conferences
17:27
Speaker 2: that people have as well as the other one is
17:30
Speaker 2: the housing market. That one of the most common pushbacks
17:34
Speaker 2: that we get from clients. But the reality, I think
17:38
Speaker 2: the covering the policy regime do provide a very good
17:43
Speaker 2: sort of environment for technology companies to develop their products,
17:48
Speaker 2: and that progress that we have seen in terms of
17:51
Speaker 2: ev robotics in the AI trinity China, and then on
17:56
Speaker 2: the other side of the housing market housing bubble. China
18:00
Speaker 2: fortunate enough to avoid a b of housing bubble. It
18:04
Speaker 2: has been a very painful sort of eRating carried for
18:08
Speaker 2: the reality date sector, for the reality developer. But do
18:12
Speaker 2: you think it's a better shut up then let everything
18:15
Speaker 2: run to the hillcop and then suddenly birthed That might
18:18
Speaker 2: take China ten or even twenty years to come back
18:20
Speaker 2: where it were.
18:22
Speaker 1: So it has been.
18:23
Speaker 2: Painful, But for the firm itself, I think we have
18:26
Speaker 2: avoided a lot of the real state investment in China itself.
18:31
Speaker 2: Now we are actually getting a little bit more hopeful
18:35
Speaker 2: of what to come with this sector because regulations start
18:39
Speaker 2: to lose them a little bit more and we start
18:41
Speaker 2: to see activities take up here there, especially in Hong Kong.
18:46
Speaker 2: So when the market is deal fall, maybe it's a
18:49
Speaker 2: sector that we can spend more time on and try
18:51
Speaker 2: to do a little bit more.
18:53
Speaker 1: I suppose it's two things to say about the housing
18:56
Speaker 1: residential construction problem in China. The first is that without
19:00
Speaker 1: household formation, it's quite difficult for that market to pick
19:03
Speaker 1: up again. And if we're talking about very fast falling
19:06
Speaker 1: fertility and a smaller number of babies, smaller number of marriages.
19:10
Speaker 1: It's household formation that drives housing purchase, right, So that's
19:14
Speaker 1: that's a problem.
19:16
Speaker 2: So I think that was one of the key reasons
19:17
Speaker 2: why we stayed away. You know, pricing was affordability was
19:21
Speaker 2: very poor, especially in the bigger cities, the capital studies
19:24
Speaker 2: of China, and then house information weigh as well as
19:27
Speaker 2: the true immigration into the Tier one cities is slowing down.
19:31
Speaker 2: So all that just doesn't support the demand side of saints.
19:35
Speaker 2: And then looking at the supply I think five years
19:38
Speaker 2: ago to keep coming up into the train to market,
19:42
Speaker 2: but later over the past five years that is committed many. Oh,
19:47
Speaker 2: then it's really a question of when the supply demand
19:49
Speaker 2: can bat us out. So we find a bottom of
19:51
Speaker 2: the pricing cycle in Chyna real estate market, we start
19:55
Speaker 2: to see some fint of that might STUPI supposially.
19:59
Speaker 1: The other things about it is that a huge amount
20:02
Speaker 1: of the Chinese population savings have traditionally gone into properties,
20:05
Speaker 1: as seventy percent of NetWorld is tied up in property,
20:08
Speaker 1: and any shift away from that into people maybe putting
20:11
Speaker 1: their savings into the market instead or possibly something more
20:14
Speaker 1: productive than blocks of flats is a positive long term positive.
20:19
Speaker 2: Definitely, and I and we start to notice them any
20:22
Speaker 2: more money on travel experiences, especially the younger population locally,
20:27
Speaker 2: back again to the age world investment is also trying
20:30
Speaker 2: to really understand what the new generations want. They might
20:35
Speaker 2: not want to spend all the savings our house, but
20:37
Speaker 2: because I had a small money here and there, a
20:39
Speaker 2: costumer product or traveling to really increase the enjoyment of
20:45
Speaker 2: their lack. Yeah.
20:46
Speaker 1: So do you think that consumer boom that we've been
20:48
Speaker 1: waiting for in China for such a long time might
20:50
Speaker 1: finally be nearly upon us.
20:52
Speaker 2: I think everyone has grewn up for the housing market
20:56
Speaker 2: to rebound, and the infection of the stock market has
21:00
Speaker 2: certainly enriched a certain group of the Chinese consumers. They
21:06
Speaker 2: have hand up demand for quite a while. Now they
21:11
Speaker 2: start to feel happy and try to span again. I
21:14
Speaker 2: think in the past investor also had a misconception that
21:18
Speaker 2: the consumption in China equals to housing price. But it's
21:23
Speaker 2: not like that. It doesn't happen everywhere in the world.
21:27
Speaker 2: Even the UK housing price hasn't done off, hasn't done well.
21:30
Speaker 2: I think the UK costumers you spand and so I
21:33
Speaker 2: think Chinese our serios are coming out of that cycle
21:36
Speaker 2: and they do want to band in certain areas. So
21:40
Speaker 2: again that or because we just have to find out
21:44
Speaker 2: where they want to span, which companies can gain more
21:46
Speaker 2: market share, we are to write that way, what.
21:49
Speaker 1: Of the sectors are you interested in in China? Then
21:51
Speaker 1: we talked about the hotel company as they say, this
21:53
Speaker 1: is such a massive market, where are you focused for?
21:56
Speaker 1: So another top.
21:58
Speaker 2: Holding of the trust is is kinda resources to sphere.
22:02
Speaker 2: So this is one of the largest brewery in China.
22:06
Speaker 2: They have about twenty five percent market share. They used
22:10
Speaker 2: to trade over fifty times prior to earnings Racial before
22:14
Speaker 2: COVID and since the deflationary cycle and the consumption worry
22:20
Speaker 2: in China hit the market, they now trade at the
22:23
Speaker 2: low King's price to earning Racial, a level that we
22:28
Speaker 2: see extremely attractive. But what has uh There is constant
22:34
Speaker 2: concern about the Again, the younger people do not want
22:36
Speaker 2: to drink anymore, I do a blot to their health consciousness. Again,
22:41
Speaker 2: China resource spear do have their own narratives of increasing
22:45
Speaker 2: their brand premiumization. They acquire the Heinecome brand, their China
22:51
Speaker 2: operation about five six years ago. I think then they
22:55
Speaker 2: have integrated the product distribution into their portfolio, continue to increase,
23:00
Speaker 2: brought up volume as the percentage of total volume, and
23:04
Speaker 2: that premiumization really helped them with ASP growth as well
23:08
Speaker 2: as Marti expansion. I just think the current evaluation doesn't
23:14
Speaker 2: give them justice, and management has been increasing trailholder return
23:19
Speaker 2: aggressively old harp years very backfully. We get paid while
23:23
Speaker 2: waiting for market to realize the underline value of this company.
23:28
Speaker 1: Can we talk a bit about about Korea, which, as
23:32
Speaker 1: I said, I wrote about the bet eighteen months ago,
23:33
Speaker 1: so saying like this is following the corporate governance path
23:36
Speaker 1: of Japan and its too cheap, and it has done
23:39
Speaker 1: that to a large degree, followed that path, and in
23:41
Speaker 1: regulatory terms, certainly, but it's not really cheap anymore, is it? Yes?
23:46
Speaker 2: And no? I guess, because I guess Korea has done
23:49
Speaker 2: extremely well. Twenty thirty five, its doubled in the US
23:53
Speaker 2: dollar term, almost double US dollar term, and then it
23:56
Speaker 2: had hit several street spots. The value up government initiatives.
24:01
Speaker 2: Have you highlighted The second one is really the strong
24:04
Speaker 2: clical upturn of the memory cycle and the Spianic Sometimes
24:09
Speaker 2: electronics make a big proportion of the coffeing decks, and
24:15
Speaker 2: I would say historically we always have to view the
24:18
Speaker 2: Korean discount for poor shareholder return for corporate government is
24:23
Speaker 2: a bit exaggerated. A lot of the companies we owned
24:29
Speaker 2: for years in our portfolio have actually been steadily increasing
24:33
Speaker 2: their shareholder return uh the top down initiative from the
24:37
Speaker 2: government to do it are board based with their characteristics
24:42
Speaker 2: initiatives that really changed investors mindset of the market. So
24:47
Speaker 2: suddenly we have seen are the board based stock cascelation
24:52
Speaker 2: by bad term re shared cascelation and increase in payout, etcetera.
24:58
Speaker 2: And a lot of our populo company just continue their
25:02
Speaker 2: past and all of this basically narrow the so called
25:06
Speaker 2: Korean discount that we have seen in the past. And
25:09
Speaker 2: then for the memory cycle, I think it's just completely
25:11
Speaker 2: separate from this theme memories they look at forty years ago,
25:17
Speaker 2: there are money or even more memory producers out there,
25:20
Speaker 2: and fart forward to where we are today. As the
25:23
Speaker 2: series of aggressive competition, we pretty much only left with
25:26
Speaker 2: three global eating players. That oligopolistic structures just made this
25:32
Speaker 2: industry a lot more predictable as competitive before, and if
25:36
Speaker 2: we look at what they have done over the past
25:38
Speaker 2: few years, they have been burned in the last cycle,
25:41
Speaker 2: so they had decided to all keep their capects a
25:46
Speaker 2: lot more rational. So the supy that we have seen
25:49
Speaker 2: in the past few years, she's been picked eyed and
25:52
Speaker 2: the AI demand search definitely not in all of the
25:56
Speaker 2: memory producers three years back. As a result of that,
26:01
Speaker 2: we have just seen this extreme bomb in any of
26:05
Speaker 2: the memory bus that you name it. It had gone
26:07
Speaker 2: up oh at the unprecedented rate, even though all of
26:13
Speaker 2: them are dividing to increasee that back in twentynine six,
26:16
Speaker 2: we won't be that supply coming to the market probably
26:20
Speaker 2: seven or eight, which means the type supply and this
26:24
Speaker 2: will remain for the remainder of the year. As for
26:28
Speaker 2: the fund with days in memory, but again we talk
26:32
Speaker 2: about how we invest with the valuation discipline. With where
26:35
Speaker 2: show price had been over the past year, the level
26:39
Speaker 2: of return would has come down, so we just takes
26:41
Speaker 2: some off off the table.
26:43
Speaker 1: Yeah, so feeling a little bubbly, I mean that that
26:46
Speaker 1: scene translates across to Taiwan right where tech is the
26:49
Speaker 1: big driver. Are you happy there?
26:51
Speaker 2: So Taiwan is the AI theme is a very prevalent
26:57
Speaker 2: uh and more broad based as compared to Korea. So
27:02
Speaker 2: for Taiwan our topic in the market TSMT, would you
27:06
Speaker 2: be them as the uncontested global leader in foundry space.
27:12
Speaker 2: And if you look at the Ai revolution Global revolution,
27:16
Speaker 2: SMCS basically steal the engine behind all of that. That
27:22
Speaker 2: remains as the biggest holding of the trust. But then
27:25
Speaker 2: there are selective pockets of the talentice market. We do
27:28
Speaker 2: think expectation is extremely high in terms of the volume
27:32
Speaker 2: treatment of the product content creation, the dollar content of
27:36
Speaker 2: the products in the Ai further as well as the
27:39
Speaker 2: Marji expansion that people expect some of the talentice companies
27:44
Speaker 2: to experience. So we do have an out of the
27:47
Speaker 2: way position in Taiwan right now, just because the heightened
27:51
Speaker 2: expectation heightened the variation that's compared to history, the gruct
27:56
Speaker 2: real world doesn't look at the attractive for the BODER market.
27:59
Speaker 1: Thinking with Taiwan, how much of a concern is that
28:01
Speaker 1: when you're investing in Taiwan that intense geopolitical stress. Yeah,
28:06
Speaker 1: I think it's definitely.
28:07
Speaker 2: A count that we have. We always keep back of
28:10
Speaker 2: a mind because for my team, we don't just manage
28:12
Speaker 2: Asian money off emerge market money. And we have actually
28:16
Speaker 2: been to the Russian situation. So you know, two years
28:21
Speaker 2: ago when we talk about what China is investing, or
28:24
Speaker 2: want to key debate whether the training market, if anything
28:27
Speaker 2: happened to Taiwan between Taiwan and China, that the Chinese
28:31
Speaker 2: market could effectively go to zero in our index. So
28:34
Speaker 2: that's a risk we constantly discuss. But then you know,
28:38
Speaker 2: investors give us money to try to manage a portfolio
28:41
Speaker 2: of Asia assets. We do take think geopolitical risks in
28:46
Speaker 2: the consideration, but I do think our end investors they
28:49
Speaker 2: want to have a blod based exposure to the Asia region.
28:52
Speaker 2: Otherwise they could have chosen a bit more of a
28:55
Speaker 2: country allocation, try to avoid investing China or invest in Taiwan.
29:00
Speaker 2: Is they do want to have an Asia fund. Our
29:02
Speaker 2: job is really try to manage all this risking a colturists,
29:06
Speaker 2: the tariff risk, all of these things. Try to take
29:10
Speaker 2: all of my stocks that have the minimizing impact from
29:14
Speaker 2: any of this. And TFMC being the biggest holding the trust,
29:19
Speaker 2: I do think their diversification of their foundries across the region,
29:25
Speaker 2: and that goes to the US is the right strategy
29:28
Speaker 2: for them to survive the long term.
29:31
Speaker 1: So what are your the main worries? We worry about geopolitics,
29:35
Speaker 1: obviously worry a lot about valuations in the extent which
29:37
Speaker 1: particularly AAR related stocks are in any kind of bubble territory.
29:41
Speaker 1: Less So, now, obviously what else have these a long
29:44
Speaker 1: list of potential risks? What are the ones that keep
29:46
Speaker 1: you up at night? Again, it's a bottom up topicker.
29:49
Speaker 2: So I do have a few things that I like
29:51
Speaker 2: it give me awake a night. I think the first
29:54
Speaker 2: thing is try to not overpay with magician defensive for
29:59
Speaker 2: individual stocks, for individual markets, I try to stay away
30:02
Speaker 2: from it. I think India being example. All that so
30:05
Speaker 2: that was one of the market we were aggressively on
30:08
Speaker 2: the way being the second half of twenty three. That
30:13
Speaker 2: is just the nerves ritical old pay. You don't want
30:16
Speaker 2: to be the last one to buy the hype. And
30:19
Speaker 2: then the second risk I think about is my company's
30:23
Speaker 2: alan sheet. But do you see that as a heavy backpack.
30:27
Speaker 2: But the road is flat, anyone can carry it when
30:30
Speaker 2: you hit a hill. Really, the one with a heavy
30:33
Speaker 2: dead can be dragged down. I want to pick the
30:35
Speaker 2: stocks by Stanton in Western to be the marathon winners.
30:39
Speaker 2: So I do pay a lot of attention to company
30:42
Speaker 2: s boansheet and then laugh not this resputation. Is my
30:47
Speaker 2: portfolio diversified enough? Is it just being driven by this
30:50
Speaker 2: super EI cycle or there is? I actually wander sure
30:55
Speaker 2: there is a wide range of drivers, sectors, idiosyncretic drivers
31:00
Speaker 2: of the individual company that if one road hit the bomb,
31:05
Speaker 2: the other one will actually make it all right.
31:08
Speaker 1: And how are you managing currency risk? Lots of talk
31:11
Speaker 1: about China and currencies at the moment, but where the
31:14
Speaker 1: dollar might go from here and how that relationship might
31:16
Speaker 1: work out? How do you think about that?
31:18
Speaker 2: Yeah, the reality is if you think about the Asia,
31:21
Speaker 2: currencies still have been relatively stable versus each other over
31:26
Speaker 2: the longer term. I think last year was the if
31:31
Speaker 2: native prominence the reversion of that trend, but that is
31:34
Speaker 2: mostly of a US dollar weakness against all the currencies.
31:39
Speaker 2: So Taiwan is a good example. We see a sudden
31:42
Speaker 2: step up in the Tawan dollar again against the US
31:45
Speaker 2: dollar at one point in twenty twenty five.
31:48
Speaker 1: That really did market a big shock.
31:51
Speaker 2: But what is the good from the Tawanese company is
31:55
Speaker 2: they do have a lot of revenue as well as
31:58
Speaker 2: coch in the US dollar. Even with the magnet currency appreciation,
32:03
Speaker 2: we have actually seen the company level managed on pretty well.
32:08
Speaker 2: So it's a black thing that we have in that.
32:10
Speaker 2: Seeing Asia, there's no major currency shocks that we have
32:15
Speaker 2: seen so far. Touch Wood on China, I think they
32:20
Speaker 2: are a lot more cautious with regard to how they
32:23
Speaker 2: moved the currency. There was a a few years back.
32:27
Speaker 2: I think suddenly that to bring a lot of negative
32:31
Speaker 2: country quences with regard to capital outflow as well as
32:35
Speaker 2: the how US a global all the other countries perceived China.
32:40
Speaker 2: So now we can see them a lot steadier with
32:44
Speaker 2: the CNY story age rate, you know, all of that.
32:49
Speaker 2: For what remains for us, we really bring it down
32:53
Speaker 2: to a Bottomas stock level. If this is an exporter,
32:56
Speaker 2: we will be a lot more careful with their currently exposure.
33:00
Speaker 2: But then a lot of the potful company are actually
33:03
Speaker 2: domestic facing. Uh, they don't really need to manage that
33:07
Speaker 2: currency rift to a Questionably.
33:10
Speaker 1: Let's go back to India. So India expensive, any interesting
33:13
Speaker 1: holdings there in their portfolio that aren't too expensively you're
33:16
Speaker 1: happy with? Yeah?
33:18
Speaker 2: So the founder is alway the Indian financial Again, we're
33:22
Speaker 2: not trying to buy index. We try to buy the
33:25
Speaker 2: stocks India at the index level, we're still sing is
33:28
Speaker 2: expensive trading over twenty tnkey for the level of the
33:32
Speaker 2: roles of the naxation not very attractive. But then selected
33:37
Speaker 2: financial thing the Indian market looks very very interesting. Whina
33:41
Speaker 2: did the polo company that we bought during the COVID
33:45
Speaker 2: crisis did the non bank financial institution they give loan
33:51
Speaker 2: like second half a second hand. All the loans go
33:54
Speaker 2: loans to the rural as an easter that this company
33:59
Speaker 2: has managed it credit cycle it truly well and grow
34:03
Speaker 2: diversified a portfolio. First battle with the take a hand
34:06
Speaker 2: all along them, gradually to all the other long segments
34:10
Speaker 2: catering to the dainful holder customers through the here growing
34:16
Speaker 2: together where we ran with be their shareholder and hoording
34:21
Speaker 2: their growth. And we get a capital from being from
34:25
Speaker 2: AMFT you one of the biggest Japanese financial institution to
34:29
Speaker 2: giving them access to even cheaper credit andabling them to grow.
34:33
Speaker 2: They have a target of growing their own book at
34:36
Speaker 2: eighteen an for the next few years. So we are
34:41
Speaker 2: dealt one of the top holdings in the trust okay.
34:45
Speaker 1: Interesting, all right, Well let's escape to Vietnam, which was
34:48
Speaker 1: always everyone's favorite emerging Asian market for a long time,
34:52
Speaker 1: wasn't it. We had constant stories about Vietnam, and of
34:54
Speaker 1: course sours some dedicated Vietnam trust. But how are you
34:58
Speaker 1: feeling about that that story? Hole?
35:01
Speaker 2: I think Vietnam has up and down, but also because
35:05
Speaker 2: of the politics happening there, and what we are seeing
35:09
Speaker 2: now is a period of the wealthy stable poltics that
35:12
Speaker 2: you're provided in workers to really pick stocks. If I
35:15
Speaker 2: look at the stocks in Vietnam, there are actually very
35:18
Speaker 2: exciting a major companies to pick from. Recently we met
35:22
Speaker 2: with the ID Services Company in Vietnam. They are trying
35:26
Speaker 2: to address a different campto more cohord as compared to
35:29
Speaker 2: the Indian IT Services Company. There be to be successful
35:32
Speaker 2: and evaluation doesn't look too expensive, uh with all this
35:36
Speaker 2: global AI trying to destroy IT Services company a software company,
35:41
Speaker 2: something that we are practically working on. And then we
35:45
Speaker 2: also owned some of the customer stables company in Vietnam.
35:49
Speaker 2: In terms of the demographic trend, Vietnam, the aging population
35:53
Speaker 2: is definitely at the slower pace as compared to other regions.
35:55
Speaker 2: In the market we have been how the other customer
35:58
Speaker 2: company has evolved in other market. So if you there
36:01
Speaker 2: are pocket opportunities in Vietnam as well. I think as
36:06
Speaker 2: for investors, we still face the contrain of ownership threshold.
36:11
Speaker 2: The best company might not be available to buy for Invesco,
36:16
Speaker 2: Arab and Frost that the struggle will continue to face
36:19
Speaker 2: in a market over time. We have observed market access
36:23
Speaker 2: has improved.
36:25
Speaker 1: Yeah, And are there any smaller markets in the region
36:27
Speaker 1: that people simply aren't paying attention to and should be. Yeah.
36:31
Speaker 2: So I think Southeast Asia as the block is very interesting.
36:34
Speaker 2: But we talk about the g gratification of global spy
36:37
Speaker 2: tang China plus one. It benefits countries like not just Vietnam,
36:41
Speaker 2: but also Thailand as well as Indonesia. And if you
36:45
Speaker 2: look at the evaluation, extremely cheap right for CREATI about
36:48
Speaker 2: one point three one point four times and as a
36:50
Speaker 2: discount to your own training history as well as the
36:53
Speaker 2: Asia global market. But then that a region all this
36:56
Speaker 2: world creation from supply time digasifications and actually sustained decades
37:01
Speaker 2: of growth, So you're really getting up from feed of
37:05
Speaker 2: rapid growth at a garden price. We are all wait
37:08
Speaker 2: in posses Asia having more based the sectory exposure there.
37:13
Speaker 1: So all in all, Fiona, you would expect I think
37:15
Speaker 1: this rotation maybe out of the US and into all
37:18
Speaker 1: the countries that you're interested to continue over the next
37:20
Speaker 1: couple of years. So even the evaluations across the region
37:23
Speaker 1: are not as low as they were, it's still a
37:26
Speaker 1: significant discount perhaps to the global markets as a whole.
37:30
Speaker 1: So you I'm guessing here, assuming you're going to say yes,
37:33
Speaker 1: pretty happy with your positions over the next year or so.
37:36
Speaker 2: Yes, absolutely. I think for investors, you know, in twenty six,
37:40
Speaker 2: maybe they should check their home buyers check whether they
37:43
Speaker 2: are over exposed to US assets. Even as your own
37:46
Speaker 2: SB five hundred index, your exposure to the US tech
37:50
Speaker 2: might be over forty PREFN. A concentration risk is real.
37:55
Speaker 2: So Asia do offer a cheaper alternatives. Getting you access
37:59
Speaker 2: to a vast region of different countries and different sectory
38:03
Speaker 2: exposure is a real damification, not just another hicker.
38:10
Speaker 1: No, thank you so much for joining us today. That
38:12
Speaker 1: was really interesting conversation.
38:13
Speaker 2: Thank you Marion for having me, Ama Shall.
38:22
Speaker 1: Thanks for listening to this week's Maren Drugs Money. If
38:25
Speaker 1: you like us your rate review and subscribe wherever you
38:27
Speaker 1: listen to your podcast. Also keep sending your questions or
38:29
Speaker 1: comments to marrin Money at bloombag dot next. You can
38:31
Speaker 1: also follow me and John on Twitter or x I
38:34
Speaker 1: am at marins w and John is John Underscore strap Back.
38:38
Speaker 1: This episode was hosted by Me Maren Sunset Web. It
38:41
Speaker 1: was produced by Sammisadi and Moses and time designed by
38:44
Speaker 1: Blake Maples and Aaron Kasper. A special thanks, of course
38:47
Speaker 1: to Fia me Yang