Fidelity Asia Fund

EDITED TRANSCRIPT

In the first quarter of 2025, the Asia ex-Japan market was up roughly 1% in Aussie dollar terms but there was a huge divergence in performance across the individual markets. China led the way up around 15%. There was a huge surge in optimism and sentiment towards China following the announcement of DeepSeek which got everyone excited and moving towards the more tech orientated parts of the market.

Also, we have been seeing an improvement in the property market, particularly in tier one and tier two cities in China, and retail sales have been going up as well. We saw around 4% year on year increase in retail sales. So, optimism towards China has improved from a very low base and also from a pretty low valuation relative to the rest of the region.

Elsewhere, India, really struggled in the first part of the quarter, but did bounce back a little bit towards the end. We've started to see some earnings downgrades coming through and earnings expectations, which were pretty lofty last year, have been coming down.

Therefore, we've been seeing some de-rating of the Indian market. At the other end of the spectrum in terms of the most negative, Taiwan and Thailand.

Taiwan, obviously a very tech orientated market. TSMC is the dominant player there.

But, with the emergence of DeepSeek, there were some questions around the future demand in the near term at least, for tech hardware, which weighed down on the overall tech semiconductor area, which Taiwan is a global leader in. And in Thailand, we have been seeing tourism growth, but not at the rates that maybe a lot of investors were expecting.

So, we've seen a bit of a sell off in the Thailand market as well.

In the first quarter the Fund unfortunately underperformed the market, largely because of what we didn't own. Now, we don't own any of the internet companies and those sort of high-tech stocks in China. The market was very excited by them with DeepSeek, and it created a lot of optimism and improved sentiment towards those parts of the market. But we've been staying away, largely because we're still waiting to see how these companies actually truly adopt things like AI to generate new business revenues and improve margins as well.

Also, we own Techtronic. Now Techtronic is the one stock in the portfolio that's really impacted by tariffs or potential tariffs. And of course, we have lots of talk around will the U.S. put tariffs on, won’t they, where those tariffs will be? It’s created a lot of volatility in Techtronic who sells around 75% of their products to U.S., builders and home DIYs.

On the flip side, in terms of positive contribution, we've seen some strong performance from Zijin Mining. Zijin Mining is a gold and copper miner in China and of course we've seen gold hit all-time highs with ongoing uncertainty around global economy from the fallout from potential tariffs as well.

Yum China has been a big contributor to us. We’ve started to see margins improve. The company's really been working on cost controls, working with suppliers to control the cost of food that goes into their meal deals and so on. They are the owner of KFC and Pizza Hut across China and they've been really executing on their plans.

We've also seen some strong numbers from a relatively new position that we opened last year in Sea Ltd. Sea is the number one e-commerce player across the Asean region.

And we've seen a more favourable competitive environment there with a number of players exiting the market. Sea and through that Shopee brand taking market share. That's enabled them to increase take rates and slowly improve margins as well.

Well, the quarter ahead is going to be pretty volatile. There's of course lots of concern around tariffs. The U.S. have been talking about Liberation Day and what that means for the rest of the world, it’s still really to be seen. So, we anticipate a lot of volatility, a lot of uncertainty in the coming quarter across all of the markets.

With that in mind, and if we do see that, you should probably expect more flows going towards, let’s call them called defensive type stocks. For us, actually a safer way to try and mitigate some of those risks is to look at companies that really focus on their domestic markets and not really on export markets. Those companies that focus on their domestic markets, of course, aren't as impacted by tariffs. There will likely be some indirect tariffs, if it has a subsequent slowdown on domestic economies across the region. But overall, those companies should continue to see strong demand driven by structural growth that we do see across the Asia region.