2020/21 Year in review: Asia

2020/21 Year in review: Asia

Markets have witnessed a strong rally over the past 12 months, driven by massive fiscal and monetary stimulus, expectations of a ‘return to normal’ and a focus on segments of presumed growth. It is not a huge surprise to see this strong rebound, especially considering where valuations were during the COVID downturn, but we must now be cautious of where markets and valuations currently stand. There has been numerous bouts of quantitative easing (QE) and the mother-of-all fiscal stimulus in the last 12 months, which have helped to inflate asset prices, but have had very limited impact to the real economy. We are now seeing high valuations for limited returns, and I am concerned that we could see a decrease in margins and returns and rising debt. As the rubber band is stretched further, markets become less stable.

Markets are currently debating whether we will see transitory bouts of inflation, and how long it will hang around. I am in the camp that inflation will come through. As a result, companies with pricing power and capex light business models will be preferred. Another area to watch is geopolitics, particularly with respect to Taiwan and the tensions between the US and China. A third challenge is US dollar strength; the dollar weakness anticipated by many at the beginning of the year has not played out, and I would be erring on the side of further dollar strength. Investors should also consider what is on the opposite side of the US dollar - the Chinese renminbi. A strong US dollar implies continued downward pressure on the renminbi, especially amid tight financial conditions. A weaker renminbi is something the market is not heavily focused on, but something I think should be considered by investors.

Given my cautious market view, I believe that the primary way to generate performance is careful stock picking and there are opportunities. The portfolio is exposed to the tech sector, especially in semiconductors where there is a clear structural supply/demand gap. I think we are still early in the cycle and our analysis offers comfort around the industry structure.

As in previous years, stock selection drove the Fidelity Asia Fund’s outperformance versus the index (47.08% versus 29.94% for 1 year as at 31 May 2021*). The common thread we see here is that these companies have strong products, continued to invest in the business during a tough period and ultimately managed to position themselves well versus competitors.

The year ahead promises more unknowns, and as mentioned above, I feel the market is generally looking fully valued. A laser focus on stock selection will be required to navigate the uncertainty.


* Total net returns represent past performance only. Past performance is not a reliable indicator of future performance. Benchmark: MSCI AC Asia ex-Japan Index NR

This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (‘Fidelity Australia’). Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International. Prior to making an investment decision, retail investors should seek advice from their financial adviser. This document is intended as general information only. Please remember past performance is not a guide to the future. Investors should also obtain and consider the Product Disclosure Statements (‘PDS’) for the fund(s) mentioned in this document before making any decision about whether to acquire the product. The PDS is available on www.fidelity.com.au or can be obtained by contacting Fidelity Australia on 1800 119 270. This document has been prepared without taking into account your objectives, financial situation or needs. You should consider such matters before acting on the information contained in this document. This document may include general commentary on market activity, industry or sector trends or other broad-based economic or political conditions which should not be construed as investment advice. This material may contain statements that are “forward-looking statements”, which are based on certain assumptions of future events. Actual events may differ from those assumed. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be construed as a recommendation to buy, sell or hold these securities. While the information contained in this document has been prepared with reasonable care, no responsibility or liability is accepted for any errors or omissions or misstatements however caused. The document may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity’s funds is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. Details of Fidelity Australia’s provision of financial services to retail clients are set out in our Financial Services Guide, a copy of which can be downloaded from our website. The information transmitted is intended only for the person or entity to which it is addressed and may contain confidential and/ or privileged material. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient is prohibited. If you received this in error, please contact the sender and delete the material from any computer. Any comments or statements made are not necessarily those of Fidelity Australia. All e-mails sent from or to Fidelity Australia may be subject to our monitoring procedures. E-mail communications cannot be guaranteed to be timely, secure, error or virus-free. The sender does not accept liability for any errors or omissions which arise as a result. © 2021 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL Limited.


Ready to invest in the Fidelity Asia Fund?

Discover now

Want more insights like this?

Get our free, monthly e-newsletter bringing you valuable insights, opinion and education.