Over the past twelve months, Asian equity markets have advanced amid volatility driven by macroeconomic development and US trade tariff announcements.
Chinese policy measures have played a significant role. Since late 2024, China’s central bank and regulators adopted policy measures aimed at revitalizing its struggling property sector, curbing economic slowdown and combating deflation. The breakthrough in large language model (DeepSeek-RI) in China has notably shifted market focus towards the potential growth in artificial intelligence (AI) adoption, highlighting China’s growing influence in the technology space.
While US tariffs announced around ‘Liberation Day’ shocked the markets, subsequent easing of US-China trade tension has restored some investor confidence and stabilised capital flows in the region. Softening of the US dollar has resulted in the appreciation of regional currencies, providing support to foreign investments and regional consumption sentiment. An easing inflationary environment, interest rate cuts by regional central banks, and more proactive government policies provided a favourable recovery backdrop and further added to market strength.
During the year, the Fidelity Asia Fund’s performance was largely in line with the market. Top contributing sectors included communication services, in which, SEA from Singapore has grown its market share across Southeast Asia and Brazil, aided by competitor retrenchment and improving unit economics. Commodity exposure in the fund gained prominence amid rally in precious metal prices, like gold, and macro uncertainty.
The Fund’s strategic shift away from hardware technology, driven by concerns over extreme sentiment and unattractive risk-reward profiles, proved beneficial as cyclical dynamics were misinterpreted as structural changes related to AI. Meanwhile, select Chinese communication services and consumption stocks rebounded and balanced some of the impact from an underweight allocation in the Chinese AI and electric vehicle momentum.
Looking ahead, the Fidelity Asia Fund aims to strategically navigate evolving market dynamics, ensuring the portfolio is well-positioned to benefit from growth areas while mitigating risks. The focus will remain on sectors and regions offering attractive valuations and structural growth potential.
India, particularly its financial sector, presents promising opportunities with attractive demographics and economic growth prospects, leading to a new position in Axis Bank alongside an existing high conviction holding in HDFC Bank, and e-commerce firm Eternal.
The ASEAN region, previously overlooked, now offers compelling investment opportunities characterised by favourable economic dynamics and regional growth trends, with significant holdings in Thailand (CP All, Bangkok Dusit Medical) and Singapore (SEA). In technology, the Fund maintains a substantial underweight position due to valuation concerns and concerns over AI-related capital expenditure slowdown, but opportunities may arise if valuation resets.
Commodities, especially copper, continue to be viewed positively, with recent additions based on valuation rather than thematic shifts. Tariffs will be closely monitored for their nuanced impacts, with companies like Techtronic potentially gaining competitive advantages against its peers in the evolving trade landscape.
The Fund is poised to leverage AI-driven innovations, particularly through new investments in companies like Tencent, which are well-positioned to utilise AI to enhance engagement and monetisation.
Overall, the Fund’s disciplined approach, grounded in rigorous company research and selective risk-taking, will be essential in navigating the complexities of the Asian markets. By focusing on structural growth, valuation discipline, and regional diversification, the Fund seeks to identify mispriced opportunities and effectively manage downside risk, capturing Asia's long-term growth potential in the road ahead.
