Against a backdrop of elevated market volatility and macroeconomic uncertainty, Portfolio Manager Anthony Srom shares an update on the Fidelity Asia Fund. He reviews key drivers of performance, outlines current positioning, and highlights high-conviction stock ideas. He also offers a more nuanced take on the impact of tariffs, noting how certain companies may emerge stronger due to shifts in trade dynamics.
Key highlights
- One-year performance was affected by prior overweights to underperforming Chinese consumer stocks and an underweight to technology. However, these positions contributed positively to recent relative outperformance.
- Portfolio repositioning has focused on high-potential areas such as Indian financials and ASEAN markets, which offer strong demographic tailwinds, attractive valuations, and underappreciated growth stories.
- Tariff impacts are more complex than market headlines suggest. Certain portfolio holdings may benefit competitively from evolving trade conditions.
Performance overview
Over the past year as global markets have faced significant volatility, performance in our portfolio has been impacted - mainly by the notable overweight in the Chinese consumer sector during May and June of 2024. This period marked substantial underperformance in the sector, adversely affecting overall returns. Additionally, the move to an underweight position in technology in Q2 2024 also impacted performance, particularly given the broader market's inclination towards tech stocks during that timeframe.
While these factors continue to influence the one-year numbers, performance over the past eight to nine months improved.
Portfolio positioning
Against this backdrop of elevated market volatility, we have made a few changes to the portfolio to capitalise on emerging opportunities. A key change has been a shift from a longstanding non-holding position in Tencent to an overweight allocation. This pivot was funded primarily by exiting a substantial position in Focus Media, effectively exchanging one advertising revenue-driven business for another. The rationale behind this repositioning revolves around Tencent's artificial intelligence (AI) capabilities. AI is likely to be transformational, though not in the linear fashion that markets are currently extrapolating, and we believe Tencent is well-positioned to leverage AI to capitalise on its user base and enhance advertising revenue.
We have also initiated a new position in Axis Bank while maintaining a significant allocation to HDFC Bank, which has been trimmed to manage its position size in the portfolio. HDFC Bank is around an 11% position and Axis Bank around 3%. The Indian financial sector has experienced pressure over the past nine months due to concerns regarding softening consumer household leverage, a potential non-performing loan cycle, tight liquidity, elevated funding costs, and competitive pressure on deposit rates. These market concerns have created opportunities within Indian financials where relative valuations have become attractive for an area with long-term structural growth prospects driven by attractive demographics and economic growth.
In the technology sector, we have further reduced our Taiwan Semiconductor Manufacturing Company (TSMC) position, and although it is still one of the largest positions in the portfolio at 9.5%, it is also one of the largest underweight stock positions in the portfolio. This adjustment reflects concerns over macroeconomic indicators and the potential impact of an anticipated US slowdown on global technology demand and capex.
Overall, the portfolio maintains a significant underweight position in the technology sector, approximately 16% below benchmark weight. This positioning began well before current concerns about a potential US slowdown emerged, driven instead by extreme sentiment and unattractive risk-reward profiles in the first half of 2024. We also exited positions in companies like MediaTek and Samsung Electronics in Q2 to Q3 last year, reflecting the view that the market was misinterpreting cyclical dynamics as structural changes related to artificial intelligence. This was very much a call that the market was misreading the cycle for structural dynamics relating to AI. But we are aware that cycles turn and another buying opportunity may emerge for stocks like Samsung Electronics and SK Hynix as indicators show signs of improvement.
Meanwhile, the position in China has moved from around 6% overweight to a mild underweight over the past 12 months, though this shift is predominantly stock-specific rather than reflecting broader macro concerns. The portfolio has exited positions where investment theses have played out (for instance, Baoshan Iron and Steel and China Merchants Energy Shipping). However, the portfolio has selectively added to positions like Anta, Yum China, and China Overseas Land & Investment, although the overall position count in China has decreased.
Impact of tariffs
Tariffs have played a significant role in shaping the portfolio’s strategic outlook concerning stocks like Techtronic. While Techtronic has been identified as potentially vulnerable to tariffs, the market reaction around ‘Liberation Day’ appeared excessive. The market has adopted a simplistic "tariffs up, certain stocks down" approach, while in reality, the impact is likely to be more nuanced.
Despite potential US economic softening that could impact the company, Techtronic's competitive position relative to peers like Stanley Black & Decker and Makita remains unchanged. Should US tariffs extend to European markets, Techtronic could even potentially find itself in a stronger relative position than competitors.
The portfolio's gold exposure, while not directly affected by tariffs, has benefited from the market uncertainty triggered by escalating trade tensions. We have held a position in Zijin Mining since last year and was adding to it in Q1 2025. We also like its copper assets as we see long-term structural growth in copper driven by further build out of areas like renewable energy. Zijin Mining is just over 5% over the portfolio.
Opportunities and outlook
Looking ahead, the aim is to navigate evolving market dynamics effectively, ensuring the portfolio is well-positioned to benefit from potential growth areas. As such, recent shifts in positioning, such as increased exposure to Indian financials and select ASEAN markets, reflect a focus on undervalued regions and sectors.
In India, the portfolio’s underweight position has been substantially reduced from approximately 10% underweight a year ago to close to a neutral weight relative to benchmark. Notable new positions include Eternal (formerly Zomato), a quick commerce and delivery platform that has underperformed but offers attractive long-term structural opportunities as it approaches peak funding losses in its quick commerce operations. Axis bank mentioned above is also a new position.
In Southeast Asia, ASEAN markets have grown from one single 2.5% Indonesia holding a year ago to approximately 15% of the portfolio today. In some ways, these markets seem like the "forgotten child" of the region, overlooked despite being attractively valued. We now have significant positions in Thailand (CP All, Bangkok Dusit Medical) and Singapore (Sea Limited) with the latter representing a particularly compelling opportunity. Sea's e-commerce operations are gaining share and increasing take rates across Southeast Asia, Taiwan, and Brazil, benefiting improving logistics and as competitors like Alibaba and ByteDance retrench from regional markets.
Overall, while opportunities exist across the region, a disciplined approach, focusing on value, and risk assessment, will be essential in navigating the complexities of the Asian markets in the year ahead.
We continue to believe that careful stock selection, underpinned by rigorous company research, can effectively mitigate areas of risk and successfully capitalise on the beneficiaries of the region’s long-term growth.
