LW: How have the asset allocations of the global portfolio shifted in the past 6 months, and what do you expect to accumulate or sell-off over the next 6 months?
Amit Goel: When it comes to asset allocation, a lot is dependent on bottom-up stock selection. So we don't allocate capital top-down again with a geopolitical risk or a regional opportunity.
We are very fundamental investors looking for stocks and companies, which we think are very competitive businesses. The very high-quality businesses run by trusted management teams can grow for a long time. But your view on countries, your view on regions, your view on sectors are very important as well and we try to integrate them when we buy companies at a stock level.
So I think that will ultimately reflect in our asset allocation as an outcome. What happens is that, if you have a country, which you think can do well over a long duration of time, and it has come down short term, you will start to see more opportunities in that country.
That will result in our higher asset allocation to those regions or sectors or countries. And in that perspective, what we have done in the last couple of years, is that we've been largely underweight China, which was a large part of our market because we saw obvious risks in the economy. We were largely worried about regulation as well, but China went through a very tough time in the last six to nine months. Stocks came down sharply driven by very on regulations, very on property slow down, very on COVID slow down.
LW: Has your underweight call on China now changed?
Amit Goel: So at this point in time, actually we are seeing more opportunities in China. I mean, it's a very large market, a very deep market. There are hundreds of companies to look after, and there are businesses which we liked in past, but we have never owned them because either we thought expectations were very, very high on them, or they were trading at prices which we were not comfortable to buy at.
Now, I think on both expectations, as well as valuations, we are seeing more opportunities in China. So we've been allocating more capital to China in the last six months. And I think even going forward, we saw a bigger set of opportunities that can result in higher allocation to China at a stock level.
LW: What other regions are providing opportunities?
Amit Goel: We've always been positive about India, given the fact that I think we can find some true private businesses that we want to own for a long time. India obviously has their own financial and political cycle, which we need to be mindful of. So we continue to be optimistic about India over the medium to long term where we own five or six very good competitive private businesses.
Another region where we've been allocating more capital in the last three to six months, because we are finding better opportunities, is Brazil. Brazil is one market, which is very cyclical and has the presence of some very good companies. But as a country, Brazil is very low growth over the medium to long term. Typically, very cyclical.
Every two or three years they'll go into a recession. So to invest in a country like this, you need to find the right business, but also invest at the right time because you don't have very strong long-term growth, so you need to be right in the cycle.
So we bought a couple of new businesses in Brazil in last six months because Brazil saw a very sharp increase in inflation and interest rates. So we believe they're already ahead in the interest rates cycle.
They've already taken their interest rate to 13%, which is close to their highest in the history and that has impacted equity markets in Brazil.
So now again, you're getting stocks, which we believe are good companies that can continue to grow in a weak economic environment but are trading at very reasonable prices at the right time in the cycle. These are some of the areas which we think have become interesting given the price moves and given the opportunity set of companies that we see.
When it comes to sectors, I think we have a philosophy of investing in the kind of businesses that we want to invest in. That philosophy is very much focused on quality. The quality of people, competitive advantages of businesses, and why these companies are market leaders. We need to understand them.
I think that kind of philosophy leads us to certain kinds of businesses and sectors.
So if you see the last five, six, and seven years of our fund performance and positioning, we've been largely overweight in the consumer sector across China, across India because these two countries, the most populous countries in the world, and the largest part of the emerging market block, they still have in case of an upper middle wealthy class, which is growing manyfold.
Similarly for India, you have a middle class, which is going to grow many folds in the next 10 years. They're going to use new products, new services. We are very much focused on what these growing consumption classes in both these countries are liking, what are their aspirations, and what products they're going to use.
So we've been largely overweight consumer sector focused on India, focused on China. And as I said, we are finding more opportunities in China. So we bought a few more consumer businesses in China. We've been overweight on technology and when I say technologies, largely industrial technologies like semiconductors, some really good B2B industrial technologies in terms of equipment, largely in north Asia, Korea, Taiwan, and China.
I think some of these companies that we see on the technology side are now becoming more competitive than ever in their history.
They're really becoming global leaders when it comes to semiconductors when it comes to chip design and when it's come to the alternate energy value chain. We are already hugely invested in that area and we are finding new opportunities in that area.
So I think it's a combination of consumer, industrials, and technology, which has always been overweight for us, but we continue to find new stocks in these areas as we believe that domestic markets in large countries like India and China are growing.
In technology and in the industrials, Asian companies are actually becoming market leaders on a global scale. So that gives us another leg up of opportunities in these companies.