Asia is home to numerous world leaders in technology, e-commerce and car manufacturing – but what about the region’s hidden gems? Here we explore the countries, sectors and companies flying under the radar that could surprise on the upside over the next few years.
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AI-enabling businesses
Everyone knows the big tech giants such as Nvidia, but there are myriad smaller businesses whose work keeps the big names flying high. Many of these AI-enablers are based in the region, according to Richard Sennitt, whose portfolios include Schroder Asian Alpha Plus and Schroder Asian Income. He recently told us: “The people that manufacture the semiconductor chips and associated products are where Asia’s particularly strong.”
One such overlooked holding in the Asian Alpha Plus fund is Delta Electronics*. The Taiwanese company’s products include power systems and fans. A position in both funds is ASE Technology Holding*. This company helps AI giants by providing critical semiconductor packaging, testing and integration.
Then there’s Largan Precision. This is a Taiwanese manufacturer of precision optical lenses and components that’s definitely less well-known than many in this area. It’s a prominent holding in the Invesco Asian fund*. The portfolio’s lead manager, William Lam, favours companies where the market is underestimating earnings growth. Looking ahead, the AI-enabling trend appears well supported.
Industrial capability
According to Matthews Asia, developed economies continue to invest in defence capabilities, modernise their domestic industries and update their power infrastructure**. Their recent Q2 analysis concluded: “This theme was notably beneficial for advanced manufacturing segments in South Korea and Japan.”
There are plenty of industrial names in the investment house’s flagship Matthews Pacific Tiger fund, run by Kathy Xu and Mark Headley. They include South Korean businesses Hanwha Aerospace, a leading contractor, and shipbuilder HD Hyundai Heavy Industries***. We see the portfolio as a core Asian equity fund with a well-structured and well-resourced specialist team that invests in long-term winners.
Elsewhere, Techtronic Industries is another regularly overlooked stock because it’s not a semiconductor story. The Hong Kong company makes power tools and outdoor equipment. It’s the largest holding in the Fidelity Asia Pacific Opportunities fund*, whose experienced lead manager, Anthony Srom, lowers potential volatility with a diversified portfolio.
Asian small-caps
Plenty of opportunities can be found among global smaller companies because they’re not as well researched as their larger-cap cousins.
Interesting examples include Hong Kong-based Wasion Holdings, which provides energy metering, smart grid solutions and AI-integrated energy efficiency services. There’s also Embassy Developments, an Indian real estate developer. It’s focused on creating high-quality residential and commercial projects. Both companies are holdings in the Baillie Gifford Pacific fund****, which invests in high-growth opportunities across the Asia Pacific region. The fund’s long-term focus on identifying companies with durable growth potential has led to impressive performance, even though this can be volatile.
There’s also the M&G Japan Smaller Companies fund. One of its holdings is Infroneer Holdings, which is involved in infrastructure services*. The company can be overlooked by international investors but provides exposure to a booming construction sector in Japan as the country updates public works. The strong engagement strategy of this fund’s lead manager, Carl Vine, and his team helps them to uncover many such unique investment opportunities.
Middle-class consumer revolution
It used to be said that if the US sneezed, Asia caught a cold – but that’s less true today, according to Dave Perrett, manager of the M&G Asian fund. He recently told us: “The simple reason is the emergence of China but also an evolving middle class in Asia. Exports are still important but much less so than they were 15 or 20 years ago.”
Millions of people will be using financial services, and that’s great news for the likes of HDFC Bank, which is held by the FSSA Asia Focus fund^. The managers invest in the shares of Asian firms with sustainable and predictable growth. They place a particular emphasis on those who respect the interests of minority shareholders.
Elsewhere, the Federated Hermes Asia ex Japan Equity fund has exposure to this theme with holdings such as Samsung Life Insurance and Bangkok Bank. It also has shares in companies such as CP All, which operates convenience stores in Thailand, and retailer JD.Com*. Both of these benefit from consumers having more money to spend.
Boring Indian sectors
India is recognised for information technology services and software – but the longer-term opportunities may be in less exciting areas. These include power generation, electrical equipment, engineering and building materials, as well as railways, logistics and automation.
The banking sector will finance the country’s economic development and a prime beneficiary may be ICICI Bank, whose interests include funding infrastructure. It’s the largest holding in the Goldman Sachs India Equity fund*, which aims to capture the growth potential of the Indian economy and invests in companies of all sizes. We like how this fund can meet companies on the ground in India and believe that this differentiates its approach from many peer group rivals.
Other corporate winners from infrastructure improvements include Godrej Properties, a real estate business that’s currently developing projects in more than 15 cities across India. The stock is one of the largest holdings in the Chikara Indian Subcontinent fund*. This is a high-conviction portfolio that focuses on companies with exposure to India’s growing domestic story. Its manager, Andy Draycott, searches for businesses in growing sectors that have strong leaders at the helm who act in shareholders’ best interests.
