Investing in Asia – Fidelity Asian Values fund manager approach (LON:FAS)

Fidelity Asian Values plc ( LON:FAS ) Fund Manager Nitin Bajaj caught up with DirectorsTalk for an exclusive interview to discuss investment philosophy & approach, investment opportunities in different parts of Asia and in growth stocks, increased exposure to the financial sector & decreased exposure to the technology sector, the medium term demand impact from high oil and commodity prices and the process he goes through before adding high conviction holdings to the portfolio.

Q1: Just as a way of introduction, could you give us a brief overview of Fidelity Asian Values, its investment philosophy, your investment approach and what you believe makes it different?

A1 : I don’t think I can tell you what makes it different, I can only tell you what I do. My investment philosophy actually isn’t very complicated, it’s very similar to what you would do in your personal life.

So, if you’re in the UK and you’re trying to buy a business for yourself, what do you want to do? First and foremost, you want to buy a good business, and by a good business I mean a business which makes a product which is in demand by the customer and the business can make a decent return on capital while doing their business.

So, first and foremost you want to buy a good business, second you want to hire the right people to run it for you and third you want to buy it at a price that leaves enough margin of safety for bad judgement, mistakes etc.

I just try to do that in the stock market, buy good businesses run by people that are competent and honest and buy them at a price that leaves enough margin of safety.

Q2: Although you’re not a thematic or top down investor, are there areas of the market within different parts of Asia where you are finding more investment opportunities? If that is the case, can you give us some examples?

A2 : It’s always the case that the market goes in cycles and sometimes investors are focussed on certain parts of the market and at other times focussed on other parts of the market.

So, at the moment the places that I find the most ignored are first and foremost Chinese companies listed in Hong Kong and I see some incredible opportunities in Chinese companies listed in Hong Kong. You can buy really long duration businesses that have been around for 30/40/50 years with no risk of disruption, with net cash balance sheets on 4/5 times earnings with dividend yields of 7-10%, this is, to me, quite incredible value.

There are obvious reasons why this is happening, there are geopolitical tensions between China and the West, the Chinese government has taken some quite harsh measures against some of the education companies and maybe some, in my opinion, good decisions related to some of the internet companies and investors have been put off by that. Secondly, there’s been a slowdown in the housing market, which is central to the Chinese economy and finally, the COVID situation in China.

So, I think all of these things have come together for investor apathy towards China and I think that’s fantastic because it’s giving us an opportunity to own these businesses.

The second place that I find quite interesting at the moment is some of the financials in India and with rising rates and fear of emerging market sell-off, Indian financials – which have quite a spectacular record of creating shareholder value – have been sold off, you get this every few years with the Indian banks. That’s given us an opportunity to take up positions there.

Q3: Your process lends itself to a value tilt in the portfolio. Now, with growth stocks having underperformed value stocks in the last few months, are you finding more investment opportunities in stocks typically considered as growth stocks?

A3 : The difference between a growth stock and a value stock is basically the valuation. Everyone wants to own a company which is growing 50% a year, I just want to own it at a multiple where I’m not pricing in the next 15 years already.

So, the market sell off obviously does start to create some opportunities, much more in the large cap space than in the small cap space at the moment. You do also understand that we’re starting this cycle at such egregious valuations for this growth stocks, that a lot of them after having collected 50% in my opinion still don’t […]

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