Expert: Gary Monaghan – 4 Asian stocks to watch 👀 | Fidelity

Bryce: [00:00:13] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing. Whether you're an absolute beginner or approaching Warren Buffett status, our aim is to help break down your barriers from beginning to dividend. Now, if you are joining us for the very first time, welcome. If you're just getting up to speed, I suggest heading over and checking it out. Get Started Investing podcast. But otherwise we hope you enjoy today's episode. My name is Bryce and as always, I'm joined by my equity buddy, Ren. How you going? 

Alec: [00:00:40] I'm very good, Bryce. Very excited for this episode for the interview that we've got coming up. We, you know, we like to think globally here at Equity Mates. We like to think of ourselves as global investors. The global economy is certainly in the news, but too often global becomes a proxy for the U.S. and maybe a little bit of Europe sprinkled in there. Yes, there's a whole wide world out there. There's a lot of companies to invest in outside of the US and Europe. And so we've got an Asian equities analyst in here to give us a truly global a bit more of a global perspective today. 

Bryce: [00:01:12] That's it. It is our pleasure to welcome to the studio, Gary Monahan. 

Gary: [00:01:15] Gary, welcome. Thank you. And thanks for having me. 

Bryce: [00:01:17] So, Gary, Gary is investment director of Fidelity's Asian Equities Range and he's here to help us unpack Eastern markets in a bit more detail. As you said, Ren, we're often very much tied to what's happening in the US, but there is plenty of awesome and interesting things happening in Asian markets. We're going to have a look at what's driving them, where we can find opportunities and a look at some of the stocks that demonstrate these opportunities in the Asian equities range at Fidelity. But Gary, new segment, which we're really excited about. It's called Equity Mates. Please note or before we get stuck in. It's the Equity Mates daily guessing game. Okay. And we're going to put you up head to head against Ren now. He has already played this today, so he got this in three guesses, which is unusual. He normally gets it in one. So must be tough. 

Alec: [00:02:07] Now if people want to play along at home equitymates.com/biznerdle. Once a day there'll be a new company that you can try and guess. 

Gary: [00:02:16] Can I. Can I put a request if I do more than three, can you edit it. So it's three. 

Bryce: [00:02:20] Of course. Well I did. It so it's one. Gary, I was hoping that it's an Asian company. All right, Clue number one. My loyalty program is called Miles and More. 

Gary: [00:02:31] Next. 

Bryce: [00:02:31] I was the first airline to buy the Boeing 7478, the largest commercial aircraft built in the United States. 

Gary: [00:02:40] I've got a couple of companies in mind. Let's do the third one. Before I guess. 

Alec: [00:02:44] Okay. It wasn't tough. 

Bryce: [00:02:46] I was founded in 1953, and my headquarters are located in Cologne, Germany. 

Gary: [00:02:53] Lufthansa. 

Bryce: [00:02:54] He's absolutely. Got it. Yeah. Yeah. correct. So if you would like to play along at home. Equity Mates. Icon slash business. I'm sure Gary will be doing that every morning before he heads into work. 

Gary: [00:03:08] You get, get, get the brain ready. 

Alec: [00:03:10] Take it back to your colleagues in Hong Kong. We want to say a big spike in Asian uses. 

Gary: [00:03:15] Now, can I do one for you two later as well? 

Bryce: [00:03:19] Hey, hey. We ask the question to Gary. 

Alec: [00:03:23] I think we want to start macro here because as, as we said in the introduction, you know, the macro economy is in the news. We're talking, you know, Silicon Valley Bank and Credit Suisse seem to be dominating the headlines at the moment. Before that, it was inflation and interest rates. Well, still is inflation and interest rates. But too often we talk about the US and we don't really get a full global picture of what's going on. So I guess starting broad, can you give us a an idea of how these stories are playing out in an Eastern context in Asia? 

Gary: [00:03:55] Yes, it's quite interesting as you pick two things there that aren't necessarily such a big problem in Asia, whereas there's other things in Asia, right. With reopening and all these other things which are sort of a much, much bigger sort of impact for us. But if you're looking at the banks, for example, SVP, which you used, if you just look at what they did, essentially I won't go into too much detail because we could be in for hours, but they had an asset like asset liability mismatch, and so they weren't really sort of hedging their interest rate risk properly. And and they had a concentration of deposits as well. So seen as a couple of clients for whatever reason needed to withdraw. You're getting a bit of a run on the bank and it's from our perspective seen as a bit of a developed market issue running some regulatory failings there as well. If you look at the banking system in an Asian context, one is a lot of the banks, for better or for worse, are. So we saw state owned enterprises and so they've got full government backing at all time and you're probably not going to do anything too dodgy. 

Alec: [00:05:00] Don't Western banks have full government backings at all times? 

Gary: [00:05:04] I was about to Say on a officially the day, but yes, officially the Asian bank sort of do, right? So they don't sort of tend to fall foul on these things. But the other thing is going back to the deposits and the concentration of deposits, if you just look at how the sort of the customer base is based in Asia is growing because the populations are growing. Demographics generally not in China, but most other places in Asia are getting better. So you get more people moving into the formal sort of financial system. So you're getting deposit growth and you look at someone like a HDFC Bank is an example. The biggest private managed bank in India, their top 20 clients or top 20 customers account for only about 4% of the total deposits. Right. And so you don't have that same sort of risk. So you've got in our minds using banks that you talked about, it's not so much of a problem for us in an Asian context. And I'm not saying it necessarily, you know, is it better or worse? Well, obviously we think it's better, right? Because I'm coming at it from a biased perspective. But, you know, we think that it's not sort of an Asian issue right now. And we're seeing this actually from a market perspective that the banks haven't really reacted from a stock price perspective. And we're getting this. So what we consider a flight quality and some of these banks are good. They're really well managed. So that's the banks. Maybe on your other one, interest rates inflation. Again, inflation hasn't really bitten us in Asia. In Asia. Right. You look at China, Hong Kong where I live, 2% ish. You know inflation and a lot of that though, because the cost of things like oil and energy just hasn't gone through the roof. There's been other other avenues that they've been getting their oil and energy. And so therefore, they haven't had the supply constraint. And so the big issues that we've seen in the West. And so with that, we haven't really seen a tightening in the same way as well in terms of interest rates and such. Where it does impact is probably on the interest rate side impacts the US dollar. People often think dollar strength equals Asia equity weakness. That to us is a bit of an old fallacy, but it still lingers in the back of the mind and it's something that we sometimes use as if there's a negative or negative sentiment barometer, the dollar strengthens and equities go down. So it can be an interesting buying signal for us. 

Alec: [00:07:36] On the dollar story. The US dollar was incredibly strong last year. There was, you know, investor interest rates going up there. Investors were moving their money into US dollars. But you say that it's that connection is broken a little bit. So how did it play out last year yet? 

Gary: [00:07:53] Just in general if we go to where that connection is. So you go back to the Asian financial crisis, right back in the nineties, things like 97. And essentially what was happening to a degree anyway, is that Asian companies, they didn't have the proper financial system as we see it today and so they were borrowing in generally US dollar but foreign currencies, currency moves happen and suddenly you get a mismatch right you're owning in Indonesia repair and you've got to pay down your dollar debt right? You get, you get hit quite badly. And what we see right now, if you look at corporations, the banking system has improved a lot. There's some good banks across the region and that same Indonesian company is probably borrowing in local currency from its local banks so that the dollar impact has less of a true sort of impact on the businesses that we look at. But of course, it's in the back of everyone's minds. And so that's where I say when we see that actually that could be just a tactical opportunity to buy in. 

Bryce: [00:08:53] What about the general economic growth picture of Eastern markets? You know, we're looking at Western countries, pretty weak growth outlook. Is that playing out over in Asian markets? 

Gary: [00:09:04] It's still pretty strong. So you're not going to get the sort of eight, nine, 10% growth rates that we've seen before? Because partly because you start from a higher base rate, you can't grow at that 10% per annum. I'd like to maybe not do that at 100, 130,000. I think you're talking about. You know, you can get that sort of return. That's great. But from an economic perspective, it's hard work. And for us, it's just not feasible to be growing at those sorts of levels. But look at China. I mean, it's starting from a relatively low base, if you like. It's not been very strong, but they're looking at 5 to 5 and a half percent GDP growth, which in a global context is pretty attractive. And there are sort of policies that will be coming through to support that. What those are, we don't quite know yet that haven't been announced you may have seen I think was last weekend as we were recording this. Anyway, last weekend was the sort of new what call two sessions. So it's like an economic so party Congress committee sort of meeting. They've reshuffled the decks a little bit in terms of leadership and in certain sectors, you know, certain industries and government bodies. And the message that came from that is we're looking to support growth. You know, we will be providing support. Again, we don't know quite what that means. But what you do know is that when those messages come through and they say things like we are here to, you know, provide support for private businesses, that it will happen. And so what tends to happen from a China perspective, you get these broad top down messages and people figure out how, how, how to implement it. And then for us, from an equity investing perspective, we know things are going to grow and then you start to then figure out which areas are going to be focussed on now and then that could be an interesting sort of place to buy into.

Alec: [00:10:55] Well, we want to get to that conversation around China. And I think the largest holdings, the largest geographic exposure in your fund is China. So we'll spend a bit of time there. But just closing out the macro side of things, you mentioned that inflation, interest rates and, you know, banking collapses aren't as big a story in Asia. But you did say the biggest thing was China reopening and how that affects the region. It'd be interesting to hear how you think that's affected the region and how you think it will play out. But also with China, the story that just seems to linger and doesn't seem to go away is this slow moving property crisis. Is it a crisis still? Who knows? Evergrande I think today, as we're recording reached some agreement with a number of their creditors is the world's biggest asset class. China's residential real estate is at stable. And how's the reopening story going? Just give us a bit of a more of a detail on China, okay.

Gary: [00:11:53] There's a few things to unpack. Tapped me when I'm talking too much or to get back on track. But if we look at the reopening rate, that's the thing that's really got everyone's attention, particularly in the last couple of months. China, as you know, had this sort of lockdown. Right? You couldn't get in. You couldn't it was hard to get in. It was hard to get out. And, you know, from a corporate perspective, it's difficult to manage your business or work out how businesses are going when things are lockdown. And, you know, from a sort of general consumer sentiment perspective within China, people were pretty down in the dumps, right? You just can't go out and go shopping and travel and all that sort of thing. So it had a huge sort of impact overall on and on the overall economy. And of course, it had an impact on sentiment as well. And sentiment is important because if people don't like China or they're concerned, then you're probably not going to hit Asia and in fact, you're probably not. Going to look too much into gems. Global emerging markets because China is the dominant force in terms of size, in terms of the way it can influence sort of markets and such. So it had this huge impact. And you just know, you saw the Asia market in particular. So that's the mainland stock market in China that got hit quite badly. Foreign investors that can buy it with redeeming, they just not didn't know it was going on. People at home and within China who are the biggest sort of drivers, if you like, of the Asia market, were, you know, down in the dumps, as I said. And so if you can go out and say, I'm not buying these companies either. Right. So they just weren't, they just weren't moving the needle when we got reopening, coming through, that kind of unwound quite at a very, very fast clip. And you're looking you're going right this travel company that was for a while with maybe only selling a few sort of train fares here and there is now a billion person market that it can sell overseas travel, too. So someone like Trip.com went from just under $20 to just over $40 in the space of a handful of weeks, basically, and has not even got to the levels from where it was out before. So people are quite, you know, have been quite bullish on this and have an impact on sentiment in terms of the consumer sentiment on the ground. And we think that that will play out in different stages. Right. So the first thing is people are going to start going to the cinema, you know, going to restaurants and doing that kind of thing. Getting back to life, your day to day life. Then they'll start doing other things like more services. So going, travelling and all these and these such things as well. And it will just have a nice sort of overall impact on, on sentiment in terms of spending as well and, and the economy. So that's really been a big sort of driver and it's got everyone refocused on Asia, right, for a period in time when the developed markets are going for a bit of a tough patch. Right. For reasons that we all know. So that has been it can get the eyes back on onto our part of the world. Now what I will say is with as we're talking now, the easy money has been made. All right. And it's been this, as we call it, the beta play, right? You buy into something that you think the whole market's going up. Those beta names, particularly linked to really pain and consumption, are kind of played out. So if you've missed it, you've kind of missed it, Right? And so now it's about looking again. And so. 

Alec: [00:15:21] Did you missed it? 

Gary: [00:15:22] No. Yeah, that's why I mentioned it. That's why I mentioned it. If we did miss it, I wouldn't, I. Wouldn't, I wouldn't brought it up. So I'll tell you why. We've got it in a moment as well, because it's important to dissect top level kind of macro sort of political thoughts to bottom up stock picking, because that's how you s really how you make money. But but going to what we're doing now is this you know, the reopening plays by and large played out the obvious ones, travel companies and such. And now it's going well Where's the next batch of money for sort of, you know, consumers' money going to what could be the second derivative or third derivative beneficiaries and can companies actually deliver and it's about really keep an eye on earnings and such. Okay so we took a view middle of last year that could take a two, three year view from where we were set. Will China be open or closed? We said, well, it'll be open, right. We don't know if it's two months to two quarters. Yeah, but it will be open. It just physically going to be hard work to contain that many people, you know, feeling the pressure then when we're talking to corporates. So you talk to the airlines within China, they said, oh, you know, we start to sort of look at reopening international routes, talk to the airports. Listen, we're kind of starting to dust off the, you know, the desks. Those sorts of companies are not doing it without a bit of, you know, a bit of a tap on the shoulder and told start looking at this where they wouldn't just obviously they're always looking, but they wouldn't really make real proper moves until they get wind of however forever whatever channels that they should be doing it. And that to us was like something's happening. We don't know quite the timing, but this is one of these sort of validation points for us that things are reopening. Hong Kong was then reopened. Hong Kong think of Hong Kong as a canary in the coal mine for China for a lot of things. And, you know, Hong Kong is like the bellwether for international markets and such. And I think interestingly, I don't know what it would be, but the next things that happen, you know, in Hong Kong, it's like different regulation or it could be something to do with markets and all these things. It could be a bit of a testing ground for what they might want to introduce in China. Right. So think of Hong Kong as the canary in the coal mine for different things. So that was another validation point. And then you had the Congress where President Xi was sort of reappointed and of course they were all the politicians who stood up and said. We've done a great job of Covid, you know, job well done. Of course, they're going to say that they're not going to stand up and say, isn't this terrible? Right. You stood up and said, this is great. The markets broadly, international markets took that as China's doubling down on Zero-covid. It will never open. The first week in November was like a peak sort of peak trough. Ebola is like terrible, terrible people. It was a suicidal sentiment for us. That was a time to top up. And then we didn't know when the reopening would happen. Like behold it did quite quickly after that. And you know, just what the stocks have done quite nicely. But now we're in this sort of dust settled in period. 

Alec: [00:18:30] We'll get to some of the individual stocks where, you know, if the beta plays moved on. I guess the question is, where do you find Alpha now? But before then, do you have any thoughts on the property side of it? 

Gary: [00:18:42] Yes. So if you want the clock back at such rates. So the property sector, if we go back to three years, it was starting to become dominated. The growth of the sector was dominated by the private companies. They have grounds and the sun acts and these two sorts that to be fair, we're borrowing or they're leveraging up basically they're borrowing a lot of money to develop land and buy land and all these things. So it's creating a bit of a debt overhang and it's a strategically important sector for the economy to, you know, to roll along nicely. The property sector has to be going along nicely as well with the privately managed companies gaining more control. You can argue from a government perspective, it's like they start to fall out of our hands. And so they introduced this policy called the three red lines policy and the three red line policy, which came into effect 18 months, two years ago, was essentially you couldn't go over these three red lines in terms of leverage and all these things essentially to keep debt down. And it was done in a way that dinged the private companies, right. So they couldn't get money from the banks anymore. And so their funding sources were kind of drying up. You can understand where they're coming from and the intention. It just the market. It didn't message well to the market and people panicked, started to sell down the property stocks and then at the same time individuals were going and checking on their, you know, their off plan investment that they made. Private companies hasn't got funding. So people were not going to look at this hole in the ground. So what am I paying for? And then it just impacted sort of own confidence in the property sector. Right. So subsequently, what we have seen is the state owned companies have come in and the White knights and they're helping finish development, say, getting new land. And we've seen a complete reversal in terms of market share from private companies to estuaries in the property sector. So essentially, if we were talking 3 to 3 years ago, about two thirds of the sort of market sales in China were for privately managed companies, and one third squeeze is reversal. Now it's complete reversal with two thirds of state owned companies, one third private. Now, that's just sort of the background, right? It's a long way of going through it, but that's how the sort of how it's played out And what we are now seeing is sort of a bottoming of the market. So we've seen some negative price growth. And I think it was on Thursday, a couple of days ago anyway, we saw the first sort of positive year on year price data coming through for property sold in the Tier one and tier two cities. So in China, cities are sorted, right? So the Tier one of the Shanghai Beijing's, it moved back into positive territory, but just before that we started to see a bit of a plateau in terms of downward prices for the secondary market. And interestingly, we're seeing more confidence in the secondary market in China versus the primary market, which isn't that common. Right. The Chinese sort of cultural mentality is buy something new and not second hand. But that's sort of changed a little bit actually, and people are a little bit more nervous about new properties because they've seen, is it going to be finished? I don't know. And so at. Least are secondary property. I know it's there and that's it. So we're seeing some bottoming, the prices demand. We think it will come back, but it'll take time. And once it does, people feel wealthier again because it has a big impact on your wealth. And then you get people buy big ticket items like cars and things like that. And so for now, consumption for us is small ticket items using cash in the bank. And then in time as property comes back, you might see some bigger ticket items being bought. 

Alec: [00:22:39] It is fascinating to think what the headlines were two years ago when this whole thing kicked off and it was, you know, like, is this going to take the global economy and what's the contagion? And, you know, two years later, it feels like. Next question. Yeah, next question. 

Gary: [00:22:54] It does. And my experience with Asia is that the headline is always really negative. It's always really negative. And then you just scratch beneath the surface and okay, there may be one or two negative bits in there, but there's often, you know, there's often some glimmers of hope, right? And so there's always an opportunity. And often when particularly international investors are panicked and they think, gosh, you know, don't touch it with a bargepole is when you can go in and you make some good money. And it's difficult to do that because you've got B sometimes you've got to just bite the bullet. Go for it. 

Bryce: [00:23:30] Well, let's move to opportunities and what's in the portfolios. So 46% of the fund is invested in China, which is overweight compared to the benchmark. But when you think about China, a lot of Equity Mates' audience think of the big sort of tech companies, those big names, Tencent, Alibaba, Meituan, etc. but you're underweight. 

Gary: [00:23:50] On the right number so. 

Bryce: [00:23:51] You don't own. 

Gary: [00:23:52] The item at. 

Bryce: [00:23:52] All. There you go. You can Get much more underweight than not. 

Gary: [00:23:55] Yet. 

Bryce: [00:23:57] What's the what's the why is that? 

Gary: [00:23:59] Yes. So regulation that you're aware of in this in the Internet sector, you've probably maybe touched on this in past episodes, but if you take Tencent and and Alibaba, they're effectively monopolies in there, or at least the most dominant forces in e-commerce for Alibaba. And so platform messaging and gaming for Tencent, they were using that sort of, you know, their monopoly powers, if you like, to data and as you would right. Are you using it for you? And I see I've got this great data and I can Mr. advertise I can give you I. 

Alec: [00:24:35] Just like it was just like everyone does it. Yeah yeah. And 

Gary: [00:24:39] And but the other thing they're also doing is anyone that sort of even smelt a little bit like they were going to compete, they just used their size and so they put that up and came in company. 

Alec: [00:24:49] So like Western. 

Gary: [00:24:50] Exactly. Exactly. And sometimes a muffled that company, sometimes they, you know, integrated it. And with that, you know they've obviously come under regulatory scrutiny and and at the time actually when they first kicked off around November 2020 at Xi's during the when COVID first hit, the hopes or premise, you know, was trying to bring the companies sort of somewhat into control a little bit, making sure the rules are in place around data security, data privacy, and then sort of trying to blow apart a touch some of the monopoly powers that some of these companies had, depending on what seat you sat in. Again, if you, you know, top down government, you might want to do that, you know, if you like, create a bit more of a level sort of competitive playing field for an equity perspective. You know, that has happened. The playing field is more open than it has been for us. Now. That means that there's more players in the marketplace in the Internet space then. So, you know, you've got tons of different sort of platforms here. You've got your JDS and mates, one you bilibili your pin dodo, you know, that's tons of them. These money, these companies that make a lot of money through eyeballs. And so you've got to eyeballs, but you might have 25 apps on your phone. So one, if you're a consumer, you might spread, you know, I'll buy this product from these guys I like, I've used this one on this from these other guys. And then if you're an advertiser, you're also thinking, okay, which one do I go with? And, you know, and so with that, we think that the businesses are sort of structurally changed and some of them still make money, but not to the degree that they ever did. And if they did, then this straight back into the regulatory spotlight again. And so for us, the is a little bit of a cap, if you like, in terms of, you know, what they can really sort of do compared to maybe the way you looked at them two or three years ago. And so we're steering clear. But if they get cheap enough, maybe.

Alec: [00:26:51] One more question on China and then let's move to other parts of Asia. But I feel like if we're going to ask you what you're not buying in China, we have to then ask you what gets you excited in China, you know, sector or industry or if there are any specific names. But if your fund is overweight, China, as I said, but underweight, some of those big tech names, what are the sectors that stand out?

Gary: [00:27:12] Yeah, well, first of all, if you look at China, there's different parts of the China market. You have the A-share onshore market. So that's Shanghai and Shenzhen in the indexes. You've got the Hong Kong heat shares, which most international investors would be aware of. Then you've got some of the US ADR, so Chinese companies listed in the US. And so for us we find the Asian market is really interesting. It's less well understood, it's less well researched and it's 4000 companies listed in China and you only have to own a handful of them and you can make, you know. Can make some decent money. So we like the Asia market first and foremost. And because of the swings in sentiment that happen there, you can get some real interesting sort of value opportunities for good businesses that people just don't own, which is a Chinese onshore company and they don't understand it. To really truly understand that, though, you need the team, you speak Mandarin and they can read the reports and they can get the nuances. And so that for us we think is a bit of an edge. Which companies I can talk for a couple. We've got focussed media, which is a yes. 

Alec: [00:28:26] So I saw that was your biggest holding never before. 

Gary: [00:28:30] Yeah. So they do digital display advertising, which essentially, you know, the screens that you get in elevators and screens that you see in shopping malls, that's what they do, right? It's not a you know, it's not one of these sort of like under these businesses that you can't understand is quite an easy one to understand. 

Alec: [00:28:48] So like an air media or a JD telco in. 

Gary: [00:28:50] Yeah, it's a bit like that actually. Yeah. And what they've done is they've got a lot of first mover advantage and so they've got about 75 to 80% market share in that whole space, which is good if you can do it. If you've got it. And what we like about it actually is that once you've got your screen in an elevator, someone can't just stick another screen in front. Right. And going back to my point on the Internet, companies, someone someone can pop up can be taken over by another company, by another advertiser. So for us, the focus media is a dominant player in its field. The elevator course, the elevator and escalator screen advertising is actually gaining market share at a good fast rate as well. Going back to my earlier point, the advertisers are less enamoured with online advertising, partly because of the reasons I mentioned. It is just more platforms and so they're not quite sure who to pick. But the other one, which is interesting, is that consumer companies like China Mengniu Dairy, right, are doing yoghurts and milk and such. They said, well, we need a broad audience, we're trying to sell yoghurts, anyone can eat it, put it on a screen where you know it's going to be 10,000 people walking through and flush it and make it look fancy. People will remember it. But if you're China Mengniu dairy and you're going to one of the platforms, what data can you give me? And it becomes a very targeted way of advertising. And so the return on investment from an advertising perspective is actually lower. And so they're going to these screens, of course, you got smashed, right, a couple months, couple of years ago because the consumer sentiment I talked about, people couldn't go out. And we like net cash on the balance sheet. An interesting business for when things do turn around and consumer confidence comes back dominant market share, which means it's got pricing power that binds to it. And we did. And it's been tough for us in the last few months. It's been a very it's been a little it's been very much a sort of a good sort of opportunity for us overall. The risks of that, of course, are, you know, you've got to think about regulation. But if you're an advertiser for billboard, essentially a screen, your regulation risk is quite low. The biggest risk is that your products, you know, the guy does a product sign off and put through an advertisement next you know is slightly risky or what have you but that's minimal because you should have compliance in place. And so you've got less regulatory risk overall. And yeah, so as the economy bounces back, which we think it is, consumers come back, we think we can make some good money on that and it's not known. So it comes back into focus. And I'll show. You after this to show you a picture of how it kind of works. It's obvious, but it's quite smart. Only do it. Oh, yeah. Yeah, It's good, right? Another idea, like. So I'm going to the property sector. We don't like the developers. 

Alec: [00:31:53] I was going to say you're a very brave man. If you want an air and pitch pensioner. A developer? 

Gary: [00:31:57] No, no. No, not developers. Because partly because they're now so dominated, you want to be with the. So if you're going to invest in there. But the problem of investing in state owned companies is that they're not always managed for value, right. And volume and other purposes. So for us, not the great investment, but we like some of the building materials companies. So Beijing Oriental Yhng, which manufactures and sells waterproofing. So silicon that goes around your sinks and the membranes that go in your roof, they've got a big market share there. We like escapes. You paint the paint business. And what was interesting for us from a top down perspective is we think that the property is so, you know, bottoming and could improve. But also from a company perspective, they don't really care which developer wins which developers finishing a project. So. They're going to sell the paint to whoever is. And so for us, don't try and guess you know which developers are going to be the hero just by the company that's going to sell stuff to whoever is. And so it's really sort of a second derivative play on that sort of return. And is market share story here gaining story, too? Because with the property sector going belly up, companies, developers weren't paying the bills. Right. And so invoices were going unpaid and what we call account receivables were going up for building materials companies. And if you could stay still that deep pockets and you could wear the pain and ease pain, it was painful. You're gaining market share because your competitors are getting taken out. And we've seen like you Hong, go from around 10% market share to 20% market share in a couple of years. Oh, well. And so, you know, mathematically, every time you see a development being built, a 20% chance of their selling, you know, their products, their waterproofing to, you know, to that developer. So for us, it's a sector everyone hates and so therefore cheap. You know, again cash on the balance sheet. And so hopefully we get a bit of a, you know, a sustained turn in the property sector create a nice tailwind. So, yes, it creates about four and a half, 5% position in both education oriented you home in the fund.

Bryce: [00:34:10] Nice. So, Gary, outside of China, you've got geographic exposure in Taiwan, Hong Kong, India, Netherlands, which we'll get to. Not sure why that's in India. Maybe a dumb question, but South Korea, Indonesia, Malaysia, the list goes on. Yeah. So outside of the two superpowers, China and India, where else are you seeing real opportunity.

Gary: [00:34:31] At the moment? Korea is interesting. So as we think there's a bit of a turn in the tech cycle that's coming, we're seeing broadly across the tech cycle, the inventory sort of numbers are improving. Um, if you're talking about like memory, for example, the inventory has gone down from roughly ten weeks to eight weeks. So it's on a slightly improving trajectory, but it's not it's not a straight line up, right? So you have to be aware of that. But with the valuations that they were trading out, they're not anymore. But the likes of SK Hynix, which is a memory player in Korea, was a few months back, traded at points from 0.7 price to book, which you know in historically was a slam dunk by you kind of close your eyes and you can make some money off of it. Fortunately in a way this is popped and it's now not as cheap as it was. But for us, we think that the tech cycle generally is somewhat improving. Again, as I said, it's not there's a demand, a global demand environment to keep an eye on. So which we have to keep, you know, constantly checking. But, you know, there are signs of sort of life, if you like, on nice. And what we found historically is that these semiconductor companies tend to move around 2 to 2 and a half quarters before the business improves. So you if you buy on the news of the business actually being positive, you probably missed a good sort of, you know, two quarters at least of decent returns. So we've been buying into those areas S.K. Hynix and small position in Samsung Electronics same story know memory really moves the needle there and you mentioned Netherlands ASML plays into that. 

Alec: [00:36:15] Yeah. So how does. A Dutch lithography company get in an Asian fund?

Bryce: [00:36:22] They just want to ASML. 

Alec: [00:36:24] Who doesn't want ASML. 

Gary: [00:36:26] You just it's quite simple. There's a couple of things that happened. One is we're talking to TSMC and Samsung and Tesco. Hynix is said all of them, you know, sort of a straw poll. What concerns you in terms of if you look across your sort of supply chain and your value chain and then like lithography, if something goes wrong, you know, with lithography, we have got no other option. It's ASML. Yeah. Okay. Okay. Right. Very good. 81% or so, just over 81% of its EAP. It comes from Asia is EUV machines, as they're called, which is the lithography machines, the new generation of them. It the order book is full until 2026 pretty much all Asian clients and you know AK they're listed in the Netherlands but for us so there's a big huge Asia sort of story there because the demand for their for their products is from the tech companies out here in our part of the world.

Alec: [00:37:21] So is that part of the rules of your fund that if a company's earning a certain percentage of revenue or profit from Asia, it fits the criteria? 

Gary: [00:37:30] Correct, Yeah, We have to get through and I will say the strict compliance department in Australia. We have to make is we have to actually make a case. So we get the CEO sign off of course, and it has to be covered by the analysts. We've got to make sure we do all of that, you know, those cross checks and then compliance in Australia give the final sign off. Okay. And so they will if. If they even sniff this, You know, it's a slightly kind of, you know, wishy washy story. There's no chance. 

Alec: [00:37:57] Yeah, that's right. Yeah. 

Bryce: [00:37:59] Is that the same with the benchmark? With the benchmark. Have I ASML as well?

Gary: [00:38:03] No. Yeah. The benchmark doesn't say it's in the European. Yeah. Index. 

Alec: [00:38:09] So does that mean in theory? You know, there was a while. I don't know if they're still doing it, but Starbucks is opening, like, 100 stores a day. Oh. No, it's just opening a stupid amount of stores and, like, all that growth was coming from China. If, you know, all of a sudden Starbucks was earning more from China than it or from Asia than it was America. Could then you make a case that it's in the fun? In theory, I'm not saying that. 

Gary: [00:38:32] Yeah, I. Know. Yeah, no, I know, I know. You mean in theory. Yes. But we also then we have rules around how much we can truly take off benchmark. So if you start to go sort of beyond sort of 15, ten, 15% in non Asian companies, then the brakes are put on us. Yeah. So. So that there are, there are sort of guidelines around that as well which we can't get past and not have to. Don't quote me on the exact number so I don't remember. Yeah. Yeah. The number is.

Bryce: [00:38:58] Yeah. One of the advantages of active management I guess. 

Alec: [00:39:01] Definitely. Yeah. Yeah. Stop.

Bryce: [00:39:03] Especially in markets like this I think. Yes. Gems, those, uh, emerging markets, what was the for global level. 

Alec: [00:39:12] Yeah. Yeah. I think, I think that's always. The challenge with emerging market indexes, at least traditionally it's been a lot of resources companies and you know, it hasn't been the sexy up and coming companies. It's been sort of slow growing, established businesses. And so that's where like, you know, looking at an active manager makes sense in a market.

Gary: [00:39:33] Well yeah, a couple of bits. So in we are benchmark agnostic, right? And the benchmark is there is a kind of a guide for everyone to kind of roughly what's in favour and not. But it's also it's just something to beat that in terms of like returns and I play well, I used to play football not so much now, but the analogy I use is that if, if you as a team are playing to your own strengths and you worry about you, you should hopefully do it right. If you worry about the other team, you start, you don't play your own game. And the same with investing. If you think about the benchmark and you look at it and you start to slowly creep towards it and you look like the benchmark. But if you can stick to your strength, which for us, you know, we think is stock picking in the companies, by taking a differentiated approach, you can beat the benchmark and hopefully quite handsomely. And that's sort of the way we approach it. It's interesting sometimes but there are massive flaws with the benchmark as well just how they classify companies. And you know, you look at some of the years ago advice, is that a real estate business or is that a conglomerate or is that is that really an industrial company? It can be a bit misleading as well. So for us there is a guide, but it's a guide to beat, basically. 

Alec: [00:40:50] Mm hmm. So, Gary, we're almost out of time, but we have mentioned India a few times, and I notice that one of your biggest holdings was HDFC Bank, and it's a company I want to ask you about because it's not the first time we've come across this company. We've had a few international experts come on and talk about it as like a really well-run bank, I guess. Tell us about it. Like, why does everyone seem to love this Indian back? 

Gary: [00:41:17] Yeah, I mean, you said it's well-run. I mean. It's a really well-run bank. And the other things to think about is that with India generally, the demographics are getting attractive, right? So people are moving into the workforce. You're getting a rising middle class. So if you look at GDP per capita in India today, it's where China was 15 years ago. And I'm not saying the Indian consumer is going to be the next China consumer, but if anyone's going to give it a crack, it would be the Indian economy. And with that, as people get richer, as they start opening bank accounts, they move into the sector, into the banking system, then they start using credit cards, then they start getting small loans. And something like HDFC Bank that's going to attract more of this sort of of emerging middle class. Is this whole sort of rising tide lifts all boats sort of story. So for us, a really interesting company, but that top down sort of tailwind, very well managed, as you said, but they've got a lot of things in the background like automated loan approvals. So take away the human error potentially that you might see in some other emerging markets in terms of, you know, building up your loan books and such. And so all of that combined for us makes it a really good company. However, for us in India generally, we're still a little bit concerned actually with India. Valuations are quite high and when you're trading at a really high valuation, you kind of got to be perfect. And what we've seen with like the Adani Group. For example, a few weeks back. It's not a perfect market. And so and so there are some sort of risks and where we see a bit of a risk at the moment and what we're keeping an eye on ready potentially, if there's a rating of the market to buy in to. By the way, it's just more on the consumer side where inflation is starting to pick up a touch in India and is having an impact at the margins at the moment on end demand for consumer discretionary. And again, if you're trading at huge valuations, just a little bit of, you know, disappointment can drive sanity rating. So so for us we generally cautious on the entire market got around a few names that we hope fall into our price bracket but maintain our position in HDFC Bank, which as I said, is a really good company from our perspective. 

Bryce: [00:43:40] I'm fascinated with India and we're lucky enough to have another expert from Fidelity joining us a little bit later on in the year to specifically talk in more detail about India and emerging markets. 

Alec: [00:43:49] So we'll have to get those few names that are on your list. Yes. Next time. 

Bryce: [00:43:54] But Gary, thank you so much. It's been great to get out of the mindset of Western markets and America and Apple and all those other big Western names that we often gravitate towards and understand more about the opportunities in Eastern markets and some of the nuances between the two. If you're listening along at home and you'd like more information about the funds, you can head to fidelity dot com dot a you. And then there's a whole section on all of their Asian equities funds. Similarly, if you want to know more about active management and managed funds and how you can get access, they've got to learn Hub on their website as well. We will also put link in the show notes with everything that we've mentioned today. One more question, Gary, before we do go. You are now officially in the running for Equity Mates Expert of the year, which is voted by our audience. At the end of the year. We celebrate products, platforms and people that really contribute to making financial markets more accessible for our audience. And by virtue of sitting here with us today, you are automatically in the running to help with our to help our audience understand a little bit more about you. Where would you put the coveted trophy that we would be awarding here? 

Gary: [00:45:05] Well, first of all, can you make sure you edit this? So it is a good interview. So to be in the running. Second of all, go on the terrorist cell in the at home. We need a goalpost. So for most of us. Sorry. Excuse me.

Alec: [00:45:22] You're going to need to win for two years. .

Gary: [00:45:24] Well, that's where I'll come back next year. All right. 

Alec: [00:45:27] We will hold you to that. And as we closed out at the start of the interview, we played biznerdle. You wanted a right of reply. Do you have one ready to go? I do. 

Alec: [00:45:39] Well Bryce, we go head to head. 

Bryce: [00:45:41] Yeah, sure. Okay.

Alec: [00:45:43] If it's going to be like a Chinese waterproofing company, I'm just going to say this. No. 

Gary: [00:45:50] Okay. Are you ready? I have the biggest brand value within the whole beverage sector globally. 

Bryce: [00:46:00] It's. 

Alec: [00:46:04] I'm going to. I'm going to get this wrong. I'm not going to. 

Bryce: [00:46:06] Look, I know it's.

Alec: [00:46:09] Kweichow moutai or what, however you pronounce it. 

Gary: [00:46:13] Kweichow Moutai. Yes. Yes, it is. Yes, it is. I should. Have made it more difficult.

Alec: [00:46:21] I actually did. I knew it was one of your biggest holdings. 

Gary: [00:46:24] So that's interesting because maotai like champagne. You can only get champagne from champagne. In France, you can only get maotai from maotai. 

Alec: [00:46:32] Oh, it's a region.

Gary: [00:46:33] It's a region, yes. Kweichow. Kweichow. Moutai. The region in the town. 

Alec: [00:46:37] And they make the Baijiu? 

Gary: [00:46:39] Yeah, the Baijiu. So I'm making cuts. Three degrees. Yeah. 

Alec: [00:46:44] Have you had to have a drink about what sort of visiting companies. 

Gary: [00:46:47] I've, I've had. I've had my fair share. 53% is quite tough going but Yeah. And it's as expensive like full Bottle. 

Alec: [00:46:55] when. You come back for expert of the year next year you can bring us a bottle. Grace. Grace?

Gary: [00:47:00] Uh, yeah. I'll have to get a loan for that. It's quite expensive.

Bryce: [00:47:06] Well, Gary, thanks for that. That's the first time that we've had an expert led biznerdle, so maybe we'll have to for some other it as well. But thoroughly enjoyable. I know a lot of our audience. We've taken a lot from a conversation today. So thank you very much.

Gary: [00:47:20] Thank you for having me.