Identifying Asia’s “platform” businesses

Thinking of investing in terms of gambling is seldom especially helpful. After all, there ought to be a marked difference between seeking to build a secure financial future and having a flutter on the 16.35 at Kempton Park.

Nonetheless, a few parallels are worth acknowledging. For example, particularly in a market environment characterised by uncertainty and rapid change, investors could find it useful to “spread their bets”.

We can view this approach through the prism of roulette. Someone who dreams of winning big might shovel all their chips on to one number, whereas someone who wants a greater chance of winning might back several numbers or even simply plump for red or black.

With that idea in mind, imagine you feel there is money to be made from the pharmaceutical industry. Would it be wise to bank on the effectiveness of just one drug manufacturer – or even just one drug – or might it be more sensible to find another way of tapping into the market?

I would like to believe the vast majority of investors – not to mention fund managers – would recognise the merits of the latter course of action. By way of illustration, take WuXi.

Founded in 2000 and based in Shanghai, the company provides contract research, development and manufacturing services to pharmaceutical and life-sciences businesses. It has grown through various acquisitions and has numerous facilities outside China, including in Europe.

One of its subsidiaries, WuXi XDC, operates in the fast-growing field of antibody drug conjugates (ADCs). It aims to assist companies at every stage of the ADC development process, including clinical trials.

WuXi clearly stands to benefit if a specific drug eventually reaches the point of sale. As well as enjoying the cachet of being associated with a fruitful project, it may receive a share of the royalties.

Yet its investment appeal arguably lies more in what happens if a specific drug fails. The client might be negatively affected, but WuXi itself can just turn its attention to another drug from elsewhere.

This can therefore be thought of as a “platform” investment, in so far as WuXi serves as a platform for other innovators. With technological progress in multiple sectors unfolding at pace, such opportunities are increasingly emerging in the arena of Asian smaller companies.

At the cutting edge yet reassuringly undramatic

Why can Asia be such a fertile hunting ground for investors keen to “spread their bets” in this way? A key reason is that the region has a notably firm focus on entrepreneurship and long-term growth.

This is now true even in China, where the government’s message is that companies can expect to be rewarded, not punished, if they succeed. Such an outlook contrasts sharply with past crackdowns on burgeoning businesses.

The West perhaps first became acutely aware of this shift earlier this year, when the launch of DeepSeek – a Chinese rival to AI chatbots such as ChatGPT – shocked the world of Big Tech. The surprise unveiling showcased China’s capacity to compete with the US’s most cutting-edge players.

Even President Trump was moved to describe DeepSeek as “a wake-up call”. He suggested it should serve as a warning to anyone convinced that the US’s supremacy in the AI race – and the tech race more broadly – would remain unchallenged forever.

Much the same has since happened in the aforementioned sphere of pharma. Pfizer signed a licensing deal with a Shenyang-based biotech company in May, underlining widespread acknowledgement that China has more than earned its place at the technological frontier.

Elsewhere in Asia, other interesting platform businesses include South Korea’s Hyundai Electric. It makes the transformers crucial to both the transition to sustainable energy networks and the construction of data centres, which are themselves hugely energy intensive.

India’s KFin Technologies also fits the bill. It is tapping into the country’s tech-enabled financial revolution by offering infrastructure services, digital solutions and other back-office services to an array of local asset managers.

In my opinion, investments like these represent a form of diversification. The fundamental purpose of diversification is to reduce risk, and that is precisely what investing in platform businesses can do.

Backing these companies might not be outrageously exciting, of course. Much the same can be said of betting on red or black at roulette, at least in comparison to the innate thrill of putting everything on, say, zero.

In the end, though, most investors are happy to live without thrills. They appreciate there is no such thing as a certainty, but they would like something as close as possible to that ideal. Ultimately, the attractions of Asia’s platform businesses are rooted in a relative lack of drama – because in investing, as in gambling, boring can be good.

Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance. 

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Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG. The company is authorised and regulated by the Financial Conduct Authority in the UK.

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