On the ground in Asia

Every investment manager needs to adapt as the world changes. Recent years have seen global trading relationships redrawn, supply chains adjusted and economic power start to shift. Asia is increasingly emerging as an independent economic trading bloc, no longer reliant on Western economies for growth. We are building our investment team to capture the opportunities this creates.

According to the International Monetary Fund, intra-regional trade in Asia has increased by 43% over the past four decades, and today, more than half of Asian trade is regional. This is set to increase as the region’s major powers look to raise self-reliance in the face of an increasingly isolationist US. Free trade agreements such as the Regional Comprehensive Economic Partnership (RCEP) and the China-ASEAN Free Trade Area (CAFTA) are part of these efforts.

This is changing the nature of the investment opportunities that are available to us at Aberdeen. For example, across Asia, we see the emergence of local brands, which are increasingly elbowing out Western brands. We see the rapid growth of South Asian economies that are benefiting from the ‘China plus one’ theme. Plus, Asia is home to its own technological revolution, as the region develops a dynamic domestic ecosystem.

This is why it has become increasingly important to have a significant presence on the ground in Asia. Aberdeen has always had a strong local analyst team, but, on the Aberdeen Asian Income Fund, we have taken the view that it is vital to have a fund manager embedded in the region as well. This is why Isaac Thong, manager on the trust, moved back to Singapore earlier this year.

Singapore is embedded in the growth story of Asia. Originally a British trading post, it gained independence from Malaysia in 1965 and has since grown into a major economic power in its own right. Sitting under Malaysia and above Indonesia, it has a population of just 6m, but is a regional powerhouse, with one of the highest GDP per capita in the world.

Alongside Hong Kong, it is also a local hub for capital flows. Companies recognise that it is an important destination to raise growth capital. Singapore’s position as a wealth management centre means that many regional founders base themselves there. 

Information and networks 

For a fund manager, this brings real advantages in terms of access and information. Being based in Singapore creates proximity to companies across the region, allowing for more frequent company visits and a more robust, long-term dialogue with the companies in which we invest. In the months since Isaac arrived, it has been the third quarter earnings season, with lots of conference calls and management teams from across the region visiting Singapore.

The time zone alone can make a difference. In the Winter months, the UK may be eight hours behind Asia, giving UK-based managers just a few hours each day to interact with local businesses. Being based locally proves a real boost in terms of the amount of time spent with companies and experts. 

This can give us real confidence in the decisions we make. On chipmaker TSMC, for example, the trust’s largest position, it has become clear that there is no other company that comes close in terms of process technology and implementation at scale. TSMC is also busy expanding capacity outside of Taiwan, in places such as the US, Germany, and Japan. We have built deep understanding of the company and its ambitions through closer proximity to its leaders, supply chain and competitors.  

It also makes it easy to travel regionally and tap into local networks. Isaac recently led a trip to China, which included visits to Shanghai, Shenzhen, and Hong Kong, coming back with valuable on-the-ground insights from a range of industry experts and company management teams. It is easier to build up this network from a domestic base, and to research supply chains and competitors more thoroughly. It is also possible to pick up on local news flow. These differentiated insights are not always available from abroad.

Language is also important. Isaac speaks Mandarin, and many local languages are represented among the analyst team. While some management teams routinely conduct meetings in English, this is not the case for China ‘A’ share companies, or for some companies in Korea and Taiwan. Even if they speak English, many feel more comfortable in their native language and it can bring real nuance to the discussion. These factors together can really help to build a 360-degree picture of companies. 

Real change

Singapore is also a useful place to pick up on regional shifts and the cultural context in which companies are operating. For example, since Isaac last lived in Singapore he has seen real change: there used to be a lot of American food chains, for example, but Asian brands now dominate the country’s shopping malls. Chinese electric car maker BYD has become the best-selling electric car brand in Singapore. 

He can also observe emerging consumer trends. For example, there is a vogue for new tea shops, such as Chagee, in Singapore, which are proving every bit as popular as international coffee chains. Isaac has also noted the success of Xiaomi, a value-for-money smartphone and home appliance manufacturer, which is seeing strong local demand. We think this differentiated insight into regional consumption trends is invaluable. It can also give a real feel for economic momentum across the region. 

Isaac retains strong ties with the London office, including the distribution team there and the broader emerging markets group. However, when investing in Asia, we believe it is best to be at the centre of the action, creating deeper relationships with regional policymakers, local companies and the analyst teams based there. 

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