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In our team, mistakes are teachable moments to be shared and learnt from. Thankfully, for us and our clients, in our history of investing in India we have managed to avoid the big ones.

The year 2023 turned out to be fairly pedestrian in terms of emerging markets’ performance. The asset class was weighed down by China, which recorded its third consecutive year of negative returns.

As with global automotive manufacturers, several Indian automotive original equipment manufacturers (OEMs) have recently announced that the shortage of semiconductor supply has impacted their production schedules.

This time, we want to talk about why new listings are important to keep the market vibrant and to keep the entrepreneurial spirit in the country alive.

Corporate India’s resilience has been severely tested over the past decade. Since 2010, there has been a long, drawn-out downturn, caused by a series of corruption and scams, a banking and financial crisis, and now a devastating health pandemic.

Once again, 2021 was a year full of surprises and challenges, with ongoing Covid disruptions and China turning from a global outperformer to underperformer.

As the saying goes, “There are two kinds of forecasters: those who don't know, and those who don't know they don't know.”

In our last client update, written through the depths of Covid-despair, we observed that real life and the world of markets are seldom so intimately entwined.

As the world continues to lurch from Covid-surges to reflexive and localised lock-downs, everybody is now looking through to a mythical status quo ante bellum – the before-Covid-times, when the world was just hunky-dory.

As Asian countries become richer, they have been transitioning towards consumption-based economies, translating higher per capita income into increased spending across goods and services.

In boom times like today, when cash costs nothing and capitalisation rates are zero, everybody is focused on growth and the future.

In almost every meeting that we have with management teams, we will ask about incentivisation. In our view, it is an important question and the answer can be highly revealing about an organisation’s culture and behaviour.

Penetration rates for goods and services are low and the high level of informality in emerging market countries often raises the barriers to entry substantially.

Though Covid hasn’t yet finished with us, the markets have finished with Covid. In real life, there is still plenty of misery to go around, but things have seldom been better for investors.

Every downturn is different – the Global Financial Crisis and the Asian Financial Crisis were primarily debt-related, while SARS and Covid are obviously health-related, with a knock-on effect on growth and consumption.

Since our last update, global markets have not been short of action and the manic behaviour characterising today’s markets has taken investors on another rollercoaster ride.

50x P/E! 70x P/E! 100x P/E! Valuations that were outrageous just a few years ago are commonly bandied about by most of the investment community these days. But, ask any respected business owner and they would shake their head in disbelief. The difference in perspective is critical.

Land, Labour, Capital and Entrepreneurship. These are the well-known “Factors of Production” as defined by classical economists. The Entrepreneur (or Company) is the one that combines these factors to earn a profit.

We have just returned from India – the first investment research trip in India for our entire team in over two years. It was a liberating break from constantly hearing “You’re on mute!” on video calls whilst simultaneously being forced to appreciate your kids’ music lessons in the adjoining room.

Every company we speak to these days tells us about the cost pressure that they are facing, emanating from rising global commodity prices.

We have closely followed earnings across our portfolio companies to assess how successfully they have emerged from the initial impact of the pandemic.

At a team discussion last month to track management and board changes across our investment universe, a notification on the stock exchanges piqued our interest.

Our investment philosophy is to back owners and managers with whom we feel strongly aligned, and track records of treating all stakeholders fairly.

After a recent meeting in Mumbai with the top management of Mahindra & Mahindra (M&M), we came back with a clear message – M&M’s commitment to its purpose does not mean that it will continue to operate loss-making businesses.

Over the past few years, global emerging market (GEM) investors have dealt with a series of challenges, including a surging pandemic, local lockdowns and widespread travel restrictions.

That would perhaps be an accurate description of what drove some of my portfolio decisions as a young fund manager, roughly 15 years ago during the global financial crisis (GFC) meltdown.

Albert Einstein famously said, “Not everything that can be counted counts and not everything that counts can be counted.” This holds true in many situations, but we think it is especially true when it comes to risk management.

In the past two years, investors in China have faced challenges from policy reforms, Covid-19, and commodity price inflation.

The FSSA Singapore & Malaysia Growth strategy was renamed the FSSA ASEAN All Cap strategy in December 2021 to reflect a change in the portfolio’s mandate. The strategy is now able to invest in the broader Southeast Asia universe.

With over 20 years managing money in China I have seen significant changes both in the corporate and investment environment. One of the biggest shifts that has occurred is the fact that China is not short of investment capital.

In this China update for mid-2022, we discuss some recent topics of interest as highlighted by our clients.

Last year, we wrote about the bubble we were witnessing in the initial public offerings (IPOs) in India. Now, we see a different type of bubble forming – in these cases, the business is often a proven one, with a strong track record and high return profiles.

“For everything you say about India, the opposite is also equally true,” said a senior corporate executive, paraphrasing a quote from the British economist Joan Robinson, when we met him in India recently.

As long-term, bottom-up investors, our starting point for finding suitable investments is to seek out companies that benefit from structural tailwinds and have clearly-defined competitive advantages.

Many people seem to think that money management is about predicting the future. But even with the gift of perfect foresight, the subsequent market reaction to news is often far from obvious.

Since we last wrote, roughly three months ago, investors in emerging markets have had to reconcile themselves to a stream of disappointing headlines from several key countries.

Lee Kuan Yew, although somewhat a polarising figure, perhaps understood state power and the human condition better than anybody. Consequently, Singapore has often been criticised as much as it has been greatly admired.

Five years ago we launched the FSSA Global Emerging Markets Focus strategy. It has been an interesting time to invest in emerging markets.

I started my career more than 18 years ago as a developed markets consumer analyst. It was a great introduction to investing – the consumer sector is extremely broad so I was able to gain experience across many sub-industries and look at a wide variety of companies.

At FSSA Investment Managers, we believe that meeting management teams is crucial in assessing the quality of a company.

Looking back (though it’s not like we didn’t already know), it is clear that we have been living in an increasingly distorted world. Financially, for the last decade, it has been about interest rates falling to (and staying at) zero in a world of general money printing.

At FSSA, we are long-term, bottom-up investors with a focus on quality. This mind-set also applies to how we engage with companies on Environmental, Social and Governance (ESG) matters.

Whilst valuations of many small and mid-cap companies are questionably high, we are being prudent; and we believe there are a number of reasons why India’s premium is well justified.

FSSA Investment Managers is delighted to announce the appointment of two new investment analysts to join the FSSA investment team

Our Asian equity strategies delivered reasonable returns in 2024, and our long-term track record remains solid. Despite the prevailing uncertainty and an uneven recovery across the region, our portfolio holdings were generally resilient.

The American economist Frank Knight once observed that uncertainty, unlike risk, cannot be quantified or predicted.

How is the FSSA Asian Growth portfolio positioned in light of the challenging market environment? Firstly, we should note that we are agnostic about indexes.

What can the Tour de France teach us about investing? We explore why patience, discipline and a long-term mindset remain essential in markets increasingly driven by momentum and leverage.

While the pandemic is still far from over, a number of key leading indicators point to a healthy and broad-based recovery in China.