Important Note Click to maximise
Important Note I have read and agree, click to minimise

This is a financial promotion for The First Sentier Asia Pacific ex-Japan Strategy. This information is for professional clients only in the EEA and elsewhere where lawful. Investing involves certain risks including:

  • The value of investments and any income from them may go down as well as up and are not guaranteed. Investors may get back significantly less than the original amount invested.
  • Currency risk: the Fund invests in assets which are denominated in other currencies; changes in exchange rates will affect the value of the Fund and could create losses. Currency control decisions made by governments could affect the value of the Fund's investments and could cause the Fund to defer or suspend redemptions of its shares. 
  • Single country / specific region risk: investing in a single country or specific region may be riskier than investing in a number of different countries or regions. Investing in a larger number of countries or regions helps spread risk. 
  • Charges to capital risk: The fees and expenses may be charged against the capital property. Deducting expenses from capital reduces the potential for capital growth.
  • Emerging market risk: Emerging markets tend to be more sensitive to economic and political conditions than developed markets. Other factors include greater liquidity risk, restrictions on investment or transfer of assets, failed/delayed settlement and difficulties valuing securities. .
  • Smaller companies risk: Investments in smaller companies may be riskier and more difficult to buy and sell than investments in larger companies.

For details of the firms issuing this information and any funds referred to, please see Terms and Conditions and Important Information.  

For a full description of the terms of investment and the risks please see the Prospectus and Key Investor Information Document for each Fund. 

If you are in any doubt as to the suitability of our funds for your investment needs, please seek investment advice.

How should investors position themselves during periods of market volatility?

Fund Manager Q&A

Market volatility has been a feature of Asian and Global Emerging Markets  (GEM) for quite some time. The reasons are well known and range from global issues such as the pandemic to region-specific events such as Evergrande and concerns around the Chinese property market.

The question for investors is how to navigate market volatility and identify products which are resilient to elevated levels of uncertainty. A selection of FSSA portfolio managers discuss their approach to managing portfolios in uncertain times and offer their insights on the most effective strategies to ensure long-term investment success.


With recent market volatility, what advice would you offer investors?

Martin Lau: As an investor in Asia and China equities for more than 20 years, investing in volatile markets is not a new experience for me! However, along the way I have learned a few lessons. The first is probably to maintain the correct perspective. I have often found that the best investment opportunities present themselves during volatile or even depressed market conditions. Quite often, these periods have allowed me to buy great quality stocks at lower prices.

In the eye of the storm it is easy to be captured by market sentiment or swayed by constant negative media commentary. Resilience is key - in fact, whether it is Covid-19 or turbulence in the Chinese property market, the reality is that such factors are likely to prove transitory. The most important approach is to maintain a long-term, quality-based perspective.   

The second insight I would offer is to always focus on company fundamentals. Ultimately, it is company earnings that determine share price performance. Government policies, interest rates, GDP growth etc. are not relevant. However, knowing what you are investing in, and why, allows investors to filter out short-term market volatility and concentrate on what really matters.


How important are company fundamentals in volatile times?

Sophia Li: Within the Japanese market, volatility has taken the form of extreme style and sector rotation.  I have seen the market shift from favouring quality growth towards cyclical companies. Historically this type of rotation has been driven by rising US interest rate expectations and a subsequent foreign investor sell-off. Japan, however, is not the US – here economic growth is low and inflation is not demand-led. Rather, it is being driven by higher commodity prices.

Current levels of market volatility are unwarranted within the context of Japanese equities. When markets disregard fundamentals, extremely attractive opportunities often emerge and I am currently adding small to mid-cap companies to the portfolio. Almost half the holdings in the portfolio are software and commercial services-related companies. These businesses tend to have high, defensive gross margins and low cost inflation. My view is that short-term volatility is not a risk, but an opportunity. Fundamentals and quality always pays off in the end.


How are companies reacting to the current environment?

Vinay Agarwal: Corporate turbulence has been a recurring characteristic of the India market for a decade. Previous challenges have included: demonetisation, implementation of the Goods & Services Tax (GST), scandals surrounding the allocation of natural resources and the NBFC crisis which caused a market crash and crippled growth within the real estate sector. These caused short-term market volatility, but proved to be catalysts for positive change.

For the last couple of years, many Indian companies have moved into consolidation mode. Balance sheets have been strengthened and operating costs cut. Previous events further led to tightened government regulations. Again, a positive development as higher levels of regulation favour organised companies at the expense of those ignoring taxation and labour laws. Longer term, this will lead to a more stable corporate environment.

Short term, markets may retain some of the present volatility.  Cost inflation is a feature globally and puts both margins and working capital under pressure. However, as always, I believe quality will always prove its worth. Those businesses with strong franchises, superior pricing power and quality management will thrive.  


What opportunities do volatile markets offer investors?

Rasmus Nemmoe: I think it is too easy to be consumed by market noise and short-term factors. Of course the last two years has presented challenges within GEM. However, there are and will continue to be, clear winners. Within our GEM portfolios we hold several holdings directly leveraged to both the travel and dining sectors. These continue to benefit as economies reopen post-COVID and populations start travelling, both for leisure and business. Customers are returning to restaurants and eating out in general.

I view these types of companies as ‘structural compounders’, businesses with strong business models, great brands, defensive balance sheets and solid growth opportunities. Companies with these characteristics provide portfolio resilience in times of elevated volatility and I am confident they will continue to deliver going forward.


Is it possible to increase portfolio resiliency?

Richard Jones: In a word, yes. It is actually fairly straightforward and based on three basic principles. First, understand the value of quality. Nobody can predict the future but in our experience, good companies prosper during good times and suffer the least during bad periods. By quality, I mean companies with a high return on equity (ROE) good growth rates and proven management teams.

Secondly, don’t over pay. Quality normally has a price, but if you avoid valuation extremes, it is perfectly possible to buy high-quality companies at sensible valuations. Compound returns at an absolute rate of 8-10% pa is a good benchmark.

Lastly, maintain discipline and investment conviction. I know from experience that when headlines are at their most negative, the downside is often already in the price. Keeping a calm, considered head is essential. Top-down factors may drive overall market volatility at times, but these seldom result in permanent loss of capital if investments are genuinely high-quality businesses. These principles are the solid foundations for building portfolio resilience.    


Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same.  All securities mentioned herein may or may not form part of the holdings of FSSA Investment Managers’ portfolios at a certain point in time, and the holdings may change over time.

Important Information

This material is for general information purposes only. It does not constitute investment or financial advice and does not take into account any specific investment objectives, financial situation or needs. This is not an offer to provide asset management services, is not a recommendation or an offer or solicitation to buy, hold or sell any security or to execute any agreement for portfolio management or investment advisory services and this material has not been prepared in connection with any such offer. Before making any investment decision you should consider, with the assistance of a financial advisor, your individual investment needs, objectives and financial situation.

We have taken reasonable care to ensure that this material is accurate, current, and complete and fit for its intended purpose and audience as at the date of publication. No assurance is given or liability accepted regarding the accuracy, validity or completeness of this material and we do not undertake to update it in future if circumstances change.

To the extent this material contains any expression of opinion or forward-looking statements, such opinions and statements are based on assumptions, matters and sources believed to be true and reliable at the time of publication only. This material reflects the views of the individual writers only. Those views may change, may not prove to be valid and may not reflect the views of everyone at First Sentier Investors.

About First Sentier Investors

References to ‘we’, ‘us’ or ‘our’ are references to First Sentier Investors, a global asset management business which is ultimately owned by Mitsubishi UFJ Financial Group. Certain of our investment teams operate under the trading names FSSA Investment Managers, Stewart Investors and Realindex Investments, all of which are part of the First Sentier Investors group.

We communicate and conduct business through different legal entities in different locations. This material is communicated in:1

Australia and New Zealand by First Sentier Investors (Australia) IM Limited, authorised and regulated in Australia by the Australian Securities and Investments Commission (AFSL 289017; ABN 89 114 194311)

European Economic Area by First Sentier Investors (Ireland) Limited, authorised and regulated in Ireland by the Central Bank of Ireland (CBI reg no. C182306; reg office 70 Sir John Rogerson’s Quay, Dublin 2, Ireland; reg company no. 629188)

Hong Kong by First Sentier Investors (Hong Kong) Limited and has not been reviewed by the Securities & Futures Commission in Hong Kong

Singapore by First Sentier Investors (Singapore) (reg company no. 196900420D) and has not been reviewed by the Monetary Authority of Singapore. First Sentier Investors (registration number 53236800B) is a business division of First Sentier Investors (Singapore).

Japan by First Sentier Investors (Japan) Limited, authorised and regulated by the Financial Service Agency (Director of Kanto Local Finance Bureau (Registered Financial Institutions) No.2611)

United Kingdom by First Sentier Investors (UK) Funds Limited, authorised and regulated by the Financial Conduct Authority (reg. no. 2294743; reg office Finsbury Circus House, 15 Finsbury Circus, London EC2M 7EB)

United States by First Sentier Investors (US) LLC, authorised and regulated by the Securities Exchange Commission (RIA 801-93167)

To the extent permitted by law, MUFG and its subsidiaries are not liable for any loss or damage as a result of reliance on any statement or information contained in this document. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment products referred to in this document or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk, including loss of income and capital invested.

© First Sentier Investors Group