Asia's multi-faceted growth story

As with any investment, your capital is at risk. Past performance is not a guide to future returns.

Qian Zhang (QZ): Hello, everyone. Thank you for joining us today. My name is Qian Zhang. I'm an investment specialist in Baillie Gifford. I'm joined today by my colleague Roddy Snell and Ben Durrant, co-portfolio managers of our Asia ex Japan strategy.

Now, the global market has quite an eventful start of the year. We understand you will have many questions about how Asia is positioned in the current context. So the plan today is to try to address those questions first, and then we will share our thoughts on the portfolio's positioning. We will also touch upon performance, and of course, our outlook for the asset class and the strategy. 

We're happy to receive your questions as we go, so please do submit those using the Q&A button, and we'll come to those in the end. 

So let's crack on. Roddy, to start with, can you talk about the broad picture of investing in China, especially in the world post-Trump's Liberation Day?

Roddy Snell (RS): Sure, thank you, Qian. And look, first of all, you know, Asian markets were really in the crosshairs of the original tariff framework, given the region's sort of exporting nature. 

However, Asian markets have genuinely shown a good level of resilience amid that global volatility. And the starting point for us is really that our portfolios are largely domestically orientated, with most of our holdings having no or actually very limited revenue from the US. 

Secondly, although the situation is dynamic, the US appears to be backing down on its most extreme tariff measures, China being a good example of that, where they effectively stood up to the US and imposed their own trade restrictions, including in areas like critical rare earths, and the US really didn't want to take that pain, leading to a significant de-escalation. 

So interestingly, the region which fell about 15 per cent from its March peak on tariffs is now higher than it was pre-tariffs, which reflects both the expectation that tariffs will not be as high, but also perhaps the start of money starting to look for investments outside of the US. 

That corresponds to a weakening US dollar, which is usually very positive for emerging markets more broadly. And also another Trump policy, which is to lower the oil price, which again is a tailwind for most of the region.

QZ: So in terms of portfolio management, what have you and the team been doing in the background during this period?

RS: Sure, apart from carrying out our usual sort of research work on companies, Ben and I first reviewed the portfolio for any vulnerabilities to the direct impact of tariffs and holdings that may be a potential risk of a US recession and global slowdown. 

As said, our portfolio holdings make most of their money from non-US markets. For example, out of 20 or so holdings in China, only one of them actually has notable US revenue on products that are not exempt from tariffs. That would be Midea, which makes white goods. 

And here, for example, 7 per cent of Midea's sales go to the US, but more and more US orders are being deliberately manufactured by its factories outside of China, and they're also evaluating the possibility of manufacturing within the US And really, Midea's approach represents many Chinese exporters. 

Since the first trade war, many of them have taken steps to diversify their manufacturing base outside of China. Meanwhile, we also consider the second order impact of a potential global slowdown, which is not what I believe is likely. But if that happens, a demand shock may impact Asia's tech exporters in the short term, particularly Korea and Taiwan chip producers and other semi-related suppliers.

However, global AI capex remains very strong, and we also think that under a constrained environment, trench competitive advantage matter more than ever. So companies like TSMC have proven that they can grow well through cycles. So it's actually a time that the strong may become stronger, and that actually plays pretty well into our active investment style.

QZ: Thanks, Roddy. Let me come to you, Ben, on perhaps a follow-up question from this context. Who would be the winners and losers from a country perspective within our investment universe?

Ben Durrant (BD): Thanks, Qian. Good morning, all. I'd say first that, as Roddy mentioned, this is incredibly uncertain. The long-term dynamics here that are driven by US policy are changing literally on a day-by-day, week-by-week basis. So it's difficult to pick winners here, and we are holding our views lightly. 
The obvious safe havens though are the large domestic markets insulated from all of this, most obviously India, but also China domestically itself. But secondly, maybe, the geopolitically stable but still cheap places to manufacture. Unless you believe that everything is going to be made in the US or close to home for most consumers, there is still a place for export-led economies. 

Vietnam's the most noteworthy here, which we can touch on separately. But as we speak, Roddy and I have colleagues in Taiwan, Korea and Indonesia right now meeting management teams there to understand if the plans and opportunities there have changed at all.

I'd say that all of this, some of it is noise, some of it is important. I don't think it is going to fundamentally change what makes companies and countries successful, but it certainly has changed market perceptions a lot of both exporters and China in particular. 

So when we look at those putative safe havens of India and China domestically, relative to those expectations, China feels a lot more attractive right now. It's got both the capability and also the incentive to stimulate that domestic market quite strongly. 

And you've seen a return to favour of the private sector just earlier this year, most visibly with Xi Jinping's meeting with a lot of the founders and CEOs of the large private companies there. So you know that if it happens, you as a minority shareholder in private companies in China are actually likely to benefit here. 

Deep Seek, as well, has been, I think, a prominent reminder that innovation remains in China and is world-class. Despite a lot of the global efforts to denigrate or prevent China's rise in the technology space there, they've continued to do fantastically. And that is visible in far less prominent companies as well. Midea, that Roddy mentioned there, is a world leader in its own space there.

And so we like an awful lot that we see in domestic China. And you look at some of the companies that we've been buying recently, Haidilao, Boss Zhipin. These are companies that really benefit from that increase in domestic spending and domestic private sector hiring. 

Of course, there is still the question of the end state of that US-China relationship, both in terms of exports, but geopolitical tensions more broadly. And so that has, to a degree, I suppose, capped or scaled back the enthusiasm that we have from a portfolio position. Because while we think that China domestically can still do well, there are risks to us all as foreign investors that may have our ability to invest in China impacted by US policy there. But we think that is a relatively low risk and unlikely to materialize, but it certainly could cause volatility. But that notwithstanding, I think China domestically, coupled with those other geopolitically stable export nations, are pretty attractive long-term winners here.

QZ: Thank you. That's quite clear. I know in the strategy itself, we've had an underweight in India. Does this change?

BD: Not yet. I think that India domestically feels like that immediate safe haven, as I mentioned. It didn't get hit that heavily by tariffs. It's nobody's enemy, nobody's great friend, so it's relatively neutral in that respect. And as mentioned in previous webinars, from a macro perspective, there's plenty to like that potential of that huge, maybe emerging middle class. 

It's got an oil importer, and so in times of relatively low oil prices, does quite well there, and also has a closed capital account. The currency's been surprisingly strong over recent years relative to what you might have expected longer term there. 

But when we compare growth prospects in India compared to other parts of the region, we find that growth is frankly just priced very highly. We like the companies. They're tremendously stable, relatively weak competition, so they earn good returns.

But the kind of quality and growth prospects that you see in the rest of the world are not, or the rest of Asia at least, are not at the moment matched in India compared to the prices you're being asked to pay there. 

And so we think that when we rank the long-term prospects compared to price of countries in the region, India's does still come in that bottom half. And so it's an underweight position for us to fund the kind of areas of enthusiasm that we see elsewhere. 

That said, there's still things to like, and you can see that in recent activity as well. We've been buying, for example, Indigo, the best airline, increasingly dominant airline in India there, and the largest and best lender to that emerging middle class, Bajaj Finance, as well as Eicher Motors, which is one of Roddy's favorites, but a very different investment here. 

This is the maker of the Royal Enfield Motorcycles, which is a status symbol, an aspiring purchase for that young male Indian who's looking to move up that wealth curve there. So these are all great long-term businesses, but we're pretty selective in India because on balance, we think that the price is greater than the growth prospects compared to that imbalance in expectations that we see elsewhere in Asia.

QZ: All right, thank you. I hope you've tried one of those motorcycles in India when you did your research trip. Thanks for that. Another large position we have in the strategy is Vietnam.

It's clearly in the headlines these days as Asia's absolutely rising exporter. If I may come to you, Roddy, any additional thoughts on Vietnam? 

RS: Well, thanks, Qian. In terms of the exporting side, tariffs are particularly relevant to Vietnam, given exports are about 80 per cent of GDP, and they're actually about the third highest deficit with the US, behind China and Mexico. 

Now, look, we are yet to see what deals come out of negotiations. But my view is that for really labor-intensive industries that Vietnam pretty much solely focuses on, it's pretty much impossible to reshore this to the US, given the wage gap. A US worker is about 10 times the price of a Southeast Asian labor. 

So anything that is purchased in Walmart, for example, that comes from Asia, I believe the manufacturing stays in Asia. And to give you an example to illustrate this, if we take the iPhone, if you wanted to move this to the US manufacturing, you would need tariffs of at least 100 per cent to cover the marginal costs, ie the wages that you would have in the US. You'd need probably 200 per cent if you included the fixed costs, ie building the factories, and you'd probably need 250, 300 per cent plus if you wanted to move the whole supply chain over to the US. 

So I simply can't see that happening. And if it's not going to happen for the iPhone, it's certainly not going to happen for lower-end, more labor-intensive goods like garments, textiles, which is really where Vietnam focuses. 

So look, there are, of course, negotiations underway, and I think that Vietnam will have to clamp down on some trans-shipments from China in particular. But these are very low margin, low value-add exports. It's just China shipping goods through the country. So overall, it's a headwind, but I think there are other more important domestic drivers that can offset this in Vietnam.

QZ: Thanks, Roddy. You mentioned domestic drivers for Vietnam before. I know both of you and Ben have visited the country recently. What are your thoughts?

RS: Well, I think the domestic story looks really interesting in Vietnam. Vietnam's actually been very weak domestically for the past three or four years. The old general secretary, the head of the country, a man named Truong, I would describe him as a miserable Marxist. 

And he really didn't care about the economy. And it led to a really strong corruption clampdown called Operation Blazing Furnace. And this led to huge political instability. They lost two presidents in 12 months. were replaced. 

And ultimately, you had a collapse in the property market, a mini banking crisis, and worst of all, everything just stopped getting done in the country. No one was prepared to sign anything off.

So infrastructure, etc, just ground to a halt. Now, Truong actually died last year, and he was replaced by a man called To Lam. And To Lam is a totally different character. 

Crucially, he's all about money and business, and he realises the economy is key to Vietnam's long-term success. So he's absolutely focused on the economy, and he's changing things in Vietnam really quite dramatically. 

They're targeting 10 per cent GDP growth going forward, and they're planning to achieve that through really massive reforms on par with what we saw back in 1986. It makes dodging the US look quite tame. They're cutting back 400,000 government jobs. They're halving the number of provinces. Secondly, they're unleashing infrastructure spending.

And most importantly, he's got everything moving again. I've been to Saigon many times, the metro has been stuck, never getting completed for well over a decade. Once To Lam came in, it was completed within two months. So things are really starting to move again. So my view is that Vietnam would like to have one, if not the strongest domestic growth stories in the emerging markets over the coming year. And this domestic turnaround can hopefully offset much of any tariff impact. And most of our exposures in Vietnam are very much focused domestically.

QZ: And that's quite clear, thank you very much. I want to now move on and spend some time on performance. But the strategy has outperformed very strongly in the five-year and 10-year period, which is the timeframe we would encourage our clients to access us, given our very long-term investment philosophy. 

The most recent year's performance has lagged. So Ben, can you explain, what has detracted?

BD: I'd say it's a combination of two things. Firstly, it's the inevitable volatility as a result of focusing on those five-year-plus kind of outcomes when we're investing, that we will see volatility over those shorter time horizons. And secondly, it's just the inevitable mistakes. 

Well, there are some companies that we've invested in that haven't delivered what we'd hoped. And so that has been a drag. The combination of those two over the last year has been painful. I'd say three main categories. So firstly, energy and materials had a weak year last year after strong performance prior to that. But we're still reasonably comfortable in the underlying investment case.

They think that the world is underinvesting in copper and traditional energy. And there's plenty more demand growth, but the supply side is unwilling or unable to invest. And the stocks themselves are under-invested in as well because of well-intentioned but often mis-supplied ESG ambitions there. 

So that's the first category there. The second will be turning to stock selection within China. And while the companies that we've owned by and large have been okay, it's actually been the stuff that we haven't owned over the last year that on a relative basis has been uncomfortable for performance. 

The two prominent big index constituents that we deliberately haven't owned or have been underweight for years would be Alibaba and Xiaomi. Alibaba is reasonably straightforward in the respect that we see better, stronger, faster going internet platforms in China. 

And Alibaba itself, while a business that we respect, wasn't really a growth business anymore. And the investment case is predicated on return of capital to foreign investors and maybe a return to form within its core businesses there.

You've seen a real surge in the rating of that business over the last four or five months or so. In part, this is substantial. Jack Ma participating in that meeting I mentioned earlier with Xi Jinping was a surprise to many and signals that return to the fold after the financial saga where he was pushed to the sidelines for many years there. As well as more irrational exuberance when the world saw Deep Seek and thought, “oh, wow, that's impressive and thought, how do I invest in that?”. 

Alibaba was that natural proxy there. And so that's done reasonably well as a result. But when we look at the fundamentals, the e-commerce business, the cloud business in Alibaba, we're pretty comfortable there that they don't have the growth, the margins that we would want, and valuations actually, particularly after this re-rating, are not enticing from our perspective as long-term growth investors with the breadth of availability that we have there.

Xiaomi is maybe more uncomfortable. We've always admired what that business has done, the emphasis on building an ecosystem and the ability to innovate in both mobile phones and that success now in cars, but this is a business where our estimates are the valuation has always run ahead of the operational progress of the company. So we've been waiting for an opportunity for that derating effectively so that we can buy at less rather than more than intrinsic value, but it continues to run ahead there. 

This is a business that fundamentally is competing with two of the best Chinese companies in the world, Huawei in mobile phones and BYD in autos. And so we are reasonably confident that something will happen that makes it look like a tough period at some point in the future, and we can reassess then. 

The final category, and I think looking back this is the mistake, but I don't know if we've been able to do anything different, will be Samsung Electronics. Being overweight, that has been a drag. 

While owning SK Hynix has been helpful because they have delivered huge gains as they've delivered the high-bandwidth memory for AI chips. That has almost come at the expense of Samsung Electronics, which was the erstwhile, and maybe still, leader in global memory manufacturing.

But they've given up that crown to everybody, including SK Hynix's Surprise. And the question really is when or if they regain that. And so it has been painful, missing out on opportunity, the derating and a wasted year, effectively. But when we look at the company now, at essentially cost of its net assets, so one times book value, this historically has marked a trough in valuations and does very well from here, at least on a medium-term basis. 

And so while Roddy and I are still assessing whether this is a decadal-plus buy-and-hold investment from here, we're reasonably comfortable that despite that underperformance over the last few years, there is hopefully a doubling case from here over the next three to five years for Samsung Electronics. So it still merits its place in the portfolio.

QZ: Right. Thank you. On the other hand, what has worked well in terms of performance and what are you excited about and what are the growth gears that you have in the strategy?

BD: Yeah, so Sea Limited that longer term investors in the strategy may be familiar with, this is the e-commerce payments and mobile games leader in Southeast Asia and in other parts of the world such as Brazil. Now, that has done very well over the last year and maybe exemplifies a bit about what I was talking about before because those longer-term investors will remember that and see as well in their numbers that this has been a fantastic contributor to five year plus performance as well. But at a very volatile three years in the middle effectively there. 

They continue to do excellent things in terms of building out that payments business as well and building their own infrastructure in e-commerce. And so we've been able to deliver both top line and bottom-line growth simultaneously, which is what the market was really misunderstanding. if you go back a year or so ago. So very enthusiastic about that. 

We've also recently purchased, to complement it potentially in the region, Grab, which is the ride-hailing and food delivery leader. Again, we really like their dominant market share, increasingly so, in competition with Gojek. We think Grab's really winning there. So these two businesses combined effectively cover the scope of discretionary consumption for the emerging middle class, those 500 million people in Southeast Asia.

And we're pretty positive about that. One other contributor to performance over the last year or so has been a relatively recent purchase, Luckin Coffee, something we bought back in February of last year. This is a company that's outcompeting Starbucks, growing 40 per cent plus year on year, as well as earning far better returns than its peers in China. 

While taking a very long-term approach to building dominant market share and habit with their customers there. As we may have mentioned in the past, customers in the US drink 10 times as much coffee as people in China do. There's no kind of intrinsic reason why that should not converge eventually. 

And we look at their cohort data, you're seeing those really supportive trends there. But this company growing 40 per cent year-on-year still is on approximately 15 times earnings. So we think from again from our long-term perspective is incredibly attractive there and is reassuring to see that the performance both for C and for Luckin Coffee have been underpinned by good operational results rather than just that re-rating. 

The final point I'd say is that despite global uncertainty, or maybe because of it, our portfolio seems like it's got a lot of that unrealised potential.

A lot of the companies that we like have delivered that earnings growth or the revenue growth, but haven't yet seen that in share price performance. You can see that when you look at the portfolio overall. 

You've got earnings growth about 50 per cent higher than the index overall. Comfortably higher return on equity as well, about 40 per cent higher. And you've got better quality too in the sense that they've got net cash rather than net debt. 

But despite that, as has been the case the last few years really, the portfolio trades at a valuation on par with the index. So that premium expectation, and this is not just our expectations, but broader market expectations of these companies, that premium expectation is not reflected in valuations there. 

So it makes us impatient, but very comfortable that there is a lot of potential in the companies we own. And if you see, as Roddy mentioned, a rekindling enthusiasm for investing outside of the US or comfort investing, the kind of long-term change that we're looking at, I think you see both earnings and the valuations of our portfolio companies do very well.

QZ: Thank you. So some of the cyclical exposures that had performed very well in the past several years but saw some pullback in the most recent years, plus some of the selected Chinese names that we didn't own that have detracted, but some of the very fast-growing companies in Southeast Asia, etc, have delivered really well. 

And overall, you still see the growth gear remains very strong with relatively good valuations. And that's a real source of optimism. That's quite clear. Thank you, Ben. 

And lastly, I want to come back to you, Roddy. On the inflection points for the asset class, remember in the last webinar, you mentioned there are two things. One is the dollar, one is China. And some of these dynamics appear to be playing out or changing. Can you update us on the thoughts on this, please?

RS: Sure, yeah. Asia's had two big headwinds between China and the dollar. So firstly, China has been very weak for the past three, four years. But on balance, I think the Chinese picture is getting better. You do have a $17tn economy growing 5 per cent. 

Despite the tariff standoff with the US, it's very clear that domestic policy will be supportive, with the government clearly moving to support the economy. and the private sector, as Ben mentioned. So China looks quite attractive. We are past the worst, and that is a significant tailwind for Asia. The second area is the US dollar.

And look, for the past 15 years, the only game in town globally has been the US. And the dollar has acted like a giant hoover, sucking away liquidity, which has been a very tough environment for Asia to operate in. 

But if that strong dollar reversed, it would be a game changer for the region. I think possibly on par with the Asian financial crisis back in 1997, but in complete reverse. I'd call this the triple growth scenario, where you would have Asian currencies appreciating, which would attract more capital, leading to lower rates, leading to rising asset prices. So a very positive backdrop for the region. 

Now, look, trying to predict currency moves is difficult, but I think there are some clear structural reasons why we might expect the next five years to be different. Firstly, Trump's stated goal is a weaker dollar. Secondly, the dollar is at a 40-year high, and Asian currencies are very cheap.

Thirdly, the US stock market, which has sucked in all that global liquidity, is arguably expensive. It's added about $20tn to its market cap since 2022. That's the equivalent of the entire market cap of the EU and Japan. Does that continue? Fourthly, look, the US risk premium has clearly risen. And then finally, there are more alternatives to the dollar. 25 per cent of Chinese trade is done in the RMB. And when you think that 70 per cent of all EM traders, whether other EMs, why rely entirely on the dollar? Over time, isn't that more likely to be in deals done in the RMB, the rupee or the won?

So really to conclude, I'd say that Asia has been pretty disappointing for the past decade, but the region clearly matters. We've got three strong pillars in favor of the region, valuations, sound macro and growth, and we could be at the start of a major inflection point catalysed by China and the dollar that would be the start of a very favorable backdrop for the region.

QZ: Thank you, that's quite clear. So this is the main content and we would come to several questions we received from the audience. So the first one is related with China and especially domestic A-shares. We know that we do have a number of A-share holdings. 

How do you evaluate the operational risk when investing in domestic A-shares such as clearing, settlement, regulatory, currency control, counterparty risks, et cetera.

BD: Yeah, do you want me to take that one, Qian? I can take that one already if you'd like. 

QZ: Yes, go ahead. 

BD: So I think it has improved markedly over the last few years. First, the Hong Kong Stock Connect process has institutionalized a lot of those risks as opposed to previously when you had to rely on institutional quotas. And secondly, the big risk really was the VIE structure. 

A lot of the great companies we wanted to invest in, those transformative internet companies, He effectively earned a contractual promise to a Caymans Island company that had a relationship through an individual to the onshore business, the Alibaba in China there. And the concern was that the individual would run away, or individuals, or that the Chinese government would rule those illegal. The Chinese government has effectively given them their blessing.

And secondly, the strength of those VIEs has markedly improved. And when you go to the practical side of things here, The incentives are much more aligned between us all and the underlying company and the regulator now. 

China wants to attract stable foreign capital and to build their equity markets as places to invest rather than places just to speculate. And to do so, they need improved corporate governance and stability of those institutions. So you've seen a real improvement with the CSRC, the Chinese SEC equivalent there, where they are focused on a lot of those quality issues there. and the Hong Kong exchange has been a very stable, I suppose, source for people to invest in there. 

So this was a risk that we paid a lot of attention to if you go back five, ten years. Increasingly, we think that it is stable and favourable for us, and the regulatory uncertainty really comes from Washington rather than the Chinese side of things.

QZ: Thank you. The other question we received is a quite consistent one we've got from time to time is value versus growth. 

It is widely said that now is the time for value stocks in emerging market. Do you agree with that? And how do you see the outlook for value versus growth stocks? As pragmatic growth investors, what do you think?

RS: Yeah, I think we've asked that, you know, a few times in these webinars, and I suppose our answer is still the same, that for us, we don't really look too much at the difference between value and growth. 

You know, a lot of our stocks at the moment would actually screen as value stocks at the moment, in some cases, because they're not yet growing, but we expect them to grow, or just the valuations for that growth are extremely low, particularly in the in some of the Chinese stocks. 

So I think for us, as long as we can see growth in the businesses that we're investing on the five-year time horizon, we are happy to invest in those types of businesses. 

So as I say, there will be a large portion of our portfolio, you know, particularly in the material space where we have copper miners, particularly in the semiconductor spaces, companies like Samson and Hynix. And also in the Chinese space that would look like value stocks, but we actually, we view them as growth businesses that are trading extremely cheap valuations at the moment. So, you know, we don't tend to separate our businesses into buckets of value and growth quite like that.

QZ: Thank you. The next question I got is, Ben, you mentioned about China's innovation. Apparently, there's a theme of DeepSeek and AI or consumer tech-related companies. Any new interesting findings you have?

BD: So one that we've admired for a long time has been Cattle, the world's leading battery manufacturer there. And I think that it's worth just taking a step back and seeing how far ahead the progress you have there. 

Them and BYD are producing cars that can charge in five minutes, batteries for cars, that can charge in five minutes and deliver ranges of 500, 600, 800 kilometers, which compared to what we see on the road, at least here in Europe or in the US is, literally hundreds of miles ahead. 

So I think it is very impressive, and there's a signal of things to come there. And one of my colleagues was meeting a senior member of the company a week or so ago there, and a reminder that they will have by far and away majority market share within that industry very soon and through partnerships and directly there. 

So China continues to do fantastic things that will be in consumers' reach very soon, if not already there. Maybe slightly more space age would be a recent investment as well in Pony AI, which is China's leading autonomous driving vehicle.

So this is robo-taxis, the Waymo equivalent, but in China. And again, this is something that people have talked about with enthusiasm since 2015 or so really, but it is on the road today. You can hail, on your app, an autonomous robo-taxi in Beijing to take you from the airport to the train station, and in many parts of other cities in China as well. 

The difference really compared to the rest of the world is both the technology lead, but also the regulatory alignment that means that this stuff is coming, and I think it comes to the mass market first in China. And then the rest of the world will follow pretty quickly. 

Pony AI, for example, has announced a deal just a couple of days ago with Dubai and is in negotiations with Singapore too. So I think that that will be a marked and very visible change to how we live, again, coming from Chinese innovation.

QZ: Thank you. I know both of you would be heading to China next week, and I hope there is a test drive involved as well in your agenda. Another question we've got from the audience is, again on China. Given the evolving landscape of China's economy, from the traditional industries transitioning more to innovation-driven sectors like AI, etc, and green technology, and where do you see the most compelling investment opportunities over the next five years? 

You mentioned about EV, you've mentioned about AI, autonomous driving. Anything else you would like to add on top of that?

BD: One for me, maybe, and I'll see if Roddy has anything further. What we look at really in China is the growth, firstly, and that increasingly is coming in domestic consumption. And the real challenge, though, is not finding great companies with growth opportunity, but finding companies that can protect returns because Chinese companies are so good driven. 

But frankly, there are so many competing head to head. The challenge for us as investors is making sure that growth flows through to the bottom line and on the five year kind of time horizons that we're looking for. And so we're really focusing on the rise of domestic brands as well as habitual consumption. 

And so Luckin Coffee, I think, is an example there of a business that is in a very competitive environment, but unique economics are good and habits are attractive there. Sportswear as well. We've owned Li Ning, looking at businesses like Anta Sports.

I think they've been very impressive in Anta in particular in nurturing a brand. And you can see real consumption growth there. And this isn't driven by government policy or US geopolitics. 

This is just people in China who want to buy better stuff and companies who are more focused on that softer side of things, the discretionary consumption of people buying because they want it. rather than because they need it. 

And I think that's the kind of shift that we are seeing and the kind of thing that we like when we're looking out. And that's not things that people have been talking about when you're looking at China for the last three, four years with property, geopolitics, COVID. That isn't the future, that's the past. And I think there's very exciting different growth opportunities looking forward.

QZ: Thank you very much. We probably have Time for one last question, which I'll probably pose to Roddy. Obviously, both of you portrayed a reasonably constructive picture for the asset class and the potential growth gear in the portfolio. What would have been the biggest risk if this doesn't play out?

RS: I suppose the biggest risk at the moment really is geopolitics and how the US acts over the next 12 months. We saw the impact to markets, both in Asia and globally, of when the very high tariffs were first announced. If the US were to revert back to those type of numbers, that would be a very challenging environment for Asia to perform in absolute terms. 

So that is probably the biggest the biggest risk, its US geopolitics, tariffs, and obviously the continuing headwinds that we're likely to see in geopolitics towards China, which I don't see thawing. 

I think the tensions between the two countries, they may come to an agreement on tariffs, but ultimately the tensions between these two will continue, albeit that does throw up opportunities. 

I suppose the other area that you might mention for China where we are looking for opportunities is based on self-reliance. It's where China wants to become autonomous in many areas, including industrialisation, et cetera.

So we've got several holdings in the semiconductor space. But ultimately, the big risk is the US. Do they reinstall tariffs back to where they were previously thinking? And or a significant recession in the US would also be a very challenging environment for the region as a whole. 

So those are what I would say would be the main areas to be concerned about over the next 12 to 18 months.

QZ: Okay, thank you very much. That's I think it's quite informed and well-balanced view and also hopefully a good review of how we're seeing Asia as a class at the current juncture and what we have been spending our time on. We explained our recent longer-term performance, and what we are still excited about. 

Thank you very much for joining us. There are a couple of questions we haven't got time to come through. We'll get back in touch in writing to you. Thank you for joining us. Enjoy your spring or summer, and we will be back online speaking with you in due course. Thank you both, Roddy and Ben, and see you next time. Bye-bye.

Annual past performance to 31 March each year (net%)

Annualised returns to 31 March 2025 (net%)

Source: Revolution, MSCI. US dollars. Returns have been calculated by reducing the gross return by the highest annual management fee for the composite. 1 year figures are not annualised.

Past performance is not a guide to future returns.

Legal notice: MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

Risk factors

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