Asia ex Japan: dragons and salamanders

As with any investment, your capital is at risk.

Asia had a strong year in 2025, and we believe optimism remains palpable. However, strong markets create their own risks. Today, many active Asian managers appear to be riding the same wave, with most owning stakes in the top five stocks in the MSCI Asia ex Japan index: TSMC, Samsung, Tencent, SK Hynix and Alibaba.

Are investors simply buying the index with a fee attached?

We’d admit that we own some of these dragons too, and they have been important contributors to long-term performance. But our portfolio has never been built on dragons alone. Much of the opportunity lies with the less visible salamanders. Today nine of the top ten overweights in our portfolio have weights of less than 50 basis points in the index; more than half of our portfolio is invested in lightly owned stocks held by fewer than 20 percent of peers.

As active managers, it's critical that we are clear about where we differ from the market.

Larger and longer

It appears that the herd has recently crowded into the same large household names in Asia. However, for us there is a distinct difference between ‘ownership’, and ‘engaged and committed’ ownership. We have invested in some of these companies, such as Samsung and Tencent, for much longer and in greater size.

This, in return, has translated to a larger performance impact for our clients. It is not luck from hugging benchmark names during volatile times; conviction rises from knowing and appraising a business deeply enough, to underwrite multi-year earnings growth, through cycles.

Take Samsung Electronics and SEA Limited for example.

Pacific Horizon first invested in Samsung Electronics in the 1990s and has held the position continuously since 2003. Over that time, we have seen seven boom-and-bust cycles in memory chips, and the industry has consolidated from more than a dozen producers to just three leading-edge ones.

That experience matters. It allows us to assess the business across very different operating environments, including phases of excess optimism, periods of genuine cyclical stress, and moments when the market questioned competitive positioning.

In 2024, Samsung Electronics reached a valuation trough of less than one times its book value. Headlines focused on its lag in new memory technology, the widening gap to TSMC in logic chips, and a cyclical slowdown in smartphones.

Rather than accepting the market’s view that Samsung was structurally impaired, we tested whether the foundations of its long-term success remained intact. We spoke with various parts of Samsung’s management, technology experts, competitors, suppliers and affiliated companies, including a two-week research trip in South Korea. We then cross checked the evidence behind sell-side analysts’ more pessimistic view.

This led us to a different conclusion: Samsung’s technology challenge looked more like a matter of timing than permanent decline, while management was beginning to address internal issues around leadership, remuneration and bureaucracy. A return to profitability was a ‘when’, not an ‘if’.

That gave us confidence. More importantly, we understand where and why our positive view was genuinely differentiated from a market narrative that had become highly negative but poorly evidenced. We increased our positions in Samsung in 2024 – while detracting from performance for a few quarters, it has since been a significant contributor.

Pacific Horizon invested in SEA Limited, an ecommerce, fintech and gaming company in Southeast Asia, soon after its IPO in 2017. It has been a bumpy ride: despite delivering 10x revenue growth and 5x total returns over our holding period, the stock has experienced three drawdowns of 30% or more, including one around 90 percent.

In 2023, the market was confused by the management’s flip-flop between growth and profitability, and punished share prices harshly. We were fortunate to have a strong relationship with Forrest Li, the founder and CEO of SEA Limited, and had discussed the company’s ambition with him over many years.

We understood the long-term outcomes of such businesses will not follow a straight line, and a dinner with Forrest in Edinburgh reconfirmed SEA’s pragmatic approach: pursue profitability when conditions warrant, but reinvest decisively when competitive opportunities emerge. That seemed eminently sensible to us.

Today, each of SEA’s three business segments has become largely self-sustaining, and all still have substantial room to grow. Quarterly profits may remain volatile as the company balances investment and profitability. But given the scale of its ambition, we believe this business deserves a little more patience from investors.

The under-covered

But it’s beyond the well-known heavyweight dragons where we would argue that things are even more interesting.

One of the great things about investing in Asia is that the perception of macro risk has left many great companies under-researched and under-owned. Global investors either focus on large, liquid names in the index as a tactical proxy for Asia macro exposure, or rely on familiar Western business models to evaluate their overlooked Asian cousins. Companies are often lazily labelled as ‘China’s Uber’, ‘Southeast Asia’s Amazon’ or ‘India’s booking.com’.

That creates an informational and analytical gap: more than half of the Asia ex Japan index doesn’t even have 5-year analyst forecast for earnings growth; less than half of the analysts’ forecasts capture the region’s extremely rapid-growing companies. This is the opportunity for a dedicated, active Asian manager.

Several of our portfolio companies bring this to life:

Luckin has outdone Starbucks in China in recent years. No Western textbook business model could properly capture it: Luckin is not simply a consumer company that ‘uses technology and executes well’; it is a technology company where consumer relationships are augmented in its app and data intelligence rather than in physical stores. The shares trade over the counter, outside of major exchanges, due to legacy accounting issues. It’s off-index, and most managers aren’t bothered or are too nervous to go near.

Chroma ATE is Taiwanese company that provides testing technology and equipment. In advanced industries like chips, testing is critical in every step: design, decomposition, etching, and packaging. Chroma is like the coach who trains the Olympians: 100 percent necessary, but not usually in the spotlight. It is owned by less than 20 percent of Asia ex Japan peer managers.

MakeMyTrip is the go-to online travel agency for India’s middle class. In western markets, there is concern that AI agents may change the user interface for travel booking. But it is crucial to understand the difference in underlying dynamics in different markets: in the US, hotels are mostly formal members of large conglomerates, digitally capable, travel is a relatively small portion of household spending, and consumers are often relaxed about taking booking risks.

India is different: hotels are informal, travel is a significant household expense and consumers are far more cautious about where and with whom they book. While generalist investors often miss these nuances, our experience in investing in platform businesses across emerging markets suggests that MakeMyTrip could become a long-term, cash-generative monopoly.

Disciplined patience

Outwith the hidden gems, there is another often-overlooked arena in our investment universe: cyclical opportunities.

Commodity prices are volatile, boom and bust cycles can be brutal, growth profiles are often seen as not ‘sexy’ enough for traditional growth managers, and all in all, it’s hard to ‘time’. But more than 30 years of experience in emerging markets and Asia taught us that there is a way to capitalise on this: the secret isn’t being good at timing; it’s being disciplined about timing.

In mining, the best opportunities often emerge during downturns or early recovery, when commodity prices are low, short-term earnings look poor and price-to-earnings multiples appear unduly high. Building conviction when everything looks ugly requires the ability to see through cycles, identify real moments of change, and be patient about when the investment case will realise.

Our holding in MMG Ltd illustrates this. MMG is a Hong Kong-listed mid-tier mining company that owns world-class copper assets in Peru. We invested in 2020 when the copper price was at a cyclical low. The thesis was not a six to twelve-month price rebound, but a view that we were at an inflexion point that copper would be in a structural supply deficit over the coming years, as a result of heavy investment in new energy infrastructure but lack of capital expenditure in mining. Copper price did spike briefly in 2021, but it was not until 2024 that the supply bottleneck began to matter. MMG’s share price rose threefold during 2025, and we have been reducing our holding as market consensus began to build.

Differentiation in all forms

It is easy to look at our largest absolute positions and conclude that we own the same things as everyone else.

That may miss a point. A consistent principle has underpinned our approach over the past three decades: whatever we own, we must own with a differentiated perspective to continuously outperform. This could be reflected in a longer holding period, a larger position size, overlooked opportunities, or disciplined selling when we think that differentiation no longer holds as strongly.

Pacific Horizon has delivered a 17 percent annualised share price return over the last ten years to end March 2026. That is around twice the return delivered by the index. The compounding power of differentiated views remains very much alive.

Pacific Horizon Investment Trust PLC

Annual past performance to 31 March each year (%)

Source: Morningstar, MSCI, total return in sterling.

Past performance is not a guide to future returns.

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Important information and risk factors

This communication was produced and approved in July 2026 and has not been updated subsequently. It represents views held at the time of recording and may not reflect current thinking.

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