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<p><strong>As with any investment, your capital is at risk. Past performance is not a guide to future returns.</strong></p>
<p><strong>Danielle Levy (DL)</strong>: Hello and welcome to this programme for Baillie Gifford, the latest in a series of webinars where we talk to the managers of the businesses’ investment trusts. My name is Danielle Levy, and today, I’ll get talking to Roderick Snell, co-manager of the Pacific Horizon Investment Trust, about how he runs the portfolio. He will then answer your questions, which you can submit at any time via the Q&A box. First things first, Pacific Horizon’s share price performance has been very strong over one and three years. What’s driven performance itself?</p>
<p><strong>Roderick Snell (RS)</strong>: Asia itself has performed very well. The portfolio has, thankfully, performed as we would hope in such an environment. Now, over one year, there have been three key drivers. The first, and most important, has been technology and AI. That’s come from a few areas including Korea, where our memory names like Samsung and Hynix performed very well. Three or fourfold year-to-date.</p>
<p>Our Taiwanese tech hardware has also done very well. Companies like Chroma, which does semi testing, and Accton, which does switches for datacentres. We’ve also done very well in a number of tech IPOs, especially in China, where Baillie Gifford’s reputation and long-term time horizons meant we’ve tended to get industry-leading allocations to those IPOs. Companies like Knowledge Atlas, also known as Zhipu, a Chinese large language model that we invested in at the IPO. That’s up ninefold since then. And likewise for a company called Minimax, which is also a large language model, that’s up five times since the IPO.</p>
<p>Secondly, at the other end of the spectrum, a number of our cyclical companies have also performed very well. For example, our mining companies. Especially copper and gold, including MMG and Zijin. Then thirdly, our underweight to India has been our third-largest contributor. Now, three years has also looked pretty similar in that our tech names and those cyclical businesses have done very well. The main difference is that India is actually the largest contributor over three years.</p>
<p>It was our largest overweight back then, and a number of the small and mid-cap names, in particular, did very well. We also reduced India pretty dramatically. It went from our largest overweight to our biggest underweight over the past couple of years. As India underperformed, that also helped us. A big overweight where we made a lot of money in India and then reduced it and did very well as India underperformed really helped those three-year numbers.</p>
<p><strong>DL</strong>: Where do you see the most compelling growth opportunities in Asia?</p>
<p><strong>RS</strong>: I’d probably highlight three areas, and I’m sure we can go into more detail later. The first would be AI technology. Without North Asia, there is simply no global AI. Korea and Taiwan sit at the very centre of the global semi and AI supply chains. It’s very interesting, I was recently in the US and the debate there is very much whether AI will make money. In Asia it’s how much.</p>
<p>That’s because Asian companies really are the key picks and shovels sitting at the critical bottlenecks. They really don’t care who wins the AI race. They just supply the critical infrastructure to everyone. Second area I’d highlight would just be China. Over the past seven years, China has spent trillions de-westernising its supply chains by redirecting capital from its property market to its industrial base. The west has really focused on the bust that that created in China, which was a brutal and severe property crash, which really decimated consumer sentiment and equity markets.</p>
<p>They’re missing what China built through that pain, which is a world-class industrial superpower. If you just look at cars, five years ago China didn’t really export any cars. Today, it’s the largest exporter in the world. The final area I’ll highlight would be raw materials and the physical economy. The rest desperately wants to reshore.</p>
<p>As much as the physical economy now sits in emerging markets in Asia, copper, rare earth, batteries, chips, these are really treated as low-value activities for decades. Now we’re discovering that they’re strategic, scarce and very hard to rebuild. The problem is, look at rare earths where China dominated processing on copper. Where all the key assets are in emerging markets or Asia. That’s really why, for the first time in my career, many Asian companies have real pricing power. They’re no longer just fighting to be the world’s lowest-cost producer.</p>
<p>In any case, they only produce the things the world desperately needs. I would say Asia and EMs are starting to fuel the world. They would probably be the three broad areas I would highlight of key interest over the next five years.</p>
<p><strong>DL</strong>: We’ve seen higher energy results as a result of the conflict in the Middle East. Are you concerned that higher fuel prices could ultimately undermine growth in Asia?</p>
<p><strong>RS</strong>: The first observation I’d have, which is actually that Asia has been very resilient through this. We haven’t had any issues to date, but certainly, the longer this goes on, there will be impacts. They will be quite different across Asia. If you start with North Asia, China, Korea, Taiwan are fine. China actually probably does very well out of this. They’ve got huge oil reserves. Most diverse energy mix in the world.</p>
<p>Actually, the lowest cost of energy so, I think they’re a relative winner. Whereas, Korea and Taiwan, they do import, but they’ve got huge external surpluses and can really cushion any economic blow. At the other end, you’ve got India and ASEAN. They will be the worst impacted. India is the third-largest oil importer, and most of these countries don’t have significant economic buffers. Our portfolio should actually perform reasonably well in that India’s our biggest underweight position, and we haven’t got big positions in ASEAN outside of Vietnam.</p>
<p>I think for us, the key question is actually looking forward and saying where are the opportunities? I think, for example, one of the most obvious ones over the next three, four years is energy security. Oil probably does quite well as people look to restock. Green technology probably has a huge catalyst here. We’ve been adding to companies like CATL, the largest battery maker in the world. Also, just a general infrastructure buildout, they’re going to see as countries want to have their own refineries, petrochemical firms. We’ve been adding to a number of Korean engineering companies like Samsung Engineering as well.</p>
<p><strong>DL</strong>: The US and China have continued to decouple over the past eight years. Where do you feel we are in this process, and what does it mean for investors?</p>
<p>RS: I don’t think these tensions go away. I think it’s the natural state of affairs of two superpowers, an incumbent and one rising. They will continue to grind away each other. For now, I think we have reached a stalemate, if you like. If you take tariffs, the US tried to impose draconian tariffs on China, and China effectively stood up for itself and matched those tariffs and then used the leverage of rare earths and ultimately, the US backed down.</p>
<p>I think we’re in this tit for tat that will flare up occasionally and settle down. That’s going to be the situation for the foreseeable future. Again, I think the question, for us, in many ways, is what are the opportunities through this? As an example, Washington has discovered that tariffs are a bit of a double-edged sword as slower rivals catch up. At the same time, you actually incentivise and spur innovation. That’s exactly what we’ve seen in China or other countries. Done everything it can do to de-westernise its supply chains and become self-sufficient.</p>
<p>These areas where China wants to be self-sufficient are fully aligned with the Chinese state. That’s often a great place to be in terms of investments. We’ve invested in several areas such as green technology and batteries, CATL as I mentioned. Semiconductors, we recently took positions in a company called Cambricon, which is a bit like the NVIDIA of China and, also, added to robotics names like Sanhua. All very much aligned with China trying to become self-sufficient. Ultimately, frictions remain, but I think that actually creates quite a lot of bottom-up stock ideas.</p>
<p><strong>DL</strong>: You have a quarter of the portfolio in semiconductor companies and those companies that make semiconductor equipment. Why are you so bullish on the sector?</p>
<p><strong>RS</strong>: I think it comes back to that point I made earlier that Asian semiconductor companies sit at the very centre of the global semi and AI supply chains. They are the key picks and shovels at the critical bottlenecks. They really don’t care who wins the AI race. They supply the critical infrastructure to everyone. If you take TSMC in Taiwan, it is the only foundry in the world that can make the most advanced AI chips. No TSMC, there’s no NVIDIA.</p>
<p>Samsung, Hynix in Korea, they dominate high-bandwidth memory, which is probably the most acute bottleneck in AI today. GPU speeds are about 60,000 times this decade. Memory less than 100 times. GPUs are actually idle most of the time because you can’t get enough memory. That’s why Hynix has sold out in memory for the next two years and counting. These companies aren’t just growing. They’re making record returns and huge profits.</p>
<p>You’d probably be surprised if I told you the company likely to generate the biggest profits in the world this year is actually Samsung Electronics. Finally, those companies are actually relatively cheap. Probably about half the multiples you pay for similar businesses in the US or Europe.</p>
<p><strong>DL</strong>: If we look at TSMC specifically, which accounts for 13 percent of the portfolio. Firstly, what’s your outlook for the stock and secondly, do you think that the company can continue on the same growth trajectory?</p>
<p><strong>RS</strong>: TSMC is, I think, a very unusual company because it sits at the centre of almost every important technological trend. AI, smartphones, high-performance computing. The simple point is this. You know, if you want the most advanced chips in the world, there is only one place you can go. TSMC.</p>
<p>What’s striking is the growth is not fading. It’s actually accelerating even if the company gets bigger. The company grew very strongly last year, and it’s actually expecting about 30 percent growth this year, and it’s planning to spend more than $50bn expanding capacity. Despite that supply coming on and supply is still the bottleneck. Everyone still wants more capacity at TSMC.</p>
<p>Now, I think TSMC can probably double its leading-edge capacity and still fill it several times over. The constraint really is how quickly TSMC chooses to add capacity while preserving returns. They’re being extremely disciplined and actually rationing supply. Yes, the stock’s done very well, and semiconductors will always be cyclical, but this is a rare kind of growth company. It’s got world-class technology, customers queuing up and management largely controls how fast it wants to grow.</p>
<p><strong>DL</strong>: Over the past year the team increased exposure to China. What was the rationale there?</p>
<p><strong>RS</strong>: We’ve been adding to China for the past couple of years. Mostly out of India. I think the key top-down reason, as well as having some great bottom-up ideas, is that China has gone from being probably the emerging markets’ biggest drag to potentially its biggest tailwind. To understand why, you’ve probably got to go back to 2018 when the US restricted semiconductors to China and the trade war really began. Now that clearly panicked China and its response was to de-westernise its industrial base.</p>
<p>As I mentioned earlier, they did that by taking China’s huge domestic savings and shifting them away from property into industry. That drove two massive deflationary forces. First a brutal property crash and secondly, a massive surge in industrial capacity. Now, the world has very much fixated on the bust. Fair enough, China took a huge amount of pain. Property prices falling 30 percent to 50 percent and equity and consumer markets being crushed.</p>
<p>What I think people have missed is what China built through that pain, which is a world industrial leader. It’s across industries. Batteries, solar, robotics, data infrastructure. China hasn’t just caught up with the west, in many cases it’s actually leapfrogged and become the best in the world. I’d say that, at great cost, China won the trade war and now, crucially, policy is shifting back towards the domestic economy. They’re clearly putting a floor under housing. Stimulating the economy and supporting the stock market.</p>
<p>Finally, there’s also the RMB, the currency. The years China wanted it weak to support exporters, but the priority is now the domestic economy, they want a stronger currency. That’s exactly what we’re starting to see. The RMB has been strengthening for several months and I think that is the start of a major policy shift. Putting it all together the world has really focused on what broke in China, but it’s missing what China built through that pain, which is an industrial superpower. With policy now shifting back towards the domestic market and the currency, the backdrop for China really does look very bullish.</p>
<p><strong>DL</strong>: Samsung Electronics, which is the second largest holding in the portfolio, it’s experienced a turnaround over the past 12 months. It would be good to hear what your outlook is for the business.</p>
<p><strong>RS</strong>: I think it’s very positive. Samsung is the world’s leading memory producer, which is an industry that we certainly like for the reasons we touched on earlier. It’s also changed a lot. Ten years ago, this was a terrible industry, computer memory. Dozens of players. Everyone made losses apart from Samsung.</p>
<p>Now it’s an oligopoly. Just three players and very disciplined. You’ve got vast demand for AI at the moment, but again, a bit like TSMC, no supply really coming off. Samsung and Hynix, two biggest players. They’re combined adding only about 10 percent of capacity. The industry would like 10 times that. They would like capacity to double for the whole industry? We’re just not seeing that supply response.</p>
<p>I suppose the question why Samsung within that memory space? Firstly, it’s the cheapest of the memory players. Secondly, I’d say it’s got the most options. Samsung is also the world’s number two foundry. It competes with TSMC. It’s invested over $100bn into the business. It’s still loss-making, but the world is desperate for a second source, and Samsung is the likely place for that.</p>
<p>It’s also got a fantastic smartphone business. As AI moves from the cloud and onto devices, Samsung is well-placed for that. It’s the only company in the world that does memory, foundry and devices, and as that all converges into one, who’s going to be the winner in that space over five to ten years? I think it could well be Samsung.</p>
<p><strong>DL</strong>: You have around 9 percent of the portfolio in metals and mining stocks. Can you talk us through the outlook for the sector? It’s obviously been quite positive recently.</p>
<p><strong>RS</strong>: It’s been a good contributor to performance and quite different from our tech holdings. I’d stress it’s very much concentrated in two areas, which is copper and gold. The long-term case for copper I think is quite simple. Demand tends to grow with GDP. While it’s likely to accelerate as the world wants to electrify and copper is the metal that makes electrification work.</p>
<p>We will need it in power grids, EVs, renewables, batteries. All of those need a lot more copper. So decent demand outlook, but again, it’s the supply side that’s extremely constrained. The world has underinvested in copper for decades. Today, a new mine will take probably 15 years from discovery to production. Either the world suddenly wakes up to the shortage, those tonnes do not arrive quickly.</p>
<p>Existing mines are not easy either. Escondida, the world’s largest copper mine, is spending billions a year just to maintain current production levels. Demand is rising, but supply is not. We see significant deficits in the coming years. A powerful setup for copper prices and for the right copper companies the operating leverage could be very significant.</p>
<p>Gold, similarities to copper. I think there’s limited supply and potentially very significant demand. Even at current spot prices, gold companies are generating free cashflow than ever before and paying it out in dividends or buybacks. Could prices go higher? Well, in a portfolio context western countries keep increasing their debts, printing money and behaving in an unorthodox economic manner, and I think gold can continue to do very well over the coming decade.</p>
<p><strong>DL</strong>: You touched on it earlier, where you mentioned that you’ve reduced exposure to India and shifted some of that towards China. What was the thinking of reducing the India exposure?</p>
<p><strong>RS</strong>: India’s gone from our biggest overweight two or three years ago, to our biggest underweight today. No big macro concerns on India. Generally speaking, the macro situation has looked reasonable. That said, it does face significant headwinds from the Middle East issues and rising oil prices. It’s probably the most exposed of the large economies in the region to that. That would be a headwind.</p>
<p>Also, one question mark has been a lot of the growth for India has come through the public capex cycle. The hope has always been that the private capex cycle will take over. We’re not yet seeing signs of that. Outside of those issues the macro looks broadly fine for India. The big concern for us and I think other managers will probably be saying similar things, it is valuations. Just really struggling to find bottom-up ideas, even with the market having corrected.</p>
<p>When I look at consumer goods companies – I was looking at one of the largest supermarket chains in India, DMart. You’re paying about 100 times PE multiple to that business, and it’s growing about 10 percent in dollar terms per year. Other companies doing the same in China or Vietnam and they’ll be on a 10 times PE multiple. Just seeing huge discrepancies to what you can get across Asia. We really see that across most of the companies that we look at within the country.</p>
<p>I think it’s also interesting that India probably benefited two or three years ago, from vast amounts of liquidity looking for a growth story. China was in the doldrums. South Korea and Taiwan didn’t have the AI story. More broadly in emerging markets, we weren’t seeing LatAm doing very well. So lots of flows are just going into India. As Korea and Taiwan started to do well, China has started to rebound from its bottom and other parts of emerging markets are picking up and we’ve seen a lot of those flows come out of India. It’s not clear to me why they necessarily only go back to get valuations where they were previously.</p>
<p><strong>DL</strong>: Be good to touch on the reforms that are happening in Vietnam. How significant are they for investors and are there any companies or sectors that stand to benefit?</p>
<p><strong>RS</strong>: Yes, I think the long-term macro story for Vietnam looks great, and it was our biggest overweight position for quite some time. We’ve been invested for a decade. That was really originally on the export manufacturing side where Vietnam was doing better than anyone else, and that continues to be very strong. The big change, as you say, are the policies that have come through. That’s because the domestic economy had been really quite weak in Vietnam.</p>
<p>The previous General Secretary who ran the country, a man called Trong, I’ve described him a few times as a miserable Marxist. He really wasn’t interested in the economy, and he put on the very severe corruption clampdown called Operation Blazing Furnace. It really brought the country to a standstill. People just weren’t signing things off, and things were pretty slow and getting a little bit tricky in fact. He died last year and a man called To Lam came in to replace him.</p>
<p>He’s turned out to be the complete opposite. He’s very much pro-business and pro-the economy. He’s put in place a 10 percent GDP growth target. Arguably the fastest of any of the economies that we look at in Asia or the emerging markets. They’ve started reforms that we haven’t seen in the past 40 years in the country. They’ve reduced the number of civil servants by about two to 300,000. It’s unheard of in a communist country. They’ve halved the number of provinces, and they’re doubling infrastructure spending.</p>
<p>Crucially, things are just getting done. I was there back in March and you’re genuinely seeing – the previous year when I’d been there, you speak to multinationals, export plants. They were actually really worried about electricity blackouts and whether they could continue with their factories working. You don’t hear that anymore. Everything’s very much up and running.</p>
<p>That said, it’s probably worth highlighting that we have actually significantly reduced our Vietnamese position. We’ve probably halved it since I was out there in March. That is a little bit more on those macro concerns. The Middle East issues. Vietnam is vulnerable to that. They do require imports of fuel. Inflation is already high, and they don’t really have any financial buffers.</p>
<p>It’s also a frontier market. It does have some liquidity issues, and the banks have been running with loan-to-deposit ratios well over 100 percent and debt levels are high. It is more vulnerable to a weaker external environment. Given that, we have reduced our position after having done pretty well over the past couple of years.</p>
<p><strong>DL</strong>: It would also be good to talk about tariffs. It’s been over a year since Donald Trump’s Liberation Day tariff announcements. What impact have these tariffs had on your portfolio and Asia as a whole?</p>
<p><strong>RS</strong>: Actually, ultimately not that much. I think we said a year ago that probably no low-end manufacturing was really going to leave Southeast Asia. The example I was talking about was if you wanted to move the iPhone from parts of ASEAN and China to the US, it would probably result in the phone costing at least 100 percent more for US consumers. If you wanted to move the entire value chain over, you’re probably talking about two to 300 percent more. That just seemed very unlikely to us and indeed, we haven’t really seen that low-end manufacturing move at all.</p>
<p>If anything, exports from China and Vietnam have actually continued to grow. Certainly, at the lower end not much. I think the impact has been more in the US with inflation figures and a bit of pressure on the consumer. North Asia was always the one that’s possibly more vulnerable. The higher tech space because wages aren’t such an important part of the equation.</p>
<p>Again, these businesses, the likes of TSMC, they have gone and put some factories abroad into the US. They come from a very strong position, and they’ve got almost monopoly positions. The US is desperate for the capacity to go in. They’ve gone in with very strong bargaining positions. In many cases they got very good subsidies. They haven’t been able to put their leading technology in, and still much of it remains in Asia. I think the ultimate answer is, yes, not a huge amount at the moment.</p>
<p><strong>DL</strong>: You’ve described Asia’s growth story as entering a new phase. It would be good to hear a bit more about this and the potential opportunities that you see.</p>
<p><strong>RS</strong>: I think the big picture is that the top-down looks pretty good ultimately for Asia at the moment. Markets are relatively cheap. We’ve had outflows every year for the past 12 years across the region. Nearly all global fund managers are underweight Asia and EM more broadly, and you’re paying record-low multiples or record discounts to developed markets despite the faster growth. That’s combined with the macro looking very good.</p>
<p>Asia’s had a very challenging backdrop for a decade. You’ve had the strongest dollar in 40 years and the most aggressive rate-tightening cycle in a generation. Asia’s done all right through that. If that happened at any other time in the past 30 years, we would have had an Asian financial crisis. The reason that hasn’t happened is because Asia’s actually operated in an orthodox manner.</p>
<p>We haven’t done money printing. We haven’t done quantitative easing. So actually, on nearly all metrics, Asia is more resilient than it’s ever been. It has faced two big headwinds that stopped it doing well. China and the dollar, but I’ll argue both of those are starting to turn. As discussed, I think China’s looking pretty decent, and if the dollar does continue weakening in the next few years, that’s a major catalyst for the region.</p>
<p>I think top-down things are turning from being difficult, to actually looking like a major tailwind for the region. Then secondly, I think the Asian growth story is changing perhaps, quite profoundly. For a long time, investors have thought about Asia mainly as a story of cheap labour and exports. Now, those things still certainly matter but the most interesting story is now that Asia is moving from being the world’s factory to becoming the world’s innovation and industrial platform.</p>
<p>You see that in areas that we discussed like semiconductors in Taiwan and Korea. EVs and batteries in China. Even digital platforms in India and Southeast Asia. The region has scale. Engineering talent. Huge domestic markets and in many cases, much lower cost structures than the west, and that creates opportunities, not just in the obvious tech companies, but in the industrial enablers behind them. I think the important point is it’s no longer just a catchup story. In some areas, Asia is now really setting the pace.</p>
<p><strong>DL</strong>: Finally, are there any companies that are currently flying under the radar where you’re particularly excited about their prospects over the next decade?</p>
<p><strong>RS</strong>: I suppose the obvious ones there might be in unlisted companies. We’ve got a few private businesses within the portfolio, and they tend to be less well-known by the market. Our biggest one of those is ByteDance, which is the owner of TikTok, the short-form video app. Also, Douyin, which is the China version that they have for the domestic market. This is just a fantastic business.</p>
<p>They’ve got two to 3bn users worldwide. The financials are fantastic. This is a company that probably made around $50bn of profit last year. That’s effectively all cash, and that’s with the international business actually not making any money at the moment. There’s huge potential here. They’re still growing 30 percent a year. We’ve got it valued at about $450bn at the moment. That’s on about a 10 times PE multiple for a business growing 30 percent-plus.</p>
<p>If we look at the number two listed player in China, Kuaishou. That would be on 15 or 20 times. It’s very easy to see that this should be worth a lot more than it is now. With some of the issues seemingly getting resolved in the US over TikTok, that business will hopefully be able to list at some point over the next couple of years and we’ll see that valuation really start to come through.</p>
<p>That’s probably the most obvious ones I’d highlight. China domestically still looks very under-owned and very cheap. Businesses like Haidilao or Luckin Coffee we own. Growing nicely but in some cases on low single-digit PE multiples. Finally, commodities. We discussed them earlier. Copper names and gold names. I still think these are hugely under-owned in most funds on a five or ten-year view. I think they will be some of the best performers globally.</p>
<p><strong>DL</strong>: We’ve had quite a few questions coming in from our audience. The first question is on geopolitical risk. “It seems that geopolitical risk is an increasing consideration in global markets. How does the trust quantify and hedge risk associated with China and Taiwan, given the success of your positions in TSMC and MediaTek?”</p>
<p><strong>RS</strong>: I think I’d start by saying geopolitical concerns have always been around in Asia and the broader emerging markets. They’re really nothing new to us, and it’s something that we’ve always paid significant attention to. I think the first thing is just being well resourced and knowing the market very well. We’re fortunate here at Baillie Gifford that we’ve got an emerging markets team that’s been investing in Asia since 1989. A lot of experience and we’ve done this before. A lot of these similar issues in the past.</p>
<p>We’ve also built up a lot of contacts and resources over the past four decades in the region. I think we have a decent insight into what we think is going on. For Taiwan and China, specifically, we’ve done a lot of work on this over the past few years and continue to monitor it carefully. For what it’s worth, any significant military action by China on Taiwan the next five years is very unlikely. But tensions will continue to arise around the issue.</p>
<p>Yes, that has impacts on the Taiwanese businesses and I suppose, it’s a bit of a binary event. Something happens that’s going to be a major issue for Taiwan, but also, more globally. Nothing will escape if something happens in Taiwan, given it’s at the very centre of the global semiconductor trade. The other thing we look at though is what are the benefits? As things start to happen in Taiwan who might do well. For example, Samsung as the only number two viable foundry in the world today, if something happens to TSMC, then actually that is probably the major beneficiary and you can make a lot of money out of having Samsung. From a portfolio perspective, it’s about having a balanced portfolio. Knowing the risks and what might do well or hedge against what happens in Taiwan.</p>
<p><strong>DL</strong>: “How do you see the AI race developing in China?”</p>
<p><strong>RS</strong>: China’s artificial intelligence race is definitely developing differently from the west. If you look at the United States, the race has already been led by frontier models and enormous spending on chips and datacentres. China is more constrained on those advanced semiconductors because of sanctions. It’s had to really innovate around efficiency, costs and deployment. That’s really why I think DeepSeek mattered. It showed that China could produce highly capable models at a fraction of assumed western cost.</p>
<p>Now, whether or not every claim is perfect, the signal was important. China is not out of the artificial race. In fact, it’s very much in it. I think the bigger point is probably deployment. China has huge consumer platforms, enormous engineering talent. Deep manufacturing ecosystems and a very practical approach to applying technology.</p>
<p>I think China’s advantage may be less about building the single most powerful model in the world and more about rolling out AI into factories, cars, phones, robotics, logistics, consumer apps, just at massive scale. Ultimately the west may lead in frontier AI, I think China may lead in applied AI.</p>
<p><strong>DL</strong>: Another question’s come in about your unlisted exposure. “How much of the portfolio is in private companies and are there any other examples you can talk us through?”</p>
<p><strong>RS</strong>: The portfolio’s got about just under 5 percent in unlisted at the moment. The most significant chunk of that is ByteDance. They’ll be just under 4 percent. The only other two notable holdings would be Dailyhunt, which is a social media app in India. In many ways, the TikTok of India. Really benefited because TikTok was actually banned from India.</p>
<p>Our hope was that that would be able to become the leading social media app in India. It’s proved to be a bit more challenging. Competition has been much stronger, particularly from the western brands like Instagram. The second one is Micro Connect, which is a lending business based in China. Again, relatively small at about 0.5 percent.</p>
<p><strong>DL</strong>: Another question’s come in about your process. “What characteristics do you look for in a stock?”</p>
<p><strong>RS</strong>: The key thing we’re looking for are the best growth businesses in Asia. Ultimately, we want to be able to double our money in any company we invest in over a five-year time horizon. We don’t want that to come through just a rerating. We want that to come through earnings growth. Really, we just want that company at a minimum, to be able to grow its earnings at 15 percent, 20 percent per annum.</p>
<p>However, I think what makes us perhaps a little bit different from other growth managers is that we do embrace growth in all of its forms. We think there are three key growth inefficiencies that we invest in across the region. The first is duration where we’re talking about world-class companies where we let compounding do the work for us over many years. The likes of TSMC that we had in the portfolio for nearly two decades.</p>
<p>The second is pace. Here, we’re really talking about rapidly growing businesses where the market misunderstands how quickly these businesses can scale. The likes of Accton, which makes datacentre switches. We invested in that three or four years ago. We increased our position significantly back then. And the market said this business could grow 15 percent, but we spoke a lot to our US colleagues. The likes of Google and Amazon we know well, Accton’s customers, and we thought actually this can grow 30 percent or 40 percent per annum. It turns out we’re out by a factor of two, and the shares are up four or fivefold since our investment.</p>
<p>Then the final inefficiency we like to call surprise. Here, we’re really talking about sudden changes or inflection points in industries, where the market is very much anchored today, but we’re looking for what might change in the future. We discussed copper earlier, our view there is at some point there’s going to be an inflection point where supplies can’t keep up with demand and actually, earnings are going to look substantially different to what the market thinks today.</p>
<p><strong>DL</strong>: Another question has come in about concentration. “There’s been increased concentration in the MSCI Asia Pacific Ex Japan Index. Is that a concern for you?”</p>
<p><strong>RS</strong>: Yes, I think it is becoming problematic. The top five holdings in the region would be more than 30 percent of the index today. That does make it more difficult. Obviously, if you like those businesses and you want to express an active position in those, you’ve got to have very large holdings, and that eats into your active share, which ultimately, I think, makes things a little bit more difficult when things get to those levels. Yes, it is a headwind.</p>
<p>Now at the moment, we actually do tend to own in size some of those large positions. The likes of Samsung, Hynix, TSMC, Tencent. That’s because in these businesses scale is one of the key competitive advantages. Semiconductors are all about having the most amount of capital to deploy and having the biggest most efficient fabs. The bigger you are the bigger your advantage.</p>
<p>The internet platforms, the size of your ecosystem is your dominant advantage. In many ways although I say it’s a disadvantage how large they get in the index, it’s also a symptom of the big advantage they have in that scale really, really matters.</p>
<p><strong>DL</strong>: We have another index-related question. “Asia has significantly contributed to growth, but is underrepresented in global indices, do you see that gap narrowing?”</p>
<p><strong>RS</strong>: I suppose it’s one of the big anomalies of our 10, 15-plus years. Asia really matters. It’s home to half the world’s population. Probably accounts for about a third of global GDP. Two-thirds of global GDP growth. Yet it’s less than 3 percent or 4 percent of global indices.</p>
<p>It is an anomaly and I suppose, that is the big advantage or the big opportunity that it finally starts to catch up. I suppose, the question is why has it been so poor over the past 10 years, especially given what we’ve been talking about. I think a large part of that is two factors. It’s had these two big headwinds. The first has been China going through this very difficult period. I think that is starting to bottom, and China is probably going from being the biggest drag to maybe the biggest catalyst for Asia.</p>
<p>Then secondly, you’ve had this very difficult environment of a really strong US dollar and rising rates in the US. That is always the most challenging environment you can have for the region. It sucks liquidity away, puts a lot of pressure, but if Asia can hold its own in that environment, imagine what happens if that starts to reverse and it goes to a tailwind. I think it highlights the opportunity we’ve got if things really start to turn over the next five or six years.</p>
<p><strong>DL</strong>: The final question is, “Why would an investor consider going active if they want exposure to the Asia Pacific region, versus passive?”</p>
<p><strong>RS</strong>: I think it’s one area where you can actually add a huge amount of value as an active manager. If you look at Pacific Horizon over one, five, 10, 15 years, we would have massively beat the index and particularly the long-term numbers. You can certainly add a lot more value in the region. Why is that? I think you’ve got to be active because the opportunity set is incredibly uneven across the region.</p>
<p>This is not an area where you can simply buy the index and get the growth story. The index gives you a lot of yesterday’s winners in banks, state-owned companies, old exporters and mature tech platforms. The real excitement is often elsewhere. The next generation of semiconductor companies. EV supply chains, etc. They’re the areas we’ve been talking about.</p>
<p>I’d also say the macro matters a lot. There are often areas where you just want to avoid. We’ve got very little invested in places like the Philippines, Malaysia, etc. There are times when you just don’t want to be in areas because the macro looks poor. Also, the index misses a lot of interesting stocks and countries. One of our largest overweights is still Vietnam, which is not in the index. And we also hold companies in Kazakhstan where we think there are some fantastic opportunities, but again, not in the index.</p>
<p><strong>DL</strong>: Thanks very much. That’s all we have time for today. Thank you, Roderick, for your time and your insights and thank you for those watching, for your questions. We have more sessions like this coming up from Baillie Gifford, so do keep an eye out for those if you found today useful. Thank you and goodbye.<br><br></p>
<p> </p>
<h3>Pacific Horizon Investment Trust PLC</h3>
<p>Annual past performance to 31 March each year</p>
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<p> </p>
<p> </p>
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<p style="text-align: right;" class="MsoNormal" align="right"><strong>2022</strong></p>
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<p style="text-align: right;" class="MsoNormal" align="right"><strong>2023</strong></p>
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<p style="text-align: right;" class="MsoNormal" align="right"><strong>2024</strong></p>
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<p style="text-align: right;" class="MsoNormal" align="right"><strong>2025</strong></p>
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<p style="text-align: right;" class="MsoNormal" align="right"><strong>2026</strong></p>
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<p class="MsoNormal">Share Price (%)</p>
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<p style="text-align: right;" class="MsoNormal" align="right">1.1</p>
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<p style="text-align: right;" class="MsoNormal" align="right">-22.4</p>
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<p style="text-align: right;" class="MsoNormal" align="right">1.3</p>
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<p style="text-align: right;" class="MsoNormal" align="right">2.0</p>
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<p style="text-align: right;" class="MsoNormal" align="right">46.9</p>
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<p class="MsoNormal">NAV (%)</p>
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<p style="text-align: right;" class="MsoNormal" align="right">2.8</p>
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<p style="text-align: right;" class="MsoNormal" align="right">-12.9</p>
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<p style="text-align: right;" class="MsoNormal" align="right">7.0</p>
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<p style="text-align: right;" class="MsoNormal" align="right">-1.3</p>
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<p style="text-align: right;" class="MsoNormal" align="right">44.9</p>
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<p class="MsoNormal">MSCI All Country Asia <br>ex Japan Index (%)</p>
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<p style="text-align: right;" class="MsoNormal" align="right">-10.3</p>
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<p style="text-align: right;" class="MsoNormal" align="right">-2.6</p>
</td>
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<p style="text-align: right;" class="MsoNormal" align="right">2.1</p>
</td>
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<p style="text-align: right;" class="MsoNormal" align="right">9.5</p>
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<p style="text-align: right;" class="MsoNormal" align="right">26.4</p>
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</tbody>
</table>
<p><span class="source-text">Source: Morningstar, MSCI, total return in sterling.</span></p>
<p>The index data referenced herein is the property of one or more third party index provider(s) and is used under license. Such index providers accept no liability in connection with this document. For full details, see <a href="http://www.bailliegifford.com/legal">www.bailliegifford.com/legal</a></p>
<p>Past performance is not a guide to future returns.</p>
<p> </p>
<h3>Important information and risk factors</h3>
<p>This communication was produced and approved in June 2026 and has not been updated subsequently. It represents views held at the time of recording and may not reflect current thinking.</p>
<p>This communication should not be considered as advice or a recommendation to buy, sell or hold a particular investment. This communication contains information on investments which does not constitute independent investment research. Accordingly, it is not subject to the protections afforded to independent research and Baillie Gifford and its staff may have dealt in the investments concerned. </p>
<p>The investment trusts managed by Baillie Gifford & Co Limited are listed UK companies and are not authorised or regulated by the FCA. The value of their shares, and any income from them, can fall as well as rise and investors may not get back the amount invested. </p>
<p>Baillie Gifford & Co and Baillie Gifford & Co Limited is authorised and regulated by the Financial Conduct Authority (FCA).</p>
<p>The specific risks associated with the Trust include: </p>
<ul>
<li>The Trust invests in overseas securities. Changes in the rates of exchange may also cause the value of your investment (and any income it may pay) to go down or up.</li>
<li>The Trust invests in emerging markets where difficulties in dealing, settlement and custody could arise, resulting in a negative impact on the value of your investment.</li>
<li>The Trust invests in China, often through contractual structures that are complex and could be open to challenge, where potential issues with market volatility, political and economic instability including the risk of market shutdown, trading, liquidity, settlement, corporate governance, regulation, legislation and taxation could arise, resulting in a negative impact on the value of your investment.</li>
<li>Unlisted investments such as private companies can increase risk. These assets may be more difficult to sell, so changes in their prices may be greater.</li>
<li>The Trust can borrow money to make further investments (sometimes known as "gearing" or "leverage"). The risk is that when this money is repaid by the Trust, the value of the investments may not be enough to cover the borrowing and interest costs, and the Trust will make a loss. If the Trust's investments fall in value, any invested borrowings will increase the amount of this loss.</li>
<li>Values for securities which are difficult to trade may not be readily available and there can be no assurance that any value assigned to such securities will accurately reflect the price the Trust might receive upon their sale. The Trust can make use of derivatives which may impact on its performance.</li>
<li>Share prices may either be below (at a discount) or above (at a premium) the net asset value (NAV). The Company may issue new shares when the price is at a premium which may reduce the share price. Shares bought at a premium may have a greater risk of loss than those bought at a discount.</li>
<li>The Trust can buy back its own shares. The risks from borrowing, referred to above, are increased when a trust buys back its own shares.</li>
<li>The aim of the Trust is to achieve capital growth. You should not expect a significant, or steady, annual income from the Trust.</li>
<li>The Trust is listed on the London Stock Exchange and is not authorised or regulated by the Financial Conduct Authority.</li>
</ul>
<p>Further details of the risks associated with investing in the Trust, including a Key Information Document and how charges are applied, can be found in the Trust specific pages at <a href="http://www.bailliegifford.com">www.bailliegifford.com</a>, or by calling Baillie Gifford on 0800 917 2113.</p>
<p> </p>
<p>197301 10063320</p>
