International viewpoints: eastern promise

Investors should consider the investment objectives, risks, charges and expenses carefully before investing. This information and other information about the Funds can be found in the prospectus and summary prospectus. For a prospectus and summary prospectus, please visit our website at bailliegifford.com/usmutualfunds. Please carefully read the Fund's prospectus and related documents before investing. Securities are offered through Baillie Gifford Funds Services LLC, an affiliate of Baillie Gifford Overseas Ltd and a member of FINRA. 

As with any investment, your capital is at risk.

Why have Asian stocks suffered in recent years?

Asia struggled more than the western world from the Covid-19 pandemic, with physical lockdowns lasting considerably longer than in Europe and the US. As a result, several businesses have only recently begun to benefit from a normalisation in economic activity and consumer behaviours.

For example, travel activity in Japan has only recently rebounded above pre-Covid levels (reaching a monthly record in April) and the last remaining pandemic-related restrictions in China were not lifted until 2023. This has significantly impacted company profits across a range of industries.

Regulations, largely aimed at protecting Chinese consumers, had also weighed heavily on several Asian internet platforms that had previously enjoyed high levels of profitability and earnings growth. At the same time, heightened geopolitical risk had curtailed overseas growth prospects for some Chinese businesses, notably those operating in health care and technology, leading to a broad-based sell-off in China-exposed names.

A turning point in policy

But Chinese regulation is now becoming more accommodative of big technology conglomerates. This is allowing leading platforms, which have suffered in recent periods, to resume attractive profit growth. The Chinese authorities have also begun taking action to stimulate the economy and the stock market, which has revived sentiment recently.

These measures have included a reduction in down payments for properties, availability of cheap funds for public housing and improvements to the transmission between onshore and offshore stocks.

While there have been no specific stimulus measures in Japan recently, it is worth pointing out that interest rates there remain in negative territory. This has underpinned a sustained period of yen weakness, making many Japanese manufacturers more competitive and increasing the yen value of overseas income.

The stars are aligning for exceptional companies

Overall the macro-economic picture in Asia is improving, but what makes us most excited is the recent operational performance of some of our favourite Asian growth companies. During the most recent quarterly results, Chinese internet platforms Tencent and Pinduoduo, Korean ecommerce business Coupang, and Singaporean-listed entertainment and ecommerce business Sea Ltd, all reported strong earnings growth that exceeded expectations.

Each of these businesses benefits from a long growth runway as Asia's population expands and rises in wealth. Although their share prices have recently improved, each still trades at a sizable discount to the major US internet platforms and offers major upside potential.

In Japan, several of our favourite growth stocks also reported strong results and enjoyed a welcome recovery. These include premium skincare specialist Shiseido and online real estate and marketing services platform Recruit. Again, their valuations stand out as attractive in a global context.

Asia's middle class is set to grow rapidly over the next decade and beyond, and the opportunity set for attractive businesses poised to benefit from this is vast. With policy turning more supportive, valuations at multi-decade lows and increasingly positive market sentiment, it feels like an opportune time for investors to pay attention.

Important information and risk factors

The Funds are distributed by Baillie Gifford Funds Services LLC. Baillie Gifford Funds Services LLC is registered as a broker-dealer with the SEC, a member of FINRA and is an affiliate of Baillie Gifford Overseas Limited. All information is sourced from Baillie Gifford & Co unless otherwise stated.

As with all mutual funds, the value of an investment in the Fund could decline, so you could lose money. International investing involves special risks, which include changes in currency rates, foreign taxation and differences in auditing standards and securities regulations, political uncertainty and greater volatility. These risks are even greater when investing in emerging markets. Security prices in emerging markets can be significantly more volatile than in the more developed nations of the world, reflecting the greater uncertainties of investing in less established markets and economies. Currency risk includes the risk that the foreign currencies in which a Fund’s investments are traded, in which a Fund receives income, or in which a Fund has taken a position, will decline in value relative to the U.S. dollar. Hedging against a decline in the value of currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. In addition, hedging a foreign currency can have a negative effect on performance if the U.S. dollar declines in value relative to that currency, or if the currency hedging is otherwise ineffective.

For more information about these and other risks of an investment in the Funds, see “Principal Investment Risks” and “Additional Investment Strategies” in the prospectus. There can be no assurance that the Funds will achieve their investment objectives.

As at June 2024

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