31 January 2026 (pre-recorded 21 January 2026)
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[INTRODUCTION]
Staci West (SW): Welcome back to the Investing on the go podcast brought to you by FundCalibre. Asia is often seen as a high-growth region weighed down by persistent risks. This week we explore what investors may be missing, how the opportunity set has evolved and why structural changes are reshaping the region.
Joss Murphy (JM): Hi, I’m Joss Murphy, research analyst at FundCalibre, today, I’ve been joined by Qian Zhang, investment specialist on the Baillie Gifford Pacific fund. How are you Qian?
Qian Zhang (QZ): Very well.
[INTERVIEW]
JM: Great to hear. Well, let’s kick things off then, Qian. When people think about Asia today, sentiment still feels quite mixed — from your perspective on the ground, what are investors getting most wrong about the region right now?
QZ: Thanks, Joss. That’s quite a good question to start with. When people think about Asia, the first things coming to mind is, it’s big; it’s growing fast; it’s got a lot of people living there. But in the decade until pretty much 2024 as a asset class, Asia ex Japan equities have pretty much underperformed the developed market, especially the US. So is it right to say that the economic growth in Asia simply didn’t translate to equity market returns.
But what really happened from what we observed on the ground is there have been fantastic companies and are actually growing, but there were also two very strong headwinds against the asset class. Number one is US dollar has been really strong over the past decade until pretty much earlier last year. And then number two is there have been several years that China hasn’t done well.
It’s a very, very pessimistic sentiment towards China facing a number of things, a regulatory crackdown on the technology sector, if you recall that back in 2021. Also there COVID last for a few days a few years. And then also there is a property market meltdown. So there are several macro headwind against asset class. But arguably we see both of these strong dollar and pessimism about China have been abating in 2025. That’s why you see Asia as flagged as one of the best major equity markets that has delivered last year.
The other thing I would say, people read a lot about the news about tariffs. If at the beginning of 2025, we just had a Trump administration, I told you the word will be in a trade war, there would be a lot of tariffs saga, people wouldn’t naturally think Asia would perform well in that environment. But however what really matters for a lot of the Asian companies are actually domestic economy and domestic activities rather than tariffs and trades. If you look at China’s annual retail, the annual retail is 10 times larger than how much China exports to the US. Even if you look at India, about 75% of listed Indian companies revenue are earned domestically. So for these large economies in Asia, domestic activities and policies matters a lot more than than tariff and global trade. And I think that’s one thing that people have probably not talked enough about.
JM: Yeah, it is definitely fascinating to see how well Asia’s thrived, particularly in the last year. But just touching on a few things, you’ve said, how different does the opportunity set in Asia look today compared would say five or 10 years ago, particularly for long-term growth investors?
QZ: I’d say massively both from macro and micro perspective. From micro perspective, I think most of the Asian economies have gone more resilient than before, thanks to the more orthodox policies they have adopted during the pandemic. I mean, they’re comparing this western government that they haven’t been printing money aggressively, have had quite prudent monitoring fiscal policy, and that has resulted in good fruit, reasonable inflation better effects reserves. You look at every macro metrics, there’s more resilient than the previous cycle of global crisis, so to say.
And then what makes us as long-term investors even more excited is the macro opportunity. Asian companies, a lot of Asian companies are increasingly at the forefront of deep global structural trends. Whether it is about AI, CapEx and hardware producers, green transition enablers, or even rising domestic brands for for rising middle class in Asia and just the level of innovation that we observed from the ground is materially materially stronger than before.
I mean if you look at more than 10 years ago, you probably can name a few globally competitive Asian companies, but now you can count a lot more of that. So the universe for us is no longer just very boring banks, utilities and energy companies stay owned, et cetera. But there is a genuinely broadening of innovation led companies that is embedded in the forefront of several big global trends.
JM: And then how do you think about macro risks, you know, geopolitics, policy interventions, supply chains?
QZ: Yeah. I think both macro and stock selection are important in the sense of being a successful successful long-term investor in Asian equities. They are cyclical opportunities that could brought by big macro trends turned as well. I think the key thing here is to think about the potential winners and losers in the scenario.
Geopolitics policy, invention, supply chain just can bring challenges, but can also bring opportunities depending on what industry it is, what stage of different industrial cycles or commodity cycles it is, and which side of the supply or demand you are in. Giving you what probably two good examples here.
One is when people think about export control, US export control on semiconductor bans to China it’s not good news for the progress of a lot of Chinese companies, but on the other hand, it is also forced a lot of Chinese companies to work together with each other to cultivate a self-sufficient domestic semiconductor ecosystem. And we’ve been looking at those closely and then fund some good investment opportunities within that. They are increasingly taking market share in the domestic market. A lot of their buyers want to onboard a second supplier in addition to their foreign supplier. So that’s one of the examples.
Then, the other example would be when we think about supply chain repositioning it’s not realistic to think about everything will be repositioned back. I’m unsure to the US the likes of Vietnam who are still a leader in a lot of very labour manufacturing incentive goods. Just the wage difference between the West and countries like Vietnam is still huge, so it doesn’t make sense to reassure at all. And then countries like Vietnam in the middle between the US and China geopolitical divide can actually try to benefit from from both sides. So we see Vietnam really on a good track. And, you know, in the Pacific fund it’s one of our largest off benchmark allocation
JM: Very interesting Qian, in a recent insights piece, you talked about an opportunity gap in Asia. What do you mean by that and why do you think it’s become so pronounced?
QZ: I think in a nutshell, what I mean by that is the economic gravity has shifted to the East. We all know that Asia as a percentage of contribution to global GDP growth has been growing and then most of forecast, if you look at a FM, et cetera, would foresee that to be continuing in the foreseeable future. But the investment gravity hasn’t. When you look at global portfolios the allocation to EM to start with is relatively light. Most of the global managers are still underweight emerging market, and Asia is pretty much 80% of emerging market. So people’s allocation from an investment perspective have been relatively light.
I mean, arguably that has been the right allocation as I mentioned at the very beginning, that in the previous decade, Asia has actually lacked, I mean, the right choice would have been investing heavily in the US or developed market. But the key question is what coming next? If we think about both of the macro and the micro are aligned as I said and previously and also two of the previously very big headwinds, the strong, very, very strong US dollar and severe pessimism about China, both of them have been abating. We do think conditions are aligned for a gradual reallocation from global investors back to Asia as a class.
JM: Yeah, it does look like some of those headwinds are dissipating. Particularly with, you know, how well the market’s been doing at the moment. Which parts of the Asian market do you think are most affected by this gap and where do you see it starting to close?
QZ: I’ll probably point out four areas. I would to say four themes that we’re very interested in. The first one is AI hardware. So this is perhaps not too new. But also but we do think there’s very promising prospects for that. So the code I would always wanted to always like to say is like, AI CapEx, keep going, but it’s keep going East. But when you think about the choke points of all these hardware manufacturing for the AI CapEx data centres, computing, et cetera is mostly dominated by Taiwan and South Korean companies. And in the sense that hardware expertise comparing with software expertise is very difficult, much more difficult to replicate, to much difficult to replace. So we also think the risk reward dynamics are different. People talk a lot about AI bubble in the US hyperscalers, but are they going to make a good return from their investment?
But we are more thinking about AI resilience. Part of the reason is the hardware expertise is very difficult to replicate and to rebuild anywhere else. And then number two is also like no matter who win the final AI game, they all need logic tips, memory chips. And there’s only a number of companies in the world can do the best. That’s number one.
Number two would be the rising of the advanced manufacturing. It’s quite linked to this as well. So it the things that the likes of modern batteries, efficient energy storage systems, electric vehicles, industrial robotics, et cetera Asian companies are getting the forefront of that as well because of the innovation and the scale they have.
The third one I want to mention is the rising of domestic consumption brand or domestic operators. So the likes of China and India have very big domestic market and their consumer preference are shifting. So whether it’s from Chinese people drinking more coffee comparing with traditional drinking to tea, and then there’s domestic coffee brands like lacking coffee are doing very well in that context. If you look at India we recently invested in the domestic Indian island companies. If you look at flat seats per person, India is 0.13, China is 0.5, the Americans probably three. So there is a long, long way to go as the Indians economies develop and middle class rising, so domestic rising domestic consumption and operators.
The last one I probably mentioned that already is the supply chain repositioning the beneficiaries of what we call a more multiple world, the likes of Vietnam, the likes of as in countries.
JM: Qian, Asia is often described as high growth, but growth can come in many forms. What types of growth are you most interested in today?
QZ: That’s a very good question. I think we do think about from that perspective quite a lot. So as a long-term growth focus investor, we try to have, I call it a flexible or a pragmatic approach to growth because Asia is a fast growing area. The opportunities that comes with growth can be evolving. I mean, back in the 1990s it would be Hong Kong financials and 2000 would be Korean and Thailand shipping companies, for example, growing very fast in the 2010s with the first generation of social media and e-commerce companies from China. And in the 2020s, a lot of AI hardware is like Taiwan TSMC, the data centre switches, company Acton South Korea, something electronics, hynix for memory chips, et cetera, et cetera. But that’s evolving.
So what we do look at is we focus on three very clear and persistent inefficiencies in the market. The first one we called underappreciated growth duration. So these are the companies who can grow much longer than market expected. So can compounding this higher CapEx and reinvesting themselves.
Number two, we call underappreciated growth pace. These are fast growing companies that factor so probably the more conventional growth stocks if you want to label that. So a lot of digital companies would be there. We see quite a lot of them. They are doing what the Chinese e-commerce and platform companies have been done in the previous 10 years. So very exciting.
And then the last inefficiencies we call growth surprise. So these are simply just growth happening when nobody is expecting a lot of growth from that sector of companies. Transitioning from lower growth to higher growth, a lot of the commodity companies that seem to there.
So think about the likes of copper which a lot of these modern industrial companies will need quite a lot. Modern industries will need quite a lot and there’s quite some big supply deficit’s, just it, so three different kind of flavours at the moment. We are quite flat among these three, which normally happens when the team is most constructive about the asset class. So I’d say exciting opportunities in our three of them, which is what we like because you are not, your portfolio is not driven by one single type of gross driver or one single type of theme.
JM:And China remains a significant part of the portfolio. How has your thinking evolved in China and what gives you the confidence to remain selective rather than step away?
QZ: Yeah. Your last bit is very relevant here — remain selective. We had been underweight in China for a couple of years, like up until pretty much mid 2024. And we’ve gradually increased our exposure there and turning from underweight to overweight more in the more recent 12 to 18 months. I think the things that we’ve been encouraged is one, there is a very decisive policy shift since September 2024, where the policy makes us shifted towards a lot more supportive for growth. And then regulators are quite coordinated in terms of supporting for private sectors, et cetera as well. That’s number one.
Number two is innovation. So what we are seeing is with our local colleagues in Shanghai is that grassroots level innovation are really taking place. And when you think about innovation at a scale, China is the second largest economy in the world. So the scale, the innovation at a scale would really have amplifying impact in terms of corporate earnings, potential new opportunities, et cetera. So our assessment is that there are actual growth that can be captured by active selection when you think about China as one of the deepest and most dynamic market in our investment universe, where you do need to be very focused and selective in terms of policy alignment and profit motive at the same time. So that in China has been a very key crucial point in terms of our stock selection.
JM: And finally, Qian, before I let you go, when you look out over the next five years, where do you think the most exciting growth opportunities in Asia are likely to emerge?
QZ: Yeah very good question. We are doing a lot of groundwork research for future opportunities in areas like autonomous driving areas like more AI application. How does AI, how would AI diffuse to broader industries? I mean, very different living if you look at US and China or broader Asia. In that sense the US companies are competing to the most frontier technology of AI, the best models, the best computing. But in China and in Asia sense, it’s a lot more focused on quick adoption and diffusion to the wider range of the economy. So AI application would be one area we are very interesting in to see what would be the industries and companies who can best utilise that to increase their productivity efficiency and bottom line. So that would be another area.
The next one I mentioned that already, we are quite positive on Vietnam. So as a sense it’s the largest off index investment in the portfolio. And it’s also got to the emerging market status from a frontier markets status by ZI index which is quite encouraging. Domestic economy is seeing a turn with a new political leader. So they’ve probably got double benefits from a more massive polar world from a trip perspective and domestic cyclists turning around. So new technology areas like autonomous driving more interesting, the potential AI application to the broader economies and frontier on newer markets like Vietnam.
JM: Well, Qian, thank you very much for your time today.
QZ: Thank you.
SW: This is a high-conviction growth fund with the ability to move around as different parts of the market, such as more cyclical sectors, exhibit growth, benefitting performance as a result. For more information on the Baillie Gifford Pacific fund please visit fundcalibre.com
