26 February 2026 (pre-recorded 9 February 2026)
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[INTRODUCTION]
Staci West (SW): Welcome back to the Investing on the go podcast brought to you by FundCalibre. This week, Asian equity markets are back in focus, driven by shifting valuations, improving fundamentals and changing global dynamics.
Joss Murphy (JM): I’m Joss Murphy, research analyst at FundCalibre, and today I’ve been joined by Dave Perrett, manager of the M&G Asian fund. Hi Dave, how are you?
Dave Perrett (DP): I’m good Joss, very well, thank you.
[INTERVIEW]
JM: Great to hear. Dave, Asian equity markets outperformed global stocks in December. Stepping back, what continues to make Asia an attractive long-term investment opportunity for global investors?
DP: I mean, I think there are a couple of things to bear in mind. I think in terms of the outlook of why we’re constructive and positive on the region still. I think one thing you mentioned about December, and you could talk about towards the second half of last year, obviously Asia is for home to a number of large, what we would call AI enablers. You’ve benefiting a lot from the CapEx wave and that helped drive Asian markets particularly second half of last year.
But Asia’s a very diverse region and there are other areas of opportunity, particularly as China deals with its bursting its property bubble as we can prove side a number of domestically originated businesses there, which are really attractive from bottom up perspective.
I think the other two things that I would just highlight would be, you know, I’ve been covering Asian markets now for more than 30 years, and apart from a short period in the late nineties after the Asian crisis, Asian currencies, particularly in North Asia, like in China, Korea, even Taiwan, the currencies have never been this attractive or competitive versus Western currencies.
So not only, you know regional markets look attractive compared to the West, particularly for US, but currencies are attractive to. And then the final thing I would just highlight would be that there are many stocks in the region where the dividend yield, what the yield you get from a dividend they pay to you are well in excess of what government bond yields are yielding. So again, it’s a very attractive setup for long-term investors.
JM: Certainly seems to be the case. How much of recent performance reflects improving fundamentals versus shifts in investor sentiment?
DP: And obviously trying to perfectly deconstruct between the two of these things is always very difficult. I think what you would see is, particularly I say on the tech side, you’ve seen a significant increase in earnings expectations. So that be as much about earnings delivery as about change in multiple, which is what we’ll be driving.
In terms of sentiment, I think what what’s important to bear in mind is certainly up until 2024 and early 2025, investor sentiment towards Asia particularly compared to the rest award was pretty negative. So valuations were well below long-term averages. So in that sense, what we have seen in more recent times is just like a decrease, if you like, or a reduction in that kind of risk premium or that negative sentiment and that’s helped as well.
But I would sort of say it’s probably 70%-ish fundamentals and 30% of reduction in that kind of undervaluation for the past.
JM: And I know you touched on it very briefly earlier, but China remains a major talking point for investors. How do you separate near-term macro concerns like property stimulus uncertainty from longer term structural investment opportunities?
DP: I think kind of short term noise, which might feel important, but if you take a sort of more medium term perspective, you’d sort of say this is kind of transitory and in three to six months time people will be less worried about that. I think the question’s a really good one at this moment in time, you know, and I mentioned that because it’s been a really difficult time period for domestic Chinese orientated stocks, particularly for those exposed to consumption. Real estate was a large part of the economy and that’s been pretty depressed as a result and you’ve seen it shrink in materials as a portion of the economy. But also housing is a large store of wealth for individuals. So it falling in price has also dampened consumer spending.
A lot of companies have gone bankrupt, but critically importantly, those companies that survived have never been more focused on cash flows and profits. Nothing like a near death experience to really focus one’s mind. And we saw a lot of that again in the late 90s, early 2000s, where a lot of companies were focused only on the top line before the Asian crisis and coming out of it were much better versions of themselves. And we’re seeing that happen again now in China, in particular. So we see a lot of interesting opportunities from a bottom up perspective in China of these companies who’ve got lean and mean in a very challenging environment.
JM: And then Dave in markets as diverse and volatile as Asia, how important is bottom up stock selection compared to getting the macro call right?
DP: The bottom up focus and stock picking is absolutely essential. Okay, so I’ll share a little bit about how we think about investing, maybe to give you some perspective on that answer. So at M&G in the APAC equity team, we are very skeptical of investors more general, including ourselves ability to forecast macro events of accuracy consistently.
Okay, lemme give you an example. If I had said to you last year, at the beginning of last year, I’ve looked into the future and what we’re going to see is conflict in the Middle East, no peace in Ukraine and the average tariff will go from zero to 15% into the US, what’s gonna happen to markets? And you just said, well, thanks for telling me about future, that sounds really negative. And of course what’s happened, we had a boom in markets, right?
So it just highlights not just trying to get the forecast right, but then what’s being discounted by markets. So what we are macro aware so we understand the debates and what might be impacting the shares that we invest in from a bottom up perspective. And we try to work out if people are overly concerned at extremes. So we understand the debates, we’re aware of them, but really what we’re trying to do is just find mispriced opportunities from a bottom up perspective. And then from a portfolio construction point of view, we’re very careful to make sure that we don’t have any correlated risk in the portfolio. For example, we might be found six interesting bottom up mid-cap ideas dotted all across the region, but in fact, if we’re not careful, we might have just six Trump tariff losers. Okay? And so we haven’t got six bets, we’ve only got one. So you need to be aware of these things. So the way to navigate this is to make sure your portfolio is diversified and what’s driving it is single stock risk idiosyncratic, individual stock specific risk, rather than these big macro things which can swing you around day-to-day, week to week after month
JM: Certainly seems a sensible way of playing the Asian markets. I’ve noticed Asian markets are often influenced by things like currency moves, politics and global trade tensions. Does the fact that many Asian companies now generate a significant share of their revenues globally change how you think about those risks?
DP: I think what I would say is, you’re right to still say that exports are an important driver for the region’s economies. There’s no doubt about it. But again, unfortunately, because I’ve been doing this for such a long time, remember back in the late 90s, early 2000s, the US economy was very, very important for the region, right? You know, the old saying was if the US sneezed then Asia caught a cold — that is less true today. And the simple reason is the emergence of China in particular, but an evolving middle class of in Asia.
So while yes, as I said at the beginning, exports are still important. They’re much less so than they were say 15 or 20 years ago. And because of the competitive environment, the companies that are still reliant on external markets, whether it be auto companies out of Korea or or tech companies or even manufacturing garment manufacturers, you’ve seen consolidation and their competitive edge become much greater. So again, we we put a diversified portfolio to make sure we’re not over exposed to exporters or not.
But what I would say is there’s a huge amount of opportunity investing in Asia, which is completely unrelated to exports because of that kind of deepening of the markets and emerges of middle class across the region, but especially in China.
JM: And Dave, I’ve noticed the fund is overweight markets like Hong Kong, Thailand, and Indonesia. What are you finding particularly attractive in these regions right now?
DP: I think again, because we are bottom up, it varies from opportunities or opportunity sets. So I’ll give you a couple of examples, right? So one of the interesting things is that Hong Kong has a lot of international businesses there where effectively they could be listed anywhere in the world. Their earnings could be from Europe or whatever else, but happen to be in Hong Kong for start reasons. And these companies tend to trade a material discount to their global peers. And so we find just a very interesting source of stock picking alpha in Hong Kong at the moment. Southeast Asia is kind of interesting. There are a number of very high quality consumer businesses in Southeast Asia. And in the past we liked those companies.
One of them, my example would be like the 711 operator in Thailand, very large market share, very positive blue chip business. They always traded a little bit expensive for our likings. But what’s happened in the last 12 to 18 months is you’ve seen a shift from investors away from these kind of quality consumer names and into AI related tech. And so that movement in flows has impacted valuation. So today, from a bottom up point of view, we can find some really kind of high quality compounding businesses in Southeast Asia that look really interestingly valued for us today.
JM: And Taiwan and India are noticeable underweights, presumably that’s a reflection of valuation concerns or are they just simply better opportunities elsewhere in Asia?
DP: I think a combination of both, right? I think that particularly in Taiwan, where’re especially underweight is a bit more domestically or orientated traditional industrial companies rather than the tech names and variety is that those companies can trade at a big premium to their Hong Kong, Chinese peers and they compete with each other and act in the same markets together. So that, that’s one driver of it.
In India, certain pockets of the market are still too expensive, but what we have been doing is reducing our underweight in recent periods because that gap has been shrinking and the underlying Indian macro story in a medium term sense still remains very positive. Our issue in the past to your point was the price you were being asked to pay for it, but that premium has reduced in recent times. So the valuation’s going much more reasonable, particularly with financials.
JM: And we’ve talked through different countries, but are there any widespread themes in Asia that you’re excited about?
DP: Well, you know, we tend to try not to get too bound up and tied into thematic investing because it also potentially comes under the same heading as as trying to forecast the future. I mean, I’ll give you an example, recent years people say they really like the India consumer and it’s an exciting thematic and it is because everybody knows that, right? So it’s in the price. So what we are trying to do is rather than get caught up into these themes that everyone’s talking about, is we try and remove ourselves from that and just try and find interesting individual bottom up stocks that are just mispriced. And and that’s really how we try to add value for the fund and they’ve been able to do that over time. So that’s really how we go about things.
JM: I guess this is quite a hard question to answer, but for any retail investors listening to this right now, considering an Asian equity fund, what kind of journey should they expect in terms of volatility and return potential?
DP: It is a good question and obviously I’ll take a step back. So a a couple of things I would say is that if you look at compare the region today to say 20 years ago, so 20 years ago the region currencies were very much tied to the US dollar had a lot of US dollar debt, it’s had to follow what the US Fed was doing any point in time. So in a way they’re almost a geared play on the US interest rate cycle and movements in the US dollar. If you go fast forward today, virtually all the currencies in the region active for Hong Kong dollar now float independently. They have very little US dollar debt and where they do have dollar debt is because they have dollar revenue. And in fact, foreign exchange reserves in the region are very high.
As we talked earlier, the currencies are basically very competitive too. So my point would be there will always be volatility investing in Asia, but going forward, looking at the macro fundamentals, once you assume there’s considerably less than it has been in the past and you look at the level of valuation in the region, again, it trades a discount to much of the world and particularly the US. That’s another reason to think that perspectively to return profile from Asia should be quite attractive. And I mentioned earlier about the the Asian currencies being attractive to now.
I’ll mention one more point which I think is worth bearing in mind now, now I don’t have a chart to share with you. You have to believe and trust me on this Joss, okay, if you look over the last 20 odd years for most bond yields in the region, let’s say 10 years, the US 10 year treasury would be at the low end or the lowest. And that makes sense because the US would be seen to be lower risk. Now over the last couple of years what we’ve seen is the US 10 year trade a premium to a number of different Asian 10 year bond yields.
China, Thailand, even Korea, certainly Taiwan. Now this is interesting, right? Because when you think about what drives long-term valuations, the discount rate’s important. And so if the discount rate is gonna be lower in Asia and not saying it’s just is it has been for a while and we observe it, we’re not forecasting then that might have a dramatic impact for valuation going forward between Asian markets and the US. And I raise it because again, I’m interesting to ask people listening into the podcast, if you ask people over next year, do they favour Asia or the US you might get a 50/50 split between Asia/US depending on your views, right?
If you said the next 10 years, what do you think is gonna outperform? My guess would be most people would say the US now if that bond yield spread remains as it is today, that may not be correct. The point being, you know, I think it’s something to bear in mind, particularly then taking into account the attractive valuation of the currencies. But maybe longer term people should have some allocation to Asian markets, right?
One of the dangers of our industry always is that you extrapolate the last period into the future. I’ll give you example again, go back to the mid-90s. If you ask people what would be the better performer over the next 10 or 15 years, Asia or the US, pretty much everyone would’ve said Asia, more growth. It’s the Asian century and what happened, the US outperformed materially. And so again, I think as a conventional wisdom today would be failing for US over Asia. It may be true, but it certainly may not.
JM: Certainly seems to me like there are a few reasons to get excited about the Asian market. Dave, thank you very much for your time today.
DP: My pleasure, Joss. Thank you. Thanks for questions.
SW: M&G Asian is a high-conviction fund that takes an active approach to investing across the region. David and his team bring decades of experience to investing in Asian equities, combining deep research with a disciplined, risk-aware approach. To learn more about the M&G Asian fund, please visit fundcalibre.com and don’t forget to subscribe to the Investing on the go podcast, available wherever you get your podcasts.
