Funds offering exposure to innovation in Asia provide diversification benefits without sacrificing strong growth potential.
Beneath the global inflationary headwinds, Asian economies are resetting after the pandemic and innovation is growing, Michael Oh, portfolio manager for Matthews Asia, said in a September insight.
The Matthews Asia Innovators Active ETF (MINV) is a high-conviction and concentrated equity portfolio, investing in innovative companies in Asia ex-Japan, capitalizing on the new economy and rising disposable income in the region. The fund currently offers exposure to China/Hong Kong, India, South Korea, Indonesia, Singapore, Taiwan, Vietnam, and the United States.
The Matthews Asia Innovators Fund — MINV is the strategy in an active ETF wrapper — is overweight China largely due to the attractive valuation levels currently available, Oh said. “Likewise, we’ve elected to take overweight positions in India and to a lesser extent Indonesia. Our biggest underweight allocations are to Taiwan and South Korea as we are finding better opportunities in Emerging Asia,” Oh added.
Oh said given its scale, the Chinese economy is permeating many areas of innovative activity and in certain industries, such as online gaming, it’s dominating.
“Other markets have honed narrower strengths,” Oh said. “Taiwan, for example, is a global leader in the semiconductor industry. Growth in fintech and digital financial advisory services is more concentrated in the Association of Southeast Asian Nations (ASEAN) region, in economies like Malaysia, Vietnam, Indonesia and Thailand.”
India offers many interesting, innovative companies including some recent IPOs. While the country is still probably 15 to 20 years behind China when it comes to internet businesses and e-commerce platforms, it’s moving in the right direction, Oh said
In Indonesia, there are more opportunities around consumer-facing innovation. “For example, auto dealers are working in partnership with Japanese companies to bring EVs to the Indonesian market,” Oh said. “There is also a general uptake in digital services, particularly fintech and eCommerce.”
The most interesting opportunities in South Korea are within electric vehicle (EV) batteries. In the global market, roughly 90% of these batteries are made by Asian companies based in South Korea, Japan, and China, according to Oh. There are several South Korean companies that are prospering and even investing in the U.S., so that’s becoming a global story, Oh said.
The semiconductor industry in South Korea and Taiwan is also very dominant, Oh said. In those landscapes there are large names but, importantly, there are also smaller chip designers that act as an enabler to the industry and are blossoming right now.
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