At the heart of South East Asia, China is in the process of moving from an economic model based on investment and exports to one fuelled by domestic consumption. The transition will not occur overnight however, and as China evolves in the coming years economic growth could continue to slow to a more sustainable pace.
Earlier this year, China hit news headlines when its stock market took a tremendous tumble following a period of rapid growth. As part of the government's attempt to stabilise the market, several major Chinese brokerages attempted to support share prices by making significant capital injections into the market.
Citic Securities was one such broker - once held in the Fidelity South East Asia Fund, the stock has since been sold from the portfolio. In September, it was announced a number of the firm's senior executives had come under police investigation, suspected of insider dealing and leaking inside information. Fund manager Teera Chanpongsang therefore felt it was time to exit the position.
While the manager remains positive in his long-term outlook for China, the fund's exposure to the world's second-largest economy has reduced in recent months. In addition to Citic Securities, Teera Chanpongsang has also sold SAIC (Shanghai Automotive Industry Corporation) amid rising concerns over increased competition between car retailers.
He continues to favour a number of Chinese internet-related companies, such as Alibaba, Tencent and Baidu, whose positions are maintained in the portfolio. Internet usage in China remains relatively low compared with Western nations - should usage increase, these companies could be set to benefit, while they also have the potential to expand globally according to the manager.
Elsewhere, Teera Chanpongsang believes the prospects are bright for many Indian companies, given ongoing political and economic reform. Indian bank HDFC is one of the fund's top holdings - the manager views the company as one of the best-managed and highest-quality private banks in the country. On the other hand, he has avoided state-owned banks given his concerns over high levels of non-performing loans (a loan that is in default or close to being in default) and frequent senior management changes.
The manager also favours Maruti Suzuki, an Indian car manufacturer with 50% market share. The company has been expanding its manufacturing capacity and in addition to domestic demand, the company exports its vehicles to other South East Asian countries as well as Africa.
Source: Fidelity, correct as at 31/10/2015
Our view on this fund
Teera Chanpongsang is an experienced investor in managing Asian equities. He also has the support of Fidelity's large bank of analysts based on the ground in Asia. Having met the manager, he is undoubtedly enthusiastic about investing in this higher-risk region and is committed to identifying long-term growth opportunities.
The manager assumed responsibility for the fund in January 2014. Over this time he has delivered a return of 8.2%* against 4.1% for the average fund in the sector, although please remember past performance is not a guide to future returns and this is over a relatively short timeframe. While we view Teera Chanpongsang as a sensible investor, we currently have greater conviction in other managers with stronger track records over a prolonged period. As such, the fund does not currently feature on the Wealth 150 list of our favourite funds across the major sectors.
|Annual percentage growth|
| Nov 10 -
| Nov 11 -
| Nov 12 -
| Nov 13 -
| Nov 14 -
|Fidelity South East Asia||-11.4%||7.8%||9.3%||4.8%||0.3%|
|IA Asia Pacific ex Japan||-8.6%||8.2%||12.6%||4.0%||-5.3%|
Past performance is not a guide to future returns. Source: Lipper IM * to 02/11/2015