BFIA Talks: Putting money into Asia's growth engine

Although Asian small caps are frequently disregarded, investors can profit handsomely from the correct opportunities in this market

According to Gabriel Sacks, manager of the Aberdeen Asia Focus fund, Asian small businesses are frequently disregarded but shouldn't be.

In an interview with Kaylie Pferten for the BFIA Talks podcast, which is currently accessible on all podcast platforms and our YouTube channel, Sacks asserts that Asia is the world's largest economic region and that it serves as the global economy's growth engine.

Asia accounts for more than half of the world's growth. Many people will consider Asia's small caps to be niche, but in my opinion, they should be at the center of people's portfolios since they allow you to avoid some of the mega caps and gain access to the real engine of both domestic and international growth."

Due to the region's size, both economically and geographically, investors have a lot of chances to make significant profits.

According to Sacks, his fund has extensive access to Asian markets and can examine the prospects offered by the thousands of listed companies as well as the various nations in the region.

Having said that, it is necessary to select only the most intriguing ones, but this is difficult due to the paucity of available research. According to Sacks, this is partly because the research finds it difficult to keep up with the rapid changes in the Asian small cap market.

"I believe that one of the distinctions between emerging markets and Asia is how rapidly the universe is changing. It's a very active area. There are fewer opportunities in regions like Latin America or EMEA, and these are excellent businesses that you can purchase.

"You have to change your opinions quite a bit in Asia."

The quality of the available research "has probably gotten worse throughout my career," he continues. The emphasis has been on large caps due to factors like MiFID (Markets in Financial Instruments Directive) and a passive focus."

However, according to Sacks, a passive approach also gives active fund managers the chance to take charge and capitalize on the rapidly evolving market.

Though not the whole story, artificial intelligence plays a role.

Unsurprisingly, artificial intelligence (AI) is the current focus of a large portion of the market, despite the fact that the larger Asian small caps market includes many diverse firms.

The AI boom has moved the focus to export-oriented Taiwan and Korean markets, although historically the Asia focus fund has been most heavily weighted towards the domestic-oriented India market.

This is a result of businesses in that industry performing well, especially in the supply chain for semiconductors.

Another thing to think about, according to Sacks, is that "the market has actually rewarded that part Taiwan and Korean of the market much more than other parts." Thus, both the index and the weights in our portfolio have moved upward.

"I believe that even though we have been profiting from our AI winners for the past six months or more, the weight has continued to rise. Thus, there have been some excellent stocks in that market."

Some of these companies, such as TSMC, Samsung, and SK Hynix, have performed better because the supply chain has very high entry barriers and the companies that already operate there can benefit from the enormous growth in artificial intelligence.

"The US is currently investing a lot of money in AI, and supply chains in Asia actually make this profit up front since they create the chips required for AI. They are the ones handling the testing, the cooling, and the services."

According to Sacks, the fund is also examining the businesses that are profiting from the AI boom.

"We are seeing more and more newly emerging second or third order derivative plays on AI. Businesses in the AI-driven sector of the market were previously nonexistent. These AI plays are heavily leveraged. Many of these names have actually outperformed TSMC, which, in my opinion, further demonstrates that you don't have to purchase TSMC or a large cap in order to gain exposure to AI and technology.

The benefit of our industry is that it can be more diversified than a single stock, and the tech in our portfolio is actually lower than that of a large-cap portfolio."

You can watch or listen to the entire BFIA Talks episode wherever you get your podcasts to learn more about the opportunities in Asian small caps, the tech supply chain, and the consumer sector.

Concerning the podcast.

The podcast BFIA Talks can help you discover the keys to financial success. Influential guests, including CEOs, business owners, economists, and legislators, join editors Kaylie Pferten and Kaylie Pferten to offer their best advice on handling finances, making prudent investments, and accumulating wealth.

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