Fiona Yang, co-manager of the Invesco Asia Trust, shares her insights into why she has an overweight allocation to undervalued markets such as South Korea and Indonesia.

Fiona Yang at investment manager Invesco believes that South Korea is one of Asia’s most undervalued markets, with South Korean stocks trading at a 34 per cent discount to emerging markets overall, despite encouraging corporate governance reforms setting the stage for a similar resurgence to Japan

Yang manages the Invesco Asia Trust, a £245 million ($327 million) trust which has outperformed the index over one, three, and five-year periods. She is a long-term investor in memory chips, with a top 10 holding in the trust being South Korea’s Samsung Electronics. It is the largest global producer of DRAM chips which has benefited from the price increase of DRAM and NAND flash memory chips, driven by demand for generative artificial intelligence (AI).

Although US tech stocks suffered a major setback in August, Yang is positive about the outlook for Asian equities in 2024, particularly markets in South Korea and Taiwan, driven by digitalisation, high tech firms and a strong focus on artificial intelligence. Yoojeong Oh, investment director of the abrdn Asian Income Fund (AAIF), is also optimistic about the outlook for Asian equities in 2024. See more commentary here. 

Yang highlighted how she is overweight in the South Korean tech sector, which has been a very positive contributor to the trust. The drop in US tech giant Nvidea’s shares didn’t really affect Samsung. “It’s still attractively valued,” she told this news service in an interview.

The trust also has strong exposure to Taiwan. A top 10 holding is Taiwan Semiconductor Manufacturing Company (TSMC), another leader in memory chip manufacturing. Yang thinks that there will be strong memory chip demand over the next few years.

Yang has an overweight position in Indonesia, believing the fundamentals to be good, and has added some new Indonesian stocks recently. She likes the banking sector in particular, with stocks including Banking Negara Indonesia (BNI) and Bank Rakyat Indonesia (BRI). “The long-term growth drivers for Indonesia include a vibrant digital economy, encouraging political and governance reforms, and a youthful population,” she said.

“Although China is the trust’s top market at 25.9 per cent, the trust is slightly underweight the benchmark, while Hong Kong at 9.6 per cent is overweight,” Yang said. Top 10 holdings include China’s tech multinationals, Tencent and Alibaba. However, Yang has exited some Chinese stocks recently, highlighting how the sentiment is very poor, with concerns about weak consumer confidence, China’s slowing economy, property woes and geopolitical tensions. Nevertheless, Yang still sees valuation opportunities in China that are being overlooked.

The trust aims to provide long-term capital growth and income by investing in a diversified portfolio of Asian and Australasian companies. The company aims to achieve growth in its net asset value (NAV) total return in excess of the Benchmark Index, the MSCI AC Asia ex Japan Index (total return, net of withholding tax, in sterling terms).

Despite India’s fast-growing economy, Yang has cut her exposure to India due to its expensive valuations, in favour of South Korea and Indonesia, which she believes offer better values. Her Indian holdings had generally performed very well, but she has now sold outperformers such as pharmaceutical firm Aurobindo Pharma, industrial multinationals Larsen & Toubro and Mahindra & Mahindra, with valuations appearing increasingly full and implying long-term growth rates which she finds hard to justify.