Investors need to view Asian smaller companies like they would a sporting campaign, long term results over short term performance, suggests Gabriel Sacks is Co-Manager of abrdn Asia Focus.
Yogi Berra, the baseball legend famed for his eccentric one-liners, was once asked about the psychology of winning. His reply was typically off-the-wall. “Baseball is 90% mental,” he declared. “The other half is physical.”
To what extent is successful investing a matter of mindset rather than a question of skill? Since I lack Berra’s unique grasp of percentages, I hesitate to suggest a precise figure – but I would certainly say mental resilience is of enormous significance.
In my experience, it can be particularly important when investing in relatively unfamiliar markets and asset classes. Take Asian smaller companies, the arena in which my colleagues and I specialise.
This corner of the investment universe is comparatively unrecognised. Asia’s small-cap and mid-cap stocks are frequently under-researched, so they seldom generate much in the way of wider attention.
As a result, the first port of call for most investors seeking any kind of exposure to Asia is often China. Unfortunately, the “bigger picture” view of the world’s second-largest economy has been less than immediately uplifting of late.
Challenges such as the COVID-19 pandemic, geopolitical tensions and the prospect of an all-out trade war with the US have tempered China’s growth for several years. The consequent glut of negative headlines might instantly dampen enthusiasm for Asian equities of any sort.
Cast the net a little further afield and stories of border skirmishes between Thailand and Cambodia could enter the reckoning. These seem to support the age-old cliché that emerging markets are the investment sphere’s equivalent of the Wild West, with volatility and instability essentially guaranteed.
So already investors have been presented with a couple of excuses to feel perturbed, step back or even completely give up before they have started in earnest. This is like quitting a baseball game without throwing a pitch, swinging a bat or even setting foot on the diamond.
The truth is that in investing, as in sport, wins are seldom secured easily and quickly. Capitulation in the face of the first apparent setback betrays not only a lack of determination but a dubious grip on reality. It is necessary to press on and dig deeper.
My colleagues and I use a combination of quantitative analysis and on-the-ground insights to identify what we believe are the brightest opportunities among Asia’s smaller companies. Basically, we look for quality businesses capable of delivering long-term growth.
The search requires patience, diligence and resolve. There are many points at which investors might be deterred. It is possible to devote considerable effort to investigating the merits or otherwise of a company before at last realising its appeal is strictly superficial.
Continue to plug away, though, and you may discover Asia’s genuine hidden gems. They can be found almost right across the region’s sectors, industries and economies.
They include South Korea’s Leeno Industrial, which produces testing equipment for printed circuit boards, semiconductors and other components central to the ongoing digital revolution. It is a classic behind-the-scenes enabler of technological progress.
Indonesia’s OCBC NISP bank is another stock that escapes most investors’ notice. Having survived the Asian financial crisis and other shocks, it has established itself as a highly reliable business with a dependable income stream.
Phoenix Mills offers an attractive play on India’s seemingly insatiable appetite for infrastructure. It constructs and operates shopping malls, focusing principally on state capitals and other top-tier cities, and has a strong pipeline of future projects.
Meanwhile, Century Pacific, a family-owned food business in the Philippines, has seen off a number of would-be rivals – including several multinationals – to maintain its domestic dominance. It benefits from a fiercely entrepreneurial outlook and a steadfast commitment to sustainability.
Historically, smaller companies have tended to outperform their larger counterparts over the long term[1]. This trend has been evident both in Asia and elsewhere.
It does not automatically follow, of course, that every smaller company excels – far from it. Yet a suitably diversified portfolio allows room for occasional disappointments.
This brings us back to Yogi Berra, who turned to coaching at the end of his illustrious playing career and won just over half of the games he oversaw as a manager. This might sound like a modest return, yet it was sufficient to earn him three World Series titles and further cement his status as one of the legends of the sport.
Ultimately, there might be many reasons for investors to lose faith – not least when they are exploring uncharted territory – but there are many more for holding firm, staying the course and reaping the rewards available to those who go the distance. As Berra also famously remarked: “It ain’t over till it’s over.”
[1] See, for example, Aberdeen: “Asian smaller companies: the power behind the throne”, April 29 2024
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