As enthusiasm for AI continues, investors risk overlooking other sources of long-term growth, says Xin-Yao Ng, Co-Manager of Aberdeen Asia Focus plc, who highlights a selection of Asian smaller companies benefiting from more enduring trends.
Do you ever get the feeling that artificial intelligence is the only thing investors should care about? Don’t be ashamed to admit it. I reckon it’s safe to say most of us have succumbed to the notion, even if only briefly.
Take the endless tales of AI’s dominance of the S&P 500. The Magnificent Seven tech titans account for around a third of the index’s overall weighting, with Nvidia alone laying claim to between 7% and 8%.
In Asia, where our fund invests, imbalances that are even more lopsided can be found. Samsung Electronics and Hynix bestride the Korea Composite Stock Price Index like twin colossuses, while TSMC holds sway over roughly 45% of Taiwan’s Taiex index.
Against this backdrop, it can seem as if almost every business you might think of is either determined or destined to carve out a niche in the wonderful world of AI. One of our own holdings, Hyundai Marine Solution, serves as a striking example.
The company was focused on maintaining, repairing and refitting ships when we originally invested. Although this is still largely the case, there’s now mounting interest in the idea of ship engines being used to power “FDCs” – floating data centres.
That’s absolutely fine by us. While we’re happy to go against the herd, pretending the AI boom isn’t happening might just represent the ultimate act of contrarian investing for the heck of it. Around 20% of our fund is usually in technology stocks of some kind.
Yet the fact remains that there is an investment arena beyond artificial intelligence. There are still plenty of good-quality businesses that have the potential to grow without needing to cling to the rear bumper of the AI bandwagon.
Many of these companies sit towards the lower end of the market-capitalisation spectrum. They aren’t household-name giants. They aren’t trailblazers at the cutting edge of innovation’s most fashionable frontier. They don’t have the cachet and the kudos that come with radical disruption. Some could even be thought of as a bit dull.
But this doesn’t mean they’re incapable of outperforming, especially over the long term. Perhaps even more importantly, it doesn’t mean they’re unable to play a valuable role in portfolios at a time when concentration risk is arguably the greatest threat many investors face.
Below are four Asian smaller companies that we believe highlight the attractions of non-AI stocks in an investment landscape frequently overwhelmed by AI-related noise. They’re presented here not as recommendations but for purely illustrative purposes.
The key implication isn’t that these businesses make no use whatsoever of AI. Rather, the point is that their lack of direct involvement in the AI revolution can be seen – not least from a diversification perspective – as a positive rather than a negative.
MP Evans
However far-reaching the impacts of AI might be, it’s reasonable to assume we’ll continue to need food. This is why our fund owns two palm oil plantation businesses, one of which is Indonesia’s MP Evans.
The impressive infrastructure and ecosystems that underpin the company’s estates have been built up over time through careful management. Crucially, MP Evans is an acknowledged leader in terms of sustainability and environmental responsibility.
Hang Lung Properties
It’s also reasonable to assume we’ll continue to need somewhere to live and work. Based in Hong Kong, Hang Lung Properties constructs, owns and manages high-quality real estate.
The company operates both in Hong Kong and mainland China. It has been able to skilfully navigate the region’s recent real estate crisis by adjusting leases to lock in more fixed-base rent.
Aegis Logistics
We still need fuel, too. Aegis Logistics is India’s number-one oil and gas logistics company, as well as the country’s main importer and handler of liquified petroleum gas – a crucial component of the shift to cleaner energy.
Founded in the 1950s, Aegis is firmly committed to continuously improving operational efficiency, environmental standards and service delivery. Its clients include Shell, Tata and Valvoline.
Mega Lifesciences
Finally, health is also ever-relevant. Headquartered in Thailand, Mega Lifesciences has established a presence in the health-and-wellness industry in more than 30 developing nations, with its market share notably high in Asian economies such as India, Vietnam, Cambodia and the Philippines.
A number of Mega’s brands are top-ranked in their respective categories. Others have been consistently rated in the top five in both the business’s home market and elsewhere in Asia. This impressive level of brand equity translates into strong pricing power – and you don’t need AI to figure out that’s a pretty good selling point.
Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The writer’s views are their own and do not constitute financial advice.
This information should not be relied upon by retail clients or investment professionals. Reference to any particular investment does not constitute a recommendation to buy or sell the investment.
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