Asian Opportunities Equity Fund

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Overview

Manager's Outlook

We remain constructive on the long-term outlook for Asia ex-Japan equities despite the near-term challenges to the market. We recognize that the conflict between Russia and Ukraine and the ensuing sanctions by the West led to heightened geopolitical risks and concerns about inflation arising from higher energy and commodity prices. We believe, however, that a lot of negative expectations are reflected in current valuations.

We believe that China will pursue a policy easing path and will unlikely be constrained by the prospect of higher inflation. Compared to other countries which are embarking on a tightening policy, China has the will and capacity to adopt a loosening stance, in our view. We think that China's expectations of a 5.5% economic growth rate this year portends more stimulus measures to stem the economic slowdown. China's property sector, which came under pressure last year following stricter financing rules for property development, may stabilize and benefit from an easing in the policies that govern it.

While concerns about regulatory risks across Chinese industries persist, we think that the peak intensity of the regulatory crackdown lies behind us. We believe that the recent statements by top authorities and regulators in China to pursue policies that are supportive of the economy, buttresses our view that the height of the regulatory clampdown may have come to pass.

However, we remain vigilant in monitoring key risks to the portfolio, including potential future coronavirus variants, geopolitical instability, supply chain disruption, and more severe enforcement of Chinese regulations that might lead to a sharper-than-expected slowdown in the economy.

Despite the volatile market conditions in the near term, there are reasons for optimism. Fiscal and current account balances across the Asia ex-Japan region are fundamentally sound, in our view. We believe that domestic demand in Asia ex-Japan is holding up relatively well despite the uneven recovery of economies from the pandemic.

We will continue to focus on the long-term fundamentals of individual companies. We believe that high-quality companies in the region have yet to be fully re-rated and forward earnings estimates have yet to reflect the impact of a return to normality. We remain committed to our investment framework and our search for fundamentally strong companies with durable growth and solid management teams who care about shareholder returns.

Strategy

Fund Summary

Enhanced long-term growth through a geographically concentrated portfolio of well-managed Asian companies (excluding Japan).

31-Mar-2022 - Eric C. Moffett Portfolio Manager,

We purchased shares of HDFC Life Insurance, a high-quality insurer that is gaining share in an under-penetrated market due to strong execution and solid branding. The insurer will likely benefit from the secular shift towards higher margin, protection-based products. HDFC Life Insurance has one of the best track records among private insurers with a balanced product mix and distribution capability.

AIA Group is life insurer with a unique footprint in southeast Asia and a growing China business. We bought shares of AIA, which delivered strong fourth-quarter operating performance, a return of cashflows to pre-pandemic levels, and a share buyback. We continue to like AIA for its strong management team and sound capital position. With Southeast Asian economies returning to normality, we see a good set-up for the year for AIA, given its high-quality financial advisor network, supported by a strong technology and analytics platform.

We bought shares in Axis Bank, an Indian lender that has a strong balance sheet and capital position. We believe it is well positioned for market share gains.
We bought Tsingtao Brewery shares, which fell sharply in the quarter, reflecting concerns about the coronavirus outbreak restrictions and rising commodity prices, in our view. Tsingtao, one of the largest brewers in China, reported 2021 results that showed strong average selling price gains and margin expansion. We believe that the market underappreciates the brewer's premium portfolio and the product momentum driven by increasing interest in domestic brands. We think that Tsingtao will continue to benefit from the premiumization trend and pricing discipline.

We sold shares in Budweiser Brewing, one of the largest pan-Asian brewers, following gains and used the proceeds to purchase Tsingtao stocks.
We acquired shares of Country Garden Services, a high-quality property management firm, that executes well and has grown its market share in the last year. We think investors overlooked the fact that its growth trajectory does not hinge on the primary housing market.

Greentown Service is a property management which relies heavily on third-party business and, unlike Country Garden Services, is not backed by a parent developer. We think that the third-party business is shrinking, which led us to sell the Greentown shares that we owned.

We trimmed shares of Hysan Development, a Hong Kong-listed commercial landlord, to finance other purchases.
We sold shares of Gree Electric, an air conditioner maker, due to our lower conviction that it can turn around the business. We used the proceeds to invest in names with better risk and reward profile.

Yum China is the operator of the KFC and Pizza Hut chains in China which we like for its improving fundamentals despite the pandemic disruption and the solid track record of its management team. We bought shares in the company due to its more attractive valuation. Concerns about the U.S. delisting of Chinese companies weighed on Yum China even though it has a secondary listing in Hong Kong.
We purchased shares in Sunny Optical Technology, a manufacturer of smartphone camera lenses, taking advantage of its stock price weakness following below-consensus results for the second half of 2021 brought about by a sharp drop in smartphone lens revenues due to an intense price war. We think Sunny's earnings growth may improve from the second half of 2022, boosted by its automotive lens business on expectations of a sharp pickup in assisted/autonomous driving penetration. We believe that it is also well set up for margin recovery in its smartphone lens business.
We acquired American depository receipts of Sea Limited, an internet platform company operating in Southeast Asia, taking advantage of its undemanding valuation. Its shares reflected weak revenue guidance for its gaming business this year despite better-than-expected revenue estimates for its e-commerce and fintech businesses. We still view Sea as well positioned to gain market share in the online games market in Southeast Asia and likely to expand its total addressable market into other emerging countries. Shopee, its e-commerce platform, has a long runway for growth, in our view, as it gains share in Southeast Asia while venturing into other low-penetration markets.

31-Mar-2022 - Eric C. Moffett Portfolio Manager,

Shares of Taiwanese chip designer MediaTek paused for breath after rallying in 2021. We think the market has fully appreciated the earnings upside from 5G adoption and MediaTek's improved competitive position. That said, we still like the company's long-term growth potential outside the smartphone segment.

TSMC, which makes almost all the world's most sophisticated chips, dragged on relative performance as its American depositary receipts (ADR) premium narrowed. We continue to view TSMC as a strategic asset in the semiconductor industry. Earlier in the quarter, it reported better-than-expected guidance for 2022, with solid revenue growth from high-performance computing and auto businesses. We like TSMC's strong execution in leading-edge semiconductors and view it as an earnings compounder.
Our lack of exposure to Reliance Industries, an industrial conglomerate involved in energy, petrochemicals, telecommunications and retail, hurt fund performance. Reliance Industries shares outperformed on expectations its petrochemical business will gain from the rise in oil and gas prices.
Shares of Chailease Holding, a leasing company with a high-quality franchise in Taiwan and an increasing China and southeast Asian business, retreated after their sharp gains in 2021. The company reported strong fourth-quarter revenues and while its growth in China was slower than expected due to coronavirus restrictions, it was mitigated by a stable Taiwan and recovering Southeast Asian business. We continue to view Chailease as a solid earnings compounder with a management team that is executing well in underpenetrated markets.
Shares of Vanguard International, a company that focuses on eight-inch wafer fabrication services, underperformed following substantial gains last year, despite a strong fourth quarter and better-than-expected guidance for the first quarter of 2022. While Vanguard, which is partly owned by TSMC, will unlikely be immune to the upcoming cyclical slowdown in semiconductors, we believe it will be one of the most resilient in the downturn because of its exposure to the under-supplied eight-inch foundry segment. We like the company's long-term earnings potential.
Owning China Overseas Land & Investment (COLI), one of the country's largest residential property developers, added value as the shares surged on prospects of monetary easing and the government's introduction of policies to help the sector amid the current downturn. The company has one of the strongest balance sheets in the sector with lower gearing compared to rivals. The state-owned enterprise will likely take market share, benefiting from industry consolidation, in our view.

China Overseas Property Holdings, one of the country's biggest property management companies, boosted returns. We believe that China Overseas Property, a sister company of COLI, is a well-capitalized and well-run company. We view it as a stable compounder that is less vulnerable to policy risk than property developers.

Past performance is not a reliable indicator of future performance.

The Funds are sub-funds of the T. Rowe Price Funds OEIC, an investment company with variable capital incorporated in England and Wales which is registered with the UK Financial Conduct Authority and which qualifies as an undertaking for collective investment in transferable securities (“UCITS”). Full details of the objectives, investment policies and risks are located in the prospectus which is available with the key investor information documents in English and in an official language of the jurisdictions in which the Funds are registered for public sale, together with the articles of incorporation and the annual and semi-annual reports (together "Fund Documents"). Any decision to invest should be made on the basis of the Fund Documents which are available free of charge from the local representative, local information/paying agent or from authorised distributors and via www.troweprice.com.

Hedged share classes (denoted by 'h') utilise investment techniques to mitigate currency risk between the underlying investment currency(ies) of the fund and the currency of the hedged share class. The costs of doing so will be borne by the share class and there is no guarantee that such hedging will be effective.

Before deciding to invest in the fund, you should read the offering document/prospectus (including its investment objectives, policies and any risk warnings) which are available and may be obtained from any appointed distributors.

The specific securities identified and described in this website do not represent all of the securities purchased, sold, or recommended for the sub-fund and no assumptions should be made that the securities identified and discussed were or will be profitable.

A full list of the currently issued Share Classes including Distributing, Hedged, and Accumulating Categories may be obtained, free of charge and upon request, from the registered office of the Company.

Benchmark: Investors may use the benchmark to compare the fund’s performance. The benchmark has been selected because it is similar to the investment universe used by the investment manager and therefore acts as an appropriate comparator. The investment manager is not constrained by any country, sector and/or individual security weightings relative to the benchmark and has complete freedom to invest in securities that do not form part of the benchmark.

IA Sector: Many UK funds are grouped into sectors by the Investment Association (the “IA”) (the trade body that represents UK investment managers), to help investors to compare funds with broadly similar characteristics. Investors may compare the fund against the performance of the Europe Excluding UK sector. This sector represents the average performance of certain funds that invest at least 80% of their assets in European shares and exclude UK securities. It can therefore serve as a method of comparing the fund’s performance with other funds that have broadly similar characteristics. The fund is not constrained to or managed in line with this sector. Source for IA Sector Data: © Morningstar. All Rights Reserved.

Disclosures on Vendor Indices can be found here.

Risks

Typical Investor

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