Following the strong performance of North Asian equity markets over recent months, we have decided to lock in part of the gains generated in Taiwan and South Korea, while further diversifying the portfolio’s sources of return.
We are first materially reducing our exposure to Taiwan. The fundamental backdrop remains very strong, supported in particular by demand linked to artificial intelligence and semiconductors, but valuations have become increasingly demanding following the market’s sharp rally. Given the significant size of this position within the portfolio, we believe it is appropriate to take some profits without changing our constructive view on Taiwan’s underlying fundamentals.
We are also trimming our exposure to South Korea, albeit to a lesser extent. The market has rebounded by around 30% from its July low, driven notably by strong performances from Samsung Electronics and SK Hynix. Taken together, these two adjustments help reduce the portfolio’s natural bias towards AI and semiconductors after a period in which this theme made a significant contribution to performance.
Part of the capital is being reallocated to South Africa and Mexico, where we are meaningfully increasing our positions. Both markets are particularly sensitive to moves in the US dollar and US rates and have already absorbed a significant part of the tightening in financial conditions associated with a Federal Reserve that has proved slightly more restrictive than markets had expected. In a scenario where the dollar stabilises, we believe current levels offer an attractive entry point. Both markets also provide additional diversification through their exposure to metals, notably gold in South Africa and copper in Mexico.
We are also increasing our positions in Thailand and Malaysia. Both markets display solid fundamental profiles and have benefited from positive earnings revisions over recent months. Valuations remain reasonable, with forward earnings multiples of around 15.9x in Thailand and 13.7x in Malaysia. Inflation also remains relatively contained, at around 2.5% and 1.9% respectively, limiting the constraints on domestic economic policy.
Finally, we are introducing small tactical positions in Indonesia and the Philippines. Both markets have experienced significant corrections, driven in part by the energy shock, pressure on their currencies and foreign capital outflows. At this stage, we do not view these as structural long-term convictions, but rather as potential rebound opportunities over the coming months. Particularly depressed valuations — around 8.6x forward earnings in Indonesia and 7.8x in the Philippines — offer what we consider an attractive entry point for positions of limited size.
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