Over the past two years, Asian equity markets have been dominated by a narrow set of momentum-driven growth themes, irrespective of asset valuations. This has reinforced persistent misconceptions about Asian small caps, particularly around the sources of return and the nature of risk. Fidelity Asian Values plc (LON:FAS) Portfolio manager Nitin Bajaj outlines why long-term market history and hands-on research into individual businesses tell a very different story.
Over the past two years, investor enthusiasm has focused on what might be described as ‘themes and dreams’, with capital chasing innovation, biotechnology, electric vehicles and artificial intelligence, often regardless of valuation or underlying fundamentals.
A longer-term perspective tells a different story. Reviewing thirty years of data shows that Asian small-cap value has meaningfully outperformed other market segments. As we look ahead to 2026, this provides a strong basis for challenging two persistent myths about this investment universe.
| Fidelity Asian Values PLC Past Performance (%) | |||||
| Dec 20 – Dec 21 | Dec 21 – Dec 22 | Dec 22 – Dec 23 | Dec 23 – Dec 24 | Dec 24 – Dec 25 | |
| Net Asset Value | 17.1% | 6.7% | 7.0% | 5.5% | 15.6% |
| Share Price | 13.5% | 10.4% | 7.1% | 0.9% | 22.3% |
| MSCI All Country Asia ex Japan Small Cap (N) Index | 21.8% | -10.3% | 14.7% | 8.6% | 9.9% |
| Past performance is not a reliable indicator of future returns. Source: Morningstar as at 31.12.2025, bid-bid, net income reinvested. ©2026 Morningstar Inc. All rights reserved. The MSCI All Country Asia ex Japan Small Cap (N) Index is a comparative index of the investment trust. | |||||
Myth 1 – Rewarding opportunities in Asian small caps must be growth stories
When investors think about Asia’s smaller companies, they often picture fast-growing technology or consumer names. In practice, the strongest long-term results have tended to come not from the loudest growth stories, but from solid businesses bought at sensible prices. Time and again, we have seen markets pay too much for excitement and too little for resilience.
I find it useful to think about stocks in the same way you might think about buying a business for your family. If you had fifty million pounds to acquire a local business in London, you would not start by asking how quickly it could grow. You would start by asking whether it sells a product customers genuinely want, at a price that allows a good return on capital. You would insist that the people running it are both competent and honest. And you would work hard on the purchase price, looking for every flaw you can find to ensure you are not overpaying.
That is exactly how we invest in Asia. Many of the companies in our portfolio are not well-known stocks. For example, a noodle or biscuit manufacturer in Indonesia, a security services provider in India, or a specialist distributor in the technology supply chain. In Taiwan, for example, we own Pacific Hospital Supply, a producer of medical consumables. It is not a large company in global terms, but under new management it is gaining share in a sizeable industry and trading on valuation multiples that still offer an attractive dividend yield. These kinds of businesses rarely grab headlines, yet over long periods they have often produced good outcomes compared to widely chased momentum stories.
The lesson from thirty years of data is simple. In Asian small caps, paying a reasonable price for a good business with good people has mattered more than chasing the highest predicted growth rate.
Myth 2 – Asian small caps are too risky
The second myth is that Asian small caps are inherently too risky. The reality is that risk is not day-to-day volatility; it is the permanent loss of capital. In my experience, such loss usually comes from four sources: buying a fundamentally weak business, backing untrustworthy people, accepting a fragile balance sheet or dramatically overpaying for even a reasonable company that leaves no margin of safety.
Our investment approach is designed to avoid these pitfalls by focusing on companies with durable cash flows, capable and honest management teams and balance sheets that can withstand shocks. And by insisting on valuations that provide a margin of safety, we aim to reduce the likelihood of permanent loss. Viewed through this lens, a diversified portfolio of Asian small caps bought at sensible prices is not necessarily riskier than the broader market.
Why process matters more than predictions
For us, the discipline of the process is what anchors every investment decision. Today, a significant portion of our capital is deployed in Indonesia and China. Indonesia is the region’s third-largest economy after China and India, with favourable demographics, prudent public finances and healthy household balance sheets. Yet its equity market remains out of favour. Our exposure there spans banks, industrials, building materials and consumer businesses, all selected one by one for our belief in their ability to generate sustainable returns with a margin of safety.
Elsewhere in the region, we own companies like Mega Lifesciences in Thailand, a manufacturer of wellness and pharmaceutical products with a strong distribution network and competitive margins, again trading on undemanding valuations.
Lessons that remain relevant
The direction of Asian markets over the next year is uncertain. What is clear is that the lessons of the past three decades still apply. In Asian small caps, value has outperformed growth more often than not, and a disciplined focus on business quality, management and valuation has proved resilient across multiple economic and market cycles.
We do not control outcomes. We control inputs. The focus remains unchanged: owning good businesses, run by good people, at a good price.
Important information
Past performance is not a reliable indicator of future returns. The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Changes in currency exchange rates may affect the value of investments in overseas markets. Fidelity Asian Values PLC can use financial derivative instruments for investment purposes, which may expose the trust to a higher degree of risk and can cause investments to experience larger than average price fluctuations. This trust invests more heavily than others in smaller companies, which can carry a higher risk because their share prices may be more volatile than those of larger companies. Investments in small and emerging markets can be more volatile than other more developed markets. The shares in the investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser. Investors should note that the views expressed may no longer be current and may have already been acted upon.
The latest annual reports, key information document (KID) and factsheets can be obtained from our website at www.fidelity.co.uk/its or by calling 0800 41 41 10. The full prospectus may also be obtained from Fidelity. The Alternative Investment Fund Manager (AIFM) of Fidelity Investment Trusts is FIL Investment Services (UK) Limited. Issued by FIL Investment Services (UK) Limited, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM0225/416199/ ISSCSO00265/0826
Fidelity Asian Values Plc (LON:FAS) provides shareholders with a differentiated equity exposure to Asian Markets. Asia is the world’s fastest-growing economic region and the trust looks to capitalise on this by finding good businesses, run by good people and buying them at a good price.
