28 Mar 2026
Exuberance over artificial intelligence (AI) has continued to drive equity markets in Asia and beyond. In some cases, this has propelled tech valuations to levels that are unsustainable, in our view.
The risk/reward trade-off of many tech stocks looks increasingly unappealing. Our positioning is not predicated on the fortunes of a handful of stocks and we’re excited by opportunities we see elsewhere in the market.
Our investment process has been consistent since inception more than 10 years ago and is tried and tested over time. We have a high degree of conviction that patient investors willing to take a longer-term view will be rewarded.
Excitement around the potentially transformative impact of AI and other innovative tech solutions has fuelled the latest rally in equity markets. We’re excited about many of the new technologies at Fidelity too; we’ve embedded AI tools into our research and investment processes. But as fundamental equity investors, we’re mindful of the impact of AI-related euphoria on valuations. In short, we believe the rally has run too far, too fast.
The relative merits of individual stocks are assessed on a case-by-case basis, but this over-arching view explains why the Asia Pacific Opportunities strategy currently has significantly less exposure to the technology sector than the benchmark MSCI Asia Pacific ex Japan Index.
This positioning was a meaningful headwind to relative performance in both 2024 and 2025 - and particularly so in the fourth quarter of 2025. Our underweight exposure to Korean and Taiwanese chipmakers like Samsung Electronics, SK Hynix and TSMC was a major drag as these stocks led the way and rose to fresh record highs.
Margins in the tech space have risen as high as 60% in some cases - a level that has rarely been seen before in technology, or indeed any other industry sector. Looking ahead, we believe margins are likely to fall as new supply comes to market and therefore believe we could be in the latter stage of the super-cycle in IT hardware stocks. If we’re right, valuations should reverse course as super-normal margins and profitability are eroded away and investors refocus on levels that can be sustained over the medium to long term. Against this backdrop, the risk/reward trade-off of many tech stocks looks increasingly unappealing at current valuation levels.
Our approach is not predicated on the fortunes of a handful of tech stocks, and we’re excited by a range of investment opportunities in other areas of the market. The strategy maintains meaningful exposure to industrials like Techtronic, for example, which manufactures power tools and should benefit from further interest-rate cuts in the US, as it has a large client base with US homebuilders. The stock was pressured by tariff-related uncertainty in 2025, but the company has diversified its production base away from China over the past five years and now manufactures equipment in Vietnam, Mexico and the US; in turn improving flexibility in its manufacturing footprint.
Elsewhere, we’re excited by the prospects for companies exposed to an anticipated pickup in spending in China. Chinese consumers have typically reined in their spending since the Covid period, building up savings and strengthening their spending power. Companies like Galaxy (the Macau casino operator) and Yum China (the largest restaurant operator in China) are among companies that are well placed to benefit as the purse strings are loosened and consumers raise discretionary spending on goods, services and experiences.
The strategy also maintains meaningful exposure to precious metals, though holdings like Zijin Mining, Zijin Gold International and Franco-Nevada. These names have lagged the recent rally in underlying gold and silver prices and may well outperform the broader market as this gap closes.
While acknowledging that past performance is not necessarily an indicator of future returns, we’re confident that performance in this strategy will turn around in 2026 and beyond. In the near term, there’s the prospect of meaningful improvement in returns relative to the benchmark, particularly if investors recognise the unsustainability of margins in the IT hardware sector and rotate towards companies that successfully adopt AI, like Tencent, and growth prospects in other parts of the market like the above-mentioned Chinese consumer.
Our investment process has been consistent since inception and is tried and tested over the last 10+ years. We have a high degree of conviction that it will reward patient investors willing to take a longer-term view.
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