When Eileen Dibb took Japanese studies and international relations at university in the 1980s, the land of the rising sun was in an economic bubble that would eventually burst. As a fund manager, she’s been navigating a Japanese stock market struggling to regain its 1989 record high and a Chinese market rattled in recent times by Beijing’s big-tech regulatory crackdown. Despite market volatility and uncertainty, her $146.2-million Fidelity AsiaStar Fund has outpaced the MSCI AC Asia Pacific Index over a decade. (She also runs the $83.9-million Fidelity Japan Fund.) We asked Dibb why she now sees a tailwind behind Japanese stocks, and likes chipmakers Taiwan Semiconductor Manufacturing and Samsung Electronics.
Japanese stocks have strongly rallied this year. Given Japan is 40% of your Asia fund, what’s your outlook?
We have passed the 1989 bubble period and now have a normalized market with reasonable valuations. I am positive on Japan and on changes to its corporate sector over the past decade. That stems from former prime minister Shinzo Abe’s monetary, fiscal and economic growth policies. Corporations have become more innovative and have better corporate governance. There is also a new Tokyo Stock Exchange policy where companies whose stocks trade below book value must figure out how to get above that. That will improve profitability. We have already seen these changes in returns to shareholders via stock buybacks or increased dividends.
Warren Buffett’s Berkshire Hathaway raised its stake in five Japanese trading houses this year. Is he luring foreign investors back to Japan?
Buffett has certainly helped the equity rally. When you buy into Japanese trading companies, you’re getting a large swath of the overall economy. They are generally well-diversified entities and have had pretty good valuations, too.
Where do you see opportunities in Japan?
I’ve been overweight banks such as Mitsubishi UFJ Financial Group. We’ve had a loosening of Japan’s yield-curve control policy this year that will give the government more flexibility to potentially tighten monetary policy. If you get rising interest rates, this benefits banks. Their stocks have been relatively inexpensive because rates have been zero or negative for a long time. If Japan meets its 2% inflation target on a sustainable basis, there is more chance it will begin to raise rates. We also like Japanese auto parts manufacturers such as Denso. There’s a good supply chain within Japan, and some will benefit as electric vehicles become more prominent globally.
Chipmakers are in a cyclical downturn. Why are Taiwan Semiconductor and Samsung top holdings?
When I invest in semiconductors, I look for overall industry trends and not necessarily a shorter-term cycle. Semiconductors is one area where we’ve seen a lot of demand. There is often a new upgrade cycle, whether it’s for a new phone or an artificial intelligence application, and you need a different kind of chip. You may need more memory or power. Both companies are also reasonably valued. Taiwan Semiconductor is a leading-edge foundry, and is involved in the design and manufacturing of chips for all kinds of companies.
What is your outlook for the Chinese market?
We are lightly underweight China, including Hong Kong. The regulatory crackdown in the technology sector appears to be over, but there is still, obviously, a real estate crisis, and the unemployment rate among younger people in China is just over 20%. Still, China is looking at more ways to stimulate the economy and bring measures that will help GDP. We like Chinese pharmaceutical and health care stocks, which are more defensive. We also own Hong Kong–based insurer AIA Group, which is expanding into China. Life insurance is a big theme in Asia. With greater income growth, you want a way to protect that income and your family.
India overtook China this year as the world’s most populous nation. What sectors are attractive there?
I like the financial sector, particularly banks. We own HDFC Bank, a leading private-sector bank. You could see loan growth at some banks rising at a greater rate than India’s economy. We also like consumer staples as the population continues to grow and people become even wealthier.