Searching a Vast Universe for Hidden Gems
Week of 10 September 2018
Spotlight on Lydia So, CFA, Matthews Asia Portfolio Manager
Growing up in Hong Kong, Lydia So was exposed to the fast-paced world of global commerce at an early age. A vibrant port city with an open approach to trade, Hong Kong is a hub of finance and deal-making. Even as Hong Kong evolves to a new stage of greater connection with mainland China, it continues to maintain its essential character, where commerce reigns supreme.
“Amid the hustle and bustle of Hong Kong, I could see how open economies thrive,” Lydia says. “Whether it's human capital, financial capital or a large base of customers, open economies offer more opportunities for sustainable growth.” Along with her parents, Lydia moved to the U.S. in 1995, two years before the 1997 handover of the island from Britain to China.
“Looking back, it's heartening for me to see greater economic integration between Hong Kong and China,” says Lydia. “At the same time, I have mixed feelings about some of the social aspects of the transition, including friction around politics, language and identity.”
As a college student, Lydia studied economics at the University of California, Davis. “Economics is more art than science,” Lydia says, “a theoretical framework that allows for many interpretations.” While the news media interprets Asia's economic health on a daily basis, Lydia believes in looking past short-term sentiment in order to uncover the structural drivers of Asia's growth.
For the past 10 years, Lydia has served as Lead Portfolio Manager for the Matthews Asia Small Companies Strategy, a role she has held in San Francisco since the Strategy's inception. By happenstance, the Strategy launched the same day that Lehman Brothers declared bankruptcy on September 15, 2008. “It was quite a chaotic time for global markets,” Lydia says, “but we firmly believed in the investment thesis behind the Strategy and launched it with a long-term view of the attractive growth potential of Asia' small companies.”
Choosing from a large universe of small companies, Lydia and her team look for businesses with the potential to steadily grow earnings and increase their share prices over time. To meet these goals, the portfolio management team tends to favor small companies whose business models offer both predictability and visibility, she notes. Through a bottom-up stock selection process, sectors that the team currently likes include information technology, health care (including biotech) and consumer discretionary.
Lydia, who is fluent in Cantonese and conversant in Mandarin, cites the importance of conducting on-the-ground research when researching small companies in Asia. Many of Lydia's colleagues at Matthews Asia speak one or more of the region's languages, making it easier to interpret local trends.
“Whether we are looking at companies that conduct business in Korean, Hindi or Sinhalese, we can often find a colleague who speaks the local language, helping us learn more about a company's reputation with customers, suppliers and vendors,” Lydia says.
As Asia's economies continue on their trajectory of greater integration with the rest of the world, Asia's smaller companies represent an opportunity for global investors to diversify their portfolios. “We are constantly looking for hidden gems in the vast universe of Asia,” Lydia says, “those companies that can compound their growth and reward shareholders with a long-term view.”
The views and information discussed in this article are as of the date of publication, are subject to change and may not reflect the writers' current views. The views expressed represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles. It should not be assumed that any investment will be profitable or will equal the performance of any securities or any sectors mentioned herein.
The information contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation, but no representation or warranty (express or implied) is made as to the accuracy or completeness of any of this information. Matthews Asia does not accept any liability for losses either direct or consequential caused by the use of this information.