Harnessing opportunities amid supply-chain diversification

  • Given the disruption caused by the pandemic, the conflict in Ukraine, and ongoing tension in U.S.—China relations, Fidelity's Xiaoting Zhao believes geopolitical tension could be an ongoing theme for the next decade or more.
  • "As a result, the need for companies to increase regional diversification in their supply chains in order to stave off potential business disruption is becoming increasingly apparent and we can already see these trends rippling throughout the global economy," says Zhao, portfolio manager of Fidelity Advisor® Emerging Asia Fund.
  • Take the smartphone industry, for instance. A small portion of personal electronics juggernaut Apple's latest iPhones will be made in India, while some components of Google's newest high-end Pixel phone reportedly could be produced in Vietnam, a nation that continues to grapple with the pandemic, highlights Zhao.
  • While he acknowledges that China is still, by far, the dominant consumer electronics manufacturer globally, it's not just smartphone production that's moving out of the country.
  • To this point, Zhao notes that Apple is producing iPads in northern Vietnam, while Microsoft shipped Xbox game consoles last year from Ho Chi Minh City, in the southeastern part of that country.
  • Elsewhere, e-commerce technology firm has been making Fire TV devices in Chennai, India. It's worth remembering that several years ago, explains Zhao, all these products were made in China.
  • In his view, one potential beneficiary of this situation could be South Korea-based Samsung Electronics, the fund's second-largest holding at the end of May.
  • "The company is a major manufacturer of memory chips and smartphones, among other products, and if supply of those items was to be restricted for any reason, Samsung could stand to benefit," says Zhao.
  • Furthermore, as a growing number of firms shift their production from China to Singapore, Thailand, and other countries in Southeast Asia, Zhao thinks these businesses will be attracted to regional lenders with strong balance sheets and access to U.S.-dollar funding.
  • He cites two Singapore banks in the portfolio as of May 31, Overseas-Chinese Banking Corporation and United Overseas Bank, as being well-positioned to capitalize on this trend.
  • For specific fund information such as standard performance and holdings, please go to the "Funds Managed" link on this page.

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