Why Fidelity’s Asia focus is power tools over processors

This interview was filmed 3rd June, 2026.

Much like their US counterpart, Asian markets are heavily concentrated on the biggest names in the tech game.

They may not be Nvidia or Alphabet but, as Fidelity International Investment Director Gary Monaghan notes, IT is the only MSCI sector in Asia that has outperformed the index.

“It's very much narrowly driven by quite a small subset of semiconductor stocks like TSMC, SK Hynix and Samsung, with the last two recently joining the trillion-dollar market cap club,” Monaghan explains.

“It's linked to AI infrastructure build out, data centre build outs by companies in the US like the big hyperscalers. And all of the capex pledges are filtering down the supply chain to the Asia component suppliers of that.”

However, despite these players being the “absolute dominant force” in Asian markets over the last 12 months, there are opportunities to be found in “pretty much everything ex-AI at the moment”.

“You’re looking at it saying anything ex-AI is potentially a mispriced opportunity because it's just been completely ignored,” Monaghan says.

The power tool play

Perhaps the most telling expression of Fidelity's positioning is the fund's largest holding: Techtronic Industries (HKG: 0669), a Hong Kong-listed power tools manufacturer behind brands including Ryobi and Milwaukee, which anyone who has taken a trip to Bunnings will be familiar with.

Far from just being a company that makes drills, Monaghan points to its increasing growth in areas around mega infrastructure projects and the data centre build out.

"They're developing tools specific to AI data centres, which are quite higher margin and higher average selling price tools," he explains.

"It's got incredible brands, great relationships with the distributors. It's a company that spends a lot of money on R&D.

“We're seeing that with the development of tools for data centres that I've just mentioned and it's a company that we're starting to see some margin expansion coming through, but from a market perspective, it's not AI.”

The semiconductor stranglehold

The Fidelity Asia Fund has also increased its holdings in some of the big names in Asian tech, after being underweight IT over the last 12 months.

“We've added a new position in SK Hynix and we've reduced our underweight positions in TSMC and Samsung,” Monaghan says.

“They're both stocks that we held, but in a bigger underweight than we're at today. If you weren't front and centre of the IT party and the AI party in Asia, you underperformed and being underweight hurt relative performance because it also meant everything else that you owned has underperformed the market pretty much.”

Looking at the portfolio over the last few months, he says the underweight exposure was simply getting too large.

“We needed to reign that in a bit versus the index. But also knowing that this momentum could still run somewhat for the foreseeable future.”

He adds: “The party has been rolling for a very long time and as we all know, parties must come to an end at some point. But on the whole at the moment, you can see the momentum being there.”

The broadening trade

The more interesting question for Monaghan is where the market goes from here. His base case is a gradual broadening of the rally away from semiconductors, which would breathe life back into the parts of the market that have been effectively starved of investor attention.

"The oxygen has been sucked out of all the other parts of the market if you're not AI," he says.

If Fidelity’s base case plays out, the rally could filter down to other parts of the market.

“Maybe this very hyped up expectation of the tech sector tapering off at the very least, if not stopping for a while, is positive for the broader Asia markets.

“Everything that's been ignored, if you're not Korean, if you're not Taiwanese, if you're not tech, will possibly start to get some oxygen again.

Opportunities in China

China has been deeply out of favour with global investors, but Monaghan sees a slowly improving picture.

Property prices are ticking up month-on-month in tier one and tier two cities, consumer confidence is beginning to stabilise, and China's newly announced 15th Five-Year Plan points to a significant push into industrial upgrading and automation.

“There are companies delivering what we would expect decent earnings growth that maybe, just because they're not AI, are just not being factored in by investors,” he says.

“Therefore there are some mispriced opportunities there.”

There are also signs of life in the property market, with month to month price increases coming through in tier one and tier two cities.

“That's positive for some of the real estate developers that operate in the tier one and tier two cities,” Monaghan says.

“There's also a trickle down effect from that for consumption, too. So there are signs again that there is improving consumer confidence and as that comes through, you should hopefully see the consumer sector start to catch a bid once again.”

Speed bumps in India

India presents a more nuanced picture. After years as the market darling of emerging markets, Indian equities have underperformed over the past 18 months, resulting in valuations coming back to more reasonable levels.

“Earnings expectations seem to be somewhat stabilising, which should be a positive signal, and also the government is providing various legs of support through income tax cuts, for example,” Monaghan says.

Rate cuts and income tax stimulus from the government are supportive, but Monaghan flags two near-term concerns.

First, elevated oil prices are squeezing Indian consumers, for whom fuel and food represent a significant share of disposable income.

Then there is the question of what AI means for India's IT outsourcing industry, which has long been a core pillar of the country's economic identity.

"Can an AI bot do the job of an army of technology engineers?" Monaghan asks.

"It's not just an India problem, it's a global problem too, but it's definitely something you have to factor in."

ETF

Fidelity Asia Active ETF (FASI)

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Managed Fund

Fidelity Asia Fund

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