Desmond Kinch’s latest annual shareholder letter for Overseas Asset Management’s Asian Recovery Fund is out and he continues to make a compelling case for investing in Asian equities. You are much better off reading his letter in its entirety as he provides significantly more data, context and nuance, but a few of my takeaways are included below (mostly direct excerpts with some paraphrasing; please note that any mistakes are my own):

• HK has the cheapest valuations in the region and 2024 was the first year in five years that Hong Kong equities had a positive return. Despite the long bear market, their three direct listed investments in HK (COSCO Shipping International, Value Partners Group and Swire Pacific B shares) have produced strong returns for the fund and yet remain extraordinarily undervalued. For example, Swire B shares are still trading at a ~70% discount to NAV, while COSCO Shipping International shares are only trading around the net cash on its balance sheet, which means investors are are effectively getting the operating business for free.
• Chinese equities are similarly cheap, with the market trading at a ~9.5% earnings yield versus a ~1.6% yield on 10-year Chinese government bonds (ERP of ~8% vs. a negative implied ERP on US equities). There are risks but he is sceptical of the “uninvestible” label, especially when it comes from market commentators who have never set foot in China. It is obvious that foreign investors are massively underweight HK and China equities, but they are in general not relying on the return of foreign investors to generate attractive returns in Asian markets, as they think domestic retail participation is still low and should increase significantly from here. 
• ASEAN is the region they are most overweight versus their their benchmark index. The region has been completely ignored by foreign investors and the MSCI ASEAN (US$) index is ~18% lower than it was 10 years ago. That makes no sense given the economic growth of the region and the earnings growth of the companies in which they have invested. Part of this is due to currency depreciation and part is due to a significant de-rating of equities in the region. They are primarily invested in the region through a handful of specialist managers, with a particular focus on Indonesia, Vietnam and the Philippines, which have the largest populations in the region and are also the least expensive markets in the region.
• They have reduced their exposure to India, but still think US dollar returns of at least 10% per annum can be achieved from their portfolio of businesses, even after making allowance for a couple of percent annual currency depreciation, capital gains tax accruals, and some reduction in P/Es. This will be primarily due to earnings growth – India’s GDP per capita is reaching an inflection point from where the consumption S-curve is likely to accelerate. Other advantages for the country include having one of the most advanced digital economies in the world and also being in the early stages of Indian savers investing monthly contributions in SIPs (similar to the 401(k) plans in the US).
• Overall, sentiment moves in cycles and very expensive asset classes (e.g. US equities today) often deliver poor returns over the following decade, and vice versa.  He has a chart showing how Asia ex-Japan equities are now even lower than they were at the depths of the Asian financial crisis relative to US equities. The setup for the fund is such that it is likely to provide significantly higher returns over the next 10 years than it did over the previous 10 years, given the significant de-rating we have seen in Asian equity valuations (ex-India) as well as a long period of US dollar strength, both of which are unlikely to be repeated.