Half-year Financial Report

Fidelity Asian Values PLC delivered an ordinary share price total return of +15.2% and a NAV return of +10.9% for the six months to 31 Jan 2026, outperforming the MSCI AC Asia ex Japan Small Cap Index (+8.9%). Taiwan Semiconductor Manufacturing Company was the largest contributor to performance; the report also highlights portfolio positioning including underweight exposure to India and stock-selection factors in Hong Kong.

Analysis

Concentration in Taiwan-dominated foundry exposure creates a channelized winners/losers map: foundry operators and their direct equipment/materials suppliers will capture disproportionate margin upside as capacity tightness allows pricing power to stick, while regional independent foundries and OSATs that cannot secure priority tool slots will see margin compression over 3–12 months. Second-order beneficiaries include EDA/licensing vendors and advanced substrate/chemicals suppliers whose revenue is sticky once design wins convert to wafer starts; conversely, fabless peers with heavy legacy-node exposure will face cost escalation and potential reorder delays.

Key catalysts that can amplify or reverse the current trend are binary and time-staggered. In the near term (days–weeks) sentiment and liquidity flows into Taiwan/tech can create 8–15% intraperiod swings; in the medium term (3–12 months) orderbook rehypothecation, capex guidance revisions, or fresh export-control measures are the dominant risk drivers that could flip the narrative quickly. Inventory digestion from customers and a cyclical capex pause remain plausible tail risks and would compress multiples even if fundamentals stay intact.

The consensus is doing a narrow leadership trade; that framing understates dispersion across small caps in Asia ex-Japan. A disciplined rotation — trim idiosyncratic small-cap winners and redeploy into high-conviction foundry/supplier exposure while using inexpensive, short-dated protection on Taiwan beta — offers asymmetric upside with controlled downside. Position sizing should anticipate headline volatility and geopolitical skews: use option structures and relative-value pairs to capture secular secularization of foundry economics without leaving the portfolio exposed to a single macro shock.

Key Decisions for Investors

• Initiate a 0.75% net-long position in TSM (TSM) via a 6–12 month call spread (buy 6–12m 30–45% OTM call, sell a higher strike 40–60% OTM). Target asymmetric payoff: aim for 25–50% return on capital if foundry pricing persists; cap premium outlay and limit loss to initial premium (~100% of premium).
• Pair trade: long advanced-equipment exposure (buy ASML or LRCX 3–9m) vs short EM small-cap ETF (short EEMS) sized 1:1 notional to express rotation from liquidity-driven small-cap leadership into durable capex beneficiaries. Timeframe 3–9 months; expect 15–30% relative outperformance, cut if long leg falls 10% or if short leg rallies >15%.
• Buy 3–6 month tail protection: purchase puts on iShares MSCI Taiwan ETF (EWT) or 3–6m TSM puts to cap downside from geopolitical/export-control shocks. Allocate 0.25–0.5% of portfolio to keep hedges cheap while materially reducing portfolio drawdown risk.
• Rebalance: trim 20–30% of recent small-cap winners across Asia ex-Japan and redeploy into high-quality semiconductor supply chain names and selected EDA/substrate plays over the next 4–8 weeks. This reduces vulnerability to flow reversals while keeping exposure to secular semiconductor upside.