Fund manager Kenneth Ng and his partner, John Thompson, are constantly on the road visiting companies throughout Asia, from China in the north to Indonesia in the south. The Bangkok-based fund management boutique founded by Ng and Thompson a decade ago focuses on small-cap companies that are undervalued yet have strong fundamentals — those that other investors and brokerage analysts “have yet to discover,” Ng says.

To find many of these businesses, Ng, Thompson, and other managers at NTAsset (Cayman) criss-cross the region monthly; they have made more than 1,800 visits to companies in the past decade. Those efforts have paid off: Ng’s $700 million NTAsian Discovery Fund Class A posted a 14 percent average annual return for the ten years ended September 30, almost triple the 5.43 percent the MSCI Asia ex Japan Index delivered annually over the same period. NTAsian Discovery’s double-­digit performance vaults the long-only manager to the top of the charts among Asia ex-Japan equity funds in Institutional Investor’s Asia Investment Management Awards for 2016.

“We remain optimistic over demographics and continuing improvement in discretionary income in this region and continue to see steady opportunities in well-managed companies that will be able to generate outsized returns despite the highly competitive markets and cheap funding that is available,” Ng says. The key to NTAsian Discovery’s success is finding “strong-balance-sheet companies that can grow using internally generated cash flow” and that realize a strong return on capital, he asserts.

One such company, Jakarta-listed construction ceramics maker Arwana Citramulia, delivered a whopping 2,500 percent return over the past ten years for NTAsian Discovery. Despite downward pressure on growth regionwide, Ng sees Asia regaining momentum. “We can expect to see some recovery signs after a difficult past two years and so expect to see accelerating revenue growth and widening margins in some of the companies we look at,” he says.

Ng isn’t the only leader in our ranking who shares that view. In the face of rising global uncertainty and downward pressure on growth, many Asia fund managers remain cautiously optimistic. They see rising consumption by the region’s newly minted middle-class consumers — especially in China — as a key engine of growth for Asian capital markets, driving them to outperform their peers elsewhere for some time to come.

Our ranking lists top performers throughout the region and across all major asset classes through September 30. The results are based on data provided by Morningstar that covers 26,870 Asia-focused mutual funds with combined assets under management of $1.15 trillion.

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China’s capital markets are the largest in Asia, with three major stock exchanges: Shanghai, Hong Kong, and Shenzhen. With a combined capitalization of almost $10 trillion, the country’s stock markets come second only to those in the U.S., which have a total market cap of $25 trillion.

Qiu Dongrong, a fund manager at Shanghai-based HSBC Jintrust Fund Management Co., says he’s optimistic about China’s stock markets in the year ahead. Qiu plans to use the same value investment strategy that helped his $175 million HSBC Jintrust Large Cap Equity A fund gain an annualized 29 percent for the three years ended September 30. It was the top performer among yuan-­denominated equity funds during that period.

Qiu’s performance is a feat given that China’s stock markets suffered a massive rout in the summer of 2015, dropping by almost 50 percent between July and October, forcing the government to spend as much as $300 billion to shore up collapsing prices and prevent a systemic crisis. Shares have yet to recover.

“We believe A shares, the ones that make up the CSI 300 Index, remain undervalued and have significant room for growth in the coming year,” Qiu says, referring to stocks listed on China’s two mainland exchanges. He expects continued economic restructuring in China, with more mergers of state-owned enterprises delivering financial dividends as many listed companies see less competition and rising profits. HSBC Jintrust, a joint venture between HSBC Holdings and Chinese asset manager Shanxi Trust and Investment, manages 14.8 billion yuan ($2.1 billion) in assets.

Wei Li, manager of Beijing-based Harvest Fund Management Co.’s Money Market A fund, says she’ll stay on guard in the year ahead because there’s so much uncertainty about domestic and global macroeconomic fundamentals. China faces downward growth pressures, she admits, adding that the nation’s central bank may boost liquidity and keep interest rates relatively low.

The impact of these macro issues on China’s money market funds will be significant given that many such funds make returns by investing in interbank notes. “We are keeping a close eye on the market and will focus on investing in instruments that bear the highest rates and yet at the same time present the lowest risks,” Wei says. Her caution has served her well: The 1.2 billion-yuan Money Market A Fund gained an annualized 3.5 percent for the past decade, making it the leader in China’s money market fund sector.

China has also proved important to global investment firms. Bin Shi, Hong Kong–based manager of the UBS (Lux) EF Greater China (USD) Fund at UBS Asset Management, says he has focused on buying the shares of industry leaders and holding on to them regardless of market volatility. That strategy helped Bin’s $383 million fund soar 27 percent in the 12 months through September 30 — a remarkable achievement considering the previous year’s 50 percent stock plunge. UBS (Lux) EF Greater China was the top performer among U.S. dollar–denominated funds invested in A shares.

Bin says his fund differs from its peers in several ways. “Firstly, we are benchmark-agnostic,” he says, adding that he isn’t driven by benchmark weightings. “Rather, we focus on identifying long-term winners early on in their business cycle. Secondly, we do in-depth proprietary research to estimate the fundamental value for stocks, so we don’t rely so much on sell-side research.”

Whether they head up or down, China’s stock markets will only get more exciting in the next 12 months. Regulators just launched Shenzhen–Hong Kong Stock Connect, a program that gives investors in Hong Kong and Shenzhen mutual market access. This link follows on a program bridging the Hong Kong and Shanghai exchanges that kicked off in late 2014. The newest Stock Connect program, which launched in early December, paves the way for foreign fund managers to gain much greater access to mainland-listed stocks, bypassing previous quotas that limited their participation.

Bin notes that the Shenzhen Stock Exchange plays host to many fast-­growing Chinese companies engaged in e-commerce and other new-economy sectors. “In effect, more than 70 percent of the total market value of China A shares and about 85 percent of that in Hong Kong would be open to offshore and onshore investors,” he says, pointing out that more access to Chinese equity markets increases the odds that A shares will win inclusion in MSCI’s benchmark indexes in the coming year.

Japan is home to Asia’s second-­largest capital markets. Japan Exchange Group, which controls the merged Tokyo and Osaka stock exchanges, has a market cap of $4.4 trillion. Daisuke Nakayama, Tokyo-based manager of J.P. Morgan Asset Management’s Japan fund, says the ¥76 billion ($668 million) fund has focused on a range of strategies, including investing in companies that capitalized on emerging-markets growth in the run-up to 2007, in Internet and other technology businesses between 2007 and 2012, and since then in companies benefiting from the quantitative easing implemented under Prime Minister Shinzo Abe. The fund delivered an average annual gain of 8.6 percent in the past decade, beating all equity fund rivals with assets of more than $100 million.

“With the U.S. economy continuing to grow, we expect the global economy will continue to recover,” Nakayama says. “The earnings per share of Japanese companies will be supported by the bottoming out of interest rates and the subsequent Japanese yen depreciation. While we have concerns for possible event risk, our base scenario is that Japanese equity markets will keep an upward trend, balancing risk tolerance and stability.”

Japan is famous for its real estate investment trusts. Chief among them is the Nomura J-REIT Fund, which achieved an 8.6 percent average annual return in the past decade, trouncing all competitors. Ikuya Kurikawa, Nomura Asset Management’s chief portfolio manager, says ¥19.9 billion J-REIT pulled that off by investing in undervalued properties and avoiding expensive assets priced beyond reasonable market levels. Kurikawa is confident about 2017, predicting that Japan can maintain a moderate level of growth despite pessimism among some investors.

“As for the fundamentals of the Japanese real estate market, we can see rent increases not only in urban districts of Tokyo but also in other major regional cities,” he says. “We prefer names that could provide stable rent income and dividend growth. At the same time, we pay attention to vacancy rates of holding properties and dividend yields carefully.”

India shows tremendous promise for global investors. Vinay Agarwal, manager of the $257 million First State Indian Subcontinent II Fund at First State Stewart Asia, has maintained a 12.9 percent average annual return for the past decade.

“We look for founders and management teams that have high governance standards, with whom we feel aligned as shareholders,” Agarwal says. “Typically, we like franchises that have the ability to deliver sustainable returns comfortably in excess of their cost of capital and achieve predictable growth.” The fund, which manages $257 million, takes the top spot among equity funds invested in India for the past ten years.

With the Bombay Stock Exchange and the National Stock Exchange of India, the country’s combined market cap already tops $3.2 trillion, not far behind Japan. “India has powerful long-term tailwinds, favorable demographics, and rising levels of income, which should underpin growth for the coming decades,” Agarwal says. “The quality of top management teams is second to none, and the best companies have built huge barriers to entry by competing against world-class rivals.”

The Fidelity Indonesia Y-ACC USD fund has offered investors an annualized return of 11 percent for the past decade, outstripping all rivals. Gillian Kwek, the Singapore-based portfolio manager who oversees the fund, says it has stood out by focusing on investments that cater to Indonesia’s rising middle class. Chief among its target sectors are telecommunications and consumer staples. “I remain positive on Indonesia for the coming year,” Kwek says. “The past year has seen government execution capability improve.”

One key improvement is a corporate tax amnesty that will encourage companies to repatriate earnings from abroad. As more funds return, the government will be able to invest more in infrastructure such as roads, bridges, and transit, making the economy more efficient and stimulating longer-term growth as transportation bottlenecks disappear, Kwek explains. Although valuations in Indonesia aren’t cheap, the corporate sector is expected to achieve double-digit earnings growth in 2017, she says: “That would make it one of the fastest-growing markets in Asia next year.” 

  2016 Asia Investment Management Award Winners