Setting a High Bar for Growth
Taizo Ishida hunts for fast-growing companies across Asia, looking for businesses with a competitive edge in frontier, emerging and developed markets.
Taizo has seen the exponential growth potential of Asia firsthand. He began his career more than 30 years ago in Bangladesh as an officer for the United Nations Development Program. “I was living in a rural area outside of Dhaka, the capital,” Taizo says. “Today, that same area has gone from farmland to highways and traffic jams.” He adds that Dhaka now has the worst traffic congestion in all of Asia, even beating out top contenders for bad traffic, such as Manila and Jakarta. Traffic jams aside, Taizo can appreciate the growth potential of a frontier country like Bangladesh. In a country of 160 million people, retail stores are still dominated by mom-and-pop operations, he notes, laying the groundwork for larger chains to potentially enter the market and serve consumers more efficiently.
Bangladesh represents a very different economic landscape from Japan, where Taizo grew up and went to university, but he sees loose parallels. “Japan is a model for what frontier countries such as Bangladesh can become,” Taizo says, while acknowledging that moving from a frontier to a developed economy can take generations. “Bangladesh today is a lot like Japan in the 1950s—its economy is focused on developing basic necessities, including sectors such as energy, utilities and consumer staples,” Taizo says. Bangladesh’s economic progress won’t be identical to Japan’s, but Bangladesh and other frontier markets can learn from their more economically advanced neighbors in Asia, he believes.
As lead manager of the Matthews Asia Growth Fund, a position he’s held for more than a decade, Taizo pays close attention to consumer behavior across Asia. The Matthews Asia Growth Fund has the flexibility to invest in frontier, emerging and developed markets. Accordingly, Taizo conducts fundamental security analysis in countries as varied as the frontier market of Vietnam to the developed market of Singapore. The Fund also includes emerging markets in its investable universe, such as China, India and South Korea. “I can’t predict what will happen next in China, but I can predict the behavior of the Chinese consumer,” Taizo says. Tracking consumer patterns becomes easier with the benefit of perspective. Over a 30-year career, Taizo has seen how consumers change their shopping choices as incomes grow.
Consumers in countries with low income, for example, tend to focus on basic necessities. “Prepackaged noodles can be a growth industry for a country that is just moving into the middle class,” Taizo says. As incomes grow, consumers tend to gravitate toward specialty brands. And when income rises further, consumers will buy things such as life insurance, invest in education for their children and travel more. While noodles may not sound like a cutting-edge investment opportunity, Taizo is interested in any company that can generate strong profits and high growth over the long term.
In developed markets such as Japan, Taizo is currently interested in growth sectors such as factory automation and robotics. “There is plenty of growth in Japan if you know where to look,” he says. While prices and overall inflation in Japan have remained essentially flat or unchanged for nearly a decade, Japan has generated new growth industries by exporting its sophisticated products and services to many of its neighbors across Asia. Chinese businesses buy Japanese robotics to help automate their factories. And advanced mechanics aren’t Japan’s only leading export. High-end Japanese baby products, including baby bottles with uniquely designed rubber openings that make it easier for babies to drink from, have been a hit across Asia. With 15 million babies born annually in China and 25 million in India,1 Asia is a growth market for baby products.
Taizo sets a high bar for growth. Less than 1% of companies in his investable universe meet his criteria for potential inclusion in the Matthews Asia Growth Fund. “I’m generally looking for companies that with above-average profitability—those with at least 20% return on equity,” Taizo says. “In addition, I’m looking for companies that are consistently growing their businesses by seeking out those with at least 20% profit growth.” A disciplined approach to portfolio construction has helped Taizo invest with a long-term view. “Growth companies eventually mature and we’ll sell our holdings in a company once its growth no longer meets our criteria,” Taizo says, “but we’ll keep a company in the strategy as long as its growth remains sustainable.” In addition to profits and growth, Taizo keeps a close eye on a company’s competition. “When a company has a competitive edge within its region and industry, combined with high growth and high profits, that’s the kind of business we like to invest in.”
Parameters set by the Adviser are subject to change.