Nearly two years ago we created the list of 11 best Asian stocks to buy according to hedge funds. The original article is shared below. In addition to sharing what we said about these stocks two years ago, in this article we are also going to compare the returns of hedge funds’ top 5 Asian stock picks and the remaining 6 stocks.

Asia has risen to become one of the most attractive developing regions in recent years, yet the world’s largest continent was not immune to the economic challenges brought about by the COVID-19 pandemic. In the first quarter of 2020, many Asian countries established lockdown protocols, resulting in major supply chain issues. On top of this, the strict travel ban on non-essential activities left major industries, such as tourism, airlines, hotels, and restaurants, with little to no revenue.

On the other hand, Chinese tech behemoths such as Alibaba Group Holding Limited (NYSE:BABA), Pinduoduo Inc. (NASDAQ:PDD), Sea Limited (NYSE:SE), JD.com, Inc. (NASDAQ:JD), and Baidu, Inc. (NASDAQ:BIDU) continued to thrive during the pandemic by providing e-commerce platforms to consumers on lockdown.

In this way, according to a July report from the Asian Development Bank (ADB), the economic outlook in Asia expects a growth of 7.2% in 2021, down from the 7.3% forecasted in April, due to a spike in the number of COVID-19 cases brought about by the Delta variant. At the same time, the forecast for 2022 has been raised from 5.3% to 5.4%. Despite the fact that Asian stocks have lagged since the first quarter of this year, market analysts project that the continent will continue to expand at a steady pace and have lower inflation than the US for the remainder of 2021. 

Our Methodology

In addition to Alibaba Group Holding Limited (NYSE:BABA), we also identified Pinduoduo Inc. (NASDAQ:PDD), Sea Limited (NYSE:SE), JD.com, Inc. (NASDAQ:JD), and Baidu, Inc. (NASDAQ:BIDU), semiconductor manufacturer Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and videogame and entertainment company Sony Corporation (NYSE:SNE) are among the most popular Asian stocks today. 

With this context in mind, when we were compiling our list of 10 best Asian stocks to buy now, we focused on companies basic business fundamentals and analyst ratings. In addition, we ranked the companies based on their popularity among hedge funds tracked by Insider Monkey, based on our data from 13F filings of more than 870 hedge funds. 

Why use hedge fund sentiment to choose stocks? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Having said that, let’s proceed to take a look at the best Asian stocks to buy now.

11. Toyota Motor Corporation (NYSE:TM)

Number of Hedge Fund Holders: 12

Return since September 2021: -12%

Toyota Motor Corporation (NYSE:TM) ranks eleventh on the list of 11 best Asian stocks to buy now. The Japan-based automotive manufacturer was founded in 1937. Toyota Motor Corporation (NYSE:TM) owns notable brands such as Lexus, Ranz, Hino, and Dauhatsu.

Earlier this year, Toyota Motor Corporation (NYSE:TM) purchased Lyft’s self-driving division in a deal worth $550 million. 

On March 30th, Citi analyst Arifumi Yoshida resumed coverage on Toyota Motor Corporation (NYSE:TM) with a Buy rating and a 10,900 yen ($96.17) price target.

The company has a market cap of $289.16 billion and currently offers a dividend yield of 2.53%. In the fiscal fourth quarter of 2021, Toyota Motor Corporation (NYSE: TM) reported revenue of $69.44 billion. Shares of Toyota Motor Corporation (NYSE:TM) gained 30.53% in the past twelve months and 11.83% year-to-date.

By the end of the second quarter of 2021, 12 hedge funds out of the 873 tracked by Insider Monkey held stakes in Toyota Motor Corporation (NYSE:TM) worth approximately $903 million. This is compared to 18 hedge funds in the previous quarter with a total stake value of roughly $824 million.

Just like Alibaba Group Holding Limited (NYSE:BABA), Pinduoduo Inc. (NASDAQ:PDD), Baidu, Inc. (NASDAQ:BIDU), Sea Limited (NYSE:SE), JD.com, Inc. (NASDAQ:JD), Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and Sony Corporation (NYSE:SNE), Toyota Motor Corporation (NYSE:TM) is one of the best Asian stocks to buy now.

10. 360 DigiTech, Inc. (NASDAQ:QFIN)

Number of Hedge Fund Holders: 14

Return since September 2021: -17%

Next in line is 360 DigiTech, Inc. (NASDAQ:QFIN). The China-based technology company provides its consumers with a platform that enables financial institutions to offer better and more targeted services to a wider range of customers. In 2020, the company had over 162.57 million registered users, a 20.4% increase year-over-year.

In July 2021, the Chinese Cyberspace Administration took 360 DigiTech, Inc’s 360 Jietiao app offline briefly to update the product design and provide better user data privacy protection. However, last month, the company announced that the app is being reinstated to app stores for download. 

On June 14th, the price target of 360 DigiTech, Inc. (NASDAQ:QFIN) was raised to $60 from $47 with an Overweight rating from Morgan Stanley analyst Richard Xu. The analyst believes the revenue of 360 DigiTech, Inc. (NASDAQ:QFIN) should shift toward more facilitation fees.

The company has a market cap of $3.72 billion. In the second quarter of 2021, 360 DigiTech, Inc. (NASDAQ:QFIN) reported revenue of $619.9 million, up 19.8% year-over-year. Shares of 360 DigiTech, Inc. (NASDAQ:QFIN) gained 129.27% in the past twelve months and 107.29% year-to-date.

By the end of the second quarter of 2021, 14 hedge funds out of the 873 tracked by Insider Monkey held stakes in 360 DigiTech, Inc. (NASDAQ:QFIN) worth approximately $82.3 billion. This is compared to 19 hedge funds in the previous quarter with a total stake value of around $91.92 billion.

In addition to Alibaba Group Holding Limited (NYSE:BABA), Pinduoduo Inc. (NASDAQ:PDD), Baidu, Inc. (NASDAQ:BIDU), Sea Limited (NYSE:SE), JD.com, Inc. (NASDAQ:JD), Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and Sony Corporation (NYSE:SNE), 360 DigiTech, Inc. (NASDAQ:QFIN) is one of the best Asian stocks to buy now.

9. Sony Corporation (NYSE:SNE)

Number of Hedge Fund Holders: 20

Return since September 2021: -14.4%

Multinational conglomerate firm Sony Corporation (NYSE:SNE) was founded in 1946 and is known for its game console PlayStation, as well as other popular products. On top of this, Sony also owns notable brands such as Sony Max 2, Sony Entertainment Television, and Sony AATH, among others.

In July, Sony Corporation (NYSE:SNE) acquired game development company Nixxes Software B.V.  

Also in July, Morgan Stanley analyst Masahiro Ono upgraded Sony Corporation (NYSE:SNE) to an Overweight rating from an Equal Weight rating with a 16,000 yen per share price target. Ono believes that SNE’s picture segment sales will rise in line with the robust growth of the animation industry.

The company has a market cap of $140.65 billion. In the second quarter of 2021, the revenue of Sony Corporation (NYSE:SNE) came in at $20.6 billion, beating estimates by $1.09 billion.

By the end of the second quarter of 2021, 20 hedge funds out of the 873 tracked by Insider Monkey held stakes in Sony Corporation (NYSE:SNE) worth approximately $409 million. This is compared to 27 hedge funds in the previous quarter with a total stake value of approximately $541 million.

Along with Alibaba Group Holding Limited (NYSE:BABA), Pinduoduo Inc. (NASDAQ:PDD), Baidu, Inc. (NASDAQ:BIDU), Sea Limited (NYSE:SE), JD.com, Inc. (NASDAQ:JD), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), Sony Corporation (NYSE:SNE) is one of the best Asian stocks to buy now.

8. iQIYI, Inc. (NASDAQ:IQ)

Number of Hedge Fund Holders: 27

Return since September 2021: -33.6%

iQIYI, Inc. (NASDAQ:IQ) is an online entertainment business based in China. iQIYI has more than 500 million monthly active users, and over 6 billion hours spent on its services monthly. iQIYI, Inc. (NASDAQ:IQ) ranks eighth on the list of 11 best Asian stocks to buy now.

On May 19th, CLSA analyst Elinor Leung upgraded his rating of iQIYI, Inc. (NASDAQ:IQ) to an Outperform rating from an Underperform rating with a $16.00 per share price target.

The company has a market cap of $7.26 billion. In the second quarter of 2021, iQIYI, Inc. (NASDAQ:IQ) reported an EPS of -$0.27, beating estimated by $0.06. The company reported second-quarter revenue of $1.17 billion, beating estimates by $24.30 million. Shares of iQIYI, Inc. (NASDAQ:IQ) gained 3.12% in the past one month.

By the end of the second quarter of 2021, 27 hedge funds out of the 873 tracked by Insider Monkey held stakes in iQIYI, Inc. (NASDAQ: IQ) worth roughly $1.09 billion. This is compared to 40 hedge funds in the previous quarter with a total stake value of approximately $1.36 million.

Alibaba Group Holding Limited (NYSE:BABA), Pinduoduo Inc. (NASDAQ:PDD), Baidu, Inc. (NASDAQ:BIDU), Sea Limited (NYSE:SE), JD.com, Inc. (NASDAQ:JD), Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and Sony Corporation (NYSE:SNE), are some of the best Asian stocks to buy now, just like iQIYI, Inc. (NASDAQ: IQ).

7. Coupang, Inc. (NYSE:CPNG)   

Number of Hedge Fund Holders: 33

Return since September 2021: -38.4%

Coupang, Inc. (NYSE:CPNG) ranks seventh on the list of 11 best Asian stocks to buy now. Coupang, Inc. (NYSE:CPNG) is a Korean-based e-commerce company founded in 2010. The corporation has over 14 million users and ships products to international locations. Coupang, Inc. (NYSE:CPNG) made its debut in the NYSE in March 2021 with a stock price of $63.50 per share. 

This August 26th, Daiwa upgraded Coupang, Inc. (NYSE:CPNG) to a Buy rating from an Outperform rating with a $43 price target. Analyst Thomas Kwon is becoming more constructive on Coupang’s dominance in the Korean e-commerce business.

The company has a market cap of $52.97 billion. In the second quarter of 2021, Coupang, Inc. (NYSE:CPNG) reported an EPS of -$0.13, beating estimates by $0.01 The second-quarter revenue of Coupang, Inc. (NYSE:CPNG) reported is $4.48 billion, beating estimates by $21.63 million.

By the end of the second quarter of 2021, 33 hedge funds out of the 873 tracked by Insider Monkey held stakes in Coupang, Inc. (NYSE:CPNG) worth roughly $18.0 billion. This is compared to 40 hedge funds in the previous quarter with a total stake value of around $21.6 billion.

Alibaba Group Holding Limited (NYSE:BABA), Pinduoduo Inc. (NASDAQ:PDD), Baidu, Inc. (NASDAQ:BIDU), Sea Limited (NYSE:SE), JD.com, Inc. (NASDAQ:JD), Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and Sony Corporation (NYSE:SNE), are some of the best Asian stocks to buy now, just like Coupang, Inc. (NYSE:CPNG).

6. Pinduoduo Inc. (NASDAQ:PDD)

Number of Hedge Fund Holders: 49

Return since September 2021: -19.5%

Ranking sixth on the list of 11 best Asian stocks to buy now is Pinduoduo Inc. (NASDAQ:PDD). The China-based agriculture-focused technology platform was founded in 2015. The platform was created to give its users an interactive shopping experience that connects farmers and wholesalers with consumers directly. The platform has over 725 million monthly active users.

On August 25th, BofA analyst Joyce Ju raised the price target on Pinduoduo Inc. (NASDAQ:PDD) to $148 from $143 per share and reiterated her Buy rating on the stock. Ju projects sustained growth and potential margin upside given the company’s positive Q2 results.

The company has a market cap of $125.19 billion. In the second quarter of 2021, Pinduoduo Inc. (NASDAQ:PDD) reported an EPS of $0.44, beating estimates of $0.65. Shares of Pinduoduo Inc. (NASDAQ:PDD) gained 23.29% in the past twelve months and 33.74% in the past month.

By the end of the second quarter of 2021, 49 hedge funds out of the 873 tracked by Insider Monkey held stakes in Pinduoduo Inc. (NASDAQ:PDD) worth approximately $5.27 billion. This is compared to 56 hedge funds in the previous quarter with a total stake value of around $6.29 billion.

Together with Alibaba Group Holding Limited (NYSE:BABA) Baidu, Inc. (NASDAQ:BIDU), Sea Limited (NYSE:SE), JD.com, Inc. (NASDAQ:JD), Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), and Sony Corporation (NYSE:SNE), Pinduoduo Inc. (NASDAQ:PDD) is one of the best Asian stocks to buy now.

Baillie Gifford mentioned Pinduoduo Inc. (NASDAQ:PDD) in its Q2 2021 investor letter:

“As many countries enjoy a relaxation of Covid restrictions, Mr Market is focussed on short-term beneficiaries of ‘the pleasure after the plague’. There are

interesting parallels with the Roaring 20s here, but to our minds, they extend beyond post-pandemic hedonism. Much of the new wealth created in the 1920s was patchily distributed and accompanied by a pervasive sense that the older generation had let down younger people. In 1920, John F. Carter, an irate 23-year-old wrote “the older generation had certainly pretty well ruined this world before passing it on to us. We have been forced to live in an atmosphere of ‘tomorrow we die,’ and so, naturally, we drank and were merry.”

In a similar vein, some of the greatest Growth opportunities are materialising from the companies that are shifting humankind towards more sustainable ways of consuming by driving efficiencies and eliminating surplus. Pinduoduo’s ‘farm to table’ platform is one example – cutting out huge waste in farm produce and short circuiting layers of infrastructure by matching Chinese food supply and demand through a group buying model. In a similar vein, Meituan is well on the way to developing China’s primary ‘Software as a Service’ ecosystem for food distribution which we believe has a strong chance of replacing wasteful wet markets as the primary channel for transacting in produce.

Pinduoduo’s share price pulled back following news that Chinese regulators are investigating possible anti-competitive activities by the country’s large online companies. However, Pinduoduo appears well placed to navigate such regulatory scrutiny in the long-term, helped in part by its community buying business model that benefits consumers, manufacturers and farmers alike. Its business fundamentals are stellar– the company remains the largest Chinese e-commerce platform, with over 820 million annual active users (surpassing Alibaba and JD.com), while revenue growth increased by 239% over the previous year. “

5. Baidu, Inc. (NASDAQ:BIDU)

Number of Hedge Fund Holders: 59

Return since September 2021: -8.4%

Ranking fifth on the list of 11 best Asian stocks to buy now is Baidu, Inc. (NASDAQ:BIDU). The company was founded in 2000 specializes in artificial intelligence. Some of Baidu, Inc. (NASDAQ:BIDU) brands include Baidu Baike, Baidu Wangpan, Baidu Global Business Unit, among others.

KGI Securities analysts initiated coverage on Baidu, Inc. (NASDAQ:BIDU) with a Neutral rating and a HK$190 price target.

The company has a market cap of $55.54 billion. In the second quarter of 2021, Baidu, Inc. (NASDAQ:BIDU) reported an EPS of $2.38, beating estimates by $0.32. The company’s second-quarter revenue came in at $4.84 billion, beating revenue estimates by $51.58 million. Shares of Baidu, Inc. (NASDAQ:BIDU) gained 27.99% in the last twelve months and 16.19% in the last month.

By the end of the second quarter of 2021, 59 hedge funds out of the 873 tracked by Insider Monkey held stakes in Baidu, Inc. (NASDAQ:BIDU) worth roughly $3.47 billion. This is compared to 89 hedge funds in the previous quarter with a total stake value of approximately $6.57 billion.

Horos Asset Management mentioned Baidu, Inc. (NASDAQ: BIDU) in its Q1 2021 investor letter:

“We have also fully exited our stake in Baidu, following their outstanding performance during the period and their lower relative upside potential compared to other investment alternatives, which we will discuss below.

The Chinese technology platform company Baidu has also been held in the portfolios managed by Alejandro, Miguel, and myself for several years. During this period, we have seen very high volatility in its share price, which we have taken advantage of to make significant rebalancing moves in our position (in fact, we even sold our entire position once, when we thought the stock’s upside potential was exhausted). After several years of instability, market sentiment turned very positive, putting an end to the historical advertising problems in the healthcare sector, the divestments in O2O (Online-to-Offline) businesses that continued to weigh on the company’s margins, the IPO of part of the iQiyi streaming business (which hid Baidu’s underlying cash generation capacity) and the tough competition from other industry giants such as Tencent and Alibaba, as well as the entry of new players with disruptive business models (ByteDance). At the same time, the company’s recent commitment to electric vehicles contributed even more to this change of narrative. Baidu’s share price rose almost fourfold from the March 2020 lows to all-time highs and reached a valuation where the margin of safety, in our view, was too narrow.” 

4. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)

Number of Hedge Fund Holders: 64

Return since September 2021: -5.8%

Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) ranks fourth on the list of 11 best Asian stocks to buy now. The multinational semiconductor manufacturing company was founded in 1987. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) operates over 300 manufacturing plants worldwide. The company supplies semiconductors to notable firms such as Apple Inc. (NASDAQ:AAPL), Broadcom Inc (NASDAQ:AVGO, and NVIDIA Corporation (NASDAQ:NVDA)

On July 13th, Needham analysts maintained a Buy rating on Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) and raised the price target to $138 from $135 per share.

The company has a market cap of $563.44 billion. In the second quarter of 2021, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) reported an EPS of $0.93, beating estimates by $0.01. The company’s second-quarter revenue came in at $13.32 billion, missing estimates by $5.97 million. Shares of Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) gained 47.47% in the last twelve months and 10.78% year-to-date.

By the end of the second quarter of 2021, 64 hedge funds out of the 873 tracked by Insider Monkey held stakes in Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) worth roughly $10.69 billion. This is compared to 76 hedge funds in the previous quarter with a total stake value of approximately $10.87 billion.

Wedgewood Partners mentioned Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q2 2021 investor letter:

“We initiated a new position in Taiwan Semiconductor Manufacturing, the largest contract manufacturer of logic semiconductors in the world. The Company has invested prodigious amounts of capital ($17 billion in 2020 alone and as much as $28 billion this year) over the past several years, at returns that suggest to us a very steep and sustainable competitive advantage. The Company has a very long runway to grow its business at a double-digit rate, driven by several favorable industry and company-specific trends including semiconductor architectural design changes, increasing manufacturing process complexity, and the proliferation of more logic semiconductors in more devices.

With over 50% market share, more than 3X that of its next largest competitor, Samsung, the Company dominates the contract foundry industry for logic semiconductors (source: Trendforce). Taiwan Semi has erected a formidable competitive barrier with its manufacturing capacity, as the Company carries over $150 billion in gross PPE (property, plant, and equipment) on its balance sheet. This would put the Company in the top echelons of invested tangible capital, globally. Further, the Company has committed to a multi-year, $100 billion capital investment program aimed at building out some of the only capacity capable of manufacturing leading-edge, sub 7 nanometers (nm) resolution integrated circuits. While semiconductor cycles are notoriously boom-bust, the Company has already secured enough demand to drive very high utilization rates for this new bleeding-edge capacity much earlier compared to previous capacity rollouts.

There are several reasons for higher sustained utilization this time around. First, integrated circuits have become extremely complex to manufacture. The Company has secured the majority of the precious few extreme ultraviolet (EUV) tools that enable the manufacture at resolutions that are substantially smaller than the wavelength of light. The Company has invested in and works very closely (on-site) with EUV tool makers to develop this technology. As a result, there is less available capacity from competitors as compared to previous cycles. Second, due to this complexity, chip developers are radically changing their

architectural designs, pushing more demand to the likes of Taiwan Semi that would otherwise be kept in-house. For example, one large customer, AMD, has had a lot of success taking CPU market share from Intel by architecting chips that have disaggregated several functions into smaller dies. Intel has recently launched a similar architectural change, but it will require it to utilize the Company’s sub-7nm capabilities, as Intel does not yet have an economic way to produce these nodes, in-house. Third, the overall demand for more computing power continues to grow as applications related to artificial intelligence require

this, and the availability of hardware instances via public cloud providers enables individuals to access a couple, a dozen, or even hundreds of processors at once. This is vastly different compared to the user-PC-server dynamic of previous cycles. Last, as has been widely reported, older, “trailing node” foundry capacity has been in short supply. These shortages have little to do with the Company’s leading-edge investments right now, as less than 40% of their revenues are derived from nodes larger than 28nm. However, we expect their current leading edge to eventually become “trailing-node.” As these smaller nodes proliferate over time, we expect fewer chip manufacturers will be capable of generating manufacturing yields that justify capital investment, driving up the long-term utilization and pricing power of the Company’s installed capacity.

Over the next several years, we expect Taiwan Semi to generate percentages of compounded revenue growth in the mid-teens along with higher margins and returns, driven by their scarce capacity in leading-edge logic manufacturing. Though the stock trades at a slight premium to the market, we think it is much more reasonable compared to where it traded earlier this year. In fact, the stock briefly went through a bear market earlier this year – after which we began purchasing shares. As the market might periodically serve up shares due to cycle-ending fears, we will look to add to our holding as the Company should be able to sustain superior growth and returns longer than previous cycles.”

3. JD.com, Inc. (NASDAQ:JD)

Number of Hedge Fund Holders: 76

Return since September 2021: -47.3%

Ranking third on the list of 11 best Asian stocks to buy now is China-based e-commerce giant JD.com, Inc. (NASDAQ:JD). The company first launched its platform in 1998. Today, JD.com, Inc. (NASDAQ:JD) has over 500 million active customers.

In 2020, JD.com, Inc. (NASDAQ:JD) purchased $432 million of controlling stake in Kuayue Express Group. The acquisition is critical to JD.com’s concept of same- and next-day delivery.

On September 17th, Stifel analysts Scott Devitt raised the price target of JD.com, Inc. (NASDAQ:JD) to $100 from $190 per share and kept his Buy rating on the stock. Devitt mentioned that JD is less vulnerable to regulatory risk than its Chinese competitors because its core logistics and retail businesses are less debated.

The company has a market cap of $124.98 billion. In the second quarter of 2021, JD.com, Inc. (NASDAQ:JD) reported an EPS of $0.45, beating estimates by $0.10. The company’s second-quarter revenue came in at $39.15 billion, beating estimates by $972.85 million. Shares of JD.com, Inc. (NASDAQ:JD) gained 24.09% in the last months.

By the end of the second quarter of 2021, 76 hedge funds out of the 873 tracked by Insider Monkey held stakes in JD.com, Inc. (NASDAQ:JD) worth roughly $10.69 billion. This is compared to 75 hedge funds in the previous quarter with a total stake value of approximately $11.30 billion.

Arisaig Partners mentioned JD.com, Inc. (NASDAQ:JD) in its Q2 2021 investor letter:

“JD.com, for example, continues to display impressive operating momentum, with sales on track to grow around 30% this year by our estimates. Looking longer term, this company is making a credible claim to be the dominant player in Chinese grocery ecommerce, an enormous chunk of overall consumption in China, and the last one yet to move online in a big way. We think that JD has a clear advantage over rivals here thanks to its integrated and fully self-managed logistics capabilities. Whereas an offline big box retailer might have 10-20,000 SKUs, JD offers 8 million. 90% of orders fulfilled by JD Logistics can be delivered on the same day or the next day to 500 million customers. The fact that JD has just 30 days of inventory tells us that this is a highly-optimised fulfilment chain. It is very hard to be both fast and efficient, and in order to achieve this it is necessary to know what inventory to hold in which warehouse, and when to hold it (“right place, right time, right person”), a highly information-intensive challenge. The only other retailer that comes close to being able to manage that level of complexity is Amazon, and indeed these are capabilities that are very hard to replicate, taking decades of painstaking investment, trial and error testing, and data accumulation.

Moreover, far from being some sort of ‘victim’, this company is most likely a beneficiary of tighter regulation in this sector. A recurrent message running through JD’s recent investor day was that of “deep purpose”, the objective being to create shared value for a broader ecosystem of customers, merchants and employees. As we describe in the next section on “Navigating China”, this form of alignment with the strategic objectives of the government is a very China-specific way of conceptualising ESG, and essential for all businesses that operate in this country to get right.

It has taken us many years to build up confidence on this name, and this was not a straightforward process for us. We began our due diligence on JD back in 2016 before investing in 2018. Speaking candidly, the next two years were very challenging from a behavioural investing standpoint. The stock price gyrated as the market fixated on quarterly results prints which, at face value, were mixed. Whilst the company was growing revenues and was operating cashflow positive over this period, it was also generally loss-making at a net level, having made the decision to re-invest aggressively in order to build scale and develop the world-leading logistics capabilities we mentioned above.

The fruits of these initiatives are only now becoming apparent. Despite continuing aggressive reinvestment, the power of scale leverage has been such that the company is now comfortably profitable, with operating profit of USD1.8bn over the last twelve months (a margin of 1.5%). Although hindsight is a wonderful thing, and we obviously could not be certain that today’s reality would be the eventual outcome for JD when we were assessing this a couple of years ago, we nonetheless felt that this was the most probable long-term destiny for the company. Meanwhile, the market was focussed on quarterly earnings versus ‘street’ expectations as opposed to thinking about the far greater longterm intrinsic value that would result from JD’s dogged commitment to reinvest. For this reason, we topped up our position in the company back in late 2018. As fundamentals strengthened over the course of 2019 and 2020, so followed the share price.

Fast forward to the present day, and we see once again a share price decline which appears divorced from the fundamentals. JD’s shares are down 19% year-to-date from not particularly lofty valuations. Today our in-house DCF tool, the Arisaig “Crystal Ball”, projects around 14% long-term (20-year)

returns. On a shorter-term view, the stock is trading at 15x FY23 EV/EBITDA. Both the Asia and the Global Funds have taken this opportunity to further increase our positions.

Again, returning to what is ‘knowable’ – there are close to a billion internet users in China. On average they spend c.4 hours per day online; 25% of retail spending is already online (it seems entirely plausible that the majority will be in the not-too-distant future); and China is re-inventing itself as a

domestically-focussed consumer economy with innovation and digitisation acting as catalysts (this is not speculation, it is explicit government policy). This points to a very strong likelihood that the theme of digital consumption will be one of the defining features of China’s economic development over the coming decades. The logical follow-on is that owning the best-quality, highest-growth operators in this space (in our view: JD.com, Meituan and Alibaba) absolutely must be a keystone element in our investment strategy. This is about as close as we can come in the field of investment to what is truly ‘knowable’. This seems far more relevant than any discussions on short-term factor rotations or trying to catch some fleeting bounce in beaten down old economy stocks!

All of the above is to say that for long-term investors such as us, periods such as the past six months – lagging share-prices combined with ever-strengthening fundamentals – are times of opportunity. This focus on strategy not tactics, and a capacity to suffer through share price volatility, is the essence of a behavioural discipline which we term ‘Endurance Investing’. Whilst the notions of behavioural edge and time-horizon arbitrage are quite widely known, we believe that surprisingly few investors can follow through on this approach, mainly because incentive structures and performance

measurement in our industry are so skewed towards the short-term. As we learned with JD in 2018, and as we are being reminded today, holding one’s nerve, shutting out the noise, and continuing to behave rationally during rough markets is not easy, but is precisely what we are paid to do. We are

privileged to have a base of end investors who understand all of this, and have been rock solid over the course of this year. Indeed, we have enjoyed positive inflows across all three of our strategies. This alignment with our clients is ultimately what gives us the psychological comfort that makes endurance investing possible.”