OpenClose
Duncan Robertson

Market Outlook

Global SMID-Cap Outlook

Outlook
14 July 2025

By

Portfolio Manager, TT Asia and TT Global-Smid Cap Strategies

Latest Global SMID-Cap economic and market outlook. 


Hero

We believe the US Dollar is still historically overvalued, even after the post-“Liberation Day” sell-off. We also see the US fiscal situation as unsustainable; the US needs to tighten its belt more than any other major economy. Meanwhile, the explosive growth in shale oil that benefited the US so materially in the recent past is unlikely to be repeated. For all these reasons, we expect US exceptionalism to fade, resulting in a weaker trade-weighted dollar and a rotation of capital out of crowded US assets. Asian equities should be amongst the biggest beneficiaries of this. Foreign ownership in the region is only about 25% and valuations appear compelling: on a CAPE basis, Asia trades at roughly a 40% discount to the S&P 500, the widest gap in a quarter-century.

With this in mind, we are comfortable remaining underweight the US, and have substantial exposure to Asian domestic demand. In India we note clean corporate balance sheets, a rebounding property cycle, rising government capex and a pro-growth RBI, all of which underpin our domestic-demand plays, including Lemon Tree, Aditya Birla Capital, Sunteck and Nuvama Wealth. Elsewhere we remain constructive on Indonesia, where US Dollar weakness should allow the central bank to cut rates and unwind the SRBI liquidity drain, benefiting banks (BSI, BNI) and developers (Pakuwon Jati). We have also been adding to the Philippines, which is extremely cheap versus its own history. 

Two exceptions to our domestic-demand bias within Asia are the AI hardware supply chain – notably Chroma, SK Square, Asia Vital Components, Elite Material and similar names – and a small basket of deeply discounted Hong Kong-listed shares, namely Crystal International and Stella International. We continue to expect generative AI to automate 15-40% of white-collar tasks, supporting multi-year demand for data-centre infrastructure. Whilst our footwear and apparel manufacturers Stella and Crystal were hit hard on trade war concerns, we maintain exposure as both have strong visibility, with their customers demanding more supply from them, not less. Finally, from a risk management perspective, we have raised cash and reduced the beta of the fund, recognising that markets have moved a long way, despite macro risks remaining elevated.

Over the quarter we bought Bengo4.com, Japan’s market leader in e-contracts. Japan is a very paper-based society, meaning penetration of e-contracts is low at around 7%. However, usage is increasing, and we see a long runway for growth, boosted by an expanding sales force. The company also offers services to find lawyers, as well as a huge library of case precedents and associated documents that are used by lawyers themselves. It has just launched an AI search engine for this database, which should make it significantly more valuable to customers and commands a substantial premium to standard services.

Another purchase was NICE, the leading cloud contact-centre software provider. We believe it is materially undervalued, trading at about 3x forward sales. This is back to pre-Covid levels and discounts only mid-single-digit revenue growth, despite the company enjoying >20% CFROA, steady margin expansion and a long on-premise-to-cloud migration runway with roughly 75% of the market still on legacy systems. If NICE sustains c.10% annual revenue growth and captures around 10% of the productivity gains early adopters attribute to generative-AI tools, our base-case valuation implies 70% upside; even a bear case of mid-single-digit growth points to a modest positive return. Competitive threats from big-tech AI entrants are real, but the company’s product quality and established CCaaS share position it well.

Elsewhere we bought Hemnet, which we regard as the clear “winner-takes-all” property portal in Sweden, commanding more than 80% of web traffic and over 90% of residential-portal revenue. Despite this dominance, it still monetises listings at roughly a 0.2% take-rate – about half the level achieved by Australia’s REA and well below estate-agent fees of 1.5-3%. Because vendors rather than agent groups pay for listings, Hemnet should enjoy strong pricing power, given that most vendors see their online presence as the most important tool for marketing their house. We therefore expect significant ARPL increases going forward, particularly with the introduction of the new “Max” tier and Hemnet’s new agent incentive structure. Despite its superior model and faster top- and bottom-line growth, Hemnet still trades broadly in line with less advantaged European classifieds peers, giving us confidence in significant re-rating potential as pricing continues to normalise.

Conversely, we sold ICON after losing confidence in the investment case. This was based on a combination of R&D budgets coming under pressure from more drugs going off patent, the new regime in the US being more anti-vaccine, and growing evidence of insourcing. Finally, we took profits in Chemring as part of efforts to consolidate our positions in Defence as the theme has had a very strong run.

Important Information:

Nothing in this document constitutes or should be treated as investment advice or an offer to buy or sell any security or other investment. TT is authorised and regulated in the United Kingdom by the Financial Conduct Authority (FCA).

If you would like information on TT’s products, please contact:

Receive our insights

Sign up to receive regular investment updates and insight about products that interest you:

Sign up now