They believe Aberdeen Asian Income has reported that its net asset value total return fell 2.4% in sterling terms over the six months to 30 June 2015, compared with the MSCI AC Asia Pacific ex Japan Index, which returned 2.6%. Against this backdrop, the Ordinary share price total return fell by 2.1% with the premium over net asset value per Ordinary share widening slightly from 1.0% at the start of the year to 1.3% at the period end. The two interim dividends declared so far total 4p, up from 3.6p last year.
The report says the Company’s small exposure to China, which makes up almost a quarter of the Index, was the key driver of underperformance over the period, as overseas-listed Chinese stocks were buoyed by the tide of speculative retail buying in the A-share market.
The large exposure to Singapore, which underperformed its Asian peers owing to disappointing economic growth and rising cost pressures, was another detractor from relative return. The stagnating property market, which is a large Index constituent, is not expected to recover until the government relaxes its hard-hitting property cooling measures. The financial sector, which the Company is exposed to via its holdings in lenders DBS Group, Bank OCBC and United Overseas Bank, also lagged on the back of concerns over slowing loan growth. The banks’ regional exposure proved a drag, given the rising credit costs in Asia. However, all three lenders are well-capitalised, conservatively managed, and poised to benefit from rising interest rates.
Regional exposure also hampered the performance of Singapore-listed Jardine Cycle & Carriage. Its core business, Indonesian conglomerate Astra International, was weighed down by domestic macroeconomic weakness, as well as heightened competition in the vehicle distribution segment. While there are short-term challenges, Jardine Cycle & Carriage’s management has been investing for the long term – its recent acquisition of a stake in Siam City Cement will give it access to exciting markets such as Cambodia and Myanmar. They believe Jardine Cycle & Carriage is attractively valued, it offers a yield of 3.8%.
On the plus side, several holdings made good progress turning around their businesses after recent challenges. In Hong Kong, both Giordano and Texwinca posted encouraging results following the restructuring of their Chinese businesses. Giordano was lifted by robust sales growth in mainland China, Hong Kong and Taiwan, while Texwinca’s retail segment returned to profitability. Although the retail outlook remains challenging, both companies have cash generative businesses with healthy balance sheets. Texwinca’s management proposed to pay out 100% of its earnings as dividends this year, which translates to a yield of 7%, whereas Giordano continues to offer a 6% yield. Australian insurer QBE also aided performance, as the new management and board brought renewed focus to the company, restructuring its balance sheet, strengthening its capital base and divesting non-core businesses. Management remains committed to addressing the weakness in its North American business, and has flagged a potential uplift in dividends.
During the period they secured a three-year £10m facility from Scotiabank Europe, this is on top of their pre-existing £30m facility from Scotiabank (Ireland) which is due to mature in April 2017. they have drawn the new facility down in full and fixed the interest rate for three years to March 2018 at an all-in rate of 2.2175%. The Company’s total gearing at the period end amounted to the equivalent of £38m or 7.6% of the net assets.
AAIF : Aberdeen Asian Income suffers from China underweight