Aberdeen Asian Smaller underperforms, blames Sri Lankan tax and Taiwan underweight

Aberdeen Asian Smaller Companies has published figures for the six months ending 31 January 2016. The MSCI AC Asia Pacific ex Japan Small Cap Index fell by 3.0% during this period with the company’s net asset value falling by 5.0%, while the share price declined by 5.7% to 730.0p (on a total return basis), reflecting a widening of the discount to NAV from 11.9% to 12.7%.

Despite challenging conditions, companies such as Multi Bintang in Indonesia and Jollibee in the Philippines have been resilient as consumers choose to buy their products and the number of consumers continues to grow. Moreover, the strength of their brands allows them to adjust their pricing strategy to account for local inflationary pressures on wages. Jollibee has seen its market capitalisation increase three-fold over the past five years to become one of the largest stocks held in the portfolio. It has a nationwide franchise of almost 1,000 stores, successfully maintaining its market-leading position over McDonald’s and KFC as the favourite fast-food restaurant of a 100 million-strong population. Similarly, Multi Bintang serves a growing population of 250 million consumers, boasting a portfolio of market-leading beer brands, both domestic and international, that captures consumers at numerous points across the price spectrum. While Multi Bintang’s share price has been on an overall uptrend, it is inherently more volatile than Jollibee, given that taxes and regulations on alcohol are frequently used for political purposes.

One of the biggest weightings is the Malaysian general insurance company LPI Capital, which has benefited over the years by maintaining its market strength against a backdrop of a growing population and increasing wealth. Ahead of upcoming market liberalisation, LPI has been strengthening its distribution channels, improving its service quality and maintaining its combined ratio through its experience in managing claims. Elsewhere they say, the portfolio contains companies that are just very good at what they do. Shoe-maker Kingmaker Footwear Holdings has proven its excellence in cost management and balance sheet prudence. Over the past few years, it has been moving its production facilities out of China to Vietnam and Cambodia to ensure it remains cost-competitive, while adding new customer relationships and expanding into the manufacturing of athletic shoes.

Over the period under review, performance weakness was down to positioning within two countries. The companies in which AAS is invested in Sri Lanka have been penalised for being among the most profitable domestic companies. A one-off retrospective super gains tax was imposed as part of the government’s measures to reduce the widening budget deficit and combat slower growth. The Trust’s underweight to Taiwan was a further drag on performance, given that the market outperformed the wider region.

AAS : Aberdeen Asian Smaller underperforms, blames Sri Lankan tax and Taiwan underweight