Aberdeen Asian Smaller outperforms helped by financials – Aberdeen Asian Smaller Companies says that, for the year ended 31 July 2017, its net asset value increased by 15.4% on a total return basis, ahead of the MSCI Asia Pacific ex Japan Small Cap Index’s return of 14.3%. For UK-based investors the weakness in sterling boosted investment returns. The share price rose by 16.2% to 1062.0p, while the discount narrowed to 10.9%. The Board is recommending a final dividend of 12.0p per share, an increase of 14.3% from 2016 and a special dividend of 4.0p per share (2016 no special dividend).
The manager says that, at the stock level, financial-sector holdings were at the forefront in contributing to relative performance. Making up the top-performing names were India’s City Union Bank and Thailand’s Tisco Financial. They were helped in part by prospects of higher interest rates that could result in better profit margins, but also driven by very local factors. For instance, City Union Bank benefited from Prime Minister Narendra Modi’s demonetisation policy that drove consumers holding cash to place them in bank deposits instead; and Tisco Financial was lifted by improving asset quality that outpaced that of the larger lenders. Separately, Tisco bought Standard Chartered’s Thai retail operations which will be integrated into the group. They say that the move, which they view positively, is in line with its long-term strategy.
Several portfolio holdings saw their share prices rise because they were rumoured to be, or were actual targets of mergers and acquisitions. This included MP Evans, which faced a hostile takeover. The company successfully fought off the unsolicited bid from KL Kepong, which had undervalued its plantations portfolio. They had engaged with the Boards of both parties during the offer process and welcomed the outcome, as MP Evans has shown that it has a clear strategy for growth. In addition, management has since started divesting non-core assets to improve shareholders’ returns, which have supported its share price. Indonesia’s Bank OCBC Nisp was also buoyed by market rumours about a possible takeover, which fuelled a spike in its share price at the end of 2016. In Singapore, small-cap property companies were also the subject of speculation amid a flurry of deals. In particular, property developer Bukit Sembawang was bandied about as a possible target, given its valuable and highly sought-after land bank. It also enjoyed a re-rating after a moderate relaxation of government measures lifted stocks in the real estate sector.
Other underlying holdings that did well included Millennium and Copthorne Hotels, which was boosted by good fundamentals and New Zealand’s upbeat tourism sector; as well as Pacific Basin Shipping, which is seeing a recovery in freight rates amid a rosier operating backdrop and is well positioned to capitalise on industry consolidation. They had supported its earlier rights issue that helped strengthen its balance sheet, which will allow it to pick up bargains from among distressed shipping assets.
Conversely, they missed out to an extent on the technology sector’s strong performance. This was largely because of the portfolio’s lack of exposure to the tech-heavy Taiwanese stockmarket, which did well as share prices of Apple suppliers rose ahead of the iPhone 8 launch. They remain cautious about investing in this export-oriented economy that offers a relatively narrow selection of companies, many of which lack market leadership, in terms of both technology and branding, and are subject to the pricing whims of their large global customers. However, they do have exposure to Hana Microelectronics, which benefited the portfolio as its shares gained from brighter sales prospects underpinned by a strengthening US economy.
AAS : Aberdeen Asian Smaller outperforms helped by financials