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JPMorgan Asian’s dividend policy pays off

JPMorgan Asian’s dividend policy pays off – JPMorgan Asian reports that, in the year to 30th September 2017 the return on net assets was +21.5%, representing an outperformance of 2.7 percentage points over the benchmark, the MSCI AC Asia ex Japan Index, which returned +18.8% in sterling terms. The return to shareholders was +29.8%, reflecting a very welcome narrowing of the discount from 13.4% to 8.0%. The company has implemented a new dividend policy. This revised dividend policy aims to pay, in the absence of unforeseen circumstances, a regular quarterly dividend equivalent to 1% of the NAV on the last business day of each financial quarter. In respect of the quarters to 31st December 2016, 31st March 2017, 30th June 2017 and 30th September 2017 dividends of 3.1p, 3.4p, 3.6p and 3.8p respectively were declared.

Positive relative performance was primarily driven by stock selection, with positions in China and Korea being the standout contributors. In China, a number of core holdings in the information technology sector performed well over the period under review, including Alibaba, Tencent and AAC Technologies. These companies consistently delivered on earnings, and they continue to believe they are well positioned for further growth. Ping An Insurance was the top contributor at the stock level, as it benefited from intensified government scrutiny of Tier 2 players, coupled with strong growth in new business and improving underwriting standards. Elsewhere, consumer discretionary holdings such as Brilliance China Automotive and JD.com outperformed on the back of a new BMW model cycle for the former, and a positive surprise on margins and strong execution for the latter. CSPC Pharmaceutical was another notable contributor, with sales of its flagship stroke treatment, NBP, continuing to post strong growth. Finally, zero exposure to China Mobile also added to relative performance as the stock continued to lag behind the overall market.

In Korea, overweight positions in two Samsung Group companies, Samsung Electronics and Samsung BioLogics, were the primary drivers for returns. Samsung Electronics continues to benefit from the strong demand for DRAM memory chips, while maintaining its leadership position over its peers in the NAND memory market, where the underlying demand is likely to remain strong. Samsung BioLogics, a global leading player in contract manufacturing outsourcing, was listed in November 2016, and returned more than 100% over the review period. Contract manufacturing for biologics is more complex than chemical manufacturing, thereby creating higher barriers to entry. At the same time, the economies of scale enjoyed by contract manufacturers are expected to drive growth at a faster rate than its in-house alternative. Samsung BioLogics will be doubling its capacity by the fourth quarter of 2018, moving from the third largest in this sector to the largest in the world.

On the negative side, stock selection was poor in Hong Kong, with their position in CK Hutchison underperforming for a variety of reasons, including the negative impact from the weaker sterling exchange rate on its UK investments and losses from the Indonesian telecom business due to the delay in rolling out the 4G network. AIA Group, which announced a change in CEO in the first quarter, also lagged over the review period as the market has been taking a wait-and-see approach towards the new management team. At the stock level, KEPCO was the largest detractor, as the company faced multiple headwinds including higher coal prices, uncertainties over tariffs and the construction of its two nuclear plants. Other notable detractors include IMAX China and Hyundai Glovis. IMAX China disappointed on box office sales, while Hyundai Glovis underperformed mainly due to concerns over potential tighter regulation by the new government and restructuring within the Hyundai Motor Group.

They kept gearing at a low level throughout the year and actually had a small net cash position at the end of the reporting period. Their model, developed to assist with gearing decisions, has provided no clear valuation signal to raise the level of gearing and despite retaining a positive view on equities, gearing is likely to remain at low levels with Asian equities no longer trading below average valuations.

JAI : JPMorgan Asian’s dividend policy pays off

 

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