JPMorgan Asian outperforms again – over the year to 30th September 2019, the trust’s return on net assets was +7.9%, representing an outperformance of 5.7 percentage points over its benchmark, the MSCI AC Asia ex Japan Index, which returned +2.2% in sterling terms. The return to shareholders was +10.9%, reflecting a narrowing of the discount over the year from 12.1% to 10.0%. This continued trend of outperformance of the benchmark index for the fifth year in succession has resulted in a five year cumulative outperformance of 31.1%. This year’s dividend totalled 15.7p.
The board plans to change the name of the trust to JPMorgan Asia Growth & Income now that it is paying an enhanced dividend, partly from capital, based on 1% of the NAV each quarter.
Extract from the manager’s report
“In China, economic growth went into reverse, falling to its lowest rate since the global financial crisis of 2008 and domestic demand softened. The Chinese stock market had a dismal 2018 but recovered in early 2019. Investing in Chinese equities was challenging but the Company’s stock selection there was robust; our Chinese holdings were key contributors to the Company’s outperformance.
Leading pharmaceutical company (and China’s biggest drugs maker) Jiangsu Hengrui Medicine recovered strongly over the year, allaying broader jitters over the general outlook for corporate earnings. The stock outperformed on the back of solid results and regulatory approval for drugs it manufactures, potentially allowing them to be accessible through China’s basic medical insurance programme. China’s largest insurer Ping An Insurance rose steadily over the year as it continued to deliver solid earnings while leading real estate developer China Vanke benefitted from a positive government policy outlook for the property sector. Within the fast-moving internet space, our significant holdings in internet giants Alibaba and Tencent, both of which we consider to have high quality growth potential, and avoiding Baidu made a positive contribution to returns.
In Korea, several of our holdings disappointed. The country’s largest hypermarket operator E-Mart continued the slide as noted in the Company’s interim report earlier in the year, with its share price burdened by increasing online competition and offline weakness. We are no longer invested in the stock. Lotte Chemical fell over the year as global refinery margins remained under pressure, but we believe an earnings recovery is likely in 2020.
In Hong Kong, months of anti-government protests and city-wide shutdowns dealt a significant blow to the economy. Visitor numbers plunged and retail sales weakened, weighing heavily on the likes of real estate investment trust Link REIT and diversified conglomerate Swire Pacific. The protests had a direct and indirect impact on demand in several of Swire’s underlying businesses, which include Cathay Pacific Group. Although the short-term fundamentals are challenging for Swire, in broader terms it is benefitting from decentralisation and we remain positive on the stock.
Indian stocks in the portfolio had mixed fortunes over the year, reflecting a difficult macro environment with manufacturing, financial and real estate service sectors all hit hard. A year ago, we referenced woes in India’s financial sector, specifically its Non-Bank Finance Company (NBFC) entities, which began with the collapse of IL&FS (a large unlisted infrastructure finance company) and triggered a liquidity squeeze. NBFCs are a network of financial intermediaries that provide services akin to those of traditional banks but with less stringent regulation. These entities have been a leading source of finance for commercial vehicles, so the crisis hit the automobile sector hard. Our holding in Maruti Suzuki, which sells half of all cars sold in India performed poorly on the back of weaker sales; nevertheless, we remain comfortable with its long-term investment prospects.
Mumbai-based new generation bank IndusInd detracted from overall performance as the stock was weakened by its surprise direct exposure to select NBFCs. We continue to hold the stock as we believe in its long-term potential. Our holdings in HDFC Bank and HDFC Life made notable positive contributions to performance. Both stocks were untainted by the issues in the financial sector whilst HDFC Life rose on the back of a solid earnings outlook.
Elsewhere in the portfolio, Indonesia’s Bank Central Asia and Telkom Indonesia enhanced performance. BCA is Indonesia’s biggest lender by value, and we consider it a high-quality banking franchise, whilst Telkom enjoys a dominant market share of mobile phone subscribers in its home country.”
JAI : JPMorgan Asian outperforms again