Shift to premium boosts JPMorgan Asia after NAV underperforms
JPMorgan Asia Growth & Income has published results for the year ended 30th September 2020. Over the year the NAV return was 9.3% compared with a return of 12.3% for the MSCI All Countries Asia ex Japan Index. .Fortunately, the return to shareholders was 22.3% as the discount moved from 10.0% to a premium of 0.6%. For the year ended 30th September 2020 dividends paid totalled 15.8 pence (2019: 15.7 pence).
The chairman says that “the principal reason for the company’s NAV underperformance relative to its benchmark was attributable to the portfolio’s stock selection, with a marginal shift in the bias of the portfolio towards ‘value’ stocks detracting from performance, as ‘growth’ investing continues to outperform, with the gap in returns between these investment styles now at its widest point in 25 years.”
Extract from the manager’s report
“China was one of the best performing markets, along with Taiwan, thanks to effective government interventions on COVID-19 and therefore a faster recovery in economic activity.
Our stock selection was mixed; Wuxi Biologics, a leading CRO (Contract Research Organisation), was one of the leading contributors as the pandemic significantly accelerated the Research & Development (R&D) outsourcing trend to China. Tencent was another clear winner from the pandemic. Shenzhou International, a leading textile manufacturer for clients such as Nike and Uniqlo, continued its strong run and benefitted from market consolidation. However, underweight positions in several e-commerce players such as Meituan Dianping and JD.com (a stock not held) detracted. Postal Savings Bank underperformed along with other state-owned large Chinese banks on concerns that policy makers were encouraging banks to conserve capital and support the broader economy. China Overseas Land Investment (COLI) fell, along with the Chinese property sector as a whole, as the government has been increasingly reticent to stimulate growth via the property sector and its current controlling measures are likely to remain in place.
In Taiwan, returns were boosted by the Company’s holdings in Technology stocks. TSMC, the world’s largest semiconductor manufacturer (providing chips for everything from mobile phones to electric vehicles), was among the top contributors. TSMC continued to deliver strong results whilst forecasting bullish revenues going forward, which prompted significant earnings upgrades. The company also benefitted from the announcement by US-based Intel that it was having problems with its internal manufacturing processes, leading to speculation that TSMC might see demand increase further.
Other notable contributors include SEA Ltd., South-East Asia’s leading e-commerce and gaming business. COVID-19 has driven online sales upwards and SEA gained market share from competitors that are short of capital to invest in their digital propositions. The company also reported strong growth in its Fintech platform. While competition remains fierce in e-commerce, we see multiple options in fintech businesses and a long runway for growth across this populous region.
In India, Financials continued to struggle as the macro outlook remained highly challenging. Our exposure to IndusInd Bank and HDFC Bank were among the worst detractors. Additionally, not owning Reliance Industries detracted as the stock continued to re-rate on the back of investments into its new ventures from leading global internet firms, such as Amazon buying a stake in its retail business.
In Hong Kong, months of anti-government protests were followed by the outbreak of the pandemic which hit the tourism industry hard. Diversified conglomerate Swire Pacific fell as several of its underlying businesses, which include Cathay Pacific Group, were among the worst impacted by the pandemic.
Our holdings in the Energy sector such as Thai Oil and S-Oil (Korea) detracted on oil price weakness; at its current level, the oil price is uneconomic for many oil producers.”
JAGI : Shift to premium boosts JPMorgan Asia