Aberdeen New Dawn turns performance around in ‘year of upheaval’ – Aberdeen New Dawn (ABD) has posted its annual results for the year to 30 April 2021, during which time it delivered a 48.3% share price total return and a 43.4% NAV total return. This was a significant turnaround on last year’s results which saw losses for both the share price and NAV returns. The board has announced a final dividend of 3.3p per share, making a total dividend for the year of 4.3p per share, unchanged from the previous year.
During the year under review, the company bought back 1.6 million shares, representing 1.5% of the issued share capital which were held in treasury. The discount narrowed slightly from 14% to 11.2% over the 12-month period.
At the end of the year, ABD’s borrowing facilities amounted to £40m, comprising a fixed rate loan of £20m, which matures in December 2023 (with an interest rate of 2.626%), and a £20m multi-currency revolving loan facility maturing in December 2021. An aggregate Sterling equivalent of £32.7m was drawn down at the year end and gearing (net of cash) was 7.2% as at 30 April 2021, compared to 10.3% at the start of the year.
Statement from the chairman:
As shareholders are aware, the past year was one of extraordinary upheaval. The unfolding health crisis caused by Covid-19 led to a terrible loss of life and impacted everyone, upending daily routines, disrupting business activity and economies everywhere.
Against such a backdrop, the strength of Asia Pacific equity markets was all the more remarkable. Share prices, as measured by the MSCI All Countries Asia Pacific ex Japan Index, produced a healthy total return of 35.7% over the 12-month period. Pleasingly, the Company did even better, with its net asset value (“NAV”) and share price producing total returns of 43.4% and 48.3% respectively. Comparisons with the NAV from the period before Covid-19 started affecting the markets are also positive, with NAV and share price both up by more than 30% since the end of January 2020. It is pleasing to note that the Company has built up a good long term performance record and is ahead of the benchmark over one, three and five years.
Although the impact of Covid-19 on the global economy was severe, investors became optimistic about the possibility of a speedy recovery in growth and activity. Asia was a leader in this respect, as stringent efforts to quell the virus allowed most countries in the region to re-open their economies relatively swiftly. China, for instance, was “first in and first out” after its aggressive initial lockdown, and by mid-2020 economic conditions had mostly returned to normal.
Of course, the unprecedented stimulus by governments and central banks around the world also played a vital role in the recovery of stock markets. Many central banks cut interest rates to record lows, while Asian governments introduced rounds of fiscal support, including loan-repayment deferrals, wage subsidies and direct cash transfers to lower-income households. The liquidity released from these expansionary measures eventually found its way into financial markets, lifting asset prices. Closer to Christmas, the approval of vaccines for Covid-19 provided a further boost to markets.
While Covid-19 dominated headlines around the world, markets were also affected by a number of other issues. Among these were the seemingly intractable geopolitical tensions. It had been hoped that the US-China conflict might de-escalate with the change in the US Presidency, but this has not proved to be the case. Part of the legacy of Biden’s predecessor, Donald Trump, were fresh US curbs on ownership of Chinese technology and military-linked firms. In addition, both sides imposed tit-for-tat sanctions on officials, while tempers frayed over Beijing’s imposition of a wide-reaching security law in Hong Kong, the full implications of which have still to play out.
On a brighter note, there was clear momentum on environmental issues, with more countries committing to climate change goals and lower carbon futures. Across the region, China, Japan and South Korea set long-term net-zero emission targets, while India and Singapore increased investment in renewable energy and clean-energy vehicles. Asia is well positioned for this trend, which should create opportunities for quality companies across segments, including electric cars, batteries and alternative power generation. In recognition of these structural changes, the Investment Manager has been adding several quality stocks to the portfolio that are leaders in these areas.
Another significant change at the portfolio level was a transition towards more direct holdings in China and away from the pooled China A Share fund. The Investment Manager has grown more comfortable with investing in the mainland. This stems from experience gained through work done to understand the market, due-diligence and research to assess companies, and regular engagement. With the switch, the Investment Manager is able to invest directly in some of the market’s best-quality companies, sharpening the Company’s Chinese exposure.
Outlook
More than a year on, we remain in the shadow of Covid-19. Although the situation in the West has been improving, Asia is now battling new and more virulent strains. This is evident from the previous success stories of Singapore, Taiwan and Vietnam, which have re-imposed curbs to counter fresh outbreaks. India, meanwhile, has yet to fully contain its latest wave. All of these developments may delay border re-openings and dampen economic activity, which would exacerbate the uneven recovery. Vaccinations are crucial, but supply and logistical issues mean inoculating a critical mass of populations will take time.
Beyond the pandemic, governments face the challenge of maintaining support for their economies while balancing risks of higher prices and rising debt. Fortunately, most Asian countries have solid fiscal fundamentals that provide room for further stimulus if needed. Reassurance from major central banks to continue their accommodative stances should provide further comfort. The geopolitical situation remains a perennial concern, especially US engagement with China.
While these are very real risks, it is worth remembering that Asia remains largely well-positioned. Knowledge about the virus is more advanced from a year ago. Vaccines are increasingly available. Most governments and companies should be better prepared this time round. Accordingly, the economic disruption from the new outbreaks should be less severe than before.
Looking further ahead, the factors that make Asian companies such attractive long-term investments remain intact. Themes such as technological change, digital adoption and sustainability, may have been boosted by the pandemic but are unlikely to reverse course. At the same time, the evolving aspirations of more affluent societies will fuel demand for everything, from homes and smartphones to insurance and brokerage services. The Investment Manager’s quality-focused approach should ensure that the Company’s portfolio is well-placed to capture these promising opportunities. Therefore, while there may be uncertainties in the near term, the Board believes that your Company can continue to deliver solid and sustainable returns over the long term.
ABD : Aberdeen New Dawn turns performance around in ‘year of upheaval’