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Invesco Asia hires new co-manager as it reflects on a tough six months

Invesco Asia hires new co-manager as it reflects on a tough six months – Invesco Asia (IAT) has appointed Fiona Yang as co-manager of the trust alongside Ian Hargreaves, with immediate effect.

Fiona joined Invesco in August 2017 and manages Invesco’s Asian Equity Income Fund while covering the entire Asia ex-Japan region with particular expertise in China’s equity markets. She started her career with Goldman Sachs in July 2012, initially within their graduate programme, before becoming a member of their Asian equity sales team, where she was a China product specialist. Fiona will relocate to Invesco’s Singapore office in February.

This comes as the trust announces its interim results for the six months to 31 October 2021. During the period, the trust saw its NAV fall by 5.5% and its share price fall by 4.9%. However, this was ahead of the trust’s MSCI AC Asia ex Japan benchmark which delivered a loss of 6.2%. The discount narrowed slightly from 8.2% to 7.6% over the period, trading in a range of 5.9% to 14.1% with an average of 9.3%.

Several of the biggest detractors were from China, although IAT’s underweight position compensated for this on a relative basis. Some stocks were impacted by regulatory tightening and property-related concerns and the biggest single detractor was Autohome, the leading internet content provider for autos in China and a relatively new holding for the trust. The managers said the market has been quick to discount the threat of intensifying competition.

IAT introduced an enhanced dividend policy last year by which it will pay a dividend of approximately 2% of NAV every six months, using revenue and capital reserves to supplement portfolio income when necessary. It also announced a performance conditional tender offer through which the board undertakes to effect a tender offer for up to 25% of the IAT’s issued share capital at a 2% discount to prevailing NAV per share (after deduction of tender costs) in the event that the IAT’s NAV cum-income total return performance over the five years to 30 April 2025 fails to beat the MSCI AC Asia ex Japan Index (net of withholding tax, total return in GBP) by 0.5% per annum over the five years on a cumulative basis.

Statement from the chair:

It is fairly easy to identify the issues dominating the investment outlook for Asian equities but very difficult to predict which way they will go. Not surprisingly, Covid-19 has dominated the news everywhere over the last two years. If the worst is behind us and the world is starting to return to normal then that should be positive for global equity markets including Asia. Asia is seen as having had a relatively good crisis, with lockdowns and travel restrictions keeping confirmed cases to relatively low levels. But what if their populations are still vulnerable to the latest variants, especially if levels of vaccination and vaccination efficacy are relatively low?

Covid-19 also demonstrated how dependent the world had become on just-in-time supply chain management and has led to widespread disruption of both production and transportation of key components and products. Asian companies that can help reduce this dependence will be in strong demand but there is also the risk that Western companies will turn to more locally sourced suppliers.

ESG is another area that can be seen as both a risk and opportunity for Asian companies. As a whole, ESG standards are perceived as higher amongst European and American companies than in Asia. That is one of the reasons why Asian companies typically trade at cheaper valuations and there is a risk that the gap gets wider. But there is also the opportunity for the valuation gap to narrow as Asian companies embrace ESG. The emphasis of the Glasgow COP-26 summit in November on net zero (companies and countries giving target dates by which they intend to be net zero producers of CO2) brings extra focus and clarity to all.

The recovery from 2020’s lockdowns plus the disruptions to supply chains in 2021 have led to a resurgence of inflation in the Western economies. Again this provides risks and opportunities to companies, depending upon how quickly their input costs and wage bills are rising and what ability they have to raise prices to their customers. It is interesting that there has not been much inflationary pressure within Asian countries. Perhaps that is due to them being less affected by Covid-19; it is too early to tell.

Political considerations also provide substantial risks and opportunities. That has always been true of investing in Asia, with surprise events such as missile firings, army-led coups and violent crackdowns affecting market valuations sharply at various times over the last forty years, along with the current heightened geo-political risk. One approach was to ignore politics, reckoning that such events would only have a temporary impact; but the cumulative effect has been to widen the valuation discount between Asian and Western markets. If you have a tolerance towards political risk then you would consider a widening political discount to be an investment opportunity but you would need to remember that we do not know how China’s approach to Taiwan will develop nor how stable will North Korea be, to name just two such considerations.

All of these issues and others will take time to resolve. There will be companies, sectors and countries that are winners and losers and there will probably be a wide dispersion in their stock market returns. These are certainly interesting times for an active Asian equity investor.

IAT : Invesco Asia hires new co-manager as it reflects on a tough six months

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