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abrdn Asian Income enjoys strong performance over 2021 as it prepares for upcoming challenges

abrdn Asian Income enjoys strong performance over 2021 as it prepares for upcoming challenges – abrdn Asian Income (AAIF) has posted its final results for the year to 31 December 2021, during which time, on a total return basis, the net asset value per share rose by 11.0%, surpassing the MSCI All Countries Asia Pacific ex Japan High Dividend Yield Index’s return of 8.1% as well as the MSCI All Countries Asia Pacific ex Japan Index’s decline of 1.8%. The share price total return for the year was 5.2% which was behind that of the NAV reflecting the widening out of the discount at which the shares trade to 12.1% at year end.

Dividends

Four quarterly dividends were declared over 2021. The first three were paid at the rate of 2.25p with the fourth interim at 2.75p for the year, representing a 2.2% increase in total dividends from 9.3p to 9.5p for the year.  AAIF continues to be a “next generation dividend hero” as recognised by the Association of Investment Companies. 

In 2021 the board has again chosen to use some of the trust’s accumulated revenue reserves, which have been built up since launch, with the aim of smoothing the impact on dividend payments to shareholders. For the years ending 31 December 2022 and 2023, AAIF intends to target a total dividend of at least 9.75p per Ordinary share.

Migration to UK tax residence and change of name

In September 2021 shareholders approved proposals to, amongst other things, migrate AAIF’s tax residency to the UK and to apply for UK investment trust status. Since the year end, and as a result of these changes, it has also moved the provision of its custody services onshore to the UK from Jersey and entered into a new agreement with BNP Paribas Securities Services, London Branch that will take effect in Q2 2022. AAIF remains a Jersey incorporated entity, subject to Jersey law and regulation and the oversight of the Jersey Financial Services Commission.

Shareholders also approved the change of the trust’s name from 1 January 2022 to “abrdn Asian Income Fund Limited’ in order to align the Company’s name with the name of the Manager’s business, which has changed to abrdn plc during 2021.

Chairman’s outlook:

At the time of writing Russian troops have invaded Ukraine, resulting in a tragic loss of life and war’s concomitant effects of volatility on global stock, bond and commodity markets. The enormity of this situation together with its recency make it impossible to immediately foresee how this might impact investor returns, beyond the obvious supply chain disruption and its impact on inflation. 

Alongside the ongoing conflict in Ukraine, there are other important challenges for 2022.  Asia appears behind Europe in exiting the grip of the Covid pandemic, with the associated disruptions it has caused. Additionally, even prior to the Ukraine conflict, investor focus was drawn to the increasing risk of higher inflation globally, together with the interest rate hikes associated with that. 

However, against this complicated back-drop, there is cause for some optimism. Inflation remains moderate in most of Asia compared to the rest of the world, so there is less risk of disruptive policy moves from regional central banks.  Moreover, most governments have decided to live with Covid, which should support a gradual normalisation of economic activity. In addition, strong capex recovery helped by infrastructure spending in countries like India, also bodes well for the region.  China continues to cause investor concerns with fears that important commercial centres are being affected by Covid-19 lockdowns. However, looking at the broader context, these measures are a continuation of rolling regional lockdown policies with domestic authorities having displayed a track record of balancing mobility restrictions whilst maintaining economic activity. The good news is that Beijing can pull the necessary policy levers to sustain growth thanks to subdued inflation, as well as the fact that borrowing costs have already been cut. Also China’s policy easing – at a time of Fed tightening – could provide some support for its neighbours in Asia. Your Investment Manager’s measured view is that Beijing wants to strike a balance between regulatory control and encouraging innovation, and a heavy-handed clampdown on all private new economy sectors is unlikely.

All in all, your Board remains cautiously optimistic. I believe your Investment Manager’s long-held focus on companies with high quality balance sheets and growing levels of income will continue to prove advantageous during these testing times. Importantly, companies with solid financials and pricing power, such as those in the portfolio, will have a competitive advantage in the year ahead. Their strong balance sheets translate into more flexibility to invest in growth and less reliance on borrowing in a rising rate environment. Moreover, they can protect their profit margins by passing on cost increases and continue to generate positive cash flows, which is supportive of their ability to pay dividends to shareholders.

Longer term, Asia remains a good place for dividend-seeking investors. Business prospects are promising thanks to favourable structural trends, such as growing wealth, rising urbanisation and technological advances. Also working in Asia’s favour is the abundance of solid companies with clear earnings’ drivers, robust balance sheets and healthy cash levels. I remain sanguine that your Investment Manager will exploit these opportunities to the full and continue to deliver sustainable returns in the coming years.

AAIF : abrdn Asian Income enjoys strong performance over 2021 as it prepares for upcoming challenges

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