Invesco Asia has published results for the 12 months ended 30 April 2022. The trust beat its benchmark in a falling market, returning -6.7% against -12.9% for the MSCI Asia ex Japan Index. The discount widened from 8.2% to 11.9% and, therefore, the return to shareholders was -10.0%. The fund has continued to outperform since the period end. Since 30 April 2022, the NAV total return has been -0.6%, outperforming the index return of -2.2%. The share price has returned -0.2% with the discount narrowing to 11.5%.
The dividend for the period was 15.3p, up from 15.1p for the previous financial year. 6.68p of that was covered by revenue, the balance came from distributable reserves – Invesco Asia has a policy of paying an enhanced dividend.
The chairman’s statement says that performance attribution numbers show that the year’s outperformance came mainly from stock selection.
Extract from the manager’s report
Asian equity markets have trended lower from their post-pandemic peak. Market weakness has been largely attributable to China-related concerns, which have more than offset positive momentum from India and south-east Asian markets that have benefited from a lifting of Covid-19 restrictions and vaccination programmes being rolled out. This has seen an unusually large divergence in performance between the best and worst performing markets in our region. Stock selection has had significant positive impact on relative performance, particularly in Hong Kong/China and Indonesia, which has helped offset the impact of some of our underperformers in India and Taiwan.
The portfolio has also been well positioned for a big rotation in markets, away from expensive ‘growth’ towards ‘value’ stocks and more cyclical areas that were expected to benefit from reflation and reopening trends. This was triggered by the US Federal Reserve’s hawkish turn in early January, which led to a rapid upward adjustment in US treasury yields, and some high-profile earnings disappointments from profitless technology companies in the US.
The portfolio’s exposure to Indonesia – the best performing country in the region over the period – has been a key driver of performance, with PT Bank Negara Indonesia Persero the biggest single contributor, while Astra International and Telkom Indonesia also added significant value. Indonesia is now one of our biggest overweight positions, with the economy appearing to have scope for better growth after a weak period. Indian bank ICICI Bank and conglomerate Larsen & Toubro (L&T) also outperformed notably, supported by the improved macro backdrop.
In China, wind turbine manufacturer MingYang Smart Energy made strong gains in the first half of the period, as an expected beneficiary of the authorities’ plans to reduce carbon emissions. Real-estate developers CK Asset and China Overseas Land and Investment have outperformed in a time of turbulence, with strong balance sheets leaving them well placed to gain market share from weaker developers. Other notable contributors included Pacific Basin Shipping, while Singaporean bank United Overseas Bank and QBE Insurance demonstrated a positive sensitivity to rising US rates.
Autohome was the biggest detractor, as advertising revenues slowed given the slowdown in auto sales, while competition between digital media platforms has intensified. We believe Autohome’s competitive advantages remain underappreciated, with its net cash balance sheet (over 80% of market capitalisation) and free cash flow generation additional sources of comfort. Meanwhile, Tencent Music Entertainment lowered its revenue guidance in response to increased regulation of social entertainment and live streaming, which fundamentally impacted the original investment thesis, and led us to exit.
Concerns related to collateral damage from over-leveraged Chinese property developers impacted stocks such as Ping An Insurance, A-Living Smart City Services, air-conditioning manufacturer Gree Electrical Appliances and fitted furniture designer and manufacturer Suofeiya Home Collection. We have been adding on weakness, encouraged by these companies’ relatively strong balance sheets and valuations that appear undemanding given their future growth prospects.
Other key detractors include LG, with concerns related to portfolio companies’ performance and a restructuring of stakeholders’ interests appearing to be fully priced in, with potential for a narrowing of the discount to NAV. Meanwhile, Covid-related chip and component shortages have disrupted supply chains, particularly for miniature lens manufacturer Largan Precision, although its medium-term outlook remains bright.
IAT : Invesco Asia holds up well in falling market