abrdn Asia Focus says that, for the year ended 31 July 2022, it generated an NAV return of -2.0% and a share price return of -1.7%, both ahead of the -5.1% return on the MSCI Asia ex Japan Small Cap Index. The dividend was upped from 3.2p to 8.0p and this was covered by revenue 1.17x.
Nigel Cayzer is stepping down as the chairman of the company after more than 25 years. Hugh Young (who remains one of the managers of the trust), Martin Gilbert and Nigel were the first directors of the company in 1995. His statement reflects on that period and highlights that £1,000 invested in 1995 is now worth £21,052 with dividends reinvested.
Extract from the managers’ report
Asian equities fared well during the first half of the period as vaccine programmes led to an easing of lockdown restrictions and an economic recovery. However, there has been a pronounced risk-off trade in place since the turn of the year, with investors rattled by disruption to global supply chains, soaring inflation, rising interest rates and Russia’s invasion of Ukraine. This has manifested itself in investors rotating away from more expensive areas of the market − such as high-growth companies − towards value. When market conditions are as volatile and the macroeconomic backdrop as uncertain as they are currently, sticking to our investment process becomes even more important. The rigour that is central to our process has stood us in good stead this year, enabling us to deliver solid outperformance for shareholders.
Your Company benefitted from being overweight Indonesia, as the market was among the strongest in the Asian region. The Indonesian economy rebounded as the country emerged from Covid-related restrictions and commodity prices surged. Further, stock selection was good, with AKR Corporindo among the standouts after announcing consecutive record quarters for earnings. This was thanks to lower expenses and sustained strength in margins in its transmission and distribution division. The company is a beneficiary of a commodity upcycle, as it provides a boost to fuel sales and chemical-price inflation improves profitability as the company has fixed-percentage distribution margins. Medikaloka Hermina’s share price also fared well. The company is rapidly increasing its network of hospitals to meet growing demand for medical services across the country, and profits more than doubled in 2021. The stock was also supported in the latter part of the period by major Indonesian conglomerate Astra International raising its stake in the company.
Elsewhere in Southeast Asia, stock selection in Malaysia and our exposure to Vietnam further contributed to performance. In Vietnam, IT-services business FPT Corp benefitted from the continued need for corporates to transition to the cloud and adapt their systems to newer technologies. Property developer Nam Long benefitted from a period of relatively loose monetary policy as well as from a housing recovery – although inflation pressure in recent months has turned Vietnam’s central bank more cautious. Turning to North Asia, the fund’s underweight to China served us well, given the raft of headwinds facing companies there, including macro and regulatory challenges, Beijing’s zero-Covid policy and accumulated stress in the property sector. Chinese equities sold-off further this year in response to China’s temporary lockdown of major cities like Shanghai to curb the spread of Covid-19.
Hong Kong-listed dry-bulk shipper Pacific Basin, on the other hand, was among the top contributors to performance. The company continues to enjoy a period of higher profits and better earnings visibility, given tight industry supply, resulting in large dividend payouts that have significantly enhanced shareholder returns. Elsewhere, shares in M.P. Evans, which operates plantations in Indonesia, traded higher due to the sharp rise in palm-oil prices, while Indian digital-advertising business Affle rose as revenue growth continues to exceed expectations. In addition, the firm is well positioned to increase profitability in other emerging markets, as underlined by its recent acquisition in Latin America.
Your Company’s exposure elsewhere in India dragged on performance. Elevated energy and commodity prices earlier this year contributed to inflation pressure that prompted the Reserve Bank of India to embark on raising interest rates. Higher prices combined with wavering outlook for global growth weighed on shares. Towards the end of the review period, Indian equities rebounded sharply, but the fund’s underweight position relative to the comparative index proved costly. The Trust’s holding in Vijaya Diagnostic Centre sold off amid growing concerns over competition in the diagnostics sector. In our view, the market has overestimated the importance of price and underappreciated more important business drivers such as branding, trust and service quality. Godrej Agrovet also lagged and we decided to divest the position to pursue other investments with greater earnings visibility
Further, the rotation away from technology stocks impacted the Trust’s performance, with holdings in the tech-heavy markets of Taiwan and South Korea not immune from the broader sell-off in the sector globally. This included the likes of Taiwan Union Technology, Park Systems, Koh Young Technology and Douzone Bizon. Also in Taiwan, momo.com underperformed after a strong period of outperformance, as investors gravitated away from high-growth companies, despite the company reporting strong quarterly results.
Your Company’s exposure to Sri Lanka, through its holding in conglomerate John Keells, hurt performance given the country’s turbulent economic and political backdrop. This manifested itself primarily via a devaluation of the currency, as the company’s operations continue to recover from Covid-induced challenges and the share price in local currency terms has been relatively stable. Despite the undoubted challenges Sri Lanka faces, we believe there is value in John Keell’s shares and feel the company is in a comfortable enough position to continue investing in its businesses, which is likely to strengthen its competitive moat over the long-term.
AAS : abrdn Asia Focus holds up well in difficult market