abrdn China Investment Company Limited announced final results from what has been a challenging year. NAV total return was -37.0% and share price total return was -35.5%, this compares to the MSCI China All Shares Index benchmark return of -31.5%.
The report marks the first anniversary of the company’s new mandate, shifting from investing in a wide range of emerging market funds to concentrating on Chinese equities.
The dividend per share was 3.2p, down from 17.25p from the previous year reflecting these changes to the company mandate.
The final results conclude what they describe as an incredibly challenging year as both macroeconomic and geopolitical risks weighed on returns. Despite the change in focus toward China, the company was not immune to the global rotation from growth to value which contributed to the underperformance.
Another factor in abrdn China’s poor returns, cited by management, was their lack of exposure to energy companies with energy the only sector at a market level to rise during the financial year, led by the surge in oil and gas prices.
Despite this, the board remains optimistic about attractive valuations and long-term growth prospects for Chinese companies, highlighting the performance of the portfolio and Chinese equity markets since the end of the financial year as evidence of the potential upside.
The chairman, Helen Green, commented:
”There were a number of macro geopolitical and economic factors which had a significant negative influence on the performance of Chinese equities during the financial Year- war in Ukraine, an energy crisis, soaring commodity prices and global inflation, which led to rising interest rates and fears of a worldwide recession. The ongoing tensions with the US, and the performance of the US dollar, compounded the challenges for Chinese equities. Markets continue to be extremely sensitive to any flare-ups between the two economic superpowers. Consequently, verbal sparring over Taiwan, the delisting of Chinese American Depositary Receipts (ADRs) and potential sanctions (such as the Biden administration’s block on sales of American semiconductors to China announced in October) all added to volatility in Chinese stock markets.
Locally, three major domestic factors negatively affected share prices during the Financial Year: firstly, China’s continued commitment to its zero-Covid policy, which limited the reopening of the local economy; secondly, the travails of the country’s heavily indebted real estate sector; and, thirdly, reaction to General Secretary Xi Jinping securing an unprecedented third term as China’s leader at the 20th Communist Party Congress.
The Company’s underperformance during the Financial Year should be considered against the challenging market backdrop.”
[While depressed valuations in the sector have created enthusiasm among some investors, caution may be warranted given the political volatility which creates a significant level of uncertainty. Certainly, the potential for outsized returns exist, particularly as China strives to achieve its self-sufficient, domestic demand-driven economy. However, common prosperity aspirations and other political interventions have so far outweighed fundamental performance.]
ACIC : abrdn China underperforms in challenging year