abrdn Asian Income Fund (AAIF) announced its annual results for the year ended 31 December 2023. The company saw a NAV total return of 2.5%, slightly ahead of the MSCI AC Asia Pacific ex Japan Index total return index which returned 1.6%. Shares rose 1.9%, with the discounting widening to 14% at the time of publishing.
The portfolio benefited from underweight exposure to China, in particular during the second half of the year. Growth in Asia ex-China remained attractive, and the investment manager endeavoured to harness this trend with positions in Taiwan, Singapore, and Australia, where dividend yields and distribution ratios are the highest in the region. Stock selection in Taiwan was a positive factor, while performance in Australia improved in the second half of the year due to good results from the banks held in the portfolio.
Regarding the years performance, chair Ian Cadby commented:
“During 2023, Asia-Pacific stock markets were influenced by a combination of inflation expectations, central bank decision- making, and the health of the Chinese economy following the re-opening of its international borders three years after the Covid pandemic. Investors were left wanting, with the slow pace of domestic consumption recovery in China trailing their expectations. Some bright spots in an otherwise volatile global market were found in Australia and India, as well as a rebound in technology-heavy markets such as South Korea and Taiwan.
“The rapid pace at which input prices rose around the world in prior years eased throughout 2023, due to the aggressive response from global central banks and improving supply chains. As a result, prices of key raw materials fell over the course of the year, which relieved some of the cost pressures for many companies. Broadly, inflation in the Asia-Pacific region has returned to relatively manageable levels, influenced by various market-specific factors reflecting the region’s incredibly diverse nature.
“Towards the end of the year, major central banks slowed their aggressive pace of monetary tightening to avoid disrupting economic growth but kept interest rates at higher levels than seen in recent years. The US Federal Reserve paused rate increases from July, while Asian central banks were ahead of the Federal Reserve in ending their tightening measures. From a dividend perspective, this ‘pivot’ from the US central bank is expected to be supportive for high-yielding companies, whose income characteristics become more attractive in a lower interest rate environment.
“There was continued disappointment and underperformance of the Chinese market, an exposure your company has successfully shielded itself from due to the portfolio’s natural underweight position in this market. Chinese equities started the year strongly, riding a wave of heightened optimism that followed the post-Covid re-opening. However, investor sentiment weakened once it became apparent that domestic demand remained muted while nervousness and general economic malaise became evident in the property market. Policymakers in Beijing introduced a swathe of fiscal and monetary measures throughout the year to promote domestic consumption and support real estate, but investors remained unconvinced.”
Regarding the outlook, he continued:
“After a difficult year, the road ahead for Asian equities is one of cautious optimism. Expectations are mounting for central banks to embark on an interest rate easing path, which bodes well for the region. Borrowing costs are likely to come down while equities as an asset class should benefit from lower bond yields. Broadly, valuations in Asia remain at attractive levels compared to developed markets such as the US, and corporate earnings in the region are predicted to improve from 2024 onwards. Adding to this, Asia has had the healthiest dividend growth globally.
“There are many bright opportunities outside of China, as evidenced by the Company’s diversified positioning across the region. However, the recovery potential for China remains intact. Policy remains supportive with the Chinese government steadfast in its commitment to support growth. Although the precise timing and pace of this recovery remains unclear, a significant and sustainable upturn in Chinese equities could serve as a catalyst, further elevating market sentiment across Asian markets at large.
“Benefitting from a long heritage in Asia, and with its portfolio management team based in the region, the Investment Manager has a strong record of finding those proven, quality companies that benefit from structural trends while generating healthy income and capital growth for investors. The Board remains confident this will be to the benefit of shareholders over the long term.”
AAIF : Positive return for abrdn Asian Income Fund despite challenges