Schroder AsiaPacific Fund (SDP) announced its annual report for the year ended 30 September 2024. The company delivered a NAV total return of 16.5%, although this lagged the benchmark return of 17.3%. The share price produced a total return of 15.6% leading to a marginal increase in the discount which now sits at 13.4%. The company is recommending a final dividend of 12.50 pence per share for the year ended 30 September 2024, representing an increase of 4.2% over the amount paid in respect of the previous financial year for a yield of 2.2%.
The company noted that the biggest driver of relative performance was stock selection, which was significantly positive in Taiwan, the Philippines, Indonesia and Hong Kong, but negative in China, Korea and India.
Regarding the performance for the year, the manager commented:
“The strongest major sector in Asia over the period was Information Technology (IT). Here, stocks benefitted from optimism over the increasing adoption of Artificial Intelligence (AI); the knock-on demand for technology products being sold by the likes of NVIDIA; and a recovery in the supply-demand cycle across the wider sector.
“From a cyclical perspective, the excess inventory which had built up in the post-Covid period and which had been a major overhang on IT stocks (as well as other exporters of manufactured goods) throughout much of the last two years, finally fell to more typical levels as companies have cut prices and production to clear inventories.
“In addition to the more positive view on the inventory outlook, continued strong demand for AI chips has driven additional gains in Asian technology stocks with any exposure to that theme. This particularly helped Taiwan, the Asian market most exposed to the advanced semiconductor sector. A single Taiwanese company, Taiwan Semiconductor Manufacturing Corporation (TSMC), manufactures all of NVIDIA’s cutting-edge AI chips.
“It is, of course, still very early days when it comes to the adoption of AI applications, so it remains uncertain to what extent the vast investment being made in AI by leading technology companies can be monetised. But, for now, their demand for these highly complex products continues unabated, benefitting the Asia companies which are at the heart of the global manufacturing supply chain for advanced logic and memory semiconductors.
“After Taiwan, India was the best performing market over the period.
“India has been a beneficiary of domestic investor flows into the stock market, a trend which has particularly benefitted the small and mid-cap segments of the market. These have markedly outperformed (and now trade at a significant premium to) large caps.
“While these inflows reflect, in part, the confidence around the growth outlook for the economy over the medium-term, some areas of the market now look very stretched, in our view. The positive performance of the Indian stock market has, in recent periods, been driven more by an increase in price-to-earnings multiples than by growth in company earnings themselves, suggesting that share prices are now reflecting very optimistic assumptions about future growth and profitability. This has been accompanied by a pickup in equity issuance and placements by companies using the favourable conditions to sell stock.”
Regarding the outlook, chairman James Williams noted:
“As we look to the future, it is impossible to ignore the evolving geopolitical landscape and its potential impact on investing in the Asia Pacific region. China, the world’s second-largest economy, remains central to the region’s growth story, yet it also presents unique challenges. There has been recent positive momentum in the Chinese markets and for this to be maintained the government’s ongoing stimulus measures will need to be allocated effectively to address underlying consumer malaise and demand-side challenges to have a lasting impact. Rising tensions between China and the United States, particularly around technology, trade, and Taiwan, continue to generate uncertainty. The ongoing situation surrounding Taiwan is of particular concern, given its geopolitical significance and its critical role in global semiconductor supply chains. Any escalation in tensions could have far-reaching consequences, not only for the region but for the global economy.
“In addition, the re-election of President Trump adds another layer of complexity to the investment environment. Shifts in US foreign and trade policy, particularly in relation to China, may influence market sentiment and the regulatory framework in which companies operate.
“On the positive side, several regional elections over the past year in Taiwan, Korea, Indonesia and India have been relatively smooth, which may help alleviate some immediate political risks and foster a more stable environment. Additionally, if the USA can avoid a hard landing and, despite recent commentary, a decline in US rates leads to a weaker dollar this could lead to a reversal of recent trends such as the relative underperformance of growth stocks and the weakness in the Hong Kong market.
“As these developments unfold, the Board and our Portfolio Managers remain vigilant in monitoring the potential impacts on our portfolio.
“While uncertainties remain significant, we believe they are balanced by the region’s long-term structural growth drivers. Asia Pacific remains an engine of global growth, with robust domestic consumption, technological innovation, and an increasingly affluent population. Our focus remains on identifying high-quality companies that can navigate this evolving landscape, while positioning the portfolio to manage risk through prudent diversification and active engagement with companies.
“In closing, I would like to express my sincere gratitude to our shareholders for their continued support. Despite the geopolitical headwinds, we believe that the Company is well-positioned to capitalise on the region’s growth opportunities, while managing risks carefully. The Board remains committed to delivering sustainable, long-term value, and I look forward to the coming year with cautious optimism.”
SDP : Double digit gain for Schroder AsiaPacific
