James Carthew for Investment Week, 16 May 2022:
Most Asian funds have had a tough time recently, dragged down by their Chinese exposure.
Government intervention in a range of sectors unnerved investors, but now the country has embarked on a new phase of stringent lockdowns in a bid to maintain its zero-Covid policy. Funds dedicated to investing in China have had a torrid time, with JP Morgan China Growth and Income hit especially hard.
The Chinese government has reiterated its commitment to its zero-Covid stance, despite the obvious pain that this is inflicting on its economy and the knock-on effect to global supply chains. In that, it has become an outlier. While many other countries in the region were following a similar approach at the outset of the pandemic, for the most part, they have now vaccinated their populations and are getting on with life. Some places, such as Vietnam, have seen resurgent growth and accompanying strong stock prices. However, other markets are lagging as energy price inflation and the problems in China weigh on their economies; Japan and South Korea are obvious examples.
Of the Asia Pacific trusts, Pacific Assets has bucked the trend, helped by a significant underweight exposure to China and a corresponding overweight exposure to India. Income-focused funds have done fairly well, helped by investors embracing value stocks. The surprise may be that smaller companies trusts investing in the region lead the performance tables. Scottish Oriental Smaller Companies ranks first. It has benefited from a bias to India and Indonesia, and underweight exposure to China and technology.
Vietnam’s decision to walk away from a zero-Covid policy was a bold one, but worked out for the best as the economy re-opened. Vietnam Holding can boast one-year NAV growth in excess of 40%, for example, and peers such as Vietnam Enterprise and VinaCapital Vietnam Opportunity have made more than 20%. Despite its success, Vietnam Holding’s shares can still be acquired at a 14% discount to their underlying net asset value.
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