Market Overview

In the first six months of 2024, we caught glimpses of the cautious optimism around Asian equities that was referenced in my last annual statement. Pivotal themes that drove sentiment included the growing expectation that the US Federal Reserve will start to cut interest rates in the second half of 2024. In China, fresh targeted measures to support and stimulate the economy alleviated growth pressures. The Asian technology sector also strengthened, amid the rapid advance of artificial intelligence (“AI”) and related applications. There were several democratic elections across Asia during the period, including in India where the ruling Bharatiya Janata Party (“BJP”), led by Prime Minister Narendra Modi, formed a coalition government with its key allies. The new government is due to set out its budget intentions soon, which will provide some colour on the country’s economic backdrop. There were also some headwinds to markets, including uncertainty ahead of the US presidential election in November.

Performance

In this environment, over the six months to 30 June 2024, the net asset value (“NAV”) rose by 6.8% on a total return basis, which compares to the MSCI AC Asia Pacific ex Japan Index’s (the “Index”) return of 9.6%. The share price total return for the period was 6.9%, and the share price ended the period at 215p, representing a discount of 13.1% to the NAV per share. Since the end of the period the discount has narrowed to 11.1%.

The Investment Manager’s quality focused investment process relies on the knowledge network built over several decades by its team on the ground across Asia. Regular due diligence meetings with corporate management teams and business leaders have laid the groundwork to build a defensive portfolio of holdings that has delivered positive absolute returns during this period. Looking over the longer term, the Company has outperformed the Index over 3 and 5 years in both NAV and share price total return terms, generating positive absolute and relative returns for investors.

Revenue and Dividends

Revenue earnings per share were 5.73p for the six month period ended 30 June 2024, which compares to 6.28p per share for the first six months of the previous year. There were special dividends in 2023 which have not been repeated this year and some higher yielding companies have moved from paying dividends on a semi-annual to annual basis thereby spreading their dividend payments over the full year. The Company has continued to benefit from the Investment Manager’s focus on high-yielding companies with strong fundamentals, where it believes there is room for significant increases in dividend receipts.

The Company has already declared first and second interim dividends of 2.55p per share in respect of the year ending 31 December 2024, with the second interim dividend payable on 23 August 2024 to shareholders on the register on 26 July 2024.

Board Composition

During the period, the Board was pleased to announce the appointment of Jane Routledge as an independent non-executive Director of the Company, with effect from 8 May 2024.

Jane has significant marketing experience with a long career in the investment management sector. She has held a number of senior marketing positions including at Schroders, Invesco, Hermes and Seven Investment Management. She is currently a non-executive director of M&G Credit Income Investment Trust plc and Brown Advisory US Smaller Companies plc.

Outlook

The potential return of Donald Trump as US President has caused uncertainties in markets across Asia. Given Donald Trump’s actions in his previous term, investors are justifiably concerned about the risk of tariffs and a renewed trade conflict with Asia. Such measures, if implemented, would weigh on currencies, businesses, consumer sentiment, economies and risk appetite in general. However, this potential impact should be weighed against the likely boost from the expected easing of interest rates by the Federal Reserve in the latter months of 2024. While we would expect uncertainty to persist through to the election in November and beyond, we would see any potential impact from US policy and political developments as a nuanced one.

Over the longer term, we continue to view Asia as one of the most compelling regions for investors looking for growth and income potential. The region is clearly more than just China, with opportunities abounding across the broader area. Asian markets have been tarnished by investor concerns over China, but we believe this overlooks the excellent progress the broader Asian region has made in recent years in strengthening its economies, shoring up its currencies, creating employment, adopting technology and driving innovation.

More than 50% of Asian equity total returns now come from dividends and dividend growth. Companies in Asia have less geared balance sheets than their global peers and free cash flow generation cover on dividends has been increasing, both of which highlight the potential for increasing payout ratios in the region. Today, we believe little of this significant progress is priced into markets, with the MSCI Asia Pacific ex Japan Index trading on just 13xPE, compared to the S&P 500 Index on nearly 21xPE. We believe that the often overlooked dividend credentials of Asian equities will become ever more attractive, with investors increasingly recognising the income potential of some of the world’s most exciting companies.

Read the full Half Yearly Report here.

Important information

Risk factors you should consider prior to investing:

• The value of investments, and the income from them, can go down as well as up and investors may get back less than the amount invested.
• Past performance is not a guide to future results.
• Investment in the Company may not be appropriate for investors who plan to withdraw their money within 5 years.
• The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that any movement in the value of the company’s assets will result in a magnified movement in the NAV.
• The Company may accumulate investment positions which represent more than normal trading volumes which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares.
• The Company may charge expenses to capital which may erode the capital value of the investment.
• Movements in exchange rates will impact on both the level of income received and the capital value of your investment.
• There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value.
• As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.
• The Company invests in emerging markets which tend to be more volatile than mature markets and the value of your investment could move sharply up or down.
• Yields are estimated figures and may fluctuate, there are no guarantees that future dividends will match or exceed historic dividends and certain investors may be subject to further tax on dividends.
• Derivatives may be used, subject to restrictions set out for the Company, in order to manage risk and generate income. The market in derivatives can be volatile and there is a higher than average risk of loss.

Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG, authorised and regulated by the Financial Conduct Authority in the UK.

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