Highlights

• Despite the short term underperformance, the Company has outperformed the MSCI AC Asia Pacific ex Japan Index over 1, 3 and 5 years
• Our dividend for the year is expected to exceed 10.60p per share, an increase from last year, and if achieved would provide a yield of 5.4%
• New holdings have been added to the portfolio to further enhance the Company’s income-generating capacity
• Environmental, social and governance (‘ESG’) analysis is firmly embedded in the research process and reflects our belief that companies with good ESG practices will be the winners over the longer term

Market Overview

The first half of 2023 was a challenging period for investors in Asian stock markets, as the macroeconomic environment and monetary policy moves continued to influence investor sentiment significantly more than individual company performance.  

In my previous annual statement, I had highlighted three key areas of interest in the outlook: inflation, monetary policy, and China. Through this review period, we have seen how each theme proved pivotal in driving market direction. While recession risks persist in Europe and the US, owing to continued policy rate tightening, it bears noting that inflation remains lower in Asia. A positive development was a fall in the price of some key raw materials, which should help to relieve cost pressures faced by companies. As for China, optimism around a demand recovery from the country’s Covid re-opening led to an initial rise in Asian stock markets. This, however, soon gave way to weakness on the back of signs that China’s economic recovery might be stalling, although markets stabilised subsequently and traded in a narrow range.

The period was also characterised by fluctuating markets caused by uncertainty around inflation, the impact of the US Federal Reserve’s (“Fed”) long series of policy rate increases and whether a global recession could be avoided later in the year. The decision by the OPEC+ group of oil-producing countries to cut output sparked fears that this could further stoke inflation.

Performance

In this environment, over the six months to 30 June 2023, the net asset value (“NAV”) total return declined by 3.7% on a total return basis, which compares to the MSCI AC Asia Pacific ex Japan Index’s (the “Index”) decline of 2.4%. The share price ended the period at 201p, representing a discount of 12.3% to the NAV per share.

Despite the short term underperformance, the Company has outperformed the Index over 1, 3 and 5 years, underlining the benefit of the Investment Manager’s steadfast commitment to quality companies offering both capital and income growth.

Portfolio Activity

The Investment Manager took advantage of weakness in the market to add five holdings that should further enhance your Company’s income-generating capacity; Tencent, Autohome, Telstra, SITC International and Astra International.

The positions in Medibank, Kasikornbank, and Macquarie Group were sold to manage the Company’s exposure to the financial sector in the wake of the banking turmoil in the US and Europe. Stakes in Okinawa Cellular and Bank Rakyat Indonesia were divested in order to redirect the proceeds into higher yielding companies.

Revenue and Dividends

Revenue earnings per share were 6.28p for the six month period ended 3 June 2023, an increase of 20.1% compared to the first six months of the previous 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 2.50p per share in respect of the year ending 31 December 2023, with the second interim dividend payable on 25 August 2023 to shareholders on the register on 28 July 2023.

The Board is very aware of the importance of dividends to shareholders and is pleased to reiterate that, in the absence of unforeseen circumstances, the intention is to declare a total dividend exceeding 10.60p per Ordinary share in respect of the year to 31 December 2023, equating to a dividend yield of 5.4% based on the closing share price of 195.75p on 16 August 2023.

The level of the remaining two dividends for 2023 will be considered at each quarter end, at which point an announcement will be made by the Company. There are healthy revenue reserves built up by the Company that the Board will consider using as appropriate. Any decision as to whether revenue reserves will be utilised (and by how much) will be taken at the time of the declaration of the fourth interim dividend in January 2024.

This Company’s history of increasing the dividend means that it continues to be a “next generation dividend hero” as recognised by the Association of Investment Companies. It is very much our intention to continue to extend this record.

Share Capital Management

In line with the Board’s policy to buy back shares when the discount at which the Company’s shares trade exceeds 5% to the underlying NAV (exclusive of income), the Company bought back 1.1 million shares during the period to be held in treasury, at a cost of £2.3 million.

These buybacks provide an enhancement to the Company’s NAV and benefit all shareholders. The Company will continue selectively to buy back shares in the market, in normal market conditions and at the discretion of the Board.

Gearing

The Company has a £10 million fixed rate term loan and a £40 million revolving credit facility, both of which mature in March 2024. At the period end, £30.1 million of the revolving credit facility was drawn down, resulting in total borrowings of £40.1 million and gearing (net of cash) of 10.0%, compared to 8.1% at the beginning of the period.

Jersey Administrator

On 16 August 2023, we announced that the Company had appointed a new, Jersey based, regulated administrator, JTC Fund Solutions (Jersey) Limited (“JTC”) to carry out the Jersey regulatory function with effect from 15 August 2023. All investment management and fund administration functions will continue to be provided by the abrdn group through its Singapore based Asian Equity team and UK fund administration team. As a result, day-to-day investment decisions and management of the Company will not be impacted by the reorganisation. There are no changes to the management fee as a result of the reorganisation and the administration fee charged by JTC will be met by abrdn. 

Outlook

Asian markets are likely to remain volatile until there is more clarity about the strength of China’s economy. The central government will be watching economic data closely, and if the economy does not improve, we could see Beijing increase its support through targeted measures. The monetary tightening cycle in the US will also remain a significant factor. While it is likely that this tightening is close to its peak, recent comments by Fed chairman, Jerome Powell, that inflation remains too high and that he expected further tightening in the second half of the year did cause some market uncertainty in this regard. With some Asian currencies pegged to the US Dollar, any further interest rate rises will have an effect on the markets in which your Company operates.

However, despite the recent difficulties, the fundamental long-term rationale for investing in Asia remains compelling. Rising affluence is leading to growth in consumption in premium products in areas such as personal care, financial services and food and beverages. Ongoing urbanisation is driving an infrastructure boom which will benefit property developers and mortgage providers.

The Investment Manager’s focus remains on quality companies with sustainable business models, strong cash flows and access to structural growth drivers across Asia, as these support growth in both capital and shareholder returns.

Ian Cadby
Chairman
17 August 2023

Discrete performance (%)

Total return; NAV to NAV, net income reinvested, GBP. Share price total return is on a mid-to-mid basis. Dividend calculations are to reinvest as at the ex-dividend date. NAV returns based on NAVs with debt valued at fair value. Source: abrdn Investments Limited, Lipper and Morningstar. Past performance is not a guide to future results.

Dividend per share (fiscal years)

 

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.

Other important information:

An investment trust should be considered only as part of a balanced portfolio. The information contained in this document should not be considered as an offer, solicitation or investment recommendation to deal in the shares of any securities or financial instruments. It is not intended for distribution or use by any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication or use would be prohibited. Nothing herein constitutes investment, legal, tax or other advice and is not to be relied upon in making an investment or other decision. No recommendation is made, positive or otherwise, regarding individual securities mentioned. This is not an invitation to subscribe for shares and is by way of information only. Subscriptions will only be received and shares issued on the basis of the current Key Information Document (KID). These can be obtained free of charge from abrdn Investments Limited, PO Box 11020, Chelmsford, Essex, CM99 2DB or available on www.invtrusts.co.uk. Any data contained herein which is attributed to a third party (“Third Party Data”) is the property of (a) third party supplier(s) (the “Owner”) and is licensed for use by abrdn*. Third Party Data may not be copied or distributed. Third Party Data is provided “as is” and is not warranted to be accurate, complete or timely. To the extent permitted by applicable law, none of the Owner, abrdn* or any other third party (including any third party involved in providing and/or compiling Third Party Data) shall have any liability for Third Party Data or for any use made of Third Party Data. Neither the Owner nor any other third party sponsors, endorses or promotes the fund or product to which Third Party Data relates. * abrdn means the relevant

member of abrdn group, being abrdn plc together with its subsidiaries, subsidiary undertakings and associated companies (whether direct or indirect) from time to time.

The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis, should not be taken as an indication or guarantee of any future performance analysis forecast or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI” Parties) expressly disclaims all warranties (including without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages (www.msci.com).

Issued by abrdn Asia Limited, a company incorporated in Singapore with registered address at 7 Straits View #23-04, Marina One East Tower, Singapore 018936. abrdn Asia Limited is regulated by the Monetary Authority of Singapore as a Capital Markets Services Licensee under the Securities and Futures Act to conduct the regulated activities of (1) Dealing in Capital Markets Products and (2) Fund Management.