Significant events during the year

On 21 July 2023 the Company announced that it had agreed terms with the board of abrdn New Dawn Investment Trust plc (“New Dawn”) in respect of a proposed combination of the assets of the Company with those of New Dawn. Shareholders were sent documentation in September explaining that this is to be effected by way of a scheme of reconstruction and winding up of New Dawn under section 110 of the Insolvency Act 1986 (the “Scheme”) and the associated transfer of the majority of the cash, assets and undertaking of New Dawn to the Company in exchange for the issue of new Ordinary shares in the Company to those New Dawn shareholders who so elect. I would like to take this opportunity to thank our shareholders for approving the Scheme proposals at the Company’s General Meeting, held on 25 October 2023 with over 99.9% of votes in favour on all resolutions.

This has paved the way for the Scheme to progress, subject to the approval of New Dawn shareholders at its second general meeting scheduled for 8 November 2023. On the basis of the current timetable, it is expected that the combination of the Company and New Dawn will take place on or around 8 November 2023. The expected benefits of the Scheme were set out in detail in the recent shareholder circular but are worth repeating here. In summary, the combination will create an enlarged vehicle with the following expected benefits to shareholders:

The amendments to the Investment Policy and to the Articles of Association described in the recent Circular have been approved. In addition, should the Scheme become effective, the level of any performance-related conditional tender offer of the Company (covering the period from 1 September 2021 to 31 August 2026) that may be triggered would be reduced in size to up to 15% of the issued share capital of the enlarged Company. Thereafter, any future five-yearly conditional tender offers triggered by underperformance would revert back to up to 25% of the prevailing issued share capital as was set in 2021. Subject to the successful completion of the combination, the Manager will be implementing changes to the portfolio to reflect this new Investment Policy

Results

Once again, rising inflation and recession risk have continued to cast a long shadow over the global economy. Asian markets have not been immune, leading to testing times for investors. In the 12 months to 31 August 2023, the MSCI AC Asia ex Japan Index fell 8.4% in sterling total return terms. The Company’s net asset value (“NAV”) fared worse, finishing down 16.7% on the same total return basis after accounting for dividends. The Company’s share price was impacted through this period of risk aversion, falling 20.9% to 353.0p per share from last year’s 446.0p. This reflected a widening of the discount to NAV to 16.2% as at the year end.

Performance

Looking at your Company’s performance over the period, the portfolio made small gains relative to its benchmark over the first few months but underperformed from the start of 2023 onwards, the key detractor being our exposure to China. Through the period, we also saw a significant style shift towards value stocks both in China and the broader Asia Pacific ex Japan region, which worked against your Company’s performance, given your manager’s long-term focus on businesses with quality characteristics.

The Manager’s Review covers the Company’s performance, portfolio activity and their views on the future in some detail. Although performance has been disappointing during the period, the Board notes that much of the underperformance during the year stemmed from the Company’s exposure to China, which has been an unusually challenging and volatile market to navigate over the period. The Manager’s Review also highlights the reasons for long-term optimism with regard to China, and that the recent market movements have created opportunities with some high-quality businesses seen trading on attractive valuations. The Board continues to have confidence in Asia’s longerterm growth story. Moreover, the combination with New Dawn is, we believe, strongly positioning the new combined Company at a critical time, for when investors start to allocate back to Asia.

Outlook

Given prevailing concerns over global growth, US monetary policy and China, it seems unlikely that investor sentiment will change significantly in the immediate future. The global growth outlook remains clouded by the impact of tightened monetary policy in the developed world, which could add to financial system vulnerabilities, dampen credit growth and weigh on confidence. Commodity prices also add another layer of uncertainty to the inflation backdrop. There are reasons to be more optimistic, however. In China, the government is clearly aware of the need to stimulate growth and there is evidence of this taking place in several sectors. This is expected to continue. Elsewhere in Asia, as companies diversify their supply chains, this is benefiting economies and stock markets including Indonesia and Vietnam. Meanwhile, India is in the initial stages of a cyclical upswing and enjoying a demographic dividend that places the country well for sustainable long -term growth. Restructuring and reform are starting to take root as well. Adding to this, most Asian countries only have low levels of borrowings, corporate earnings are forecast to grow in 2024 after a subdued 2023 and market corrections have created opportunities to invest in high quality companies at relatively attractive valuations. The investment focus on quality companies remains undiminished. The Manager believes that good stock selection will be the major source of added value over the long term, and it is committed to its quality, bottom -up investment process based on a disciplined evaluation of companies.

Read the full statement in the annual report here.