 31 Jan Monthly Report -
Fund managers’ report
Market and portfolio review
The recovery in Asian markets, which began in November after China made
its surprise reopening announcements, continued to gather pace into the new
year, with the Chinese stock market rising 9% in UK sterling terms in January.
Expectations that China’s reopening would boost demand for everything
from consumer electronics to travel and commodities pulled a number of
other Asian markets up with it, most notably the export-oriented markets
of Taiwan and South Korea and the commodity-heavy market of Australia.
These markets saw double-digit gains over the month, and underpinned the
benchmark MSCI AC Asia Pacific Ex Japan Index’s 6% rise in sterling terms.
The Indian market was among the weaker ones in the region in January, partly
due to investors switching to China to take advantage of the reopening of its
economy. Australian equities made a strong start to 2023 as investor sentiment
improved on encouraging inflation data and better-than-expected GDP
growth in the US.
In corporate news, Taiwan Semiconductor Manufacturing Company (TSMC)
published good fourth-quarter results during the month which showed betterthan-expected profit margins due mainly to favourable foreign exchange
rates as well as cost reductions. TSMC guided for first-half revenues in 2023
to fall, followed by some recovery in the second half. Profit margins should
be maintained, and the long-term growth target remains unchanged. Third
quarter results from Indian IT group Infosys showed sales growth which was
more resilient than expected. The company’s order book continued to grow
and management raised its forecast for revenue growth in 2023. A US$1.1 billion
share buyback, begun in December, was more than half way to completion.
In the mining sector, BHP published an operational review covering the second
half of 2022 in which it revealed that its dividend in the first half of 2023 would
C Expressed as a percentage of average daily net assets for the year ended 31 December 2021. The Ongoing Charges
Figure (OCF) is the overall cost shown as a percentage of the value of the assets of the Company. It is made up of
the Annual Management Fee and other charges. It does not include any costs associated with buying shares in the
Company or the cost of buying and selling stocks within the Company. The OCF can help you compare the annual
operating expenses of different Companies.
D With effect from 1 January 2020 the management fee was moved to a tiered basis: 0.85% of the average value of net
assets up to £350 million and 0.65% of the average value of net assets in excess of £350 million.
E Calculated using the Company’s historic net dividends and month end share price.
F
Net gearing is defined as a percentage, with net debt (total debt less cash/cash equivalents) divided by
shareholders’ funds.
G The ‘Active Share’ percentage is a measure used to describe what proportion of the Company’s holdings differ from
the benchmark index holdings.
be lowered to 86 cents. This was due to an increase in working capital, and
cash needed to fund the takeover of OZ Minerals. It also said that the cost of
mining coal and iron ore had increased, albeit offset partly by higher market
prices for iron ore. Third quarter results from Rio Tinto were good with volumes
up 20% year-on-year, although the absence of further price increases
disappointed the market. Investors remain concerned about increasing
supply-side capacity.
In the real estate sector, CapitaLand India Trust (CLINT) agreed to buy an IT
park in Bangalore through a forward purchase arrangement. It will provide
funding towards the development of the project, which includes two buildings
with a net leasable area of 1.5 million square feet. To give an idea of the
potential boost to dividends the company said that if it had completed the
acquisition on 1 January 2021 and held the interest in building through to 31
December 2021, that would have yielded expected dividends of 7.84 cents
after the acquisition.
In key portfolio activity, we introduced two new stocks. Telstra is the leading
telecommunications carrier in Australia, providing a full suite of voice, mobile,
data and internet products as well as pay-TV services. The company also
has an attractive dividend yield. Autohome is the main online destination for
automobile consumers in China. It delivers comprehensive, independent
and interactive content to automobile buyers and owners. The core business
benefits from the powerful network effect of a classifieds business.
Outlook
China remains pivotal to Asia’s economic recovery, and, with China’s fasterthan-expected reopening, we think this bodes well for the region’s prospects
in 2023. China seems to be achieving herd immunity fast, and we are seeing
economic activity gain traction. The recovery is being led by greater demand
for services, but we also hope to see a recovery in durable goods consumption,
which will support China’s economy. The central government remains focused
on supporting economic growth. The property market remains weak, but
policy support is growing, and, without ‘zero-Covid217; restrictions, we would hope
to see sales recover gradually this year.
Meanwhile, China’s reopening could boost tourism revenues in ASEAN
particularly, given the significant contribution of Chinese tourists’ dollars to
these economies. Many economies, particularly those in South-East Asia, are
still bouncing back after their post-Covid-19 reopening, which should support
earnings growth. In Singapore, we see resilient conditions and a sustained
re-opening underpinning domestic demand and corporate earnings, albeit
accompanied by rising price pressures and interest rates.
Meanwhile, valuations remain attractive. Against this backdrop, we have
positioned the portfolio to weather near-term risks, while keeping in mind longterm secular trends across Asia. Our 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
return. We continue to favour fundamental themes like consumption,
technology and green energy, which we believe will deliver good dividends for
shareholders over the long run. |
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