Latest trust commentary

Performance overview

• Pacific ex Japan markets produced positive returns in sterling terms in the first quarter of 2026. After strong gains in both January and February, markets in the region experienced a sharp sell-off in March as the US and Israel launched air strikes against Iran. Investor sentiment weakened amid the escalating conflict in the Middle East and a sharp rise in energy prices. Concerns that higher energy costs could feed through into inflation and impact growth weighed on risk appetite.
• Energy-importing countries were hardest hit amid the rise in oil prices, particularly Indonesia and the Philippines, as higher energy costs, supply-chain disruptions and increased risk aversion weighed on sentiment. Over the quarter, China was also weak and underperformed.
• Conversely, Korea was strong, despite a slump in March, as investors chased the technology sector on positive earnings momentum and interest in AI in the first two months of the quarter. Taiwan performed well on a similar theme, while Thailand produced strong returns as well and outperformed, fuelled by a surge in exports and expectations that the pro-business Bhumjaithai Party’s election victory could end years of political instability. Australia also rose and mildly outperformed the benchmark index despite the country’s central bank tightening its monetary policy.

Drivers of fund performance

• The fund produced a positive return outperformed the MSCI AC Pacific ex-Japan over the period.
• At the regional level, selection was additive, with the strongest contributions from Australia. Selection also contributed positively in China and Singapore, offsetting weak relative returns in Taiwan. The underweight exposure to China had a very positive effect.
• On a sector basis, selection was notably strong in communication services. Sector allocation was marginally supportive of performance, with the underweight to consumer discretionary having the greatest effect.

Outlook/positioning

• The closure of the Strait of Hormuz to international shipping in recent weeks presents a very serious threat to regional growth as reserves of fuel are limited and higher prices will put upward pressure on inflation, which in turn will depress disposable incomes and consumption over time. Higher inflation may in turn pressure local central banks into a more restrictive monetary stance, which could further dampen activity.
• As well as the heightened geopolitical risks over the last month, we have also recently started to see a very stark divergence in performance across markets between the perceived winners and losers from AI adoption. While more questions are being asked about the merits of all the AI investment spending, the release of more powerful AI models in recent months by the likes of Anthropic has meant markets are also starting to price in a much more dramatic wave of potential business disruption. Software and online platform companies (where we have relatively limited exposure) are under the greatest scrutiny and seeing the greatest share price pressure. However, it is unclear at present what the new, winning business models will look like, and which companies are best placed to survive and thrive with this new technology.
• In China, despite the healthy headline GDP numbers, and high-profile successes in areas such as electric-vehicle growth, the broader bottom-up growth picture on the ground feels a lot more challenging. Activity levels and pricing in the residential property market have deteriorated again recently, and the sector remains a drag on household confidence and broader consumer spending. The employment picture remains weak (particularly for younger workers) and wage growth has slowed, putting pressure on areas of discretionary spending. Although there is plenty of commentary about the need to develop domestic demand, the authorities appear to be taking a “wait-and-see” approach before committing to introducing any more stimulus. With growth in 2025 reported to have met the official 5% target, helped by strength in the export sector, there appears to be less urgency for more fiscal measures currently. The domestic economic backdrop in China therefore remains fragile and deflationary, the earnings picture is very mixed, and an export slowdown in 2026 could exacerbate deflationary forces. We remain underweight the China market, albeit partially offset by an overweight to Hong Kong.
• In Korea, further corporate governance-related reforms are anticipated that could, over time, help reduce the equity market’s valuation discount compared with global peers. We continue to see a steady flow of positive corporate announcements on this front as management teams announce their “value-up” plans in line with new legal requirements.
• With the recent correction in markets, aggregate price-to-earnings multiples for regional equities have moved back towards the middle of the longer-term trading range from previously more stretched levels. We are still well above levels reached in previous regional crises or recent market lows, so there could still be material downside if events in the Middle East deteriorate further or the oil shock is very prolonged. Along with a resolution of the current energy disruptions, market performance is also increasingly tied to AI, through semiconductor supply-chain stocks in Korea and Taiwan, and internet stocks in China. Continued momentum in AI-related capex spending globally and improvements in the monetisation outlook for these businesses remain key to the future performance of Asian equities, perhaps even more so at present than local economic developments in the region. Although technology-related earnings forecasts for 2026 look well underpinned currently, recent volatility in US-listed AI stocks shows what could happen if sentiment on the global AI-capex cycle were to moderate more decisively in 2027 or beyond.
• Turning to dividends, payout ratios remain reasonable and underlying earnings have shown some improvement, which has started to feed through into local dividends. The relatively low aggregate payout ratio for the region should, hopefully, provide some resilience in payments should there be any macro induced impact on profits. The level of sterling versus Asian currencies will continue to be a factor in the absolute level of dividends received.
• The macroeconomic backdrop for markets remains very volatile and the range of outcomes is wide, but we continue to see attractive longer-term opportunities across Asian equities, and we will look to take advantage of any material sell-off in our preferred stocks across the region to position for an eventual recovery in investor sentiment. 

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• China risk: If the fund invests in the China Interbank Bond Market via the Bond Connect or in China "A" shares via the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect or in shares listed on the STAR Board or the ChiNext, this may involve clearing and settlement, regulatory, operational and counterparty risks. If the fund invests in onshore renminbi-denominated securities, currency control decisions made by the Chinese government could affect the value of the fund's investments and could cause the fund to defer or suspend redemptions of its shares.
• Concentration risk: The Company may be concentrated in a limited number of geographical regions, industry sectors, markets and/or individual positions. This may result in large changes in the value of the company, both up or down.
• Counterparty risk: The Company may have contractual agreements with counterparties. If a counterparty is unable to fulfil their obligations, the sum that they owe to the Company may be lost in part or in whole.
• Currency risk: If the Company’s investments are denominated in currencies different to the currency of the Company’s shares, the Company may lose value as a result of movements in foreign exchange rates, otherwise known as currency rates.
• Derivatives risk: Derivatives, which are financial instruments deriving their value from an underlying asset, may be used to manage the portfolio efficiently. A derivative may not perform as expected, may create losses greater than the cost of the derivative and may result in losses to the fund.
• Emerging markets & frontier risk: Emerging markets, and especially frontier markets, generally carry greater political, legal, counterparty, operational and liquidity risk than developed markets.
• Gearing risk​: The Company may borrow money to make further investments, this is known as gearing. Gearing will increase returns if the value of the investments purchased increase by more than the cost of borrowing, or reduce returns if they fail to do so. In falling markets, the whole of the value in such investments could be lost, which would result in losses to the Company.
• Liquidity Risk: The price of shares in the Company is determined by market supply and demand, and this may be different to the net asset value of the Company. In difficult market conditions, investors may not be able to find a buyer for their shares or may not get back the amount that they originally invested. Certain investments of the Company, in particular the unquoted investments, may be less liquid and more difficult to value. In difficult market conditions, the Company may not be able to sell an investment for full value or at all and this could affect performance of the Company.
• Market risk: The value of investments can go up and down and an investor may not get back the amount initially invested.
• Operational risk​: Operational processes, including those related to the safekeeping of assets, may fail. This may result in losses to the Company.
• Performance risk: Investment objectives express an intended result but there is no guarantee that such a result will be achieved. Depending on market conditions and the macro economic environment, investment objectives may become more difficult to achieve.
• Private market valuations, and pricing frequency: Valuation of private asset investments is performed less frequently than listed securities and may be performed less frequently than the valuation of the Company itself. In addition, in times of stress it may be difficult to find appropriate prices for these investments and they may be valued on the basis of proxies or estimates. These factors mean that there may be significant changes in the net asset value of the Company which may also affect the price of shares in the Company.
• Share price risk: The price of shares in the Company is determined by market supply and demand, and this may be different to the net asset value of the Company. This means the price may be volatile, meaning the price may go up and down to a greater extent in response to changes in demand.