Latest trust commentary

Performance overview

• Asia ex-Japan equities rose mildly in sterling terms over the quarter. The weakness in the pound inflated returns, however, which were negative in local currency and US dollar terms.
• Concerns that strength in the US economy will keep interest rates higher for longer, combined with ongoing worries about China’s economy and property sector, had a negative impact on risk appetite.
• Taiwan, South Korea, and especially Hong Kong, were the weakest index markets, while Malaysia and India produced positive returns. Chinese stocks also rose and outperformed the benchmark index.
• The fund produced a negative return and underperformed the MSCI AC Asia ex Japan index.

Drivers of fund performance

• At the regional level, stock selection had a negative effect, largely due to weaker returns in Korea and Taiwan. Overweight exposure to Hong Kong also detracted.
• Selection was also weak at the sector level, where it weighed on performance in consumer discretionary and financials. The overweight positioning in information technology was an additional negative factor.

Outlook/positioning

• Regarding China, further targeted stimulus measures from the government could provide an element of downside protection for the economy. However, there is little evidence currently that the authorities are considering much more aggressive fiscal measures. We remain underweight China, without a significant change in relative weight over the quarter, but continue to look for bottom-up opportunities there which have upside to fair value on a medium to long-term investment horizon. We share many of the market’s concerns about the structural headwinds China faces, but there is room for the authorities to surprise positively with well co-ordinated policy support for the economy.
• We are positive on technology stocks, particularly in South Korea and Taiwan, as the technology sector approaches a potential inflection point. We continue to think the underlying structural drivers for semiconductors will remain strong in the coming years.
• While valuations look elevated in many sectors in India, we continue to see strong longer-term fundamentals in areas such as private sector banks and IT services stocks, which remain core positions in portfolios.
• After recent weakness, aggregate valuations for regional equities are back below longer-term average levels. We remain very selective in our exposure, given the continued uneven nature of the recovery, and disciplined about valuations.

Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.

The Company invests in smaller companies that may be less liquid than in larger companies and price swings may therefore be greater than investment companies that invest in larger companies.

The Company will invest solely in the companies of one country or region. This can carry more risk than investments spread over a number of countries or regions.

The Company holds investments denominated in currencies other than sterling, investors should note that exchange rates may cause the value of these investments, and the income from them, to rise or fall.

The Company may borrow money to invest in further investments, this is known as gearing. Gearing will increase returns if the value of the investments purchased increase in value by more than the cost of borrowing, or reduce returns if they fail to do so.