Krishna Shanmuganathan

This is compared to the company’s benchmark return, the MSCI AC Asia ex-Japan Small Cap Index, of +8.0%. The company also saw its share price (total return basis) rise to +7.3%.

Asian small caps demonstrated strong performance over the 12-month review period to 31 July 2023, despite the volatility across global markets. The benchmark MSCI AC Asia Ex Japan Small Cap Index returned +8.0% in sterling terms over the review period. The company’s net asset value (“NAV”) and share price, both in total return terms, increased by 7.6% and 7.3%, respectively.

Dividends totalling 6.41p (2022 – Ordinary dividend 6.4p) have been paid, with a further special dividend of 2.25p, bringing the total distribution for the year to 8.66p (2022 – 8.0p).

Krishna Shanmuganathan, chair of abrdn Asia Focus plc commenting on the performance over the review period, said: “The outperformance of smaller companies in Asia against their large cap peers now stretches several years, with the small cap index outperforming large cap by more than 10% annually over the past 3 years, testament to the benefits of investing in this overlooked segment of the equity market.

“In addition, I am pleased to note that in the two-year period from 1 August 2021 (the date that we set the Company’s new Benchmark against the new investment policy), the NAV total return has been 6.1%, the share price total return has been 5.5% and the Benchmark return was 2.5%.

“It has been especially satisfying to see the high-quality, cash-generative small companies favoured by the investment managers fare well. This was notably the case in countries like India and Indonesia, where structural growth, huge consumer markets and rising adoption of technology led to strong performance from businesses in a variety of sectors, including banking, industrials, IT, and branded consumer products.

“While China has proved to be one of the weaker countries in terms of its performance, the Company’s investment managers have taken advantage of volatility and attractive valuations of certain high-quality smaller companies to add exposure, from a relatively low base. This was aided by the change of mandate approved by shareholders last year (which saw the removal of the limit on company size at initiation), allowing the investment managers greater flexibility in picking companies in larger markets such as China.

“Asia is more than just China and India, however, and the Company’s portfolio is highly diversified across the region, focusing on businesses with healthy balance sheets and strong growth prospects. Stock selection was strong in Korea and Taiwan, where companies involved in cutting-edge technologies and digital services benefitted from a recovery in sentiment towards the IT sector globally, supported by a wave of interest in Artificial Intelligence. Frontier markets such as Vietnam and Sri Lanka also had a pretty volatile ride due to political and economic pressures although ended the period on a much stronger footing, with some of the companies there among the portfolio’s strongest performers.

“Over the long term, the value of investing in such hand-picked smaller companies in Asia has proved their worth. £1,000 invested in abrdn Asia Focus at launch in 1995 is now worth £22,580 with dividends reinvested; and abrdn Asia Focus is one of the top five among the Association of Investment Companies (AIC)‘s ISA millionaires: a company that would have made investors over £1,000,000 had they invested their full ISA allowance from 1999 to 2023.”

Commenting on the outlook, Gabriel Sacks and Flavia Cheong, investment managers of abrdn Asia Focus plc, said: “We expect global market sentiment to remain volatile in the short term, given concerns regarding global growth, monetary policies in the US and other developed markets, as well as developments in China, where macroeconomic data remains soft.”

They added: “We continue to believe Asian small caps offer significant value. There are attractive opportunities around the structural themes of aspiration, building Asia, digital future, going green, health & wellness and tech enablers.

“Overall, we have been nimble, taking the opportunity to raise the portfolio’s earnings visibility and reduce exposure to names where this visibility is less certain. As a result, we continue to favour quality Asian small-cap companies with solid balance sheets and sustainable earnings prospects that can emerge stronger and position the portfolio well in tough times. While performance of small caps in the region can be volatile, given our in-house research capabilities, investment management focus and bottom-up analysis, we expect to deliver for our shareholders in the long run.”