James Will

Over the six month period, the Trust delivered a strong net asset value (NAV) total return of 23.9% in sterling terms, outpacing the 18.0% increase in the benchmark, the MSCI AC Asia Pacific (ex Japan) Index (sterling adjusted) total return.

The fund’s longer-term performance is competitive. The company’s NAV has outperformed its index over 3, 5 and 10 years. Over ten years to 28 February 2021, on a total return basis, the NAV increased by 155.9% compared a return of 148.62% from the benchmark.

Against the buoyant environment, the company’s holdings performed well due to their high-quality franchises and solid balance sheets. Many of them beneficiaries of long-term structural trends that have been reinforced and hastened by the pandemic.

Over the long term, the region continues to offer immense opportunity. Asia is the world’s growth engine, its global factory and a growing consumer force to be reckoned with. As incomes rise and wealth grows, demand from local consumers for health care, technology and aspirational consumer goods is increasing. Urbanisation and infrastructure needs remain vast.

Quality companies that can harness these structural trends, such as those that Asia Dragon Trust holds, are well positioned to reap sustainable returns.

Asian stocks staged a strong rebound in the half-year under review, in stark contrast with the extreme volatility of the prior six months. Signs of a global economic recovery, the start of vaccine rollouts and the accommodative policy stance by both governments and central banks contributed to an improvement in investor sentiment and a rebound in the capital markets. Against this backdrop, the Trust delivered a net asset value (NAV) total return of 23.9% in sterling terms, outpacing the 18.0% increase in the benchmark, the MSCI All-Country Asia (ex Japan) Index (sterling adjusted).

At the same time, the Trust’s share price increased by 27.2%. This helped to narrow its discount to NAV to 10.1%, from 12.3% at 31 August 2020.

James Will, chairman, Asia Dragon Trust plc, said: “Asian stock markets rallied in the six months under review. Positive news on the efficacy of several vaccines, as well as encouraging economic data, drew back investors who had been sitting on the sidelines. Notably, Asian stocks outpaced their global counterparts as major Western nations struggled with rising Covid-19 infection rates and were forced to re-impose lockdowns. Better-than-expected corporate earnings also underlined the region’s lead in the global economic recovery.

“Positive political developments globally further added to the optimism. Among these were the UK’s trade agreement with the European Union as it exited from the bloc, Joe Biden’s US election victory, which many had hoped would lead to a more considered approach towards China, and a massive US stimulus package that was passed into law at the time of writing. As a result, some markets, such as South Korea, touched multi-year highs.”

He added: “The world has come some way from the early days of the pandemic. However, we are by no means near the end of this unprecedented era, even as massive stimulus and support from governments and central banks globally fuel expectations of a growth recovery and rising consumer prices.

“The company’s manager is also monitoring the impact of inflation on two fronts. First, rising commodity prices could feed into raw material costs, hurting margins although many of the Company’s holdings should be buffered by their ability to set prices, given their market leading positions. Second, rising prices could push central banks to reverse policy and raise interest rates, which would, in turn, increase the cost of borrowing. Both of these could affect the profitability of investee companies although the Company’s holdings generally have strong balance sheets and therefore should be resilient to such changes.

“Global developments, meanwhile, bear close watch. Chief among these is US foreign policy under President Biden, especially on China, and the progress of vaccine rollouts across Asia.”

Mr Will concluded: “All of these imply near-term challenges for economies and markets in Asia. What is more pertinent for us as investors, however, is that over the long term, the region continues to offer immense opportunity. Asia is the world’s growth engine, its global factory and a growing consumer force to be reckoned with. As incomes rise and wealth grows, demand from local consumers for health care, technology and aspirational consumer goods is increasing. Urbanisation and infrastructure needs remain vast.

“Quality companies that can harness these structural trends, such as those that Asia Dragon Trust holds, are well positioned to reap sustainable returns.”