James Will

However, this is outperforming the -8.1% fall in the benchmark, the MSCI AC Asia Pacific (ex Japan) Index (sterling adjusted) total return.

This comes despite an uncertain economic backdrop that resulted in a turbulent six month period for Asian markets.

The company’s longer-term performance was competitive, as the company’s NAV continued to outperform the Index over 3 and 5 years. Over five years to 28 February 2022, on a total return basis, the NAV increased by 54.5% compared to a return of 38.5% from the Index.

The portfolio holdings performed well over the period 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.

Asia Dragon Trust plc’s positioning in China was the main source of outperformance against the Benchmark during this six-month period. The Chinese companies in which the Company has exposure in general showed resilience despite the challenging operating environment.

James Will, chairman, Asia Dragon Trust plc, said: “The six months under review was a turbulent period for Asian, indeed global, stock markets with the dominant themes being the US Federal Reserve’s increase in interest rates, China’s regulatory crackdown across a broad swathe of sectors, the Russian invasion of Ukraine and the continuing impact of Covid-19.

“Against this uncertain backdrop, the Company’s net asset value fell by 7.7%, outperforming the Company’s benchmark, the MSCI All-Country Asia ex Japan Index, which fell by 8.1%.

“The share price decreased by 6.3% to 28 February 2022, as the discount to NAV per share narrowed to 8.4%. Although it underperformed over the period, partly due to the rotation from growth to value stocks, the company should deliver healthy long-term growth, underpinned by increasing insurance penetration and financial literacy in its domestic market.”

Commenting on the outlook, Mr Will continued: “The horrific events unfolding in Ukraine are a stark reminder of the uncertain times in which we live. From an economic perspective, rising inflation and an increasingly hawkish Fed were already of concern before the escalation of Russia-Ukraine hostilities, and a protracted conflict risks intensifying this.

“Covid-19 also remains a threat and, although Omicron appears to be less virulent than previous variants, further flare-ups of the virus and mutations cannot be ruled out. Nevertheless, the continued increase in vaccinations across Asia is encouraging and positive for consumption, corporates and the wider economy.

“China’s economy remains under pressure due to tightening regulation, the common-prosperity policy, the zero-Covid strategy and strained relations with the US. However, Beijing is implementing measures to stimulate a recovery and return to a stable growth track. The Investment Manager believes that the geopolitical situation will accelerate China’s drive for self-sufficiency, which will provide plenty of investment opportunities across diverse sectors such as consumption, technology and green energy. “

He added: “The Board and the Investment Manager are acutely aware of the challenges facing investors and will monitor developments closely, particularly the second-order effects on inflation and global growth prospects.

“Further, the current market environment underlines the importance of maintaining an active approach to investing, with a strong focus on holding high-quality businesses with strong balance sheets that can withstand the effects of inflation through strong pricing power.

“In addition, the Board remains positive on the long-term prospects for Asia. It remains the world’s fastest-growing region, underpinned by powerful structural trends such as increasing affluence, rising urbanisation and growing technology adoption. This offers a plethora of investment opportunities and valuations in the region look appealing versus global and US equities despite higher growth prospects in Asia.”