Adrian Lim, manager of Asia Dragon Trust plc

The trusts’ annual results have posted positive absolute returns despite the challenging economic environment caused by COVID-19.

Asia Dragon Trust’s share price also rose by 3.4% to 416p as at 31 August 2020.

For the 12 months to 31 August 2020, the fund’s discount to NAV per share was broadly unchanged, standing at 12.3% (2019 – 12.1%).

While performance has been disappointing over the very challenging recent period, over three years the NAV has increased by 17.5%, versus the benchmark’s 13.6% return.

Commenting on the results, James Will, chairman of Asia Dragon Trust plc, said: “After about six months, the world is starting to adjust to a new normal. As we learn more about COVID-19, expectations as to what governments need to do are more clear. We are also seeing progress in developing potential vaccines and treatments.

“We would expect monetary and fiscal support to continue until economies show concrete signs of getting back on track. This should support stock prices in the short to medium term. However, US-China tensions remain a key concern, with more noise expected ahead of the US presidential elections in November.

“In Hong Kong, while social unrest and the pandemic unnerved investors, the market is being bolstered by returning US-listed Chinese companies amid the intensifying glare of regulatory scrutiny. Elsewhere, the worsening relations between China and India also bears monitoring.

“All things considered, I believe Asia’s appeal remains undimmed. It is home to many good quality companies, with clear earnings streams, robust balance sheets and healthy cash levels. The region remains the fastest-growing in the world, with structural trends that will play out in the years to come. Your Manager’s focus on quality world-class companies will position the Trust well to deliver sustainable returns over the long term.”

Adrian Lim, manager of Asia Dragon Trust plc, added: “We believe Asian markets will remain volatile. Risks of a resurgence in COVID-19 infections is still present, at least until an effective vaccine is widely available. In the meantime, businesses continue to face restrictions and consumer demand will remain muted due to rising unemployment. The geopolitical backdrop is another concern, with the US-China dispute now broadening out beyond trade and technology.

“That said, having learnt lessons from past crises, most governments in Asia are less indebted now. This puts them in a better position to expand fiscal stimulus. Orthodox monetary policies mean that central banks still have room to lower interest rates, with inflation under control. Meanwhile, recent indicators across Asia point to a tentative growth rebound that should gain momentum as economies re-open.

“At the corporate level, many companies are still focused on preserving capital amid the uncertainty, which constrains shareholder returns and capital spending. But we are seeing signs of a nascent recovery in corporate profits. The recent uptick in earnings among the Trust’s holdings provides some encouragement that the worst of Covid-19 may be over for the better managed companies.”

He concluded: “Despite the uncertain landscape, the drivers of Asia’s long-term growth are intact. A burgeoning middle class with rising spending power should drive demand across segments, including retail, financial services, healthcare and infrastructure. Innovative companies are leading the development and adoption of nascent technologies. We remain focused on investing in well-managed companies with sound fundamentals, which are the best placed to make the most of these opportunities.

“The holdings in your Company’s portfolio are solid franchises, with sustainable earnings streams and robust balance sheets. Several are also leaders in terms of ESG, with others committed to improving their standards. We believe that the quality of the portfolio’s holdings should enable them to weather the storm. This ensures that the Trust can continue to deliver sustainable returns.”