Aberdeen Standard Asia Focus PLC

An update from our investment manager, Hugh Young - 14 September 2020

After the sharp rebound in stock markets from the trough in March, the net asset value of the Trust is down only marginally for the calendar year to the end of August 2020. There have been marked differences in performance across sectors, with technology a clear beneficiary of the Covid-19 pandemic. Amid lockdowns and social distancing, more people are working from home and staying indoors. This means more demand for online payment systems, e-commerce and work-from-home digital services and solutions. In contrast, the consumer sector has felt the impact of Covid-19 related measures, with hotels, retailers, auto makers and other discretionary segments bearing the brunt. Banks have also suffered disproportionately.

We remain cautious about the near-term outlook for global markets, given the apparent disconnect between equity prices and economic and corporate fundamentals. With the pace of recovery still uncertain, the sharp rally in equities feels ‘too much, too soon’. The economic outlook remains uncertain, and there is still a risk of new Covid-19 waves despite encouraging signs of a global vaccine. The geopolitical backdrop is also a worry. Tensions between the US and China have continued to escalate in the lead-up to the US presidential election in November. Meanwhile, second-quarter corporate earnings have been mixed, although the declines are less pronounced than in the prior three months. We do expect better data to come through in the second half of the year as economies continue to re-open and recover, while accommodative central banks also provide some support for stocks.

In spite of all this, Asia remains well-positioned as the powerhouse of global growth. Smaller companies in the region have also not featured as prominently as recipients of investment flows, meaning valuations remain relatively attractive. Our focus continues to be on good quality companies that are able to weather the current storm. We believe the portfolio’s defensive characteristics, with companies exhibiting balance sheet strength, visible revenue streams and healthy profit margins, will be invaluable. We also favour market-leading businesses that are hitched to structural growth drivers in Asia. This encompasses trends that have boomed during the pandemic, such as e-commerce and greater adoption of technology, alongside longer-term shifts, including rising demand for healthcare and infrastructure. Our aim will be to take advantage of market gyrations, putting capital to work in our highest-conviction ideas while exiting those with declining prospects.