Aberdeen Standard Asia Focus PLC

An update from our investment manager, Hugh Young - 13 May 2020

With events unfolding rapidly, it is more difficult than ever to make firm predictions. Governments across the world are now focusing on the health and safety of their citizens, while also introducing a variety of measures to mitigate the economic fallout. Typically, such measures have so far been a combination of a further lowering of interest rates, which we have seen across many countries, and targeted relief to particularly affected sectors. Clearly economies have slowed dramatically as end demand has fallen sharply. Restrictions on travel and public assembly have notably hit tourism, consumption and retail. Although the consequences are often felt most acutely by small and medium enterprises (SMEs), the companies in which we invest are not in as precarious a position as SMEs in general, being to a large extent helped by their strong balance sheets and industry-leading positions.

Although it is impossible to predict timelines, the case of China does suggest how countries can tackle the problem and start to normalise. Rigorous measures imposed early on appear now to mean that daily life in China is returning to normal, with restaurants and factories reopening. Clearly, international travel restrictions still apply, and these are likely to apply for a while, to prevent re-importation of the virus. With other Asian countries taking similar measures, notably Singapore and South Korea, we see this as being the pattern emerging across the region as the year progresses.

Over recent weeks stock markets have recovered after their precipitate falls. Whilst most corporate earnings for 2020 are going to be hard hit, we maintain our long-term confidence in the companies we hold. Their balance sheets are resilient and the services or products they furnish are the future in what is the world's most dynamic region. We believe that the structural argument for investment in smaller companies in Asia is as strong as ever.