abrdn Asia Focus plc 13
Strategic Report Governance Overview General Portfolio Corporate Information Financial Statements
Performance Review
Asian small caps demonstrated strong performance over
the 12-month review period to 31 July 2023, despite the
volatility across global markets. The benchmark MSCI AC
Asia Ex Japan Small Cap Index returned +8.0% in sterling
terms over the review period. The Company’s net asset
value (“NAV”) and share price, both in total return terms,
increased by 7.6% and 7.3%, respectively.
As your Chair has highlighted earlier in this report, global
markets have faced numerous challenges over the review
period, including increasing inflation and interest rates
(especially in developed markets), concerns regarding a
potential global recession and a slower-than-expected
China recovery. Nevertheless, Asian small caps have
demonstrated remarkable resilience, outperforming their
larger counterparts by a significant margin. Over the past
three years, the cumulative outperformance of smaller
companies in Asia against the large cap index has
amounted to a meaningful 38 percentage points (the
MSCI Asia ex Japan Small Cap gained 43% in the three
years to 31 July 2023, compared with 4.2% for the MSCI
Asia ex Japan). Heightened market volatility and
macroeconomic uncertainty means our investment
process gains even greater significance and we believe
the unwavering rigour in seeking out quality has proven
particularly advantageous over the 12-month period.
Our stock selection in India and Indonesia contributed to
the positive performance, as both countries enjoyed
resilient domestic spending during the review period.
India-based engineering and technology solutions
company Cyient, has seen a strong recovery in earnings
as demand for engineering software and design services
bounced-back in the aerospace industry, while margins
benefited from management’s restructuring efforts over
the past few years. Prestige Estates, a property developer,
released robust presales figures thanks to new projects
and continued industry consolidation as they look to
accelerate growth and become a national player.
Similarly, Syngene, a contract research organisation
working in pharmaceuticals, biotech and other industries,
also benefited from a series of positive earnings reports.
The company's strategic investments to expand capacity
in biologics manufacturing and discovery services, as well
as its solid balance sheet and a low debt profile,
contributed to its success over the review period. Shares
of Indian downstream oil and gas company Aegis Logistics
were especially strong in the last month of the period, as
the company released good quarterly results. In Indonesia,
Bank OCBC NISP announced robust first-quarter
performance, buoyed by asset growth due to an
improving economic climate. Other standout performers
in Indonesia included Ultrajaya Milk Industry, a more
consumer-driven business focused on household dairy
products, and fuel distributor AKR Corporindo.
At a sector level, technology, industrials and financials
were positives for the portfolio. A stabilising tech sector
and rising enthusiasm for generative artificial intelligence
(AI) saw strong performance in both Taiwan and Korea.
Positive stock selection in both countries aided
performance over the 12 months. In Korea, Park Systems,
manufacturer of atomic force microscopy (AFM) systems,
was the leading contributor to relative results over the
year. AFM has diverse applications in advanced science
and technology labs, and the size of the addressable
market should grow over time given it is still a relatively
new field. Leeno Industrial also generated strong returns,
with an anticipated recovery in demand driven by AI and
testing initiatives. Meanwhile, in Taiwan, Sunonwealth
Electric Machine Industry, which manufactures industrial
fans and Taiwan Union Technology, which distributes
copper-clad laminate, also contributed to relative
performance given an improved outlook for growth. In
addition, Vietnam’s leading IT group FPT Corporation
advanced over the review period on continued strong
results with the company reporting a 21% profit jump
in the second quarter, driven by a 29% surge in IT
service revenues.
Elsewhere, our positioning in several other companies also
proved advantageous. Shares of Thailand-based TISCO
Financial Group performed well as its conservative lending
practices over the past few years proved prescient. Sri
Lankan conglomerate John Keells Holdings, which
operates in sectors including transportation, consumer
goods, retail, leisure, property, and financial services, also
advanced as a beneficiary of a recovery in tourism and
the overall domestic economy in Sri Lanka following the
implementation of significant structural reforms.
Investment Mana
ers’ Review