I am once again pleased to present to shareholders the half-yearly results for abrdn Asia Focus plc (the “Company”). Asian small-caps showed considerable resilience over the period despite continued worries over a potential global recession, with the MSCI AC Asia Pacific ex Japan Small Cap index delivering a total return of 4.5% compared to the wider MSCI AC Asia ex Japan index, which fell 7.3%. This extends the material outperformance of smaller companies in the region over their larger counterparts which over a 5 year period to the end of January 2024, has returned around 53% compared to the large cap index’s 11% in total return terms. It is evidence of the inherent potential of the asset class.

Investment Performance

Over the period, the Company’s net asset value (NAV) total return per share fell 0.7% in sterling terms, thereby lagging its closest comparator benchmark.  In the short term, the active nature of the portfolio can often lead to divergence from the index.  The share price total return was down 0.2%, with the discount to NAV narrowing over the period to 14.3% from 14.5% at end December 2023. 

The Board is firm in its conviction around Asia's long-term growth story, particularly within the small-cap universe. Your Manager’s disciplined, bottom-up stock picking approach, focused on identifying businesses with durable competitive advantages, healthy balance sheets and significant earnings growth should enable them to compound returns at an attractive rate over the long-term. 

This is a differentiated portfolio made up of interesting, less well-known companies, often under researched in the market.  The active share of the portfolio is 97.5% and the long-term performance of the Company remains impressive.  According to the Association of Investment Companies (AIC), as the 25^th anniversary of the inception of the Individual Savings Account (ISA) approaches, the Company is ranked third best performing investment trust. Based upon a single investment of the full £7,000 ISA allowance on 6 April 1999, the day ISAs came into existence, with dividends reinvested until 5 March 2024, an investment in the Company’s shares would have generated a tax free pot of £273,758.

Revenue and Dividends

The Board recognises the importance of the Company’s dividend income for many shareholders.  The Ordinary share dividend has been maintained or raised every year since 1998, and your Board is firmly committed to the enhanced and progressive dividend policy which was approved by shareholders in 2022. Underlying earnings per share for the period amounted to 3.4p (2023: 4.3p) and revenue from the portfolio continues to comfortably cover the Ordinary dividend, with the shares yielding 2.5%, as of 31 January 2024 (3.5% including special dividends).

Two interim dividends have been paid in the first six months of the Company’s financial year. These interim dividends of 1.6p per Ordinary share were paid on 20 December 2023 and 21 March 2024.  The Board has set a target dividend of at least 6.41p per Ordinary Share for the financial year ending 31 July 2024. The Board plans to maintain the progressive policy of the last 28 years in order to provide shareholders with a regular dividend and dependable level of income alongside capital growth prospects.

Share Capital Management and Gearing

The Board is pleased to note the current abrdn initiative to reinvest six months’ worth of its management fees back into the Company by purchasing shares in the market, in an effort to further align itself with the shareholder base and to demonstrate the significant on-going commitment to its listed closed end funds business which currently ranks third globally.

The Board is conscious that the discount to NAV remains wide and has stepped up share buybacks during the period, in the belief that this is in the best interest of shareholders. During the period the Ordinary shares have traded at an average discount of 15.75% and we have bought back 2,022,500 Ordinary shares in the market at a discount to the prevailing NAV per share (six months to 31 January 2023: nil).  The Board will continue to consider the judicious use of share buybacks to both reduce the volatility of any discount and to modestly enhance the NAV per share for shareholders.

The Company’s net gearing at 31 January 2024 was 10.3% with the debt provided by the £30 million unsecured Loan Notes 2035 and the £36.6m Convertible Unsecured Loan Stock.  The Board is very aware of the 31 May 2025 maturity date for the CULS and is actively considering available options for replacing or retiring that debt.  As at 27 March 2024, the latest practicable date, the Company’s net gearing stood at 13.4%.

Your Investment Manager

The Board would like to thank Hugh Young for his long service to the Company, which he leaves in good hands:  Flavia Cheong, abrdn’s Head of Equities, Asia Pacific, Gabriel Sacks and Xin-Yao Ng.  Your Manager’s extensive on-the-ground coverage, experienced management team, and commitment to delivering long-term value amid the dynamic and varied Asian small-cap universe should lend confidence in the continued long-term prospects for the Company.   Indeed, at a time when many asset managers are making cuts, the Board is very pleased that abrdn has strengthened the investment team in Asia during the reporting period with the recruitment of four new research analysts.

Responsible Investing

While the Company’s investment objective does not specifically include environmental, social and governance (“ESG”) and the investment process does not exclude exposure to certain industries, your Manager firmly believes that the best companies are also sustainable companies, and hence it integrates a comprehensive assessment of ESG factors into its bottom-up stock picking investment process. Informed and constructive engagement also helps foster better companies, protecting and enhancing the value of the Company’s investments.

This is clearly reflected in the carbon footprint of the Company’s portfolio, for example, which compares favourably against that of the benchmark. The portfolio’s relative carbon intensity (as at 31 December 2023, including scope 1 and 2 emissions) was only 23.3% of the benchmark. Further detailed information can be found in the 31 December 2023 Taskforce on Climate-related Financial Disclosures (TCFD) Report in the Literature section of the Company’s website.

Board Composition

I would like to re-iterate my thanks to Randal McDonnell, the Earl of Antrim, who stepped down from the Board at the last AGM and has been a great asset to us with his wise contributions over the last nine years. We also welcome two new Board members, Lucy Macdonald who replaces Randal, and Davina Curling who joined with effect from 1 March 2024 as Senior Independent Director. Both bring considerable investment management experience to the Board.

Outlook

Asia’s distinct growth story, with so much untapped potential for long-term investors, remains intact. Asia is projected to contribute more than two thirds of global growth, underscoring its undeniable economic might. Although there may be political uncertainty, with 2024 being a significant year for elections in Asia, you are likely to see relative stability and calm in the largest democracies potentially in stark contrast to the upcoming US presidential elections. 

In India, renewed capex, real estate and credit cycles are driving strong economic growth. Should Prime Minister Modi win the upcoming elections in India, he is likely to continue to proceed with his vision for India as a leading global economy. China’s post-Covid recovery has not been as smooth nor as fast as hoped, but there are signs of positive momentum including official policy shifts towards domestic demand, while the country’s huge consumer base and advances in technology remain pillars of its long-term potential.

South East Asia is often overlooked as a rich source of quality smaller companies. Your Manager continues to regard these countries as beneficiaries of shifting global supply chains with supportive government policies and favourable cost structures, and they also represent a large consumer market of about 700 million people on a combined basis. Vietnam is an emerging powerhouse in apparel and electronics manufacturing and is seeing rapid urbanisation, while Indonesia is gaining traction in areas of the commodity supply chain that creates increasing value for the local economy.

Asia's rising middle classes and advancing technology provide fertile ground for innovative small-cap companies, offering substantial potential for value creation. As ever, your Company is focused on high-quality companies with excellent long-term track records and strong fundamentals, exploring thematic opportunities in structural growth trends like domestic consumption, digitisation and the green energy transition. The future is bright for smaller companies in Asia and we expect that shareholders will benefit from this via their investment in abrdn Asia Focus. 

Performance table

Discrete performance (%)

Total return; NAV to NAV, net income reinvested, GBP. Share price total return is on a mid-to-mid basis. Dividend calculations are to reinvest as at the ex-dividend date. NAV returns based on NAVs with debt valued at fair value. Source: abrdn and Morningstar. Past performance is not a guide to future results. ^A Including current year revenue.

Dividend per share (p)

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