Asia: growth in the right places

The Asian growth story has been well told: economic growth rates are exciting; there is a nascent consumer boom, fuelling by a growing middle class; there is a growing culture of innovation and entrepreneurship. The temptation is to assume that all investment in Asia is created equal. It isn’t.

The recent spat over trade tariffs is a case in point. Certain industries, and the countries that are geared to those industries, are notably more vulnerable. The focus of the US administration has been on areas such as steel or aluminium, where President Trump wants to build up US strength again. It is also focused on China, rather than other parts of Asia.

There are countries almost entirely unaffected by the problems. These are countries that are geared to intra-Asian trade, rather than the fortunes of the US economy. For these companies, their destiny is in their own hands. In the Aberdeen New Thai investment trust, we want to ensure that we focus on those companies that are benefiting from domestic growth in Asia – companies such as home improvements chain HomePro or hire purchase/personal loan company Aeon Thana Sinsap.

Governance is another example. Governance is improving across Asian companies. A dividend culture is emerging, companies are paying more attention to their board composition and there is increasing focus on shareholder value. However, this is not universal. There are still a lot of state-owned enterprises, for example, and many will be the largest listed companies in any given country.

While there are state-owned enterprises that function well, with strong governance and risk management, too often the interests of the majority owners are not aligned with those of other shareholders. Companies are run to support national interests rather than our interests as investors.

In Thailand, we see governance improving. However, we still believe it is vital to meet companies, getting to know their owners to ensure that they will manage our interests properly. At the same time, we seek out those companies that generate relatively high dividends out of organic cash flow. This enables the trust to have a relatively high payout, at almost 2% for last year.

Sentiment towards the region can change quickly and international capital flows can be fickle. Liquidity can drive share prices higher or lower. To access the long-term growth and innovation across Asia without some of the associated volatility, we believe it is necessary to focus on those companies where governance is sound and risk is managed properly.

At the same time, the real growth in Asia – the exciting domestic growth stories – is often not to be found among the largest stocks in an index. The largest stocks in emerging market indices are often the state-owned banks, the brewers, the large mining companies. These are exposed to international forces. We have recently increased the weighting in smaller companies in the trust to ensure that we are exposed to new ideas.

The economic growth in Asia is real and enduring, but investors have to be discerning to make sure they are getting access to the domestic growth story. We believe targeted investment in Asia is key.


Risk factors you should consider prior to investing:

The value of investments and the income from them can fall and investors may get back less than the amount invested. Past performance is not a guide to future results.

Investment in the Company may not be appropriate for investors who plan to withdraw their money within 5 years.

The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that any movement in the value of the company’s assets will result in a magnified movement in the NAV.

The Company may accumulate investment positions which represent more than normal trading volumes which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares.

Movements in exchange rates will impact on both the level of income received and the capital value of your investment.  There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value.

As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.

The Company invests in emerging markets which tend to be more volatile than mature markets and the value of your investment could move sharply up or down.

Specialist funds which invest in small markets or sectors of industry are likely to be more volatile than more diversified trusts.

Yields are estimated figures and may fluctuate, there are no guarantees that future dividends will match or exceed historic dividends and certain investors may be subject to further tax on dividends.

Other important information:

Aberdeen Standard Investments is a brand of the investment businesses of Aberdeen Asset Management and Standard Life Investments.

Issued by Aberdeen Asset Managers Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

Registered Office: 10 Queen’s Terrace, Aberdeen AB10 1YG. Registered in Scotland No. 108419. An investment trust should be considered only as part of a balanced portfolio. Under no circumstances should this information be considered as an offer or solicitation to deal in investments.

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