18 abrdn New Dawn Investment Trust plc
Market and Portfolio Review
Asia Pacific equities declined over the 12 months to 30
April 2023, amid the uncertainty that weighed on markets
globally. A combination of higher inflation, accelerated by
the ongoing conflict in Ukraine, tightening monetary
policies, rising input costs and recent banking sector
events in the West have sparked fears of a global
economic recession. Against this backdrop, the
Company’s net asset value (“NAV”) and share price, both
in total returns terms, declined 6.8% and 7.3%, respectively,
and lagged the benchmark, which declined by 5.2%.
However, as shown on page 16, over the past three and
five years, the Company’s NAV and share price total
returns have done better than the benchmark,
highlighting the support from our high-quality holdings.
In terms of performance, the portfolio’s direct exposure to
China was the main detractor, which was partly offset by
the position in Hong Kong. Chinese authorities announced
an unexpected U-turn from their “zero-Covid” policy to a
complete re-opening in late 2022. However, the negative
impacts from prolonged lockdowns and regulatory
pressures, especially on the property sector, could not be
quickly undone. While many of the holdings in the portfolio,
especially in the technology and consumer discretionary
sectors, stand to benefit from the re-opening, we have yet
to see corporate earnings increase meaningfully. To this
end, gaming company Sands China was a key performer,
being a direct beneficiary of the re-opening and easing
travel restrictions. Its recent quarterly results were ahead
of the market’s expectations. Insurer AIA Group and beer
company Budweiser Brewing added to returns amid a
recovery in the Hong Kong market. We view both as high-
quality exposures to China’s growth.
The exposure to Chinese renewable energy companies
was not beneficial to performance, with poor share price
performances from Yunnan Energy New Material and
LONGi Green Energy Technology, partly as investors
chased opportunities from the re-opening. Yunnan’s
shares were volatile after an announcement of a probe
into its chairman and vice chairman. We subsequently
sold the position as our conviction in the company
diminished. Having said that, on a positive note, the holding
in Sungrow Power Supply was beneficial following robust
results, especially in the most recent quarter. China’s
strained relations with the US was another aspect over the
period that affected investor sentiment. Pharmaceutical
company Wuxi Biologics, a company that has
fundamentally performed well, detracted due to a series
of regulatory hurdles where two of its subsidiaries were
temporarily added by the US to a trade restriction list
before being removed by the end of December.
Meanwhile, the Chinese government announced further
supportive measures to help the property sector recovery
and appears to be easing its regulatory scrutiny into
technology companies. These changes, together with
investors moving towards value, benefited technology
companies later in the financial year. However, while
technology companies, including Tencent, have started to
benefit from the re-opening, online retailer JD.com
underperformed due to concerns around slowing growth
and high competition.
A combination of higher inflation,
accelerated by the ongoing conflict in
Ukraine, tightening monetary policies,
rising input costs and recent banking
sector events in the West have
sparked fears of a global
economic recession.
In terms of portfolio positioning and strategy, we added
more positions in China over the year as we remain
confident in the holdings and the turnaround potential
post the re-opening, especially in the technology sector.
We therefore added to several internet and consumer
holdings such as Tencent and Kweichow Moutai that
should benefit from an increase in consumer confidence
and spending. In the healthcare sector, we initiated Aier
Eye Hospital, China’s largest domestic private eyecare
hospital chain. Its demand is supported by the ageing
population, rising living standards, and government
policies to improve the accessibility and standards of
drugs and healthcare. We also bought Chinese food
delivery and local services app company Meituan
Dianping, which we regard as a long-term growth story
which should benefit from China’s shift towards a service-
driven economy and increasing online penetration.
Against these additions to the portfolio, we exited the
industrial automation business Shenzhen Inovance
Technology. It is a highly cyclical business and felt the
impact of a sharp drop in property construction, while
rising raw material and freight costs weighed on its
margins.
Investment Mana
er’s Review