22 abrdn New Dawn Investment Trust plc
Market and Portfolio Review
Asia Pacific equities retreated over the year ended 30
April 2022, with a marked rise in volatility in the second half
of the year. This was amid the emergence of the Covid-19
Omicron variant and rising expectations for monetary
tightening to combat inflation. Price pressures mounted
further when the tensions on the Ukrainian border
unfolded into a full-scale invasion by Russia. Commodity
prices soared on concerns over supply disruptions, further
fuelling inflation and putting more pressure on central
banks to curb price pressures. The US Federal Reserve
lifted its benchmark interest rate for the first time
since 2018.
China was the main market laggard, down almost 30%,
owing to multiple headwinds. These concerns included
regulatory upheaval, property and energy woes, a
resurgence of Covid-19 outbreaks and the potential
delisting of US-listed Chinese companies over auditing
requirements. Towards the end of the period, the People’s
Bank of China (“PBOC”) lowered key lending rates to
shore up growth. Elsewhere, South Korea’s technology-
heavy market suffered from the rotation to the more
value-orientated parts of the market. On the other hand,
the best-performing markets included India and Indonesia
as their economies re-opened after the removal of
Covid-related restrictions. Being a resource-rich
country, Indonesia also benefited from the spike in
commodity prices.
Against a backdrop of spiking commodity prices, rising
interest rates and slowing growth, there was a sharp
rotation from growth to value, which weighed on
performance. This was clear to see in the energy sector,
where our decision to have no exposure due to a lack of
quality companies hurt returns. Similarly, several of the
Company’s growth stocks succumbed to profit taking
after prolonged outperformance. Over the 12 months, the
MSCI All Counties Asia Pacific ex Japan Index fell by 9.2% in
total return terms, whereas the Company’s net asset
value (“NAV”) and share price declined by 11.0% and
11.8% respectively, also in total return terms. Despite this,
our overarching focus remains on holding quality
companies that have held up well over longer time
periods. The Company’s NAV and share price total
returns have both outpaced the benchmark index over
three and five years.
In terms of performance drivers, China was a notable
contributor to relative returns. Our selective approach to
the internet segment, in the uncertain regulatory
environment, reaped some reward. In particular, not
holding e-commerce companies Meituan and Pinduoduo
benefited the Company, as did the relatively small position
in Alibaba. The companies we favour are those that
benefit from policy tailwinds. To this end, Yunnan Energy
New Material, the global leader in lithium-ion battery
separators, and power-automation product specialist
NARI Technology both performed well as policymakers
continued to call for development of green and
renewable technologies. However, another holding in this
segment, clean-energy solutions provider Sungrow Power
Supply, retreated after announcing a soft full-year result.
Despite this, we retain our conviction in the company given
Beijing’s ambitious long-term renewable-energy agenda.
Against a backdrop of spiking
commodity prices, rising interest rates
and slowing growth, there was a
sharp rotation from growth to value,
which weighed on performance.
The relative gains above more than offset unfavourable
moves in other mainland holdings. Tencent, for instance,
was affected by the regulatory clampdown on the
mainland internet sector. Current operating conditions
remain challenging, but the company’s continued
dominance of Chinese internet-user engagement, as well
as the shifting policy tone towards regulation, platform
internet companies and support for the economy, all help
to provide confidence in the company’s longer-term
growth outlook. The shift in the regulatory landscape also
weighed down the holding in Chinese data-centre
company GDS. Elsewhere, shares of China Tourism Group
Duty Free lost ground due to renewed outbreaks of Covid-
19 and the resulting lockdowns.
We remain highly selective in China, having reduced
exposure to the mainland over the course of the year. This
included selling several holdings we regarded as
adversely susceptible to regulatory pressure, including
Ping An Insurance, Meituan and JD Health. But at the same
time, we also introduced some new holdings, including
Zhongsheng, the country’s leading automotive dealer.
The company has a strong portfolio of premium cars, a
scale advantage and a very cash-generative
aftersales business.
Investment Mana
er’s Review