abrdn New Dawn Investment Trust plc

An update from our investment manager, James Thom - 26 May 2022

Volatility remains in play. The Fed has delivered a 0.5% interest rate increase as expected and is signalling more hikes to come this year, although increases beyond 0.5% appear to be off the table. While this has removed some uncertainty, other stress points persist for Asian equities. China continues to dominate interest. Market response to stimulus pledges and policy moves has been lukewarm in the face of Covid resurgences, a sluggish property market and a weak macro backdrop. However, we are seeing more supportive comments from the central government recently, which could help to support sentiment, albeit the market appears to be waiting for more substantial and concrete policy stimulus. Meanwhile, Omicron remains a key risk, although most of Asia is moving towards living with Covid. Further afield, the Russia-Ukraine war has driven oil and commodity prices upwards, hurting consumption, increasing input costs for companies and ultimately weighing on the growth of economies, including those here in Asia. We are receiving more updates from our holdings around rising input costs and the pressure on margins. Encouragingly, the earnings of many of our holdings have either met or exceeded our expectations in the latest results reporting season. However, quite a few have turned more cautious over the short-term outlook for this year, citing the impact of rising raw material costs and a rising interest rate environment. Here, we would note the impact of outsized macro and geopolitical risks rather than a significant deterioration of fundamentals across the region. As investors ourselves, we focus on quality firms with strong balance sheets and robust cash flow that we believe can provide a sustainable income stream to investors. We see market corrections as an opportunity to add to our long-term quality holdings affordably. Asian equity valuations are also trading in line with historical averages, and the significant sell-offs in certain markets in the region have actually resulted in much more palatable valuations, as opposed to prohibitively high valuations in the past. This creates opportunities for investors who are invested for the long run.