Invesco Asia Trust Plc - Half-year Report

LEGAL ENTITY IDENTIFIER: 549300YM9USHRKIET173

 

INVESCO ASIA TRUST PLC

Half-Yearly Financial Report for the Six Months to 31 October 2023

 

The following text is extracted from the Half-Yearly Financial Report for the Six Months to 31 October 2023. All page numbers below refer to the Half-Yearly Financial Report which will be made available on the Company's website.

 

Investment Objective

The Company’s objective is to provide long-term capital growth and income by investing in a diversified portfolio of Asian and Australasian companies. The Company aims to achieve growth in its net asset value (NAV) total return in excess of the Benchmark Index, the MSCI AC Asia ex Japan Index (total return, net of withholding tax, in sterling terms).

Financial Information and Performance Statistics

The benchmark index of the Company is the MSCI AC Asia ex Japan Index (total return, net of withholding tax, in sterling terms)

 

	Six Months to	Year ended
	31 October	30 April
Total Return Statistics(1) (dividends reinvested)	2023	2023
Net asset value (NAV) total return(2)	–5.9%	1.3%
Share price total return(2)	–7.8%	1.2%
Benchmark index total return(3)	–2.9%	–6.0%

 

Capital Statistics

	At	At
	31 October	30 April
	2023	2023	change %
Net assets (£’000)	230,572	245,004	–5.9
NAV per share	344.89p	366.48p	–5.9
Share price(1)	296.00p	321.00p	–7.8
Benchmark index (capital)	895.70	938.42	–4.6
Discount(2) per ordinary share	(14.2)%	(12.4)%
Average discount over the six months/year(1)(2)	(10.8)%	(11.6)%
Gearing(2):
– gross	1.3%	5.9%
– net	0.7%	5.3%

(1) Source: LSEG Data & Analytics.

(2) Alternative Performance Measures (APM), see pages 19 to 21 for the explanation and reconciliations of APMs. Further details are provided in the Glossary of Terms and Alternative Performance Measures in the Company’s 2023 Annual Financial Report.

(3) Index returns are shown on a total return basis, with dividends reinvested net of withholding taxes.

 

Chairman’s Statement

Highlights:

• NAV total return of –5.9% and share price total return of –7.8% both underperformed the benchmark index total return of –2.9%.

• Not only are the valuations of the underlying investments at unusually attractive levels but you have the double discount of the share price relative to the net asset value.

• On top of this comes a 5% annual dividend yield based on the share price as at 31 October 2023, approximately half of which is effectively a return of capital at net asset value.

After a strong run of outperformance the Company’s NAV total return over the six months to 31 October 2023 of –5.9% was below our benchmark (MSCI AC Asia ex Japan Index) total return of –2.9%. The share price total return was –7.8% with the discount widening from 12.4% to 14.2% over the period. Despite the short term underperformance, the NAV and share price performance remains superior to that of the benchmark index over one year, three years, five years and ten years as the table below demonstrates.

Cumulative Total Return (dividends reinvested) to 31 October 2023(1)

	One	Three	Five	Ten
	Year	Years	Years	Years
Net asset value (NAV)	9.7%	12.1%	40.5%	136.4%
Share price	10.4%	11.0%	42.4%	136.5%
Benchmark index(2)	7.7%	–9.9%	16.8%	64.5%

(1) Source: LSEG Data & Analytics.

(2) The benchmark index of the Company was changed on 1 May 2015 to the MSCI AC Asia ex Japan Index from the MSCI AC Asia Pacific ex Japan Index (both indices total return, net of withholding tax, in sterling terms).

A half-yearly dividend of 7.20p was paid on 23 November 2023 in accordance with our policy of paying two dividends over a year amounting to approximately 4.0% of NAV. This puts the annual dividend yield on the share price at 5.0%, based on the share price of 296.00p at 31 October 2023.

In August 2020, the Board undertook to effect a tender offer for up to 25% of the Company’s issued share capital at a discount of 2.0% to the prevailing NAV per share (after deduction of tender costs) in the event that the Company’s NAV cum-income total return performance over the five year period to 30 April 2025 fails to exceed the Company’s comparator index, the MSCI AC Asia ex Japan Index (net of withholding tax, total return in sterling terms) by 0.5% per annum over the five years on a cumulative basis. Shareholders already have the opportunity to vote on the continuation of the Company every three years, but the Board believes that also providing shareholders with the option to tender a proportion of their shares for a cash price close to NAV if the Company underperforms, constitutes a pragmatic and attractive initiative, particularly if the shares were to be trading at a material discount at the time.

As at the date of this report, we now have 15 months to run of the five-year period over which the performance of the Company will be assessed. As at 31 October 2023, the Company’s NAV was up by 39.0% over the 3.5 years while the index was up by 7.1%. On an annualised basis, NAV was up by 9.9% p.a. while the index was up by 2.0% p.a.

Shareholders will know that we believe that the discount is determined by a combination of demand for Asian equity investment vehicles, the Investment Case for Invesco Asia Trust and the Corporate Proposition that we offer. In order to stimulate more demand for the Company’s shares, we aim to provide a strong investment case and a strong corporate proposition at the same time.

The Investment Case rests on accessing the attractive opportunities of Asian equity markets through the institutional expertise of Ian Hargreaves and Fiona Yang’s team at Invesco. The Co-Portfolio Managers’ investment process can be summarised as ‘valuation not value’ and has been very successful in attracting institutional investors such as pension funds and sovereign wealth investors. In times like these of great change, we would argue that this forward-looking active approach (as opposed to a backward-looking index or passive style) is exactly what is needed. Invesco Asia Trust is the only way for individual investors to access Ian and Fiona’s expertise. We are delighted to announce that from 1 May 2024, our two Co-Portfolio Managers will swap roles with Fiona Yang taking the lead from Ian Hargreaves but will both continue to work very closely together on the Company’s portfolio. The Directors have been impressed by Fiona’s contribution over the past five years and are pleased to support her promotion.

The Company’s Corporate Proposition was first introduced in 2018. Since then, the Board has continued to review and adopt measures intended to create additional demand for the Company’s shares, both from existing and new shareholders, and to reduce the discount. We have been careful to ensure that the measures chosen are in the best interests of all shareholders and combined will make the Corporate Proposition as compelling as the investment case.

The multiple elements to our Corporate Proposition are detailed in the 2023 Annual Financial Report’s Chairman’s Statement and include: a three-yearly continuation vote (the next one being due in September 2025); an enhanced dividend policy; a performance conditional tender; a strong integrated Environmental, Social and Governance (‘ESG’) approach; engaging more individual shareholders; the ability for shareholders to meet both the Co-Portfolio Managers and the Directors; close management of ongoing charges and fees; the active use of gearing; the ‘skin in the game’ of Directors’ and Managers’ shareholdings; and the authority to buy back shares.

The average discount over the 6 months to 31 October 2023 has been 10.8%, which is above our 10% tolerance. Discounts across the investment trust industry have risen markedly in the last two years. Our relative discount has improved over the period but the true test will be what happens to our absolute discount when either the investment trust industry discount recovers or Asian markets enter a bull phase. Our buyback policy will be fine-tuned accordingly and, while we do not reveal details, we can say that it is more likely to be active if performance disappoints.

Ratings

Your Company has recently been awarded several accolades including:

• The Citywire Winners award at the publication’s Investment Trust Awards 2023, for best risk-adjusted performance for the Asia Pacific Equities Sector.

• Awarded by Kepler Partners the “Kepler Income & Growth Rating 2024”.

• Square Mile Investment Consulting & Research have awarded your Company an A-rating.

Please refer to the respective Company website for further information and methodology.

Intention to Conduct Audit Tender

While the Company is required to carry out a tender at least every ten years and no later than 30 April 2026, in view of increases in audit fees, the Company is commencing a tender process for the role of external auditor for the financial year ending 30 April 2025.  The audit tender process will be overseen by the Audit Committee and is expected to conclude in the coming months.

This is no reflection on the quality of the existing auditor’s work or any issue other than cost.

Update

From 31 October 2023 to 23 January 2024, the NAV total return has been -4.2%, underperforming the index total return of -0.2%. The share price total return has been 0.8%, with the discount narrowing to 10.0%.

Outlook

Headwinds remain: China’s recovery is being hampered most notably by property oversupply and bad debts. Persistent inflation in the United States has led to American interest rates being higher for longer, which puts pressure on Asian currencies. Monetary tightening in the US and Europe will depress economic activity at some point soon, even if recession is avoided. This will further negatively reduce demand for Asian exports, which have already been affected by the protectionist parts of President Biden’s Inflation Reduction Act. The 2024 US Presidential election will provide lots of noise and perhaps further reason to avoid risk assets. At best, you could only argue that the headwinds are not becoming stronger.

The surprising thing is that favourable tailwinds have not yet appeared. There is the possibility of a rapprochement between the US and China: China’s economic needs plus the US stance against Russia would suggest a more favourable relationship would help the US and China. Dollar interest rates and US bond yields are close to peaking, even if they do not fall as much as some are expecting. Asian corporate governance is much stronger these days, so many companies can prosper even through harsh times. Asian economies are more resilient than in previous cycles with larger domestic consumption meaning they are less dependent on exports.

If we are becalmed for a time, the dilemma becomes should you invest now or buy after things improve? If invested in Invesco Asia Trust, we would argue that you are paid to wait. Not only are the valuations of the underlying investments at unusually attractive levels but you have the double discount of the share price relative to the net asset value. On top of this comes a 5% annual dividend yield based on the share price as at 31 October 2023, approximately half of which is effectively a return of capital at net asset value.

 

Neil Rogan

Chairman

24 January 2024

 

Portfolio Managers’ Report

Q How has the Company performed in the period under review?

A The Company’s net asset value decreased by –5.9% (total return, in sterling terms) over the six months to 31 October 2023, which compares to the benchmark MSCI AC Asia ex Japan index total return of –2.9%.

The reporting period was a tough one for the portfolio in both absolute and relative terms, as markets had to contend with pressure from rising US interest rates and disappointment over the strength of China’s post-Covid recovery. China’s economic woes, both cyclical and structural, have been well publicised, but the macro situation is not as bad as presented by the media in the UK. However, China has remained out of favour and any signs of stabilisation in the economy have been overshadowed by general risk-aversion. Over the period, the yield on US 10-year government bonds climbed by 150 basis points to around 5.0%, with the dominant narrative being that rates would need to stay “higher for longer”, although this is no longer the case.

Against this backdrop, the portfolio’s exposure to Hong Kong/China was a drag on performance, with the biggest detractors coming from these markets. The portfolio’s underweight position in India has also detracted, as this was the region’s best performing market, although a positive impact from stock selection partially offset this in terms of relative performance. Stock selection elsewhere was generally positive, particularly in Korea and Taiwanese tech names, with strong contributions from holdings in Thailand and Singapore as well.

Q What have been the biggest detractors?

A Chinese consumer confidence has been very weak, so it is no surprise that stocks with exposure to this area of the market underperformed, as reopening recovery momentum faded. China MeiDong Auto was the biggest single detractor, with weak demand and increased competition from the electric vehicle (‘EV’) segment being headwinds for the luxury auto dealership, although business operations appear to be faring better than feared. Beijing Capital International Airport has struggled as international routes have been slow to re-start, especially from the US, while restaurant operator Jiumaojiu has not been immune from the slower-than-expected recovery. ENN Energy underperformed after first half earnings showed a sharp decline in volume to gas-fired power plants and weaker demand from real estate related sectors (building materials), although the company’s growth drivers remain intact with underappreciated recovery potential.

In Korea, LG Household & Health Care detracted as the cosmetics manufacturer saw declining revenues from its beauty business given the delayed turnaround in China. Meanwhile, LG Chemical was impacted by weaker EV sales in the EU and weakening chemical spreads. We believe that structural growth from EVs will outweigh the negative impact of lower raw material prices on earnings, with the shares attractively valued.

Q And contributors?

A The two biggest contributors were both from India. Aurobindo Pharma benefitted from a pickup in US sales while reports that Revlimid (cancer drug) had received approval in India were also supportive for the generics manufacturer. Meanwhile, Shriram Transport Finance made strong gains after the expected sale of large blocks of stock removed a significant overhang for the share price, with the company also reporting resilient margins, low credit costs and strong growth in key cross-sell products, using its extensive branch network to good effect.

Elsewhere, Samsung Fire & Marine continued to outperform thanks to a positive earnings outlook driven by continued underwriting margin improvement. Tech stocks with exposure to the AI server supply-chain rallied after Nvidia’s raised guidance pointed to an acceleration in demand sooner and greater than people had expected, with Chroma ATE in Taiwan and Korean memory chip stocks adding significant value. Chinese chip designer Will Semiconductor outperformed, thanks to strong momentum in sales of chips for smartphones and autos. Finally, stock selection in the Association of Southeast Asian Nations (‘ASEAN’) was a positive, with contributions from the recently introduced Sea, Kasikornbank and Vietnamese steel manufacturer Hoa Phat.

Q Where have you been finding new opportunities?

A Over the last few years, we have benefitted from avoiding fallen angels and interest rate sensitives. Rising interest rates and the reversal of Covid tailwinds have seen the market’s focus shift from revenue growth to profitability. Previously well-loved stocks have endured peak-to-trough share price declines of 60-90%, which caught our attention as we seek out new contrarian ideas.

Recent introductions included: Sea, the largest ASEAN ecommerce company that also owns the gaming studio behind Free Fire (developer of one of the most downloaded mobile games in the world); Grab, the largest ride hailing and food delivery company in ASEAN; and Full Truck Alliance, one of the largest digital freight platforms in China. These types of business are not normally associated with investors that take a valuation-driven approach. However, in these instances we have found evidence of bearish consensus narratives, compelling long-term fundamentals, strong balance sheets and underappreciated hidden value, all key attributes of our valuation-driven process.

We also introduced Link REIT, a Hong Kong real estate investment trust with exposure to retail (focus on consumer staples) and offices. Link REIT is another new idea that feels very contrarian in the current environment with valuations at record low levels, but the balance sheet is in good shape and the dividend yield is 6%, while a pick-up in the Hong Kong economy and falling interest rates offer potential tailwinds to earnings.

Q How else has portfolio positioning changed, are you more underweight in India?

A We have increased the portfolio’s underweight position in India by around 2 percentage points, and the portfolio now has around 7% less than the benchmark MSCI Asia ex Japan index, although we retain around 11% in Indian companies. Over the period, we have sold Mahindra & Mahindra and started to take profits from outperformers Larsen & Toubro and Aurobindo Pharma. The outlook for India remains positive from a top-down perspective, but that is reflected in the market’s valuation which remains elevated relative to its history. More than one third of the companies in the MSCI India index currently trade on a valuation multiple higher than 40 times  expected earnings for the fiscal year ending March 2025.

One attractively valued opportunity that we have identified is Power Grid, the central transmission utility of India. The company has a solid track record, enjoying a positive earnings trend over the last few years, with a robust balance sheet, long-term growth potential and an attractive dividend yield.

Meanwhile, we have continued to take profits from outperformers, where share prices are closer to our estimate of fair value. For example, we sold Newcrest Mining, after US gold giant Newmont’s takeover appeared set for completion; and POSCO, as the market’s valuation of the Korean steel manufacturer’s lithium operations appeared increasingly stretched relative to peers.

Q What is your outlook for China?

A China’s reopening has disappointed, with the strength of the recovery being overestimated by the market as well as by ourselves. After a short-lived, organic recovery, consumer caution quickly returned, likely linked to property market concerns. However, a crescendo of negativity has built-up around China’s longer-term structural challenges and near-term cyclical issues that now appear to be fully priced in.

The property market poses important structural concerns, but a positive outlook is not required for investors to make money. Macroeconomic data in China is starting to improve, suggesting we may have reached the bottom of the cycle. The direction of policy is also clear, with greater urgency in coordinated monetary and fiscal measures, the authorities’ priorities being to stabilise the property market, reduce financial risk particularly at local government financing vehicles (‘LGFV’) and reinvigorate capital markets. If the property market does not deteriorate further it is reasonable to anticipate a rebound in consumer confidence.

The strength of any market rebound is likely to be contingent on further signs of improvement in the macro data, reflecting a degree of capitulation by weary global investors. Herd mentality has shifted market sentiment out to extreme levels. Our experience of investing in China suggests that these periods often present the greatest opportunity. In recent quarters, we have seen decent earnings growth among certain consumer-facing and internet companies. Valuations are deeply discounted, and Chinese equities could prove to be quite sensitive to signs that corporate fundamentals are improving in a steady, sustainable fashion. We do not look for catalysts, preferring to focus on the fundamentals of the companies we are invested in, trying to establish what is a reasonable price to pay for the growth that we expect. We believe that the upside risk is now greater than the downside risk.

Q Final thoughts?

A Since peaking in early 2021, Asian equity markets have struggled amidst a liquidity tightening cycle and a crescendo of negativity surrounding China. Valuations for regional indices trade below long-term historic averages, at around 1.6x price/book, in terms of price/book, and at a significant discount to developed markets (as can be seen in table below), particularly the US. We believe there is scope for this to narrow.

		Forward P/E, x	Forward Dividend Yield, %	Free Cash Flow Yield, %	3yr EPS Growth, %	Net Debt to Equity, %
	Current P/B, x
Invesco Asia  Trust plc	1.4	10.5	2.8	4.7	17.3	–8%
MSCI Asia ex Japan	1.6	11.5	2.6	5.2	10.4	2%
MSCI World	3.0	15.4	2.1	4.8	17.9	44%
S&P 500	4.1	17.2	1.6	4.0	18.9	47%

Asian equities are well placed to benefit from an improvement in liquidity conditions, as we approach the peak in rate expectations, with US dollar strength likely to cease being a headwind. Furthermore, compared to previous tightening cycles, Asian economies enjoy relatively solid fundamentals, suggesting greater monetary policy flexibility should growth headwinds start to build. 

Finally, consensus earnings growth expectations for 2024 are around 20% and we believe that Asian companies may see less earnings vulnerability from a global slowdown relative to expectations and to what is being implied in valuations. In our view, the continued divergence in performance and valuations between different countries and sectors within the emerging world is providing interesting investment opportunities.

 

Ian Hargreaves & Fiona Yang

Portfolio Managers

24 January 2024

 

Principal Risks and Uncertainties

The Board has carried out a robust assessment of the principal and emerging risks facing the Company. These include those that would threaten its business model, future performance, solvency and liquidity. In carrying out this assessment the Board together with the Manager have considered emerging risks such as geopolitical risks, evolving cyber threats and climate related risks. These risks also form part of the principal risks identified and the mitigating actions are detailed below. In the view of the Board, these principal risks and uncertainties are as much applicable to the remaining six months of the financial year as they were to the six months under review.

Category and Principal Risk Description	Mitigating Procedures and Controls	Risk trend during the period
Strategic Risk
Market Risk The Company’s investments are mainly traded on Asian and Australasian stock markets as well as the UK. The principal risk for investors in the Company is a significant fall and/or a prolonged period of decline in these markets. This could be triggered by unfavourable developments within the region or events outside it.	The Company has a diversified investment portfolio by country, sector and stock. Due to its investment trust structure, no forced sales need to take place and investments can be held over a longer term horizon. However, there are few ways to mitigate absolute market risk because it is engendered by factors which are outside the control of the Board and the Manager. These factors include the general health of the world economy, interest rates, inflation, government policies, industry conditions, and changing investor demand and sentiment. Such factors may give rise to high levels of volatility in the prices of investments held by the Company.	Increased
Geopolitical Risk Political risk has always been a feature of investing in stock markets and it is particularly so in Asia. Wider political developments in geographies beyond Asia, such as the US, Ukraine, Israel and Palestine can create risks to the value of the Company’s assets. Asia encompasses a variety of political systems. There are many examples of diplomatic skirmishes and military tensions and sometimes these resort to military engagement. Moreover, the involvement in Asian politics of the US and European countries can reduce or raise tensions.	The Manager evaluates and assesses political risk as part of the stock selection and asset allocation policy which is monitored at every Board meeting. This includes political, military and diplomatic events and changes to legislation. Balancing political risk and reward is an essential part of the active management process.	Increased
Investment Objectives and Strategy The Company’s investment objectives and strategy are no longer meeting investors’ demands.	The Board receives regular reports reviewing the Company’s investment performance against its stated objectives and peer group, and reports from discussions with its brokers and major shareholders. The Board also has a separate annual strategy meeting.	Unchanged
Widening Discount A lack of liquidity and/or lack of investor interest in the Company’s shares leads to a depressed share price and a widening discount to its NAV. A persistently high discount may lead to buybacks of the Company’s shares and result in the shrinkage of the Company.	The Board receives regular reports from both the Manager and the Company’s broker on the Company’s share price performance, level of share price discount to NAV and recent trading activity in the Company’s shares. The Board has introduced initiatives to help address the Company’s share rating including a performance conditional tender in 2025 and the enhanced dividend policy. It may seek to reduce the volatility and absolute level of the share price discount to NAV for shareholders through buying back shares within the stated limit. The Board also receives regular reports on investor relation meetings with shareholders and prospective investors and works to ensure that the Company’s investment proposition is actively marketed through relevant messaging across many distribution channels.	Increased
Investment Management Risk
Performance That the Portfolio Managers consistently underperform the benchmark and/or peer group over 3-5 years.	The Board regularly compares the Company’s NAV performance over both the short and long term to that of the benchmark and peer group as well as reviewing the portfolio’s performance against benchmark (attribution) and risk adjusted performance (volatility, beta, tracking error, Sharpe ratio) of the Company and its peers.	Unchanged
ESG including climate risk Risks associated with climate change and ESG considerations could affect the valuation of the Company’s holdings.	ESG considerations are integrated as part of the investment decision-making in constructing the portfolio. Such investment decisions include the transactions undertaken in the period, the review of active portfolio positions and consideration of the gearing position and, if applicable, hedging. The process around ESG is described in the ESG Monitoring and Engagement section on pages 6 and 7.	Unchanged
Key Person Dependency Either or both of the Portfolio Managers (Ian Hargreaves and Fiona Yang) ceases to be Portfolio Manager or are incapacitated or otherwise unavailable.	The adoption of a Co-Portfolio Manager model has mitigated the risk of key person dependency. The Co-Portfolio Managers work within and are supported by the wider Invesco Asian and Emerging Markets Equities team, with Ian Hargreaves and William Lam as Co-Heads of this team.	Unchanged
Currency Fluctuation Risk Exposure to currency fluctuation risk negatively impacts the Company’s NAV. The movement of exchange rates may have an unfavourable or favourable impact on returns as nearly all of the Company’s assets are non-sterling denominated.	With the exception of borrowings in foreign currency, the Company does not normally hedge its currency positions but may do so should the Portfolio Managers or the Board feel this to be appropriate. Contracts are limited to currencies and amounts commensurate with the asset exposure. The foreign currency exposure of the Company is reviewed at Board meetings.	Unchanged
Third-Party Service Providers Risk
Unsatisfactory Performance of Third-Party Service Providers Failure by any Third Party Service Providers (‘TPP’) to carry out its obligations to the Company in accordance with the terms of its appointment could have a materially detrimental impact on the operations of the Company and could affect the ability of the Company to successfully pursue its investment policy and expose the Company to reputational risk. Disruption to the accounting, payment systems or custody records could prevent the accurate reporting and monitoring of the Company’s financial position.	The Audit Committee closely monitors the services provided by the Manager and other TPPs. The details of how effective internal control is assured are set out in the internal control and risk management section on page 41 of the 2023 Annual Financial Report.	Unchanged
Information Technology Resilience and Security The Company’s operational structure means that all cyber risk (information and physical security) arises at its TPP. This cyber risk includes fraud, sabotage or crime perpetrated against the Company or any of its TPPs.	The Audit Committee receives regular updates on the Manager’s information and cyber security. This includes updates on the cyber security framework, staff resource and training, and the testing of its security systems designed to protect against a cyber security attack. As well as conducting a regular review of TPPs audited service organisation control reports, the Audit Committee monitors TPPs’ business continuity plans and testing including the TPPs’ and Manager’s regular ‘live’ testing of workplace recovery arrangements should a cyber event occur.	Unchanged
Operational Resilience The Company’s operational capability relies upon the ability of its TPPs to continue working throughout the disruption caused by a major event such as the Covid-19 pandemic.	The Manager’s business continuity plans are reviewed on an ongoing basis and the Directors are satisfied that the Manager has in place robust plans and infrastructure to minimise the impact on its operations so that the Company can continue to trade, meet regulatory obligations, report and meet shareholder requirements. The Manager has arrangements and prioritises between work deemed necessary to be carried out on business premises and work from home arrangements should it be necessary, for instance due to government restrictions. Any meetings are held in person, virtually or via conference calls. Similar working arrangements are in place for the Company’s TPPs. The Audit Committee receives regular update reports from the Manager and TPPs on business continuity processes.	Unchanged

 

Twenty-five Largest Holdings

AT 31 OCTOBER 2023

Ordinary shares unless stated otherwise

† The sector group is based on MSCI and Standard & Poor’s Global Industry Classification Standard.

			At Market
			Value	% of
Company	Sector†	Country	£’000	Portfolio
Taiwan Semiconductor Manufacturing	Semiconductors and Semiconductor Equipment	Taiwan	22,861	9.8
Samsung Electronics – ordinary share	Technology Hardware and Equipment	South Korea	12,238}  5,252}	7.5
– preference shares
TencentR	Media and Entertainment	China	13,591	5.8
AlibabaR	Consumer Discretionary Distribution and Retail	China	11,738	5.0
HDFC Bank	Banks	India	10,463	4.5
AIA	Insurance	Hong Kong	7,786	3.3
KasikornbankF	Banks	Thailand	7,494	3.2
Shriram Transport Finance	Financial Services	India	6,138	2.6
Samsung Fire & Marine	Insurance	South Korea	5,472	2.3
SK Hynix	Semiconductors and Semiconductor Equipment	South Korea	4,872	2.1
YiliA	Food, Beverage and Tobacco	China	4,638	2.0
Gree Electrical AppliancesA	Consumer Durables and Apparel	China	4,584	2.0
Will SemiconductorA	Semiconductors and Semiconductor Equipment	China	4,460	1.9
LG Chemical	Materials	South Korea	4,351	1.9
Ping An InsuranceH	Insurance	China	4,290	1.8
Largan Precision	Technology Hardware and Equipment	Taiwan	4,155	1.8
JD.comR	Consumer Discretionary Distribution and Retail	China	3,970	1.7
Link REIT	Equity Real Estate Investment Trusts (REITs)	Hong Kong	3,793	1.6
Yageo	Technology Hardware and Equipment	Taiwan	3,762	1.6
CK Asset	Real Estate Management and Development	Hong Kong	3,757	1.6
Astra International	Capital Goods	Indonesia	3,738	1.6
Hansoh PharmaceuticalR	Pharmaceuticals, Biotechnology and Life Sciences	China	3,460	1.5
Anglo American	Materials	United Kingdom	3,318	1.4
MINTH	Automobiles and Components	Hong Kong	3,292	1.4
Vinamilk	Food, Beverage and Tobacco	Vietnam	3,237	1.4
			166,710	71.3
Other Investments (34)			67,032	28.7
Total Holdings (59)			233,742	100.0

H:   H-Shares – shares issued by companies incorporated in the People’s Republic of China (‘PRC’) and listed on the Hong Kong Stock Exchange.

R: Red Chip Holdings – holdings in companies incorporated outside the PRC, listed on the Hong Kong Stock Exchange, and controlled by PRC entities by way of direct or indirect shareholding and/or representation on the board.

A: A-shares – shares that denominated in Renminbi and traded on the Shanghai and Shenzhen stock exchanges.

F: F-Shares – shares issued by companies incorporated in Thailand that are available to foreign investors only. Thai laws have imposed restrictions on foreign ownership of Thai companies so there is a pre-determined limit of these shares. Voting rights are retained with these shares.

 

Governance

Going Concern

The financial statements have been prepared on a going concern basis.

The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future, being taken as at least 12 months after signing the financial statements for the same reasons as set out in the Viability Statement in the Company’s 2023 Annual Financial Report. The Directors took into account the diversified portfolio of readily realisable securities which can be used to meet the net current liability position of the Company as at the balance sheet date; and revenue forecasts for the forthcoming year.

Related Party Transactions

Under United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable law), the Company has identified the Directors and their dependents as related parties. No other related parties have been identified. No transactions with related parties have taken place which have materially affected the financial position or the performance of the Company.

Directors’ Responsibility Statement

In respect of the preparation of the half-yearly financial report

The Directors are responsible for preparing the half-yearly financial report using accounting policies consistent with applicable law and UK Accounting Standards.

The Directors confirm that to the best of their knowledge:

— the condensed set of financial statements contained within the half-yearly financial report have been prepared in accordance with the FRC’s FRS 104 Interim Financial Reporting;

— the interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the FCA’s Disclosure Guidance and Transparency Rules; and

— the interim management report includes a fair review of the information required on related party transactions.

The half-yearly financial report has not been audited nor reviewed by the Company’s auditor.

Signed on behalf of the Board of Directors.

 

Neil Rogan

Chairman

24 January 2024

 

Condensed Income Statement

		For the six months ended			For the six months ended
		31 October 2023			31 October 2022
		Revenue	Capital	Total	Revenue	Capital	Total
		return	return	return	return	return	return
		£’000	£’000	£’000	£’000	£’000	£’000
Losses on investments held at fair value		–	(16,696)	(16,696)	—	(36,228)	(36,228)
Losses on foreign exchange		–	(141)	(141)	—	(316)	(316)
Income – note 2		4,617	42	4,659	5,285	51	5,336
Investment management fee – note 3		(228)	(685)	(913)	(222)	(666)	(888)
Other expenses		(346)	(3)	(349)	(332)	(2)	(334)
Net return before finance costs and
taxation		4,043	(17,483)	(13,440)	4,731	(37,161)	(32,430)
Finance costs – note 3		(66)	(198)	(264)	(24)	(72)	(96)
Return on ordinary activities
before taxation		3,977	(17,681)	(13,704)	4,707	(37,233)	(32,526)
Tax on ordinary activities – note 4		(420)	(308)	(728)	(450)	(179)	(629)
Return on ordinary activities after
taxation for the financial period		3,557	(17,989)	(14,432)	4,257	(37,412)	(33,155)
Return per ordinary share
Basic		5.32p	(26.91)p	(21.59)p	6.37p	(55.96)p	(49.59)p
Weighted average number of ordinary shares
in issue during the period				66,853,287			66,853,287

The total columns of this statement represent the Company’s profit and loss account, prepared in accordance with UK Accounting Standards. The return on ordinary activities after taxation is the total comprehensive income and therefore no additional statement of other comprehensive income is presented. The supplementary revenue and capital columns are presented for information purposes in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies. All items in the above statement derive from continuing operations of the Company. No operations were acquired or discontinued in the period.

 

Condensed Statement of Changes in Equity

		Capital
	Share	Redemption	Special	Capital	Revenue
	Capital	Reserve	Reserve	Reserve	Reserve	Total
	£’000	£’000	£’000	£’000	£’000	£’000
For the six months ended 31 October 2023
At 30 April 2023	7,500	5,624	34,827	195,713	1,340	245,004
Return on ordinary activities	–	–	–	(17,989)	3,557	(14,432)
At 31 October 2023	7,500	5,624	34,827	177,724	4,897	230,572
For the six months ended 31 October 2022
At 30 April 2022	7,500	5,624	34,827	202,814	1,411	252,176
Return on ordinary activities	–	–	–	(37,412)	4,257	(33,155)
At 31 October 2022	7,500	5,624	34,827	165,402	5,668	219,021

 

Condensed Balance Sheet

Registered Number 3011768

	At 31 October  2023 £’000	At 30 April 2023 £’000
Fixed assets
Investments held at fair value through profit or loss – note 7	233,742	258,962
Current assets
Overseas withholding tax recoverable	213	145
VAT recoverable	19	19
Prepayments and accrued income	140	358
Cash and cash equivalents	863	1,337
	1,235	1,859
Creditors: amounts falling due within one year
Bank facility	(3,091)	(13,593)
Bank overdraft	–	(740)
Accruals	(592)	(668)
	(3,683)	(15,001)
Net current liabilities	(2,448)	(13,142)
Total assets less current liabilities	231,294	245,820
Creditors: amounts falling due after more than one year
Provision for deferred Indian capital gains tax	(722)	(816)
Net assets	230,572	245,004
Capital and reserves
Share capital	7,500	7,500
Other reserves:
Capital redemption reserve	5,624	5,624
Special reserve	34,827	34,827
Capital reserve	177,724	195,713
Revenue reserve	4,897	1,340
Total shareholders’ funds	230,572	245,004
Net asset value per ordinary share
Basic	344.89p	366.48p
Number of 10p ordinary shares in issue at the period end – note 6	66,853,287	66,853,287

 

Signed on behalf of the Board of Directors.

 

 

 

Neil Rogan

Chairman

24 January 2024

 

Notes to the Condensed Financial Statements

1. Accounting Policies

The condensed financial statements have been prepared in accordance with applicable United Kingdom Accounting Standards and applicable law (UK Generally Accepted Accounting Practice), including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, FRS 104 Interim Financial Reporting and the Statement of Recommended Practice Financial Statements of Investment Trust Companies and Venture Capital Trusts, updated by the Association of Investment Companies in July 2022. The financial statements are issued on a going concern basis.

The accounting policies applied to these condensed financial statements are consistent with those applied in the Company’s 2023 Annual Financial Report.

2. Income

	Six months to	Six months to
	31 October	31 October
	2023	2022
	£’000	£’000
Income from investments:
Overseas dividends – ordinary	4,547	4,956
– special	51	327
Deposit interest	19	2
Total income	4,617	5,285

Special dividends of £42,000 were recognised in capital during the period (31 October 2022: £51,000).

3. Management Fee and Finance Costs

Investment management fee and finance costs on any borrowings are charged 75% to capital and 25% to revenue. A management fee is payable quarterly in arrears and is equal to 0.75% per annum of the value of the Company’s total assets less current liabilities (including any short term borrowings) under management at the end of the relevant quarter and 0.65% per annum for any net assets over £250 million.

4. Taxation and Investment Trust Status

It is the intention of the Directors to conduct the affairs of the Company such that the conditions for approval as an investment trust company are satisfied. As such, the Company has not provided any UK corporation tax on any realised or unrealised capital gains or losses arising on investments. The Company’s tax charge represents withholding tax suffered on overseas income and Indian capital gains tax paid and provided for due to the holding of Indian equity investments which are subject to Indian Capital Gains Tax Regulations. Further details can be found in Note 6(d) of the Company’s 2023 Annual Financial Report on page 62.

5. Dividends paid on Ordinary Shares

As noted in the Chairman’s Statement, a first interim dividend of 7.20p per share was paid on 23 November 2023 to shareholders on the register on 3 November 2023. Shares were marked ex-dividend on 2 November 2023.

In accordance with accounting standards, dividends payable after the period end have not been recognised as a liability.

6. Share Capital, including Movements

Share capital represents the total number of shares in issue, including treasury shares.

(a) Ordinary Shares of 10p each

	Six months to	Year to
	31 October	30 April
	2023	2023
Number of ordinary shares in issue:
Brought forward	66,853,287	66,853,287
Shares bought back into treasury	–	–
Carried forward	66,853,287	66,853,287

(b) Treasury Shares

	Six months to	Year to
	31 October	30 April
	2023	2023
Number of treasury shares held:
Brought forward	8,146,594	8,146,594
Shares bought back into treasury	–	–
Carried forward	8,146,594	8,146,594
Total ordinary shares	74,999,881	74,999,881

During the period the Company has not bought back nor re-issued any shares into or from treasury (30 April 2023: nil).

Subsequent to the period end 31 October 2023 no ordinary shares were issued, bought back into treasury nor cancelled.

7. Classification Under Fair Value Hierarchy

FRS 102 sets out three fair value levels. These are:

Level 1 – The unadjusted quoted price in an active market for identical assets that the entity can access at the measurement date.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.

Level 3 – Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.

The fair value hierarchy analysis for investments and related forward currency contracts held at fair value at the period end is as follows:

	31 October	30 April
	2023	2023
	£’000	£’000
Financial assets designated at fair value through profit or loss:
Level 1	225,614	252,244
Level 2	8,089	6,680
Level 3	39	38
Total for financial assets	233,742	258,962

The Level 2 investment consists of two holdings: (i) Invesco Liquidity Funds – US Dollar money market fund valued at £595,000 and (ii) Kasikornbank valued at £7,494,000 (30 April 2023: one holding in Kasikornbank valued at £6,680,000).

The Level 3 investment consists of one holding in Lime Co. (30 April 2023: Lime Co.).

8. Status of Half-Yearly Financial Report

The financial information contained in this half-yearly report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the half years ended 31 October 2023 and 31 October 2022 have not been audited. The figures and financial information for the year ended 30 April 2023 are extracted and abridged from the latest audited accounts and do not constitute the statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the Report of the Independent Auditor, which was unqualified and did not include a statement under section 498 of the Companies Act 2006.

The Half-Yearly Financial Report for the Six Months to 31 October 2023 will be available to shareholders, and copies may be obtained during normal business hours from the Company’s Registered Office, from its correspondence address, 43-45 Portman Square, London W1H 6LY, and via  www.invesco.co.uk/invescoasia.

 

A copy of the Half-Yearly Financial Report will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

 

 

By order of the Board

Invesco Asset Management Limited

Corporate Company Secretary

24 January 2024

 

Glossary of Terms and Alternative Performance Measures

Glossary of Terms

(Discount)/Premium

Discount is a measure of the amount by which the mid-market price of an investment company share is lower than the underlying net asset value (NAV) of that share. Conversely, Premium is a measure of the amount by which the mid-market price of an investment company share is higher than the underlying net asset value of that share. In this interim financial report the discount is expressed as a percentage of the net asset value per share and is calculated according to the formula set out below. If the shares are trading at a premium the result of the below calculation will be positive and if they are trading at a discount it will be negative.

Gearing

The gearing percentage reflects the amount of borrowings that a company has invested. This figure indicates the extra amount by which net assets, or shareholders’ funds, would be expected to move if the value of a company’s investments were to rise or fall. A positive percentage indicates the extent to which net assets are geared; a nil gearing percentage, or ‘nil’, shows a company is ungeared. A negative percentage indicates that a company is not fully invested and is holding net cash as described in the Alternative Performance Measures section below.

Leverage

Leverage, for the purposes of the Alternative Investment Fund Managers Directive (AIFMD), is not synonymous with gearing as defined above. In addition to borrowings, it encompasses anything that increases the Company’s exposure, including foreign currency and exposure gained through derivatives. Leverage expresses the Company’s exposure as a ratio of the Company’s net asset value. Accordingly, if a Company’s exposure was equal to its net assets it would have leverage of 100%. Two methods of calculating such exposure are set out in the AIFMD, gross and commitment. Under the gross method, exposure represents the aggregate of all the Company’s exposures other than cash balances held in base currency and without any offsetting. The commitment method takes into account hedging and other netting arrangements designed to limit risk, offsetting them against the underlying exposure.

Net Asset Value (‘NAV’)

Also described as shareholders’ funds, the NAV is the value of total assets less liabilities. The NAV per share is calculated by dividing the net asset value by the number of ordinary shares in issue. The number of ordinary shares for this purpose excludes those ordinary shares held in treasury.

Portfolio Beta

The portfolio beta is a measure of the portfolio’s sensitivity to market movements. The beta of the market is 1.00 by definition. A beta of 1.10 shows that the portfolio would be expected to perform 10% better than its benchmark index in rising markets and 10% worse in falling markets, assuming all other factors remain constant. Conversely, a beta of 0.90 indicates that the portfolio would be expected to perform to perform 10% worse than the benchmark index during rising markets and 10% better during falling markets. The beta of the Company’s portfolio was 1.09 as at 31 October 2023.

Return

The return generated in a period from the investments including the increase and decrease in the value of investments over time and the income received.

Capital Return

Reflects the return on NAV, from the increase and decrease in the value of investments, but excluding any dividends reinvested.

Total Return

Total return is the theoretical return to shareholders that measures the combined effect of any dividends paid, together with the rise or fall in the share price or NAV. In this half-yearly financial report these return figures have been sourced from LSEG Data & Analytics who calculate returns on an industry comparative basis. The figures calculated below are six month and one year total returns, however the same calculation would be used for three, five and ten year total returns where quoted in this report, taking the respective Net Asset Values and Share Prices period for the opening and closing periods and adding the impact of dividend reinvestments for the relevant periods.

NAV Total Return

Total return on net asset value per share, assuming dividends paid by the Company were reinvested into the shares of the Company at the NAV per share at the time the shares were quoted ex-dividend.

Share Price Total Return

Total return to shareholders, on a mid-market price basis, assuming all dividends received were reinvested, without transaction costs, into the shares of the Company at the time the shares were quoted ex-dividend.

Benchmark Total Return

The benchmark of the Company is the MSCI AC Asia ex Japan Index (total return, net of withholding tax, in sterling terms). Total return on the benchmark is on a mid-market value basis, assuming all dividends received were reinvested, without transaction costs, into the shares of the underlying companies at the time the shares were quoted ex-dividend.

Alternative Performance Measures

An APM is a measure of performance or financial position that is not defined in applicable accounting standards and cannot be directly derived from the financial statements. The calculations shown in the corresponding tables are for the six months ended 31 October 2023 and the year ended 30 April 2023. The APMs listed here are widely used in reporting within the investment company sector and consequently aid comparability.

(Discount)/Premium (APM)

			At 31 October 2023	At 30 April 2023
	Page
Share price	1	a	296.00p	321.00p
Net asset value per share	15	b	344.89p	366.48p
Discount		c = (a-b)/b	(14.2)%	(12.4)%

The average discount for the period/year is the arithmetic average, over a period/year, of the daily discount calculated on the same basis as shown above.

Gross Gearing (APM)

This reflects the amount of gross borrowings in use by a company and takes no account of any cash balances. It is based on gross borrowings as a percentage of net assets. As at 31 October 2023 the Company had £3,091,000 gross borrowings (30 April 2023: £14,333,000).

			At 31 October 2023	At 30 April 2023
	Page		£’000	£’000
Bank facility	15		3,091	13,593
Overdraft	15		–	740
Gross borrowings		a	3,091	14,333
Net assets	15	b	230,572	245,004
Gross gearing		c = a/b	1.3%	5.9%

Net Gearing or Net Cash (APM)

Net gearing reflects the amount of net borrowings invested, i.e. borrowings less cash and cash equivalents (incl. investments in money market funds). It is based on net borrowings as a percentage of net assets. Net cash reflects the net exposure to cash and cash equivalents, as a percentage of net assets, after any offset against total borrowings.

			At 31 October 2023	At 30 April 2023
	Page		£’000	£’000
Bank facility	15		3,091	13,593
Overdraft	15		–	740
Less: cash and cash equivalents including margin	15		(863)	(1,337)
Less: Invesco Liquidity Fund – US Dollar (money market fund)			(595)	—
Net borrowings		a	1,633	12,996
Net assets	15	b	230,572	245,004
Net gearing		c = a/b	0.7%	5.3%

Total Return (APM)

			Net Asset	Share
Six Months Ended 31 October 2023	Page		Value	Price
As at 31 October 2023	1		344.89p	296.00p
As at 30 April 2023	1		366.48p	321.00p
Change in period		a	–5.9%	–7.8%
Impact of dividend reinvestments(1)		b	0.0%	0.0%
Total return for the period		c = a+b	–5.9%	–7.8%
			Net Asset	Share
Year Ended at 30 April 2023	Page		Value	Price
As at 30 April 2023	1		366.48p	321.00p
As at 30 April 2022			377.21p	332.50p
Change in year		a	–2.8%	–3.5%
Impact of dividend reinvestments(1)		b	4.1%	4.7%
Total return for the year		c = a+b	1.3%	1.2%

 (1) No dividends have been paid during six months to 31 October 2023 (year to 30 April 2023: 14.80p). NAV or share price movements subsequent to the reinvestment date further impact the returns, rising if the NAV or share price rises and falling if the NAV or share price falls.

 

 

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