Aberdeen Pacific Equity Fund Annual report to 30 September 2014
Performance Review The Aberdeen Pacific Equity Fund rose by 6.61% in Singapore dollar terms for the year under review. This compares with a total return of its benchmark, the MSCI Asia Pacific ex Japan Index, of 7.95%.
Market Review Asian equities rose over the review period, even as the US Federal Reserve scaled back its quantitative easing programme. Leading gains were India and Indonesia, where politics dominated. In India, the election victory of the pro-business Bharatiya Janata party roused expectations of a turnaround in the investment cycle, which should help revitalise the economy. Indonesia was buttressed by hopes that political change would come from Joko Widodo, who was subsequently elected president. However, gains were capped when direct elections for regional mayors and governors were scrapped, although outgoing president Yudhoyono later suspended the law, buying time for the new administration to garner support before another parliamentary vote. Thailand also outpaced the broader region as the military tightened its grip after the coup, lifting optimism that growth would recover after months of turmoil. Conversely, laggards included China where growth worries persisted, while the resource-heavy Australian market was vulnerable to weaker commodity prices. Towards the year’s end, risk appetite waned as healthier US data brought forward expectations of an early hike in Fed rates, weighing on markets like Singapore, while the lower oil price and weak European economic data further dimmed sentiment.
Portfolio Review At the stock level, key contributors to relative performance included the holdings in the Aberdeen Global – Indian Equity Fund and Samsung Electronics. Election-related euphoria pushed the Indian market to all-time highs and we have taken partial profits. As for Samsung Electronics, we hold the preferred shares, which outperformed the ordinary shares. The stock did well on the back of record operating profits, although it came under pressure when management forecast weaker handset margins going into the second half of the year. While Samsung is facing increasing competition from mid to low-end Chinese smartphone companies, it remains well placed given its vertically integrated operation. Additionally, we are beginning to see a turnaround in the memory division, a key segment.
Conversely, holdings that detracted included QBE Insurance and Standard Chartered. Australian insurer QBE reported a net loss of US$254 million for the year to December 2013 on the back of additional provisions, restructuring charges and a goodwill write-down in North America. Later, the company allocated additional reserves in Argentina. Nevertheless, we were encouraged that other parts of QBE continued to operate within expectations. The stock recouped some losses after management bolstered the balance sheet with the placement of new shares and the chairman refreshed the board. Standard Chartered was pressured by weaker profits. The outlook remains challenging owning to poorer sentiment in emerging markets, but we are optimistic. The bank has a solid franchise across developing nations, and efforts to cut costs during the economic slowdown should bear fruit over the long term.
In portfolio activity, we introduced CSL, an Australia-listed biopharmaceutical company that is a leading player in the global plasma products market. The company has robust quality control and enjoys superior growth and returns because of its highly efficient collection and processing system, coupled with its commitment to research and development. It is financially strong and any excess free cashflows have been used for share buybacks, enhancing shareholder value. Elsewhere, we participated in the attractively-discounted rights issues of both Bank of the Philippine Islands and OCBC. The Philippine bank is poised to benefit from healthy loan demand, while Singapore’s OCBC is looking to bolster its balance sheet after acquiring Wing Hang Bank. Conversely, we sold Shopping Centres Australasia Property and Global Brands Group, which we had received through the holdings in Woolworths and Li & Fung, respectively.
Source: Aberdeen Asset Management Asia Limited The performance returns are sourced from Lipper, based on percentage growth, calculated on a NAV-to-NAV basis with gross income reinvested.