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Aberdeen Singapore Equity Fund Annual report to 30 September 2014

Performance Review The Aberdeen Singapore Equity Fund rose by 3.87% in Singapore dollar terms for the year under review, compared to its benchmark, the Singapore Straits Times Index, which gained 6.69%.

Market Review Singapore equities, rose over the review period. However, risk appetite waned towards the year’s end as healthier US data brought expectations of an early hike in US interest rates back to the fore, while the lower oil price and weak European economic data further dimmed sentiment. Domestic GDP growth slowed in line, as forecasts were lowered to 3.3% for 2014, amid softer manufacturing and construction sectors, while the finance and insurance industries continued to expand. Lower overseas demand also weakened non-oil domestic exports, particularly for electronics and pharmaceuticals. Inflation also softened, particularly as government curbs on consumer borrowing and mortgages crimped demand for homes and cars. However, the tight labour market due to foreign worker restrictions underpinned wage costs for businesses.

Portfolio Review At the stock level, contributing to relative performance was Raffles Medical, as it reported solid growth across its hospital and clinic divisions, and also acquired a site next to its Raffles Hospital for expansion. Even with such development plans, the company announced that it would increase its dividend payout.

Meanwhile, several holdings benefited from mergers and acquisitions activity. United Engineers did well on news that OCBC and the Lee family were in talks with Thai billionaire Charoen to sell their stake in the company. Likewise, SingPost was lifted by China’s biggest e-commerce company Alibaba buying a stake in the firm. Elsewhere, CapitaMalls Asia rose on the back of the cash offer by CapitaLand, which subsequently privatised the company.

Furthermore, our lack of exposure to Genting Singapore benefited the fund, as tourist arrivals from China fell sharply, weighing on gaming revenues.

Overshadowing relative performance were our property and offshore & marine holdings. Bukit Sembawang Estates and City Developments underperformed, as local home prices continued to weaken against a backdrop of unabated housing curbs. We remain comfortable with our property holdings which have low-cost assets and robust balance sheets. Furthermore, City Developments enjoys recurring cashflows from its investment properties and its hotel division, through the UK- listed Millenium & Copthorne. The company has also been making efforts to offset domestic pressures by growing its overseas portfolio. Sembcorp Marine declined on fears that the rig builder may struggle to secure orders, as exploration and production companies reduce capital expenditure amid softening oil prices. Despite the weak market sentiment, we believe that its strong competitive position and robust balance sheet will underpin performance over the longer term.

In addition, our lack of exposure to Olam detracted as Temasek made a cash offer for the stock; and not holding Thai Beverage cost performance, as the outlook for the firm was upgraded.

In portfolio activity, we participated in the OCBC rights issue as the 25% discount was attractive and helps to shore up the lender’s balance sheet after the acquisition of Wing Hang Bank. We also initiated a position in CapitaLand on the back of attractive valuations and the improved company structure following the privatisation of CapitaMalls Asia and disposal of Australand. We expect a more focused management to be better placed to unlock shareholder value.

Furthermore, we introduced KrisEnergy and Yoma Strategic Holdings. KrisEnergy is an undervalued oil exploration and production company with reserves across a number of fields in Asia, and managed by a seasoned team with a strong track record. Yoma is a Myanmar-focused property developer, and has an automotive division. The firm is actively growing its portfolio, and has the expertise to execute well on new projects. We see much potential for long-term growth in the country.

Against this, we sold Singapore Press Holdings, as its core newspaper business has been in gradual decline. In addition, the hidden value in the property business had been largely realised after it was spun off and cash was returned to shareholders via a special dividend. The company was also trading at higher valuations relative to its peers. We also sold Silverlake Axis on valuation grounds.

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.

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