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Aberdeen Thailand Equity Fund Annual report to 30 September 2014

Performance Review The Aberdeen Thailand Equity Fund rose by 12.58% in Singapore dollar terms for the year under review, compared with its benchmark, the SET Index’s total return of 16.36%.

Market Review Thai equities posted double-digit returns in the year under review, despite falling sharply over the first half of the period. Early on, simmering political tensions spilled over into a full-blown crisis when the Yingluck Shinawatra-led ruling party attempted to push through a controversial amnesty bill, sparking a wave of protests aimed at toppling the government. The ensuing chaos dented consumer confidence and provoked a broad-based sell-off in markets. However, sentiment swiftly changed direction early in the new year, as signs of a more sustainable recovery in the West triggered a renewed affection for emerging markets. This marked the beginning of a protracted rally in Thai stocks, as both domestic and foreign investors appeared to shrug off both the turmoil and largely tepid economy. Meanwhile, the military provided an abrupt resolution to the political stand-off when it overthrew the government in a bloodless coup. While a backward step for political progress, the enforced stability was greeted with delight; share price gains gathered pace and consumer confidence began to pick up. However, the resilient stock market belied the downtrodden economy, which had suffered during the months of gridlock. Depressed private consumption and investment, faltering tourism and lacklustre exports all contributed to a first-quarter contraction in GDP. Later in the period, the junta’s efforts to revive the ailing economy appeared to gain a degree of traction, although the crucial export and tourist sectors remained subdued.

Portfolio Review The fund posted healthy returns over the review period, despite marginally underperforming the SET Index. BEC World and Amarin Printing were key detractors from relative performance on the back of subdued advertising spending and high costs associated with the development of digital- TV platforms. BEC’s share price came under further pressure following its stand-off with the National Broadcasting and Telecommunications Commission over the requirement to simulcast its analogue programmes on a digital channel. This issue has since been resolved and BEC continues to generate healthy cashflows. Elsewhere, Thai Reinsurance weighed on performance after suffering a loss due to additional flood provisions. Following a 2.1 billion baht capital increase in August 2014, it expects to clear all remaining flood claims by the fourth quarter. Eastern Water Resources’ also detracted, despite an increase in sales. It reported softer profits, largely due to a one-off waterworks compensation.

Conversely, holding Hana Microelectronics lifted relative performance. It posted double-digit sales growth and a corresponding rise in profits, thanks to an upswing in the electronics cycle and soft baht. Its balance sheet is consistently robust, with a net cash position. Our insurance holdings were among the top contributors, with MuangThai Insurance, Bangkok Insurance andThaire LifeAssurance benefiting from the market rally, despite mixed results over the period. The longer-term outlook for the insurance sector is promising, particularly for the vastly underpenetrated life insurance market. Elsewhere, Advanced Info Service supported relative returns, although its earnings came under pressure from the political turmoil in the first half of the review period. That said, its non-voice revenues were resilient, while it also became the world’s first operator to provide a data-roaming service in Myanmar.

In portfolio activity, we initiated a position in Bangkok Dusit Medical Services, a local health care provider with over 30 hospitals in its portfolio.With its solidfranchise, rapidly ageing local population and Thailand’s competitive edge in providing quality healthcare in the region, the company’s long- term outlook is favourable. Furthermore, we sold our small position in shipping company Regional Container Lines as its fundamentals deteriorated following the global financial crisis. The risks became unpalatable due to its high debt levels, poor cash flow and ongoing losses.

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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