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Aberdeen Asian Smaller Companies Fund Annual report to 30 September 2014

Performance Review The Aberdeen Asian Smaller Companies Fund rose by 9.98% in Singapore dollar terms for the year under review, outperforming the benchmark MSCI AC Asia Pacific ex-Japan Small Cap Index by 8.69%.

Market Review Small-cap equities in Asia rose over the review period, even as the US Federal Reserve scaled back its quantitative easing programme. Leading gains were India and Thailand, 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. Thailand’s military tightened its grip after the coup, lifting optimism that growth would recover after months of turmoil. China did well despite persistent growth concerns. Conversely, laggards included the resource-heavy Australian market, which was vulnerable to weaker commodity prices, and Hong Kong, where pro- democracy protests escalated. Indonesia fostered hopes that political change would come from Joko Widodo, who was subsequently elected president. But sentiment weakened 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. Towards the year’s end, risk appetite waned as healthier US data brought forward expectations of a hike in Fed rates, weighing on markets like Singapore. The lower oil price and weak European economic data further dimmed sentiment.

Portfolio Review At the stock level, contributors to relative performance included our India holdings Container Corp, Ramco Cements and CMC. Election-related euphoria pushed the domestic market to all-time highs and our stocks gained from the rally. Container Corp and Ramco Cements, in particular, were seen as key beneficiaries of potential infrastructure reforms under the new government. Container Corp was further aided by hopes that the upcoming dedicated freight corridor between Mumbai and Delhi would boost container volumes. Tech company CMC, a subsidiary of Tata Consultancy Services, reported good results and also benefited from a rebound in the IT sector.

Conversely, detractors included Giordano, Straits Trading and Pacific Basin Shipping. Retailer Giordano lagged amid ongoing concerns over the tough operating environment in China, one of its core markets. We believe the company’s fundamentals remain healthy, while restructuring and cost cuts should help it weather the business cycle. Singapore conglomerate Straits Trading’s share price fell after outperforming in the previous year. Investors took profits when the company unlocked value via the sale of WBL and paid a dividend. Shipping stock Pacific Basin was hurt by disappointing results, particularly in its towage business. Nevertheless, the company continues to run a solid operation in its core chartering business. It has a track record of managing its balance sheet and has been acquiring vessels to position itself for the next cycle, while disposing its non-core assets.

In portfolio activity, we introduced Mandarin Oriental International. It is a good operator of prime hotel assets with a global brand that trades at an attractive valuation. We subscribed to the rights issues of Sri Lankan conglomerate John Keells Holdings, Indonesia’s Bank OCBC Nisp, Korea’s BS Financial, as well as Dah Sing Banking and Dah Sing Financial in Hong Kong, which would help them fund future expansion. Conversely, we sold several holdings on lower growth prospects and less appealing valuations, including Australia-listed industrial property company BWP Trust, Thai shopping mall owner Central Pattana, software solutions provider Silverlake Axis, nickel producer Vale Indonesia and Regional Container Lines.

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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