While sentiment towards China has been boosted recently by signs the state will look to support the economy, it’s fair to say the post-Covid recovery has not lived up to expectations.
Data has consistently disappointed and there has not been the same ‘revenge spending’ coming out of the pandemic as there was in the West. Chinese households were less insulated from the impact of lockdown and therefore less able to make deferred purchases when the zero-Covid policy was relaxed.
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However, Abrdn China Investment Company (ACIC), which has reported a materially improved performance for the six-month period to 30 April, is confident the rebound in China will gather pace in the second half of 2023 and into 2024.
TRADING AT A BIG DISCOUNT
At 457p, the trust trades at a 14.8% discount to NAV (net asset value), reflecting a difficult time since it was formed through the merger of Aberdeen Emerging Markets and Aberdeen New Thai in the final quarter of 2021, although it is not hugely out-of-kilter with its five year 13.6% discount. The consolidation of the two trusts handed it a new mandate of exclusively focusing on Chinese stocks.
The 14% NAV return was a big advance on the -37% posted in the year to 31 October 2022 but still short of its MSCI China All Share benchmark index – which achieved a commensurate return of 16.7%.
The trust is run by a dedicated 13-member team headed up by Nicholas Yeo, who has two decades worth of experience investing in Chinese stocks. The portfolio looks to tap into various themes including rising affluence, growing adoption of technology and the transition to a greener economy.
AI SCEPTICS
As Numis’ investment trust team noted the underperformance in the first half of its financial year reflected its limited exposure to AI (artificial intelligence) shares, where the managers do not see the current trends as sustainable, and stock selection in the consumer discretionary space.
Numis commented: ‘The results highlight a strong period for Chinese equities driven by the reopening rally, although this swiftly petered out. Chinese stocks now trade on a 45% discount to global equities on a PE basis. China is not without risk, however we believe it warrants a dedicated allocation in investors’ portfolios.’
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