Investment trust managers of Edinburgh-based investment giant Abrdn have unveiled their outlooks for global markets amid the Russia-Ukraine war, rising inflation, market volatility, the spike in the oil and commodity prices, the slowdown in China, stretched government balance sheets and widespread supply chain disruptions.
Abrdn has assets under management and administration of about £540 billion.
Pruksa Iamthongthong, investment director of the £770 million Asia Dragon Trust, which looks to capture growth from world-class Asian companies, said: “Market sentiment remains very jittery.
“The Russia-Ukraine conflict has further added to several macro challenges in Asia.
“These include a slowdown in China driven by regulation, the common prosperity policy, the zero-Covid strategy, as well as geopolitics.
“The spread of Omicron as well as rising inflation, higher rates and US dollar strength also create uncertainties for the region.
“In such an environment, the Q4 2021 reporting season suggests that earnings are holding up quite well and still growing despite input cost pressures on margins, albeit we continue to monitor closely the operational performance across our holdings.
“Valuations in Asia, meanwhile, look undemanding relative to history and relative to global and US equities.
“Given all the understandable nervousness around Asia right now, this time is when an active approach to investing makes a difference, enabling investors to sidestep parts of the market that are most exposed to risks and uncertainties.
“ESG is a key part of this active investment approach, particularly when it comes to assessing regulatory risk.
“It is also the time for a quality-focused investment approach – one that we believe will help provide a buffer against rising volatility.”
Charles Luke, investment director of the £1.1 billion Murray Income Trust, which aims for high and growing income with capital growth, said: “The rapidly evolving crisis in Ukraine introduces a greater level of uncertainty to the global economic outlook.
“The shock from Ukraine is expected to weigh on global growth in 2022, as increased concerns over supply disruptions have fed into higher commodity prices, raising near term risks for the growth and inflation outlook.
“For the UK, in particular, the backdrop is relatively supportive with pent-up demand and a fast booster rollout.
“Albeit the prospect of higher utility bills weighing on consumer disposable income and other less benign inflationary pressures are increasingly areas of concern although for now medium term inflationary expectations remain anchored.
“We take comfort that the valuations of UK-listed companies remain attractive on a relative basis and as such we think a fair proportion of the portfolio may be vulnerable to corporate activity.
“Moreover, the dividend yield of the UK market remains at an appealing premium to other regional equity markets let alone other asset classes.
“Furthermore, international investors remain underweight the UK providing a further underpin.
“Therefore, we feel very comfortable maintaining our long term focus on investments in high quality companies we believe are capable of sustainable earnings and dividend growth.”
Ben Ritchie, investment manager of the £450 million Dunedin Income Growth Investment Trust, which looks to select a diverse portfolio of high-quality UK and overseas companies, said: “We have had a cautious outlook for some time, events in Ukraine do little to dissuade us from that position.
“Inflation is elevated and prices are now likely to increase further and remain higher for longer as a result of commodity supply risks.
“At the same time, rates of economic growth are slowing globally and are likely to slip further as confidence is impacted, particularly in Europe.
“Central banks are focussed on restraining inflation and expectations remain for tightening ahead, while government balance sheets remain fairly stretched.
“Corporate profits are being challenged even further by supply chain disruptions and higher costs, and now increasingly having to cope with both slowing demand and a more challenging environment to pass on prices.
“This makes for a complex environment to navigate.
“Overall, we remain happy to keep a balance to our positioning giving ourselves the potential to perform in a range of market environments.
“If anything, our attention is now more firmly fixed on seeking to protect capital on the downside, while we continue to look to participate in any upside that may develop and at the same time focus on the companies that meet our sustainable and responsible investing criteria.”
Kristy Fong, investment director of the £420 million Aberdeen New India Investment Trust, which looks to achieve long-term capital appreciation by investing in companies which are incorporated in India or which derive significant revenue or profit from India, said: “The escalating conflict in Europe has thrown a spanner in the works and threatens to slow down India’s economic recovery in the near term.
“Its strategic, historical ties with Russia, as well as its growing trading relationship with the US requires Narendra Modi’s administration to tread carefully in its stance over the conflict, as foreign investors will be observing its next steps carefully.
“Meanwhile, the development of key state elections in India will also be watched, alongside the government’s implementation of the new Budget.
“We will continue to keep an eye on inflation, particularly in view of the spike in the oil prices, as well as rising commodity prices.
“We are confident that the portfolio holdings’ pricing power and ability to sustain margins provide a measure of comfort.
“Over the longer term, we believe India remains alluring to investors.
“It is home to many of Asia’s most successful companies that have been tested by prior economic, as well as geopolitical crises.
“We remain highly selective in our portfolio positioning, preferring high-quality companies with robust balance sheets and led by good management that should help them weather storms better than most.
“We believe these companies should deliver sustainable returns over time.”
Iain Pyle, investment director of the £78 million Shires Income investment trust, which looks to invest in high-quality investments for a high, regular income, said: “Coming into February, the outlook for markets and economic growth was already clouded by high levels of inflation and supply chain pressures caused by rising energy prices and a tight labour market.
“The invasion of Ukraine has exacerbated these issues and led to a fall in markets.
“A jump higher in volatility has led to degrossing of fund positions and a move away from higher beta stocks.
“This has led to some extreme stock price moves, not all of which appear entirely rational.
“When we look out beyond the short term there are likely to be a number of impacts.
“Removing Russia from the financial system via sanctions is likely to be a longer term impact, with an inevitable inflationary impact via higher energy costs.
“That will likely reinforce the need for central banks to raise interest rates.
“In that environment, banks and energy are likely beneficiaries, with challenges increasing for many other sectors.
“In the portfolio we therefore try and maintain a balanced position and focus on companies which can have pricing power, protecting them from higher input costs.
“We invest in companies that can deliver income and growth in the long term and continue to see significant potential from the current holdings.”