Abrdn China fund in NAV total return of -21.5%

The £300 million investment trust Abrdn China Investment Company has reported net asset value (NAV) total return of -21.5% for the six months to April 30, 2022.

The fund’s benchmark, the MSCI China All Shares Index, delivered a total return in Sterling terms of -16.8%.

“It was a turbulent period for Chinese equities as they battled against numerous challenges,” said Abrdn China Investment Company outgoing chairman Mark Hadsley-Chaplin.

“Beijing’s zero-tolerance approach to Covid-19 outbreaks, regulatory upheaval, property and energy woes, significant disruption to supply chains and the potential delisting of US-listed Chinese companies over auditing requirements all weighed on markets.”

Abrdn China Investment Company‘s 10 biggest investments were internet giant Tencent (7.6% of net assets), alcohol spirit Baijiu maker Kweichow Moutai (5.6%), China Merchants Bank (4.9%), online retailer JD.com (4.1%), online services platform Meituan (4.0%), Bank of Ningbo (3.4%), China Tourism Group Duty Free (3.3%), internet giant Alibaba Group (3.1%), Aberdeen Standard SICAV I – China A Share Equity Fund (3.0%) and electric vehicle battery maker Contemporary Amperex Technology (2.6%).

“The underperformance relative to the benchmark over the period was driven mainly by stock selection as the market focused more on sentiment rather than on fundamentals,” wrote the fund’s managers Nicholas Yeo and Elizabeth Kwik.

“Some sectors in particular, renewable energy and healthcare, proved prone to profit taking as investors turned increasingly nervous about the near-term outlook and sought to book gains.

“Sungrow Power Supplywas one such name and detracted from performance during the period.

“Other detractors included Estun Automation, medical and dental equipment manufacturer Heifei Meyer Optoelectronic Technology, glass fibre, wind blade and separator manufacturer Sinoma Science & Technology and power equipment manufacturer Qingdao TGOOD Electric,whose earnings came under pressure due to the Covid-19 lockdowns and macro slowdown.

“Electric vehicle battery maker Contemporary Amperex Technology fell as rising lithium prices clouded visibility on the company’s margin for the year.

“Portfolio losses were cushioned somewhat by the performance of holdings such as Kweichow Moutai, the company’s top performer over the period, as the Baijiu spirit maker posted a solid set of results, reporting a higher proportion of direct sales and product mix upgrades.

“There have been positive earnings revisions for the holding year to date, reflecting management’s guidance for the higher 15% growth rate .

“The technology and internet sector was weighed down by continued regulatory uncertainty. The company’s underweight position in Alibaba Group and not holding e-commerce platform Pinduoduo contributed positively to performance.

“Among the financial holdings, Bank of Ningbo posted solid FY21 results with earnings coming in above expectations. China Vankewas also a positive contributor, with investors favourably regarding its attributes as a market leader with a solid balance sheet.

“Insurance company AIA delivered strong earnings growth and increased its dividend per share by 8% year on year.

“It also announceda share buyback of US$10 billion over the next three years. The company grew more cautious over the growth outlook for the firsthalf of 2022, given that its business in China and Hong Kong is expected to be affected by the Covid-19 lockdowns and the weakmacroeconomic backdrop.

“Separately, it is acquiring 100% of Blue Cross (Asia-Pacific) Insurance and 80% of Blue Care JV (BVI) from Bank of East Asia, for US$278 million. The deal will enable AIA to leverage Blue Cross’s medical network in Hong Kong andaccelerate its healthcare service integration with its core insurance business.

“Not holding state-owned banks China Construction Bankand Industrial & Commercial Bank of China were detractors to performance amidst the market’s rotation towards value stocks. Not holding vehicle maker NIO, which sold off during the rotation towards value names, was a positive.”