Schroder Oriental Income shrugs off Asian market challenges

Schroder Oriental Income Fund, chaired by Robert Sinclair (pictured), has announced its results for the year ended 31 August 2015, during which the company’s NAV fell by 5.8% and its share price by 6.1%. However these are both appreciably ahead of the performance of the Company’s reference index, the MSCI AC Pacific (ex Japan) Index, which provided a negative total return of 13.2%. A total dividend for the year has been declared of 8.00 pence, representing a 4.6% rise from the year before. In the manager’s view, the Company’s focus on what they see as well financed companies with good cash flow returns and attractive dividends has stood it in relatively good stead during a period of rising nervousness over growth in the region.

The managers say that the main positive contribution to relative performance came from stock selection, most notably in Australia, Hong Kong, Taiwan, Singapore, Thailand and Korea. In terms of country positioning, the overweighting in Hong Kong, underweighting of Korea, and nil weight in Malaysia were the key areas of value added. The main headwinds to relative performance were stock selection and the underweight in China, and stock selection in New Zealand.

In terms of outlook, the managers say that it is easy to paint a subdued shorter-term picture for Asian equity markets. Regional economic activity continues to slow, deflationary forces remain strong given falling currencies among important trading partners and competitors (Japan, Europe, other emerging markets), consumer confidence is generally low (with even the Chinese consumer tending to defer those little luxuries), private capital spending subdued, and there is little sign of counter-cyclical government investment apart, inevitably, from China. However, they argue that Asia continues to generate reasonable levels of growth, external balances generally remain healthy, and exposure to overseas borrowing is far below the levels that proved so problematic in the Asian crisis of the late 1990s. Most governments and central banks in their view have flexibility regarding policy options. They say that China remains the key source of risk. Growth has already slowed markedly, particularly in areas such as real estate, industrial capital spending and luxury consumer spending (partly a function of the anti-corruption campaign) but they believe it is more difficult to assess the fall out from the deflation of what they consider to be a credit bubble that has supported Chinese growth until now, particularly in sectors suffering from oversupply. That said, they believe that China does benefit from a current account surplus, ample foreign exchange reserves, high domestic savings and direct control of the banking sector. They also say that, in their view, valuations of Asian markets have moved more towards level which, historically, have represented good value.

Schroder Oriental Income shrugs off Asian market challenges : SOI

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