Latest trust commentary

Performance overview

• Asia ex-Japan equities rose during the quarter in sterling terms and outperformed developed world markets in aggregate. 
• Taiwan was the best-performing index market, thanks to ongoing strength in the technology sector, especially AI-related stocks. India was also strong and outperformed as economic data remained positive. The market initially dropped after the general election result, but subsequently rallied. Although Prime Minister Narendra Modi’s BJP party lost its single-party majority, the formation of a coalition may provide more balance in a parliament that could require greater consensus-building. 
• China produced a positive return, but was slightly behind the regional index. Economic data generally improved, although investors remained cautious about structural issues facing the country.
• Conversely, Indonesia and the Philippines were both notably weak. 
• The fund produced a positive return but underperformed the MSCI AC Asia ex Japan index.

Drivers of fund performance

• At the regional level, the greatest negative effect came from the overweight positioning in Hong Kong and the Philippines. Stock selection also detracted in India. Selection was positive overall, however, especially in Taiwan and the Philippines.
• In terms of sectors, stock selection was weakest in industrials, while also a negative contributor in consumer discretionary and financials, which offset positive returns in communication services and real estate. Sector allocation had a positive impact, particularly the overweight to information technology and underweight to consumer staples.

Outlook/positioning

• Despite the more hawkish outlook regarding US interest-rate cuts, sentiment towards the broader equity markets remains constructive as investors continue to discount a soft landing for the US economy. 
• In China, while structural challenges remain, there have been signs of more ‘self-help’ among corporates recently, including on shareholder returns where we have seen a notable increase in buyback activity. Although we are encouraged by some recent steps from the government in China to more fully support the property market, further support will likely be required, together with steps to address the low levels of consumer demand. We remain underweight China without a significant change in our positioning, but continue to look for bottom-up opportunities there which have upside to fair value on a medium-to-long-term investment horizon. We retain our preference for Hong Kong, where valuations are generally lower, and shareholder returns historically have been more of a focus for management teams.
• In India, valuations appear elevated in many sectors, and more notably in the mid / small cap segment. That said, we continue to see attractive longer-term fundamentals in areas such as private-sector banks and IT services stocks, which remain core positions in the portfolio.
• In technology, we think the underlying structural drivers for semiconductors will remain strong going forward. However, we have concerns that the recent excitement over the revenue potential for some companies in the AI supply chain may be excessive.
• We remain very selective in our exposure, given the continued uneven nature of the recovery in the region, and disciplined about valuations.

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• China risk: If the fund invests in the China Interbank Bond Market via the Bond Connect or in China "A" shares via the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect or in shares listed on the STAR Board or the ChiNext, this may involve clearing and settlement, regulatory, operational and counterparty risks. If the fund invests in onshore renminbi-denominated securities, currency control decisions made by the Chinese government could affect the value of the fund's investments and could cause the fund to defer or suspend redemptions of its shares.

• Concentration risk: The Company may be concentrated in a limited number of geographical regions, industry sectors, markets and/or individual positions. This may result in large changes in the value of the company, both up or down.

• Counterparty risk: The Company may have contractual agreements with counterparties. If a counterparty is unable to fulfil their obligations, the sum that they owe to the Company may be lost in part or in whole.

• Currency risk: If the Company’s investments are denominated in currencies different to the currency of the Company’s shares, the Company may lose value as a result of movements in foreign exchange rates, otherwise known as currency rates.

• Derivatives risk: Derivatives, which are financial instruments deriving their value from an underlying asset, may be used to manage the portfolio efficiently. A derivative may not perform as expected, may create losses greater than the cost of the derivative and may result in losses to the fund.

• Emerging markets & frontier risk: Emerging markets, and especially frontier markets, generally carry greater political, legal, counterparty, operational and liquidity risk than developed markets.

• Gearing risk​: The Company may borrow money to make further investments, this is known as gearing. Gearing will increase returns if the value of the investments purchased increase by more than the cost of borrowing, or reduce returns if they fail to do so. In falling markets, the whole of the value in such investments could be lost, which would result in losses to the Company.

• Liquidity Risk: The price of shares in the Company is determined by market supply and demand, and this may be different to the net asset value of the Company. In difficult market conditions, investors may not be able to find a buyer for their shares or may not get back the amount that they originally invested. Certain investments of the Company, in particular the unquoted investments, may be less liquid and more difficult to value. In difficult market conditions, the Company may not be able to sell an investment for full value or at all and this could affect performance of the Company.

• Market risk: The value of investments can go up and down and an investor may not get back the amount initially invested.

• Market Risk: The value of investments can go up and down and an investor may not get back the amount initially invested.

• Operational risk​: Operational processes, including those related to the safekeeping of assets, may fail. This may result in losses to the Company.

• Performance risk: Investment objectives express an intended result but there is no guarantee that such a result will be achieved. Depending on market conditions and the macro economic environment, investment objectives may become more difficult to achieve.

• Private market valuations, and pricing frequency: Valuation of private asset investments is performed less frequently than listed securities and may be performed less frequently than the valuation of the Company itself. In addition, in times of stress it may be difficult to find appropriate prices for these investments and they may be valued on the basis of proxies or estimates. These factors mean that there may be significant changes in the net asset value of the Company which may also affect the price of shares in the Company.

• Share price risk: The price of shares in the Company is determined by market supply and demand, and this may be different to the net asset value of the Company. This means the price may be volatile, meaning the price may go up and down to a greater extent in response to changes in demand.