abrdn Asian Income Fund Limited 15
Your Company’s double-digit annual return can be
attributed to a reinvigorated interest in quality dividend
stocks that were overlooked in the previous growth rally.
Sectors, such as banking and telecoms, have been
notable beneficiaries of this change in market sentiment,
and have contributed to performance. Elsewhere the
demand for technology and software services remained
robust on the growing global desire for mobile working, as
well as emerging future trends, such as artificial
intelligence and the metaverse. This proved positive for
information technology, which is the highest weighted
sector within the Company’s portfolio. Meanwhile,
unexpected regulatory changes in China drove
indiscriminate selling across Chinese equities, resulting in
this market ending up being the worst performing country
in the region, falling 21%. Profit taking was concentrated
within the large internet companies, which were not held
in the portfolio due to their rich valuations and lack of
dividend yield.
Q2. Which of our holdings have contributed
to this performance?
Your Company’s investment in Taiwanese e-commerce
company Momo.com stood out. One of the key benefits of
a closed-end fund structure is the ability to invest in
companies with smaller market capitalisations, and
thereby gain exposure to some interesting investment
stories that would otherwise not be practical. Momo.com
is one such company, which over the last three years has
seen its share price rise more than ten-fold, spurred by
growing online sales during the lockdown. This is a position
we have been reducing, taking profits after a stellar run, as
valuations are now looking expensive. Despite a growing
absolute dividend, the sharp share price rally has
significantly reduced the dividend yield. Therefore, we
have been managing our position in this company to
reflect the lower yield on offer.
The Company’s utilities’ exposures did well too. Energy
network company AusNet Services’
growth in its core
regulatory asset base remained strong, driven by
customer connections. This reinforces our confidence that
AusNet’s growth trajectory to financial year 2026 remains
on track. We are not the only ones to see the value of
AusNet’s business franchise; its share price jumped in the
last quarter of 2021 after receiving two takeover offers.
We expect the takeover to be successful given the
premium offered to existing shareholders. Meanwhile,
state-owned electricity transmission player Power Grid
Corp of India also advanced, boosted by steady asset
capitalisation over the period. Power Grid has a robust
project pipeline, which provides earnings’ visibility for the
next two to three years.
The Company’s exposure to technology was once again
beneficial. In Asia, the sector encompasses a broad and
diverse range of companies, and the portfolio’s higher-
than-benchmark exposure to technology stocks is a result
of our stock picking process based on fundamentals.
Taiwan Semiconductor Manufacturing Co. (TSMC), the
world’s leading chip-manufacturer, delivered robust
earnings as it continued to benefit from strong demand
for its semiconductor chips that power next generation
technologies. Despite the high capital intensity
requirements to remain at the forefront of innovative
technologies, TSMC has a powerful combination of
profitability and dominant market share when it comes to
cash flow generation, enabling the company to build up a
cash position on its balance sheet, which in turn, offers
protection against financial risk. In India, IT-services
provider Infosys was similarly buoyed by an improving
demand outlook. The company’s robust results allowed it
to raise revenue guidance for the full year, prompting
upward revisions to earnings’ expectations. With the
majority of its business conducted overseas, Infosys
enjoyed revenues in US dollars while operating a
predominantly Indian rupee denominated cost base. This
added a foreign exchange tailwind to profit margins as
the dollar strengthened. Infosys also runs a net-cash
balance sheet and has been paying growing dividends
to shareholders.
While financial holdings had a poor start to the year, the
Company’s exposure to the three Singapore banks, DBS,
OCBC and UOB proved helpful. These lenders saw healthy
earnings over the period that pointed to a steady recovery
from the pandemic troughs. Furthermore, the Singapore
regulator finally lifted its cap on dividend payouts, which it
had earlier imposed to ensure that banks had sufficient
buffer to support lending in 2020. All three banks
subsequently restored their interim dividends to pre-
pandemic levels, and we expect them to continue to
benefit in 2022 amid a tightening monetary
policy environment.
Towards the year end, the diversified miners mounted a
comeback as inflationary fears picked up. Sharply rising
inflation expectations create a testing environment for
companies that do not have both pricing power and
strong control of their operational costs. Both BHP
and Rio
Tinto are backed by diversified revenue streams and low-
cost operating efficiencies, which has created defendable
moats, thus ensuring a competitive advantage in their
peer group. These companies were also lifted by record
iron ore prices that supported good cash flow generation,
which in turn, was positive for dividends.