Based in Singapore and Hong Kong, the portfolio managers of JPMorgan Asia Growth & Income plc (JAGI) incorporate views from analysts based in nine locations across the Asia Pacific region—and also hit the road to visit companies themselves in search of attractive investments in Asia.
Insights from Indonesia and Thailand
JAGI’s positions in Bank Central Asia and Bank Mandiri contribute to the portfolio’s long-standing overweight to Indonesia. A recent visit to Jakarta provided an opportunity to meet with government officials and the managements of both banks, which reinforced the theme of macroeconomic stability that supports the investment thesis behind JAGI’s bank positions.
Roughly three-quarters of the Indonesian population is using limited or no banking services, providing significant opportunity for banks to increase their customer penetration. Bank Central Asia now has over 80% market share of low-cost current and savings accounts—the highest in the region. The portfolio managers believe that these strong bank franchises will continue to dominate because they have a better chance at maintaining their profitability; they can be price leaders in lending rates but then choose the best credits in these underpenetrated markets.
JAGI’s lack of exposure to Thailand was confirmed by meetings in Bangkok. Thailand’s 90% household debt to GDP ratio is negatively impacting some businesses, with the negative impact on investor sentiment leading to a stock market derating. The portfolio managers will continue to look for any evidence that the structural issues currently weighing on the Thai market are being addressed, including higher payouts from companies.
Technology and telecom drive positioning in South Korea, Taiwan and Australia
JAGI’s country positioning is primarily a result of underlying stock positioning. That’s exactly the case behind JAGI’s overweight to Australia, where the portfolio has a large position in Telestra, Australia’s largest mobile carrier. The company has a high market share that allows it to increase tariffs and is trading at an attractive valuation.
Although JAGI’s exposure to Taiwan is less than the benchmark, its 12% position in semiconductor manufacturer TSMC is greater than the index weight, reflecting the company’s cutting-edge production of microchips that are helping to drive the growth of artificial intelligence (AI). A recent meeting with the company gave the portfolio managers confidence that TSMC can generate superior returns in the sector compared to many global competitors.
Technology has also contributed to JAGI’s positioning in South Korea. SK Hynix, another semiconductor manufacturer, is focusing on high-bandwidth memory chips that are important for AI. That’s a key reason the company has outperformed Korea’s Samsung, which has not been a strong player in this growing market and is suffering from the weaker demand outside of AI. Samsung’s poor performance is a large contributor to the Korean market’s recent underperformance—it is the only market with negative returns this year. Valuations now look attractive relative to history and other markets in Asia, and the portfolio managers have been adding exposure.
Adjustments in India and China
In contrast to South Korea, the Indian stock market has continued to rally and valuations are now even more expensive compared to its history and the broader Asia region. JAGI has had less exposure to India and tends to own higher quality businesses, which have underperformed.
Responding to the challenge, the investment team has significantly broadened its coverage of Indian equities to around 140 stocks, with an additional 45 in the pipeline. Importantly, many are in areas where coverage had been more limited, such as small and mid cap companies in newer parts of the economy, and industrial and cyclical businesses. In the meantime, revenue and earnings growth in India appears to be starting to slow, despite continued robust real GDP growth. Any correction in the stock market could provide the portfolio managers with opportunities to add new positions.
China’s economy, meanwhile, has not been so robust, but JAGI’s stock selection has helped performance, while the portfolio’s combined exposure to China and Hong Kong is now overweight vs. the benchmark. Having been cautious on ecommerce in China earlier in the year due to weak demand, JAGI portfolio managers increased positions in Tencent and Alibaba as valuations became more attractive, which has recently contributed positively to performance.
Signs of cyclical recovery are emerging in China and stimulus measures to support the property market may have a positive impact on consumer confidence. Much uncertainty remains, however, given the shifting global macroeconomic backdrop.
Performance across markets and cycles
JAGI continues to deliver performance through all types of market environments, beating the MSCI AC Asia ex Japan (NDR) in seven out of the last 10 calendar years. One important change is the addition of Pauline Ng as a third portfolio manager for the trust. Pauline has 20 years of experience in Southeast Asian equities and bottom-up, style agnostic stock picking. The investment team will continue to pursue its strategy of building an all-weather portfolio of high-quality, attractive Asian businesses of all sizes, seeking to generate consistent long-term returns from investing in Asia.
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Disclosures
The securities above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell.
Source: J.P.Morgan Asset Management. GBP. Offer Net of Fees. Investment involves risk. Trust performance is shown based on the NAV in GBP with income (net) reinvested including actual ongoing charges excluding any entry and exit fees. Inception date: 12th September 1997. Geometric excess return presented. Figures may not add up due to rounding. Please refer to the offering document(s) for details, including the risk factors before investing. Indices do not include fees or operating expenses and are not available for actual investment.
Past performance is not a reliable indicator of current and future results.
Summary Risk Indicator
The risk indicator assumes you keep the product for 5 year(s). The risk of the product may be significantly higher if held for less than the recommended holding period.
Investment Objective:
The Company aims to provide total return from investing in equities quoted on the stock markets of Asia, excluding Japan. The Company will have a diversified portfolio of Asian stocks comprising around 50 to 80 investments. The Company typically invests directly although it may also take positions in pooled vehicles to gain exposure to such companies. The Company aims to pay, in the absence of unforeseen circumstances regular quarterly dividends each equivalent to 1% of the NAV at the end of each quarter. The Company also has the ability to use gearing up to a maximum level of 20% of net assets to increase potential returns to shareholders. Gearing may magnify gains or losses experienced by the Company.
Risk Profile:
Exchange rate changes may cause the value of underlying overseas investments to go down as well as up.
Investments in emerging markets may involve a higher element of risk due to political and economic instability and underdeveloped markets and systems. Shares may also be traded less frequently than those on established markets. This means that there may be difficulty in both buying and selling shares and individual share prices may be subject to short-term price fluctuations.
External factors may cause an entire asset class to decline in value. Prices and values of all shares or all bonds and income could decline at the same time, or fluctuate in response to the performance of individual companies and general market conditions.
This Company may utilise gearing (borrowing) which will exaggerate market movements both up and down.
This Company may also invest in smaller companies which may increase its risk profile.
The share price may trade at a discount to the Net Asset Value of the Company.
The Company may invest in China A-Shares through the Shanghai-Hong Kong Stock Connect program which is subject to regulatory change, quota limitations and also operational constraints which may result in increased counterparty risk.
This is a marketing communication and as such the views contained herein do not form part of an offer, nor are they to be taken as advice or a recommendation, to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of the products or underlying overseas investments. Past performance and yield are not reliable indicators of current and future results. There is no guarantee that any forecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment products, there can be no assurance that those objectives will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. Investment is subject to documentation. The Annual Reports and Financial Statements, AIFMD art. 23 Investor Disclosure Document and PRIIPs Key Information Document can be obtained in English from JPMorgan Funds Limited or at www.jpmam.co.uk/investmenttrust. This communication is issued by JPMorgan Asset Management (UK) Limited, which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No: 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.
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