Asia Dragon 06 April 2022
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by Asia Dragon. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
To achieve long term capital growth through investment in Asia.
Adrian Lim; Flavia Cheong; Pruksa Iamthongthong;
Association of Investment Companies (AIC) Sector
12 Month Yield
Dividend Distribution Frequency
Latest Market Capitalisation
Latest Net Gearing (Cum Fair)
Latest Ongoing Charge Ex Perf Fee
(Discount)/ Premium (Cum Fair)
Daily Closing Price
Asia Dragon (DGN) is intended to provide core long-term exposure to the exciting growth potential in Asia. Adrian Lim and Pruksa Iamthongthong of the abrdn Asian Equities Team aim to identify high-quality businesses which can grow faster than the market over the long run. Finding growth opportunities is key, but the managers are sensitive to the valuations they buy at. Adrian and Pruksa aim to be long-term in their thinking and have been using the recent volatility in Asia to add to their preferred stocks which have sold off and to secular growth areas which have hitherto been prohibitively expensive – like green energy, as we discuss under Portfolio.
DGN has outperformed the index considerably over the long run, as we outline in the Performance section. Absolute returns have been negative over the past year as Asia has sold off, led by China. DGN held up reasonably well until a crash in the shares of the Chinese internet-related stocks hurt some of its largest positions. However, Adrian and Pruksa believe they have the market leaders in these industries, and the valuations have become even more attractive. The Discount is in absolute terms wide at 11.4% at the time of writing.
DGN’s portfolio is best characterized as balanced: the trust tends to have a quite neutral geographic spread and a mixture of growth and value characteristics with highly active single stock positions. This is intended to provide steady long-term outperformance rather than boom and bust cycles.
The trust tends to run with a modest level of gearing to enhance long-term returns and was 10.3% geared at the end of February.
DGN looks to be an interesting long-term Asia holding which provides exposure to the growth potential in the region without taking massive country, style or sector bets. That said, there is a bias to growth stocks rather than value versus the index, which could hurt in certain market environments and has held back relative returns in 2021 and 2022. We note investors buying now are getting a higher beta animal than they would have five years ago, with greater exposure to e-commerce, technology and to China leading to greater market sensitivity, but equally creating a portfolio with more exposure to growth in the digital space as well as traditional emerging market themes such as consumption growth and urbanisation.
We think the quality focus of the portfolio could prove attractive in the current market environment. The global economy is still recovering from the pandemic, and the war in Ukraine and the return of lockdowns in China have thrown further spanners into the works. In a tough economic environment, it should be market leaders and the companies with pricing power that can turn it to their advantage. While DGN’s discount is not wide in historical terms, it is in absolute terms, and following the sell-off of the past year, the portfolio itself is arguably cheaper than it was.
- Blend of growth and value characteristics plus geographical spread provides core exposure to Asian markets
- The quality approach should ordinarily lead to outperformance in troubled markets
- Asian equities are relatively cheap after a poor year for returns
- Higher exposure to technology has brought with it higher beta than the trust had in the past
- Structural gearing, although modest, can increase downside risks (while helping on the upside)
- The portfolio has high exposure to China, with concomitant political risks