Updated 07 Jul 2023
Save Article


This is a non-independent marketing communication commissioned by Schroder Investment Management. 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.

Home to more than half of the world’s population, the continent of Asia is economically diverse and dynamic, with many attractive investment characteristics. After a period of challenging performance, the economic outlook for the region appears to have improved in recent months. Here we explore how the Schroder AsiaPacific Fund is positioning to benefit…

The outlook for China has improved…

Concerns about China have dominated sentiment towards Asian equities over the last couple of years. Investors have been focused on geopolitics, with China’s relationship with the US and Taiwan under scrutiny, as well as more domestic issues. Government policy has become more restrictive in certain parts of the Chinese economy such as residential real estate, education and for the powerful internet platforms. Meanwhile, the government’s ‘Zero Covid’ policy has also hindered economic activity, leading to calls for the removal of the policy towards the end of 2022.

In recent months, however, there are signs that some of these cyclical headwinds are retreating. Abbas Barkhordar assistant fund manager of the Schroder AsiaPacific Fund, explains:

“The outlook for the Chinese economy, at least in the short-term, has clearly improved recently. The end of the Zero Covid policy is the most obvious reason for this improvement, given the huge impact it was having on economic activity and business and consumer confidence. In addition, signs of an easing in the tougher domestic regulatory environment for several important sectors, including the internet platform companies, have also improved investor sentiment.”

It is clear that the Chinese economy is re-opening faster than had previously been expected, and the stock market has rallied, with China outperforming the region significantly since these policy changes were announced. Schroders’ economics team now anticipates growth of more than 6% in 2023 compared to just 3% last year.

…but structural problems are still a concern

Nevertheless, longer-term risks remain. Recent policy measures are supportive, but the underlying economy still faces significant challenges, which are perhaps most tangible in China’s real estate market. Property transactions remain at multi-year lows and, although government policy may stimulate some recovery from here, it is hard to see a meaningful sustainable recovery in property and the domestic economy more broadly, while unemployment and household savings remain so high. Meanwhile, China no longer benefits from the positive demographics that assisted growth in recent decades and geopolitics will also likely represent an ongoing risk, as reflected in the recent ‘spy balloon’ incidents.

China - Reopening will reduce cyclical headwinds

Source: 1PBOC, NBS, JP Morgan, January 2023. 2Factset, October 2022. 3IMF, Refinitiv Datastream, Schroders Economics Group. 2 December 2022.

Countries and regions shown are for illustrative purposes only and should not be viewed as a recommendation to buy or sell.

On balance, we believe that the improved economic outlook in China is positive for Asia as a whole. The region benefits from a broad and diverse opportunity set, and you don’t need to be invested directly in China to be exposed to some of its positive attributes. At the end of 2022, China represented less than 20% of the portfolio, compared to more than 36% of the index. Although the managers are looking for new names in China, given the improvement to the economic outlook there, opportunities remain relatively scarce with valuations in some of the better quality names not yet at attractive levels.

Broader positive implications of China’s upswing

While many Asian equity funds have a large proportion of assets invested directly in China stocks, the Schroder AsiaPacific Fund casts its net further to find the brightest growth prospects across the region with the managers employing a bottom-up stock picking approach. They favour building exposure through markets such as Hong Kong, as Abbas explains:

“The absolute weighting of Chinese stocks in the portfolio has risen in the last few months, though this is largely a result of the rally in the market, rather than significant trading activity. We have however added to several holdings in Hong Kong – stocks there tend to trade at more attractive valuations than Chinese ones, and the local economy will also benefit from increasing travel across the border with the mainland.”

Indeed, as the chart below illustrates, outbound tourism has become a key engine of growth for many of the economies that surround mainland China, including Hong Kong, Vietnam and Thailand. So, the resumption of travel from China should have broader implications for the Asian region, which astute investors can capture.

China - opening up will benefit Hong Kong and elsewhere in Asia

Source: UNWTO, World Bank World Development Indicators, China outbound tourism institute, national authorities, Oxford Analytica, January 2023.

Countries and regions shown are for illustrative purposes only and should not be viewed as a recommendation to buy or sell.

How is the fund positioned to benefit?

Overall, the Schroder AsiaPacific Fund portfolio has a significant overweight exposure to Hong Kong, as a more attractive way of accessing the benefits of China’s recovery. The fund is also overweight in Singapore, and has exposure to Australia and several other ASEAN markets such as Indonesia, Philippines, Thailand and Vietnam.

From a sector perspective, the fund’s key overweight positions are in the Information Technology and Financials sectors. Within Information Technology, the key focus is on semiconductor companies, where Asia is a clear world leader, especially Taiwan and South Korea. The industry should continue to benefit from long-term structural drivers such as digitisation, cloud-based services, AI, the global roll-out of 5G mobile telephony and the ‘internet of things’. There is short-term cyclicality, however, which didn’t help in 2022, but that makes the current opportunity even more attractive, particularly when you consider the difference in valuation between Asian technology stocks and those domiciled elsewhere.

The Financials exposure is made up of a combination of banks, exchanges and insurance names, with selective holdings from across the region including Hong Kong, Singapore, India, Thailand and Indonesia. Although the financials sector is a diverse one in Asia many of the banks, in these markets, have the attraction of being well capitalised with strong deposit franchises. Richard points to a combination of improving near-term fundamentals for the banks, which make up over half of the financial exposure, alongside solid long-term structural growth drivers:

“Rising rates have been broadly positive for bank profitability but this does not yet appear to be appropriately reflected in bank share prices in Asia. We are mindful about the impact that a more challenging global economic environment may have on asset quality and have been focused on identifying banks that are attractively valued and well represented in growing markets that should benefit from increased adoption of financial services over time.”

Elsewhere, given the current environment, the team is focused on companies that possess pricing power and the ability to innovate. Key investment themes include identifying world-class exporters, and more domestically-focused companies that can access the long-term structural growth on offer across a number of Asia’s economies.

A bright outlook for growth

Powerful structural trends continue to drive the Asian growth story and create a growing number and variety of world-leading companies across the region. The Schroder AsiaPacific Fund aims to achieve long-term capital growth by investing in a diversified portfolio typically of around 60 of the best high quality but undervalued companies that the managers can find.

Overall aggregate valuations in Asia are now trading at or below long-term averages, which provides strong valuation support to the investment proposition. Meanwhile, from an economic perspective, Asian economies are not seeing significant wage pressures, which suggests that looser, more supportive monetary policy is possible than in developed markets. Asia is also well placed compared to the rest of the world in terms of economic growth potential.

This all sets up a more constructive backdrop for Asian markets currently, than has been the case for some time. It is worth bearing in mind, however, that Asian equity markets are incredibly diverse and inefficient, which makes it a region where experience and stock picking expertise is vital.

With more than 40 years of investment experience between them, Richard and Abbas, also have the support of a highly experienced team of nearly 40 analysts on the ground in Asia. In managing one of the largest and most liquid Asian investment trusts on offer for UK investors, they are confident that the Schroder AsiaPacific Fund is well-placed to capture the region’s long-term growth potential by selectively backing the brightest growth prospects in Asia.

Fund risk disclosures

Schroder AsiaPacific Fund plc

Emerging markets risk: Emerging markets, and especially frontier markets, generally carry greater political, legal, counterparty and operational risk.

Currency risk: The company can be exposed to different currencies. Changes in foreign exchange rates could create losses.

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, which may adversely impact the performance of the company.

Gearing risk: The company may borrow money to invest in further investments, this is known as gearing. Gearing will increase returns if the value of the investments purchased increase in value by more than the cost of borrowing, or reduce returns if they fail to do so.

Counterparty risk: Investments such as warrants, participation certificates, guaranteed bonds, etc. will expose the company to the risk of the issuer of these instruments defaulting on paying the capital back to the company.

Important Information

This article is a marketing communication.

Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.Exchange rates may cause the value of investments to fall as well as rise.

For help in understanding any terms used, please visit address

Any reference to sectors/countries/stocks/securities are for illustrative purposes only and not a recommendation to buy or sell any financial instrument/securities or adopt any investment strategy.

The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on any views or information in the material when taking individual investment and/or strategic decisions.

Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy.

We recommend you seek financial advice from an Independent Adviser before making an investment decision. If you don't already have an Adviser, you can find one at or investing in an Investment Trust, refer to the prospectus, the latest Key Information Document (KID) and Key Features Document (KFD) at or on request.

Issued by Schroder Unit Trusts Limited, 1 London Wall Place, London EC2Y 5AU. Registration No 4191730 England. Authorised and regulated by the Financial Conduct Authority.

Important information

This communication is marketing material. The views and opinions contained herein are those of the named author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.

This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Ltd (Schroders) does not warrant its completeness or accuracy.

The data has been sourced by Schroders and should be independently verified before further publication or use. No responsibility can be accepted for error of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.

Past Performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall.

Any sectors, securities, regions or countries shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. Forecasts and assumptions may be affected by external economic or other factors.

Issued by Schroder Unit Trusts Limited, 1 London Wall Place, London EC2Y 5AU. Registered Number 4191730 England. Authorised and regulated by the Financial Conduct Authority.

Welcome to Kepler Trust Intelligence

Please enter a valid email address
Please enter a valid password
Please enter a valid email address
Please check your email. If an account exists you'll be sent instructions on how to reset your password.
To ensure that we are able to provide content which is appropriate for you, please tell us a little about yourself.
Please choose an option
Please enter a company name
Please enter a location name
Please choose an option
Please enter a platform
Please choose an option
Please enter a trust
The information contained herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States to or for the benefit of any United States person (being residents of the United States or partnerships or corporations organised under the laws thereof). The investment funds referred to herein have not been registered in the United States under the Investment Company Act of 1940 and units or shares of such funds are not registered in the United States under the Securities Act of 1933.
Please confirm
Please select an option
See benefits
A free Kepler Trust Intelligence account allows you to access premium content including the ‘Kepler View’ – our verdict on the trusts we cover – and historical research so you can see how our view has changed over time. An account also unlocks useful facilities like the ‘follow’ button which lets you keep track of the trusts you’re interested in and as a logged in user you can also download PDFs of our research, and choose the layout of the page you’re reading to suit your preference. We will not share your details unless you give us permission to do so, and we won’t bombard you with emails – we only send one a week.
Please select an option
Please enter your first name
Please enter your last name
Please enter a valid email address
An account already exists with this email - have you forgotten your password?
Please enter a valid password
Please enter a valid password
How will this information be used? Your answers help us to tailor our content to relevant investment trusts, and to ensure that the asset allocation and portfolio strategy research we produce is appropriate to our userbase.
Our Website uses Cookies Cookies are small text files held on your computer. They allow us to give you the best browsing experience possible and mean we can understand how you use our site. Some cookies have already been set. You can delete and block cookies, but parts of our site won’t work without them. By using our website you accept our use of cookies. For further information please refer to the Kepler Privacy Notice.
Need help?

One more thing...

Did you know, you can 'follow' individual trusts on Kepler Trust Intelligence? Use the functions below to set up alerts and we'll send you research and updates on your chosen trusts.

Suggested trusts to follow

Browse all funds
Need help?
Current Site Kepler Trust Intelligence is produced by the investment companies team at Kepler Partners and is the UK’s premier source of detailed qualitative research on investment trusts. Absolute Hedge is a market leading UCITS research database providing proprietary research on funds, themes and strategies in the UCITS space. Kepler Liquid Strategies is a Dublin domiciled UCITS fund platform featuring a number of best-of-breed fund managers. Kepler Partners is a corporate advisory and asset raising boutique specialising in the regulated funds market in Europe and investment trusts in the UK.