Asia Dragon 20 November 2023
This is a non-independent marketing communication commissioned by abrdn. 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.
Pruksa Iamthongthong; Flavia Cheong; James Thom;
Association of Investment Companies (AIC) Sector
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) owns a portfolio of world-class, quality companies from across the Asian region. The trust, managed by Pruksa Iamthongthong and James Thom, is soon to complete a proposed combination with abrdn New Dawn (ABD) which will result in a higher asset base, leading to lower fees and potentially improved liquidity. Furthermore, the new investment policy will have an allocation to Australasia as part of the allowance of up to 30% in non-benchmark positions, which is intended to improve diversification and allow for alpha-generation opportunities (see Portfolio). James has joined DGN as co-manager following the retirement of Adrian Lim and will complement Pruksa’s existing specialisms with his background in Indian and South East Asian companies (see Management).
Performance over the long term is in line with the benchmark despite the managers facing strong headwinds in the past 18 months as a result of their quality focus. Instead the market has been driven by value companies and macro factors. However, the managers believe that their companies’ superior earnings growth will soon be rewarded by markets, when investors begin to focus on fundamentals again. The managers’ overweight to technology firms, particularly in the semiconductor industry, is held in part to capture the improved demand as a result of the proliferation of artificial intelligence (AI ).
The shares of DGN have fallen to a wide Discount in 2023. The current level is over one standard deviation wider than the five-year average and wider than the peer group, despite the board’s attempts to narrow this through share buybacks.
In our opinion, abrdn have taken a very positive step for shareholders by combining ABD into DGN, which will leave the destination trust with a large asset base, helping to lower costs, improve liquidity and increase the trust’s profile, as DGN may be large enough to be included in the FTSE 250 (see Portfolio). We believe that by also lowering the charging structure the trust will be a highly competitive offering in the Asian equities space (see Charges). Furthermore, the ability to now invest in Australasia, an off-benchmark position, provides more opportunities for the managers to access sectors that aren’t as well represented in the benchmark, such as resources and healthcare, which may offer alpha-generation opportunities.
We believe DGN’s Discount may also provide an attractive entry point for long-term investors at present. The level has widened to over one standard deviation wider than the five-year average, which arguably offers an additional opportunity to generate share price returns, on top of the long-term capabilities of the managers. Over the long term, the managers have shown their ability to outperform the market as a result of their quality focus, which they believe leaves them well placed to capture a potential earnings bounce in Asia if fundamentals improve in 2024 (see Performance). They have pointed to a number of potential catalysts for this, from an improvement in the Chinese consumer , to a surge in AI-related semiconductor demand which we believe offers the trust numerous opportunities to benefit from a recovery.
- DGN is trading at a wide discount which could prove an attractive entry point
- Combination with ABD set to improve liquidity, reduce fees and increase diversification
- Quality focus could be well placed to capture a fundamental-focussed rally
- Potential for increased turnover from combination
- Larger AUM post-combination may limit flexibility
- Relatively new management team, albeit with experience in the sector