Asia Dragon NAV drops 16.7% in annual results as merger approaches

In its annual results to 31 August, posted today (3 November), the trust saw its net asset value decline by 16.7%, compared to an MSCI Asia ex Japan index fall of 8.4% in the same period.

Problems for the trust have continued, as since 31 August, its share price has declined by 9%, while its NAV has dropped 7.4%, according to data from the Association of Investment Companies.

Asia Dragon shareholders greenlight abrdn New Dawn merger

Last week, the vast majority of the trust’s shareholders approved its proposed merger with the abrdn New Dawn trust, which will see New Dawn rolled into Asia Dragon.

The merger, which was proposed in July, will see the trust hold combined assets of more than £700m, allowing it to qualify for inclusion in the FTSE 250.

The trust has seen a permanently wide discount rate in recent years, hovering around 10%, but this has since begun to widen further, sitting at 16.2% in its annual results.

Managers Pruksa Iamthongthong and James Thom credited the poor performance to the slower-than-expected recovery of China following the Covid pandemic, as well as the weakness of the country’s property market.

“The weak macroeconomic data raised expectations of a major policy stimulus – the lack of which has meant that investors were disappointed and raised questions on China’s commitment to economic growth,” they said.

The managers noted that most of the trust’s underperformance “arose at the start of 2023 and has continued since then”, pointing to Chinese companies in the tech, consumer discretionary and healthcare spaces that failed to perform, such as JD.com.

“These were a function of a slower-than-expected pace of consumer spending recovery, the high savings rate as well as weak sentiment resulting from the anti-corruption drive,” they added.

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As a result, the managers said their holdings in China had become “fewer and more focused”, dropping firms such as Longi Green Energy and Foshan Haitian due to decreasing prospects for the firms, while increasing investing in firms such as Tencent and Meituan.

Outside of China, the trust has continued to look to the strength of India and Indonesia, adding to Larsen & Toubro, an infrastructure conglomerate in India, “whose order book has benefited from capital expenditure spending” in the country.

“While accepting cloudy macroeconomic conditions, rising geopolitical tensions and conflicts in many parts of the world, in Asia we have more cause to be optimistic,” the managers concluded, noting attractive valuations on the continent along with an expected 18% earnings growth in 2024.