Abrdn China Investment Company’s (ACIC) net asset value (NAV) took a £142m hit to end on £231.8m for the year to 31 October 2022 – a 37% fall.
Chair Helen Green said the slide was mostly driven by macroeconomic factors including tensions with the US, the war in Ukraine and the energy crisis.
Domestically, Green pointed to China’s zero-Covid policy, the country’s heavily indebted property sector and reaction to president Xi Jinping’s unprecedented third term as China’s leader as other major contributors to the decline. This was echoed by the MSCI China All Shares Index, which was down 31.5% over the same period.
The trust’s dividend per share dropped to 3.2p, after paying out 17.5p in 2021. However, ACIC’s discount narrowed slightly to 12.5% versus 14.5% a year prior.
According to Green, the fund’s lack of exposure to energy “hindered performance”, with the sector being the only one in the region to rise during the year due on the back of soaring oil and gas prices.
Positive direction of travel
Despite the tumultuous year, investment managers Nicholas Yeo (pictured) and Elizabeth Kwik were positive on the outlook for the strategy following the lifting of China’s zero-Covid policy in December.
In the trust’s December factsheet, it disclosed a 7.34% NAV total return for the month, while total NAV had risen to £289.4m.
They said: “While it is still early for the Chinese economy to show strong signs of recovery, we are positive on the outlook in 2023 for several reasons. Firstly, stimulus measures have been working their way through the system since the start of the second half of 2022. Furthermore, we believe macro policy is likely to remain largely accommodative, with more legroom to support growth due to relatively low levels of inflation pressures that remain well contained.
“Secondly, recent measures to ease Covid restrictions have come at an accelerated pace that has taken everyone by surprise and this is a positive development for markets. It reflects the government’s concerns over the state of the economy as a result of its zero-Covid strategy.
“While the pivot may not seem gradual by international standards at the time of writing, there are still restrictions such as the need for a PCR test before entering China and, more importantly, the mandate requiring everyone to continue to wear masks. Like other Asian countries, we think the reopening will be bumpy with infections peaking in different phases, starting with cities before moving to rural areas.”
They added: “Given the rapid pace of reopening, inevitably, the number of deaths from Covid will rise, but it is a price the government judges as not being high enough to offset the benefits of abandoning its zero-Covid strategy. However, the direction of travel for China is still one of reopening and economic recovery.”