Global economic power continues its shift from West to East. While Asian markets could face headwinds in the shorter term - an upcoming interest rate rise in the US has the potential to increase market volatility, for instance - there are numerous factors that remain supportive of economic and corporate growth. Falling oil prices, for example, should prove positive for the region as a whole. As a net importer of oil, lower fuel, energy and raw materials prices could be one of the biggest boosts to consumers and businesses this year.
Furthermore, government reform is helping to lift investor confidence in some markets. The governments of countries including India and Indonesia are removing costly fuel subsidies in the wake of declining oil prices. Cost savings can be passed onto other areas of their economies, such as infrastructure investment. Elsewhere in India, corporate income tax is expected to fall from 30% to 25% over the next four years, which could prove a huge boost to corporate profitability.
Aberdeen's Asian equities team, headed by Hugh Young, is encouraged by the amount of government reform taking place across the region. Around 12% of the Aberdeen Global Asian Smaller Companies Fund is currently invested in India - this exposure provided a boost to performance last year after investors welcomed the election of pro-business leader Narendra Modi. Following a strong run for its stock market, valuations now appear less attractive in the team’s view and they have recently taken profits from their Indian holdings.
Presently, the team is finding plenty of opportunity among Malaysian-listed companies, particularly consumer-focused businesses. As the Asian middle class continues to expand and becomes wealthier, it should create opportunities for a range of companies. The team is particularly positive on the prospects for for Aeon Co, an established retailer that generates strong cash flow and is pursuing a well-managed expansion policy.
While the team remains positive on the long-term prospects for their Malaysian investments, they have not performed well in the short term. Slower than expected economic growth and weaker consumer confidence following tax rises has hit investor sentiment. The managers retain just over 15.5% exposure to Malaysia.
Our view on this fund
Short-term performance has been weak as investments in Malaysia, Singapore, and Korea have struggled. This has offset the strong performance of Indian-listed investments and the benefits of having low exposure to Australia as well as commodity and energy companies. The fund has exposure to smaller companies and emerging market regions both of which add risk.
The team's long-term record has been strong and since the fund's launch in March 2006 it has grown by 195.0%*, outperforming the MSCI Asia Pacific ex Japan Small Cap Index by 75.6%. Though please remember past performance is not a guide to future returns.
|Annual percentage growth|
| Apr 10 -
| Apr 11 -
| Apr 12 -
| Apr 13 -
| Apr 14 -
|Aberdeen Global Asian Smaller Companies||23.8%||6.5%||29.4%||-15.2%||12.1%|
|MSCI Asia Pacific ex Japan Small Cap||13.3%||-11.8%||16.4%||-6.6%||13.9%|
Past performance is not a guide to future returns. Source: Lipper IM *to 01/04/15
We have long held Aberdeen's well-resourced Asian team in high regard. We like their focus on high-quality companies able to endure for the long term and believe their approach will serve investors well over the long term. While we remain positive in our outlook, Aberdeen is not actively seeking new money into this fund at present. As such, the fund does not currently feature on the Wealth 150 list of our favourite funds across the major sectors.
Please note as this is an offshore fund you are not normally entitled to compensation through the UK Financial Services Compensation Scheme.