Half Yearly Report

RNS Number : 3996O

JPMorgan Asian Investment Tst PLC

27 May 2015

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN ASIAN INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED
31ST MARCH 2015

Chairman's Statement

Over the six months ended 31st March 2015, the Company's return on net assets was 17.8% and the return to Ordinary shareholders 19.1%, reflecting a narrowing of the Company's discount from 11.4% to 10.5%. The Company outperformed its benchmark, the MSCI Asia ex Japan Index, which returned 14.7%.

I stated in my last Chairman's Statement that the Company had to improve its performance and of course I am pleased to be able to report that it has done so over the first six months with a 3.1 percentage point outperformance of the benchmark. This performance ranks the Company first in its nine fund peer group over this timeframe. This is encouraging news, but these are still early days and your Board will continue to monitor performance closely.

The Company was recently informed by JPMorgan that one of the Company's portfolio managers, Ted Pulling, will be relocating from Hong Kong to JPMorgan's New York office at the end of 2015. This relocation means that Mr Pulling will be relinquishing his role as CIO of the JPMorgan Asian equities team and also his role as co-manager of this portfolio. Richard Titherington, an investment manager with 31 years experience and the current CIO of JPMorgan's Emerging Markets desk, will be relocating from London to take up a new position as CIO of a combined Emerging markets and Asian equities team based in Hong Kong. To ensure an orderly transition of his responsibilities Mr Pulling will remain in Hong Kong until the end of 2015, continuing to manage the Company's portfolio along with his co-manager Sonia Yu and with the full support of the Asian equities team. The Board will be working with JPMorgan to select Mr Pulling's successor and an announcement will be made in due course.

A market review, commentary on portfolio activity and performance together with the outlook are set out in the accompanying Investment Managers' report.

Discount Management

The Board monitors the level of discount at which the Company's shares trade relative to their NAV and believes that the Company's buyback powers can be effective in stabilising the discount. The Board has undertaken to buy back shares in normal market conditions in order to ensure that, as far as possible, its shares trade at no wider than discounts of between 8% and 10%. As I have reported in previous statements, continued volatility in Asian markets has meant that the Company has refrained from automatically implementing share buybacks when the discount has widened beyond 10%, where there was no certainty that such actions would assist in stabilising the discount. Since the Company's year end on 30th September 2014 and to the date of this Statement, a total of 500,000 shares have been bought back.

Gearing

The Company has a £30 million three year multi currency loan facility with Scotiabank in place which will expire in December 2016. The investment managers utilise draw-downs from this loan facility to gear the portfolio. As at 31st March 2015 total gearing was 0.3%.

Outlook

The strong performance in the first half of the Company's year is encouraging. The Board will now be liaising closely with JPMorgan over the coming weeks with regard to the Company's investment management team going forward. We believe that the newly realigned equities team in Hong Kong, as described above, should be capable of continuing to harness investment opportunities in Asia and thence of continuing to deliver outperformance.

James M Long

Chairman                                                                                                                                                                                                       

27th May 2015

Investment Managers' Report

During the period under review, Asian stock markets delivered satisfactory gains for investors. In the case of your Company, currency movements and almost 3% of outperformance magnified the returns in sterling. In this report, we will discuss the major events during the period under review, how the portfolio is currently structured and the outlook through year end.

Review

As 2014 progressed, investors became steadily more concerned that deflation would grip Asian economies. In China, the producer price index had registered declines for three years in a row, largely due to the falling price of commodities like copper but also due to the oversupply of most manufactured goods. A similar dynamic was unfolding in Korea, Thailand and even India. Asian central banks responded to this deflationary threat decisively. The People's Bank of China announced its first interest rate cut in November. In the following months, central banks in Korea, Thailand, India and Indonesia announced rate cuts. Singapore adjusted its currency basket in order to import some inflation. In these countries and elsewhere, other administrative measures were announced, designed to encourage investment and rejuvenate property markets. These policies have arrested the pace of deflation in Asia, and have encouraged flows into stock markets.

The major development in Asia over the past six months has been the bull market in China, which commenced quietly in mid 2014 and then gathered pace. The result has been a doubling of the Shanghai Composite Index over the past year, a surge in H shares in China, and daily volumes approaching US$25 billion in Hong Kong and US$200 billion in China. This rally caught many investors unaware, having become convinced that China's decelerating economy and troubled property market would drive stock markets even lower. We always remained more balanced, noting that Chinese equities appeared attractively valued. The current state of play in China is highly dichotomous. Economic data is deteriorating across almost every metric and earnings growth is inferior overall, but easing monetary policy and widespread reform are compelling investors to buy equities.

We have remarked before on the strengthening pace of economic reform around Asia, largely initiated by a new crop of political leadership. Gratifyingly, this appetite for reform has continued into 2015, most apparently in China and India. Reform almost always delivers positive medium to long term benefits but often it causes dislocation in the short term. Think about the massive anti corruption campaign in China, which has diminished revenues amongst luxury brands, sliced into the profit margins of many state owned enterprises and left gaming tables in Macau half populated. In the long term, the money saved will be deployed into better investments and fatter margins. In India, the Modi government surprised the mining industry by declaring many ill gotten licenses void, and the re-tendering of the mining rights in a transparent and durable fashion. Again, corporate margins are hit in the short term but the longer term benefits are undeniable. We remain optimistic that reform in Asia will continue at this accelerated pace.

The volatile price of oil has been the other cynosure event over the past year. Asia is a major consumer and importer of oil and other forms of energy, so falling prices are good news for most countries. In fact, a low price of oil encourages more energy reform in Asia. New leadership in Indonesia and Thailand has largely removed energy subsidies. The savings can be diverted to social programmes and infrastructure investment. Investors in the Company will note the minimal exposure to Malaysia, which is the one economy which seemingly benefits from a high price of oil.

Portfolio

The Company outperformed during the period under review. Stock selection in Korea and India was particularly helpful. In the former, certain mid cap investments like BGF Retail and Lotte Chemical delivered large gains. The Korean economy has suffered of late, sandwiched between weakening demand from China and a depreciating Japanese Yen. The result has been poor trade data and margin pressure at the corporate level. Overall earnings in Korea have been persistently downgraded, whereas earnings forecasts for Lotte Chemical and BGF have been revised up due to unique reasons. In India, the Company is heavily exposed to private sector banks, which registered particularly strong outperformance in late 2014. The sector benefitted more from the global appetite to increase Indian exposure rather than a notable improvement in operating conditions.

Having been doggedly overweight China for many quarters, we are disappointed that the Company did not garner more outperformance from that exposure. Competitively, China helped, but actually our stock selection was negative. Many of our China stocks and themes - like China Everbright and Beijing Enterprises Water in the environment space and Tencent in the internet space - rose to all time high levels, but the Company was inadequately exposed to certain mega cap stocks like China Mobile and Ping An Insurance. The rally in China has been speculative and liquidity fuelled. Many stocks which are inappropriate for the Company have doubled or trebled. We remain focused on structural earnings growth, acceptable management and reform beneficiaries.

During the period under review, gearing contributed to the outperformance. In hindsight, more gearing should have been employed, especially into Hong Kong and China stocks, which generated the most upside and whose share prices are quasi denominated in American dollars.

Outlook

2015 will be an interesting year for Asian stock markets. Certain fundamental ingredients are lacking. This will be the fifth consecutive year of inferior earnings growth - in the range of 10-12% - and declining earnings forecasts. In the bull market of 2003-2007, compound earnings in Asia grew three times as fast as they have in 2011-2015 and in every year bar 2006 earnings forecasts were revised upwards. The job of fund managers is to locate attractively priced stocks backed by strong earnings growth and dependable management.

Whereas Asian central banks and the ECB in Europe are cutting interest rates and easing monetary policy, the US Federal Reserve is widely expected to start raising interest rates in 2015. Stock and bond markets will be challenged by this divergent monetary policy. In addition, there is pressure on the US dollar to appreciate. Empirical data shows that a strong Greenback is not good for emerging market equities. One consoling reality is that much of the dollar strength has already occurred, as has the devaluation of Asian currencies like the rupiah and the rupee.

In conclusion, we find it difficult to predict a region-wide and powerful bull market at this juncture. Rather, we are focused on locating and investing in the right stocks. Admittedly, valuations are not as attractive as they used to be, primarily because of the gratifying rally in Chinese equities. The good news is that appetite for reform is still apparent, and this will be an earnings tailwind in the future. Interest rates have room to fall, which will impel Asia's vast pool of savings towards stock markets.

Investors with a long term horizon can look at the seismic changes occurring in India and China and be confident that Asian equities will deliver strong returns. As that story unfolds, we thank our shareholders for their ongoing commitment to the Company.

Ted Pulling

Sonia Yu

Investment Managers                                                                                                                                                                                     

27th May 2015

Interim Management Report

The Company is required to make the following disclosures in its half year report.

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company have not changed since the Company's year end and fall into the following broad categories: investment and strategy; market; accounting, legal and regulatory; corporate governance and shareholder relations; operational; and financial. Information on each of these areas is given in the Business Review within the Annual Report and Accounts for the year ended 30th September 2014.

Related Party Transactions

During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company during the period.

Going Concern

The Directors believe, having considered the Company's investment objectives, risk management policies, capital management policies and procedures, liquid nature of the portfolio and expenditure projections, that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future and, more specifically, that there are no material uncertainties pertaining to the Company that would prevent its ability to continue in such operational existence for at least twelve months from the date of the approval of this half yearly report. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.

Directors' Responsibilities

The Board of Directors confirms that, to the best of its knowledge:

(i)   the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with the Accounting Standards Board's Statement 'Half Yearly Financial Reports' and gives a true and fair view of the state of affairs of the Company and of the assets, liabilities, financial position and net return of the Company, as at 31st March 2015, as required by the UK Listing Authority Disclosure and Transparency Rules 4.2.4R; and

(ii)  the interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure and Transparency Rules.

In order to provide these confirmations, and in preparing these financial statements, the Directors are required to:

•     select suitable accounting policies and then apply them consistently;

•     make judgements and accounting estimates that are reasonable and prudent;

•     state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

•     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business;

and the Directors confirm that they have done so.

For and on behalf of the Board

James M Long

Director

27th May 2015

Income Statement

for the six months ended 31st March 2015

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	31st March 2015			31st March 2014			30th September 2014
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments
held at fair value through
profit or loss	-	39,671	39,671	-	(2,874)	(2,874)	-	9,101	9,101
Net foreign currency gains/(losses)	-	402	402	-	(257)	(257)	-	(272)	(272)
Income from investments	1,293	-	1,293	1,035	-	1,035	4,794	-	4,794
Other interest receivable and
similar income	-	-	-	-	-	-	5	-	5
Gross return/(loss)	1,293	40,073	41,366	1,035	(3,131)	(2,096)	4,799	8,829	13,628
Management fee	(648)	-	(648)	(602)	-	(602)	(1,194)	-	(1,194)
Other administrative expenses	(360)	-	(360)	(364)	-	(364)	(739)	-	(739)
Net return/(loss) on ordinary
activities before finance costs
and taxation	285	40,073	40,358	69	(3,131)	(3,062)	2,866	8,829	11,695
Finance costs	(106)	-	(106)	(120)	-	(120)	(292)	-	(292)
Net return/(loss) on ordinary
activities before taxation	179	40,073	40,252	(51)	(3,131)	(3,182)	2,574	8,829	11,403
Taxation	(176)	-	(176)	(124)	-	(124)	(418)	-	(418)
Net return/(loss) on ordinary
activities after taxation	3	40,073	40,076	(175)	(3,131)	(3,306)	2,156	8,829	10,985
Return/(loss) per share (note 4)	-	42.16p	42.16p	(0.18)p	(3.20)p	(3.38)p	2.23p	9.13p	11.36p

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period.

The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by The Association of Investment Companies. The Total column represents all the information that is required to be disclosed in a Statement of Total Recognised Gains and Losses ('STRGL'). For this reason a STRGL has not been presented.

Reconciliation of Movements in Shareholders' Funds

	Called up		Exercised	Capital
Six months ended	share	Share	warrant	redemption	Capital	Revenue
31st March 2015	capital	premium	reserve	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2014	23,887	31,646	977	24,996	142,540	3,999	228,045
Repurchase of the Company's own Ordinary
shares for cancellation	(125)	-	-	125	(1,067)	-	(1,067)
Net return on ordinary activities	-	-	-	-	40,073	3	40,076
Dividends appropriated in the period	-	-	-	-	-	(2,091)	(2,091)
At 31st March 2015	23,762	31,646	977	25,121	181,546	1,911	264,963
	Called up		Exercised	Capital
Six months ended	share	Share	warrant	redemption	Capital	Revenue
31st March 2014	capital	premium	reserve	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2013	25,280	31,539	977	23,670	145,656	4,334	231,456
Repurchase of the Company's own Ordinary
shares for cancellation	(5,302)	-	-	5,302	(11,876)	-	(11,876)
Issue of Ordinary shares on exercise of
Subscription shares	4	28	-	-	-	-	32
Expenses in relation to tender offers	-	-	-	-	(68)	-	(68)
Net loss on ordinary activities	-	-	-	-	(3,131)	(175)	(3,306)
Dividends appropriated in the period	-	-	-	-	-	(2,491)	(2,491)
At 31st March 2014	19,982	31,567	977	28,972	130,581	1,668	213,747
	Called up		Exercised	Capital
Year ended	share	Share	warrant	redemption	Capital	Revenue
30th September 2014	capital	premium	reserve	reserve	reserves	reserve	Total
(Audited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2013	25,280	31,539	977	23,670	145,656	4,334	231,456
Repurchase of the Company's own
Ordinary shares for cancellation	(1,326)	-	-	1,326	(11,876)	-	(11,876)
Repurchase of Subscription shares for
cancellation	(72)	72	-	-	-	-	-
Issue of Ordinary shares on exercise
of Subscription shares	5	35	-	-	-	-	40
Expenses in relation to tender offers	-	-	-	-	(69)	-	(69)
Net return on ordinary activities	-	-	-	-	8,829	2,156	10,985
Dividends appropriated in the year	-	-	-	-	-	(2,491)	(2,491)
At 30th September 2014	23,887	31,646	977	24,996	142,540	3,999	228,045

Balance Sheet

at 31st March 2015

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2015	31st March 2014	30th September 2014
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	261,124	213,700	238,059
Investments in liquidity fund held at fair value through
profit or loss	12,125	-	-
Total investments	273,249	213,700	238,059
Current assets
Debtors	4,863	1,587	982
Cash and short term deposits	3,708	10,018	5,438
	8,571	11,605	6,420
Creditors: amounts falling due within one year	(1,857)	(11,558)	(1,434)
Net current assets	6,714	47	4,986
Total assets less current liabilities	279,963	213,747	243,045
Creditors: amounts falling due after more than one year	(15,000)	-	(15,000)
Net assets	264,963	213,747	228,045
Capital and reserves
Called up share capital	23,762	19,982	23,887
Share premium	31,646	31,567	31,646
Exercised warrant reserve	977	977	977
Capital redemption reserve	25,121	28,972	24,996
Capital reserves	181,546	130,581	142,540
Revenue reserve	1,911	1,668	3,999
Total equity shareholders' funds	264,963	213,747	228,045
Net asset value per share (note 5)	278.8p	223.7p	238.7p

Cash Flow Statement

for the six months ended 31st March 2015

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2015	31st March 2014	30th September 2014
	£'000	£'000	£'000
Net cash (outflow)/inflow from operating
activities (note 6)	(619)	(434)	2,571
Net cash outflow from returns on investments
and servicing of finance	(135)	(121)	(245)
Taxation recovered	15	-	-
Net cash inflow from capital expenditure
and financial investment	1,758	13,881	2,126
Dividend paid	(2,091)	(2,491)	(2,491)
Net cash outflow from financing	(1,067)	(7,495)	(3,167)
(Decrease)/increase in cash in the period	(2,139)	3,340	(1,206)
Reconciliation of net cash flow to movement in
net (debt)/funds
Net cash movement	(2,139)	3,340	(1,206)
Loans drawn down in the period	-	(4,418)	(8,738)
Exchange movements	409	(258)	(272)
Changes in net debt arising from cash flows	(1,730)	(1,336)	(10,216)
Net (debt)/funds at the beginning of the period	(9,562)	654	654
Net debt at the end of the period	(11,292)	(682)	(9,562)
Represented by:
Cash and short term deposits	3,708	10,018	5,438
Bank loans	(15,000)	(10,700)	(15,000)
Net debt at the end of the period	(11,292)	(682)	(9,562)

Notes to the Financial Statements

for the six months ended 31st March 2015

1.    Financial statements

      The information contained within the Financial Statements in this half year report has not been audited or reviewed by the Company's auditors.

      The figures and financial information for the year ended 30th September 2014 are extracted from the latest published accounts of the Company and do not constitute statutory accounts for that year. Those financial statements have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.

2.   Accounting policies

      The financial statements have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts', issued in January 2009.

      All of the Company's operations are of a continuing nature.

      The accounting policies applied in these half year financial statements are consistent with those applied in the financial statements for the year ended 30th September 2014.

3.   Dividend

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2015	31st March 2014	30th September 2014
	£'000	£'000	£'000
Final dividend paid in respect of the year ended
30th September 2014 of 2.2p (2013: 2.6p)	2,091	2,491	2,491

      No interim dividend has been declared in respect of the six months ended 31st March 2015 (2014: nil).

4.   Return/(loss) per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2015	31st March 2014	30th September 2014
	£'000	£'000	£'000
Return/(loss) per share is based on the following:
Revenue return/(loss)	3	(175)	2,156
Capital return/(loss)	40,073	(3,131)	8,829
Total return/(loss)	40,076	(3,306)	10,985
Weighted average number of shares in issue	95,052,488	97,883,280	96,703,852
Revenue return/(loss) per share	-	(0.18)p	2.23p
Capital return/(loss) per share	42.16p	(3.20)p	9.13p
Total return/(loss) per share	42.16p	(3.38)p	11.36p

 5.   Net asset value per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2015	31st March 2014	30th September 2014
Shareholders' funds (£'000)	264,963	213,747	228,045
Number of shares in issue	95,046,993	95,543,244	95,546,993
Net asset value per share (pence)	278.8	223.7	238.7

6.   Reconciliation of net return/(loss) on ordinary activities before finance costs and taxation to net cash (outflow)/inflow from operating activities

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2015	31st March 2014	30th September 2014
	£'000	£'000	£'000
Net return/(loss) on ordinary activities before finance costs
and taxation	40,358	(3,062)	11,695
Less capital return/(loss) on ordinary activities before
finance costs and taxation	(40,073)	3,131	(8,829)
Scrip dividends received as income	-	-	(97)
Increase in accrued income	(614)	(515)	(27)
Increase in other debtors	(21)	(26)	(13)
(Decrease)/increase in accrued expenses	(112)	(84)	28
Overseas taxation	(157)	(118)	(426)
Expenses credited to capital	-	240	240
Net cash (outflow)/inflow from operating activities	(619)	(434)	2,571

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

JPMORGAN FUNDS LIMITED

ENDS

A copy of the half year has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM

The half year will also shortly be available on the Company's website at www.jpmasian.co.uk where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

 

END

 

 

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