Half Yearly Report

RNS Number : 2937H

JPMorgan Chinese Inv Tst PLC

25 May 2011

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN CHINESE INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED

31ST MARCH 2011

Chairman's Statement

Performance

The equity markets across the Greater China region continued to rise over the six months to 31st March 2011, despite ongoing inflationary concerns and monetary tightening measures in China: coupled with ongoing conflict in the Middle East and latterly the devastating Tohoku earthquake. It is pleasing to report that, during this period, the Company's return on net assets with net dividends reinvested increased by 7.1%.  This compares favourably to the return of the Company's benchmark, the MSCI Golden Dragon Index , which increased by 4.5% (in sterling terms).  Over the same period, the Company's return to Ordinary shareholders, which included a final dividend of 1.5p, increased by 4.9%. The lower return reflects a modest widening of the discount to net asset value ('NAV') per Ordinary share from 5.1% to 6.1%.

Gearing

The Company has a £20 million credit facility with Scotiabank which gives the Investment Managers the ability to gear tactically.  The Board has given the Investment Managers the flexibility to gear the portfolio up to 115% invested.  During the period the level of gearing has ranged between 104.0% and 106.2%, ending the half year at 105.2%.

Share Issues and Repurchases in the Period

During the period, the Company issued 500,000 Ordinary shares for a total consideration of £886,000 at a weighted average premium diluted to NAV of 2.5%. In addition, the Company issued 40,617 Ordinary shares as a result of the exercise of Subscription Share Rights.  At the time of writing, the Company's issued share capital consists of 77,852,510 Ordinary shares and 12,745,898 Subscription shares.

Subscription Shares

Since the bonus issue of Subscription shares in April 2008 up to the date of this report, a total of 1,390,509 Subscription shares have been exercised into Ordinary shares raising proceeds of £2.0 million. Further details on the Subscription shares, including the apportionment of the base cost for capital gains tax purposes and how they may be exercised, can be found on page 17 of the half-yearly financial report and on the Company's website at www.jpmchinese.co.uk

Outlook

The economic setting to 2011 should continue to be positive for Greater China equities, with domestic economic growth and supportive global monetary policy underpinning markets. Despite inflationary pressures limiting China's equity market performance in the short term, the investment managers believe that valuations are attractive. Taiwan will continue to benefit from the twin trends of global export market recovery and increasing inflows of mainland tourists and repatriation of liquidity from overseas. Hong Kong's growth as an offshore international finance centre for China should continue to underpin equity market performance.

Nigel Melville

Chairman                                                                                                                     25 May 2011

Investment Managers' Report

Over the 6-month period ending March 2011, the Company achieved a total return of +7.1%, outperforming the benchmark return of +4.5% by 2.6%.

Stock selection was strong across all three Greater China markets and added most to outperformance. Allocation detracted some value given the portfolio's overweight in China which underperformed in the last quarter of 2010. Stock selection however more than compensated for this being strongest in China, followed by Taiwan and Hong Kong. The Fund's gearing over the period also added to returns.

We remain optimistic about Greater China markets, despite the increased volatility, and will be selectively accumulating positions on any weakness as a result. 

China Review

Although positive macro indicators suggested China's economy was gaining momentum as it entered the last quarter of 2010, higher-than-expected inflation and the ensuing tightening measures (a 0.50% rise in interest rates on 10 December and a further 0.25% rise on 25 December) resulted in the relative underperformance of the China stock market.

However, over the first quarter in 2011, China equities outperformed both Hong Kong and Taiwan equities in volatile trading with both the MSCI China Index and domestic A-Shares (CSI 300 Index) edging upward (about 3% quarter on quarter).

China Outlook

We expect continued government measures to temper inflation expectations, including interest rate increases, open market operations, loan quotas and price guidance/controls on selective products. Although fighting inflation remains a short-term priority and the market could remain volatile amid the uncertainty of external environments and government measures, we think the market will re-focus on growth prospects when inflation pressure recedes. However, sustained high oil prices could trigger upside risks to inflation, though China is less vulnerable than most other countries given government-controlled prices for major oil products and grains. With the policy headwinds, we expect economic growth could soften in the second quarter of 2011 and gradually reaccelerate in the second half to average about 9% for the 2011 financial year.

Hong Kong Review

Over the fourth quarter 2010, the MSCI Hong Kong was led higher by property stocks as confidence grew that government cooling measures would not derail the investment attractiveness of physical properties. The market rallied as sustained loose monetary conditions and a strong pick-up in economic activity bolstered investors' confidence. Continued talks of the internationalisation of the Renminbi and the associated liquidity benefits for Hong Kong as China's international financial centre buoyed local bank shares.

Hong Kong equities reversed this course over the first quarter of 2011 and underperformed the China and regional markets. Part of the underperformance was driven by the continuing trend of fund flows out of emerging markets. While the Hong Kong budget contained measures to expand property supply in the long term, there were no further demand restrictions.  The government also bowed to public pressure by giving out HKD6,000 (£465) to every citizen in cash, even as inflationary concerns remain. Government measures announced in late 2010 have had little impact on rising property price trends, with prices up over 10% since November. Corporate earnings results were generally strong, especially for those companies geared towards the domestic and China economies.

Hong Kong Outlook

As property prices are still on the rise, we remain on the lookout for additional government measures given public pressure over high property prices. With the increasing integration of financial markets with the Mainland, there are also concerns that local dollar liquidity is being drained by depositors buying Renminbi and companies borrowing in Hong Kong dollars for use on the Mainland. While this situation could benefit local banks in terms of their pricing power on loans, tighter liquidity conditions could hamper further asset price appreciation.

Taiwan Review

Post the mayoral election in the fourth quarter of 2010, the Taiwan TWSE Index started to rise strongly. Investors were initially apprehensive but the election outcome turned out to reinforce the status quo with the two major political parties (KMT and DPP) retaining their respective seats. It was only in the last few weeks of the year when benefits associated with the Economic Cooperation Framework Agreement (abbreviated ECFA), a preferential trade agreement between the governments of China and Taiwan, coupled with an increasingly improving demand outlook from the West and an acceleration of foreign inflows drove the market higher.

Driven by strong foreign buying from the previous quarter and despite concerns that a rising Taiwan dollar could impact technology margins, the Taiwan market had a good start to 2011, but the trend reversed from mid February. Initially, there was optimism on global demand for technology stocks and the positive spill-over effect from the ECFA. However, the strong inflows to Taiwan reversed after the Chinese New Year as liquidity retreated out of emerging markets and into developed markets.

Taiwan Outlook

The Taiwan market is likely to remain volatile as investors grapple with uncertainty surrounding unrest in the Middle East and North Africa and Japan's ability to resume normal production amid power and supply shortages following the devastating Tohoku earthquake. Any potential spike in oil prices and further disruption to key components supply would increase input costs and impair utilisation and production efficiency. However, there would be opportunities for some companies as orders could be re-routed to Taiwan at the expense of Japan.

Howard Wang

Emerson Yip

William Tong

Shumin Huang

Investment Managers                                                                                                  25 May 2011

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 fall into nine broad categories: investment underperformance; loss of investment team; discount; 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 2010.

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, 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. 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

(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.

For and on behalf of the Board

Nigel Melville

Chairman                                                                                                                     25 May 2011

For further information, please contact:

Chris Cordrey

For and on behalf of

JPMorgan Asset Management (UK) Limited, Secretary

020 7742 6000

Please note that up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can be found at www.jpmchinese.co.uk

Income Statement

for the six months ended 31st March 2011

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	31st March 2011			31st March 2010			30th September 2010
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value
through profit or loss	-	8,648	8,648	-	13,808	13,808	-	17,011	17,011
Net foreign currency gains/(losses)	-	186	186	-	(414)	(414)	-	(317)	(317)
Income from investments	84	-	84	177	-	177	3,223	-	3,223
Other interest receivable and
similar income	-	-	-	-	-	-	1	-	1
Gross return	84	8,834	8,918	177	13,394	13,571	3,224	16,694	19,918
Management fee	(635)	-	(635)	(527)	-	(527)	(1,098)	-	(1,098)
Performance fee	-	(394)	(394)	-	(77)	(77)	-	(110)	(110)
Other administrative expenses	(264)	-	(264)	(248)	-	(248)	(462)	-	(462)
Net (loss)/return on ordinary activities
before finance
costs and taxation	(815)	8,440	7,625	(598)	13,317	12,719	1,664	16,584	18,248
Finance costs	(145)	-	(145)	(64)	-	(64)	(127)	-	(127)
Net (loss)/return on ordinary activities
before taxation	(960)	8,440	7,480	(662)	13,317	12,655	1,537	16,584	18,121
Taxation	(8)	-	(8)	-	-	-	(356)	-	(356)
Net (loss)/return on ordinary activities
after taxation	(968)	8,440	7,472	(662)	13,317	12,655	1,181	16,584	17,765
(Loss)/return per Ordinary share
(note 4)	(1.25p	10.86p	9.61p	(0.88)p	17.76p	16.88p	1.55p	21.83p	23.38p

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	Other	Capital	Revenue
31st March 2011	capital	premium	reserve	reserve	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2010	19,455	12,281	3	581	37,392	52,454	1,603	123,769
Shares issued	125	761	-	-	-	-	-	886
Issue of Ordinary shares on exercise of
Subscription shares	10	58	-	-	-	-	-	68
Net return/(loss) on
ordinary activities	-	-	-	-	-	8,440	(968)	7,472
Dividends appropriated
in the period	-	-	-	-	-	-	(1,166)	(1,166)
At 31st March 2011	19,590	13,100	3	581	37,392	60,894	(531)	131,029
	Called up		Exercised	Capital
Six months ended	share	Share	warrant	redemption	Other	Capital	Revenue
31st March 2010	capital	premium	reserve	reserve	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2009	19,026	8,989	3	581	34,363	35,870	1,542	100,374
Shares issued	125	612	-	-	-	-	-	737
Re-issue of Ordinary
shares from Treasury	-	1,171	-	-	3,029	-	-	4,200
Net return/(loss) on
ordinary activities	-	-	-	-	-	13,317	(662)	12,655
Dividends appropriated
in the period	-	-	-	-	-	-	(1,120)	(1,120)
At 31st March 2010	19,151	10,772	3	581	37,392	49,187	(240)	116,846
	Called up		Exercised	Capital
Year ended	share	Share	warrant	redemption	Other	Capital	Revenue
30th September 2010	capital	premium	reserve	reserve	reserve	reserves	reserve	Total
(Audited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2009	19,026	8,989	3	581	34,363	35,870	1,542	100,374
Shares issued	125	612	-	-	-	-	-	737
Re-issue of Ordinary
shares from Treasury	-	1,171	-	-	3,029	-	-	4,200
Exercise of Subscription shares into Ordinary
into Ordinary shares	(13)	13	-	-	-	-	-	-
Issue of Ordinary shares on exercise of
Subscription shares	317	1,496	-	-	-	-	-	1,813
Net return on ordinary activities	-	-	-	-	-	16,584	1,181	17,765
Dividends appropriated
in the year	-	-	-	-	-	-	(1,120)	(1,120)
At 30th September 2010	19,455	12,281	3	581	37,392	52,454	1,603	123,769

Balance Sheet

at 31st March 2011

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2011	31st March 2010	30th September 2010
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss:
China	78,649	69,390	79,644
Taiwan	35,533	32,838	32,318
Hong Kong	23,693	20,996	18,898
Total investments	137,875	123,224	130,880
Current assets
Debtors	529	766	2,338
Cash and short term deposits	189	940	1,360
	718	1,706	3,698
Creditors: amounts falling due within one year	(7,563)	(7,616)	(10,322)
Financial liability: Derivative financial instruments	(1)	-	-
Net current liabilities	(6,846)	(5,910)	(6,624)
Total assets less current liabilities	131,029	117,314	124,256
Provisions for liabilities and charges
Performance fee	-	(468)	(487)
Total net assets	131,029	116,846	123,769
Capital and reserves
Called up share capital	19,590	19,151	19,455
Share premium	13,100	10,772	12,281
Exercised warrant reserve	3	3	3
Capital redemption reserve	581	581	581
Other reserve	37,392	37,392	37,392
Capital reserves	60,894	49,187	52,454
Revenue reserve	(531)	(240)	1,603
Shareholders' funds	131,029	116,846	123,769
Net asset value per Ordinary share - undiluted (note 5)	168.3p	153.7p	160.1p
Net asset value per Ordinary share - diluted (note 5)	168.3p	152.0p	160.1p

Cash Flow Statement

for the six months ended 31st March 2011

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2011	31st March 2010	30th September 2010
	£'000	£'000	£'000
Net cash (outflow)/inflow from operating
activities (note 6)	(2,095)	(1,489)	290
Net cash outflow from returns on investments
and servicing of finance	(145)	(65)	(127)
Net cash inflow/(outflow) from capital
expenditure and financial investment	1,836	(4,776)	(10,480)
Dividend paid	(1,166)	(1,120)	(1,120)
Net cash inflow from financing	280	7,487	11,805
(Decrease)/increase in cash for the period	(1,290)	37	368
Reconciliation of net cash flow to movement
in net funds
Net cash movement	(1,290)	37	368
Loans repaid/(drawn down) in the period	674	(2,550)	(5,055)
Exchange rate movements	187	(414)	(317)
Movement in net debt in the period	(429)	(2,927)	(5,004)
Net debt at the beginning of the period	(5,620)	(616)	(616)
Net debt at the end of the period	(6,049)	(3,543)	(5,620)
Represented by:
Cash and short term deposits	189	940	1,360
Debt falling due within one year	(6,238)	(4,483)	(6,980)
Net debt at the end of the period	(6,049)	(3,543)	(5,620)

Notes to the Accounts

for the six months ended 31st March 2011

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 2010 are extracted from the latest published accounts of the Company and do not constitute statutory accounts for that year. Those accounts 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 accounts 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 to these half year accounts are consistent with those applied in the accounts for the year ended 30th September 2010.

3.         Dividends

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2011	31st March 2010	30th September 2010
	£'000	£'000	£'000
Final dividend paid in respect of the year ended
30th September 2010 of 1.5p (2009: 1.5p)	1,166	1,120	1,120

            No interim dividend has been declared in respect of the six months ended 31st March 2011 (2010: nil).

4.         (Loss)/return per Ordinary share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2011	31st March 2010	30th September 2010
	£'000	£'000	£'000
(Loss)/return per Ordinary share is based on the following:
Revenue (loss)/return	(968)	(662)	1,181
Capital return	8,440	13,317	16,584
Total return	7,472	12,655	17,765
Weighted average number of Ordinary shares in issue
during the period	77,688,909	75,001,307	75,958,289
Revenue (loss)/return per Ordinary share	(1.25)p	(0.88)p	1.55p
Capital return per Ordinary share	10.86p	17.76p	21.83p
Total return per Ordinary share	9.61p	16.88p	23.38p

            The Subscription shares in issue have no dilutive effect on the above losses/returns per Ordinary share, as calculated in accordance with the requirements of Financial Reporting Standard 22: 'Earnings per share'.

Notes to the Accounts continued

5.         Net asset value per Ordinary share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2011	31st March 2010	30th September 2010
Undiluted
Ordinary shareholders' funds  (£'000)	131,029	116,846	123,769
Number of Ordinary shares in issue	77,848,498	76,041,461	77,307,881
Net asset value per Ordinary share (pence)	168.3	153.7	160.1
Diluted
Ordinary shareholders' funds assuming exercise of
Subscription shares (£'000)	152,450	136,948	145,189
Number of potential Ordinary shares in issue	90,598,408	90,098,408	90,098,408
Net asset value per Ordinary share (pence)	168.3	152.0	160.1

            The diluted net asset value per Ordinary share assumes that all outstanding Subscription shares were converted into Ordinary shares at the period end. There was no dilution to the net asset value per Ordinary share at 31st March 2011 or 30th September 2010.

6.         Reconciliation of net return 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 2011	31st March 2010	30th September 2010
	£'000	£'000	£'000
Net return on ordinary activities before finance costs and taxation
	7,625	12,719	18,248
Less capital return before finance costs and taxation	(8,440)	(13,317)	(16,584)
Scrip dividends received as income	-	(12)	(259)
Decrease/(increase) in accrued income	51	3	(14)
Increase in other debtors	(7)	(12)	(3)
(Decrease)/increase in accrued expenses	(136)	(28)	78
Overseas taxation	(30)	-	(334)
Performance fee paid	(1,158)	(842)	(842)
Net cash (outflow)/inflow from operating activities	(2,095)	(1,489)	290

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 ASSET MANAGEMENT (UK) LIMITED

ENDS

A copy of the half yearly report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.hemscott.com/nsm.do

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

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

 

END

 

 

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