Henderson Far East Income Ltd. enjoyed a good financial year (ending 31 August), with Asian companies contributing attractive returns during the period, but the situation in Hong Kong is a genuine concern for investors in the region.


Q: What can you tell us about your activity for Trust over last few months – any notable changes to the portfolio list, interesting companies you’ve met or changes to the weightings?

A: The summer has been quite a good period actually and actually has been a pretty good year for Henderson Far East Income. The two areas we focus on within the economy are domestic consumption and consumer related spending, those have done really well for us but because interest rates have come down and likely to come lower, then the high yield part of the portfolio, so some of the more defensive areas have actually done very well as well. So we've been quite fortunate that we benefited from the trends that are going on globally.

Actually that the changes to the portfolio have been muted. As I say we've had a good period year to date with those two areas we focus on and we haven't really changed much. There has been times when some of the stocks which have done really well have got to our valuation points and we've trimmed those or other areas where we think there's some upside and we've added to them. But the focus really on domestic consumption so key companies for us: Treasury Wine Estates in Australia, which is selling wine into China, the US and the rest of the world; Kweichow Moutai, which is a baijiu, which is a high-end spirit. That's done really well for us as well. Anta sports, again, domestic consumption themes on Chinese getting fitter has also worked for us.

But on the other side of that we've got infrastructure funds and REITs, which we don't think there's a lot of underlying growth but the markets have rerated them as they search for yield. So we haven't really felt the need to change too much within the portfolio.

Q: What can you tell us about the situation in Hong Kong? Do you have any exposure to the region?

A: You know the situation in Hong Kong is quite worrying. And we have seen these kind of protests before but not as all-encompassing as we see now. So the government has reacted to the protests initially and withdrawn the withdrawal agreement, which was the first thing the protesters wanted. But the protester's list of things of demands is getting longer and longer and I'm not sure what the government does at this point to alleviate those pressures; so they could go down the list and say OK we'll give into this we'll give into that but I suspect then that the list just gets longer again. This has become about pro-democracy rather than extradition. So I'm not quite sure where this ends. And clearly the worst case scenario is pretty horrendous for Hong Kong standing both on a global and regional scale and let's just hope that it doesn't come to that.

As for the exposure we have very little actually we don't own property companies in Hong Kong, we don't own banks, we don't own utilities, which are the big yielding areas which we could own. We do own some retail which hasn't actually performed that well kind of as you'd expect. And we do own Macao Casinos which are listed in Hong Kong which have kind of been caught up in this a bit. But actually the exposure in the portfolio is pretty minimal.

Q: What’s the outlook generally for Asia and Asian stocks?

A: It's been a strange year. We've generally seen growth across Asia slow and the rest of the world for that matter. So earnings expectations which started the year high have gradually come lower and as we're not seeing any real impetus to growth from here maybe these earnings numbers start going lower still as we go into year end.

We've got a lot of uncertainty people talking about recessions possibly in the US, Europe, UK, etc. So the global growth environment is not great. But within Asia we're seeing individual areas where there's room for more optimism. There's a lot of domestic policy change whether is interest rates where there's flexibility, which we don't have elsewhere in the rest of the world and there is some surpluses which governments can use to stimulate domestic demand. So I'm not too unhappy about the outlook for Asia but there is quite a lot of uncertainty and I can't see anything really changing that into the early part of next year either.