In this latest episode of Trust TV, we speak to Mike Kerley, Portfolio Manager of Henderson Far East Income to discuss the Trust’s performance year-to-date, the impact of China’s zero-covid policy on growth, what the East-West policy divergence could mean for markets, and dividends sustainability within the region.

Despite another volatile period for global equity markets, Asian markets have been resilient. Southeast Asian markets, in particular, have held up relatively well - benefitting from a long-awaited economic reopening and the resumption of international travel. Higher commodity prices have also served as a tailwind to commodity exporting countries in the region.

However, with China’s zero-covid policy and its implications on growth and supply chain still a major risk – what’s next for Asian stocks?

Key takeaways:

  • Despite what has proved to be a challenging period for global equity markets - Henderson Far East Income has held up relatively well as investors have rotated away from growth towards value and income stocks amid concerns over higher inflation and interest rates.
  • Inflation across the Asia Pacific region has been lower compared to other developed markets: a more gradual reopening has led to less demand shocks compared to the West and supply chain disruptions have been less severe (though supply chain issues may originate in Asia, the ramifications of shortages have been felt downstream and away from Asia).
  • Companies we consider ‘upstream’, sitting at the top of supply chains, are likely to do better than those ‘downstream’, which are closest to the consumer. This is a region-wide phenomenon (and is familiar even to a UK consumer) but it is especially the case in China where companies that directly serve the consumer tend to have limited pricing power and lots of competition.