A tale of two worlds
Global growth is slowing, inflation though coming down is still high by historic standards and the targets of central banks. As interest rates continue to rise in Western markets and consumers come under pressure, the risk of a recession is rising. With corporate margins, cash flows and dividends under pressure many investors have been asking the question: where can you find a secure and stable income? The answer is simple, Henderson Far East Income Trust.
Asian economies are at a different stage in the economic cycle to their western counterparts and so offer a potentially valuable element in an investment portfolio. Inflation in China and its near neighbours has risen[1] but has not hit the painful heights seen in Europe and the United States last year. Subsequently, interest rates have also not risen as sharply and in many of the largest economies in the region – China, Japan, South Korea, and Australia for example – interest rates remain markedly lower than in the UK and are not expected to rise further.
With lower rates and lower inflation there is greater room for companies to invest, for consumers to spend and for businesses to grow. The International Monetary Fund forecasts GDP growth in the region to be about 4.6% this year[2] – far above growth rates forecast for the US or Europe.
The decades of developments that has occurred in many East Asian economies has also created a rising middle-class, keen to both consume and to invest their savings. China is obviously the dominant economy in the region and all these trends hold true for that giant market. Having built its economy into a global export powerhouse, China’s leadership is now looking to maximise growth in its domestic economy, unleashing the spending and investment power of its citizens in their own country. This will no doubt filter into the region, as consumers travel and spend money in neighbouring countries.
Focus on income
Henderson Far East Income Trust is focussed on the potential of the region to deliver stable and secure income and at levels that significantly outperform those available in other markets. Technology has long been a pillar of Asia’s economic success and the trust includes Asia’s leading tech giants such as Taiwan Semiconductor and Samsung Electronics in its portfolio.
Expanding consumer economies in much of the region is also a boon to the financial sector which alongside technology telecoms and energy represent about two thirds of the portfolio by value.
For many of these businesses, the prospects for capital growth are significant. Capital growth is always welcome, but as the name suggests, Henderson Far East Income is focussed on income. That focus has delivered. In 2022, the Trust had a yield of 8.5% and in every year since 2018, Henderson Far East Income Trust has delivered a yield of more than 6.0%.
A new chapter for China and its neighbours
The Asia Pacific story has been one of the major themes of the global economy for more than two decades, but it is far from over as the region is entering a new phase of its development. Manufacturing exports have been the main driver of growth in the region this century and they will remain important, but alongside that aspect of the economy, domestic activity is emerging as an important factor. The Covid pandemic muted this trend for the last three years, but with lockdowns over we expect it to become ever more significant.
As the search for investment income in Europe and US markets has grown harder the attraction of Henderson Far East Income Trust has become ever clearer.
Discrete year performance (%) Share Price (total return) NAV (total return) 31/03/2022 to 31/03/2023 -3.9 -8.0 31/03/2021 to 31/03/2022 -2.4 2.6 31/03/2020 to 31/03/2021 25.7 22.7 31/03/2019 to 31/03/2020 -15.4 -15.3 31/03/2018 to 31/03/2019 1.7 4.9
[1] Economic Forecasts: Asian Development Outlook April 2023 | Asian Development Bank (adb.org) IMF 2023 Asia outlook: China and India to make up half of global growth (cnbc.com)
Glossary Cash flow – Cash that a company generates after allowing for day-to-day running expenses and capital expenditure. It can then use the cash to make purchases, pay dividends or reduce debt.
Not for onward distribution. Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. This is a marketing communication. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions. Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change. Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.
