Excitement around Asian technology companies, improving sentiment on China and softening of the US exceptionalism story are renewing investor interest in Asian equities. JPMorgan Asia Growth & Income plc (JAGI) offers a portfolio that captures the growth prospects of Asian companies while paying a quarterly dividend of 1.5%. 

Strong returns across the technology supply chain

Asia was no exception to the rally in technology stocks in 2024, fuelled by enthusiasm about the growth of artificial intelligence (AI). Taiwan-based chip manufacturer TSMC has been a key player in the AI boom due to its dominant market share in leading-edge foundries that are needed to produce the high-end chips capable of supporting AI. The stock’s 75% return in 2024 and JAGI’s overweight to the large benchmark position contributed meaningfully to the portfolio’s performance.

The technology growth story in Asia extends to the whole supply chain for AI infrastructure. Foxconn, the leading electronics manufacturer based in China, returned almost 73% in 2024 and was one of the biggest contributors to JAGI’s performance last year. The company provides electrical equipment, including data centre racks, which experienced record growth. Two Taiwanese companies, Wiwynn, which is similar to Foxconn, and Accton Technology, a leader in networking, also significantly boosted JAGI’s returns.

Korea’s SK Hynix, one of the largest global suppliers of semiconductor chips, was another top contributor to performance in 2024. With the shares trading above 1.5x book value, the portfolio managers have been taking profits and adding to JAGI’s position in Samsung Electronics, another Korean company, which is trading below book value and recently announced a large share buyback.

Diverse drivers of portfolio performance

A wide variety of businesses, across different sectors and regions, also drove JAGI’s performance last year and remain key positions in the portfolio.  Some businesses benefited from stimulus measures in China, including internet giant Tencent, which was the top contributor to JAGI’s returns in 2024. The portfolio managers also find Chinese ecommerce giant Alibaba attractive, given its dominant market share and attractive dividend yield.

JAGI has little exposure to the rest of China’s ecommerce sector but instead holds a few lesser-known Indian ecommerce and quick-commerce companies. The Indian market remains expensive overall, making it harder to find attractive stocks. However, Indian earnings have started to disappoint investor expectations and valuations have been resetting to more reasonable levels. One of the portfolio’s best-performing stocks in 2024 was Mahindra and Mahindra, an Indian manufacturer of commercial vehicles, SUVs, farm equipment and tractors. India is the largest tractor market in the world and Mahindra and Mahindra is the dominant player.

JAGI’s diverse portfolio includes several other companies with strong competitive positions, such as Australia’s Telstra, which benefits from its big network advantage compared to its peers. The stock also offers an attractive dividend yield in the mid-single digits.

HK Exchange, the trading platform based in Hong Kong, has an extremely strong competitive position in addition to a capital-light business model, strong cash generation and high margins. These characteristics make HK Exchange the type of financial services company that the portfolio managers find attractive. Overall, JAGI remains neutrally positioned in the financials sector but underweight banks. Some of the portfolio’s positions in banks negatively impacted performance last year for a variety of reasons: in China, financials de-rated as interest rates fell; in India, higher quality banks that the trust owned underperformed in a strong market; and in Indonesia, banks de-rated as the currency depreciated and negatively impacted sentiment.

Consistent returns and income

Over the last decade, JPMorgan Asia Growth & Income plc has consistently outperformed its benchmark, the MSCI AC Asia ex Japan, while providing investors with a healthy income. With its focus on investing in innovation and technology across Asia, the trust has outperformed the benchmark over one, three, five and 10 years, annualised, and has outperformed in eight of the last 10 calendar years. JAGI currently pays a 1.5% regular quarterly dividend and its 6% annualised notional yield is currently the highest in J.P. Morgan Asset Management’s trust range^*.

As investor sentiment improves on China and wobbles on the US, the leadership from Asian technology companies and prospects for Asian equities look increasingly attractive for global investors looking to rebalance or diversify portfolios.

*Dividend paid by the product may exceed the gains of the product, resulting in erosion of the capital invested. It may not be possible to maintain dividend payments indefinitely and the value of your investment could ultimately be reduced to zero. Dividend payments are not guaranteed.

Investment Objective

The Company aims to provide total return from investing in equities quoted on the stock markets of Asia, excluding Japan. The Company will have a diversified portfolio of Asian stocks comprising around 50 to 80 investments. The Company typically invests directly although it may also take positions in pooled vehicles to gain exposure to such companies. The Company aims to pay, in the absence of unforeseen circumstances regular quarterly dividends each equivalent to 1.5% of the NAV at the end of each quarter.  The Company also has the ability to use gearing up to a maximum level of 20% of net assets to increase potential returns to shareholders. Gearing may magnify gains or losses experienced by the Company.

Risk profile:

• Exchange rate changes may cause the value of underlying overseas investments to go down as well as up.
• Investments in emerging markets may involve a higher element of risk due to political and economic instability and underdeveloped markets and systems. Shares may also be traded less frequently than those on established markets. This means that there may be difficulty in both buying and selling shares and individual share prices may be subject to short-term price fluctuations.
• External factors may cause an entire asset class to decline in value. Prices and values of all shares or all bonds and income could decline at the same time, or fluctuate in response to the performance of individual companies and general market conditions.
• This Company may utilise gearing (borrowing) which will exaggerate market movements both up and down.
• This Company may also invest in smaller companies which may increase its risk profile.
• The share price may trade at a discount to the Net Asset Value of the Company.