Compare and contrast, as the exam papers used to say, European and Asian governments’ reactions to the global coronavirus crisis - and their implications for investors. What follows will make uncomfortable reading for many folk and questions any assumption that the west is always best.
Asia was the first continent to experience Covid-19 and now its economies appear to be among the first to recover. While Britain and France submit to a second lockdown, Korea and Japan seem to have the crisis under control. Taiwan recently reported that it has not found a single new case of the coronavirus for 200 days.
As perhaps the last man left in England who makes no claim to expertise in epidemiology, I am content to accept World Health Organisation (WHO) statistics on confirmed cases of Covid-19 and associated deaths. At the time of writing (November 2), the WHO Coronavirus Disease Dashboard reports more than 46m cases and 1,196,362 deaths. That shows the scale of the problem. More positively, it seems that a swift shutdown of social activities and travel in some Asian countries has curbed the disease more effectively than deferring difficult decisions and hoping for the best.
Vietnam was one of the first countries to effectively close its borders and now the WHO reports it has 1,180 coronavirus cases and has suffered only 35 deaths. Recent history helped, as Dien Vu Huu, fund manager of Vietnam Enterprise Investments Limited (stock market ticker: VEIL), explained: “Having dealt with severe acute respiratory syndrome (SARS) in 2003, Vietnam responded quickly to Covid-19. From early March air, land and sea borders were all but sealed to human traffic though not to trade. “Formal lockdowns have been few, brief and localised, which has limited the economic impact while monetary and fiscal easing have been aggressive.”
Similarly, China - now the second largest economy in the world - was able to take decisive action with little debate. The economic impact of these cultural variations between East and West can be seen in global stock markets.
For example, independent statisticians Morningstar report that the average conventional investment company - that is, excluding Venture Capital Trusts - has delivered total returns of 9% over the last year. Those in the Association of Investment Companies’ (AIC) North America sector did twice as well with an average total return of nearly 20%. But the AIC’s Asia Pacific sector did even better with an average return of 25%, despite all the difficulties of the last year.
To put those numbers in perspective, the AIC’s UK All Companies sector lags far behind the global average, having shrunk by minus 10% over the last year. One explanation is ongoing uncertainty about how Brexit will work when the transitional period ends in December.
Within all those averages, there are wide variations in individual investment companies’ performance. For example, Pacific Horizon (PHI) is the top performer in the Asia Pacific sector over the last year, five years and 10 years with eye-stretching returns of 121%, 300% and 340% respectively. This £461m investment company, managed by Baillie Gifford, includes among its most valuable holdings the Singapore-based internet platform, SEA; and the Chinese e-commerce giants, Alibaba and JD.com. Sad to say, PHI pays no income and trades at a 16% premium to its net asset value (NAV). Its nearest rival in this sector over the last year and five years is Schroder Asian Total Return (ATR) which has delivered total returns of 27% and 165% with a dividend yield of 1.4%, trading at a 1.8% premium to NAV. ATR’s top holdings are Alibaba; the self-descriptive Taiwan Semiconductor Manufacturing Company; and the Korean giant, Samsung Electronics.
Investors with a higher requirement for yield may prefer the AIC’s Asia Pacific Income sector. JPMorgan Asia Growth & Income (JAGI) is the top performer in this sector over one, five and 10-years with total returns of 28%, 152% and 135% respectively. JAGI yields 3.5% and trades at a 2.3% premium to its NAV.
Schroder Oriental Income (SOI) yields 4.4% dividend income and trades at a 6.9% discount to NAV. However, its total return was negative at minus 8% over the last year, following five and 10-year returns of 49% and 118%.
The AIC’s Country Specialist: Asia Pacific ex-Japan sector may also repay consideration. JPMorgan China Growth & Income (JCGI) is the top performer over one, five and 10 years with total returns of 107%, 302% and 315% respectively. JCGI yields 3.5% and trades at a 2.7% premium to NAV.
It’s only fair to confess that my decision to sell investment companies with high exposure to China earlier this year, after reading allegations of human rights abuses, has cost me dearly in terms of financial returns foregone. However, investing internationally continues to diminish risk by diversification and can maximise returns by enabling individuals to benefit from income and gains wherever they may arise.
The current crisis poses many questions. Investment companies with assets allocated across a wide range of companies, countries and currencies can provide an answer.