abrdn Asia Focus plc (AASL.XC) Earnings Call Transcript & Summary

Good morning. I'm delighted so many of you can join us today. My name is Krish Shanmuganathan, the Chair of your company. I hope you find this webinar useful. And I also hope that I see as many of you as possible at our 30th anniversary celebratory AGM. For those of you unable to attend, please do remember to vote your shares. Details on how to vote can be found on the company's website. Well, Aberdeen Asia Focus has had a fantastic year, 26.6% share price growth on a total return basis, including the reinvestment of dividends versus 7.6% for the index. Our net assets have grown to such an extent that we joined the FTSE 250. We've been recognized by the Association of Investment Companies as a double ISA Millionaire Trust, the highest return of any Asia-focused trust in the AIC's analysis. Asia Focus also won awards from AJ Bell and Citywire for our leading performance. Furthermore, the company announced another ordinary dividend increase, and we expect to join the AIC's next generation of dividend heroes next year. But what makes your company unique? Well, for the last 30 years, the on-the-ground expertise of our investment manager has delivered standout performance, around 3,000% since inception. With 39 analysts based across Asia, the team brings deep local insight, meeting company leaders face-to-face, uncovering under-researched opportunities and discovering Asia's next generation of market leaders, high-quality smaller companies often overlooked by mainstream funds. These businesses offer superior growth prospects without excess volatility, providing diversification and resilience. I will now hand over to Gabriel and Xin-Yao, who will share their insights on the past year and an exciting outlook for the future. After that, Gary Jones of Aberdeen will then put your questions to the manager and to myself. We have already received some questions, but please keep sending them in during the presentations and the Q&A session itself, and we shall endeavor to answer as many as possible.

Thank you, Chairman. My name is Gabriel Sacks. I'm the Lead Manager of Aberdeen Asia Focus. Thank you very much for joining us this morning. As the Chairman highlighted, we have had a very good year of performance in 2025 to the end of July. Over the long term, the NAV has risen over 12% annually and, over the last fiscal year, 20.3%. And I think there's really 2 key reasons why the trust has performed so strongly over the long term. The first is that we are investing in a region with a lot of growth, a lot of dynamism. And that gives us a very fruitful and rich universe from which to choose companies. The second, as you can see on the next slide, is our focus on resilient businesses have fantastic returns, both return on capital and return on equity, as you can see on the right-hand side, which is superior to the benchmark, and also very resilient balance sheets where our portfolio sits on net cash versus the index. Our focus on governance since the very beginning of investing in Asia has been positive in the sense that we've avoided overly aggressive or businesses that have been mismanaged. So really, our North Star has been to focus on quality businesses with great pricing power, cost advantage and very strong industry positions. And that has really stood the test of time as far as this portfolio is concerned. On the next slide, you can see, the other, I think, key attraction of Asia Focus is really how differentiated it is. It really does offer diversification benefits for investors. It hasn't been an asset class that has been very favorable or seen in favor by foreign investors. So you can see on the left-hand side that the universe is much more fragmented than the large-cap universe. We don't have exposure to names like TSMC, Tencent, Alibaba or Samsung, which represent over 1/4 of the large cap index. And the universe is much more diversified by geography as well. So more exposure to countries like India, Southeast Asia and Taiwan at the expense of China, as you can see at the bottom right there, which represents 35% or more of the large cap index. Asia Focus does reflect that broader geographic exposure of the small-cap universe, but we are very different to the small-cap index itself. So we have an active share of 96%. So at the stock level, we are extremely different. Our top 10 represents 1/4 of the portfolio compared to less than 1% of the benchmark, as you'll see in some of our slides later on. We have a highly concentrated portfolio of about 60 companies compared to thousands of businesses in the small-cap universe. In MSCI, this is about 1,620 companies. But if you include the local indices and companies that are not included in MSCI, there are many more businesses that we can invest in. On the next slide, really the evidence of why investing in Asia Small Cap does bring diversification benefits. So this is, since inception of the trust, by combining a passive allocation to Asia large cap, with holding Asia Focus, you can actually reduce risk and really enhance returns. So you can see here that by holding, say, 60% of Asia Focus in combination with a passive allocation to large cap in Asia, you see a very material uplift in returns, more than double level of returns, and actually reduce risk as measured by volatility. So we really think that a lot of investors overlook the opportunity that Asian smaller companies offer investors, and where you see much lower correlation to global portfolios and even to large-cap Asian portfolios, which helps to bring overall risk down. On the next slide, turning to performance. As highlighted before, the NAV rose 20.3% for the fiscal year ended July, the share price rose 26.6%, driven by a narrowing of the discount. This is much superior to the small-cap benchmark return that you see on the top chart. On the bottom table, you can see that updated performance to the end of September, the outperformance versus the benchmark has continued. And I'm pleased to say that for the month of October, which is not included here, the NAV of Asia Focus rose by approximately 6%, which was 1.8% ahead of the benchmark, which puts us about 3% ahead of the benchmark in the last 3 months since the end of the fiscal year. So that strong performance has continued, which is very pleasing to see. In terms of the fiscal year, which is what we're focusing on for this presentation, if we look at the next slide, the performance has really been driven by stock selection. So our stock is doing better in different countries and sectors than those in the index. However, looking at it from a country attribution point of view, our stocks did particularly well in Hong Kong, in Taiwan, and in India. Some asset allocation decisions did drive some differences in performance, but those were not material relative to our stock selection. So for example, being underweight India benefited our performance in relative terms, given particularly in the last 6 months or so or calendar 2025, India has considerably lagged the index in markets like China. And also being underweight South Korea, that actually hurt performance given the strong rebound in Korea since the change in government there, where you've seen strong momentum in the corporate value up initiatives that you're seeing in that market. From a sector point of view, on the next slide, you can see that actually stock selection, particularly in the industrial sector was very, very strong. This is one of the largest sectors in the small-cap universe at just under 20%, similar to IT, which is just under 20% of the index. And actually, stock selection in both of those sectors was strong. Industrial is a very broad sector in Asia. This includes Chinese automation stocks, Korean shipbuilders, the port businesses, which are driven by rising intra-Asia trade and local infrastructure developments. So it's a very rich sector in Asia given the strength of the manufacturing base of the region. So we saw strong performance there from a range of different countries. Also in IT, you've seen a real upsurge in spending from the hyperscalers in the U.S. And given the Taiwanese and Korean tech companies are enablers of the AI build-out that is going on, the stocks really benefited from strong earnings, but also some re-rating in terms of valuation. So that was a strong driver of performance. We also saw a strong performance from communication services. On the flip side, our health care stocks did lag those of the index, particularly our exposure in Southeast Asia, but also our lack of exposure to Chinese biotech during the period, which is another area thematically that has done very well in this calendar year. More importantly, from a sector or stock point of view, we show here our top-performing stocks versus the index and our worst performing stocks versus the index. This is really what's driving the attribution at both the country and sector level. So on the best-performing stocks, we had strength from some of our Chinese businesses. At the top there, Precision Tsugami was a very strong performer for us during the period, more than doubling. That was a stock that we bought very cheaply as a play on industrial automation in China. It is quite a unique business with Japanese technology, but selling into China and listed in Hong Kong. It sells equipment to various different industries, so a very fragmented customer base, but has been delivering very strong growth the last few years. And also, it does have 10% or so of their revenues from areas such as robotics and AI, which are growing exponentially and which has caught the attention of other investors. And this is a company that is quite small and illiquid, but you are starting to see coverage pick up. So it's definitely been an interesting business and a hidden gem that we found in the region. Also in China, fourth on the list is a company called Shuanghuan Driveline. They do gears for electric vehicles. The nice thing about it is that you capture the electric vehicle story without having to choose a brand or an OEM. And again, that company has performed very strongly on the back of strong earnings growth. They're also expanding into Europe and also have a robotics subsidiary, which either we're not really pricing into the stock, but has started to catch investors' attention as well. We had very strong performance from the IT supply chain in Taiwan, in particular. So companies such as Chroma ATE and Taiwan Union here are stocks that are leaders at what they do, and they are seeing very, very strong demand, which has been driving their earnings upwards. Those stocks have also re-rated, but we still see a positive outlook for these businesses given the CapEx that the hyperscalers in the U.S. are really throwing at the AI build-out for servers. We've been taking profit from all these companies given the strength of their share prices, but they're still core positions for us in the portfolio. We've also had some strong stocks performing for us in Korea. So companies here such as Korea Shipbuilding and Offshore Engineering and Hyundai Marine Solutions are both capturing the up-cycle that we're seeing in shipbuilding in Korea. Also not the reason we've invested in these stocks, but given you're seeing a shift away from Chinese shipyards, that's been benefiting the Koreans as well. We've had good performance from other companies across the board, which are delivering strong earnings for us. On the worst performing stocks, you see gains here from both Southeast Asia, but primarily in India, where Indian stocks have lagged. None of these stocks particularly have been problematic. Newgen software there at the bottom. That's a business that has delivered slower growth. So going from sort of 30% revenue growth to about 20% revenue growth. And as a result of that slower growth, we have seen a valuation correction or derating, which has been warranted, but we still like the business. We did sell one of the stocks on this list, which is MapmyIndia or C.E. Info Systems, where we do believe the growth there is more structurally challenged. We think the strategic direction of the business is not as we envisaged, and therefore, we decided to pursue other opportunities. And at the very top of that list is a company called Makalot, which is a Taiwanese business, but does textile manufacturing from Southeast Asia, countries like Vietnam and Indonesia. And because of the tariff noise, that stock has come off and has been quite volatile, but it is a business that is actually still well placed given the reallocation of supply chains away from China. And also when the tariffs in India, Southeast Asia is better positioned from a cost perspective for textile manufacturing. So we're still quite sanguine on that business. I'll stop there and hand over to Xin-Yao, who will cover our positioning at the moment and the outlook for Asia going forward. Thank you.

Thank you, Chairman, and Gabriel. I'll start by giving you a positioning of our portfolio based on countries. We're invested across many countries. So to make it easy, I'll divide this into 4 buckets. First, there's Korea and Taiwan together about 30% of the portfolio. I bucket these 2 together, because tech is a massive driver of both markets. India, including our holding in Sri Lanka, is 25%. China, including Hong Kong, is almost 19% of the portfolio. And lastly, the more fragmented Southeast Asia region as a whole is about 24%. So if you think across the 4 buckets, we're actually fairly balanced. And then what do we think of each bucket? To start with, I want to emphasize that we are stock pickers, not macro asset allocators. So our portfolio is built by views on individual businesses, a lot more than views on macroeconomics, although we do need to know economics for their impact on earnings of individual companies. As Gabriel has highlighted earlier, Taiwan and Korea have contributed positively for the portfolio. The markets here are very tech-heavy and AI is a big driver. We're still optimistic about AI CapEx. And here, we're investing in the picks and shovels like the hardware and power that are essential for this phase of buildup. But we're equally conscious that there's a lot of hype and valuations have gone up a lot. What we're doing here has been to constantly seek laggards within the full value chain that can provide us exposure to the same team, but at cheaper valuations. Recent initiations include MPI Corporation and Sino-American Silicon. I mean, therefore, we strive for a balance of risk within the portfolio of AI versus non-AI of growth and value. India and Southeast Asia, for example, especially in non-AI-driven markets that we think might be safe havens if the AI bubble bursts. More than half of our portfolio are there. For India, the benchmark is close to 29%, and we have been underweight for some time. Some of you will have heard us before, and we know that we like the structural potential of the Indian economy. But for a long time, have been worried about valuations. That remains unchanged despite underperformance of the Indian market this year. There are still a lot of opportunities. We just want to be careful about what we pay for. Southeast Asia is a very diverse bucket across several countries with different culture, politics and state of economy. Some of our biggest exposure there here are Vietnam, Philippines, Indonesia. We see very large and young populations in some of these countries, where we think there will be long-term wealth growth despite volatile politics that will drive domestic demand across different kind of goods and services. Because generally in the Southeast Asia, we find opportunities in domestic-driven businesses in sectors like consumption, real estate, financial services, infrastructure. Valuation is also a lot less demanding compared to other markets like, for example, India and Taiwan. On China, we're cautious about the economy and have been saying this for a while, but it's a very large universe. So we continue to be able to find unique growth opportunities within the market. A reflection of that is perhaps how we've been finding interesting businesses in the consumer sector, which is a significant exposure for us in China. This is despite well-known challenges and the macro level for consumption. For example, we have bought into stocks like Yantai China Pet Foods and NetEase Cloud Music. I'll tell you more later. We also like the industrial sector, which has been the strength of the economy. This includes our biggest performance contributor, Precision Tsugami. On the next slide, that shows you the sector positioning. Some of this I touched on when I went through a country positioning. Just to highlight again, the portfolio is really built bottom-up based on stock picking. So the weights here from our perspective are more results of the opportunities we find. For example, we are positive on tech. But even within tech here, there are different teams, different demands. And within tech, we might look like we're slightly underweight, but actually, we are much more weighted towards AI demand than other downstream verticals, for example, smartphone and PC, which we are more cautious about. This vertical tends to be a lot more cyclical and global economy is not exactly very strong. Thus, we haven't strived to be underweight on tech, neither are we actually aiming to be overweight just for the sake of overweight. It's more about the team and the exposure within the sector and the opportunities in terms of the companies that we can find. One thing I'll highlight is that we like good quality companies. That's a key tenet of how we invest in. So good quality companies should be able to grow and compound cash flow long term into the future. By definition of that, these businesses tend to have good margins, higher return on investments, lower capital intensity, and stronger cash flow generation. If you think about that, that actually tends to lead us to certain sectors, for example, consumer and software. And then a lot of our software names are also in like communication services. And so that's why you might find that some of the sectors we are doing are more overweight than others. Conversely, we tend to be less in favor of other sectors, for example, materials, utilities and real estate. I mean, a common theme with these sectors is that there's very high capital intensity, return on ROE tends to be much lower. Some of these, like materials and real estate, tend to be more cyclical. It doesn't mean that we don't invest in this. We had invested in this in the past. For example, real estate in India did very well for us last year. But as a whole, from a broad sector perspective, we tend to be more careful about stock picking in these sectors. Next slide shows our top 10 holdings. I won't go through every single stock, but I'll just highlight 2 things. One, I think if you look at the top 10 contributing 20% of the fund versus the benchmark, it shows that we are a highly active fund. That's what we definitely strive to be. And we are very differentiated from the benchmark. And we invest in conviction. So you expect us to put meaningful weights behind the stock we like. But secondly, and just as important, we also seek to build a portfolio of balance by diversified risk. So we've been disciplined in taking money off regularly for some of our biggest winners because of that, just to make sure we're not overly complacent on any single stock. For example, Precision Tsugami, that's one of our best performers. We've been taking money off as the valuation has gone up, which by definition means risks have gone up. But we're still positive. We still think valuation is still reasonable, and that's why it's still a meaningful weight. But it would have gone much bigger if we have not trimmed. However, there would be too much risk on one single stock. The message is that we invest confidently, but with some humility. It sounds contradictory, but it's not. We know we'll never be 100% sure about any stock. There will always be something we don't know, some reason we can't predict. We believe having a balanced and diversified risk with meaningful level of conviction is important for long-term returns through cycles. On this slide, we highlight 2 stocks we've added this year, which I mentioned earlier. We've talked a lot about how we build the portfolio bottom up, how we are aware of macro, but don't invest based on macro. I mean these 2 stocks kind of reflect our investment process in that regard. Yantai China Pet Foods is one of the top pet food brand in China. NetEase Cloud Music is like the Spotify of China. So from a big picture perspective, while consumption in general is very weak in China, there are big shifts within the undercurrent. For example, there's a big shift in consumption towards lifestyle and experiences rather than material goods, especially for the younger generation. So like pet food, it is all about the rising adoption of pets, especially in the higher-tier cities. The stress within the society, with economic growth, high unemployment among the youth, long working hours, et cetera, combined with the high cost of maintaining a family meant a lot of young adults will rather have a pet than have kids. It's also an aging population. So a lot of elderly naturally get a pet when their kids move out, for company. So Yantai China Pet Foods is a market-leading brand within a very fragmented market, and the top brands, including them, are consolidating the market. NetEase Cloud Music, as mentioned, is the Spotify of China. What we find here is very high stickiness in terms of customer relationship between the platform and the users. And the cost in China is extremely low. Average revenue per paying user is less than RMB 10. Now you bet the users will rather give up a packet of fries than to give up music. So that is still very good long-term growth in terms of increasing the number of paying users. And when that gets to a more mature level, they have additional lever to increase price where revenue per user is so much lower than Spotify is charging you and me. That gives them room for very long-term growth. And when they start to increase price, every $1 increase, I mean, pretty much goes straight down to the bottom line, except for tax. Now both stocks have done very well this year. NetEase Cloud Music, you might have seen earlier, is a top 10 positive contributor to us. Despite the strong performance, we remain very optimistic as their fundamental is strong, the outlook is solid, and their valuations are still not too expensive given that a lot of stocks in China were actually re-rating from very low levels previously. Next slide, lots of data there. I'll probably just highlight 3 things. Top left, a year ago, the discount to NAV was closer to 20%. We're very grateful that has narrowed. We are still working very hard to narrow it, the Board and the investment team, and we are hopeful there's still room to go. On the bottom left, capture ratios are what we want it to be, and we hope to keep it around there. Generally, we strive to capture as much as upside as possible, but we're not an aggressive fund. So generally, we don't tend to have much higher capture ratio than 100%. But through cycle, because we capture less downside, less than 100% of the downside, that means by capturing more, almost 100% of the upside, less of downside, through cycle we should outperform. That's generally how we think about the long-term performance. And then on the right, if you look at the fund characteristics, by nature of our investments, again being quality focused, it's natural that our portfolio will have higher price-to-earnings ratio or price-to-book multiples than the benchmark. That doesn't mean the stocks are more expensive, because they tend to be justified by faster growth, better return on equity and much safer balance sheet. And again, corroborating with the lower downside capture ratio, you see lower beta, less than 1 beta, you see slightly lower volatility within our fund. That should generally be the expected characteristic. Next slide contains some brief statements on the Asia outlook. These are mostly macro statements. So again, that's not a key tenet for our investments. I will not go through every one point by point. Broadly, I would just say that we are cautious because the market has done very well. Share prices have done well. Our finance has done well. That naturally actually means valuations has gone up. And by virtue of that, risks are higher. But we remain optimistic still, because when we look at our portfolio and if you look at the blue bubble there, we still see -- when we look at our portfolio, we still see a portfolio of very good companies with robust long-term outlook and justifiable valuations. You bet when valuations are too high, we are working very hard to recycle into laggards, into cheaper NIMs, that also benefit from the long term. But generally, over the long term, we are firm believers that small caps are still under-owned relative to the large caps. And just by virtue of a smaller base, smaller size and having long-term growth opportunities, there are as much greater opportunities for long-term outperformance over the large cap. On the last slide, we're working very hard to continue the favorable track record of the trust. It's not just the Board and us. So we are backed by a large team spread across Asia. That in-house research team is very important to cover the large market, to constantly find gems that others have not discovered. We are aligned with investors through the various measures, including fees, performance-linked tenders, dividend, buyback. And finally, we are very grateful to be recognized this year by AIC as the Double ISA Millionaire, and winner of the Active Asia Equity Award by AJ Bell, and most grateful of all to our investors. Thank you. I'll leave you with that. Lastly, I'll just pass over to Gary Jones, who will bring you to the Q&A. Thank you.

Well, thank you to the Chairman for his introduction earlier. And of course, Gabriel and Xin-Yao for their run through on the portfolio. And it's clearly a successful run over many years, 30 years of successful performance overall.

Good morning, everybody. My name is Gary Jones. I'm Aberdeen's Client Director for Aberdeen Asia Focus. I'll be asking some questions of the Chairman, and Gabriel, who is remaining with us for the Q&A session. You can send questions through live on the system. Some are already coming through, I note. And I'll try to group questions together and, of course, ask as many as possible, albeit, of course, we are limited for time for this webinar. So the first one is relating to China. Gabriel, you recently highlighted China's shift from imitation to innovation; progress in environmental, social and governance, ESG efforts, and deep integration into the global economy. Is China's potential for growth undimmed despite international tensions?

Thanks, Gary. It's a big question, I think. I'm not here to say that China doesn't have its challenges. So certainly, we're seeing a bit of a 2-step economy. There's part of the economy that's doing fantastically well as regards to advanced manufacturing. Even within the AI ecosystem, they're making inroads. But certainly, there is a drag on the economy still from the property market and consumption has been weak. This morning, we had PMI indicators, which is a Purchasing Managers' Index, which is an indicator of the health of the economy. And those were soft, particularly on the non-manufacturing side. So I would say that China is doing extremely well. But obviously, it's such a large economy, there's lots of opportunities for growth still. So as Xin-Yao was highlighting there in terms of the new additions that we made to the portfolio at the start of the year, those have been able to perform very well even within the consumption sector in China, because we are tapping into new consumption trends. But to your question in general, I think China has done well as a stock market this year, partly because there has been a change in perception around the ability of the Chinese to innovate around AI, where, despite being choked by the U.S. in terms of their access to advanced chips, you are seeing them find ways around that. And so certainly, I think it would be foolish to dismiss the ability of the Chinese to innovate given their scale, the amount of talent that they have. And I think they have made inroads in ESG as well in terms of -- we have seen good dividend payouts in China, increased activities in terms of buybacks, and there are good corporate citizens in China despite the perception that it is very state-heavy, which it is to an extent, but -- I'll stop there. I think we are, at the end of the day, looking for good businesses and being very selective there. Given China is the second largest economy in the world and one of the largest markets, there's plenty for us to choose from.

That's great. Thanks, Gabriel, for that. Sticking with China and the theme, there's a question come through regarding China, Hong Kong and Taiwan, which represent currently around 38% of the portfolio. The index is around 41%, certainly at the end of October anyway, last time I looked. How are you managing risk around that, considering the potential for conflict in the region? And how is that potentially impacting some of your portfolio companies? How do you look at that?

Yes, it's a great question. Certainly, there is a tail risk there. I think we spend some time with our investment risk team looking at scenarios and how the portfolio might perform if there was a conflict. One of the things that we've done is that we've increased the liquidity in the portfolio over the last couple of years, which gives us a bit more flexibility to respond. I think at the end of the day, we are an Asia fund. We could have highlighted the risk of a China-Taiwan conflict for many years in the past. So it's a very difficult thing to predict. But certainly, we remain alive to that risk. I think it always depends as well how you define conflict. I think everyone has Ukraine and Russia at the back of their head. But I think in our view, China is not interested in a physical conflict. And you could argue that actually these countries are already in some sort of conflict or competition, and we think that, that remains the case in terms of the competition between China and the U.S. But we're not expecting a war at this point. We think China will be pragmatic, and it's not in their interest to engage in that sort of conflict. And ultimately, as well, I think it's hard to get away from that risk, even investing in the U.S. and AI stocks in the U.S., which is where most people's portfolios are geared to in terms of the extreme concentration of markets at the moment. So I think everyone is reliant on the Taiwanese ecosystem as far as semiconductors is concerned. So you don't get away from that risk by investing in NVIDIA, for example. So it's something we need to be alive to and be able to respond, but we're not expecting a conflict. Otherwise, we probably have less there. We have seen an increase in our allocation to these markets, partly due to performance as well. So our Taiwanese stocks have done very well, driven by the AI rally that we've seen. Our Chinese stocks have done well this year as well. So we're in the process of actually taking some profit from those names.

That's great. Thanks, Gabriel. Just a quick question, one that's come in on M.P. Evans actually being one of our top 10 holdings. With the cyclone in the region, Sumatra, is there any update regarding the impact on the company? Plantations and indeed staff? How is that looking?

Yes, it's a very good question. I was actually in Indonesia and in the region last couple of weeks. It is concentrated in a particular part of the country and particularly in Thailand and Sumatra, as I said. We haven't had an update from the company yet on that. So it's something that we will be touching base with them on. But generally speaking, when there is disruption to supply in commodities such as plantations, it does mean that prices go up. So actually, I think from an economic point of view and pricing-wise, it shouldn't be a big issue. But obviously, I think from an employee base and for the welfare of those communities, that is a challenge. So we'll have to see what's happening on the ground there. I haven't had a chance to touch base with M.P. Evans yet.

We'll wait to hear more, obviously. Next question, Gabriel, which economies in the region do you expect to grow the fastest over the next 3 years? Are there any stock markets that really interest you? Companies? What do you see as the main risks over this time period? And how we look at that?

Yes, there's a lot in that question. I think in terms of growth, likely it will be India, Indonesia and Vietnam that grow the fastest. That doesn't necessarily mean that those stock markets will perform the best. At the end of the day, you do need to take into account valuations and the opportunities that these companies have to grow. So we are a collection of businesses in the portfolio, which are much more driven by their idiosyncratic factors. And certainly, having a backdrop of growth helps. So we are overweight Indonesia, we are overweight Vietnam. We're underweight India from a valuation point of view, but it remains the largest absolute position in the portfolio. So we are positive on those markets, but certainly looking out more from a bottom-up point of view than top down. I think in terms of risks to Asia in general, I think there is the risk of a strong U.S. dollar and flows not coming to Asian markets and emerging markets. We haven't seen that in small caps that much anyway. It's more driven by local investors. So we think that small caps aren't as driven by foreign flows as it used to. Obviously, there's a risk of China as well. If that drag from the property market continues to drag growth lower, that's not great for Asia in general. But I think individual markets seem to be in a healthy trajectory. We could go into specifics on countries like Indonesia, which have their own political cycle, which does bring challenges as well, but also opportunities. So at the end of the day, it is really more about the companies that we invest in, and we're very selective in each of those markets. In Vietnam, we have 3 holdings. Indonesia, we have 4, 5, if you include M.P. Evans. India, we have a broader allocation.

Thanks. That feeds really through into the next question that's come in on the Indian market, which the question said it had a good October, up around 6%. The last fact sheet showed we were underweight India around 6%. With exposure currently around 29% in the portfolio, how much further would you be prepared to follow? Are you worried about increasing beyond that?

Yes. Look, we like to be diversified. So we do think we have decent allocation to India, 22%, or slightly higher if you include Sri Lankan Holding, which is more of an India play, and also a REIT listed in Singapore, which is really all of its operations are in India. So about 1/4 of the portfolio is India. It's our largest allocation. And we've done that well out of India over the last couple of years. Last year, we had very strong stock selection there. So we did exit a couple of holdings. We've taken profit. This year being underway, India has added value as well. But it is a market that is the most exciting from a small and mid-cap perspective. As a team, we've done 8 trips to the country this year. So we've been extremely active in generating ideas and doing due diligence on companies. So there's a lot in the pipeline that we could add to. The challenge is really on the valuation front where we need to be very confident that the companies can grow into their valuation and deliver the earnings that are expected in the market. And this year, you have seen mixed results. Most of our companies, I would say, have met or beaten expectations, but not all of them. And across India, you've seen probably more disappointments than positives. So we're watching the next set of quarterly results to see whether we see a little bit of a correction, which would allow us to add more to the market. And this week, we are aiming to participate in the IPO of a local pharma business in India as well. The challenge there will probably be allocations again, but we are aiming to be an anchor investor in that IPO. So no, we've been very active in India, and we could add more, but the issue is more on the valuation front. So at the moment, we retain that underweight position.

Okay. Thanks very much. Chairman, there's a question come through, which I'll put to yourself regarding gearing within the company. I'm asking what the Board's view on gearing is, noting that the Coles issue matured, expired, and we're beyond that now. What's the general policy of the company, please?

Well, thanks, Gary, for the question. Gearing is really one of the great advantages of investment companies, I'm glad to say. And our gearing over the last 5 years has added something in the region of 1.5% per annum to our NAV performance. So that shows the advantages of using gearing at the right times, in the right circumstances. Today, our net gearing ratio sits around 8.7%, allowing for cash held. And I think we're, as a Board, and with the investment manager, very comfortable with that level.

That's great. Thanks for answering that question. Another one for Gabriel, if I may, regarding Korea and Taiwan, having, as you related, performed well. I guess, is that AI-driven generally? We're underweight in both areas. But again, are there any thoughts to increase? And I guess that feeds into how we look at divergence from the index a little bit as well. How do we think about this question coming, how we think about divergence from the index, which you partially answered earlier on, I think.

Yes. Look, we're very happy to be different to the index. I think when it comes to the individual stocks, we are incredibly different, 96% active share. But I think one of the things that we have been very deliberate about is being careful and disciplined about why we might be overweight and underweight a particular market or sector. And we just want to make sure that we've discussed that as a portfolio construction group and have good reasons for doing that. So we talked about being underweight India there. I think one of the things we've probably done over the last 5 years is balance the portfolio a bit more between India and Southeast Asia and North Asia. So over the last 5 years, we probably have added more to China, to Korea, Taiwan. And because we've seen good performance from those markets, those weights have increased. I think Taiwan and Korea are probably at the highest -- at the top end of what these markets have represented of Asia Focus over the last 5 years or as far as I can remember. So we're at the high end relative to history and our underweight to those markets have shrunk significantly. Throughout the history of Asia Focus, we've been comfortable being underweight Taiwan and Korea, because they are more one-dimensional markets, very export-driven and tech-heavy. And so we're comfortable being underweight going forward as well. So we have been actually taking profit from both Taiwan and Korea. We're actually seeing more idea generation come from Korea lately, because also of the corporate value up program. We are seeing potential new ideas come through, and therefore, we're rotating a little bit of our exposure. But we're quite comfortable with our current weights. And if anything, we've been bringing that down. Most of the portfolio is driven by domestic growth in Asia. And even within the Korea side, we have a balanced exposure. It's not all tech. We're in the process of exiting one tech holding in Korea at the moment as well. So I think we're quite well diversified there. Hopefully, that answers the question.

Excellent. Yes. I guess there's a question about small caps. Obviously, you're investing and looking for good value in the smaller cap area. But the question has come in, when do you think about selling? And can you hold all the way up through the piece? If a company goes into the large cap index, does that ring alarm bells? Or can we hold that through and then see that through its steady increase?

Yes. So we can hold it through. I think we want to maintain a good tension of capital. So we want to make sure the team are generating good new ideas. And as we get new ideas, we recycle names that have done well and have become large cap into small caps. We won't sell just because it's become a large cap. I think there has to be another trigger, particularly if it's driven by valuation re-rating. I think most of what we've seen this year has been a combination of very strong earnings growth. There was some re-rating. So we have taken profit, but we've been comfortable holding into most of our stocks. But we -- I mentioned a Korean tech company that we've made very good money over the last 5 years or so, but it is still a small cap, but we're seeing better opportunities elsewhere. As well in Korea, we have a company called KSOE in the shipping industry. That's become a large cap. We still hold that, but we've also been taking profit from that business. So it's really more valuation dependent and whether the thesis is playing out as expected. If the thesis still has legs, the earnings growth still coming through, we'd be inclined to keep that position. But again, in India last year, we made a lot of money from a property developer called Prestige Estates. And so we decided to exit that given, again, the re-rating that we saw. And whilst the outlook was still positive, we felt that from a cyclical point of view, we're probably 3 to 4 years into an up cycle in the property market and competition for land and margins were getting under a little bit more pressure. So we decided to shift that. So sell discipline is incredibly important and something that I think we've been a little bit more active in rotating the portfolio when we've seen good performance into new ideas. So it's great to have a big team of 39 people out of Asia scouring companies day in, day out, which has provided us with lots of opportunities.

That's great. I guess thinking about companies that many of them have been successful when you've scaled some back. There's a question here. Is there any country in Asia where you just don't or won't invest?

Yes, we try to avoid making very bland generalizations. I think one area that we've been quite cautious on is the more frontier markets in Asia. We used to manage frontier market equity funds. And from that experience, we do see Vietnam as a very strong emerging frontier market as it were. FTSE just upgraded them to EM. We'd expect MSCI to upgrade them in a couple of years. We're not investing because of the index agencies upgrading it, but we do think that Vietnam is a mainstream emerging market based on the fundamentals of that country, very strong export sector, which gives them a more stable balance of payments structure. Good access to dollars and hard currencies, lots of FDI, relatively good infrastructure development, education levels and a very hard-working workforce, all position Vietnam very strongly, I think, for growth with huge demographics, high levels of urbanization. So that's a market we really like. But on the flip side, we've been very hesitant to invest in places like Pakistan and Bangladesh, where I think the politics and the macro have been very volatile. And in the case of Pakistan, every 2 or 3 years, they come to the IMF for a bailout. Now if you time those inflection points well, you can deliver very strong returns, but we have plenty to invest in across the region. So we've been light in those areas of not investing at all in places like Pakistan and Bangladesh. But we'll look for good companies everywhere and provided we have the conviction, we're willing to invest there.

Okay. That's great. Thank you. Lovely. We've spoken about India already, and it's seen a very successful period. And there's a question here from a shareholder who says he likes the broad exposure that the trust offers. How do we look at India playing out considering its high valuations? Is it the next Asian Tiger with its demographic tailwinds, infrastructure needs? And can it be a winner in nearshoring with businesses that are worried about China, et cetera?

Yes. No, there's lots of opportunities in India. I think demographics on its own can be an opportunity and a threat. I think the country needs to train, develop, employ people. And I think India has been doing that fairly successfully. The government over several years has engaged in a lot of reform, and there is a lot of reallocation of supply chains to India, particularly at the lower end, but you are seeing emerging health care CDMO companies that do contract development, manufacturing, outsourcing for big multinationals. And it starts there. You have a very thriving IT services sector, which does employ a lot of people. And it is a very domestic-driven economy. So as long as domestic growth remains healthy, the government maintains some level of macro stability. I think India has decades of strong growth ahead. So it's certainly a market that we really like from an economic point of view. And there's fantastic businesses, very private-oriented companies with good promoters that use the capital markets in the right way. You've seen very strong entrepreneurial spirit in India. And so there's a wealth of companies to choose from. And it's a very dynamic market, lots of IPOs, lots of secondary placements. So yes, it will remain probably the largest allocation in the portfolio for the foreseeable future. But yes, what holds us back is still the valuation. So there is room for disappointment if the earnings don't come through. We think that would be a temporary setback, but it's something we need to be alive to, and that's what keeps us a little bit cautious on the very short term. But yes, over a medium- to long-term perspective, we're very positive on India.

Okay. Thanks, Gabriel. We've got a split question here. So I'll pick up the first part of it, which is somebody asking about the total expense ratio for the company, which is 0.91%. You'll find that on the company fact sheet and in the literature on the website. And now we do also attach a statement of expenses to the back of each equity trust fact sheet. So you'll find far more detail on the fact sheets than you used to. But the other part of the question was just the P/E of the portfolio, Gabriel, just quickly, if you can talk to that.

Yes, absolutely. So the valuation in P/E, obviously, we look at other valuation metrics, not just P/E multiples, which is more of a snapshot view of the valuation taking this year or next year's earnings into account. We have seen the P/E increase a little bit for the portfolio in general, driven primarily by higher allocation towards places like Taiwan and India over the last couple of years, which are on the more expensive side. Having said that, the 12-month forward P/E of the portfolio is around 19x, and we think that the portfolio can comfortably deliver mid-teens earnings growth. So on a growth-adjusted basis, that's quite reasonable price to earnings multiple. Also, we are benefiting from a very high-quality portfolio. The return on equity of these businesses in aggregate is over 20% with a very rock-solid balance sheet. So resilient businesses growing strongly and that positions us well, I think, for future returns. Obviously, the 19x, there's a range of valuations across the portfolio. So I mentioned India and Taiwan being on the more expensive side, justified by growth. You have Southeast Asia at very bargain levels at the moment, offering high single-digit dividend yields. So again, it really depends on how you look at the portfolio, but we think that all companies in the portfolio obviously represent value for shareholders. Otherwise, we wouldn't hold them. So either because of the yield and combination of yield and growth, or because of the growth on offer, we do expect that portfolio to continue to do well.

That's great. Just lastly, I think time is pressing, we've only got around 3 minutes left, I think. Just a question, Gabriel. Someone is asking, if you had to choose any 2 of your portfolio stocks, what have been the most successful for you? What are you most proud of?

That's a difficult one. It's basically like choosing your favorite children. I think we've been really proud of Precision Tsugami, which has been the -- we talked a lot about it in this recording already. But the nice thing about it is that no one was really investing there, it was very illiquid stock, but we had the conviction to buy into it as a play-on industrial automation in China. It's trading on 5x earnings and 10% dividend yield. So from that perspective, it was easy enough to choose. But we had the conviction to back an illiquid stock that had no coverage in the market and in an environment where China was pretty difficult as an equity market. So it's great to see something like that come through. It is a perfect stock for Asia Focus because of our closed-end structure, which allows us to go lower down the market cap spectrum and lower down the liquidity spectrum. But we managed the weight, so it wasn't too high as a result of those challenges from a liquidity point of view. That stock has done phenomenally well. It was reaching 6% of the portfolio at the start of the year. So we've aggressively reduced it, but it's still reasonably valued on 10x to 12x PE. So that's a good example. I think in India, I think our stock selection there has been strong as well and completely different type of business, more domestic driven exposure. We like an energy business. We have Aegis Logistics, which has done well for us, and we see a very successful future for that company. They have a network of terminals in ports in India where they store and distribute fuels and gases. And with the energy demand that India is going through and the energy transition as well away from coal, we think that business is extremely well positioned with high barriers to entry and actually quite a nice business model where they're not taking commodity risk. The really lock in the sourcing with a Japanese partner and then they lock in the offloader. So it's a fixed margin business really driven by volumes in India. So again, a very nice tidy business. It has done well for us, but we're still very excited about it. And whilst it doesn't show up in our top 10, we invest in a subsidiary of it. So on a combined basis, we have a 2.5% weight to the company, which is our largest holding in India at the moment. But you put me on the spot there. It was hard to choose between the companies.

Apologies. Anyway, good answers. Great companies that was invested in, and the proof is in the pudding. Performance has been great. So look, thank you. We'll need to end the webinar there with time constraints. It's 12:00. Thank you to the Chairman and Gabriel for answering all the questions towards the end. That's been great. To everybody out there, please do remember to cast your votes where you can for the company's Annual General Meeting. It's been held next Monday on the 8th of December at 12:30. We look forward to seeing as many of you there as possibly attend. For any further questions or related information, remember, you can always e-mail us at [email protected]. And with that, we'll just say thank you, and goodbye to everybody.