JPMorgan China G&I - Final Results
09/12/2024 16:30
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RNS Number : 3912P JPMorgan China Growth & Income PLC 09 December 2024
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN CHINA GROWTH & INCOME PLC
FINAL RESULTS FOR THE YEAR ENDED 30th SEPTEMBER 2024
Legal Entity Identifier: 549300S8M91P5FYONY25
Information disclosed in accordance with the DTR 4.1.3
The Directors announce the Company's results for the year ended 30th September
2024.
Highlights:
· NAV total return of +3.6% compared with +12.7% for the MSCI
China Index (the 'Benchmark'), as the quality and growth stocks favoured by
the Company's Fund Managers lagged value stocks, particularly state-controlled
energy and financial companies. The share price return was +2.3%.
· For ten years ended 30 September 2024, the Company outperformed
the Benchmark with a NAV total return of +90.0% compared with +69.0% for the
Benchmark. The share price return was +87.6% over this period.
· For the year ending 30th September 2025, the intention is to pay
a total dividend of 10.92 pence per share through equal quarterly dividends.
This reflects the dividend policy to pay an annual dividend equivalent to 4%
of the Company's NAV on the last business day of the preceding financial year.
The Chairman of JCGI, Alexandra Mackesy, commented:
"While the Company's performance was obviously disappointing, particularly
when compared with its benchmark, the Company has maintained its longer term
track record of strong performance over ten years. This reflects the Manager's
continued disciplined focus on long-term growth opportunities."
"While many challenges remain, the major government economic initiatives
announced in September and November have improved sentiment within China, with
companies describing themselves as 'cautiously optimistic' about future
prospects."
"Our disciplined Portfolio Managers remain focused on the bottom-up
fundamentals of high-quality Chinese businesses that are capable of generating
excess returns over the longer term. The Board shares the Portfolio Managers'
optimism about the long-term prospects for the Chinese stock markets and the
opportunities that will benefit the patient investor."
JCGI's Portfolio Managers commented:
" We believe there are several reasons to be optimistic about the prospects
for Chinese equities, and for our portfolio, over the coming year. Firstly,
valuations are still attractive. Even after the recovery in September and
October 2024, they are still at a relatively low level compared to market
history. Secondly, corporate reforms focused on improving capital allocation
and shareholder returns will be very positive for the market. Finally, with
the Chinese authorities now clearly determined to support the economy and the
property sector, we also see potential for upside surprises to earnings over
the next year and beyond, especially for the quality and growth-oriented
stocks we favour.
We will continue to seek out the opportunities generated by economic recovery
and structural changes, the ensure that your Company continues to deliver
outright gains and outperformance to shareholders over the long term."
Enquiries:
JPMorgan China Growth & Income plc
Investor Relations
Alexandra Ellaby, JPMorgan Funds Limited
E-mail: alexandra.ellaby@jpmchase.com
Telephone: 0800 20 40 20 or or +44 1268 44 44 70
CHAIRMAN'S STATEMENT
The year ended 30th September 2024 proved to be a period of sharply different
halves, continuing the trend seen in the previous year. During the first six
months ended 31st March 2024, the Company's total return on net assets (with
net dividends reinvested) fell 13.1%, with extreme volatility continuing
to batter market performance, amidst a myriad of concerns about the Chinese
economy and geo-politics. There was a marked change in the second half of the
year, with market volatility subsiding and investors sitting listlessly on the
sidelines. News in September of a major government initiative aimed at
stabilising the property market and encouraging consumer confidence gave the
Chinese markets a dramatic kick start. As a result, the Company's total return
on net assets climbed 19.3% in the second half of the year.
For the year as a whole, the Company's total return on net assets rose +3.6%
over the year. This represents the change in net asset value ('NAV') with
dividends reinvested and compares less favourably with the MSCI China Index
benchmark return of +12.7%. The Company delivered a return to Ordinary
shareholders of +2.3%, reflecting a slight widening in the discount, which
averaged 10.4% during the period under review.
The rise of the MSCI China Index was driven by value stocks, particularly
state controlled energy and financial companies. Quality and growth stocks,
which are favoured by the Company's disciplined Portfolio Managers, lagged
behind. Reflecting this, the MSCI China Value Index outperformed the MSCI
China Growth Index by 7.5%.
While the Company's performance was obviously disappointing, particularly when
compared with its benchmark, the Company has maintained its longer term track
record of absolute gains and strong performance over ten years. This reflects
the Manager's continued disciplined focus on long-term growth opportunities.
Full details of investment performance, changes to the portfolio and the
outlook can be found in the Investment Manager's Report.
Dividend
Reflecting a sharp increase in dividend receipts from portfolio companies, the
Company generated a revenue return of 3.39p during the year (FY2023: 1.87p).
In line with the Company's dividend policy, for the year ended 30th September
2024, four quarterly dividends of 2.76 pence were paid to shareholders. For
the year to 30th September 2025, in the absence of unforeseen circumstances,
a quarterly dividend of 2.73 pence per share will be paid. This represents an
annual dividend of 4% of the Company's NAV as at 30th September 2024.
Gearing
On 14th July 2023, the Company entered into a loan facility agreement for two
years with Industrial and Commercial Bank of China Limited, London Branch
(ICBC), in respect of a revolving loan facility of up to £60.0 million. Due
to market movements and after discussions with ICBC, the Company's loan
agreement was amended on 28th March 2024 and the facility was reduced to a
commitment of up to £30.0 million. Some changes were also made to certain
financial covenants.
The Company was 3.5% geared at the year end, having averaged approximately
6.7% throughout the year, and, at the time of writing, was 4.4%. The Company's
ability to gear up has been constrained by both the high cost of bank
borrowing and banks' continued reluctance to lend to investment trusts
investing in Emerging Markets. To solve this problem, the Board has worked
with JPMorgan to make Contracts for Difference (CFDs) available to the
Company. CFDs, a form of derivative trade, provide the Company with an
efficient alternative way of increasing leverage when it is deemed potentially
attractive to do so. The Portfolio Managers have the flexibility to manage the
gearing facility within a range set by the Board of 10% net cash to 20%
geared, subject to daily market movements.
Share Issues and Repurchases
At last year's Annual General Meeting ('AGM'), shareholders granted the
Directors authority to allot new shares and to repurchase the Company's shares
for cancellation or to be held in Treasury. During the year, the Company did
not repurchase or allot any shares. As in previous years, the Board's
objective is to use share repurchase and share issuance authorities to help
reduce the volatility in discounts and premiums by managing imbalances between
supply and demand. We are therefore seeking approval from shareholders to
renew the share issuance and repurchase authorities at the AGM.
The Board
In July 2024, the Board, through its Nomination Committee, carried out a
comprehensive evaluation of the Board, its Committees, the individual
Directors and the Chairman. Topics evaluated included the size and composition
of the Board, board information and processes, shareholder engagement and
training and accountability. The evaluation confirmed the efficacy of the
Board and its Committees.
In accordance with the UK Corporate Governance Code, all of the Directors will
retire at the forthcoming AGM and, being eligible, will offer themselves for
reappointment by shareholders.
Following May Tan's retirement following the AGM in January 2024, the Board
has decided to increase the size of the Board back to five directors which the
Board believes is the optimal number of Directors for this Company. As part of
the long-term succession programme, the Board intends to appoint a new
Non-Executive Director in early 2025. Accordingly, it has appointed an
external executive search company to find a suitable candidate for this
position.
Board Diversity
The Board recognises the value and importance of diversity in the boardroom. I
am pleased to report that the Board meets the FCA Listing rules targets on
gender diversity criteria, female representation in a senior role and ethnic
representation on the Board.
Review of services provided by the Manager
During the year, the Board, through its Management Engagement Committee,
carried out a thorough review of the investment management, secretarial and
marketing services provided to the Company by the Manager. These have been
formally assessed through the annual manager evaluation process. Taking all
factors into account, the Board concluded that the ongoing appointment of the
Manager is in the continuing interests of shareholders.
The Board also reviews the Depositary and Registration services provided to
the Company by the outsourced service providers. In terms of the Company's
Registrar and upon the recommendation of the Manager, the Company announced
earlier in the year that it had transferred the management of its share
register from Equiniti Financial Services Limited to Computershare Investor
Services PLC with effect from 24th June 2024.
Reduction in Management Fees
As noted in last year's results announcement, with effect from 1st April 2024,
the Company's management fee was reduced from a fixed fee of 0.9% on net
assets to a tiered fee rate of 0.80% for the first tier of up to £400 million
of net assets and 0.75% thereafter.
Environment, Social and Governance (ESG) considerations
The Company has not sought any Sustainability label under the new
Sustainability Directive Regime. However, the Board has continued to engage
with the Manager on the integration of ESG factors into its investment
process. The Board has conducted a review during the year to satisfy itself
that the Manager has a robust process in place with sufficient resources
behind it and that ESG considerations are considered by the Portfolio Managers
at every stage of the investment decision.
The Board shares the Manager's view of the importance of financially material
ESG factors when making investments for the long term and, in particular, the
necessity of continued engagement with investee companies throughout the
duration of the investment. The Portfolio Managers' ESG report in the Annual
Report describes the developments in the ESG process that have taken place
during the year together with examples of how these are implemented in
practice.
Annual General Meeting
The Company's thirtieth Annual General Meeting will be held at 60 Victoria
Embankment, London EC4Y 0JP on Thursday, 23rd January 2025 at 11.30 a.m. The
Board cannot stress strongly enough the importance of all shareholders
exercising their right to vote, regardless of their size of holding, and hopes
to welcome as many shareholders as possible to the AGM. As with previous
years, you will have the opportunity to hear from members of our investment
team. Their presentation will be followed by a question and answer session.
Shareholders wishing to follow the AGM proceedings but choosing not to attend
will be able to view them live and ask questions through conferencing
software. Details on how to register, together with access details, can be
found on the Company's website: www.jpmchinagrowthandincome.co.uk, or by
contacting the Company Secretary at invtrusts.cosec@jpmorgan.com.
In accordance with normal practice, all voting on the resolutions will be
conducted on a poll. Due to technological reasons, shareholders viewing the
meeting via conferencing software will not be able to vote on the poll. We
therefore encourage all shareholders, and particularly those who cannot attend
physically, to submit their proxy votes in advance of the meeting, so that
they are registered and recorded at the AGM. Proxy votes can be lodged in
advance of the AGM either by post or electronically: detailed instructions are
included in the Notes to the Notice of Annual General Meeting in the Annual
Report. In addition, shareholders are encouraged to send any questions ahead
of the AGM to the Board via the Company Secretary at the email address above.
We will endeavour to answer relevant questions at the meeting or via the
website depending on arrangements in place at the time.
If there are any changes to the above AGM arrangements, the Company will
update shareholders through its website and, if appropriate, through an
announcement on the London Stock Exchange.
My fellow Board members, representatives of JPMorgan and I look forward to the
opportunity to meet and speak with shareholders over lunch, after the
formalities of the meeting have been concluded.
Stay Informed
The Company delivers email updates with regular news and views, as well as the
latest performance. If you have not already signed up to receive these
communications and you wish to do so, you can opt in via
https://tinyurl.com/JCGI-Sign-Up or by scanning the QR code in the front of
the Annual Report.
Outlook
The Board has recently returned from a visit to China. In addition to spending
time with the locally-based Portfolio Managers and supporting analysts, the
Board visited a wide range of companies and met with industry experts and
business leaders in Hong Kong, Shenzhen and Shanghai. It was evident that,
while many challenges remain, the major government economic initiatives
announced in September and November have improved sentiment within China, with
companies describing themselves as 'cautiously optimistic' about future
prospects. As our Portfolio Managers highlighted in last year's Annual Report,
many companies have introduced regular dividend payouts and share buyback
programmes designed to benefit shareholders. Amidst continued consolidation in
the industrial sector, world-class companies are emerging, and many
market-leading companies have expanded production overseas, both as a means of
expanding into new markets to drive future growth, but also to give themselves
a degree of protection from potentially punitive US tariffs.
Since the Company's listing in 1993, the Portfolio Managers have often had to
navigate testing market conditions. They may have to draw on these skills
again in 2025. While our Managers welcome the recent significant government
economic initiatives, concerns about economic growth, domestic consumption,
unemployment, and the robustness of the Chinese property and financial markets
are likely to remain and may again impact market sentiment. That said, central
and local governments are widely expected to announce further initiatives to
tackle the structural impediments to economic growth, news that will be
welcomed by domestic investors. An escalation in anti-Chinese rhetoric
following the election of US President-Elect Trump cannot be ruled out,
particularly given President-Elect Trump's pre-election comments about tariffs
on Chinese imports. That said, our disciplined Portfolio Managers remain
focused on the bottom-up fundamentals of high-quality Chinese businesses that
are capable of generating excess returns over the longer term. Supported by a
well-resourced investment team based in Hong Kong, Shanghai and Taipei, they
continue to find attractive investment opportunities, and, by careful stock
picking, they should enable the Company to deliver superior returns over the
longer term. The Board shares the Portfolio Managers' optimism about the
long-term prospects for the Chinese stock markets and the opportunities that
will benefit the patient investor.
Alexandra Mackesy
Chairman
9th December 2024
INVESTMENT MANAGER'S REPORT
Introduction
During the financial year ended 30th September 2024, the Company's net assets
returned +3.6% (in sterling terms) compared to a benchmark return of +12.7%.
However, the Company's long-term track record of outright gains and
outperformance remains intact. In the ten years to 30th September 2024, the
portfolio realised an average annual return of +6.6%, comfortably ahead of the
average annual benchmark return of +5.4%.
Setting the scene
The past year was one in which the Chinese economy continued to work through
its structural challenges, including the collapse of its property bubble and
the associated lack of funding sources for local governments after land sales
revenue plummeted. For most of the year, policy responses to these challenges
were restrained and piecemeal, as the authorities remained reluctant to
implement large scale stimulus. The measures implemented included lower
interest rates, the removal of some property market restrictions, and
subsidies for industrial capex and large-ticket consumer goods.
These measures were welcomed and helped the economy to a degree. For the first
nine months of 2024, Chinese GDP grew 4.8% in real terms, only slightly below
the government's target of 5%. But the measures were not sufficient to reverse
the deflationary trend that is becoming a growing concern for both policy
makers and investors. The consumer price index (CPI) has been hovering around
zero since Q2 2023 and the producer price index (PPI) has been below zero
since the end of 2022. The former can be attributed to weak consumer
confidence. With income growth weak, individuals and households are reluctant
to use their ample savings to support spending. The weakness in producer
prices is due to overcapacity in certain industries, notably automobile, solar
and building materials.
As the year progressed, it became increasingly clear that the stimulus
policies launched in the first nine months of the year all depended on market
participants - households, enterprises and local governments - using their own
balance sheets or income to benefit from the stimulus measures. But consumers
were unwilling to buy big-ticket items even if these purchases were partly
subsidised, businesses were not persuaded to take advantage of capex
incentives, and local governments did not have the funds they needed to
support the property sector. Central government is the only entity with the
financial capacity to fund major stimulus.
Fortunately, the government gradually came to realise the seriousness of the
challenges the economy faces, and the bottlenecks limiting the effectiveness
of previously announced stimulus policies. It finally acknowledged that some
of the challenges to economic growth are more structural than cyclical. Most
importantly, recent events - the weakness of consumer confidence and the
negative wealth effects of the property market collapse - have exposed the
economy's excessive reliance on the property sector as a demand driver.
In response to this awakening, at the end of September, government
authorities, including the Central Bank, the People's Bank of China (PBOC),
the National Reform and Development Committee, which is the central
government's economic planning committee, the Ministry of Housing and
Urban-Rural Development, and the Ministry of Finance, hosted a series of press
conferences to announce new stimulus policies. These measures demonstrated a
level of coordination which was lacking in previous stimulus efforts,
hampering their effectiveness. The most recent initiatives also showed
a greater willingness to make direct fiscal transfers from the central
government to local governments and even to consumers.
To be more specific, to stimulate consumption, the central government directly
funded a new round of auto and electrical goods trade-in programmes and handed
out cash and targeted subsidies to disadvantaged groups such as recent
graduates looking for a job and households in poverty. In the property market,
in addition to more cuts to mortgage rates and less stringent downpayment
requirements, the central government changed the overall policy target to
'stopping the property market from declining'. To address the issue of
unfinished and unsold flats, local governments were given the green light to
issue special purpose bonds to purchase these properties and idle land,
effectively injecting liquidity into the property market and providing
confidence to potential buyers. It is also widely expected that the central
government may provide even more direct funding support to bolster the
property sector.
The authorities also implemented measures to redress the poor performance of
the equity market since the onset of the pandemic. For the first time in
history, the PBOC launched a low-cost CNY 500 billion asset swap facility
for non-bank financial institutions to buy shares, and CNY 300 billion (US$41
billion) of liquidity for companies to conduct share buybacks. Most
encouragingly, the central bank committed to providing more liquidity if these
measures proved effective. The PBOC is also considering setting up a national
equity market stabilisation fund, a long-term mechanism intended to provide
liquidity during periods of market weakness. Encouraged by this suite of
substantial and coordinated policy measures, the MSCI China Index shook off
its torpor and rose 19% (in GBP terms) in the following month.
Performance commentary
During the financial year, stock selection and sector allocation both
undermined performance, detracting 5.1% and 2.9%, respectively. The use of
gearing was neutral to performance.
Unfortunately, as was the case in the previous financial year, performance was
hit by a style headwind, as the MSCI China Value index outperformed the MSCI
China Growth index by 7.5 percentage points during the review period. Sectors
that we tend to underweight such as Financials and Energy, which are
characterised by limited growth prospects, were the two best performing
sectors, returning 21% and 15% respectively during the financial year, while
the quality and growth stocks we favour lagged. In terms of stock selection,
we also have room to improve in some sectors that offer more growth
opportunities, such as Healthcare, Information Technology and Industrials.
Performance attribution
Year ended 30th September 2024
% %
Contributions to total returns
Benchmark return 12.7
Sector allocation -2.9
Stock selection -5.1
Gearing/net cash 0.0
Investment Manager contribution -8.0
Dividend/residual 0.1
Portfolio total return 4.8
Management fee and other expenses -1.2
Net asset value total return 3.6
Ordinary share price total return 2.3
Source: Factset, JPMAM, Morningstar.
Performance attribution analyses how the Company achieved its recorded
performance relative to its benchmark.
On the positive side, we outperformed in the largest sector of the benchmark,
Consumer Discretionary, which accounts for 29.5% of the Index. This was mainly
due to our long-term holding of food delivery and restaurant review platform
Meituan and Trip.com, an online travel booking service. Both these businesses
reported continued improvement in margins and decent growth in a very
challenging macro environment. Not owning the pure electrical vehicle (EV)
automakers Li Auto, Xpeng and Nio collectively contributed positively. Our
positioning in this sector is consistent with concerns we expressed in 2023
Annual Report on intensifying price competition, the difficulties associated
with forecasting the popularity of specific new models and the large capital
issuance for the loss-making players. We prefer to gain our exposure to the
rising penetration of EVs indirectly, via component makers such as Fuyao
Glass, an auto glass maker, and Hongfa Technology, a high voltage relay maker
(used in various electrical modules including the battery charging).
Our exposure to Real Estate was also a major contributor, thanks to our
overweight position in KE Holding, which operates the largest internet
property information portal and the largest nationwide agent network. KE is a
well-managed, asset-light business with improving profitability and good cash
flow generation and it is committed to returning excess cash to shareholders
via share buybacks. The business will also benefit significantly from all the
past year's policy measures aimed at rejuvenating property transactions. Not
owning any of the developers also helped performance.
Healthcare made the largest negative contribution, mainly due to our exposure
to two types of companies. First, our two holdings in the contract development
& manufacturing organisation (CDMO) sector, Wuxi Biologics and Asymchem,
came under pressure. These companies provide comprehensive services to
pharmaceutical, biotechnology, and medical device companies. Their share
prices plummeted as the US House of Representatives sought to pass federal
legislation called the 'Biosecure Act', which would prevent US federal funded
projects from employing Chinese CDMOs, based on national security concerns.
There are further market concerns that if the act is passed, it may also
reduce the willingness of privately owned US pharmaceutical companies to use
Chinese CDMOs, even if these commercial projects are not funded by the US
government. As a result of these developments, we exited Asymchem and Wuxi
Biologics following the year-end.
The second group of healthcare underperformers were those with exposure to
discretionary healthcare services and public sector healthcare spending.
Contrary to our expectations, the post-pandemic recovery in discretionary and
out-of-pocket healthcare services proved to be short-lived. Consequently,
these stocks reported disappointing results. To rectify this misjudgment, we
exited Imeik Technology, a cosmetic dermo filler maker, and Aier Eye Hospital,
a private eye hospital. The procurement of medical products, services and
equipment has been negatively impacted by the prolonged anti-corruption
campaign in healthcare and, to a lesser extent, post COVID austerity at the
local government level. This adversely impacted our holdings in Guangzhou
Kingmed Diagnostics (independent pathological labs) and Qingdao Haier
Biomedica, a manufacturer of biomedical lab and public healthcare equipment.
We exited the former as the investment case is very dependent on local
governments honouring outstanding COVID-related payments to Kingmed for
providing tests, which we think may be quite a challenge for many of them
given local governments' austerity programmes. We retain a small position in
the latter, waiting for the eventual recovery of healthcare capex in China
partially funded by the central government and a recovery of its exporting
business that was disrupted by the wars in the Middle East and Ukraine.
In the Information Technology (IT) sector, our stock selection bore mixed
results. Our positions in solar energy, including module components maker
Xinyi Solar, and equipment makers Zhejiang Jingsheng Mechanical and Electrical
and Suzhou Maxwell Technologies, detracted the most. An industry downturn
triggered by overcapacity has proved deeper and more protracted than expected.
We exited some of these positions. Our long-term holdings in the software
sector, namely Kingdee International Software, an enterprise resources
planning (ERP) software provider, and Hundsun Technologies, a software
provider for the securities and asset management industries, also performed
poorly. Despite long-term growth potential from increasing penetration and
import substitution, these companies were more sensitive to the macroeconomic
downturn and cuts in corporate IT spending then we anticipated. We exited
Hundsun Technologies. On the positive side, our long-term strategy of
investing in secular growth opportunities in technology bore some fruit during
the year. Top 10 single stock contributors included a few long-held IT names
such as Silergy Technology, a Taiwan listed manufacturer of analogue
integrated circuits. This business is benefiting from the expansion of product
types, rising market share and an industry-wide cyclical recovery. Our
position in Foxconn Industrial Internet also added to performance. This
company is an A-share listed subsidiary of Hon Hai, best known as the iPhone
assembler. It is the largest global supplier of servers and racks and is
Nvidia's main supplier of generative AI graphic processing unit (GPU) modules.
Transactions and sector allocation
The Company maintained its growth tilt throughout the year. By the end of the
financial year, the top three overweight sectors were Information Technology,
Healthcare and Industrials, as per the previous financial year. The top three
underweight sectors were Financials, Communication Services and Energy. As
previously discussed, the underweight position in Financials was mainly due to
not owning the big five State-owned enterprise (SOE) banks as we see few
structural growth opportunities there. The underweight position in
Communication Services was primarily due to the outperformance of Tencent
which led to a 16.3% weighting in the benchmark, while our portfolio weighting
is capped at 12.5% by risk guidelines. We had zero holdings in Energy at the
end of the financial year as the sector was dominated by carbon-intensive SOEs
in the oil and coal industries, governance of which is not very transparent
and where we have little edge in making forecasts.
While the sector allocations look very similar to a year ago, we made changes
to our positions in sub-sectors, even in sectors where we maintained a large
overweight position. In addition, even in sectors where we maintained
a large overweight position, we made changes to our positions in sub-sectors.
We rectified some mistakes made previously, sought for certainty in earnings
outlook at reasonable valuation, and where possible we added to companies
committed to growing return to shareholders through dividends and share
buybacks.
In Information Technology, our largest overweight sector, we exited a few
relatively expensive software stocks based on valuations and fundamental
outlook. These included Beijing Kingsoft Office, a Chinese office WPS (write,
presentation and spreadsheet) software provider, as valuations ran ahead of
the monetisation of its AI tools which had been constantly delayed; Hundsun
Technology, a software provider to the finance industry, as valuations looked
stretched due to clients in securities and asset management industry cutting
IT budgets in the market downturn; and Shanghai Baosight Software, a software
and automation system integrator for the steel industry, given our concerns
about deteriorating profitability in the Chinese steel industry which will
ultimately impact companies' willingness to spend on Baosight's services. In
the broad solar industry, we exited a few small positions such as Longi Green
Energy Technology, a manufacturer of wafers and solar panels, Hangzhou First
Applied Materials, a manufacturer of specialised protection membrane used in
solar panels, and two equipment makers for the solar industry Suzhou Maxwell
Technologies and Zhejiang Jingsheng Mechanical & Electrical. Despite
strong solar panel installation growth globally, the over-supply situation and
the exit of marginal players took much longer to solve than we expected,
leading to faster than predicted margin deterioration, even for the market
leaders we own. In the IT sector, we rotated funding to companies that were
reasonably valued and presented promising growth opportunities in artificial
intelligence. We initiated a position in TSMC (Taiwan Semiconductor
Manufacturing Company) at the beginning of 2024 when the market was overly
concerned on the delayed recovery of traditional applications such as consumer
electronics and auto, when advanced node chips used in artificial intelligence
(AI) only accounted for low single digit of total revenue. We initiated the
position as we believed TSMC's dominant position in semiconductor
manufacturing will be further solidified in the AI era leading to better
margins in the medium term. Our global research team collectively is quite
optimistic on the take-off of AI chips in the coming years. Along the line, we
also initiated Zhongji Innolight that makes optical transceivers, which is a
critical part in data transfer within a server. It is a supplier to many US
server clients. We also built positions in Luxshare Precision, one of Apple's
most important suppliers across product lines, and Lenovo Group, a major PC
and server maker globally. Although their products have existed for a long
time, we believe AI will bring in new opportunities from the accelerated
product replacement cycle and higher Average Selling Price (ASP) from more
functions. Both companies' valuations were very reasonable at the point of
purchase because many investors are still not fully convinced by the thesis.
In the broad Healthcare and Consumer space, we rectified some mistakes we made
in the past year. For example, we exited Aier Eye Hospital, an out-of-pocket
eye surgery provider, and Guangzhou Kingmed Diagnostics Group, an independent
pathological lab chain providing outsourced pathological tests to public
hospitals. Recovery post the COVID reopening had been disappointing due to
weak consumption and continuous anti-corruption campaigns in public hospitals,
that reduced patients' volume and healthcare service prices. We also exited
casual restaurant operator Jiumaojiu and two Chinese liquor companies
Wuliangye and Luzhou Laojiao as a result of concerns about CPI deflation for
the former and high inventory for the latter two. We have rotated funding to
companies at lower valuations, with better earnings growth visibility (even if
lower), and/or where market expectations have been adjusted down to a more
realistic level. Examples include China Resources Sanjiu, a household name in
China with most of its profit generated from OTC (over-the-counter)
traditional Chinese medicine used to cure mild illnesses such as colds and
digestion problems. The business built a famous brand over decades and has
strong control of its distribution channel. The consumption of its products
demonstrates a certain level of non-discretionary nature, making it
relatively less sensitive to macroeconomic downturns. Another example is
Sinopharm Group, one of the largest medical products and device distributors
nationwide. We initiated the position towards the end of the financial year
when negative impacts from the anti-corruption campaign had been reflected in
its low valuation and high dividend yield, despite the fact that the company
should be a good proxy of potential recovery in patients and treatment
volumes. Along the line of searching for above-nominal GDP growth with
certainty and good execution, we initiated a new position in Midea Group, the
largest home appliances company in China, and possibly in the world by
production volume. Midea's growth is supported by a well-balanced set of
drivers including growing market share outside China, improving export margins
and home appliances trade-in programmes launched by the Chinese central
government to stimulate demand. Its Hong Kong H share IPO was offered at
a discount to its A share and we took the opportunity to initiate a new
position through the H share.
In the broad Internet sector (classified as Consumer Discretionary or
Communication Services), we used market volatility to rotate funding from
outperformers/lower conviction names to companies in which we have higher
conviction and that trade at reasonable valuation. In ecommerce, we exited
JD.com but topped up PDD Holdings. We believe the former's competitive edge in
electrical goods as well as quality logistic services are eroding and being
caught up by competitors. PDD, while valued at similar levels and at one point
cheaper than Alibaba and JD.com, has better growth prospects from Chinese
consumers trading down and penetration into foreign markets. The meaningful
reduction in Tencent reflected regular breaches of holding limits.
Ten largest investments
As at 30th September
2024 2023
Valuation Valuation
Company Description of Activities £'000 %(1) £'000 %(1)
Tencent A Chinese technology company focusing on internet services. It is the world's 25,441 10.8 27,858 10.6
largest video game vendor. It owns WeChat, among the largest Chinese and
therefore global social media app as well as a number of music, media and
payment service providers. Its venture capital arm has holdings in over 600
companies with a focus on technology start-ups across Asia.
Alibaba A provider of online sales services. The Company provides internet 17,422 7.4 14,888 5.7
infrastructure, electronic commerce, online financial, and internet content
services through its subsidiaries. Alibaba offers its products and services
worldwide.
Meituan An e-commerce company that offers services like food, dining and delivery on 16,462 7.0 13,355 5.1
its platform throughout China.
Pinduoduo Founded in 2015, it started as an online fresh produce vendor before expanding 14,045 6.0 9,273 3.5
into a leading social commerce platform serving close to 900 million users.
Pinduoduo pioneered 'Team Purchase' and 'C2M' (consumer to manufacturer)
processes to aggregate user demand and share the information with
manufacturers to tailor make products according to users' preferences.
China Merchants China's first joint-stock commercial bank wholly owned by corporate legal 8,309 3.5 5,419 2.1
entities. Since its inception, CMB has been a trend setter in China's banking
Bank industry through a series of pioneering efforts.
China Pacific Insurance A provider of insurance services. The Company provides property insurance, 6,969 3.0 5,065 1.9
short-term health insurance, accidental injury insurance, and more. China
Pacific Property Insurance offers services in China.
NetEase A leading China-based technology company involved in developing and operating 6,665 2.8 9,291 3.5
online games. Its online gaming services cover both mobile and personal
computer games.
KE Holdings An operator of an integrated online and offline platform for housing 6,562 2.8 7,002 2.7
transactions and services in China. The Company offers existing and new home
sales, home rentals, home renovation, real estate financial solutions, and
other services.
Trip.com A provider of online travel agency services. The Company offers mobile 6,431 2.8 4,861 1.8
applications, hotel reservations, flight ticketing, package tours, corporate
travel management, and train ticketing services. Trip.com Group provides
services worldwide.
Foxconn Industrial Internet An operator of a communication network equipment development company. The 5,856 2.4 4,653 1.8
Company develops and sells network switches, routers, wireless devices, web
servers, set top boxes, smart home gateways, and other products. Foxconn
Industrial Internet also manufactures storage equipment.
Ten Largest Investments 114,162 48.5 101,665 38.7
(1) Based on total investments of £235.4m (30th September 2023:
£262.0m). Top ten investments at September 2023 totalled £106.2m,
representing 40.5% of total investments.
Gearing
The average gearing level during the financial year was maintained at 6.7%.
Our ability to gear up, if we deem it potentially attractive to so do, was
constrained by the high cost of bank loans. To solve this problem, JPMorgan
has completed a project to make CFDs available to the Company. This provides
an alternative way of increasing leverage when we need it.
A CFD is a type of derivatives trade. It is an agreement between a buyer (in
this case JCGI) and a seller, that stipulates that the buyer must pay the
seller the difference between the current value of the asset and its value at
a future contract time. It allows investors to profit from share price
appreciation without actually owning it. However, CFDs do leave the investor
open to risk if the price of the underlying stock declines. Also the company
pays a brokerage fee for entering the contract regardless of realised profit
and loss.
Outlook
As previously discussed, as long-term investors in Chinese equities, we
acknowledge that there is no quick solution to some of the country's
structural issues. It seems inevitable, and indeed desirable, that the
property sector's contribution to growth will henceforth be permanently lower.
In addition, local governments need to find an alternative source of funding
to replace land sale revenue. On the demographic front, China's aging
population and declining birthrate impose unwelcome deflationary pressures.
But despite these challenges, it is worth reiterating that the financial
return of an asset class may not necessarily move in close accordance with
fundamental trends. Valuations and near-term market sentiment play important
roles too.
Government efforts to address China's problems are likely to continue. We
foresee more initiatives from both the central and local governments in the
coming months to tackle the structural impediments to economic growth.
Possible additional measures include a direct debt swap between the central
and local governments; more direct cash handouts to targeted households;
a recapitalisation of China's large state-owned banks; and using the central
government's balance sheet to buy unfinished and unsold housing inventory. It
is always difficult for equity investors to bet on the timing and scope of any
such policy initiatives, and we do not intend to try. Nevertheless, we believe
the central government's newfound but apparently strong commitment to use its
balance sheet to solve the economy's problems sends a strong signal to the
market that it is still prioritising economic stabilisation and growth and is
willing to explore further ways to achieve these objectives.
While domestic demand is hesitant, exports remain a highlight of the Chinese
economy, outgrowing GDP. The corporate stories we encounter repeatedly as we
conduct our on the ground, bottom-up investment research into individual
stocks are far more upbeat than the doom and gloom which pervades the media.
Despite geopolitical concerns, we still find many Chinese companies playing
increasingly important roles in global supply chains. Many are participating
fully in global trends such as the artificial intelligence revolution and the
infrastructure buildout in developed countries. For example, beyond the EV and
renewable energy supply chain we have discussed in previous reports, we are
invested in electronic hardware suppliers such as Zhongji Innolight and
Foxconn International, which play critical roles in the global 'arms race' for
GPU servers. We also have exposure to healthcare equipment and device
suppliers such as Shenzhen Mindray and Amoy Diagnostic. About one third of
these companies' total revenues are derived from exports.
Of course, we should not underplay the geopolitical risks that threaten
Chinese and global equities. The most crucial of these for investors in
Chinese equities is the course of China-US relations under the incoming US
President-Elect. So early in the new administration, it is hard to predict the
full impact of President-Elect Trump's victory, and pre-election rhetoric may
be tempered by post-election political and diplomatic realities.
Our investment process does not try to second guess political events. Instead,
we incorporate perceived risks into our portfolio construction and risk
management processes. We rely on our deep, on-the-ground research to assess
and analyse the potential risks faced by current and prospective portfolio
holdings. Using our knowledge of their businesses and strategies, we try to
reflect different risk scenarios in our forecasts and sensitivity analysis,
and we will continue to take investment decisions based on our research and
valuation signals. We may see increasing volatility as events unfold, but it
is worth noting that although volatility is generally viewed as undesirable,
it usually also presents good buying opportunities for investors, like us, who
are willing to do their homework.
On the monetary policy front, it is good news for China that the US finally
seems to have inflation under control. This is allowing the US Federal Reserve
to begin easing monetary policy. Although it is hard to predict the speed and
scale of Fed rate cuts, declining Fed rates will, in general, provide China
with scope to cut its own reference rate to further stimulate activity,
without triggering drastic currency depreciation. If US inflation turns out to
be stickier than expected due to President-Elect Trump's administration
policies such as increasing trade barriers, China may have less room to lower
its own interest rates, while keeping exchange rates relatively stable.
Elsewhere in the political arena, we view China's relationship with Taiwan as
stable, despite periodic military drills by both sides. Taiwan held a peaceful
presidential election in January 2024. The new President, William Lai, from
the pro-independence Democratic Progressive Party (DPP), favours preserving
the status quo regarding Taiwan's relations with China. As no party holds a
majority in Taiwan's legislature, it is highly unlikely that the
pro-independence DPP will be able to pass any radical resolution which might
put fresh pressure on the cross-strait relationship.
Valuations matter, as noted above. Before the latest round of stimuli
announced at the end of September, the MSCI China Index was discounting very
pessimist assumptions. The price to book of the index, a rather conservative
measure of valuation, hit as low as 1.1x in March 2024, close to the ten-year
low level reached in September 2022 when China was paralysed by COVID
lockdowns. The extreme pessimism reflected in valuations set the stage for the
very sharp rebound in the wake of September's policy announcements. We would
make two observations regarding this rebound. First, it is extremely difficult
to time the entry point into the Chinese equity market, or indeed, any equity
market. In our view, long-term investing at reasonable valuations is the
better approach. Second, the Chinese market has not been completely deserted
by international investors, as some commentators claim. When valuations are
cheap and things are turning for the better, investors do notice. This is what
has happened since September. The first leg of a strong rebound of many
Chinese stocks listed in Hong Kong and the US was fuelled by global hedge
funds taking a fresh look at China, and then followed by long-only mutual
funds reassessing their positionings in China, mostly starting from an
underweight position. Any further improvement in China's economic outlook is
likely to spark further interest from international investors. On the other
hand, we are also conscious that negative narratives around China and
investment in China based on President-Elect Trump's attacks on China may cap
the asset class's valuations in the near term.
Where are we going from here? We see reasons for optimism. Firstly, valuations
are still attractive. Although valuations recovered in September and October
2024, they are still at relatively low levels compared to market history. For
example, the price to book of the index is still below its level during the
global financial crisis in 2009.
Second, corporate reforms focused on improving capital allocation and
shareholder returns will be very positive for the market. Many cash generative
companies, that traditionally hoarded cash for 'future growth opportunities'
regardless of their actual capital needs, are more willing to distribute cash
to shareholders either through dividends or share buybacks. This change is
being strongly encouraged by the Chinese regulators, to the extent that the
PBOC is extending low-cost liquidity to corporates to undertake such buybacks.
Developments in this direction have been greatly welcomed by domestic and
international investors, as they view dividends to be a more predictable
source of return. This was certainly a factor behind the recent outperformance
of the MSCI China Value Index. As we noted in the Half Year report, while
many of our cash-rich holdings are already increasing payout ratios and
undertaking share buybacks, there is still considerable scope for many to do
even more. This should have a further beneficial impact on valuations over
time.
Finally, with the Chinese authorities now clearly determined to support the
economy and the property sector, we also see potential for upside surprises to
earnings over the next year and beyond, especially for the quality and
growth-oriented stocks we favour.
All this leaves us cautiously optimistic about the prospects for Chinese
equities, and for our portfolio over the coming year. We will continue to seek
out and grasp the opportunities generated by economic recovery and structural
change, to ensure that the Company continues to deliver outright gains and
outperformance to shareholders over the long term.
We thank you for your ongoing support.
Rebecca Jiang
Howard Wang
Li Tan
Investment Team
9th December 2024
PRINCIPAL AND EMERGING RISKS
The Directors confirm that they have carried out a robust assessment of the
principal and emerging risks facing the Company, including those that would
threaten its business model, future performance, solvency or liquidity.
With the assistance of the Manager, the Audit Committee maintains a risk
matrix which identifies the principal risks to which the Company is exposed
and methods of mitigating against them as far as practicable. The risks
identified and the broad categories in which they fall, and the ways in which
they are managed or mitigated are summarised below.
The AIC Code of Corporate Governance requires the Audit Committee to put in
place procedures to identify emerging risks. At each meeting, the Board
reviews all potential risks and considers emerging risks which it defines as
potential trends, sudden events or changing risks which are characterised by a
high degree of uncertainty in terms of occurrence probability and possible
effects on the Company. As the impact of emerging risks is understood, these
risks may be entered on the Company's risk matrix and mitigating actions
considered as necessary.
Movement in risk
status in year to
Principal risk Description Mitigation/Control 30th September 2024
Investment management and performance
Geopolitical Geopolitical risk can cause volatility in the markets in which the Company is The Board meets advisers and gathers insights from both JP Morgan and â
invested; restrictions on the ability to invest and the free movement of independent sources on a regular and ongoing basis and takes advice from the
capital and also potentially impact the ability of the Manager and other Manager and its professional advisers.
service providers to carry on business as usual. Specifically in China, we
have seen instances of the government interfering in certain sectors of the
financial markets as well as concerns relating to US-China trade tensions,
potential conflict involving Taiwan and wider questions about supply chains
and human rights in China. These concerns have led to international investors
reducing their investments in China, and could risk damaging overseas
sentiment towards Chinese equities further.
Investment Under-performance An inappropriate investment decision may lead to sustained investment The Board aims to manage this risk by diversification of investments through ã
underperformance against the Company's benchmark index and peer companies, its investment restrictions and guidelines which are monitored and reported on
resulting in the Company's shares trading on a wider discount as well as by the Manager. The Manager provides the Directors with timely and accurate
discontent amongst the Company's shareholders. In addition, a significant loss management information, including performance data and attribution analyses,
of scale would leave the Company less attractive to investors given the revenue estimates and transaction reports. The Board monitors the
increase in the cost base and reduction in liquidity in the secondary market implementation and results of the investment process with the investment
for its shares. managers, who attend all Board meetings, and reviews data which show
statistical measures of the Company's risk profile.
Investment Strategy An ill-advised corporate initiative, for example an inappropriate takeover of The Board discusses this on a regular and ongoing basis with the Manager and ã
another company or an ill-timed issue of new capital; misuse of the investment corporate advisers based on information provided both at and between Board
trust structure, for example inappropriate gearing; or if the Company's chosen meetings (see above risk regarding Investment Underperformance). The Company
strategy is no longer appropriate, may lead to a lack of investor demand. states its strategy clearly in its Half-Year and Annual Reports and its
website. The investment managers employ the Company's gearing within a
strategic range set by the Board.
Loss of Investment Team or Investment Manager A sudden departure of one or more members of the investment management team The Board seeks assurance that the Manager takes steps to reduce the â
could result in a deterioration in investment performance. likelihood of such an event by ensuring appropriate succession planning and
the adoption of a team-based approach, as well as special efforts to retain
key personnel. The Board engages privately with the investment managers on
a regular basis and visits them annually in Shanghai and Hong Kong.
Share Price Discount A disproportionate widening of the discount relative to the Company's peers In order to manage the Company's discount, which can be volatile, the Company ã
could result in a loss of value for shareholders. operates a share repurchase programme. The Board regularly discusses discount
policy and has set parameters for the Manager and the Company's broker to
follow. The Board receives regular reports and is actively involved in the
discount management process. In addition, the Company's conditional tender
offer of up to 15% of the issued share capital should limit the extent of the
discount in the event that it is triggered in 2028.
Corporate Governance Changes in financial, regulatory or tax legislation may adversely affect the The Manager makes recommendations to the Board on accounting, dividend and tax â
Company. policies and the Board seeks external advice where appropriate. The Board
receives regular reports from its broker, depositary, registrar and Manager as
well as its legal advisers and the Association of Investment Companies on
changes to governance and regulations which could impact the Company and its
industry. The Company monitors events and relies on the Manager and its other
key third party providers to manage this risk by preparing for any changes.
It also receives updates from its advisors on corporate governance issues and
reviews its related policies regularly.
Shareholder Relations Poor investment performance could result in a deterioration of the The Board receives regular reports from the Manager and the Company's broker â
relationship with the Company's shareholders. about shareholder communications, their views and their activity.
In addition, the Board engages directly with major shareholders on at least
an annual basis and encourages all shareholders to engage with the Board and
Investment Managers at the AGM and through the increased use of webcasts,
periodic meetings and the introduction of email updates.
Financial The financial risks faced by the Company include market price risk, interest Counterparties are subject to daily credit analysis by the Manager. In ã
rate risk, currency risk, liquidity risk and credit risk. addition the Board receives reports on the Manager's monitoring and mitigation
of credit risks on share transactions carried out by the Company. Further
details are disclosed in note 21 of the Annual Report.
Operational risks
Cyber crime Disruption to, or failure of, the Manager's accounting, dealing or payments Details of how the Board monitors the services provided by the Manager, its ã
systems or the depositary's or custodian's records may prevent accurate associates and depositary and the key elements designed to provide effective
reporting and monitoring of the Company's financial position. internal control are included within the Risk Management and Internal Control
section of the Directors' Report in the Annual Report. The threat of cyber
In addition to threatening the Company's operations, such an attack is likely attack, in all its guises, is regarded as at least as important as more
to raise reputational issues which may damage the Company's share price and traditional physical threats to business continuity and security. The Company
reduce demand for its shares. This risk is heightened given advances in benefits directly or indirectly from all elements of JPMorgan's Cyber Security
computing power that mean that AI has become a powerful tool which can programme. The information technology controls around the physical security of
potentially impact and disrupt a wide range of applications. JPMorgan's data centres, security of its networks and security of its trading
applications are tested independently.
Fraud/other operating failures or weaknesses The risk of fraud or other control failures or weaknesses within the Manager The Audit Committee receives independently audited reports on the Manager's â
or other service providers could result in losses to the Company. and other service providers' internal controls, as well as a report from the
Manager's Compliance function. The Company's management agreement obliges the
Manager to report on the detection of fraud relating to the Company's
investments and the Company is afforded protection through its various
contracts with suppliers, of which one of the key protections is the
Depositary's indemnification for loss or misappropriation of the Company's
assets held in custody.
Regulatory risk
Inability to secure gearing One of the advantages of the investment trust structure is the ability to The Board work with JPMAM to identify suitable lenders and ensure that the â
deploy gearing. However, many of the leading lenders to the trust sector have Company has credible options that allows it to provide geared exposure. In
declined to offer terms in recent years as a result of diminished risk addition, the Company now has the ability to gear through the use of Contracts
appetite. for Difference (CFDs).
Use of CFDs The Company now has the ability to adopt geared exposure through the use of JPMAM has experience in the use of CFDs and will report to the Board on their â
CFDs. This presents counterparty risk to the issuer and also requires use and exposures on a periodic basis. In addition, the Board places reliance
additional controls around margin calls. on JPMAM's robust assessment of counterparty risk.
Legal and Regulatory In order to qualify as an investment trust, the Company must comply with The Section 1158 qualification criteria are continually monitored by the â
Section 1158 of the Corporation Tax Act 2010 ('Section 1158'). Details of the Manager and the results reported to the Board each month. The Company must
Company's approval are given under 'Structure of the Company' in the Annual also comply with the provisions of the Companies Act 2006 and, since its
Report. Were the Company to breach Section 1158, it may lose investment trust shares are listed on the London Stock Exchange, the UKLA Listing Rules,
status and, as a consequence, gains within the Company's portfolio would be Disclosure Guidance and Transparency Rules ('DTRs') and, as an Investment
subject to Capital Gains Tax. Trust, the Alternative Investment Fund Managers Directive ('AIFMD'). A breach
of the Companies Act 2006 could result in the Company and/or the Directors
being fined or the subject of criminal proceedings. Breach of the UKLA Listing
Rules or DTRs could result in the Company's shares being suspended from
listing which in turn would breach Section 1158. The Board relies on the
services of its Company Secretary, JPMorgan Funds Limited and its professional
advisers to ensure compliance with the Companies Act 2006, the UKLA Listing
Rules, DTRs and AIFMD.
Risk of misrepresent-ation of ESG credentials Although financial material ESG factors are integrated into its investment The Board determines the description of ESG approach and policies in Annual â
process, the Company is not a sustainable or ESG investment vehicle. However, Report and other investor communications taking care to avoid any suggestion
the inappropriate use of language and claims in communication with of greenwashing and with regard to current regulations. In addition, the
shareholders and potential investors could lead to confusion and potentially manager is hugely experienced in investor communications and is fully
censor. Sustainability Disclosure Requirements (SDR) require FCA-authorised cognisant of the requirements of SDR given its wider business.
fund distributors to avoid greenwashing.
Economic and geopolitical
Global pandemics COVID-19 has highlighted the speed and extent of economic damage that can The Board receives reports on the business continuity plans of the Manager and ä
arise from a pandemic, particularly in a society such as China's. The risk other third party providers. The effectiveness of these measures were assessed
remains that new variants or other viruses may not respond to existing throughout the course of the COVID-19 pandemic and the Board will continue to
vaccines, may be more lethal and may spread rapidly around the world, monitor developments as they occur and seek to learn lessons which may be of
presenting risks to the operations of the Company, the Manager and its use in the event of future pandemics.
investee companies.
ESG Risk Failure to recognise non-financial risks in portfolio construction and stock The Manager integrates ESG scoring into stock selection alongside financial â
selection and/or to explain our ESG approach to current/potential investors. measures and portfolio level measures such as carbon intensity/CO2 emissions
are aggregated and presented alongside the benchmark index. The Board can
determine the appetite for ESG as well as financial factors in portfolio
construction via investment restrictions and guidelines and the investment
policy. The Board determines the description of the ESG approach and policies
in the Annual Report and other investor communications.
Climate change Climate change is one of the most critical issues confronting asset managers The Manager's investment process integrates consideration of environmental, â
and their investors. Climate change may have a disruptive effect on individual social and governance factors into decisions on which stocks to buy, hold or
investee companies and the operations of the Manager and other major service sell (see the ESG report in the Annual Report). This includes the approach
providers. investee companies take to recognising and mitigating climate change risks.
The Manager aims to influence the management of climate related risks through
engagement and voting and is a participant of Climate Action 100+ and
a signatory of the United Nations Principles for Responsible Investment.
As extreme weather events become more common, in particular with the typhoons,
flooding and droughts experienced in China, the resiliency, business
continuity planning and the location strategies of our services providers will
come under greater scrutiny.
Social unrest within China If economic growth and consumer demand remain sluggish and unemployment rises The Board and the Portfolio Managers understand the inherent risks associated
in China, there is a risk disruptive social unrest could occur at a local or with investing in emerging markets such as China. While focusing on the long
national level. Such disorder could disrupt the companies in which our Company term, the Manager is mindful of these risks when considering investment
invests, and negatively impact both our manager's operations within China and strategy and portfolio construction, and keeps the Board regularly informed
international sentiment towards Chinese equities. about any issues that might impact China and the portfolio.
Impact of reshoring and tariffs Political and economic pressures from countries in the Developed Markets, led The Board works with the Manager using JPMorgan's resources to monitor
by the US, have led to instances of 'reshoring' in recent years that have developments on a continuous basis. Working closely with the Board, the
potentially negative consequences for both the Chinese economy and its Portfolio Managers will keep shareholders regularly informed of its views
companies. In addition, the threat of a step change in tariffs applied to using various communication methods such as webcasts, monthly fact sheets and
goods originating in China and the wider Asian region could see a robust the Company's website.
response from those countries impacted, with a dampening effect on global
economic activity.
TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
Details of the management contract are set out in the Directors' Report in the
Annual Report. The management fee payable to the Manager for the year was
£1,715,000 (2023: £2,468,000).
Safe custody fees amounting to £33,000 (2023: £51,000) were payable during
the year to JPMorgan Chase Bank N.A. of which £8,000 (2023: £21,000) was
outstanding at the year end.
The Manager may carry out some of its dealing transactions through group
subsidiaries. These transactions are carried out at arm's length. The
commission payable to JPMorgan Securities Limited for the year was £3,000
(2023: £9,000).
Handling charges on dealing transactions amounting to £57,000 (2023:
£34,000) were payable to JPMorgan Chase Bank N.A. during the year of which
£4,000 (2023: £6,000) was outstanding at the year end.
The Company also had an investment in the JPMorgan USD Liquidity Fund, a money
market fund which is managed by JPMorgan Asset Management(Europe) S.à r.l. At
the year end this was valued at £347,000 (2023: £4,000). Interest amounting
to £35,000 (2023: £212,000) was receivable during the year.
Fees amounting to £48,000 (2023: £224,000) were receivable from stock
lending transactions during the year. JPMorgan Chase Bank N.A. commissions in
respect of such transactions amounted to £5,000 (2023: £25,000).
At the year end, total cash of £2,291,000 (2023: £83,000) was held with
JPMorgan Chase Bank, N.A. in a non interest bearing current account.
Full details of Directors' remuneration and shareholdings can be found in the
Director's Remuneration Report in the Annual Report.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and Financial
Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each
financial year. Under that law the Directors have elected to prepare the
Financial Statements in accordance with applicable law and United Kingdom
Accounting Standards, comprising Financial Reporting Standard 102 'the
Financial Reporting Standard applicable in the UK and Republic of Ireland'
(FRS 102). Under company law the Directors must not approve the Financial
Statements unless they are satisfied that, taken as a whole, the Annual Report
and Financial Statements are fair, balanced and understandable, provide the
information necessary for shareholders to assess the Company's performance,
business model and strategy and that they give a true and fair view of the
state of affairs of the Company and of the total return or loss of the Company
for that period. In preparing these Financial Statements, the Directors are
required to:
• select suitable accounting policies and then apply them
consistently;
• state whether applicable UK Accounting Standards comprising
FRS 102, have been followed, subject to any material departures disclosed and
explained in the Financial Statements;
• make judgments and accounting estimates that are reasonable
and prudent; and
• prepare the Financial Statements on a going concern basis
unless it is inappropriate to presume that the Company will continue in
business
and the Directors confirm that they have done so.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the Financial Statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Financial Statements are published on the
www.jpmchinagrowthandincome.co.uk website, which is maintained by the
Company's Manager. The maintenance and integrity of the website maintained by
the Manager is, so far as it relates to the Company, the responsibility of the
Manager. The work carried out by the Auditor does not involve consideration of
the maintenance and integrity of this website and, accordingly, the Auditor
accepts no responsibility for any changes that have occurred to the accounts
since they were initially presented on the website. The accounts are prepared
in accordance with UK legislation, which may differ from legislation in other
jurisdictions.
Under applicable law and regulations the Directors are also responsible for
preparing a Strategic Report, a Directors' Report and a Directors'
Remuneration Report that comply with that law and those regulations.
Each of the Directors, whose names and functions are listed in the Directors'
Report confirm that, to the best of their knowledge:
• the Company's Financial Statements, which have been prepared
in accordance with applicable law and United Kingdom Accounting Standards,
comprising FRS102, give a true and fair view of the assets, liabilities,
financial position and profit of the Company; and
• the Strategic Report includes a fair review of the
development and performance of the business and the position of the Company,
together with a description of the principal risks and uncertainties that it
faces.
The Board confirms that it is satisfied that the Annual Report and Financial
Statements, taken as a whole, are fair, balanced and understandable and
provide the information necessary for shareholders to assess the Company's
position, performance, business model and strategy.
For and on behalf of the Board
Alexandra Mackesy
Chairman
9th December 2024
FINANCIAL STATEMENTS
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30th September 2024
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net gains/(losses) on investments held at
fair value through profit or loss - 4,194 4,194 - (45,372) (45,372)
Net foreign currency gains(1) - 1,308 1,308 - 4,740 4,740
Income from investments 4,346 106 4,452 3,305 - 3,305
Other income 96 - 96 440 - 440
Gross return/(loss) 4,442 5,608 10,050 3,745 (40,632) (36,887)
Management fee (429) (1,286) (1,715) (617) (1,851) (2,468)
Other administrative expenses (647) - (647) (628) - (628)
Net return/(loss) before finance costs and taxation 3,366 4,322 7,688 2,500 (42,483) (39,983)
Finance costs (276) (829) (1,105) (735) (2,206) (2,941)
Net return/(loss) before taxation 3,090 3,493 6,583 1,765 (44,689) (42,924)
Taxation (267) - (267) (208) - (208)
Net return/(loss) after taxation 2,823 3,493 6,316 1,557 (44,689) (43,132)
Return/(loss) per share 3.39p 4.20p 7.59p 1.87p (53.71)p (51.84)p
(1) £1,491,000 due to an exchange gain on the loan which is
denominated in US dollars and £183,000 due to net exchange loss on cash and
cash equivalents (2023: £6,155,000 due to an exchange gain on the loan which
is denominated in US dollars and £1,415,000 due to net exchange gains on cash
and cash equivalents).
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued in the year.
The 'Total' column of this statement is the profit and loss account of the
Company and the 'Revenue' and 'Capital' columns represent supplementary
information prepared under guidance issued by the Association of Investment
Companies. Net return after taxation represents the profit for the year and
also total comprehensive Income.
STATEMENT OF CHANGES IN EQUITY
For the year ended 30th September 2024
Called up Exercised Capital
share Share warrant redemption Other Capital Revenue
capital premium reserve reserve reserve(1) reserves(2) reserve(2) Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 30th September 2022 20,803 80,951 3 581 37,392 144,556 - 284,286
Net (loss)/return after taxation - - - - - (44,689) 1,557 (43,132)
Dividends paid in the year (note 2) - - - - - (9,825) (1,557) (11,382)
At 30th September 2023 20,803 80,951 3 581 37,392 90,042 - 229,772
Proceeds from share forfeiture(3) - - - - - 333 - 333
Net return after taxation - - - - - 3,493 2,823 6,316
Dividends paid in the
year (note 2) - - - - - (6,202) (2,984) (9,186)
Refund of unclaimed
dividends(3) (note 2) - - - - - - 161 161
At 30th September 2024 20,803 80,951 3 581 37,392 87,666 - 227,396
( )
(1) Created during the year ended 30th September 1999, following a
cancellation of the share premium account.
(2) These reserves form the distributable reserves of the Company and
may be used to fund distributions to investors.
(3) During the year, the Company undertook an Asset Reunification
Program to reunite inactive shareholders with their shares and unclaimed
dividends. Pursuant to the Company's Articles of Association, the Company has
exercised its right to reclaim the shares of shareholders whom the Company,
through its previous Registrar, has been unable to locate for a period of 12
years or more. These forfeited shares were sold in the open market by the
Registrar and the proceeds, net of costs, were returned to the Company. In
addition, any unclaimed dividends older than 12 years from the date of payment
of such dividends were also forfeited and returned to the Company.
STATEMENT OF FINANCIAL POSITION
At 30th September 2024
2024 2023
£'000 £'000
Fixed assets
Investments held at fair value through profit or loss 235,397 262,005
Current assets
Debtors 630 157
Current asset investments(1) 347 4
Cash at bank(1) 2,291 83
3,268 244
Current liabilities
Creditors: amounts falling due within one year (11,269) (669)
Net current assets (8,001) (425)
Total assets less current liabilities 227,396 261,580
Non current liabilities
Creditors: amounts falling due after more than one year - (31,808)
Net assets 227,396 229,772
Capital and reserves
Called up share capital 20,803 20,803
Share premium 80,951 80,951
Exercised warrant reserve 3 3
Capital redemption reserve 581 581
Other reserve 37,392 37,392
Capital reserves 87,666 90,042
Revenue reserve - -
Total shareholders' funds 227,396 229,772
Net asset value per share 273.3p 276.2p
(1) Cash at bank in the Statement of Financial Position has been
restated to exclude the investment in the JPMorgan USD Liquidity Fund of
£4,000 for the year ended 30th September 2023, and to disclose this
separately as Current asset investments to conform with the statutory format
as required by the Companies Act. There is no impact on other line items in
the Statement of Financial Position nor on the total current assets.
STATEMENT OF CASH FLOWS
For the year ended 30th September 2024
2024 2023
£'000 £'000
Cash flows from operating activities
Net return/(loss) before finance costs and taxation 7,688 (39,983)
Adjustment for:
Net (gains)/losses on investments held at fair value through profit or (4,194) 45,372
loss
Net foreign currency gains (1,308) (4,740)
Dividend income (4,452) (3,305)
Interest income (48) (216)
Realised (gains)/losses on foreign exchange transactions (298) 95
Realised exchange gains on liquidity (155) (990)
Decrease/(increase) in accrued income and other debtors 16 (8)
(Decrease)/increase in accrued expenses (20) 44
Net cash outflow from operations before dividends and interest (2,771) (3,731)
Dividends received 4,157 3,068
Interest received 48 216
Net cash inflow/(outflow) from operating activities 1,434 (447)
Purchases of investments (51,159) (184,366)
Sales of investments 83,750 208,204
Net cash inflow from investing activities 32,591 23,838
Dividends paid (9,186) (11,382)
Refund of unclaimed dividends 161 -
Repayment of bank loans (21,618) (53,866)
Drawdown of bank loans - 34,318
Proceeds from share forfeiture 333 -
Interest paid (1,434) (2,804)
Net cash outflow from financing activities (31,744) (33,734)
Increase/(decrease) in cash and cash equivalents 2,281 (10,343)
Cash at bank and current asset investments at start of year 87 10,950
Exchange movements 270 (520)
Cash at bank and current asset investments at end of year 2,638 87
Cash at bank and current asset investments consist of:
Cash at bank 2,291 83
JPMorgan USD Liquidity Fund 347 4
Total 2,638 87
(1) JPMorgan USD Liquidity Fund, money market fund.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30th September 2024
1. Accounting policies
Basis of accounting
The Financial Statements are prepared under the historical cost convention,
modified to include fixed asset investments at fair value, and in accordance
with the Companies Act 2006, United Kingdom Generally Accepted Accounting
Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard
applicable in the UK and Republic of Ireland' and with the Statement of
Recommended Practice 'Financial Statements of Investment Trust Companies and
Venture Capital Trusts' (the 'SORP') issued by the Association of Investment
Companies in July 2022.
All of the Company's operations are of a continuing nature.
The Financial Statements have been prepared on a going concern basis. In
forming this opinion, the Directors have considered the Company's investment
objective, risk management policies, capital management policies and
procedures, the nature of the portfolio and revenue as well as expenditure
projections, taking into account the heightened market volatility from, the
growing geopolitical risk to include tensions between China and the
United States, the ongoing conflict between Russia and Ukraine, and the
conflict in the Middle East. The Company's shareholders voted for the
continuation of the Company at the 2023 AGM. The next continuation vote will
be at the 2028 AGM. The disclosures on going concern in the Annual Report
form part of these financial statements. The Directors consider that the
Company has adequate financial resources to enable it to continue in
operational existence for at least 12 months.
The policies applied in these Financial Statements are consistent with those
applied in the preceding year, except for the restatement of Cash and Cash
equivalents to present these separately as Cash at bank and Current asset
investments.
2. Dividends
(a) Dividends paid and proposed
2024 2023
Pence £'000 Pence £'000
Dividends paid
First quarterly interim dividend 2.76 2,296 3.42 2,846
Second quarterly interim dividend 2.76 2,297 3.42 2,846
Third quarterly interim dividend 2.76 2,297 3.42 2,845
Fourth quarterly interim dividend 2.76 2,296 3.42 2,845
Total dividends paid in the year 11.04 9,186 13.68 11,382
Refund of unclaimed dividends over 12 years old n/a (161) - -
Net dividends 11.04 9,025 13.68 11,382
In respect of the year ending 30th September 2025, the first quarterly interim
dividend of 2.73p per share amounting to £2,271,000 (2024: 2.76p per share
amounting to £2,296,000) has been declared and paid. In accordance with the
accounting policy of the Company, this dividend will be reflected in the
Financial Statements for the year ending 30th September 2025.
(b) Dividend for the purposes of Section 1158 of the Corporation Tax Act
2010 ('Section 1158')
The requirements of Section 1158 are considered on the basis of the dividend
paid and declared in respect of the financial year, shown above. For the year
ended 30th September 2024, the dividends declared were paid during the year as
shown above.
The aggregate of the distributable reserves is £87,666,000 (2023:
£90,042,000). Please note that at the Annual General Meeting ('AGM') in
February 2020, shareholders approved an amendment to the Company's Articles of
Association to allow the Company to distribute capital as income to enable the
implementation of the Company's dividend policy.
3. Return/(loss) per share
2024 2023
£'000 £'000
Revenue return 2,823 1,557
Capital return/(loss) 3,493 (44,689)
Total return/(loss) 6,316 (43,132)
Weighted average number of shares in issue during the year 83,202,465 83,202,465
Revenue return per share 3.39p 1.87p
Capital return/(loss) per share 4.20p (53.71)p
Total return/(loss) per share 7.59p (51.84)p
4. Net asset value per share
2024 2023
Net assets (£'000) 227,396 229,772
Number of shares in issue, excluding shares held in Treasury 83,202,465 83,202,465
Net asset value per share 273.3p 276.2p
5. Status of results announcement
2023 Financial Information
The figures and financial information for 2023 are extracted from the
Annual Report and Financial Statements for the year ended 30th September 2023
and do not constitute the statutory accounts for that year. The Annual
Report and Financial Statements has been delivered to the Registrar of
Companies and included the Report of the Independent Auditors which was
unqualified and did not contain a statement under either section 498(2) or
section 498(3) of the Companies Act 2006.
2024 Financial Information
The figures and financial information for 2024 are extracted from the
Annual Report and Financial Statements for the year ended 30th September 2024
and do not constitute the statutory accounts for that year. The Annual
Report and Financial Statements includes the Report of the Independent Auditor
which is unqualified and does not contain a statement under either section
498(2) or section 498(3) of the Companies Act 2006. The Annual Report and
Financial Statements will be delivered to the Registrar of Companies in due
course.
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of, this announcement.
9th December 2024
For further information, please contact:
Lucy Dina
For and on behalf of
JPMorgan Funds Limited
Telephone: 0800 20 40 20 or or +44 1268 44 44 70
ENDS
A copy of the 2024 Annual Report and Financial Statements will shortly be
submitted to the FCA's National Storage Mechanism and will be available for
inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://secureweb.jpmchase.net/readonly/https:/lnks.gd/l/eyJhbGciOiJIUzI1NiJ9.eyJidWxsZXRpbl9saW5rX2lkIjoxMDIsInVyaSI6ImJwMjpjbGljayIsImJ1bGxldGluX2lkIjoiMjAyMDA0MDUuMTk3NzA4MDEiLCJ1cmwiOiJodHRwczovL2RhdGEuZmNhLm9yZy51ay8jL25zbS9uYXRpb25hbHN0b3JhZ2VtZWNoYW5pc20ifQ.b7Q7NXHGRA8MjB_Ugl8Tv4JxhiU28TbcoNb04FTTMiY/br/77057565556-l)
The 2024 Annual Report and Financial Statements will also shortly be available
on the Company's website at www.jpmchinagrowthandincome.co.uk
(http://www.jpmchinagrowthandincome.co.uk) where up-to-date information on the
Company, including daily NAV and share prices, factsheets and portfolio
information can also be found.
JPMORGAN FUNDS LIMITED
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. END FR UKUNRSAUURAA