Schroder AsiaPacific NAV Dips 3.3% Amid China Caution; Cuts Fees

Navigating Headwinds: Schroders’ Asia Playbook

Right then, let’s unpack Schroder AsiaPacific Fund’s (SDP) latest half-year report. The headline numbers show a NAV dip of 3.3% (slightly trailing its benchmark’s 2.2% decline) against a backdrop of geopolitical wobbles and cautious China positioning. Not exactly a champagne-popping result, but the real story lies beneath the surface – and in the moves management is making for the road ahead.

The China Conundrum: Cautious Stance Bites

The elephant in the room? SDP’s deliberate underweight in China proved a drag. While Chinese stocks (surprisingly for some) were among the region’s less painful performers during the period, the fund managers held firm to their scepticism. Chairman James Williams put it diplomatically: structural concerns around demographics and an “economic model heavily reliant on investment, manufacturing and exports” persist.

Why the caution paid off (in their view, despite underperformance):

• AI Euphoria vs. Fundamentals: Stocks like Alibaba, BYD, and Xiaomi surged on hype around China’s low-cost AI models (like DeepSeek’s LLM), but SDP questioned the sustainability, seeing it as running “well ahead of fundamentals.”
• Banking on Trouble?: Chinese banks (CCB, BoC, ICBC) roared ahead ~25%, likely propped by state support and hungry yield-seekers. SDP holds zero exposure, fearing deteriorating earnings could threaten those juicy dividends. A bold call.
• Stimulus Skepticism: While further Chinese government support is possible post-US tariff clarity, SDP doubts short-term fixes solve deep structural issues. Their new Chinese buys (Meituan, Trip.com, Anta Sports, Centre Testing) were selective, targeting strong franchises in specific niches, not broad market bets.

Silver Linings & Strategic Moves

It wasn’t all red ink. Savvy positioning elsewhere offered ballast:

• Singapore Shines: Overweight here paid dividends (literally and figuratively). Banks loved the ‘higher for longer’ rate outlook, boosting margins. ASEAN-facing internet platforms also contributed.
• India’s Selective Strength: While underweight the expensive broader market (which fell >10%), stock picks like HDFC Bank, ICICI Bank, and new addition IndiGo (InterGlobe Aviation) delivered positive returns.
• Active Buybacks: SDP aggressively repurchased 7.56 million shares (£40.9m) at an average 11.9% discount, adding a tangible 0.6% to NAV. They’ve kept going post-period too. This is shareholder capital allocation in action.
• Fee Cut – Sweetening the Deal: Crucially, effective 1st April 2025, the management fee on the first £600m of assets drops from 0.75% to 0.65%. Fees above £600m stay at 0.60%. In a tough environment, aligning costs with investor interests matters. This is a welcome move.

Portfolio Pivots: Where the Money Moved

Managers Abbas Barkhordar and Richard Sennitt weren’t idle:

New Buys:

• China (Selective): Meituan (food delivery/local commerce leader), Trip.com (travel), Anta Sports (sportswear), Centre Testing (testing services).
• India: IndiGo (dominant low-cost airline – a bet on underpenetrated air travel).
• ASEAN Top-ups: Added to NetEase (China), Ayala Land (Philippines), Bumrungrad Hosp. (Thailand), Mobile World (Vietnam), Bank Mandiri (Indonesia).

Significant Exits/Reductions:

• Sold Out: Alibaba (post AI surge), ASMPT (HK semi-packaging), Hang Lung Props (HK/China property), Giant (Taiwan bikes).
• Trimmed: Reliance, Infosys, Oberoi Realty, ICICI Bank (India); Samsung Electronics (Korea); Vietnam Dairy, Delta Electronics, CATL, ICTSI.

The Trump Tariff Wildcard

The report period ended March 31st, but the elephant just entered the room after: President Trump’s sweeping “Liberation Day” tariffs (2nd April 2025). These “reciprocal” levies, broader than expected, are suspended for 90 days of negotiation but inject massive uncertainty. SDP flags this as the #1 near-term risk:

• China is the prime target, but any country with a US trade surplus is potentially in the firing line.
• Potential silver lining? Tariffs on China could make other Asian exporters (Vietnam, ASEAN) more competitive… but Trump’s “ally-agnostic” approach makes this gamble.
• Vietnam exposure was marginally reduced precisely due to its vulnerability (large US trade surplus).

Gearing & Positioning: Leaning into Uncertainty (Carefully)

Gearing (borrowing to invest) crept up slightly from 2.6% to 3.2% – a modest, controlled increase reflecting cautious opportunism rather than rampant bullishness. Geographically:

• Underweight: China (24.9% vs 35.6% index), India (16.4% vs 21.1%), Korea (6.0% vs 10.2%).
• Overweight: Hong Kong (11.4% vs 4.8% – partly a China proxy play), Singapore (9.1% vs 4.3%), ASEAN (Thailand, Philippines, Vietnam).
• Tech Tweak: Moderated IT overweight on AI monetisation doubts and valuation concerns post-sell-off. Financials remain a key overweight (Singapore banks, Indian private banks, Indonesian exposure).

Outlook: Storm Clouds, But Long-Term Sunshine?

The near term is undeniably murky: US tariffs, Chinese stimulus hopes (and potential disappointments), higher-for-longer US rates, and a strong dollar. Volatility is the watchword.

Yet, SDP’s core thesis holds firm:

• Asia’s long-term drivers – demographics, rising wealth, booming domestic demand – remain potent.
• Valuations are not uniformly cheap, but dispersion is wide. Opportunities exist in overlooked corners (Hong Kong, Korea, parts of ASEAN look relatively cheap vs history; India/Singapore pricier).
• Active Management’s Hour: As Chairman Williams stated, this is precisely the environment where “active management and thoughtful stock selection can continue to add meaningful value.” Broad indices mask huge variation. Stock-pickers, get your boots on.

Schroder AsiaPacific took a calculated hit on China and navigated significant turbulence. The fee cut and buybacks show shareholder alignment. The path ahead is fraught with tariff-induced uncertainty, but the managers are sticking to their disciplined, fundamentally-driven process. For investors with a long horizon and a tolerance for volatility, Asia’s structural story hasn’t been rewritten – but picking the right horses, as SDP aims to do, is more crucial than ever. One to watch closely as the tariff saga unfolds.