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LONDON (Alliance News) - Edinburgh Dragon Trust PLC Thursday said it underperformed against its benchmark in the first six months of its financial year, citing "light exposure" in China, its stakes in Asia-focused lenders HSBC Holdings PLC and Standard Chartered PLC, and holdings in commodities-related stocks.
The trust, which aims to provide capital growth in the long-term by investing in Asia, said its net asset value rose by 3.7% in sterling terms on a total return basis in the six months ended February 28, while the MSCI All Country Asia (ex Japan) provide an increase of 5.9%.
"Your company's underperformance was partly due to the light exposure in China, where the stockmarket outperformed the broader region. China remains an exciting growth story but given the poor score on corporate governance, due diligence is crucial to picking the best companies. Your company's holdings have a firm foothold in their industries and have taken steps to adopt international management practices," Chairman Allan McKenzie said in a statement to shareholders.
The chairman said that HSBC and Standard Chartered have "grappled" with stricter regulations on the banking sector and a challenging operating environment.
"HSBC's profits fell, partly due to fines for infractions under the previous management and, consequently, a spike in compliance costs. Current management has made some headway in stabilising revenues, with possible streamlining in poorer-performing areas, such as Brazil and Mexico," McKenzie said.
"It was a similar story at Standard Chartered, where changes were more sweeping after three profit warnings in just one year. Another distraction was speculation that US regulators could re-examine its alleged sanction violations. During the period, Standard Chartered exited its underperforming cash equity, equity research and equity capital markets businesses across Asia, and closed its Swiss private banking business," the chairman said.
The chairman said that Standard Chartered's move to replace Chief Executive Peter Sands with former JPMorgan executive Bill Winters, and to find a successor to Chairman John Peace, is viewed by investment manager Adrian Lim of Aberdeen Asset Management as "strengthening the bank, whose competitive edge remains its unique focus on emerging markets".
"The underperformance was mitigated by the solid showing of stocks held in India and the Philippines," McKenzie said.
Edinburgh Dragon Trust shares were up 0.5% at 289.50 pence on Thursday.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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