Schroder Asian Regulatory News (ATR)

ANNUAL REPORT AND ACCOUNTS

Schroder Asian Total Return Investment Company plc (the "Company") hereby submits its Annual Report and Accounts for the year ended 31 December 2021, as required by the Financial Conduct Authority's Disclosure Guidance and Transparency Rule 4.1.

The Company's Annual Report and Accounts for the year ended 31 December 2021 are also being published in hard copy format and an electronic copy will shortly be available to download from the Company's website www.schroders.co.uk/satric. Please click on the following link to view the document:

http://www.rns-pdf.londonstockexchange.com/rns/0332H_1-2022-4-1.pdf

The Company has submitted its Annual Report and Accounts to the National Storage Mechanism and it will shortly be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

Enquiries:

Benjamin Hanley

Schroder Investment Management Limited

Tel: 020 7658 3847

Chairman's Statement

It is very satisfactory to report that during the year ended 31 December 2021 the Company produced a net asset value ("NAV") total return of 7.4%, outperforming the Reference Index which fell by -2.0%. This is an excellent result for the Company in a challenging year for Asian equities. The share price total return was 4.9%. Nevertheless the Company's share price traded above asset value for most of the year, at an average premium of 0.4%. The Company outperformed the NAV performance of the peer group, which produced an average total return of 6.8% for the calendar year.

2021 was a difficult year for Asian stock markets which significantly underperformed global stocks. In particular, China performed poorly due to increased regulatory pressure applied to education, technology and healthcare sectors. Defaults at Evergrande, China's largest property company, exacerbated concern of overborrowing in the property market and the implications for the banking sector. China is no longer the Company's largest country weighting with exposure reduced to an underweight position in the first half of the year, prior to the majority of the regulatory changes, in favour of India and Taiwan where the Company's technology stocks performed particularly well.

Further comment on performance and investment policy may be found in the Portfolio Managers' review.

Earnings and dividends

The revenue return from the portfolio for the year increased by 9.3% to 9.25p per share from 8.46p per share in 2020. The Board has recommended a final dividend of 8.50p per share for the year ended 31 December 2021, an increase of 19.7% over the final dividend of 7.10p per share paid in respect of the previous financial year. Subject to shareholder approval at the AGM, the dividend will be paid on 27 May 2022 to shareholders on the register on 29 April 2022.

Promotion, discount control and share issuance

At the AGM on 7 May 2021, shareholders granted the Board authority to issue shares, including out of treasury. The Company's buyback authority was also renewed. 7,840,000 new shares were issued during the year. These were issued at an average premium to NAV of 1.1%. A resolution to renew the share issuance authorities will be proposed at the AGM, details of which can be found on page 86 of the 2021 Annual Report.

The Company will continue to implement both an issuance and a discount management policy. Shares will be issued at a moderate premium to net asset value and the discount policy will continue to target a discount to NAV of no more than 5% in normal market conditions. The Board believes that overall liquidity and the relative discount to the Company's peers has also to be considered in any decision to issue and to buy back shares. However, the Board continues to be of the view that good performance supported by good marketing is the best way to sustain a premium in the long term. The Board will be seeking approval from shareholders to renew the issuance and the buy back authorities at the AGM.

Gearing and the use of derivatives

Gearing was used effectively by the Portfolio Managers during the year. The Company may use gearing to enhance performance but net gearing will not exceed 30% of NAV. The Board has agreed a disciplined framework for using gearing to increase market exposure, based on a number of valuation indicators. The Company started the year with gearing of 5.7% and this increased to 8.3% at the year end with average debt during the year at 6.9%. Shareholders should be aware that the use of borrowing must be seen in the context of the use of derivative hedging instruments.

Continuation vote

The Board has committed to put to shareholders a resolution at the AGM that the Company continue as an investment trust for a further three years.

Over the three year period ended 31 December 2021, the Company's NAV produced a total return of 18.4% per annum, outperforming the reference index's total return of 10.0% per annum, while our share price produced a total return of 17.2% per annum. The peer group NAV total return average over the same period was 16.7%. The Board believes that the Manager remains well qualified and suitable to manage the portfolio and to assist the Company in meeting its investment objective. The Board also believes that the Company remains well placed as an investment vehicle within its peer group, and that its long-term investment objectives remain appropriate and the structure beneficial to shareholders.

The Board therefore unanimously recommends that the Company continues as an investment trust, and the Directors intend to vote their shares accordingly.

Annual General Meeting

The AGM will be held at 1pm on Wednesday, 11 May 2022 at the Manager's offices at 1 London Wall Place, London EC2Y 5AU. Prior to the formal business of the AGM, there will be a presentation by the Portfolio Manager, at 12pm. It will be available to watch online and the details are set out below. However, any shareholders planning on attending the AGM will also be able to watch the Portfolio Manager's presentation.

To sign up to watch the presentation. Please click on this link https://schroders.zoom.us/webinar/register/WN_61WWYTkRQjG5xPMtwdAQVw. By using a webinar, I hope more shareholders, and interested parties, will be able to listen to, and ask questions of, the Portfolio Managers. Details on how to join are on the Company's webpage: www.schroders.co.uk/satric.

All shareholders should vote by proxy. Proxy votes can be submitted electronically through the registrar's portal, and also by email. Details are included with the proxy forms and on the Company's webpages.

Proposed changes to the Articles

In light of the circumstances created by the COVID-19 pandemic, the Board is proposing to make amendments to the Articles to give the Company the flexibility to hold general meetings (wholly or partially) by electronic means and to enable members to attend and participate in general meetings at one or more satellite meeting places. In addition, the Board is proposing to amend the Articles to give it certain additional powers in respect of postponing or adjourning meetings in appropriate circumstances and the security arrangements at meetings. The amendments are being proposed in response to restrictions on social interactions during the pandemic which have, on occasion, made it impossible or impractical for shareholders to attend physical general meetings.

The Board's objective is to make it easier for shareholders to participate in general meetings through introducing electronic access for those not able to travel and to ensure appropriate security measures are in place for the protection and wellbeing of shareholders. I should make it clear that these powers would only be used if the specific circumstances or applicable law and regulation require it and the Board's intention is always to hold a physical AGM provided it is both safe and practical to do so. The safety of all of the Company's stakeholders must of course remain paramount.

The Board is also proposing to update the Articles to deal with certain US and tax matters and to correct certain typographical errors.

The principal changes proposed to be introduced in the Articles, and their effect, are set out in more detail in the AGM Recommendations on pages 86 and 87 of the 2021 Annual Report.

Outlook

The first few months of 2022 have proved exceptionally difficult for global stock markets. Russia's invasion of Ukraine and the escalation of aggression in recent weeks has alarmed investors. Inflationary expectations have heightened in response to this crisis given Russia's pivotal role in the global supply of natural gas and oil, in addition to significant numbers of essential commodities such as fertilisers, wheat, nickel and aluminium. The debate as to whether inflation is 'transitory' or not has been firmly put aside as inflation forecasts have pushed higher for a more prolonged period. This puts even greater pressure on central banks to raise rates which gives stock markets cause for concern. On a more positive note, consumer spending remains strong and will continue to be buoyed by significant amounts of pent-up savings accumulated during the last two years of the pandemic. Following market corrections across many of the Asian markets, equity valuations are moderate with an increasing number of attractive opportunities for our portfolio managers. The disparate geographical performance across the region and sectoral rotation between growth and value which occurred last year is likely to continue, allowing the active manager to find excellent stock selection opportunities. The considerable investment experience of our portfolio managers, supported by an extensive team of Asian based research analysts, gives us confidence in their ability to produce attractive total returns to the Company's investors through investment in the region. The investment trust structure allows for the use of gearing when advantageous and the portfolio managers may employ tactical hedging to mitigate against downside risk.

Sarah MacAulay

Chairman

Portfolio Managers' Review

Our 2021 review is split into two parts: a shorter review of 2021's performance and changes made over the year and then a more detailed update of our investment outlook for the upcoming Year of the Tiger, which hopefully explains where we see the best long-term investment opportunities in the Asian region.

Review of 2021

Performance and Attribution

• After the strong returns from Asian stockmarkets in 2020 there was a significant reversal in fortunes in 2021, with the reference index we use for the Company, the MSCI AC Asia Pacific ex Japan index falling 2% in sterling terms. The Company enjoyed a reasonable year with the NAV in absolute terms rising 7.4%.

• The overwhelming factor behind the fall in the reference index was the 21% fall in the MSCI China index which given it comprises around one third of the reference index dragged down overall returns. In contrast the MSCI India and MSCI Taiwan both rose 27% over the course of 2021, so it really was a year of differing fortunes.

• What were the reasons behind the divergent returns? The MSCI China index was hit firstly by a major regulatory and policy reset (discussed in the outlook section) which affected the internet stocks in particular, and secondly by worries over the slowing economy and the impact of rolling bankruptcies in the property sector. This caused broad based weakness across all sectors in the Chinese stockmarket, but in particular those stocks hit by new regulations were very weak. Education stocks dropped 90% as their principal activity (tutoring school age children) was turned overnight into a non-profit sector, meanwhile moves to control pricing and "fairness" hit the healthcare, internet and insurance sectors. Outside a few perceived policy beneficiaries in the "green" space and technology areas there were few places to hide in China.

• In contrast India did well as, after a very traumatic start to 2021, it was viewed as a post COVID recovery play. It also appeared to be the default market to buy as investors switched out of China. Taiwan's strong performance in 2021 was primarily driven by the technology sector which continued to benefit from very strong demand dynamics coming from both near term working from home demand and also strong secular growth drivers in the semiconductor and software areas.

• Other markets were less noteworthy. The MSCI Australia rose 10% as the banks and financials, which are heavily weighted in the index, rebounded on hopes rising interest rates would lead to a recovery in net interest margins. The smaller ASEAN markets (Thailand, Malaysia, Indonesia, Philippines) all ended the year close to flat as governments continued to struggle with COVID and the delayed reopening of economies led to earnings downgrades. Korea, after a strong 2020, fell 8% as companies (as is often the case in Korea) failed to deliver on sell side analysts' overly optimistic earnings forecasts.

• The Company did well (vs the reference index) due to two key positions. We reduced our China positions and internet stocks in particular during the first half of the 2021. When the major Chinese regulatory changes were announced over the summer the Company was (vs reference index) substantially underweight so, whilst we lost money, our positioning was relatively less painful. The second key positive for performance was our exposure to technology stocks in Taiwan (semiconductors) and India (software) both of which did well. The combination of these led to nearly all the relative outperformance over the year.

• The biggest negative to performance was our underweight position in financials which across the region rebounded on hopes that rising interest rates would rescue net interest margins. We added some exposure to financials over the course of 2021 but remain cautious long-term on most names in the sector due to the rise of well funded and innovative fintech competitors and in many countries risks of Government interference/regulations. The other negative was our zero exposure to fossil fuel stocks which did well on the back of rising energy prices. In the Company we do not invest in Asian fossil fuel companies given our long-term views on energy dynamics and market developments, and for ESG reasons.

Review of Hedging Models and Stock Changes Made in 2021

• There were no changes made to the Company's investment process over 2021. We continue to focus on stock picking as our primary way of generating performance. We then use a series of quantitative models to help us to determine whether to put in place any capital preservation strategies and also whether to utilise borrowing facilities.

• Over the course of 2021 our hedging models moved quite materially. Our hedging models which are primarily based around valuations started the year cautiously suggesting to deploy some capital preservation strategies if pricing attractive. This meant the fund did have some puts1 in place during the falls in China over the summer which was beneficial to performance. Unfortunately due to technical (legal) reasons around buying options2 on indices containing Chinese stocks on US restricted lists we were unable to have the full hedging we would have wanted which meant the gains to performance were limited. With puts elsewhere (on Taiwan indices) losing money it meant over the course of the year there was a small negative to performance from the Company's hedging strategies. Overall though the hedging process did reduce the volatility of the Company's returns and we remain confident in the hedging models and process.

1Put: a put is an options contract that gives the owner the right, but not the obligation, to sell a certain amount of the underlying asset, at a set price within a specific time.

2Options: Options are financial derivatives that give buyers the right, but not the obligation, to buy or sell an underlying asset at an agreed-upon price and date.

• After the falls in the second half of 2021 the hedging models moved from a cautious stance at the beginning of 2021 to a neutral position in November and we effectively reduced our position in puts by no longer rolling outstanding positions. The decision was made easier by put pricing which by the end of 2021 had spiked due to inflationary concerns and geopolitics (Russia-Ukraine tensions). As we explain in the outlook section below our models are now turning more positive as markets fall and we are no longer buying puts or capital preservation strategies. The gearing (debt) indicator however remains neutral.

• At the stock level it was not a particularly active year. Key changes were to reduce China stocks where our long-term investment thesis had been undermined by regulatory changes. This included selling our positions in Alibaba, Galaxy Entertainment, Ping An, New Oriental Education and reducing Tencent. Purchases were much more diversified. We added to Indian IT services, ASEAN financials (DBS, Bank Mandiri, Singapore Exchange), big box DIY retailers (Wilcon, Siam Global) and selected technology names that had fallen on worries over a peak of working from home demand. As we explain in the outlook section we think there are more important secular drivers of technology spend than home working.

Review Positioning at end December 2021

• The tables below have the positioning of the Company both on an absolute basis and relative to index. Looking on an absolute basis first the Company is quite balanced across countries having c.24% in HK/China, 22% Taiwan, 15% Australia (inc UK listed BHP/Rio), 13% India, 12% Korea, 9% Singapore, 6% smaller ASEAN markets. Compared to the reference index however in the second table the Company is very underweight China. As we explain in the outlook section this reflects the fact that we now view a significant part of the Chinese stockmarket as less attractive for investment as government policy looks set to drive the business outlook not market forces. This is the key change in the management of the portfolio from December 2020.

• At a sector level there is one item of note. The Company now has c.40% in stocks classified as information technology by MSCI. We go on to explain in some detail this position in the outlook section. But we would highlight here this is a mix of companies across different sectors principally software services, memory, foundry, semiconductor design, automation related and capital expenditure. These are the companies in Asia that are often world leaders in their space and in our view have a sustainable competitive edge.

Portfolio Weight

Source: Schroders

Active Weight

Source: Schroders. Any reference to sectors/countries/stocks/securities are for illustrative purposes only and not a recommendation to buy or sell any financial instrument/securities or adopt any investment strategy. 

INVESTMENT OUTLOOK

At the beginning of each Chinese Lunar New Year your fund managers normally write a more detailed investment update on how we are approaching investment in the Asian region, and the update below is a shortened version of our recently published Year of Tiger report, written before the invasion of Ukraine. For an updated view please read the Addendum at the end of this report. The update focuses on where we see the best investment opportunities in the region and why, rather than opining on geopolitics, inflation, global liquidity and exchange rates. All of the latter are subjects we have views on but in truth no actual insights that can give us an investment edge. The Company invests in the equity of companies in Asia not countries, indices or economic numbers - so whilst we want to understand risks to businesses under changing environments, we rarely make explicit forecasts or assumptions on global macroeconomic variables.

The report is divided into different sections and contains lots of charts in order to make it a little more "digestible". For readers with less time or patience there is a short summary at the end.

TOPIC 1: CHINA - UPDATED VIEWS ON ECONOMY AND STOCKMARKET

We discussed our China strategy in detail in the interim report in 2021 (available on the Company's website) - it was by far the biggest focus for your portfolio managers over the course of 2021. It was also the area where we saw the biggest changes to the Company with the bulk of our turnover coming here as we substantially reduced the Company's weighting in Chinese equities, in particular to the internet sector. This proved beneficial to Company returns given the very sharp sell off in Chinese stockmarkets over the second half of 2021.

So, after a very difficult 2021 for Chinese stockmarkets, a year dominated by major regulatory change, debt defaults in a sharply weakening property sector and a tight credit market, do we now see light at the end of the tunnel? Despite the difficult start to the year we believe that 2022 can be a better year for Hong Kong listed Chinese stocks. But unlike the endless bulls on the sell side who are nearly universally pushing a self-interested (given their IPO backlog) maximum bullish call on Chinese equities we do not think a "better" year necessarily means a "good" year.

There are many headwinds from 2021 that are likely to continue to have a material impact on both the economy and stockmarket in China this year - whether that is zero-COVID policies impacting consumption and production, continued slowdown in construction and particularly residential activity, sluggish income growth, a potential slowdown in the export sector as economies elsewhere reopen and service activity picks up (less widgets, more holidays etc), and lastly the impact of the major policy reset under "common prosperity" and "dual circulation".

The charts on page 9 of the 2021 Annual Report below perhaps highlight some of our worries. As Chart 1 shows, retail sales growth in China has been slowing and disposable income growth is now dropping (Chart 2). Anecdotally we hear rumours of large layoffs in the internet, education, and construction sectors - this along with zero-COVID policies is likely to mean weaker consumption numbers. Recent calls with Chinese consumer related business have flagged significant near-term headwinds.

Across the board it looks like fixed asset investment is slowing in China (Chart 3 on page 10 of the 2021 Annual Report), not just in the real estate sector. Exports remain the bright spot (Chart 4 on page 10 of the 2021 Annual Report) with both volumes and prices strong though short-term trends indicate some slowdown in volume, and we anticipate reopening outside of China should lead to a recovery in services and a slowdown in Chinese manufactured goods exports in 2022.

The stockmarket bulls with positive views on Chinese stockmarkets will counter this is all backward looking and stimulus is coming. We do indeed expect some loosening of policy and stimulus measures but expect these to be muted and smaller in scale than we have seen historically. As Chart 5 on page 11 of the 2021 Annual Report shows China is currently running a significant fiscal deficit once local government funding vehicles are included, leaving less scope for manoeuvre versus past slowdowns. Also, as Chart 6 on page 12 of the 2021 Annual Report shows China after years of extraordinarily high investment rates has a large capital stock and relative to the other countries at a similar stage of development a large debt burden. Reflating the debt and investment bubble would be dangerous and counter to President Xi's very clearly stated policies to reduce financial risks in the economy.

On a more positive note, we do expect policy easing - though we doubt whether nudging 5bp off short-term lending rates as we saw in December has any real impact. Also, on a more positive note we do not believe, as it stands today, the property sector slowdown is likely to have major ramifications for the broader financial sector given the ability of the Government to contain the problems (controlling major banks and state-owned developers has its uses). This should also mean the impact on consumer confidence from the property slowdown remains limited.

The China bulls will counter that loosening credit (as proxied by the Total Social Financing or TSF) will lead to an equity rally. As Chart 7 on page 12 of the 2021 Annual Report shows, movements in the TSF have indeed sometimes correlated with the boom and busts of the domestic Chinese stockmarket. We are not really interested in playing short term rallies based on temporary stimulus and would also highlight as shown in Chart 7 the last time (in 2014/15) we had a rise in TSF with a weak property market share prices didn't perform.

So, to sum up whilst we see many ongoing headwinds for Chinese stockmarkets we are optimistic returns this year will be better than 2021. However, that does not mean we expect a strong sustainable recovery in Chinese stockmarkets - the economic and earnings outlook is difficult for many sectors, and the risks of a more significant economic slowdown in China look real.

The other headwind for Chinese stockmarkets that we believe is more structural and materially affects our long-term exposure to Chinese equities is the on-going major policy reset. We have written extensively on Chinese policies over the course of 2021 so will not rehash our views here (as they haven't changed) but, in summary, we see four sets of major policies that are impacting our investments in China:

1. "Common Prosperity" - or the aim to make society fairer, more equal and spread the benefits of growth more evenly.

2. "Definancialization" - reduction of financial risks posed by excessive debt fuelled speculation in property and other financial assets.

3. "Regulation of data, both its use and control" - ensuring that personal data is not misused or monopolised and that social media and other internet sites adhere with the long-term goals of a harmonious society etc.

4. "Dual circulation" - investment priorities and capital allocation is aligned with long-term development goals and in particular priority areas: decarbonisation, semiconductors, artificial intelligence, healthcare, biotechnology, electric vehicles.

One could also perhaps describe this reset as curbing the excesses of unfettered capitalism and, unlike many past policy pronouncements in China, we do see these policies as real and part of a conscious effort to remould society. We will not go into a discussion of the merits of the policies - other than to say that some of the policies we do sympathise with - however the issue for the stockmarket is their implementation.

In China the implementation is top down and by instruction rather than by market forces and "nudges". This has come as a shock to many investors. In truth even though your portfolio managers consider themselves pretty open eyed (a.k.a. cynical) in our investing approach we have been surprised by how quickly policy has been implemented. It does appear in many parts of the Chinese economy the state is advancing and the private sector is in retreat (or Adam Smith's invisible hand is being replaced by the Communist Party's rather more visible one) in order to ensure capital is allocated in accordance with long-term policy priorities.

So, in essence, we have a stockmarket in China where an increasingly large part of the constituents are investing aligned with state priorities rather than the maximisation of long-term shareholder returns. This has clearly applied to most state-owned banks, utilities, telecom, energy stocks for some time. But with the new policy push to ensure common prosperity and social harmony we see education, healthcare, insurance, social media companies now likely to put policy priorities first (or as in the case of education stocks be told they are now a non-profit sector). For the large internet stocks the priority now appears to be helping with common prosperity projects and investing in areas outlined under dual circulation rather than building huge monopolistic data platforms or investing in ever cheaper community group buy programmes that put Mum and Pop shops out of business.

For the average person in China this is popular and may well be good news, however clearly for stockmarkets and foreign capitalist hoarders in particular this is not good news. The move to increase state/policy directed investment and control is we believe likely to lower long term investment returns in those companies affected, making their shares less attractive. It also means the Company is likely to have a materially lower weight in Chinese equities.

As Chart 8 on page 13 of the 2021 Annual Report shows we have been through this twice before in China. This was when the telecom and bank stocks listed which in their euphoric heydays were around 50% of the MSCI China by market capitalisation. For a while the market thought these stocks would be great proxies for strong GDP growth and thus make exceptional returns. However, state control, as it does in most countries, has led to a different set of priorities and poor return on invested capital (ROIC) and share prices. As Chart 9 shows on a more positive note this does not make China stocks uninvestible (on this subject we believe Mr Soros is wrong) however it does not feel to us that the market has fully digested the long-term implications of the policy changes affecting many sectors of the Chinese stockmarket.

So how are we investing in China? Schroder Asian Total Return has about 15% of its assets in stocks classified as "Chinese" by the MSCI China, this is down substantially from the level twelve months ago but is still the second biggest country exposure in the fund. As indicated above we definitely do not think China is "uninvestible". Instead, the areas we are interested in investing in have shrunk given we don't invest in state owned or heavily state directed businesses for the ROIC reasons outlined above. This means in China we are now unlikely to own education, healthcare, insurance, banks, property, energy, utility, Macau gaming, telecom, mining, chemical and infrastructure companies. Areas where we still have exposure and are interested in investing tend to be consumer names, exporters, industrials, technology and green energy. The big area we have not mentioned is internet names. In general, we remain cautious here. Clearly the large internet groups now need to align their priorities with the new policy objectives. This combined with what remains intense competition in a slowing economy and still high hopes from most sell side analysts leave us cautious. Chinese internet stocks are not uninvestible but given the correction across many sectors of the market we feel there are better investment opportunities elsewhere.

TOPIC 2 - DOES THE END OF CHIMERICA AFFECT OUR INVESTMENTS?

For readers not familiar with the term "Chimerica" in this context we are referring to economist Niall Ferguson's definition of Chimerica as a "symbiotic relationship between China and the USA" where, in a prolonged period after China's opening up in the 1990s to the financial crisis in 2007/08, "excess savings and investment in China funded overconsumption in USA leading to an incredible period of wealth creation" (well according to Wikipedia at least!).

Our view for some time has been that many interlinkages between China and the USA are likely to be unwound and that tensions between Sinosphere and Anglosphere are likely to lead to onshoring and shrinking global trade to GDP. As Chart 10 shows whilst early days there is evidence that the structural growth in globalisation (via physical trade) is now reversing. Chart 11 on page 15 of the 2021 Annual Report has a table from Viktor Shvets from Macquarie looking at the size of the potentially emerging blocks.

Obviously our job is not to comment on geopolitics. However, clearly US-China tensions do impact our investment thinking and create risks and uncertainties. We think as we move out of our COVID pandemic world many of the trends around onshoring and increasing trade tensions should reassert themselves as the West (or Anglosphere) and China (or Sinosphere) start to view each other as unreliable rivals rather than partners.

As Chart 12 on page 16 of the 2021 Annual Report shows China has been overinvesting or perhaps under "Chimerica" has been used as a cheap investment base by US companies for years (if Chart 13 on page 16 of the 2021 Annual Report is anything to go by). This may perhaps also explain (along with endless quantitative easing) why Tobin's Q (Chart 14 on page 16 of the 2021 Annual Report) in the USA is so elevated. Logically a Tobin's Q above 1 should lead to large scale investment (as the value of equity is above the book value of assets). We wonder whether all these trends are about to reverse.

Regardless of the somewhat academic contortions above we think we have come to the end of an era of ever-growing interdependence and globalisation. This affects our long-term investment thinking and analysis, throwing up threats and opportunities. For export companies in China where the investment thesis is based on significant global market share gains we tread with caution. In particular we find much of the domestic sell side research in China on A share companies does not consider deteriorating trade relationships and a greater political desire in West for self-sufficiency when analysing likely growth in export markets.

In China onshore however we see opportunities as there is likely to be an ever-increasing focus on building national champions and being less reliant on pesky foreigners for critical parts. This could be a negative for European, Japanese or US companies that have high hopes of growth in China. Nationalism for better or worse appears to be to the fore, and we need to adapt our thinking for a less benign world.

Dan McFetrich our global industrials analyst at Schroders has done some interesting work on this area looking at trends in capital expenditure and onshoring, which back up our thesis regarding the end of Chimerica and what it might mean. As Chart 15 on page 17 of the 2021 Annual Report shows announced onshoring to USA and foreign direct investment (FDI) has picked up sharply. On Chart 16 on page 17 of the 2021 Annual Report and Chart 17 on page 18 of the 2021 Annual Report we have UBS evidence surveys regarding percentage of companies looking to move out of China and where they are looking to move too. In Chart 16 it can be seen c.90% of respondents expect to set up facilities outside of China within 2 years. Chart 17 has the countries that respondents expect to move too - North Asia, USA and Vietnam are the most commonly mentioned i.e. those countries with the closest/best trade ties with USA.

So, what does this mean for the Company? We are bullish on capital expenditure names. With the labour market tight in the USA capital expenditure is likely to be focussed on automation, digitalisation and software. As Chart 18 on page 18 of the 2021 Annual Report shows despite high labour costs and falling robotics prices the USA is currently lagging other countries in its level of manufacturing automation.

Given the expected shifts in capital expenditure, we have added to names in Taiwan that have exposure to automation and systems integration in the USA and Europe. An overall pick up in corporate expenditure on systems and software should also benefit our Indian IT services names which are currently reporting strong order wins. A recovery in corporate expenditure and high-end automation should also add another structural driver to semiconductor demand, which remains a key position in the Company.

The bigger long-term question is whether in certain key industries where China is also investing heavily (under dual circulation policies) we will see overcapacity. Industries we are monitoring closely are batteries, electric vehicles (EVs), semiconductors, solar, wind, biotech. It seems inevitable there is likely to be overcapacity in lower end batteries, mass EVs, simpler semiconductors given the amount of capital being committed to these industries. However, where we see genuine barriers to entry due to strong intellectual property we are more comfortable and at the current time we are maintaining our positions in TSMC, Samsung Electronics and Mediatek all of which are top 10 positions in the Company. On the other hand we are more cautious on the battery, EV and solar sectors where barriers to entry appear lower.

TOPIC 3: KEY POSITIONS IN SATRIC - TECHNOLOGY

Chart 19 on page 19 of the 2021 Annual Report has a country and sector breakdown of the Company as at December 2021. As can be seen at that date the fund had 43% of its assets in stocks classified as information technology stocks by MSCI. Just to be clear this is not internet stocks (they are classified under communication services or consumer discretionary) but a mixture of semiconductor, software and hardware stocks.

Relative to the Company's reference index (the MSCI AC Asia Pacific ex Japan index) this would be a c.15-20% overweight position, which along with the underweight in China of c.15-20%, are the two biggest deviations from the benchmark weights. Hopefully we have explained the reasons for the China positioning in the first section, but why are we so overweight technology stocks in the region?

First we would highlight that "technology" can mean rather different things to different people. It is a pretty generic word and of course nearly all companies claim to be "technology champions". Chart 20 on page 20 of the 2021 Annual Report has a table from Bernstein showing how their technology subsectors have changed (in terms or revenues) over time.

What is clear from the chart is some parts of "technology" are mature with lower barriers to entry whereas others have strong secular growth trends. It is the latter area where we are focussed i.e. semiconductors, software and services. Within these sectors we are looking for companies creating genuine intellectual property (IP) and Warren Buffet's moats (i.e. barriers to entry).

We want to own shares in companies which are successfully building capabilities and products through their continuous R&D and investment in people and products. As Chart 21 on page 21 of the 2021 Annual Report highlights investment in intangible assets is rapidly rising - our key job is to try and work out which companies in Asia are doing this well and which ones poorly. In Asia we believe the best semiconductor companies (both chip fabrication and chip design) and software companies are using their comparative advantages to create strong intellectual property (IP). TSMC for example should never be looked at on a price to book basis. The real value of TSMC is its years and years of accumulated engineering expertise, its relationships with key customers and suppliers, and its network effect of clustering its main operations in Hsinchu in Taiwan. Every foundry competitor we have looked at over the last 25 years has found out it impossible to compete with TSMC in high end semiconductors no matter now much capital they have had.

The best companies in Asia, those with world class technology, strong intellectual property, large scale comparative advantages from scale and proximity of customers, often tend to be in the semiconductor and technology space. The secular growth trends for these companies has we believe also materially improved. This is not just about much discussed working from home trends but the real drivers are cloud migration, electric vehicles, decarbonisation, automation, artificial intelligence, 5G and connectivity (Chart 22 on page 21 of the 2021 Annual Report and Chart 23 on page 22 of the 2021 Annual Report). Nearly all the trends we discuss as investors at the moment involve materially greater use of semiconductors and software. Taiwan and Korea are world leaders in semiconductors and India has key comparative advantages (young, well educated, cheaper engineers) in software services. This is why we have c.40% of the fund's assets in technology - these are the Asian stocks that are world leaders in their respective industries.

What about the risks? Are we heading into potential overcapacity in semiconductors and aren't stocks expensive after strong performance in 2020/2021?

We touched on overcapacity in the China section. We do worry about overcapacity in the low end foundry space particularly in China. However US-China trade sanctions, which make high end semiconductor equipment supply difficult, and limited semiconductor engineering expertise globally we believe will make it difficult for China (or anyone else) to catch up at the higher end, more complex part of the foundry industry. For chip designers this space has significant intellectual property and for higher end chips again barriers to entry (you need a good foundry partner for starters). In the memory space the industry has now consolidated down to three main players (Samsung, SK Hynix, Micron) and we believe this should make the industry less cyclical going forward as capital expenditure is more disciplined. So in summary whilst we do worry some parts of technology industry are likely to see overcapacity, for our key exposures in the Company we are confident the long-term secular growth trends outweigh any shorter-term cyclical worries.

And what of valuations - aren't Asian technology stocks expensive? As Chart 24 on page 23 of the 2021 Annual Report highlights Asian technology stocks have actually derated over the last 12 months - TSMC at time of writing is flat over 12 months and Samsung Electronics is actually down 15% and trading at a large discount to US listed peer Micron (Chart 25 on page 23 of the 2021 Annual Report). The valuation gap between global and Asian technology stocks is at an all time high. Worries over US-China tensions, internet regulations in China, Taiwan-China worries and the sustainability of working from home demand have we believe combined to give investors an excuse to sell the sector. Given the underlying strengths of the technology businesses we own in Asia and the strong secular growth drivers we view this as our highest conviction long-term position in the Company.

TOPIC 4: KEY POSITIONS IN THE SATRIC - VALUE AND CYCLICAL STOCKS

Given the discussion above it will probably be of no surprise that we are not chasing perceived "value" sectors in Asia (like banks or oil stocks) or making a "cyclical" trade on global economic recovery.

Your fund managers have never considered themselves good short term traders and most cyclical stocks in Asia are low ROIC (Return on Invested Capital) business with little IP or comparative advantage so lack long-term investment attractions. Chart 26 on page 24 of the 2021 Annual Report has a split of the MSCI Asian value index by sector. In Asia "value" on this definition is mostly in sectors facing long-term headwinds or with heavy state involvement like banks, insurance and property. We did add to our financial exposure over the course of 2021 - mostly to better banks in ASEAN and India. But we see little attraction of adding more broadly to the sector, given we have no strong view on the medium term inflation outlook and instead see most banks in Asia as still vulnerable to disruption from internet and fintech companies.

We do have some cyclical exposure in the Company however this is principally in Australia via BHP and Rio, and some related mining services companies. We are not particularly optimistic on iron ore prices due to the construction outlook in China, however after a sell off in mid-2021 on China worries we added to our positions. We felt stocks were discounting a much lower long-term iron ore price than was likely given the lack of new supply in the industry. The other long-term factor we felt favourable was the market was missing the fact decarbonisation needs many of the metals mined by BHP and Rio, so the large "ESG" discount was overdone. BHP and Rio may be far from perfect but they are better than most other miners we meet in Asia and are committed to carbon neutrality. BHP and Rio are likely to remain the key more cyclical exposures in the Company.

TOPIC 5: KEY POSITIONS IN THE SATRIC - ASEAN AND INDIA

Going back to Chart 19 on page 19 of the 2021 Annual Report readers will notice the Company has very little exposure to the small ASEAN markets (Singapore, Malaysia, Thailand, Indonesia and Philippines). We continue to struggle to find much attraction in these stockmarkets. A lot of this is due to structural factors. We tend to view most of these countries as perhaps stuck in a middle income trap. As Chart 28 on page 25 of the 2021 Annual Report highlights R&D spending is very low in most ASEAN countries and there are few of the vibrant technology or internet stocks we see in North Asia.

This is reflected in a stockmarket that is dominated by banks, real estate, energy and utilities (Chart 29 on page 26 of the 2021 Annual Report). Perhaps it is not surprising that ASEAN stockmarkets have struggled given disruptive trends facing all these sectors.

But what of the macroeconomic picture in ASEAN - surely the outlook for investment should improve as firms move production out of China? This is where ASEAN looks set to miss out. Relatively poor educational attainment, corruption, weak legal systems, often messy politics have not created a great investment environment. As Chart 30 on page 26 of the 2021 Annual Report shows on most measures of ease of doing business the key middle income ASEAN countries rank poorly and there has been no improvements over the last few years. On Chart 31 on page 27 of the 2021 Annual Report surveys of likely relocation of factories and actual FDI suggest limited use of ASEAN as an export base.

So, both at a macroeconomic level and bottom up stock level we cannot get terribly excited by the ASEAN region. There are some good companies listed in ASEAN the problem of course being that they trade on a scarcity premium as so much of the market is unattractive. We do however have a few names on our watchlist and will continue to monitor for opportunities to pick up the strong ROIC business in ASEAN at the right price.

What are our current investment views on India? The Company's weighting in India moved up over 2021 - mostly during the sell off in March/April when we added to our banks and Indian IT services exposure. We also initiated a position in a healthcare name.

The macroeconomic picture in India does look promising. As Chart 32 on page 27 of the 2021 Annual Report suggests there have been genuine reforms in India some of which have accelerated under the pandemic. On most ease of doing business surveys (back to Chart 30 on page 26 of the 2021 Annual Report) India is at least improving, albeit there is still plenty of room for further improvement. As Chart 33 on page 28 of the 2021 Annual Report show the roll out of digital infrastructure (along with better physical infrastructure) has been quite rapid and should bring significant productivity benefits to the economy. As Chart 31 on page 27 of the 2021 Annual Report suggests FDI should be set to accelerate along with domestic investment as we move into a more normal post-COVID world.

The problem however comes when we look at the stockmarket. Valuations are expensive across the board and well above Indian historic norms and the normal premium to the region now looks to have overshot (Chart 34 on page 28 of the 2021 Annual Report). In order to justify ever higher multiples stockbrokers have further raised their earnings forecast for 2022 and 2023 (India has a March year end). However, as can be seen from the right hand chart of Chart 35 on page 29 of the 2021 Annual Report, like most stockmarkets historically Indian earnings forecasts tend to be downgraded over time. Given an element of euphoria has seeped into Indian markets we think the risk of earnings downgrades is high. With interest rates likely to rise as inflation picks up in India we also see risks of multiple contraction as higher discount rates bring growth stocks down to earth. The market may not be priced for perfection but it is certainly vulnerable to scares - whether that be on politics, earnings, inflation or the economy. We are happy with our current private sector bank and Indian IT services exposure but are not chasing Indian internet or consumer names which we believe are vulnerable in a rising rate environment.

TOPIC 6: VALUATIONS AND HEDGING MODELS

For the last part of the report we provide a brief comment on the hedging and valuation models we use to help us gauge whether to deploy capital preservation strategies or to use gearing. Chart 36 on page 30 of the 2021 Annual Report has a summary of the Company's positioning at the end of December. At the time of writing the first draft of this report (early February) there have been no changes to models. In summary the long-term country models are now neutral to positive on all the major stockmarkets in the region - only India and the Philippines are cautious - so we are not undertaking any hedging based on the longer-term models. The shorter term tactical models, which have been working well over the last two years, have moved back to neutral (from sell). The consequence of this is the models are suggesting only to buy protection (via puts) if pricing is at the lower levels of recent historic ranges. With put pricing currently very expensive due to Ukraine worries and taper tantrums we are not rolling or buying new puts.

The main valuation indicators we use to determine whether to deploy gearing are both currently neutral (Chart 37 on page 30 of the 2021 Annual Report), so whilst the Company is slightly geared we have neutralised this by selling Taiwan index futures to bring SATRIC down to an effectively neutral position. Further markets falls however would be likely to trigger a "buy" or deploy gearing signal (if indicators cross the green lines in the charts).

In summary, after the recent market correction Asian equity valuations both top down and bottom up are increasingly attractive and now look reasonable both on an absolute basis and relative to other equity markets. The key risk (outside the obvious macro ones) are that Asian earnings disappoint however, outside of India, expectations for earnings have come down and now look more realistic. The technology and internet stocks in particular look to have seen most of 2021's "froth" dissipate as indicated by Chart 38 below. This leave us relatively upbeat that we should make money in 2022 and that, whilst somewhat uncomfortable, not paying up for expensive hedging is the correct long-term approach.

SUMMARY

• After a difficult 2021 we are optimistic we should see better returns from Asian equities for the Year of the Tiger. Valuations are reasonable on an absolute basis and cheap versus history on a relative basis (to global equities). The Company's gearing and hedging models have moved to a neutral/positive bias from a more cautious positioning six months ago.

• China remains the biggest risk in the region and a potential drag. Zero-COVID policies are likely to slow an economy already weakening due to the unwind of the property market, however this should be partly offset by looser monetary and fiscal policy.

• For Chinese equities we expect a better year but not necessarily a good year. Earnings are likely to disappoint and the market has still to fully absorb the implications of 2021's major policy reset, which in many sectors is likely to reduce the operation of free market forces and thus lower long-term ROIC. In particular we remain relatively cautious on most Chinese internet stocks.

• On a positive note Asian macro fundamentals are generally sound with current account surpluses, relatively low Government debt levels, high FX reserves meaning the vulnerability to rising US interest rates should be less than has historically been the case.

• The key positions for the Company are mostly in stocks where we see strong secular growth trends like technology, software, Australian healthcare, Chinese consumer, the best Indian and ASEAN private sector banks. We are not thematically chasing value or cyclical names in Asia and we still view inflation as likely to be ultimately transitory. The preference remains for stocks creating genuine intellectual property by which means they can sustain and grow their ROIC (Return on Invested Capital).

ADDENDUM

The above report was finalised mid-February in order to meet deadlines that, for compliance reasons, are set in advance of the publishing date. Clearly since the date of writing there have been significant changes to the geo-political backdrop following Russia's invasion of the Ukraine. As mentioned in the report we rarely comment on geo-politics but given the gravity of the situation we provide some additional comments on how the war in Ukraine may affect the Company and our investment views.

Firstly, we would highlight none of the Company's investments have significant exposure to Russia either in terms of revenues from Russia or as owners of assets in Russia so the direct impact on our investments is limited. For the Asia region as a whole Russia is a very small trading partner as highlighted by Chart 1 on page 32 of the 2021 Annual Report. Even China with its "partnership without limits" only has c.2% of its exports currently going to Russia so we are not overly concerned about the impact of Russia's pariah status on the region's trading outlook.

What is more significant for the region is the various indirect impacts from what, at the time of writing, looks set to be a prolonged conflict. As Chart 2 on page 32 of the 2021 Annual Report shows most Asian countries are heavily reliant on oil as an energy source and run a significant trade deficit in oil as, with the exception of Malaysia, all are net oil importers. Rising oil prices will therefore act as a drag on economies.

However, where we are actually more concerned is on food prices. Ukraine and Russia are both major food exporters and if we see a prolonged supply dislocation and rise in basic food staples this is likely to have a material impact on discretionary consumption, particularly in the lower income countries in the region where food and energy costs take up a large part of consumer expenditure. Chart 3 on page 32 of the 2021 Annual Report below shows how food and energy are weighted in the CPI baskets across Asia and whilst not an exact science this provides a reasonable proxy for vulnerabilities in the region to the rising costs of essential items. Already recent calls with companies in ASEAN and India have flagged a drop off in sales volumes and trading down (buying smaller items, cheaper products) by consumers as incomes are squeezed by food prices in particular.

On a slightly more positive note, we are less worried that we will get a double squeeze in Asia (rapidly tightening monetary policy combined with falling consumption) as the starting CPI level is quite low in Asia and historically there is not a close correlation between global food prices and Asian CPI (Chart 4 on page 33 of the 2021 Annual Report) so the risks of a perfect "stagflationary" storm look low. The key issue really is likely to be lower consumption as wage growth (Chart 5 on page 33 of the 2021 Annual Report) fails to offset the squeeze in incomes from the rising cost of essentials. This is likely to lead to earnings downgrades for many of our consumer stocks, particularly those exposed to lower income countries where the impact of higher commodity prices is higher. At the current time we have not made any material changes to the Company's positions. We are long-term investors and our exposure to domestic consumption is relatively low as we already viewed most consumer stocks in places like India, Philippines and Indonesia as fully valued.

The other indirect impact of the conflict is likely to be an acceleration of the trends we discussed in Topic 2 above. With China effectively, albeit not openly, siding with Russia it is likely the move towards greater self-sufficiency, localisation of supply chains, and a reduction on unreliable partners for critical goods will accelerate. Deglobalisation will become increasing real as will the discussion of new Cold Wars and Anglosphere vs Sinosphere. This means we need to be even more careful how we approach our investments in China and our exporters in particular if many start being locked out of European and US markets. It clearly also has implications for global companies with high hopes of large sales in China as politicians there accelerate dual circulation policies (self sufficiency in critical industries). It does feel to us February 24th may end up being a watershed moment where trends that were already in motion suddenly accelerate. The Company was already positioned for some of these trends but clearly we are monitoring the situation and may make changes to the portfolio as the situation develops.

Robin Parbook and Lee King Fuei 

Strategic Report

Principal risks and uncertainties

The Board is responsible for the Company's system of risk management and internal controls and for reviewing its effectiveness. The Board has adopted a detailed matrix of principal risks affecting the Company's business as an investment trust and has established associated policies and processes designed to manage and, where possible, mitigate those risks, which are monitored by the audit and risk committee on an ongoing basis. This system assists the Board in determining the nature and extent of the risks it is willing to take in achieving the Company's strategic objectives. Both the principal risks and the monitoring system are also subject to regular, robust review. The last review took place in March 2022.

Although the Board believes that it has a robust framework of internal controls in place this can provide only reasonable, and not absolute, assurance against material financial misstatement or loss and is designed to manage, not eliminate, risk.

Actions taken by the Board and, where appropriate, its committees, to manage and mitigate the Company's principal risks and uncertainties are set out in the table below.

Emerging risks and uncertainties

During the year, the Board also discussed and monitored a number of risks that could potentially impact the Company's ability to meet its strategic objectives. These were political risk and climate change risk. The Board reviewed political risk and climate change risk and noted that they had both become more significant during the year. The Board receives updates from the Manager, Company Secretary and other service providers on potential other risks that could affect the Company.

Political risk includes geopolitical risk, regional tensions, trade wars and sanctions. Currency rates and borrowings drawn down by the Company, as well as markets generally, may be affected by geopolitical developments. The Board is also mindful that changes to public policy in the US, UK, or in the Asia Pacific region, could impact the Company in the future.

Climate change risk includes how climate change could affect the Company's investments, and potentially shareholder returns. The Board notes the Manager has integrated ESG considerations, including climate change, into the investment process. The Board will continue to monitor this.

Risk assessment and internal controls review by the Board

Risk assessment includes consideration of the scope and quality of the systems of internal control operating within key service providers, and ensures regular communication of the results of monitoring by such providers to the audit and risk committee, including the incidence of significant control failings or weaknesses that have been identified at any time and the extent to which they have resulted in unforeseen outcomes or contingencies that may have a material impact on the Company's performance or condition.

No significant control failings or weaknesses were identified from the audit and risk committee's ongoing risk assessment which has been in place throughout the financial year and up to the date of this report. The Board is satisfied that it has undertaken a detailed review of the risks facing the Company.

A full analysis of the financial risks facing the Company is set out in note 21 to the accounts on pages 80 to 85 of the 2021 annual report.

Viability statement

The Directors have assessed the viability of the Company over a five year period, taking into account the Company's position at 31 December 2021 and the potential impact of the principal risks and uncertainties it faces for the review period. This is further detailed in the Chairman's Statement, Portfolio Managers' Review and Emerging Risks sections of this report. The Directors have assessed the Company's operational resilience and they are satisfied that the Company's outsourced service providers will continue to operate effectively.

The Board believes that a period of five years reflects a suitable time horizon for strategic planning, taking into account the investment policy, liquidity of investments, potential impact of economic cycles, nature of operating costs, dividends and availability of funding. In its assessment of the viability of the Company, the Directors have considered each of the Company's principal risks and uncertainties detailed on pages 43 and 45 of the 2021 annual report and in particular the impact of a significant fall in regional equity markets on the value of the Company's investment portfolio. Whilst the Company's articles of association require that a proposal for the continuation of the Company be put forward at the Company's AGM, the directors have no reason to believe that such a resolution will not be passed by shareholders.

In preparing these financial statements the Directors have considered the impact of climate change risk as an emerging risk as set out on page 43 of the 2021 annual report, and have concluded that there was no further impact of climate change to be taken into account as the investments are valued based on market pricing. In line with FRS102 investments are valued at fair value, which for the Company are quoted bid prices for investments in active markets at the statement of financial position date and therefore reflect market participants view of climate change risk on the investments held.

The Directors considered the beneficial tax treatment the Company is eligible for as an investment trust. If changes to these taxation arrangements were to be made it would affect the viability of the Company to act as an effective investment vehicle.

The Directors reviewed a stress test in which the Company's NAV dropped by 50% and noted that, based on the assumptions in the test, the Company would continue to be viable over a five year period.

The Directors have also considered the Company's income and expenditure projections and the fact that the Company's investments comprise readily realisable securities which can be sold to meet funding requirements if necessary. Based on the Company's processes for monitoring operating costs, the Board's view that the Manager has the appropriate depth and quality of resource to achieve superior returns in the longer term, the portfolio risk profile, limits imposed on gearing, counterparty exposure, liquidity risk and financial controls, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five year period of their assessment.

Going concern 

The Directors have assessed the principal risks, the impact of the emerging risks and uncertainties and the matters referred to in the viability statement. The Directors noted the Company's portfolio compound liquid stocks, and the Company's operating expenses comprise predominantly variable costs, which would fall pro-rata in the event of a severe market downturn. The Board is confident that shareholders will support the continuation vote to be proposed at the forthcoming AGM. Based on the work the Directors have performed, they have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Company's ability to continue as a going concern for the period assessed by the Directors, being the period to 31 December 2023 which is at least 12 months from the date the financial statements were authorised for issue.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the annual report, and the 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 prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising Financial Reporting Standard (FRS) 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland" and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the 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;

- make judgements and accounting estimates that are reasonable and prudent;

- state whether applicable UK Accounting Standards, comprising FRS 102, have been followed, subject to any material departures disclosed and explained in the financial statements;

- notify the Company's shareholders in writing about the use of disclosure exemptions in FRS 102, used in the preparation of the financial statements; and

- prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.

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 and the Directors' Remuneration Report 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 Manager is responsible for the maintenance and integrity of the webpage dedicated to the Company. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names and functions are listed on pages 47 and 48 of the 2021 annual report, confirm that to the best of their knowledge:

- the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and net return of the Company;

- the Strategic Report contained in the report and accounts 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; and

- the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

Income Statement

for the year ended 31 December 2021

The "Total" column of this statement is the profit and loss account of the Company. The "Revenue" and "Capital" columns represent supplementary information prepared under guidance issued by The Association of Investment Companies. The Company has no other items of other comprehensive income, and therefore the net return after taxation is also the total comprehensive income for the year.

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.

Statement of Changes in Equity

for the year ended 31 December 2021

Statement of Financial Position

at 31 December 2021

The accounts were approved and authorised for issue by the Board of Directors on 1 April 2022 and signed on its behalf by:

Sarah MacAulayChairman

Registered in England and Wales as a public company limited by shares.

Company registration number: 02153093

Cash Flow Statement

for the year ended 31 December 2021

Dividends received during the year amounted to £16,218,000 (2020: £10,171,000) and interest receipts amounted to £84,000 (2020: £8,000).

Notes to the Accounts

1. Accounting Policies

Schroder Asian Total Return Investment Company plc ("the Company") is registered in England and Wales as a public company limited by shares. The Company's registered office is 1 London Wall Place, London EC2Y 5AU.

The accounts are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ("UK GAAP"), in particular in accordance with Financial Reporting Standard (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 April 2021. All of the Company's operations are of a continuing nature.

The accounts have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of investments and derivative financial instruments held at fair value through profit or loss. The Directors believe that the Company has adequate resources to continue operating for the period to 31 December 2023, which is at least 12 months from the date of approval of these accounts. In forming this opinion, the Directors have taken into consideration: the controls and monitoring processes in place; the Company's low level of debt and other payables; the low level of operating expenses, comprising largely variable costs which would reduce pro rata in the event of a market downturn; the likely success of the continuation vote at the forthcoming AGM; and that the Company's assets comprise cash and readily realisable securities quoted in active markets. In forming this opinion, the Directors have also considered any potential adverse consequences of the COVID-19 pandemic on the viability of the Company.

In preparing these financial statements the Directors have considered the impact of climate change risk as an emerging risk as set out on page 43 of the 2021 annual report, and have concluded that there was no further impact of climate change to be taken into account as the investments are valued based on market pricing. In line with FRS102 investments are valued at fair value, which for the Company are quoted bid prices for investments in active markets at the statement of financial position date and therefore reflect market participants view of climate change risk on the investments held.

The accounts are presented in sterling and amounts have been rounded to the nearest thousand.

The accounting policies applied to these accounts are consistent with those applied in the accounts for the year ended 31 December 2020.

No significant judgements, estimates or assumptions have been required in the preparation of the accounts for the current or preceding financial year.

2. Income

3. Investment management fee and performance fee

The bases for calculating the investment management and performance fees are set out in the Directors' Report on page 49 of the 2021 annual report and details of all amounts payable to the Manager are given in note 18 on page 79 of the 2021 annual report.

4. Dividends

Dividends paid and declared

1 The proposed 2020 final dividend amounted to £7,166,000. However the amount actually paid was £7,435,000 due to share issues after the accounting date but prior to the dividend Record Date.

2The proposed final dividend amounting to £9,246,000 (2020: £7,166,000) is the amount used for the basis of determining whether the Company has satisfied the distribution requirements of Section 1158 of the Corporation Tax Act 2010. The revenue available for distribution by way of dividend for the year is £9,809,000 (2020: £8,308,000).

5. Return per share

6. Called-up share capital

During the year, 7,840,000 new shares, nominal value £392,000, were issued to the market at a premium to NAV per share to satisfy demand. These shares were issued at an average price of 501.5p per share and the net consideration received amounted to £39,321,000.

7. Net asset value per share

8. Transactions with the Manager

Under the terms of the Alternative Investment Fund Manager Agreement, the Manager is entitled to receive management, secretarial and performance fees. Details of the basis of these calculations are given in the Directors' Report on page 49 of the 2021 annual report. If the Company invests in funds managed or advised by the Manager, any fees earned by the Manager are rebated to the Company. The management fee payable in respect of the year ended 31 December 2021 amounted to £3,653,000 (2020: £2,701,000) of which £966,000 (2020: £825,000) was outstanding at the year end.

A performance fee amounting to £133,000 (2020: £4,552,000) is payable in respect of the year, and the whole of this amount (2020: same) was outstanding at the year end.

The secretarial fee payable for the year amounted to £75,000 (2020: £75,000) of which £19,000 (2020: £19,000) was outstanding at the year end.

No Director of the Company served as a Director of any company within the Schroder Group at any time during the year.

9. Status of announcement

2020 Financial Information

The figures and financial information for 2020 are extracted from the published Annual Report and Accounts for the year ended 31 December 2020 and do not constitute the statutory accounts for that year. The 2020 Annual Report and Accounts have 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.

2021 Financial Information

The figures and financial information for 2021 are extracted from the Annual Report and Accounts for the year ended 31 December 2021 and do not constitute the statutory accounts for the year. The 2021 Annual Report and Accounts include the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The 2021 Annual Report and Accounts will be delivered to the Registrar of Companies in due course.

Neither the contents of the Company's webpages nor the contents of any website accessible from hyperlinks on the Company's webpages (or any other website) is incorporated into, or forms part of, this announcement.