Last checked at 10 Apr 2019 07:00
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN GLOBAL EMERGING MARKETS INCOME TRUST PLC
UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 31ST JANUARY 2019
Legal Entity Identifier: 549300OPJXU72JMCYU09
Information disclosed in accordance with DTR 4.2.2
CHAIRMAN'S STATEMENT
This is my first report to you as Chairman, following the retirement of Andrew Hutton after our Annual General Meeting held in November 2018. I would like to thank Andrew for his excellent stewardship of the Company since its inception and wish him well for the future.
Performance
The six months to 31st January 2019 saw volatility in both developed and emerging equity markets, driven largely by concerns over global growth, a potential trade war between the US and China and uncertainty around policy tightening in the US. This was a period of weakness across almost all equity markets - and emerging equity markets were not immune. Against this backdrop, our Company's income strategy, due to its 'value with quality' characteristics, performed better than the benchmark index.
Compared with the -2.9% total return recorded by the Company's benchmark, the MSCI Emerging Markets Index (with net dividends reinvested, in sterling terms), the Company outperformed by reporting no change to its net asset value. The total return to shareholders was +4.1%, reflecting a narrowing of the share price discount to net asset value from 6.4% to 2.7%.
The principal reason for the Company's outperformance against the benchmark was stock selection. The Investment Managers' Report reviews the Company's performance in more detail and comments on the investment strategy.
Dividends
In the Company's current financial year, the Board has declared two interim dividends of 1.0p each, in line with the same period last year.
As highlighted in the Investment Managers' Report, the long term dividend prospects from the portfolio look positive. However, in the near term, the impact from global trade tensions and a slowdown in China can be seen in dividend announcements. The Board continues to monitor dividend receipts and discusses the outlook and potential sensitivities, particularly with respect to the level of sterling, with the investment team on a regular basis.
Share Repurchases and Issuance
During the six months to 31st January 2019, the Company's share price traded at an average discount to net asset value of 4.6%. The Company did not undertake any share repurchases, nor did it issue any shares during the reporting period.
Outlook
Although it is encouraging to note that equity markets have recovered significantly from their lows towards the end of 2018, emerging markets still face challenges. Investors remain concerned about the potential for a US/China trade or tariff war and the global pace and extent of interest rate increases. In this environment, the Investment Managers remain generally positive about the underlying fundamentals of the Company's investments and their outlook for income from emerging markets equities over 2019. Unlike many developed markets, emerging market economies and markets are in mid-cycle even as global economic growth momentum has slowed. The Investment Managers, supported by the extensive research resources of JPMorgan, will continue their strategy of investing in a diversified portfolio of relatively high-yielding stocks with strong fundamentals that also have the potential for long-term growth. The Board has confidence that the Investment Managers will continue to display disciplined stock selection and that the businesses held within the portfolio will generate attractive long-term returns for shareholders.
Sarah Fromson
Chairman 10th April 2019
INVESTMENT MANAGERS' REPORT
Introduction
After a turbulent period for global markets, the Company's total return on net assets in the six months to 31st January 2019 was zero. Stock and sector selection across the Company's diversified portfolio helped the Company to outperform its benchmark, the MSCI Emerging Markets Index, which fell by 2.9% (on a total return basis in sterling terms) during the period.
Performance backdrop
Looking back at 2018 in its entirety, the year began well. However, subsequent market turmoil, caused primarily by trade tensions, concerns over global growth and uncertainty around the direction of interest rates in the US, with significant volatility in share prices and fear of further downturns, alarmed investors and ultimately defined the period. October was the worst month for global equities since 2012 and many markets, including most emerging markets' stock indices, fell meaningfully from recent peaks. The uncertainty we referenced in our annual report commentary continued to prevail and investment conditions remained challenging, with geopolitical tensions, market volatility and rising inflation creating anxiety. Although this has been a difficult backdrop for us, as investment managers of the Company such volatility can give rise to opportunities, as well as risk. On the whole, over the review period we have made modest portfolio changes where we have uncovered attractive investment opportunities with potential to deliver long-term capital growth and a compelling dividend income.
Spotlight on regions, stocks and sectors
We start with a focus on China, our largest country exposure by a significant margin, where fears of an economic slowdown, driven by ongoing trading tensions with the United States and uncertainty amongst manufacturing companies, have troubled international investors. Strong performance from China Overseas Land and Investment (COLI) and China Resources Power boosted performance and mitigated the negative impact of holdings in the China A share market, such as SAIC Motor. Six months ago, we noted the negative impact to relative performance of not holding leading e-commerce names Alibaba and Tencent which offer little to no yield and do not fit our investment criteria. However, both were weak over the last six months so their absence from the portfolio was positive this time, on a relative basis. We continue to see long-term opportunities from China, with dividend yields, cash flow and returns on capital all attractive factors that have influenced us to make meaningful portfolio additions over the period, as explained later.
The portfolio's largest active country exposure is to Taiwan, home to our largest holding, Taiwan Semiconductor Manufacturing Company. Most of the country's economic growth comes from exports of electronics and semiconductors. The portfolio's Taiwanese stocks contributed positively to performance as its markets did not suffer the same degree of market sell-off as other Asian economies.
In Brazil, nationalist Jair Bolsonaro won October's presidential election. His victory, and his strong backing for free market economics, led to stock rallies. Despite not holding some of the strongest performers, such as Vale, Banco Bradesco and Petrobras, our exposure to Brazil was positive overall, driven by the domestic-orientated businesses in the Company's portfolio, such as Itaú Unibanco, the largest private sector bank in Brazil and a top performer over the review period.
Our exposure to Saudi Arabia, via one of our largest holdings, Al Rajhi Bank, was another key contributor. We continue to have conviction in Al Rajhi's fundamentals and the stock has outperformed despite political noise.
In Russia, deteriorating sentiment around US sanctions continued negatively to impact broad market performance and our holding in Moscow Exchange dragged down the Company's overall performance. However, Moscow Exchange continues to perform well operationally, which bodes well for dividend prospects, and valuations look low. As such we are comfortable retaining our position.
We have had long-term underweight exposure to India, while waiting for more attractive valuation opportunities. Our underweight position impacted overall returns positively.
Portfolio changes
We invest across sectors and countries in a diversified portfolio of relatively high-yielding stocks that generate dividends. While portfolio changes over the period have been modest, consistent with our policy of investing for the long term and benefiting from the continued dividend streams of the companies we hold, the stock turnover has been consistent with this theme. We have bought or added to positions where yield looks attractive and where opportunities have increased, and have generally sold those stocks where valuations have become more stretched.
We have focussed our rotation towards more attractive opportunities in China. As its market has declined, specific Chinese stocks have looked cheap relative to their long-term averages. Over the period, we have added to both A-shares as well as Hong Kong-listed China stocks, taking advantage of the cheaper valuations to increase our overall weighting in China. We continue to see China as an area of opportunity and made meaningful additions to Chinese positions during the review period, for example A-shares of Inner Mongolia Yili Industrial, Jiangsu Yanghe Brewery and Huayu, as well as COLI, Ping An Bank and China Construction Bank. Currently the portfolio has a small underweight position relative to the overall market, which reflects a positive bias towards attractive dividend-paying stocks and a zero weighting in internet stocks.
In Korea we added to Samsung Electronics based on attractive valuations and a meeting with management which indicated a more disciplined approach to future capital expenditure in light of the near-term headwinds in the memory devices sector.
Additionally, in the last six months we reduced exposure to strong performers where our expected returns had come down, such as Indian IT outsourcer Infosys, Al Rajhi Bank (Saudi Arabia) and Itaú Unibanco (Brazil). We also trimmed our exposure to Turkish stocks, reflecting our concerns of increased risks and market volatility in Turkey.
Our largest sector exposure is to Financials, in both absolute and relative terms. Our exposure here encompasses banks (likely to benefit from rising interest rates), insurance companies (a good secular investment story) and stock exchanges (generally dominant franchises and cash-flow generative).
Energy is an underweight sector exposure for us, as we are looking to invest in companies which can deliver sustainable income streams. The cyclicality of energy names means there are typically more attractive opportunities elsewhere.
Our engagement on Environmental, Social and Governance (ESG) issues
We pay particular attention to issues that could affect the prospects for stocks within the Company's portfolio. We believe strongly that ESG considerations (particularly Governance) need to be a foundation of any investment process supporting long-term investing and that corporate policies at odds with environmental and social issues are not sustainable in the long run.
We draw a direct link between the dividend policies of companies and our views on governance, i.e. a direct demonstration of a desire to return cash to shareholders is a tangible and positive governance indicator. We have engaged with many companies on this issue over time, trying to best understand companies' motivations and aims in terms of their capital allocation. We often discuss the magnitude of shareholder return as well as the form, e.g., whether there is a split between dividends and buybacks, and why.
Although governance considerations tend to dominate (due to the link with dividend payouts), environmental and social issues are important in terms of the sustainability of business models and discussions on these points feature in our interaction with company management teams. As an example, our team met with the Brazilian beer company Ambev and discussed water consumption, by-product usage and use of renewable energy. The company identified these as important areas both from an ESG perspective as well as having a true, immediate impact on business operations.
Dividends
Dividend receipts during the period were generally in line with our expectations (we note that seasonally most of the Company's dividends are received in the fourth quarter of the Company's financial year). A general observation would be that, in the near term, it does seem like it has become slightly more difficult for growth to be delivered - i.e. the environment has become tougher for Emerging Market companies in general and this affects portfolio companies. This reflects issues such as trade tensions and China growth slowdown, as discussed above. We remain positive about the long term dividend prospects for the portfolio, based on underlying returns on capital and cash flow generation.
Outlook
In economic, market and political terms we are in uncertain territory. Global growth momentum has slowed, trade frictions remain, and markets are prone to sharp swings. We do not expect these issues to be fully resolved any time soon so volatility may well remain elevated in the months ahead. But barring a dire outcome relating to trade or the US dollar, neither of which is our base case scenario, we see a broadly positive outlook for emerging markets in 2019.
Following the slowest growth in China's modern era, we believe Chinese authorities are preparing to step up their efforts to boost growth through fiscal and monetary means. However, unlike the infrastructure project-oriented stimuli of the past, we expect measures such as corporate tax cuts, tax cuts for individuals and new incentives for consumers, like the car rebates used in the past. Given that China has been cited as one of the primary sources of the global slowdown, measures to boost growth could stem some of the fears still prevalent in the market.
On a final note, we remain focused on investing in sound businesses with good potential to deliver income and capital returns. We adopt a long-term view in analysing both earnings and dividends and we position our portfolio to capture this. The return-on-equity premium of the portfolio versus the market remains high and consistent, which means that the Company invests in stocks that can generate earnings and cash flow to pay out dividends and also to reinvest in the future of their own businesses. Moreover, our valuation discipline means we are not overpaying to access these opportunities.
Omar Negyal
Jeffrey Roskell
Amit Mehta
Investment Managers 10th April 2019
STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 31ST JANUARY 2019
| (Unaudited) Six months ended 31st January 2019 | (Unaudited) Six months ended 31st January 2018 | (Audited) Year ended 31st July 2018 | ||||||
| |||||||||
| |||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | Revenue | Capital | Total |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
(Losses)/gains on investments held at fair value through profit or loss | - | (3,426) | (3,426) | - | 30,389 | 30,389 | - | 12,019 | 12,019 |
Net foreign currency gains/(losses) | - | 168 | 168 | - | 1,632 | 1,632 | - | (674) | (674) |
Income from investments | 6,555 | - | 6,555 | 5,765 | - | 5,765 | 21,358 | - | 21,358 |
Interest receivable and similar income | 40 | - | 40 | 21 | - | 21 | 61 | - | 61 |
Gross return/(loss) | 6,595 | (3,258) | 3,337 | 5,786 | 32,021 | 37,807 | 21,419 | 11,345 | 32,764 |
Management fee | (614) | (1,432) | (2,046) | (633) | (1,478) | (2,111) | (1,281) | (2,988) | (4,269) |
Other administrative expenses | (357) | - | (357) | (339) | - | (339) | (740) | - | (740) |
Net return/(loss) on ordinary activities before finance costs and taxation | 5,624 | (4,690) | 934 | 4,814 | 30,543 | 35,357 | 19,398 | 8,357 | 27,755 |
Finance costs | (144) | (335) | (479) | (110) | (256) | (366) | (231) | (537) | (768) |
Net return/(loss) on ordinary activities before taxation | 5,480 | (5,025) | 455 | 4,704 | 30,287 | 34,991 | 19,167 | 7,820 | 26,987 |
Taxation | (682) | - | (682) | (551) | - | (551) | (2,073) | - | (2,073) |
Net return/(loss) on ordinary activities after taxation | 4,798 | (5,025) | (227) | 4,153 | 30,287 | 34,440 | 17,094 | 7,820 | 24,914 |
Return/(loss) per share (note 3) | 1.62p | (1.69)p | (0.07)p | 1.41p | 10.26p | 11.67p | 5.78p | 2.64p | 8.42p |
STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 31ST JANUARY 2019
| Called up |
| Capital |
|
|
|
|
| share | Share | redemption | Other | Capital | Revenue |
|
| capital | premium | reserve | reserve | reserves | reserve1 | Total |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
Six months ended 31st January 2019 (Unaudited) |
|
|
|
|
|
|
|
At 31st July 2018 | 2,968 | 221,988 | 13 | 101,113 | 59,096 | 14,336 | 399,514 |
Net (loss)/return on ordinary activities | - | - | - | - | (5,025) | 4,798 | (227) |
Dividends paid in the period (note 4) | - | - | - | - | - | (8,904) | (8,904) |
At 31st January 2019 | 2,968 | 221,988 | 13 | 101,113 | 54,071 | 10,230 | 390,383 |
Six months ended 31st January 2018 (Unaudited) |
|
|
|
|
|
|
|
At 31st July 2017 | 2,943 | 218,497 | 13 | 101,113 | 51,154 | 11,727 | 385,447 |
Reissue of shares from Treasury | - | 81 | - | - | 122 | - | 203 |
Issue of ordinary shares | 25 | 3,410 | - | - | - | - | 3,435 |
Net return on ordinary activities | - | - | - | - | 30,287 | 4,153 | 34,440 |
Dividends paid in the period (note 4) | - | - | - | - | - | (8,549) | (8,549) |
At 31st January 2018 | 2,968 | 221,988 | 13 | 101,113 | 81,563 | 7,331 | 414,976 |
Year ended 31st July 2018 (Audited) |
|
|
|
|
|
|
|
At 31st July 2017 | 2,943 | 218,497 | 13 | 101,113 | 51,154 | 11,727 | 385,447 |
Reissue of shares from Treasury | - | 81 | - | - | 122 | - | 203 |
Issue of ordinary shares | 25 | 3,410 | - | - | - | - | 3,435 |
Net return on ordinary activities | - | - | - | - | 7,820 | 17,094 | 24,914 |
Dividends paid in the year (note 4) | - | - | - | - | - | (14,485) | (14,485) |
At 31st July 2018 | 2,968 | 221,988 | 13 | 101,113 | 59,096 | 14,336 | 399,514 |
1 This reserve forms the distributable reserve of the Company and may be used to fund distribution of profits to investors via dividend payments.
STATEMENT OF FINANCIAL POSITION AT 31ST JANUARY 2019
| (Unaudited) | (Unaudited) | (Audited) |
| 31st January 2019 | 31st January 2018 | 31st July 2018 |
| £'000 | £'000 | £'000 |
Fixed assets |
|
|
|
Investments held at fair value through profit or loss | 415,992 | 435,240 | 424,209 |
Current assets |
|
|
|
Derivative financial assets | - | 3 | 8 |
Debtors | 3,433 | 3,373 | 2,760 |
Cash and cash equivalents | 1,579 | 7,337 | 4,275 |
| 5,012 | 10,713 | 7,043 |
Current liabilities |
|
|
|
Creditors: amounts falling due within one year | (209) | (2,849) | (1,244) |
Derivative financial liabilities | (4) | - | - |
Net current assets | 4,799 | 7,864 | 5,799 |
Total assets less current liabilities | 420,791 | 443,104 | 430,008 |
Creditors: amounts falling due after more than one year | (30,408) | (28,128) | (30,494) |
Net assets | 390,383 | 414,976 | 399,514 |
Capital and reserves |
|
|
|
Called up share capital | 2,968 | 2,968 | 2,968 |
Share premium | 221,988 | 221,988 | 221,988 |
Capital redemption reserve | 13 | 13 | 13 |
Other reserve | 101,113 | 101,113 | 101,113 |
Capital reserves | 54,071 | 81,563 | 59,096 |
Revenue reserve | 10,230 | 7,331 | 14,336 |
Total shareholders' funds | 390,383 | 414,976 | 399,514 |
Net asset value per share (note 5) | 131.5p | 139.8p | 134.6p |
STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 31ST JANUARY 2019
| (Unaudited) | (Unaudited) | (Audited) |
| Six months ended | Six months ended | Year ended |
| 31st January 2019 | 31st January 2018 | 31st July 2018 |
| £'000 | £'000 | £'000 |
Net cash outflow from operations before dividends and interest | (2,358) | (2,977) | (5,515) |
Dividends received | 7,093 | 5,982 | 18,467 |
Interest received | 37 | 22 | 59 |
Overseas tax recovered | - | 17 | 28 |
Interest paid | (445) | (352) | (768) |
Net cash inflow from operating activities | 4,327 | 2,692 | 12,271 |
Purchases of investments | (24,911) | (58,662) | (150,252) |
Sales of investments | 26,775 | 66,723 | 151,535 |
Settlement of forward currency contracts | 17 | (90) | (29) |
Net cash inflow from investing activities | 1,881 | 7,971 | 1,254 |
Dividends paid | (8,904) | (8,549) | (14,485) |
Reissue of shares from Treasury | - | - | 203 |
Issue of ordinary shares | - | 3,638 | 3,435 |
Repayment of bank loans | - | - | (14,994) |
Drawdown of bank loans | - | - | 14,994 |
Net cash outflow from financing activities | (8,904) | (4,911) | (10,847) |
(Decrease)/increase in cash and cash equivalents | (2,696) | 5,752 | 2,678 |
Cash and cash equivalents at start of period | 4,275 | 1,605 | 1,605 |
Exchange movements | - | (20) | (8) |
Cash and cash equivalents at end of period | 1,579 | 7,337 | 4,275 |
(Decrease)/increase in cash and cash equivalents | (2,696) | 5,752 | 2,678 |
Cash and cash equivalents consist of: |
|
|
|
Cash and short term deposits | 423 | 3,467 | 2,062 |
Cash held in JPMorgan US Dollar Liquidity Fund | 1,156 | 3,870 | 2,213 |
Total | 1,579 | 7,337 | 4,275 |
NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31ST JANUARY 2019
1. Financial statements
The information contained within the financial statements in this half year report has not been audited or reviewed by the Company's auditors.
The figures and financial information for the year ended 31st July 2018 are extracted from the latest published financial statements of the Company and do not constitute statutory accounts for that year. Those financial statements have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.
2. Accounting policies
The financial statements are prepared 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 revised 'SORP') issued by the Association of Investment Companies in November 2014 and updated in February 2018.
FRS 104, 'Interim Financial Reporting', issued by the Financial Reporting Council ('FRC') in March 2015 has been applied in preparing this condensed set of financial statements for the six months ended 31st January 2019.
All of the Company's operations are of a continuing nature.
The accounting policies applied to this condensed set of financial statements are consistent with those applied in the financial statements for the year ended 31st July 2018.
3. Return/(loss) per share
| (Unaudited) | (Unaudited) | (Audited) |
| Six months ended | Six months ended | Year ended |
| 31st January 2019 | 31st January 2018 | 31st July 2018 |
| £'000 | £'000 | £'000 |
Return/(loss) per share is based on the following: |
|
|
|
Revenue return | 4,798 | 4,153 | 17,094 |
Capital (loss)/return | (5,025) | 30,287 | 7,820 |
Total (loss)/return | (227) | 34,440 | 24,914 |
Weighted average number of shares in issue during the period | 296,790,161 | 295,100,487 | 295,938,380 |
Revenue return per share | 1.62p | 1.41p | 5.78p |
Capital (loss)/return per share | (1.69)p | 10.26p | 2.64p |
Total (loss)/return per share | (0.07)p | 11.67p | 8.42p |
4. Dividends paid
| (Unaudited) | (Unaudited) | (Audited) |
| Six months ended | Six months ended | Year ended |
| 31st January 2019 | 31st January 2018 | 31st July 2018 |
| £'000 | £'000 | £'000 |
2018 fourth interim dividend of 2.0p (2017: 1.9p) | 5,936 | 5,589 | 5,589 |
2019 first interim dividend paid of 1.0p (2018: 1.0p) | 2,968 | 2,960 | 2,960 |
2018 second interim dividend paid of 1.0p | n/a | n/a | 2,968 |
2018 third interim dividend paid of 1.0p | n/a | n/a | 2,968 |
Total dividends paid in the period/year | 8,904 | 8,549 | 14,485 |
5. Net asset value per share
| (Unaudited) | (Unaudited) | (Audited) |
| 31st January 2019 | 31st January 2018 | 31st July 2018 |
Net assets (£'000) | 390,383 | 414,976 | 399,514 |
Number of shares in issue | 296,790,161 | 296,790,161 | 296,790,161 |
Net asset value per share | 131.5p | 139.8p | 134.6p |
JPMORGAN FUNDS LIMITED
10th April 2019
For further information, please contact:
Divya Amin
For and on behalf of
JPMorgan Funds Limited
020 7742 4000
ENDS
A copy of the half year report will be submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM
The half year report will also shortly be available on the Company's website at www.jpmglobalemergingmarketsincome.co.uk where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.