Half Year Results to 31 January 2019

RNS Number : 6739V
JPMorgan Glb Emerging Mkts Inc Tst
10 April 2019
 

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.

 

 

 


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