Half Yearly Report

RNS Number : 0328C

JPMorgan Glb Emerging Mkts Inc Tst

28 February 2011

 



JPMORGAN GLOBAL EMERGING MARKETS INCOME TRUST PLC

LONDON STOCK EXCHANGE ANNOUNCEMENT

UNAUDITED INTERIM RESULTS FOR THE PERIOD

ENDED 31ST JANUARY 2011

Chairman's Statement

The Company

I am delighted to be presenting to you my first statement since the Company's listing on the London Stock Exchange in 29th July 2010. The Company's investment objective is to provide shareholders with a dividend income and the potential for long term capital growth from emerging market investments. The Company's launch raised £102.3m. To date a further £13.3m has been raised through the issue of shares.

Dividends

The Company is targeting an initial gross dividend of at least 4 percent based on the initial issue price of 100 pence per share as perthe model portfolio in the Company's prospectus dated 29th June 2010. On 20th January 2011, the Board declared a first interim dividend of 1p per share, payable on 4th March 2011 to shareholders on the register on 28th January 2011. It remains the Board's intention to move to paying dividends on a quarterly basis when revenue reserves are sufficient for this to be appropriate.

Investment Performance

For the period from launch to 31st January 2011, the Company recorded a total return on net assets of +11.0%, outperforming the total return of the benchmark, the MSCI Emerging Markets Fee Index (in sterling terms) which returned +10.6%. The total return to shareholders was +12.1% as the Company's share price increased from 103.5p to 115.0p over the period. The Board is encouraged by the performance over the Company's initial period since launch. The Investment Managers' report reviews the Company's performance and gives a detailed commentary on the investment strategy and portfolio construction.

Gearing

One of the advantages that an investment trust has over open ended investment vehicles is the ability to use borrowings to gear up returns. During the period, the Company entered into a three year US$20m loan facility in order to employ gearing in line with the investment objective. An interest rate swap agreement was put in place in order to fix the interest rate payable at 3.34 per cent.

Share Issuance

At launch on 29th July 2010, the Company issued 104,000,000 ordinary shares of 1p each at a price of 100p per share. The Company's launch raised £102.3m. To date a further 12.4m shares have been issued at a premium to net asset value.

C Share Issue

The Company's shares have consistently traded at a premium to net asset value due to high levels of market demand and on 21st February 2011 the Board announced details of a proposed issue of C shares by means of a placing and offer for subscription. The C Shares will be issued with an issue price of 100p and will convert into Ordinary Shares. The number of Ordinary Shares arising on the conversion of the C Shares will be determined on the basis of the respective net asset values of each share class on the calculation date. The number of C Shares available under the issue has yet to be determined. Full details will be included in a prospectus which will be available from early March 2011 and the offer period will be open for investors throughout the current ISA season and also for early bird 2011/12 ISA applications, with the placing and offer for subscription closing in mid April.

Outlook

The rapid economic development of emerging economies in recent decades has been reflected in World Bank and International Monetary Fund data showing their growing shares of global GDP and equity market capitalisation. However, in common with developed economies, emerging economies suffered a sharp reduction in economic activity in the recession that followed the financial crisis of 2007.

At present, the International Monetary Fund identifies emerging economies as exhibiting lower levels of public debt, on average, than their developed market counterparts. Many emerging economies have generally sounder public finances and have been able to weather the recessionary environment without experiencing negative GDP growth, which has been present in many developed countries.

In contrast to predictions for developed economies, the International Monetary Fund also projects debt levels (expressed as a percentage of GDP) for emerging economies, on average, to fall in the future. In many of these economies this could mitigate the need for stringent debt reduction policies and higher taxation, which are expected to constrain spending and growth in many developed economies. As a result, the Board believes the macro-economic growth prospects for emerging economies as a group to be strong, with recovery from the recent recessionary conditions expected to be stronger and faster than for many developed economies.

At the micro-economic level, a selection of companies in emerging market economies have, over the past decade, registered what the Board believes to be a profound and significant improvement to their investment prospects as a result of changes to their approach to corporate governance and shareholder value. These improved prospects have already evidenced themselves in the rising profitability, measured by return on equity, of these companies over the past decade which now exceeds that of comparable developed market companies. A key catalyst for the change in approach to corporate governance was the Asian crisis of the late 1990s, which saw a reconsideration of the risk presented by emerging market companies. In the wake of this crisis, many of the companies in which we invest instituted reforms to capital management which saw strategies prioritising market share and volume substituted for ones focusing on improving profitability, paying down debt and placing a greater reliance on internal cash flows and equity to fund investment.

The Board believes the favourable macroeconomic background and corporate governance developments support our investment approach to emerging markets companies. In contrast to traditional approaches which view these companies purely or mainly as capital growth opportunities, we view companies that have benefited from corporate governance developments as potential sources of sustainable dividend income, opportunities for income diversification and opportunities to combine dividend income and capital growth.

Andrew Hutton

Chairman                                                                                                        

28th February 2011

Investment Manager's Report

Performance

The period from the Company's launch in late July 2010 to 31st January 2011 was a positive one for emerging markets equities, with the Company's benchmark index, the MSCI Emerging Markets Free Index, producing a total return of +10.6 % (in sterling terms). The Company's performance was marginally ahead of the benchmark, achieving a return on net assets of +11.0%. Underlying data shows that stock selection accounted for all of the outperformance. From a sector perspective, investments in the financial, information technology, energy and materials sectors contributed positively to returns, whilst overweight positions in the consumer sectors detracted from returns, as did investments in the industrials sector.

On a country basis, stock selection in Brazil was the single largest contributor to performance. The portfolio benefited from stock selection and underweight positions in India and China. Exposure to Qatar, Thailand, Saudi Arabia and Egypt also had a positive impact on returns. The most significant detractor from performance was stock selection and our relative underweight position in Korea, which impacted towards the later end of the period. Stock selection in Mexico, Poland and Czech Republic also detracted from returns.

Market Review

From the Company's launch in July through to September 2010, emerging markets experienced a so-called 'summer of growth fears', as concerns resurfaced over a double-dip in global economic activity and risk aversion increased on the back of nervousness over the European debt crisis. However, from the end of the summer, better economic data from the US and China and then the prospect of another round of quantitative easing (or 'QE2') kindled a rally in riskier assets such as emerging market equities.  Subsequently, an important top-down theme across markets over the last few months has been the switch in investor preference from emerging consumers towards ways of investing in any recovery in the developed world.  At the country level this has resulted in the recent outperformance of Taiwan, Korea and Russia - all countries with significant global, cyclical exposure.

The Portfolio

The Company's portfolio is intended to be a low turnover, long-term portfolio allowing it to benefit from the compound growth in emerging markets and specifically the compound growth of dividends, which we expect to see averaging more than 12% per annum over the next five years. Consequently, investment activity will be limited to situations where either an investment appears to be overvalued, we have proven to be wrong about the fundamentals of the company or due to a significant corporate action, either positive or negative. Since the launch of the Company all of these have in fact occurred.

On the corporate action front, three portfolio investments have been bid for, two with positive consequences and in which we took profits. Notably Tam, a Brazilian airline, bid for by Lan Chile and Plus Expressway, a Malaysian toll road operator. Less happily Korea Exchange Bank was bid for by a local rival at a disappointing price and with negative consequences for the dividend and was thus sold. We were wrong in investing in Esprit, a Hong Kong retailer and, following further study and meetings with the company, decided to sell.

Hong Kong Exchanges and Clearing Ltd and S-Oil Corporation were both reduced after sharp increases in share price rendered the shares overvalued in our view. Most recently Norilsk Nickel has been sold due to doubts as to whether the expected cash dividend will in fact materialise due to disputes between domestic shareholders.

The sector and country exposure of the portfolio is unlikely to change materially in the near future, remaining orientated towards sustainable growth in telecommunications, consumer and manufacturing industries and away from the more cyclical and speculative commodity areas. Favoured countries are likely to remain Taiwan, Turkey and South Africa rather than India, Korea and Brazil about which we have both cyclical and valuation concerns.

Outlook

Emerging markets continue to deliver robust economic growth with strong corporate profitability.  This underpins our confidence in earnings and dividend growth at a time when valuations look fair.  However, in the short term, markets are discounting the change in outlook.  Signs that the developed world appears to be avoiding the perils of relapse and deflation is driving short term perceptions when the threat of inflation and overheating in certain emerging markets is overlaid with rising political risk.

Notwithstanding the political uncertainty and inflationary concerns currently affecting financial markets, emerging markets assets are trading at long term average values and investors remain structurally underweight emerging markets. As a result, we continue to believe the long run growth and profitability prospects for emerging markets companies to be strong.

Richard Titherington

Investment Manager                                                                           

28th February 2011

Interim Management Report

The Company is required to make the following disclosures in its interim report:

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company fall into the following broad categories: market; investment and strategy; accounting, legal and regulatory; corporate governance and shareholder relations; operational and financial. Information on each of these areas will be given in the Business Review within the Company's first Annual Report and Accounts for the period ending 31st July 2011. Information on the risk factors facing the Company is given on pages 8 to 13 of the Prospectus prepared pursuant to the Placing and Offer for Subscription and issued on 29th June 2010.

Related Parties Transactions

During the period from the date of Listing on 29th July 2010 to 31st January 2011, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company during the period.

Directors' Responsibilities

The Board of Directors confirms that, to the best of its knowledge:

(i)   the condensed set of financial statements contained within the interim financial report has been prepared in accordance with the Accounting Standards Board's Statement 'Half Yearly Financial Reports'; and

(ii) the interim management report includes a fair review of the information required by DTR 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure and Transparency Rules.

For and on behalf of the Board

Andrew Hutton

Chairman

For further information, please contact:

Jonathan Latter

For and on behalf of

JPMorgan Asset Management (UK) Limited, Secretary

020 7742 6000

Income Statement

for the period ended 31st January 2011

	(Unaudited)
	Period ended
	31st January 2011
	Revenue	Capital	Total
	£'000	£'000	£'000
Gains on investments held at fair value through profit or loss	-	10,427	10,427
Net foreign currency gains	-	114	114
Income from investments	2,035	-	2,035
Other interest receivable and similar income	6	-	6
Gross return	2,041	10,541	12,582
Management fee	(184)	(428)	(612)
Performance fee	-	(55)	(55)
Other administrative expenses	(118)	-	(118)
Net return on ordinary activities before finance costs and taxation	1,739	10,058	11,797
Finance costs	(40)	(93)	(133)
Net return on ordinary activities before taxation	1,699	9,965	11,664
Taxation	(130)	-	(130)
Net return on ordinary activities after taxation	1,569	9,965	11,534
Return per share (note 5)	1.41p	8.92p	10.33p

All revenue and capital items in the above statement derive from continuing operations.

The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies.

Statement of Total Recognised Gains and Losses

for the period ended 31st January 2011

	(Unaudited)
	Period ended
	31st January 2011
	Revenue	Capital	Total
	£'000	£'000	£'000
Movement in fair value of cash flow hedge during the period	-	1	1
Net return on ordinary activities	1,569	9,965	11,534
Total recognised gains in the period	1,569	9,966	11,535

Reconciliation of Movements in Shareholders' Funds

	Called up	Capital
	share	redemption	Share	Other	Capital	Revenue
Period ended	capital	reserve	premium	reserve	reserves	reserve	Total
31st January 2011 (Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 4th June 2010	-	-	-	-	-	-	-
Issue of Management shares	13	-	-	-	-	-	13
Repurchase and cancellation of
Management shares	(13)	13	-	-	(13)	-	(13)
Issue of ordinary shares	1,164	-	116,477	-	-	-	117,641
Fund launch expenses	-	-	(1,713)	-	-	-	(1,713)
Share issue expenses	-	-	(310)	-	-	-	(310)
Movement in the fair value
of the cash flow hedge	-	-	-	-	1	-	1
Redesignation of share premium	-	-	(101,276)	101,276	-	-	-
Net return on ordinary activities	-	-	-	-	9,965	1,569	11,534
At 31st January 2011	1,164	13	13,178	101,276	9,953	1,569	127,153

Balance Sheet

at 31st January 2011

	(Unaudited)
	31st January 2011
	£'000
Fixed assets
Investments held at fair value through profit or loss	138,207
Current assets
Derivative financial instrument	1
Debtors	2,579
Cash and short term deposits	1,315
	3,895
Creditors: amounts falling due within one year	(2,424)
Net current assets	1,471
Total assets less current liabilities	139,678
Creditors: amounts falling after more than one year	(12,470)
Provision for liabilities and charges
Performance fee	(55)
Total net assets	127,153
Capital and reserves
Called up share capital	1,164
Capital redemption reserve	13
Share premium	13,178
Other reserve	101,276
Capital reserves	9,953
Revenue reserve	1,569
Shareholders' funds	127,153
Net asset value per share (note 6)	109.2p

Company registration number: 7273382.

Cash Flow Statement

for the period ended 31st January 2011

	(Unaudited)
	Period ended
	31st January 2011
	£'000
Net cash inflow from operating activities (note 7)	890
Net cash outflow from servicing of finance	(45)
Net cash outflow from capital expenditure and financial investment	(127,731)
Net cash inflow from financing	128,163
Increase in cash in the period	1,277
Reconciliation of net cash flow to movement in net debt
Net cash movement	1,277
Draw down of short term loan	(12,545)
Exchange movements	114
Other movements	(1)
Movement in net funds/debt in the period	(11,155)
Net funds at the beginning of the period	-
Net debt at the end of the period	(11,155)
Represented by:
Foreign currency bank loan falling due after more than one year	(12,470)
Cash and short term deposits	1,315
Net debt	(11,155)

Notes to the Accounts

for the period ended 31st January 2011

1.          Accounting period

            The accounts cover the period from the date of the incorporation of the Company on 4th June 2010 to 31st January 2011. Dealings in the Company's shares began on 29th July 2010 and the Company began investing on that date.

2.         Financial statements

            The information contained within the Financial Statement in this Interim report has not been audited or reviewed by the Company's auditors.

3.         Accounting policies

            The accounts have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued by the AIC in January 2009.

            All of the Company's operations are of a continuing nature.

            The accounts have been prepared on a going concern basis.

4.         Dividends

	(Unaudited)
	Period ended
	31st January 2011
	£'000
Dividends declared
1st interim dividend of 1.0p	1,164

5.         Return per share

	(Unaudited)
	Period ended
	31st January 2011
	£'000
Return per share is based on the following:
Revenue return	1,569
Capital return	9,965
Total return	11,534
Weighted average number of shares in issue during the period	111,707,593
Revenue return per share	1.41p
Capital return per share	8.92p
Total return per share	10.33p

6.         Net asset value per share

	(Unaudited)
	31st January 2011
Shareholders' funds (£'000)	127,153
Number o shares in issue	116,400,000
Net asset value per share	109.2p

7.         Reconciliation of total return on ordinary activities before finance costs and taxation to net cash inflow from operating activities

	(Unaudited)
	Period ended
	31st January 2011
	£'000
Total return on ordinary activities before finance costs and taxation	11,797
Less: capital return on ordinary activities before finance costs and taxation	(10,058)
Increase in accrued income	(308)
Increase in other debtors	(9)
Increase in accrued expenses	26
Management fee charged to capital	(428)
Overseas withholding tax	(130)
Net cash inflow from operating activities	890

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

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

ENDS

A copy of the interim report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.hemscott.com/nsm.do

The interim 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.

 

END

 

 

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