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Market sentiment remains very jittery. The Russia-Ukraine conflict has further added to several macro challenges in Asia. These include a slowdown in China driven by regulation, the common prosperity policy, the zero-Covid strategy, as well as geopolitics. The spread of Omicron as well as rising inflation, higher rates and US dollar strength also create uncertainties for the region.
In such an environment, the Q421 reporting season suggests that earnings are holding up quite well and still growing despite input cost pressures on margins, albeit the team continue to monitor closely the operational performance across holdings. Valuations in Asia, meanwhile, look undemanding relative to history and relative to global and US equities.
Given this uncertain outlook, and the expectations of tighter monetary policy and higher interest rates, quality companies with strong balance sheets, that are not reliant on debt financing, look well set for the year ahead. These companies have robust business franchises, with the ability to pass on inflationary cost pressures, and continue to generate positive cash flows from their operations. This is supportive of continued shareholder returns, including dividends, in 2022 and beyond. Hence, the manager believes the Trust is well positioned, and remains focused on putting capital to work in investment ideas that she believes will generate sustainable returns and income over the long run