Asia: Taking full advantage of the world’s growth engine

By Chris Salih on 15 December 2025 in Investment Trusts

A guide to Aberdeen Asian Income Fund Limited

Please note, the interview for this article took place on 4 December 2025 and all views are as of this date

Asia being described as the world’s growth engine is nothing new. Demographics and consumption; digital and tech prowess; innovation across sectors; and strong manufacturing and supply chains are just some of the major contributors to why the region is expected to drive over half of global economic growth by 2050.

But like many other parts of the world, returns from Asian equities have been overshadowed in recent years by US large-caps. This lacklustre performance from Asian equities was not expected to improve in 2025, particularly given the punitive tariffs imposed by Donald Trump. But Asia has shown great resilience this calendar year, returning almost 20% to investors year-to-date, roughly double the return of the S&P 500*.

Asia’s performance has been led by North Asian markets, particularly Taiwan, South Korea and Singapore. In Taiwan, semiconductor leaders continue to deliver robust earnings growth, fuelled by global demand for AI.

But growth from here is far from clear cut for the region. A weaker US dollar offers support, but tariff pressures, geopolitical tensions and global trade uncertainty remain real barriers to future growth.

One area which offers a further degree of protection to investors in the region is dividend-paying companies. In a market stereotyped for growth, dividends is the forgotten string to Asia’s bow. The reality is dividends have accounted for over half of the MSCI AC Asia Pacific ex-Japan’s growth over the past 25 years**.

There are around 10,000 dividend-paying companies in Asia ex-Japan, accounting for roughly 11% of global dividends (almost double the amount offered in the UK). There is also diversity, compared with the rest of the world, Asia Pacific ex Japan has the highest number of companies – 400 – with dividend yields above 3%***.

“Stronger growth comes with a greater range of outcomes – more geopolitical risk and less corporate maturity (albeit catching up). There are huge companies in the likes of China, but many others are almost like teenagers – and because of that corporate governance in the region is catching up with other markets.

“Lots of companies are hoarding cash which weighs on a balance sheet for a rainy day that never comes, while M&A fails to meet expectations around 75% of the time and often destroys value. We believe the solution is a stronger tactical allocation – particularly through a strong dividend policy. Dividends offer a great guide to a company’s true position – if a company cuts its dividend, the share price is often cut within the next few days. It is a quantifiable check on management and where a business really stands.”

That’s the view of Isaac Thong, manager of the Aberdeen Asian Income Fund Limited (AAIF). AAIF has an excellent track record of delivering total returns and a strong dividend (currently 6.1%)**** across Asia and emerging markets. Isaac joined as manager of AAIF in May 2025 but has an excellent track record during his tenure on the JPMorgan Emerging Markets Income fund.

The search for high quality dividend franchises

Isaac and the team are specifically targeting high-dividend franchises, which they want to hold for a long period of time. This sees them targeting three specific areas:

1. Quality businesses with strong balance sheets
2. Sustainable dividend growth through reliable cashflows – companies with high returns on equity
3. Sound and consistent dividend policy

The trust invests in companies with varying levels of dividend yield. This can be established dividend payers – yielding more than 6% – to less mature dividend payers offering less than 3%. The mix helps give the trust a balance between capital growth and income (dividend returns).

The final portfolio holds 40-70 names. Over the past 10 years, AAIF has returned 187.8% to investors (share price), while the NAV total returns stand at 169%****.

The trust makes use of solid returns from more mature regions like Taiwan, Thailand and Australia to deliver on its dividend yield – which is also built on using dividend enhancements to increase the yield by about 2%. The team allocate around 4% of NAV to trade around dividend events – they capture dividends when they go ex dividend.

Why now for this portfolio

• Excellent dividend returns (current yield of 6.1%) and a dividend commitment of 6.25% of NAV paid quarterly
• Strong long-term performance
• Discount of 8.27% is almost double the average in the IT Asia Pacific Equity Income sector (4.2%)****
• Corporate governance changes across the region (Korea and China for example) are pushing companies to introduce/increase dividends to shareholders
• Multi-cap approach coupled with investing in a variety of companies offering different levels of yield gives AAIF a good blend of total return and dividend dynamics
• Mix of mature and growing dividend economies
• Asia is still undervalued and recovering from cyclical lows – trading at significant discounts to developed world indices

Manager’s View

Isaac believes fund flows could follow improved performance in 2025, citing the ongoing valuation gap between Asia and the developed world (particularly the US). Secondly, he says much of the growth we have seen in 2025 has been driven by a re-rating of valuations. He feels the market has got a little bit ahead of itself and that 2026 “will be where the proof lies”. Ultimately, he believes fund flows will grow due to two reasons, the first of which is technology hardware in semiconductors.

He says: “Take memory chip maker SK Hynix as an example. They say their capacity in terms of memory is booked up until 2027. Usually, they have visibility of a few quarters – now it is 18 months. There is a great degree certainty of growth in the semiconductor space – especially next year. That could influence fund flows”

The second is that he remains confident earnings will come through, but investors must be selective in terms of both sectors and stocks – something he says makes it an ideal market for active managers.

Portfolio positioning

Evolution not revolution for the portfolio

Isaac has made a few changes to the portfolio since he took over as manager. Perhaps the most notable is to add more stocks yielding 3% or less. This is designed to improve the growth profile of the trust. Exposure across the three buckets will be broadly similar, with Isaac keen to avoid building a portfolio of simply low or high growth companies. The move has seen the number of stocks increase slightly, while the yield is expected to fall by roughly 20 basis points.

A broad look at the yield buckets shows the lower yielders tend to include the Chinese internet companies, such as Alibaba and Tencent. While the middle range (3-6% yield) included a lot of Taiwanese hardware names, such as ASE (Advanced Semiconductor Union) and Taiwan Union. The higher yield segment is comprised largely of financials – such as Singapore bank DBS. REITs from the likes of Australia and Singapore also sit in this bucket. The holding in Singapore is Centurion Accommodation REIT (CARERIT), which provides purpose built living properties, such as worker dormitories and student housing.

In total Isaac has made some 23 removals and 17 additions to the portfolio. Additions include DB Insurance in South Korea and the CARERIT in Singapore. Other names include Chinese business Yutong Bus – a leading maker of electrical buses – which has been driven by exports to Europe, which is trying to electrify its bus fleet to reach certain carbon goals.

Another is Shenzhou International, which Isaac says is an attractive offering, currently in a “beaten down” state.

He says: “Nike is one of its largest clients, but it has had a tough time, and we believe the stock looks quite cheap. We like the business model and there is no inventory risk as this concern is carried by Nike. It is all about the quality of the items they manufacture. It is a play on sportswear, which is on a good demand trajectory.”

Four key themes across the portfolio

Isaac says the portfolio currently has exposure to four key themes, which he is backing to deliver strong earnings growth from here. The first of these is linked to the AI theme in the shape of semiconductors. These are high quality businesses he believes will continue to be successful regardless of the trajectory of AI. “Because of the cyclicality you get a good core yield – there is no reason why they should not be a core holding within the strategy,” he says.

The second theme is capital deepening, where Isaac points to the likes of banks in India and Indonesia. He says both are open to lots of structural growth, with significant parts of both populations still without access to a bank account – something which will change as they develop, making both regions structural growers.

The third is a direct attempt to take advantage of policy tailwinds in Asia – namely corporate governance in Korea. The “Corporate Value Up Program” was launched by the South Korean government in February 2024 to address the long-standing undervaluation of its listed companies.

Isaac says AAIF has moved from an underweight to a neutral position in Korea, adding a bank and two insurance companies.

He says: “The banks are embracing change at the fastest rate. We own Shinhan, but if you look at the three big banks – their dividend payout ratio three years ago was about 25%. Today it is 45% and in the next year it will be over 50%. They are demonstrating progressiveness to shareholders, and we think they can do more.

“Insurers will follow – we invest in Samsung Fire and Marine, who are the leading insurer in Korea with a great track record of writing protection products. The family-owned nature of businesses in Korea means the corporate change could take longer than it has in Japan.”

The final theme is China – where Isaac has also reduced the portfolio underweight, citing an increasing appetite in the world’s second largest economy to strike a balance between income and growth.

Exposure is coming across several names and sectors. Such as the internet companies (Alibaba and Tencent), to the likes of healthcare, manufacturing and electrification. There is also more exposure to the Chinese consumer.

Diversity of income

A key point to note is the diversity of income AAIF has access to. The portfolio has overweights in countries that are deemed to be “natural income markets”, namely Indonesia, Taiwan and Thailand (accounting for roughly 30% of the portfolio); it also has almost a quarter in what are considered more mature and consistent income markets (Australia, Hong Kong and Singapore); we’ve already discussed the cyclical income markets in terms of China and Korea – the third element for this bucket is India where the team have an underweight 8.4% vs. 15% for the index), this is due to India remaining mainly a growth market – where investors tend to overpay. That said, there are opportunities which fit into the lower yielding bucket. Isaac says it is important not to overlook the early stages of corporate governance changes in regions like India and Korea.

AAIF can also invest in other emerging markets – such as Brazil, Mexico, Saudi Arabia and South Africa.

Performance

Over the past five years AAIF has comfortably outperformed the MSCI AC Asia Pacific ex Japan index (77.9% vs. 43.5%)^. Over the past decade the trust has also outperformed its peers in the IT Asia Pacific Equity Income sector (187.8% vs. 175.3%). It has returned 169% from an NAV perspective – in line with its peers***.

What else do investors need to know?

The trust’s core yield is around 4%, but the team can enhance this to over 6% through tactical dividend trades. Around 4% of the fund’s assets are held back for short-term positions in companies before their ex-dividend dates to generate additional income for the trust. When these trades aren’t available, the cash is invested in index ETFs or futures to stay fully invested. The current yield stands at 6.1%, compared with an average of 5.3% for the IT Asia Pacific Equity Income sector****. AAIF has a dividend commitment of 6.25% of NAV paid quarterly.

Gearing currently stands at 9%**** with the team keen to manage this around this mark given the current level of interest rates. AAIF can invest up to 25% and has a £50m multi-currency credit facility.

The trust trades at a discount of 8.3%, the highest in the IT Asia Pacific Equity Income sector – it should be noted that the average discount stood at 10.6% over the past five years****. AAIF bought back £12.5m in shares in the first half of 2025, representing 3.8% of shares at the start of the year. These shares were bought at an average discount of 10.5%.

AAIF has an ongoing charge of 0.75%. Management fees are charged at 0.75% on the first £300m of assets and 0.6% thereafter.

Outlook

A core option for those wanting diversified exposure to Asia

Isaac is optimistic on the future for Asian equities, citing the valuation gap between the region and developed markets, coupled with policy changes and increasing pockets of growth appearing across sectors and economies. Clearly tariff and wider geopolitical concerns have not gone away – but the focus on value and quality should give some protection.

We like the structure of the portfolio in terms of its exposure, not only to various markets, but also the balance between growth and income-paying businesses.

It is still early days for Isaac on the trust but we also like some of the changes he is making to the portfolio to improve the total return profile. This includes adding more stocks with lower yields (less than 3%) with a greater expectation placed on those names to deliver growth. We believe AAIF is well positioned as a core option for investors in Asia from this point.

*Source: FE Analytics, total returns in pounds sterling, 31 December 2024 to 10 December 2025

**Source: Janus Henderson, Global Dividend Monitor 44

***Source: Eastspring, January 2025

****Source: AIC, 10 December 2025

^Source: fund factsheet, 31 October 2025