Aberdeen Global - Hozam Plaza

Emerging Markets Smaller CompaniesFor the year ended 30 September 2012PerformanceFor the year ended 30 September 2012, the value of the EmergingMarkets Smaller Companies - A Accumulation shares increased by28.65% compared to an increase of 15.87% in the benchmark, theMSCI Global Emerging Markets Small Cap Index.Source: Lipper, Basis: total return, NAV to NAV, net of annual charges, gross incomereinvested, USD.Manager’s reviewSmaller companies in emerging markets equities did well during theyear under review despite lagging their large cap peers. Stock marketsrebounded after a weak start amid relief that the Eurozone was savedfrom a breakup and signs of improvement in the US economy. Ampleliquidity injections by leading central banks as well as the US FederalReserve’s pledge to keep interest rates low for an extended period alsobolstered investor sentiment. However, the rally proved short-lived asa sharper-than-expected slowdown across the developing world andresurgent fears over the solvency of peripheral European nationsclouded recovery prospects. But markets quickly regained theirmomentum until the period-end after major central banksunveiled extraordinary support to bolster growth.Portfolio reviewAt the stock level, Malaysian department operator Aeon CoMalaysia and Thai cash-and-carry wholesaler Siam Makro wereamong the key contributors to relative performance. Aeon postedhealthy quarterly results on the back of contributions from new storesand the re-opening of one store, as well as higher rental income fromrevamped stores in existing malls. Siam Makro continued to deliverrobust earnings that were driven by organic growth and healthytourist arrivals. Another solid performer was Egyptian lender NSGB,which rallied after Qatari bank QNB expressed interest in buying thesubsidiary from parent Societe Generale.Conversely, Societe Generale’s Romanian subsidiary BRD detractedthe most as it reported weak results amid a difficult operatingenvironment. Russian vodka-maker Synergy’s interim earnings fell byhalf because of a spike in financing costs, while Hong Kong consumertextiles business Texwinca’s share price was weak in light of higheroperating costs, notably cotton, affecting profit margins.During the year, we introduced Indonesian petrochemical distributorAKR Corporindo on decent valuations and good long-term prospects.We also established positions in Korean department store operatorShinsegae and O’Key Group, a leading Russian hypermarket retailerwith good management and robust fundamentals, on valuationgrounds. Against this, we sold Malaysian property developer SP Setia.OutlookSince the recent round of central bank easing, worries over the healthof the global economy has returned to focus. Europe’s fundamentalshave not changed, the US is still in danger of slipping back intorecession as the fiscal cliff looms and China is growing at a moremodest pace. Emerging stock markets are therefore likely to remainsubdued, with the outlook susceptible to further economic or policydisappointments. Earnings growth in the short term is also expectedto be marginal in the circumstances. During such times, balancesheet strength and managing growth in a relatively conservativeand disciplined manner become even more important and theseare the very attributes that characterise many of our holdings.88 Aberdeen Global - Emerging Markets Smaller Companies