Pacific Horizon Investment Trust : Interim Financial Report 31 January 2023

PACIFIC HORIZON INVESTMENT TRUST PLC

Growth2: Embracing growth, disruption and innovation

Interim Financial Report 31 January 2023

Growth2: Embracing growth, disruption and innovation

Investment Objective

Pacific Horizon's objective is to invest in the Asia-Pacific region (excluding Japan) and in the Indian Sub-continent in order to achieve capital growth. The Company is prepared to move freely between the markets of the region as opportunities for growth vary. The portfolio will normally consist principally of quoted securities.

Comparative Index

The principal index against which performance is measured is the MSCI All Country Asia ex Japan Index (in sterling terms).

Principal Risks and

Uncertainties

The principal risks facing the Company are financial risk, investment strategy risk, climate and governance risk, discount risk, regulatory risk, custody and depositary risk, operational risk, leverage risk, political and associated economic risk, cyber security risk and emerging risks. An explanation of these risks and how they are managed is set out on pages 8 and 9 of the Company's Annual Report and Financial Statements for the year to 31 July 2022 which is available on the Company's website: pacifichorizon.co.uk.

The principal risks and uncertainties have not changed since the date of that report.

Responsibility Statement

We confirm that to the best of our knowledge:

1. the condensed set of Financial Statements has been prepared in accordance with FRS 104 'Interim Financial Reporting';
2. the Interim Management Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.7R (indication of important events during the first six months, their impact on the Financial Statements and a description of the principal risks and uncertainties for the remaining six months of the year); and
3. the Interim Financial Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.8R (disclosure of related party transactions and changes therein).

On behalf of the Board Angus Macpherson Chairman

2 March 2023

Summary of Unaudited Results*

		31 January	31 July
		2023	2022
			(audited)	% change
Total assets		£604.7m	£610.6m
Borrowings		Nil	Nil
Shareholders' funds		£604.7m	£610.6m
Net asset value per ordinary share		663.08p	664.65p	(0.2)
Share price		670.00p	647.00p	3.6
MSCI All Country Asia ex Japan Index (in sterling terms)†#	544.2	527.8	3.1
Premium/(discount)‡¶		1.0%	(2.7%)
Active share‡		82%	83%
		Six months	Six months
		to 31 January	to 31 January
		2023	2022
Revenue earnings per ordinary share		0.25p	(0.44p)
		Six months	Year to
		to 31 January	31 July
		2023	2022
Total return#‡
Net asset value per ordinary share¶		0.3%	(14.5%)
Share price¶		4.1%	(19.3%)
MSCI All Country Asia ex Japan Index (in sterling terms)†#	4.0%	(8.2%)
	Six months to 31 January 2023	Year to 31 July 2022
Period's high and low	High	Low	High	Low
Net asset value per ordinary share	699.18p	579.02p	871.11p	656.64p
Share price	684.00p	523.00p	948.00p	602.00p
Premium/(discount)‡¶	2.7%	(11.7%)	11.4%	(10.9%)

• For a definition of terms see Glossary of Terms and Alternative Performance Measures on pages 22 to 24.

• The MSCI All Country Asia ex Japan Index (in sterling terms) is the principal index against which performance is measured.

# Source: Baillie Gifford/Refinitiv and relevant underlying index providers. See disclaimer on page 20.

‡ Alternative performance measure. See Glossary of Terms and Alternative Performance Measures on pages 22 to 24. ¶ Key Performance Indicator.

Past performance is not a guide to future performance.

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Interim Management Report

Overview

What defines us is growth. We believe Asia ex Japan will be one of the fastest growing regions over the coming decades and we strive to be invested in its fastest growing companies. It is growth multiplied by growth or, as we like to call it, 'Growth²'.

Such an investment style has been rewarded over the longer term, with the Company's NAV outperforming the comparative index, the MSCI All Country Asia ex Japan Index (in sterling terms) by

76 percentage points over the past five years, and the share price returning 99%. Over the reporting period (31 July 2022 to 31 January 2023) the Company's NAV increased by 0.3%, while the share price increased by 4.1%, compared to the comparative index which rose 4.0% in sterling terms, all figures total return.

The period was noticeable for its volatility, with markets in the region falling in aggregate nearly 20%, reaching their nadir as President Xi cemented his grip on power during the 20th Chinese Communist Party Congress in October, before rallying as China abandoned its zero Covid policy, to end the period in positive territory.

Markets will likely remain volatile. However, we are hopeful that Asian markets have bottomed and we are very optimistic about the future. In the near term, China's re-opening will spur significant growth across the region. Longer term, the region's structural advantages including demographics and a rising middle class, combined with the superior financial position of most Asian economies compared to the West, are likely to result in Asian growth significantly outperforming over the coming years. In such an environment we believe our focus on growth companies will generate substantial returns for investors.

By sector, in absolute terms, our largest exposure remains focused on the rising middle class, technology and innovation. However, we continue to have significant exposure to growth companies in more cyclical industries including materials, industrials and energy.

The most notable change to the portfolio over the period was significant additions to China, predominantly in the internet sector, which we had also been adding to in the prior period. Funding was from further reductions in India, and selling a number of smaller positions in South Korea.

Review

For some time, Asia has faced a series of challenges as markets have grappled with the implications of soaring inflation, interest rate rises and tapering in the West, armed conflict in Eastern Europe, a housing collapse in China and a soaring US Dollar to name a few. Despite all these issues, there has been no Asian crisis, quite the opposite, Asian economies have remained remarkably resilient and are generally growing far faster than the majority of Western economies.

This is extremely encouraging and suggests Asian economies are far better positioned than in the past, especially when compared to developed markets. There are three key reasons. Firstly, Asian balance sheets are in superior shape having lacked the profligate monetary and fiscal stimulus of the west. For example, China's Covid stimulus has equated to c.10% of GDP compared to c.70% for many major European countries.

Secondly, while Western markets have, for years, operated with ultra-low or even negative interest rates, most of Asia has maintained positive rates for many years. Arguably, it is Asian countries that have behaved like orthodox developed countries while

For a definition of terms see Glossary of Terms and Alternative Performance Measures on pages 22 to 24.

Total return information is sourced from Baillie Gifford/Refinitiv and relevant underlying index providers. See disclaimer on page 20.

Past performance is not a guide to future performance.

02 Interim Financial Report 2023

much of the developed world has behaved like the emerging markets of old, (perhaps we are seeing the beginning of the 'converging markets').

Thirdly, capital flows into Asia have been negative for a decade and the region therefore far less vulnerable to money outflows than in the past.

The result is that today, Asia's financial position is superior to much of the developed world. Combine this with Asia's structurally faster growth rates and valuations at multi-year lows relative to developed markets, and the long-term outlook for Asian investors looks very encouraging.

Why has this positive position not been reflected

in the performance of Asian equities more recently? China has been the key issue.

Regulatory clampdowns on the private sector, increasing geopolitical tensions, Covid induced lockdowns and problems in the property market have led to a collapse in investor sentiment about the country: the MSCI China Index is down nearly 50% since its 2021 peak, while many Chinese companies listed in the United States have fallen significantly more. Sentiment reached its nadir at the 20th Communist Party Congress this October, the results of which confirmed Xi's iron grip on the government with all the most senior positions in the country going to Xi loyalists, combined with the very public removal of the former Chinese leader, Hu Jintao, from the closing ceremony.

Sentiment, however, turned more positive towards the end of the year as China suddenly abandoned its zero Covid policies, effectively ending all forms of lockdowns which were seriously hurting the economy. With pent up consumer demand, a huge build up in personal savings (retail deposits at banks have increased by roughly 60% in the past 18 months) and a government clearly keen to see a stronger economy, growth in China is likely to accelerate rapidly and provide a strong backdrop for many domestic companies.

Over the past year, we have increasingly been finding compelling investment opportunities in China. This is especially true in the technology space, where valuations have been extreme. For example, during the period Dada Nexus' (Chinese ecommerce logistics) market capitalisation fell to almost the level of cash on its balance sheet, while Alibaba Group's core ecommerce business (stripping out cash and subsidiaries) was trading on a low single digit PE multiple. (We added to both of these holdings over the period).

At the same time, many of the regulatory headwinds that have affected the sector have subsided. This is in part due to the geopolitical tensions with the United States, whose recent actions to stymie China's innovation, including drastic measures

to cut China off from certain semiconductor chips, means China needs its own technological giants to thrive and innovate and is thus becoming more supportive of the sector.

With the economy now open and set to grow strongly, we have further increased our exposure to China by adding c.600bp to Chinese companies. In addition to the aforementioned Dada Nexus and Alibaba Group, most of the additions were made to internet firms, including JD.com (ecommerce), KE Holdings (online property portal) and Baidu.com (online search engine). We also added to two financial companies, Ping An Insurance, China's leading private insurance company, and one of its subsidiaries, Ping An Bank. This takes the portfolio's exposure to China to 38% (+30bp relative to the comparative index) compared to 19% of the portfolio (-ve 1240bp relative) a year ago.

Outside China, additions were made to Nickel Mines, an Indonesian nickel processing company. Until now, Nickel Mines has focused solely on processing nickel for use in stainless steel production, however, the company is now taking a stake in one of Indonesia's new High Pressure Acid

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