abrdn Asia-Pacific Income Fund, Inc. (FAX) - August 2025

Listen to an informative interview with Adam McCabe, Aberdeen's Head of Fixed Income - Asia Pacific, discussing the current outlook for Aberdeen's Asia-Pacific Income Fund, Inc. (FAX). 

Transcript

abrdn Asia-Pacific Income Fund, Inc. (FAX)

Podcast Transcript

August 2025

Mike Taggart: Welcome to the latest podcast for the Aberdeen Asia-Pacific Income Fund, ticker symbol FAX. I'm Mike Taggart, Aberdeen's Head of Closed-End Fund Investor Relations with me is Adam McCabe, Aberdeen's Head of Fixed Income – Asia Pacific and the long time portfolio manager for FAX. Adam, thank you for joining us. 

Adam McCabe: Thanks, Mike. Great to be here. 

Mike Taggart: Adam, there are really two items I want to hit on today. One is that FAX is not a high yield emerging markets fund. Investors familiar with FAX tend to understand this - others don't, especially since it tends to get categorized with the emerging markets funds. Right. So how do you find investment grade debt opportunities in the Asia-Pacific region? And how is the fund typically positioned from a credit perspective?

Adam McCabe: I guess, the starting point for me would be just to explain that, unlike the broader emerging market debt universe, the Asian fixed income universe is quite a bit higher quality than that of Latin America or Eastern Europe or the African countries. And there's a number of reasons for that. I think first and foremost is the lessons learned, after the Asian financial crisis, a lot of the policy frameworks have been put in place and have delivered credible, policy actions. And, indeed, those frameworks have been maintained and adhered to over a long period of time. That's that's built credibility in the markets. And that credibility lends itself to higher quality, lower volatile outcomes for investors. With respect to credit, that shows up in the credit quality of the sovereigns that we invest in in the Asia-Pacific region. On average, we're looking at an investment grade sovereign universe. But also, importantly, the credit universe is obviously, shaped around that, sovereign credit ceiling, and has that uplift from the very solid, country fundamentals, that, that exist here. 

In terms of the positioning in the portfolio, we run about 40% of FAX managed assets in hard currency credit, Asian credit, exposure. That is dollar denominated Asian credit.

Mike Taggart:  And the remainder hard currency is just, sorry. I had a hard currency is just another word for US dollar exposure. Is that correct? 

Adam McCabe: Yeah. I mean, you're right. Hard currency is another word for U.S. dollar. You might throw in there other developed market currencies. As well, such as euro yen. But what I'm talking about here is the US dollar exposure. So yeah, the 40% of the the portfolio is invested in US dollar denominated Asian credit, that comprises both sovereign quasi sovereign and corporate exposure of issuers based on the Asian region. The bulk of the remaining assets are around 45%. There is in Asian local currency, sovereign exposure.

Be that Australian, be that, Korean, Chinese, Indian, Indonesia, local currency, sovereign exposure. So that embeds both interest rate and currency risk. The beauty about FAX is that it is a diversified portfolio. What we are seeking to do in terms of delivering income, regular income to our investors by, you know, opening the universe to a very diversified region, both in terms of different sovereigns, but also in terms of different sectors. And indeed, that diversity extends across interest rates, currencies and sectors. 

Mike Taggart:  Great, thanks, and I'm going to kind of take a tangent on how you build that credit portfolio. Can you talk to us a little bit about your investment process? You know, it's one of the things I've since I've covered FAX when I was an analyst back at Morningstar, you know, I think in 2010, starting in 2010, I was always interested in where you're located. How many people there are on the team and kind of what that process is, just briefly. 

Adam McCabe: So Singapore is our investment hub in in the region. And beyond Singapore, we have investors that are specialists. We have dedicated credit specialists, that focus on doing the credit research, fundamental bottom up credit research, identifying, the opportunities within the credit universe, but also trying to protect ourselves from the downside. So if there are any risks that are emerging with respect to a corporate that we hold, that we're able to move swiftly to to mitigate those risks. 

The other specialism that we have in the team is the macro specialisms and local interest rates and currency managers. This part of the team is focused on doing the economic analysis and identifying where our views are different from consensus. Assessing what that difference from consensus means in terms of, expectations around policy, market pricing and ultimately driving decisions such as country exposure and indeed within countries, the curve exposures as well. Additionally, that team, and together with the whole team, their views, do influence the currency exposures that we have in the portfolio as well.

Mike Taggart: I love always hearing, an update. And I think it's good for investors to hear as well, because I think it's one of the things that makes the fund unique. The second thing I'd like to hit on is what we've seen this year with US dollar weakness. How is that affecting the portfolio, if at all? I mean, you already mentioned, you know, you have like 40% in, in hard currency.

Adam McCabe: Yeah. I think, the best way to describe the, the impact of the weaker dollar is that it does benefit the portfolio. While the managed portfolio, the investment portfolio has about 40% in US dollars. We do deploy leverage, and that leverage is denominated in US dollars as well. So one way to look at the portfolio is to say that the US dollar assets that we have in the portfolio are a hedge against the leverage assets in US dollars. So when you net that out, what's left is a local currency exposure. That means the portfolio does benefit from the the weaker dollar environment. The Nav should definitely benefit from that environment.

Mike Taggart:  And that's actually really interesting to think of that as kind of the, the hedge against the, the leverage. That's, that's interesting. 

Adam McCabe: Yeah. I mean, I would, I, I, I would add that, you know, from a macro perspective, the weaker US dollar is, something that does benefit the region because there are and something that is supported by the region because there has been a focus over the course of the past 20 years, obviously, on building, foreign exchange reserves, supporting, you know, exports as a main pillar of growth. But in this environment where, there is global trade tensions and whatnot, there is a focus of policymakers in the region to think more about supporting domestic demand as a core pillar of growth, to providing social safety nets, to providing that welfare that's required in the countries and and providing that that real support for domestic consumption.

And if you think about what that means in terms of the policy makers view of the US dollar and its role in that policy mix, they can tolerate a weaker dollar. They can tolerate the strengthening of the currencies because it plays into that diversification of their economy away from exports as a core pillar of growth. 

Mike Taggart Finally, I ask I ask this quite often, just because I think it puts everybody kind of on the same footing. I have a two part question here. First, where have you been facing the strongest headwinds in the portfolio? And second, where are you finding the most attractive opportunities? Is there a certain sector country that looks particularly compelling right now? 

Adam McCabe I think right now the the key focus of the markets is, is around the tariffs and sentiment, around that - obviously Asia in the first round of of the Liberation Day announcements, Asia was fairly heavily impacted by the tariffs that were announced.

And so sentiment can be driven by the news cycle and that creates volatility. So that would be the biggest headwind that quite often the markets are responding to these headlines. And rather than, thinking about the fundamentals and break it down into what the practical considerations are. And so that would be the biggest headwind at the moment that we have a lot of volatility in the news cycle.

I would say that if I'm looking at, again, the macro considerations within the region, you know, clearly the Chinese economy has been I think is facing a number of domestic headwinds for a number of years. They continue and and again, that does have some impact on the ability for the Chinese economy to, to navigate through these periods of uncertainty.

That does mean we have to be particularly concerned and, manage the risks in China very carefully. But that's a headwind that's very macro in nature. And I don't believe the Chinese policymakers, are without, policy tools to, to, to confront or mitigate those risks. 

Mike Taggart:  It is just a headwind. Right. And then the second part of the question, where are you finding the most attractive opportunities right now? And maybe if you combine that in with the outlook.

Adam McCabe: Absolutely. Look, I think, you know, in this period of uncertainty, I think one of the things that will actually shine through is the resilience of the Asian region. First and foremost, one of the things that's underappreciated across the region is the linkages between the countries on trade. After the Covid epidemic, what has been, very noticeable is that the supply chains have been much more diversified in terms of the way they actually are plugged into lots of different, countries and resources around the region.

They have been supported by bilateral and multilateral trade agreements. So intra regional trade will be much more of a supporting factor than, many people expect. That provides resilience for the economies. And as a result, I think Asia could sail through this period quite, quite comfortably. I think with their out periods of volatility and people, doubting that that's an opportunity for people to reenter the Asian region.

Secondarily, I would say that within the credit sector, if you think about who are the issuers in the Asian credit markets, they are usually the national champions. They are the strongest companies, the largest companies that multinational companies. And once again, these companies are not based wholly in their home country. They have diversified their markets both in terms of the sales and revenue generation, but also, again, their production capabilities.

So again, in the face of global trade uncertainty, these countries can navigate through the uncertainty very, very safely. And then finally, in terms of some of the the exposures in the portfolio that I'm still strategically, positive on is that of India. The Indian market is one that is undergoing a number of years of, of structural reform led by the Modi government, but but not necessarily reliant on my Modi being in power for the long term, but definitely led by the Modi government.

He has brought reform to the Indian economy. He's got inflation targeting central bank inflation is well under control. He's been building the productive capacity of the economy. And as a result, we see opportunities both in terms of the equity markets as the cost of capital comes down, but also an importantly, a very credible framework for so fixed income investors to to understand that there's obviously some yield there at the moment, but also a central bank that is going to respond favorably to falling inflation.

And that should deliver capital gains for the the investors invested in the local bond market. So that's a market that I'm very positively disposed towards the longer term, largely due to the structural reforms that's taking place over the course of the past ten years. 

Mike Taggart : Excellent. Also interesting and always is. Thank you so much for taking the time, Adam.

Adam McCabe: Thanks, Mike. Appreciate it. 

Mike Taggart : There are three convenient ways to learn more about facts. First, you can visit our website at aberdeeninvestments.com. Second, you can email us at Investor.Relations@Aberdeenplc.com, or give us a call at 1-800-522-5465. 

I'm Mike Taggart of Aberdeen. Thank you for listening.

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for informational purposes only and should not be considered as an offer, investment, recommendation or solicitation to deal in any of the investments or products mentioned herein and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication, and do not necessarily reflect those of Aberdeen.

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