abrdn Asia-Pacific Income Fund (FAX), featuring Portfolio Manager Adam McCabe

Join Mike Taggart, Head of Closed-End Fund Investor Relations, and Adam McCabe, FAX Portfolio Manager, discuss the performance of the US dollar relative to Asian currencies as well as other current trends in the Asia-Pacific marketplace. 

Transcript

Transcript

FAX Podcast, December 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 Asian Fixed Income and the long time Portfolio Manager for FAX. Adam, thank you for joining us. 

Adam McCabe: Thanks, Mike. Oh, it's great to come on.

Mike Taggart:  Adam, FAX has long been viewed by many investors as a non-U.S. dollar fund. I think that has to do with the fund's portfolio, a mix of local currency bond and U.S. dollar bond investments and then the US dollar leveraged. Early in 2025, there were clear signs of a weakening US dollar. But more recently, it's become a kind of a more mixed picture. Would you please discuss what's been driving the performance of the US dollar relative to Asian currencies, and what the outlook is?

Adam McCabe:  You're right, in the fund is a non-U.S. dollar fund, predominantly. The fund invests in currencies in the Asia-Pacific region. And that makes up the largest part of the exposure, the currency exposure of the fund. If I turn my mind to the history of the fund, it was launched in 1986, 40 years ago. The Asia Pacific Income Fund, then known as the first Asia Prime Australian Dollar Income Fund, was essentially 100% invested in Australian dollar assets over the course of the past 40 years, along with the developing opportunities in the Asia Pacific region, the fund has sought to diversify its assets away from Australian dollars into other Asian currencies. 

The beauty about this fund is that it brings diversity across Asian currencies, Asian interest rates and Asian credit markets that denominated in US dollars. The fund does deploy leverage. That leverage is in US dollars, and the US dollar exposure that we have in the portfolio should be seen as a bit of a hedge against that, that leverage that we have in the portfolio.

So yes, the portfolio is predominantly a non-US dollar portfolio. 

Mike Taggart:  And then what's been going on with the US dollar - kind of this year. And what's the outlook.  

Adam McCabe:  Yeah, it's interesting because, like you I would have thought that the the US dollar would have been weaker in this period of uncertainty, particularly in terms of policy volatility coming out of the US. And while we have seen the US dollar weaken, the US dollar has really weakened against the euro. If I look at the Asian currencies, it's been a lot more mixed. And that's largely because we've seen a yen that's been much, much weaker. The yen has weakened dramatically over the course of the past year or so. And, that has provided sort of a counterweight to the US dollar weakness in Asia.

So net net, we've seen the Asian currencies rather flat against the US dollar over the period. When I think forward, I look at an opportunity for the US dollar to weaken further. I think there is a beginning of a trend decline in the US dollar that is about to begin, particularly as the US Federal Reserve begins to embark on an easing stance. We saw them eased in December. They are likely to ease again through the course of 2026. And as they deliver on that easing, we believe that the opportunity for the US dollar to, to weaken, from what some would say is an overvalued position, is likely to occur. 

That is of course, something that is likely to be a long-term trend, largely because there are some deeply rooted problems that are emerging in the US economy that are really not being addressed. And that comes down to policy certainty, fiscal policy risks, and indeed, general volatility, around the monetary policy outlook. 

Mike Taggart:  And I mean, part of that and you sitting in Singapore have an outsider's view into the US. But part of that, and you've talked about this to a degree before, is the US balance sheet compared to the balance sheet of governments in the Asia-Pacific region?

Adam McCabe:  Of course, and I think, the real risk at the moment that, seems to not be, contemplated by the markets at this point. Well, maybe it is in some parts, but the real emerging risk is the ability of the US to maintain fiscal deficits of the size. They are a huge amount of borrowing. And the burden that brings to not only the current generation, but the future generations in the US. 

Unlike the US, the Asian fiscal house is in order- over the course of the past 30 or so years, particularly after the Asian financial crisis. The Asian policymakers have delivered frameworks for fiscal and monetary policy that a credible, they continue to deliver against those frameworks. And that brings credibility, stability, predictability, and the capacity for these policymakers to respond to any income challenges that may be faced. 

If I may just pause here to comment on a couple of sound bites that may be of interest to the audience. The population in Asia represents about 60% of the world's population. There's an emerging middle class that is something that should continue to support economic growth in the region. 60% is a number that you should remember, because not only does Asia represent 60% of the world's population, it represents 60% of the world's foreign exchange reserves, which means the sovereigns have savings up their sleeve to defend and provide policy stability and intervention as and when required. What's more, 60% of the world's population and that middle income consumer we will see over the next 5 to 10 years - Asia deliver somewhere between 50 to 65% of the globe's GDP growth on an annual basis.

The magic number is 60%. Asia represents more than half of the world's opportunities going forward. 

Mike Taggart: That’s incredible. The, you know, this fund is Asia Pacific, obviously, and that's a vast swath of countries. You know, we talk about, you know, you're just all about Asia right now. But, I mean, it's a huge you know, there's a lot of variety in there from Indonesia to India, Korea, Australia for your fund, you know, just hopping around.

And then the fund can invest in government bonds, corporate credits. Where have you seen the biggest headwinds in opportunities most recently. 

Adam McCabe:  The fund does invest in the vast array of opportunities across Asia north to south, east to west. And that includes developed Asia, developing Asia, frontier Asia, where we've seen the biggest challenges in the in the very recent period has been in the developed market, Asian local rate markets.

And that is being in markets that had an opportunity to ease monetary policy early, when the Federal Reserve started easing monetary policy in 2025. They took their signal. They also took the signal and wanted to be preemptive ahead of any trade uncertainty that their economies would face. They were able to ease monetary policy because of very low inflation.

And so these monetary policy makers in the developed markets - Korea, Australia, they ease monetary policy. But what we've seen happen in the last couple of months is that policymakers have decided that they need not ease too aggressively from here. They need to wait for the Federal Reserve to show their hand, because they are close to the end of this cycle, even though they've got the capacity to ease monetary policy further with positive real rates, low inflation. The policy makers have just decided just put any further rate cuts on hold. And that is led to the market's repricing. So what we've seen in a lot of markets in Asia is the yields in local markets reprice - to price from expecting rate cuts to now expecting no cuts. And even in some places rate increases. That for me opens an opportunity for, you know, very attractive valuations in the local rate markets.

If, as we expect the federal Reserve continues easing monetary policy into 2026, if, as we expect, inflation remains benign in Asia, the policymakers can recommence their easing of policy and that will allow for those local bond markets to perform well once again. That, of course, is alongside a weaker dollar environment. And therein, provides a very attractive opportunity for local currency bond investments in many of the Asian markets Korea, Singapore, Malaysia, Thailand.

Mike Taggart: So that kind of feeds into your outlook as well then. Right? So like right now you think it might be like that. They're pausing it sounds like and that they might resume these rate cuts going forward. 

Adam McCabe: Absolutely. I think in terms of the outlook from my mind, you know, we focus there in one aspect being the local currency denominated bond markets.

That's only part of where we invest. I see opportunity there in that part of the market. I also see opportunities in the credit markets. The credit markets enjoy very sound fundamentals, even though credit spreads and narrow around the world, in the credit markets in Asia. So a unit of leverage. So if you look at a companies who have the same credit quality, the same amount of leverage deployed, credit spreads in Asia for Asian companies are wider than they are in the US. 

That to me says that there is value in the Asian credit markets. The fundamentals are improved in Asia. They continue to improve. And so therein lies an opportunity to get income from a diversified source. So for me, my outlook is rather boring in a way, for the Asia-Pacific Income Fund because we see opportunities across the broad suite of investment opportunities. This is a diversified fund. Asia is not one country. There's 10,12, 15 countries that we have available to us. We can invest in local currencies. We can invest in hard currency credit, and we can find opportunities across the diversity of that universe. That's important. Because the objective of the fund is to deliver income. If we can deliver attractive income opportunities across a diverse suite of opportunities, then I think, that will deliver that income on a risk adjusted basis. That's far superior to many other options out there. 

If I drill into a couple of key markets, I think India and Indonesia continue to deliver on their reform agenda. The reasonably high yielding in the local currency space, the policy makers delivering on the reform, fiscal policies, credible monetary policies, credible inflation is benign in some parts. Indonesia, for example, the policymakers they are trying to improve the monetary policy transmission mechanism in India.

We continue to see, fiscal policy reform. We saw a GST adjustment that led to a decline in inflation recently. 

Mike Taggart: And that's the tax GST, is there.

Adam McCabe: Yes, GST are taxes. Yeah. And so all of that leads to a positive environment for the local bond markets. There two countries that I would call out in terms of enjoying positive fundamentals, positive structural change that should support and uplifting credit ratings and ultimately an uplifting valuations from the bond market perspective.

Mike Taggart: Well, excellent. Thank you so much, Adam. I really appreciate you taking the time to provide investors with this informative update. 

Adam McCabe: Thanks, Mike. I appreciate your time. 

Mike Taggart: There are three convenient ways to learn more about facts. Visit our website at abrdnfax.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.

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