Asian Income Trust, quarterly review

PERFORMANCE SUMMARY

Performance was positive against a background of political strife in Europe, floods in Thailand and the death of Kim Jong II

The Legal & General Asian Income Trust was up 5.64% over the three months to the end of December.*

Global markets rebounded strongly in October following the sharp September falls. As the Euro members agreed a bail out for Greece and the Chinese Government moved closer to monetary easing, Asian markets fared well (in sterling terms) before falling back in November. We saw a brief rally at the start of December following the first indications of monetary easing in China. Markets could not, however, overcome the ongoing problems in Europe which were acting as a drag.

Notable during the period was also the flooding in Thailand where above average rainfall in the upcountry areas drained down through the low lying Greater Bangkok to the sea. This has caused considerable disruption especially to some of the key export orientated industrial estates.

Within the region in December, South East Asian markets continued to rise whereas India, Singapore, South Korea and Australia fell. South Korea was hurt by worries over the security implications of leadership succession in the North, following the death of Kim Jong Il, and Australia was impacted by further domestic economic weakness visible through further profit warnings from some retailers. The Australian RBA reacted to this weakness with a second interest rate cut bringing their overnight rate to 4.25%.

* Source: Lipper, % Growth Cumulative (GBP), net of fees, from 30/09/11 to 31/12/11

Negative performance came from Onesteel, Fletcher Building and Lippo Mapletree…

Onesteel detracted from performance as their major competitor, (another steel manufacturer) Bluescope, was raising funds during the quarter and this impacted on Onesteel's shares. We remain confident in the valuation opportunity presented by Onesteel as we believe the market has ignored its iron ore business and continue to hold it in the portfolio.

Fletcher Building, the leading New Zealand construction & materials company, came down off its recent highs as re-building projects in Christchurch have not gone ahead as fast as anticipated.

Singapore markets were negatively affected by events in Europe, in particular Singapore Air due to concerns around demand for business travel in an uncertain market environment. However, relative to other airlines we still view this holding as good value, as it retains a strong balance sheet relative to its competitors.

…and holdings in ANZ, Far Eastone Telecom and Taiwan Semiconductor drove positive performance

Large positive contributions came from Australian banks, which although they have not gone higher in their home market, have been boosted by the rise in the Australian dollar and our holdings in ANZ and Westpac benefitted from this move.

Chinese related banks, although not a large part of the portfolio, performed very strongly after Reserve Ratio Requirements were reduced.

Telecoms stocks performed well overall in the quarter, in particular Taiwanese stock Far Eastone which is positioned well to benefit from the expanding data usage via smart phones in the region.

Utilities such as Glow Energy in Thailand and Australian utilities Duet and Spark Infrastructure also fared well due to the reliability of their regulated earnings bases.

POSITIONING

Largely unchanged…and our defensive position worked well

Generally, positioning was largely unchanged over the quarter as we typically hold stocks in the portfolio for the long term.

The trust was positioned relatively defensively compared to the rest of its peer group and within this environment we benefited from positions in Chinese and Australian banks which rose, as well as defensive holdings in Taiwan. Taiwan Semiconductor remains the largest holding in the portfolio.

The trust participated in a rights issue for the purchase of additional mall assets by Lippo Malls Indonesia Retail Trust. This is part of a clear strategy to build the scale of the Singapore listed real estate trust and provides attractively priced exposure to the Indonesian consumer sector and a yield of over 10%.

Key buys and sells this quarter

Key additions to the portfolio this quarter were to real estate investment trust Lippo Mapletree Indonesia which was topped up through participation in a rights issue. We also added to Thai property developer Land & Houses, after sharp falls (due to the floods) gave us an opportunity to add to this cheaply. As one of the Thailand's leading property developers, we expect sales will be slowed in the short term but should recover quickly.

Notable sells in the Trust were Far Eastone Telecom in Taiwan, which we reduced after it had performed particularly well, as we felt it had reached too high a valuation level relative to its regional sector.

In December we received cash from the takeover of Fosters and bought Thai Beverage which is listed in Singapore. The valuation of this stock is attractive relative to its regional peers, and its offshore listing can lead it to be overlooked by Thai investors.

OUTLOOK

We're pessimistic about western markets...but feel China will positively impact Australian stocks

We are pessimistic on the broader outlook for western markets, but are looking to China to continue to loosen policy as required.

We continue to take a view that positive news for China will feed into the Australian growth story and support the Aussie dollar.

Asia is very well positioned to endure shocks coming from the West, as it has already been through a tightening cycle and so has ample reserves for further monetary policy actions.

Regarding our outlook for dividends, we believe that the current high yield offered by the Asian Income Trust is sustainable given the strong cash flows and relatively defensive business models of the stocks we hold in the portfolio.

Paul Hilsley, Fund Manager
Legal & General Investment Management

This is not a consumer advertisement. It is intended for professional financial advisers and should not be relied upon by private investors or any other persons.

The views expressed within this document are those of Legal & General Investment Management, who may or may not have acted upon them. Legal & General Investment Management is authorised and regulated by the Financial Services Authority and is the Investment Adviser to Legal & General Asian Income, a UK authorised unit trust. This document should not be taken as an invitation to deal in any Legal & General investment including the stated investment. Remember, the value of investments and any income taken may fall as well as rise, are not guaranteed and investors may get back less than they invest. Past performance is not a guide to future performance. Exchange rate changes may cause the value of any overseas investments to rise or fall. Details of the specific and general risks associated with the fund mentioned are contained within the Key Information including the Simplified Prospectus.

Legal & General (Unit Trust Managers) Limited. Registered in England No. 1009418. Registered office: One Coleman Street, London EC2R 5AA. Authorised and regulated by the Financial Services Authority.