JCGI Jpmorgan China Growth & Income Plc

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN CHINA GROWTH & INCOME PLC

FINAL RESULTS FOR THE YEAR ENDED 30th SEPTEMBER 2024

Legal Entity Identifier: 549300S8M91P5FYONY25

Information disclosed in accordance with the DTR 4.1.3

The Directors announce the Company's results for the year ended 30th September 2024.

Highlights:

·      NAV total return of +3.6% compared with +12.7% for the MSCI China Index (the 'Benchmark'), as the quality and growth stocks favoured by the Company's Fund Managers lagged value stocks, particularly state-controlled energy and financial companies. The share price return was +2.3%.

·      For ten years ended 30 September 2024, the Company outperformed the Benchmark with a NAV total return of +90.0% compared with +69.0% for the Benchmark. The share price return was +87.6% over this period.

·      For the year ending 30th September 2025, the intention is to pay a total dividend of 10.92 pence per share through equal quarterly dividends. This reflects the dividend policy to pay an annual dividend equivalent to 4% of the Company's NAV on the last business day of the preceding financial year.

The Chairman of JCGI, Alexandra Mackesy, commented:

"While the Company's performance was obviously disappointing, particularly when compared with its benchmark, the Company has maintained its longer term track record of strong performance over ten years. This reflects the Manager's continued disciplined focus on long-term growth opportunities."

"While many challenges remain, the major government economic initiatives announced in September and November have improved sentiment within China, with companies describing themselves as 'cautiously optimistic' about future prospects."

"Our disciplined Portfolio Managers remain focused on the bottom-up fundamentals of high-quality Chinese businesses that are capable of generating excess returns over the longer term. The Board shares the Portfolio Managers' optimism about the long-term prospects for the Chinese stock markets and the opportunities that will benefit the patient investor."

JCGI's Portfolio Managers commented:

" We believe there are several reasons to be optimistic about the prospects for Chinese equities, and for our portfolio, over the coming year. Firstly, valuations are still attractive. Even after the recovery in September and October 2024, they are still at a relatively low level compared to market history. Secondly, corporate reforms focused on improving capital allocation and shareholder returns will be very positive for the market. Finally, with the Chinese authorities now clearly determined to support the economy and the property sector, we also see potential for upside surprises to earnings over the next year and beyond, especially for the quality and growth-oriented stocks we favour.

We will continue to seek out the opportunities generated by economic recovery and structural changes, the ensure that your Company continues to deliver outright gains and outperformance to shareholders over the long term."

Enquiries:

JPMorgan China Growth & Income plc

Investor Relations

Alexandra Ellaby, JPMorgan Funds Limited

E-mail: alexandra.ellaby@jpmchase.com

Telephone: 0800 20 40 20 or or +44 1268 44 44 70

CHAIRMAN'S STATEMENT

The year ended 30th September 2024 proved to be a period of sharply different halves, continuing the trend seen in the previous year. During the first six months ended 31st March 2024, the Company's total return on net assets (with net dividends reinvested) fell 13.1%, with extreme volatility continuing to batter market performance, amidst a myriad of concerns about the Chinese economy and geo-politics. There was a marked change in the second half of the year, with market volatility subsiding and investors sitting listlessly on the sidelines. News in September of a major government initiative aimed at stabilising the property market and encouraging consumer confidence gave the Chinese markets a dramatic kick start. As a result, the Company's total return on net assets climbed 19.3% in the second half of the year.

For the year as a whole, the Company's total return on net assets rose +3.6% over the year. This represents the change in net asset value ('NAV') with dividends reinvested and compares less favourably with the MSCI China Index benchmark return of +12.7%. The Company delivered a return to Ordinary shareholders of +2.3%, reflecting a slight widening in the discount, which averaged 10.4% during the period under review.

The rise of the MSCI China Index was driven by value stocks, particularly state controlled energy and financial companies. Quality and growth stocks, which are favoured by the Company's disciplined Portfolio Managers, lagged behind. Reflecting this, the MSCI China Value Index outperformed the MSCI China Growth Index by 7.5%.

While the Company's performance was obviously disappointing, particularly when compared with its benchmark, the Company has maintained its longer term track record of absolute gains and strong performance over ten years. This reflects the Manager's continued disciplined focus on long-term growth opportunities. Full details of investment performance, changes to the portfolio and the outlook can be found in the Investment Manager's Report.

Dividend

Reflecting a sharp increase in dividend receipts from portfolio companies, the Company generated a revenue return of 3.39p during the year (FY2023: 1.87p). In line with the Company's dividend policy, for the year ended 30th September 2024, four quarterly dividends of 2.76 pence were paid to shareholders. For the year to 30th September 2025, in the absence of unforeseen circumstances, a quarterly dividend of 2.73 pence per share will be paid. This represents an annual dividend of 4% of the Company's NAV as at 30th September 2024.

Gearing

On 14th July 2023, the Company entered into a loan facility agreement for two years with Industrial and Commercial Bank of China Limited, London Branch (ICBC), in respect of a revolving loan facility of up to £60.0 million. Due to market movements and after discussions with ICBC, the Company's loan agreement was amended on 28th March 2024 and the facility was reduced to a commitment of up to £30.0 million. Some changes were also made to certain financial covenants.

The Company was 3.5% geared at the year end, having averaged approximately 6.7% throughout the year, and, at the time of writing, was 4.4%. The Company's ability to gear up has been constrained by both the high cost of bank borrowing and banks' continued reluctance to lend to investment trusts investing in Emerging Markets. To solve this problem, the Board has worked with JPMorgan to make Contracts for Difference (CFDs) available to the Company. CFDs, a form of derivative trade, provide the Company with an efficient alternative way of increasing leverage when it is deemed potentially attractive to do so. The Portfolio Managers have the flexibility to manage the gearing facility within a range set by the Board of 10% net cash to 20% geared, subject to daily market movements.

Share Issues and Repurchases

At last year's Annual General Meeting ('AGM'), shareholders granted the Directors authority to allot new shares and to repurchase the Company's shares for cancellation or to be held in Treasury. During the year, the Company did not repurchase or allot any shares. As in previous years, the Board's objective is to use share repurchase and share issuance authorities to help reduce the volatility in discounts and premiums by managing imbalances between supply and demand. We are therefore seeking approval from shareholders to renew the share issuance and repurchase authorities at the AGM.

The Board

In July 2024, the Board, through its Nomination Committee, carried out a comprehensive evaluation of the Board, its Committees, the individual Directors and the Chairman. Topics evaluated included the size and composition of the Board, board information and processes, shareholder engagement and training and accountability. The evaluation confirmed the efficacy of the Board and its Committees.

In accordance with the UK Corporate Governance Code, all of the Directors will retire at the forthcoming AGM and, being eligible, will offer themselves for reappointment by shareholders.

Following May Tan's retirement following the AGM in January 2024, the Board has decided to increase the size of the Board back to five directors which the Board believes is the optimal number of Directors for this Company. As part of the long-term succession programme, the Board intends to appoint a new Non-Executive Director in early 2025. Accordingly, it has appointed an external executive search company to find a suitable candidate for this position.

Board Diversity

The Board recognises the value and importance of diversity in the boardroom. I am pleased to report that the Board meets the FCA Listing rules targets on gender diversity criteria, female representation in a senior role and ethnic representation on the Board.

Review of services provided by the Manager

During the year, the Board, through its Management Engagement Committee, carried out a thorough review of the investment management, secretarial and marketing services provided to the Company by the Manager. These have been formally assessed through the annual manager evaluation process. Taking all factors into account, the Board concluded that the ongoing appointment of the Manager is in the continuing interests of shareholders.

The Board also reviews the Depositary and Registration services provided to the Company by the outsourced service providers. In terms of the Company's Registrar and upon the recommendation of the Manager, the Company announced earlier in the year that it had transferred the management of its share register from Equiniti Financial Services Limited to Computershare Investor Services PLC with effect from 24th June 2024.

Reduction in Management Fees

As noted in last year's results announcement, with effect from 1st April 2024, the Company's management fee was reduced from a fixed fee of 0.9% on net assets to a tiered fee rate of 0.80% for the first tier of up to £400 million of net assets and 0.75% thereafter.

Environment, Social and Governance (ESG) considerations

The Company has not sought any Sustainability label under the new Sustainability Directive Regime. However, the Board has continued to engage with the Manager on the integration of ESG factors into its investment process. The Board has conducted a review during the year to satisfy itself that the Manager has a robust process in place with sufficient resources behind it and that ESG considerations are considered by the Portfolio Managers at every stage of the investment decision.

The Board shares the Manager's view of the importance of financially material ESG factors when making investments for the long term and, in particular, the necessity of continued engagement with investee companies throughout the duration of the investment. The Portfolio Managers' ESG report in the Annual Report describes the developments in the ESG process that have taken place during the year together with examples of how these are implemented in practice.

Annual General Meeting

The Company's thirtieth Annual General Meeting will be held at 60 Victoria Embankment, London EC4Y 0JP on Thursday, 23rd January 2025 at 11.30 a.m. The Board cannot stress strongly enough the importance of all shareholders exercising their right to vote, regardless of their size of holding, and hopes to welcome as many shareholders as possible to the AGM. As with previous years, you will have the opportunity to hear from members of our investment team. Their presentation will be followed by a question and answer session. Shareholders wishing to follow the AGM proceedings but choosing not to attend will be able to view them live and ask questions through conferencing software. Details on how to register, together with access details, can be found on the Company's website: www.jpmchinagrowthandincome.co.uk, or by contacting the Company Secretary at invtrusts.cosec@jpmorgan.com.

In accordance with normal practice, all voting on the resolutions will be conducted on a poll. Due to technological reasons, shareholders viewing the meeting via conferencing software will not be able to vote on the poll. We therefore encourage all shareholders, and particularly those who cannot attend physically, to submit their proxy votes in advance of the meeting, so that they are registered and recorded at the AGM. Proxy votes can be lodged in advance of the AGM either by post or electronically: detailed instructions are included in the Notes to the Notice of Annual General Meeting in the Annual Report. In addition, shareholders are encouraged to send any questions ahead of the AGM to the Board via the Company Secretary at the email address above. We will endeavour to answer relevant questions at the meeting or via the website depending on arrangements in place at the time.

If there are any changes to the above AGM arrangements, the Company will update shareholders through its website and, if appropriate, through an announcement on the London Stock Exchange.

My fellow Board members, representatives of JPMorgan and I look forward to the opportunity to meet and speak with shareholders over lunch, after the formalities of the meeting have been concluded.

Stay Informed

The Company delivers email updates with regular news and views, as well as the latest performance. If you have not already signed up to receive these communications and you wish to do so, you can opt in via https://tinyurl.com/JCGI-Sign-Up or by scanning the QR code in the front of the Annual Report.

Outlook

The Board has recently returned from a visit to China. In addition to spending time with the locally-based Portfolio Managers and supporting analysts, the Board visited a wide range of companies and met with industry experts and business leaders in Hong Kong, Shenzhen and Shanghai. It was evident that, while many challenges remain, the major government economic initiatives announced in September and November have improved sentiment within China, with companies describing themselves as 'cautiously optimistic' about future prospects. As our Portfolio Managers highlighted in last year's Annual Report, many companies have introduced regular dividend payouts and share buyback programmes designed to benefit shareholders. Amidst continued consolidation in the industrial sector, world-class companies are emerging, and many market-leading companies have expanded production overseas, both as a means of expanding into new markets to drive future growth, but also to give themselves a degree of protection from potentially punitive US tariffs.

Since the Company's listing in 1993, the Portfolio Managers have often had to navigate testing market conditions. They may have to draw on these skills again in 2025. While our Managers welcome the recent significant government economic initiatives, concerns about economic growth, domestic consumption, unemployment, and the robustness of the Chinese property and financial markets are likely to remain and may again impact market sentiment. That said, central and local governments are widely expected to announce further initiatives to tackle the structural impediments to economic growth, news that will be welcomed by domestic investors. An escalation in anti-Chinese rhetoric following the election of US President-Elect Trump cannot be ruled out, particularly given President-Elect Trump's pre-election comments about tariffs on Chinese imports. That said, our disciplined Portfolio Managers remain focused on the bottom-up fundamentals of high-quality Chinese businesses that are capable of generating excess returns over the longer term. Supported by a well-resourced investment team based in Hong Kong, Shanghai and Taipei, they continue to find attractive investment opportunities, and, by careful stock picking, they should enable the Company to deliver superior returns over the longer term. The Board shares the Portfolio Managers' optimism about the long-term prospects for the Chinese stock markets and the opportunities that will benefit the patient investor.

Alexandra Mackesy

Chairman                                                                                                                                    9th December 2024

INVESTMENT MANAGER'S REPORT

Introduction

During the financial year ended 30th September 2024, the Company's net assets returned +3.6% (in sterling terms) compared to a benchmark return of +12.7%. However, the Company's long-term track record of outright gains and outperformance remains intact. In the ten years to 30th September 2024, the portfolio realised an average annual return of +6.6%, comfortably ahead of the average annual benchmark return of +5.4%.

Setting the scene

The past year was one in which the Chinese economy continued to work through its structural challenges, including the collapse of its property bubble and the associated lack of funding sources for local governments after land sales revenue plummeted. For most of the year, policy responses to these challenges were restrained and piecemeal, as the authorities remained reluctant to implement large scale stimulus. The measures implemented included lower interest rates, the removal of some property market restrictions, and subsidies for industrial capex and large-ticket consumer goods.

These measures were welcomed and helped the economy to a degree. For the first nine months of 2024, Chinese GDP grew 4.8% in real terms, only slightly below the government's target of 5%. But the measures were not sufficient to reverse the deflationary trend that is becoming a growing concern for both policy makers and investors. The consumer price index (CPI) has been hovering around zero since Q2 2023 and the producer price index (PPI) has been below zero since the end of 2022. The former can be attributed to weak consumer confidence. With income growth weak, individuals and households are reluctant to use their ample savings to support spending. The weakness in producer prices is due to overcapacity in certain industries, notably automobile, solar and building materials.

As the year progressed, it became increasingly clear that the stimulus policies launched in the first nine months of the year all depended on market participants - households, enterprises and local governments - using their own balance sheets or income to benefit from the stimulus measures. But consumers were unwilling to buy big-ticket items even if these purchases were partly subsidised, businesses were not persuaded to take advantage of capex incentives, and local governments did not have the funds they needed to support the property sector. Central government is the only entity with the financial capacity to fund major stimulus.

Fortunately, the government gradually came to realise the seriousness of the challenges the economy faces, and the bottlenecks limiting the effectiveness of previously announced stimulus policies. It finally acknowledged that some of the challenges to economic growth are more structural than cyclical. Most importantly, recent events - the weakness of consumer confidence and the negative wealth effects of the property market collapse - have exposed the economy's excessive reliance on the property sector as a demand driver.

In response to this awakening, at the end of September, government authorities, including the Central Bank, the People's Bank of China (PBOC), the National Reform and Development Committee, which is the central government's economic planning committee, the Ministry of Housing and Urban-Rural Development, and the Ministry of Finance, hosted a series of press conferences to announce new stimulus policies. These measures demonstrated a level of coordination which was lacking in previous stimulus efforts, hampering their effectiveness. The most recent initiatives also showed a greater willingness to make direct fiscal transfers from the central government to local governments and even to consumers.

To be more specific, to stimulate consumption, the central government directly funded a new round of auto and electrical goods trade-in programmes and handed out cash and targeted subsidies to disadvantaged groups such as recent graduates looking for a job and households in poverty. In the property market, in addition to more cuts to mortgage rates and less stringent downpayment requirements, the central government changed the overall policy target to 'stopping the property market from declining'. To address the issue of unfinished and unsold flats, local governments were given the green light to issue special purpose bonds to purchase these properties and idle land, effectively injecting liquidity into the property market and providing confidence to potential buyers. It is also widely expected that the central government may provide even more direct funding support to bolster the property sector.

The authorities also implemented measures to redress the poor performance of the equity market since the onset of the pandemic. For the first time in history, the PBOC launched a low-cost CNY 500 billion asset swap facility for non-bank financial institutions to buy shares, and CNY 300 billion (US$41 billion) of liquidity for companies to conduct share buybacks. Most encouragingly, the central bank committed to providing more liquidity if these measures proved effective. The PBOC is also considering setting up a national equity market stabilisation fund, a long-term mechanism intended to provide liquidity during periods of market weakness. Encouraged by this suite of substantial and coordinated policy measures, the MSCI China Index shook off its torpor and rose 19% (in GBP terms) in the following month.

Performance commentary

During the financial year, stock selection and sector allocation both undermined performance, detracting 5.1% and 2.9%, respectively. The use of gearing was neutral to performance.

Unfortunately, as was the case in the previous financial year, performance was hit by a style headwind, as the MSCI China Value index outperformed the MSCI China Growth index by 7.5 percentage points during the review period. Sectors that we tend to underweight such as Financials and Energy, which are characterised by limited growth prospects, were the two best performing sectors, returning 21% and 15% respectively during the financial year, while the quality and growth stocks we favour lagged. In terms of stock selection, we also have room to improve in some sectors that offer more growth opportunities, such as Healthcare, Information Technology and Industrials.

Performance attribution

Year ended 30th September 2024

Source: Factset, JPMAM, Morningstar.

Performance attribution analyses how the Company achieved its recorded performance relative to its benchmark.

On the positive side, we outperformed in the largest sector of the benchmark, Consumer Discretionary, which accounts for 29.5% of the Index. This was mainly due to our long-term holding of food delivery and restaurant review platform Meituan and Trip.com, an online travel booking service. Both these businesses reported continued improvement in margins and decent growth in a very challenging macro environment. Not owning the pure electrical vehicle (EV) automakers Li Auto, Xpeng and Nio collectively contributed positively. Our positioning in this sector is consistent with concerns we expressed in 2023 Annual Report on intensifying price competition, the difficulties associated with forecasting the popularity of specific new models and the large capital issuance for the loss-making players. We prefer to gain our exposure to the rising penetration of EVs indirectly, via component makers such as Fuyao Glass, an auto glass maker, and Hongfa Technology, a high voltage relay maker (used in various electrical modules including the battery charging).

Our exposure to Real Estate was also a major contributor, thanks to our overweight position in KE Holding, which operates the largest internet property information portal and the largest nationwide agent network. KE is a well-managed, asset-light business with improving profitability and good cash flow generation and it is committed to returning excess cash to shareholders via share buybacks. The business will also benefit significantly from all the past year's policy measures aimed at rejuvenating property transactions. Not owning any of the developers also helped performance.

Healthcare made the largest negative contribution, mainly due to our exposure to two types of companies. First, our two holdings in the contract development & manufacturing organisation (CDMO) sector, Wuxi Biologics and Asymchem, came under pressure. These companies provide comprehensive services to pharmaceutical, biotechnology, and medical device companies. Their share prices plummeted as the US House of Representatives sought to pass federal legislation called the 'Biosecure Act', which would prevent US federal funded projects from employing Chinese CDMOs, based on national security concerns. There are further market concerns that if the act is passed, it may also reduce the willingness of privately owned US pharmaceutical companies to use Chinese CDMOs, even if these commercial projects are not funded by the US government. As a result of these developments, we exited Asymchem and Wuxi Biologics following the year-end.

The second group of healthcare underperformers were those with exposure to discretionary healthcare services and public sector healthcare spending. Contrary to our expectations, the post-pandemic recovery in discretionary and out-of-pocket healthcare services proved to be short-lived. Consequently, these stocks reported disappointing results. To rectify this misjudgment, we exited Imeik Technology, a cosmetic dermo filler maker, and Aier Eye Hospital, a private eye hospital. The procurement of medical products, services and equipment has been negatively impacted by the prolonged anti-corruption campaign in healthcare and, to a lesser extent, post COVID austerity at the local government level. This adversely impacted our holdings in Guangzhou Kingmed Diagnostics (independent pathological labs) and Qingdao Haier Biomedica, a manufacturer of biomedical lab and public healthcare equipment. We exited the former as the investment case is very dependent on local governments honouring outstanding COVID-related payments to Kingmed for providing tests, which we think may be quite a challenge for many of them given local governments' austerity programmes. We retain a small position in the latter, waiting for the eventual recovery of healthcare capex in China partially funded by the central government and a recovery of its exporting business that was disrupted by the wars in the Middle East and Ukraine.

In the Information Technology (IT) sector, our stock selection bore mixed results. Our positions in solar energy, including module components maker Xinyi Solar, and equipment makers Zhejiang Jingsheng Mechanical and Electrical and Suzhou Maxwell Technologies, detracted the most. An industry downturn triggered by overcapacity has proved deeper and more protracted than expected. We exited some of these positions. Our long-term holdings in the software sector, namely Kingdee International Software, an enterprise resources planning (ERP) software provider, and Hundsun Technologies, a software provider for the securities and asset management industries, also performed poorly. Despite long-term growth potential from increasing penetration and import substitution, these companies were more sensitive to the macroeconomic downturn and cuts in corporate IT spending then we anticipated. We exited Hundsun Technologies. On the positive side, our long-term strategy of investing in secular growth opportunities in technology bore some fruit during the year. Top 10 single stock contributors included a few long-held IT names such as Silergy Technology, a Taiwan listed manufacturer of analogue integrated circuits. This business is benefiting from the expansion of product types, rising market share and an industry-wide cyclical recovery. Our position in Foxconn Industrial Internet also added to performance. This company is an A-share listed subsidiary of Hon Hai, best known as the iPhone assembler. It is the largest global supplier of servers and racks and is Nvidia's main supplier of generative AI graphic processing unit (GPU) modules.

Transactions and sector allocation

The Company maintained its growth tilt throughout the year. By the end of the financial year, the top three overweight sectors were Information Technology, Healthcare and Industrials, as per the previous financial year. The top three underweight sectors were Financials, Communication Services and Energy. As previously discussed, the underweight position in Financials was mainly due to not owning the big five State-owned enterprise (SOE) banks as we see few structural growth opportunities there. The underweight position in Communication Services was primarily due to the outperformance of Tencent which led to a 16.3% weighting in the benchmark, while our portfolio weighting is capped at 12.5% by risk guidelines. We had zero holdings in Energy at the end of the financial year as the sector was dominated by carbon-intensive SOEs in the oil and coal industries, governance of which is not very transparent and where we have little edge in making forecasts.

While the sector allocations look very similar to a year ago, we made changes to our positions in sub-sectors, even in sectors where we maintained a large overweight position.  In addition, even in sectors where we maintained a large overweight position, we made changes to our positions in sub-sectors. We rectified some mistakes made previously, sought for certainty in earnings outlook at reasonable valuation, and where possible we added to companies committed to growing return to shareholders through dividends and share buybacks.

In Information Technology, our largest overweight sector, we exited a few relatively expensive software stocks based on valuations and fundamental outlook. These included Beijing Kingsoft Office, a Chinese office WPS (write, presentation and spreadsheet) software provider, as valuations ran ahead of the monetisation of its AI tools which had been constantly delayed; Hundsun Technology, a software provider to the finance industry, as valuations looked stretched due to clients in securities and asset management industry cutting IT budgets in the market downturn; and Shanghai Baosight Software, a software and automation system integrator for the steel industry, given our concerns about deteriorating profitability in the Chinese steel industry which will ultimately impact companies' willingness to spend on Baosight's services. In the broad solar industry, we exited a few small positions such as Longi Green Energy Technology, a manufacturer of wafers and solar panels, Hangzhou First Applied Materials, a manufacturer of specialised protection membrane used in solar panels, and two equipment makers for the solar industry Suzhou Maxwell Technologies and Zhejiang Jingsheng Mechanical & Electrical. Despite strong solar panel installation growth globally, the over-supply situation and the exit of marginal players took much longer to solve than we expected, leading to faster than predicted margin deterioration, even for the market leaders we own. In the IT sector, we rotated funding to companies that were reasonably valued and presented promising growth opportunities in artificial intelligence. We initiated a position in TSMC (Taiwan Semiconductor Manufacturing Company) at the beginning of 2024 when the market was overly concerned on the delayed recovery of traditional applications such as consumer electronics and auto, when advanced node chips used in artificial intelligence (AI) only accounted for low single digit of total revenue. We initiated the position as we believed TSMC's dominant position in semiconductor manufacturing will be further solidified in the AI era leading to better margins in the medium term. Our global research team collectively is quite optimistic on the take-off of AI chips in the coming years. Along the line, we also initiated Zhongji Innolight that makes optical transceivers, which is a critical part in data transfer within a server. It is a supplier to many US server clients. We also built positions in Luxshare Precision, one of Apple's most important suppliers across product lines, and Lenovo Group, a major PC and server maker globally. Although their products have existed for a long time, we believe AI will bring in new opportunities from the accelerated product replacement cycle and higher Average Selling Price (ASP) from more functions. Both companies' valuations were very reasonable at the point of purchase because many investors are still not fully convinced by the thesis.

In the broad Healthcare and Consumer space, we rectified some mistakes we made in the past year. For example, we exited Aier Eye Hospital, an out-of-pocket eye surgery provider, and Guangzhou Kingmed Diagnostics Group, an independent pathological lab chain providing outsourced pathological tests to public hospitals. Recovery post the COVID reopening had been disappointing due to weak consumption and continuous anti-corruption campaigns in public hospitals, that reduced patients' volume and healthcare service prices. We also exited casual restaurant operator Jiumaojiu and two Chinese liquor companies Wuliangye and Luzhou Laojiao as a result of concerns about CPI deflation for the former and high inventory for the latter two. We have rotated funding to companies at lower valuations, with better earnings growth visibility (even if lower), and/or where market expectations have been adjusted down to a more realistic level. Examples include China Resources Sanjiu, a household name in China with most of its profit generated from OTC (over-the-counter) traditional Chinese medicine used to cure mild illnesses such as colds and digestion problems. The business built a famous brand over decades and has strong control of its distribution channel. The consumption of its products demonstrates a certain level of non-discretionary nature, making it relatively less sensitive to macroeconomic downturns. Another example is Sinopharm Group, one of the largest medical products and device distributors nationwide. We initiated the position towards the end of the financial year when negative impacts from the anti-corruption campaign had been reflected in its low valuation and high dividend yield, despite the fact that the company should be a good proxy of potential recovery in patients and treatment volumes. Along the line of searching for above-nominal GDP growth with certainty and good execution, we initiated a new position in Midea Group, the largest home appliances company in China, and possibly in the world by production volume. Midea's growth is supported by a well-balanced set of drivers including growing market share outside China, improving export margins and home appliances trade-in programmes launched by the Chinese central government to stimulate demand. Its Hong Kong H share IPO was offered at a discount to its A share and we took the opportunity to initiate a new position through the H share.

In the broad Internet sector (classified as Consumer Discretionary or Communication Services), we used market volatility to rotate funding from outperformers/lower conviction names to companies in which we have higher conviction and that trade at reasonable valuation. In ecommerce, we exited JD.com but topped up PDD Holdings. We believe the former's competitive edge in electrical goods as well as quality logistic services are eroding and being caught up by competitors. PDD, while valued at similar levels and at one point cheaper than Alibaba and JD.com, has better growth prospects from Chinese consumers trading down and penetration into foreign markets. The meaningful reduction in Tencent reflected regular breaches of holding limits.

Ten largest investments

As at 30th September

¹     Based on total investments of £235.4m (30th September 2023: £262.0m). Top ten investments at September 2023 totalled £106.2m, representing 40.5% of total investments.

Gearing

The average gearing level during the financial year was maintained at 6.7%. Our ability to gear up, if we deem it potentially attractive to so do, was constrained by the high cost of bank loans. To solve this problem, JPMorgan has completed a project to make CFDs available to the Company. This provides an alternative way of increasing leverage when we need it.

A CFD is a type of derivatives trade. It is an agreement between a buyer (in this case JCGI) and a seller, that stipulates that the buyer must pay the seller the difference between the current value of the asset and its value at a future contract time. It allows investors to profit from share price appreciation without actually owning it. However, CFDs do leave the investor open to risk if the price of the underlying stock declines. Also the company pays a brokerage fee for entering the contract regardless of realised profit and loss.

Outlook

As previously discussed, as long-term investors in Chinese equities, we acknowledge that there is no quick solution to some of the country's structural issues. It seems inevitable, and indeed desirable, that the property sector's contribution to growth will henceforth be permanently lower. In addition, local governments need to find an alternative source of funding to replace land sale revenue. On the demographic front, China's aging population and declining birthrate impose unwelcome deflationary pressures. But despite these challenges, it is worth reiterating that the financial return of an asset class may not necessarily move in close accordance with fundamental trends. Valuations and near-term market sentiment play important roles too.

Government efforts to address China's problems are likely to continue. We foresee more initiatives from both the central and local governments in the coming months to tackle the structural impediments to economic growth. Possible additional measures include a direct debt swap between the central and local governments; more direct cash handouts to targeted households; a recapitalisation of China's large state-owned banks; and using the central government's balance sheet to buy unfinished and unsold housing inventory. It is always difficult for equity investors to bet on the timing and scope of any such policy initiatives, and we do not intend to try. Nevertheless, we believe the central government's newfound but apparently strong commitment to use its balance sheet to solve the economy's problems sends a strong signal to the market that it is still prioritising economic stabilisation and growth and is willing to explore further ways to achieve these objectives.

While domestic demand is hesitant, exports remain a highlight of the Chinese economy, outgrowing GDP. The corporate stories we encounter repeatedly as we conduct our on the ground, bottom-up investment research into individual stocks are far more upbeat than the doom and gloom which pervades the media. Despite geopolitical concerns, we still find many Chinese companies playing increasingly important roles in global supply chains. Many are participating fully in global trends such as the artificial intelligence revolution and the infrastructure buildout in developed countries. For example, beyond the EV and renewable energy supply chain we have discussed in previous reports, we are invested in electronic hardware suppliers such as Zhongji Innolight and Foxconn International, which play critical roles in the global 'arms race' for GPU servers. We also have exposure to healthcare equipment and device suppliers such as Shenzhen Mindray and Amoy Diagnostic. About one third of these companies' total revenues are derived from exports.

Of course, we should not underplay the geopolitical risks that threaten Chinese and global equities. The most crucial of these for investors in Chinese equities is the course of China-US relations under the incoming US President-Elect. So early in the new administration, it is hard to predict the full impact of President-Elect Trump's victory, and pre-election rhetoric may be tempered by post-election political and diplomatic realities.

Our investment process does not try to second guess political events. Instead, we incorporate perceived risks into our portfolio construction and risk management processes. We rely on our deep, on-the-ground research to assess and analyse the potential risks faced by current and prospective portfolio holdings. Using our knowledge of their businesses and strategies, we try to reflect different risk scenarios in our forecasts and sensitivity analysis, and we will continue to take investment decisions based on our research and valuation signals. We may see increasing volatility as events unfold, but it is worth noting that although volatility is generally viewed as undesirable, it usually also presents good buying opportunities for investors, like us, who are willing to do their homework.

On the monetary policy front, it is good news for China that the US finally seems to have inflation under control. This is allowing the US Federal Reserve to begin easing monetary policy. Although it is hard to predict the speed and scale of Fed rate cuts, declining Fed rates will, in general, provide China with scope to cut its own reference rate to further stimulate activity, without triggering drastic currency depreciation. If US inflation turns out to be stickier than expected due to President-Elect Trump's administration policies such as increasing trade barriers, China may have less room to lower its own interest rates, while keeping exchange rates relatively stable.

Elsewhere in the political arena, we view China's relationship with Taiwan as stable, despite periodic military drills by both sides. Taiwan held a peaceful presidential election in January 2024. The new President, William Lai, from the pro-independence Democratic Progressive Party (DPP), favours preserving the status quo regarding Taiwan's relations with China. As no party holds a majority in Taiwan's legislature, it is highly unlikely that the pro-independence DPP will be able to pass any radical resolution which might put fresh pressure on the cross-strait relationship.

Valuations matter, as noted above. Before the latest round of stimuli announced at the end of September, the MSCI China Index was discounting very pessimist assumptions. The price to book of the index, a rather conservative measure of valuation, hit as low as 1.1x in March 2024, close to the ten-year low level reached in September 2022 when China was paralysed by COVID lockdowns. The extreme pessimism reflected in valuations set the stage for the very sharp rebound in the wake of September's policy announcements. We would make two observations regarding this rebound. First, it is extremely difficult to time the entry point into the Chinese equity market, or indeed, any equity market. In our view, long-term investing at reasonable valuations is the better approach. Second, the Chinese market has not been completely deserted by international investors, as some commentators claim. When valuations are cheap and things are turning for the better, investors do notice. This is what has happened since September. The first leg of a strong rebound of many Chinese stocks listed in Hong Kong and the US was fuelled by global hedge funds taking a fresh look at China, and then followed by long-only mutual funds reassessing their positionings in China, mostly starting from an underweight position. Any further improvement in China's economic outlook is likely to spark further interest from international investors. On the other hand, we are also conscious that negative narratives around China and investment in China based on President-Elect Trump's attacks on China may cap the asset class's valuations in the near term.

Where are we going from here? We see reasons for optimism. Firstly, valuations are still attractive. Although valuations recovered in September and October 2024, they are still at relatively low levels compared to market history. For example, the price to book of the index is still below its level during the global financial crisis in 2009.

Second, corporate reforms focused on improving capital allocation and shareholder returns will be very positive for the market. Many cash generative companies, that traditionally hoarded cash for 'future growth opportunities' regardless of their actual capital needs, are more willing to distribute cash to shareholders either through dividends or share buybacks. This change is being strongly encouraged by the Chinese regulators, to the extent that the PBOC is extending low-cost liquidity to corporates to undertake such buybacks. Developments in this direction have been greatly welcomed by domestic and international investors, as they view dividends to be a more predictable source of return. This was certainly a factor behind the recent outperformance of the MSCI China Value Index. As we noted in the Half Year report, while many of our cash-rich holdings are already increasing payout ratios and undertaking share buybacks, there is still considerable scope for many to do even more. This should have a further beneficial impact on valuations over time.

Finally, with the Chinese authorities now clearly determined to support the economy and the property sector, we also see potential for upside surprises to earnings over the next year and beyond, especially for the quality and growth-oriented stocks we favour.

All this leaves us cautiously optimistic about the prospects for Chinese equities, and for our portfolio over the coming year. We will continue to seek out and grasp the opportunities generated by economic recovery and structural change, to ensure that the Company continues to deliver outright gains and outperformance to shareholders over the long term.

We thank you for your ongoing support.

Rebecca Jiang

Howard Wang

Li Tan

Investment Team                                                                                                                        9th December 2024

PRINCIPAL AND EMERGING RISKS

The Directors confirm that they have carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.

With the assistance of the Manager, the Audit Committee maintains a risk matrix which identifies the principal risks to which the Company is exposed and methods of mitigating against them as far as practicable. The risks identified and the broad categories in which they fall, and the ways in which they are managed or mitigated are summarised below.

The AIC Code of Corporate Governance requires the Audit Committee to put in place procedures to identify emerging risks. At each meeting, the Board reviews all potential risks and considers emerging risks which it defines as potential trends, sudden events or changing risks which are characterised by a high degree of uncertainty in terms of occurrence probability and possible effects on the Company. As the impact of emerging risks is understood, these risks may be entered on the Company's risk matrix and mitigating actions considered as necessary.

TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES

Details of the management contract are set out in the Directors' Report in the Annual Report. The management fee payable to the Manager for the year was £1,715,000 (2023: £2,468,000).

Safe custody fees amounting to £33,000 (2023: £51,000) were payable during the year to JPMorgan Chase Bank N.A. of which £8,000 (2023: £21,000) was outstanding at the year end.

The Manager may carry out some of its dealing transactions through group subsidiaries. These transactions are carried out at arm's length. The commission payable to JPMorgan Securities Limited for the year was £3,000 (2023: £9,000).

Handling charges on dealing transactions amounting to £57,000 (2023: £34,000) were payable to JPMorgan Chase Bank N.A. during the year of which £4,000 (2023: £6,000) was outstanding at the year end.

The Company also had an investment in the JPMorgan USD Liquidity Fund, a money market fund which is managed by JPMorgan Asset Management(Europe) S.à r.l. At the year end this was valued at £347,000 (2023: £4,000). Interest amounting to £35,000 (2023: £212,000) was receivable during the year.

Fees amounting to £48,000 (2023: £224,000) were receivable from stock lending transactions during the year. JPMorgan Chase Bank N.A. commissions in respect of such transactions amounted to £5,000 (2023: £25,000).

At the year end, total cash of £2,291,000 (2023: £83,000) was held with JPMorgan Chase Bank, N.A. in a non interest bearing current account.

Full details of Directors' remuneration and shareholdings can be found in the Director's Remuneration Report in the Annual Report.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have elected to prepare the Financial Statements in accordance with applicable law and United Kingdom Accounting Standards, comprising Financial Reporting Standard 102 'the Financial Reporting Standard applicable in the UK and Republic of Ireland' (FRS 102). Under company law the Directors must not approve the Financial Statements unless they are satisfied that, taken as a whole, the Annual Report and Financial Statements are fair, balanced and understandable, provide the information necessary for shareholders to assess the Company's performance, business model and strategy and that they give a true and fair view of the state of affairs of the Company and of the total return or loss of the Company for that period. In preparing these Financial Statements, the Directors are required to:

•        select suitable accounting policies and then apply them consistently;

•        state whether applicable UK Accounting Standards comprising FRS 102, have been followed, subject to any material departures disclosed and explained in the Financial Statements;

•        make judgments and accounting estimates that are reasonable and prudent; and

•        prepare the Financial Statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business

and the Directors confirm that they have done so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Financial Statements are published on the www.jpmchinagrowthandincome.co.uk website, which is maintained by the Company's Manager. The maintenance and integrity of the website maintained by the Manager is, so far as it relates to the Company, the responsibility of the Manager. The work carried out by the Auditor does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditor accepts no responsibility for any changes that have occurred to the accounts since they were initially presented on the website. The accounts are prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.

Under applicable law and regulations the Directors are also responsible for preparing a Strategic Report, a Directors' Report and a Directors' Remuneration Report that comply with that law and those regulations.

Each of the Directors, whose names and functions are listed in the Directors' Report confirm that, to the best of their knowledge:

•        the Company's Financial Statements, which have been prepared in accordance with applicable law and United Kingdom Accounting Standards, comprising FRS102, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

•        the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

The Board confirms that it is satisfied that the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position, performance, business model and strategy.

For and on behalf of the Board

Alexandra Mackesy

Chairman

9th December 2024

FINANCIAL STATEMENTS

STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30th September 2024

¹     £1,491,000 due to an exchange gain on the loan which is denominated in US dollars and £183,000 due to net exchange loss on cash and cash equivalents (2023: £6,155,000 due to an exchange gain on the loan which is denominated in US dollars and £1,415,000 due to net exchange gains on cash and cash equivalents).

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.

The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies. Net return after taxation represents the profit for the year and also total comprehensive Income.

STATEMENT OF CHANGES IN EQUITY

For the year ended 30th September 2024

¹     Created during the year ended 30th September 1999, following a cancellation of the share premium account.

²     These reserves form the distributable reserves of the Company and may be used to fund distributions to investors.

³     During the year, the Company undertook an Asset Reunification Program to reunite inactive shareholders with their shares and unclaimed dividends. Pursuant to the Company's Articles of Association, the Company has exercised its right to reclaim the shares of shareholders whom the Company, through its previous Registrar, has been unable to locate for a period of 12 years or more. These forfeited shares were sold in the open market by the Registrar and the proceeds, net of costs, were returned to the Company. In addition, any unclaimed dividends older than 12 years from the date of payment of such dividends were also forfeited and returned to the Company.

STATEMENT OF FINANCIAL POSITION

At 30th September 2024

¹     Cash at bank in the Statement of Financial Position has been restated to exclude the investment in the JPMorgan USD Liquidity Fund of £4,000 for the year ended 30th September 2023, and to disclose this separately as Current asset investments to conform with the statutory format as required by the Companies Act. There is no impact on other line items in the Statement of Financial Position nor on the total current assets.

STATEMENT OF CASH FLOWS

For the year ended 30th September 2024

¹ JPMorgan USD Liquidity Fund, money market fund.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30th September 2024

1.  Accounting policies

Basis of accounting

The Financial Statements are prepared under the historical cost convention, modified to include fixed asset investments at fair value, and in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in July 2022.

All of the Company's operations are of a continuing nature.

The Financial Statements have been prepared on a going concern basis. In forming this opinion, the Directors have considered the Company's investment objective, risk management policies, capital management policies and procedures, the nature of the portfolio and revenue as well as expenditure projections, taking into account the heightened market volatility from, the growing geopolitical risk to include tensions between China and the United States, the ongoing conflict between Russia and Ukraine, and the conflict in the Middle East. The Company's shareholders voted for the continuation of the Company at the 2023 AGM. The next continuation vote will be at the 2028 AGM. The disclosures on going concern in the Annual Report form part of these financial statements. The Directors consider that the Company has adequate financial resources to enable it to continue in operational existence for at least 12 months.

The policies applied in these Financial Statements are consistent with those applied in the preceding year, except for the restatement of Cash and Cash equivalents to present these separately as Cash at bank and Current asset investments.

2.  Dividends

(a)          Dividends paid and proposed

In respect of the year ending 30th September 2025, the first quarterly interim dividend of 2.73p per share amounting to £2,271,000 (2024: 2.76p per share amounting to £2,296,000) has been declared and paid. In accordance with the accounting policy of the Company, this dividend will be reflected in the Financial Statements for the year ending 30th September 2025.

(b)    Dividend for the purposes of Section 1158 of the Corporation Tax Act 2010 ('Section 1158')

The requirements of Section 1158 are considered on the basis of the dividend paid and declared in respect of the financial year, shown above. For the year ended 30th September 2024, the dividends declared were paid during the year as shown above.

The aggregate of the distributable reserves is £87,666,000 (2023: £90,042,000). Please note that at the Annual General Meeting ('AGM') in February 2020, shareholders approved an amendment to the Company's Articles of Association to allow the Company to distribute capital as income to enable the implementation of the Company's dividend policy.

3.  Return/(loss) per share

4.  Net asset value per share

5.  Status of results announcement

     2023 Financial Information

    The figures and financial information for 2023 are extracted from the Annual Report and Financial Statements for the year ended 30th September 2023 and do not constitute the statutory accounts for that year.  The Annual Report and Financial Statements has been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

     2024 Financial Information

    The figures and financial information for 2024 are extracted from the Annual Report and Financial Statements for the year ended 30th September 2024 and do not constitute the statutory accounts for that year.  The Annual Report and Financial Statements includes the Report of the Independent Auditor which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Financial Statements will be delivered to the Registrar of Companies in due course.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

9th December 2024

For further information, please contact:

Lucy Dina

For and on behalf of

JPMorgan Funds Limited

Telephone: 0800 20 40 20 or or +44 1268 44 44 70

ENDS

A copy of the 2024 Annual Report and Financial Statements will shortly be submitted to the FCA's National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism

The 2024 Annual Report and Financial Statements will also shortly be available on the Company's website at www.jpmchinagrowthandincome.co.uk where up-to-date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

JPMORGAN FUNDS LIMITED