Invesco Asia Dragon Trust: Finding value in Asian markets

One of our favourite charts shows the price-to-book (P/B) ratio of the MSCI AC Asia ex Japan Index. The P/B ratio compares a company's market value (its stock price) to its book value (the value of all its assets minus its liabilities). Over the past 20 years, this valuation metric has served as a useful gauge of the attractiveness of Asian and emerging markets.

Today, we acknowledge that these markets appear less attractive than normal, based on this metric. However, it’s important to note that the last 15 years of P/B history for Asian and emerging markets may not be representative of what lies ahead.

There are three reasons why today may be different.

1. Index composition has changed significantly. Put simply, the mix of companies in these markets has changed a lot. Today, there are far more businesses focused on technology and services in the Asian and emerging market indexes. For example, at the end of September 2010, there was only one internet company in the top 30 of the MSCI AC Asia ex Japan Index, and it accounted for 0.9% of the index. But at the end of September 2025, there were nine internet companies in the top 30, collectively accounting for 15% of the index. These companies are based in sectors such as steel, real estate, and banks. So, comparing today’s P/B ratio with that of 15 years ago is not a like-for-like comparison.
2. Emerging markets have been an out-of-favour asset class for much of the past 20 years, particularly compared to the S&P 500 Index. But today, there is clear potential for a reversal in fortunes driven by a weakening of the US dollar, a rebound in the Chinese economy, or a rethink of how these markets are priced.
3. Shareholder returns have improved across emerging markets.
   In recent years, businesses in emerging markets have become more focused on rewarding investors. They’re paying out a larger share of profits as dividends, and many are also buying back their own shares to boost shareholder value. This shift shows a stronger commitment to delivering returns to investors.

An active approach to finding undervalued companies

Importantly, the Invesco Asia Dragon Trust strives to beat the index — not to track it. The trust is managed by experienced professionals with a deep understanding of Asian markets and a disciplined approach to identifying companies trading for less than their fair value.

Our approach focuses on long-term value rather than short-term market trends. In the short term, markets are driven by human emotion and often behave irrationally. We aim to capitalise on gaps that emerge between price and value. Put simply, we aim to buy when there is fear in the market, when we have a high degree of conviction that a stock is trading at a significant discount to what we consider to be fair value. We then look to sell when the share price recovers and avoid holding onto stocks when prices reflect greed.

Thanks to our disciplined approach to investing, Invesco Asia Dragon Trust has a history of outperforming the MSCI AC Asia ex Japan Index. Past performance does not predict future returns¹.