ISI Far East
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Transcript of ISI Far East
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ISI Far East
Things will never be the same again …
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Overview• ISI facts• Important Far Eastern trends• Far Eastern trade• Sound businesses• Characteristics of the Far East and China• Country and industry preferences• Risks• Investment philosophy and investment process• Questions
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Urbanisation in Asiacurrent migration
Migration from rural to urban areas a long-term trend contributing to growth and demand for commodities
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Rising income in China- also for rural population
Rising income =growing private consumption
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Disposable income andhouse price developments in China
Wage rise faster than house prices
Wages
House prices
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China an agricultural country?
0
10
20
30
40
50
60
Agriculture Industries Tertiary
share of total labour force share of GDP
%
Too many employed oninefficient farms
Source: GaveKal
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Household debt/GDP
Mortgage debt Other debt
Source: GaveKal
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Chinese savings motivations
0% 5% 10% 15% 20% 25% 30% 35% 40%
Childen's wedding exp.
Home purchase
Medical care
Retirement
Children's education
Key motivations for saving
Source: HSBC
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USD/RMB
USA
Kina
Japan Korea
.
kilde: BCA Research
The only way is …
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Exports from Asia to USA declining
USA
Kina
Japan Korea
Result: less dependency ondebt-ridden US consumers
.
Source: BCA Research
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Declining debt/equity ratio butROE remains high
Reduced risk at lower global growth
Debt/equityROE
Source: CLSA
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Equity yields exceed bond yields
Source: CLSA
Numerous opportunities of findingsecure equities in Far East
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Far East• Economic growth is stable and high
– likely to remain so in 10-15 years• Rapidly rising purchasing power among private households
– new consumers appear every day• Positive demographic development• Swelling trade in the Far East
– reduces dependency on USA• Positive development of various balances
– countries capable of countering recession• Sound companies with good earnings
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China
• Share markets are liquidity driven– 90,000 new stock accounts every day
• Reduction in corporation tax– from 33% to 25%
• Rising exchange rate• High growth in earnings• Listing of H shares in China
– PetroChina and China Mobile• 2008 Olympics
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Country weights
Overweights• China, Hong Kong and Macau• Singapore• Malaysia
Underweights• Korea• Taiwan• Thailand
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Industry preferences
• Real property– private homes, office buildings and hotels
• Retail sales• Financials• Infrastructure• Telecommunication• Food• Commodities
– food, metals and oil• Technology – substantial underweight
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Risks
• Measures imposed by Chinese authorities to bring booming economy to a halt are too stringent
• US housing market to weaken and USD to plunge
• Growth in global economy triggers rising inflation and interest rates
• Oil price to exceed USD 100 per bbl
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Investment philosophy
1) Active management enables us to generate outperformance.
2) We access the market with a top-down approach, focussing on getting countries and sectors right.
3) We believe that investing in long or short themes can add value to the portfolio.
4) Identification of differences between market value and fair value that are not due to fundamental issues can contribute to outperformance.
5) We believe that ability to act fast on new information is crucial for our outperformance.
6) We believe that teamwork and a disciplined investment process is necessary in order to be fast-reacting.
7) We believe that cooperation with external advisors is necessary and value adding.
Sydbank Emerging Markets & Structured Credit aims to offer customized, premium quality investment products as well as active investment management ensuring high, long-term performance. By investing in Emerging Markets we believe that we can generate risk adjusted excess value based on seven fundamental elements:
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Global factors and themesInterest ratesCurrencyInflationGrowthGeopoliticsCommoditiesStructural changes
Market analysisRelative pricingRisk aversionSupply/demand
GLOBAL VIEW
Portfolio risk profile and themes
COUNTRY / SECTOR ALLOCATION
Quantitative factorsMacro economyValuation Geographical placementTrading relationsCredit rating
Qualitative factorsPolitical stability/prospectsReform agendaBudget planningFinancial systemInternational relationsCentral bank
Country / sector selection
STOCK SELECTION
Micro researchExternal advisorsValuationManagement qualityTop line growthEarnings growth / qualityCF generationBalance sheet strength
Investment horizon:• Strategic/tactical
Final portfolio
PHASE 1 PHASE 2 PHASE 3
Feedback to the process:Investment guidelines, legislative investment rules, attribution analysis etc.
Investment process