0
Julian Thompson, Fund Manager of the AXA Framlington Emerging Markets Fund
Opportunities in Emerging Market equities
17627...
Global Emerging markets – where are we?
 Cost of capital now rising globally as US economy recovers
 Increased pressure ...
High yield currencies under pressure
Source: Bloomberg as at 06/09/2013.
2 17627 09/13
Little visibility on near term growth
 Growth has been surprisingly weak; rate
rises do not help
 Little room for fiscal...
China: Misallocation of Capital
 Capital has long been mispriced in China
 Leading to overinvestment, especially in
real...
China banking sector no longer able to support infrastructure
investment
Source: Bloomberg as at 31/07/2013.
RMB = Renminb...
But some signs of life in manufacturing sector
6 17627 09/13
Source: Bloomberg as at 31/08/2013.
30
35
40
45
50
55
60
65
S...
Signs of a pick up in the export sector
Source: Bloomberg as at 31/08/2013.
3mma = 3-month moving average; y-o-y = year-on...
0 5 10 15 20 25
Brazil
Mexico
Other Latin America
China
India
Korea
Indonesia
Malaysia
Taiwan
Thailand
Other Asia/Pacific
...
Mexico is an attractive investment destination
 Audi to invest US$1.15bn in new state of
the art plant in Puebla
 Will b...
Mexico: recovery in manufacturing underpinned by economic reform
 Enormous change in political environment
 One of the f...
-40
-30
-20
-10
0
10
20
30
40
50
60
Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13
Domestic demand (% q/q, saar) GDP (% ...
Turkey: high external financing requirement
 Large current account deficit leaves Turkey
exposed to financing flows
 Rea...
AXA Framlington Emerging Markets – portfolio as at 31/07/2013
13 17627 09/13
Large Cap => 8bn USD
Medium Cap 1–8bn USD
Sma...
Sector allocation
14 17627 09/13
Breakdown by sector (%)Relative exposure by sector (%)
AXA Framlington Emerging Markets M...
Breakdown by country (%)
Country and regional breakdown allocation
15 17627 09/13
Relative exposure by region & country (%...
AXA Framlington Emerging Markets strategy – track record
16 17627 09/13
Source: AXA IM as at 31/07/2013. Basis: bid to bid...
Disclaimer
This communication is intended for professional advisers’ use only and should not be relied upon by retail clie...
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  1. 1. Julian Thompson, Fund Manager of the AXA Framlington Emerging Markets Fund Opportunities in Emerging Market equities 17627 09/13 This communication is for professional advisers only and must not be relied upon by retail clients. Circulation must be restricted accordingly.
  2. 2. Global Emerging markets – where are we?  Cost of capital now rising globally as US economy recovers  Increased pressure on emerging market central banks to raise rates as capital flows out  Most emerging economies are in good shape but there may be some casualties Cost of credit for emerging economies (bps) Source: Bloomberg as at 06/09/2013. 0 2 4 6 8 10 12 14 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 percentagepoints US 10 YEAR BOND YIELD EMBI SOVEREIGN SPREAD OVERALL SOVEREIGN COST OF CAPITAL 1 17627 09/13
  3. 3. High yield currencies under pressure Source: Bloomberg as at 06/09/2013. 2 17627 09/13
  4. 4. Little visibility on near term growth  Growth has been surprisingly weak; rate rises do not help  Little room for fiscal stimulus this time around in larger economies  Varied response from Central Banks on monetary policy  Markets in very different economic cycles with their own particular domestic issues – Banking sector in China – Policy paralysis in India – Political intereference in Brazil Interest rates in major markets (%) Graph source: Bloomberg as at 05/09/2013. 0 5 10 15 20 25 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 BRAZIL SELIC rate India 3 month deposit rate CHINA Bank Reserve Requirements 3 17627 09/13
  5. 5. China: Misallocation of Capital  Capital has long been mispriced in China  Leading to overinvestment, especially in real estate  Government trying to address this issue with gradual banking sector liberalisation  This probably means lower growth in the short-term but averts a bigger crisis further down the line  Consumption has slowed but remains positive 4 17627 09/13 Ordos, China: a ghost city example
  6. 6. China banking sector no longer able to support infrastructure investment Source: Bloomberg as at 31/07/2013. RMB = Renminbi yuan 0 5 10 15 20 25 30 35 40 0 200 400 600 800 1000 1200 1400 1600 1800 2000 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Monthly volume of new loans in China (Bn. Yuan, LHS) Growth in existing stock of total bank loans (%, RHS) 5 17627 09/13
  7. 7. But some signs of life in manufacturing sector 6 17627 09/13 Source: Bloomberg as at 31/08/2013. 30 35 40 45 50 55 60 65 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 HSBC NEW ORDERS PMI CHINA MANUFACTURING PMI
  8. 8. Signs of a pick up in the export sector Source: Bloomberg as at 31/08/2013. 3mma = 3-month moving average; y-o-y = year-on-year Export growth (3mma) (% change y-o-y) -50 -40 -30 -20 -10 0 10 20 30 40 50 60 May-03 May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13 % KOREA TAIWAN CHINA BRAZIL MEXICO 7 17627 09/13
  9. 9. 0 5 10 15 20 25 Brazil Mexico Other Latin America China India Korea Indonesia Malaysia Taiwan Thailand Other Asia/Pacific Russia Other Europe South Africa Turkey Other Africa/Middle East Other EM Environment calls for increased country differentiation  Strong differentiation between countries and currencies based on external capital requirement  Pressure on politicians to introduce structural reform  Politics handicapping some markets – Turkey, India  Focus on markets where reform is on the agenda or likely – China, Mexico, Thailand  Korea and Taiwan to benefit from a pick up in manufacturing cycle but corporate governance remains an issue Benchmark Fund Source: AXA IM as at 31/07/2013.*Refers to AXA Framlington Emerging Markets. Weight % Countries we like* 8 17627 09/13
  10. 10. Mexico is an attractive investment destination  Audi to invest US$1.15bn in new state of the art plant in Puebla  Will be main production facility globally for Q5, exporting to US and to Germany  150,000 units annually beginning 2016  Creates 20,000 jobs including indirect labour 9 17627 09/13 “More than a dozen locations were looked at….Site conditions, logistics links, infrastructure, well qualified employees and living quality – these were the decisive criteria for the choice of location” Audi press release, 5 Sept 5 2012 Not to mention competitive wages….
  11. 11. Mexico: recovery in manufacturing underpinned by economic reform  Enormous change in political environment  One of the few reform stories in Emerging Markets  Potential GDP growth could hit 5% in 3 years time  Infrastructure, energy, education and competition are all part of reform programme  Regained competitiveness vs China  Increasing integration with US economy Source: Morgan Stanley LatAm Economics – Chart source: as at:31/01/2013 3mma = 3-month moving average ; y-o-y = year-on-year Mexico’s share of US imports (% of US imports, 3mma seasonally adjusted) Unit labour costs in manufacturing (3mma, % change y-o-y) 8.0% 8.5% 9.0% 9.5% 10.0% 10.5% 11.0% 11.5% 12.0% 12.5% Jul-00 Oct-01 Jan-03 Apr-04 Jul-05 Oct-06 Jan-08 Apr-09 Jul-10 Oct-11 Jan-13 Manufacturing ex-Auto Total Manufacturing -28% -24% -20% -16% -12% -8% -4% 0% 4% 8% Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 10 17627 09/13
  12. 12. -40 -30 -20 -10 0 10 20 30 40 50 60 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Domestic demand (% q/q, saar) GDP (% q/q, saar) Thailand: sustainable growth in domestic demand  Political environment favours growth in rural areas  Fiscal policy driving consumption  Strong investment supporting growth  Liquid, well capitalised banking sector with low credit penetration Source: National Economic and Social Development Board/Haver Analytics as at 30/06/2013. Domestic Demand & GDP Government Contribution 11 17627 09/13 -30 -20 -10 0 10 20 30 Jun-01 Jun-03 Jun-05 Jun-07 Jun-09 Jun-11 Jun-13 GDP: Government (% y/y)
  13. 13. Turkey: high external financing requirement  Large current account deficit leaves Turkey exposed to financing flows  Real interest rates close to zero  Political unrest not helpful given financing requirement  Banking sector will suffer from higher interest rates given duration gap  Central Bank reluctant to raise interest rates for political reasons Source: Bloomberg as at 31/08/2013. Turkey : trade balance 12 17627 09/13 -15,000 -10,000 -5,000 0 5,000 10,000 15,000 20,000 25,000 Jan- 01 Jan- 02 Jan- 03 Jan- 04 Jan- 05 Jan- 06 Jan- 07 Jan- 08 Jan- 09 Jan- 10 Jan- 11 Jan- 12 Jan- 12 Jan- 13 US$bn. Exports Imports Trade Balance
  14. 14. AXA Framlington Emerging Markets – portfolio as at 31/07/2013 13 17627 09/13 Large Cap => 8bn USD Medium Cap 1–8bn USD Small Cap =< 1bn USD Source: AXA IM as at 31/07/2013. Comparative benchmark: MSCI Emerging Markets. Active share can be defined by the proportion of stock holdings in the composition of a portfolio which is different from the composition found in its comparative benchmark (MSCI Emerging Markets) The greater the difference between the asset composition of the fund and its comparative benchmark, the greater the active share. Market capitalisation breakdown (%) 1.8% 3.1% 28.1% 67.0% 0.0% 0.2% 27.5% 72.3% 0% 20% 40% 60% 80% 100% Cash Small Cap Medium Cap Large Cap MSCI Emerging Markets AXA Framlington Emerging Markets Top 10 active positions Fund % Comparative benchmark % Relative % Baidu 3.2 0.0 3.2 Bank of Georgia 3.1 0.0 3.1 Kimberly-Clark de Mexico 3.0 0.1 2.8 Bolsa Mexicana de Valores 2.7 0.0 2.7 Grupo Televisa 2.6 0.4 2.3 TATA Consultancy Services 2.5 0.4 2.1 Arca Continental 2.2 0.1 2.1 Belle International Holdings 2.3 0.2 2.1 Sberbank 3.0 0.9 2.1 CP ALL PCL 2.2 0.1 2.0 TOTAL 26.8 2.3 24.5 % of active share 77% Number of stocks 66
  15. 15. Sector allocation 14 17627 09/13 Breakdown by sector (%)Relative exposure by sector (%) AXA Framlington Emerging Markets MSCI Emerging Markets Source: Factset using TBR Methodology Data & end of day data as at 31/07/2013. Comparative benchmark: MSCI Emerging Markets. -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 Consumer Discretionary Consumer Staples Information Technology Industrials Health Care Telecommunication Services Financials Utilities Energy Materials 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 Financials Information Technology Consumer Discretionary Consumer Staples Industrials Telecommunication Services Energy Health Care Materials Utilities
  16. 16. Breakdown by country (%) Country and regional breakdown allocation 15 17627 09/13 Relative exposure by region & country (%) MSCI Emerging Markets Source: AXA IM as at 31/07/2013. Comparative benchmark: MSCI Emerging Markets. 0 5 10 15 20 25 Brazil Mexico Other Latin America China India Korea Indonesia Malaysia Taiwan Thailand Other Asia/Pacific Russia Other Europe South Africa Turkey Other Africa/Middle East Other EM -8 -6 -4 -2 0 2 4 6 8 10 Mexico Thailand Georgia Peru China & Hong Kong Chile South Africa Malaysia Korea Taiwan AXA Framlington Emerging Markets -10 -5 0 5 10 15 Latin America Europe Africa/Middle East Asia Pacific
  17. 17. AXA Framlington Emerging Markets strategy – track record 16 17627 09/13 Source: AXA IM as at 31/07/2013. Basis: bid to bid, net income, net of fees in GBP. Comparative benchmark : MSCI Emerging Markets. Dependant on the date this presentation has been prepared, the information presented may be different to the current figures. NB: Past performance is not a guide to future performance. 10Y Net Performance 50 100 150 200 250 300 350 400 450 500 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 AXA Framlington Emerging Markets (net) in GBP MSCI Emerging Markets Performance (%) net in GBP YTD 1Yr 2Yrs 3Yrs 5Yrs AXA Framlington Emerging Markets UT Net GBP 0.4 7.0 -4.7 5.8 27.8 MSCI Emerging Markets NR GBP -2.0 5.4 -5.0 6.5 34.3 Excess over comparative benchmark 2.4 1.7 0.3 -0.7 -6.4 Quartile vs IMA Global Emerging Markets 2 2 2 2 3
  18. 18. Disclaimer This communication is intended for professional advisers’ use only and should not be relied upon by retail clients. Circulation must be restricted accordingly. Any reproduction of this information, in whole or in part, is prohibited. This communication does not constitute an offer to sell or buy any units in the Fund. Information relating to investments is based on research and analysis undertaken or procured by AXA Investment Managers UK Limited for its own purposes and may have been made available to other members of the AXA IM Group of Companies which, in turn, may have acted on it. Whilst every care is taken over these comments, no responsibility is accepted for errors and omissions that may be contained therein. It is therefore not to be taken as a recommendation to enter into any investment transactions. This communication should not be regarded as an offer, solicitation, invitation or recommendation to subscribe for any AXA IM investment service or product and is provided to you for information purposes only. The views expressed do not constitute investment advice and do not necessarily represent the views of any company within the AXA Investment Managers Group and may be subject to change without notice. No representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Information relating to investments may have been based on research and analysis undertaken or procured by AXA Framlington for its own purposes and may have been made available to other expertises within the AXA Investment Managers Group, who in turn may have acted upon it. Information in this document may be updated from time to time and may vary from previous or future published versions of this document. Past performance is not a guide to future performance. The value of investments and the income from them can fluctuate and investors may not get back the amount originally invested. Changes in exchange rates will affect the value of investments made overseas. Investments in newer markets and smaller companies offer the possibility of higher returns but may also involve a higher degree of risk. An initial charge is usually made when you purchase units. Your investment should be for the medium to long term i.e. typically 5-10 years. AXA Framlington is an expertise of AXA Investment Managers UK Limited. Issued by AXA Investment Managers UK Limited which is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales No: 01431068 Registered Office: 7 Newgate Street, London EC1A 7NX. Telephone calls may be recorded for quality assurance purposes. 17 17627 09/13
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