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Sophia may 2011 trip asian consumption-fund presentation v4 - slides_final


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  • 1. Every time an Asian shops you benefit. May 2011 UBS Asian Consumption Fund Sophia Tang, Equity Strategist STRICTLY CONFIDENTIAL Asset Management
  • 2. SECTION 1 Outlook
  • 3. Transition to EM-led global economy Source: Haver, Bloomberg, IMF, Morgan Stanley Research. Estimates from Morgan Stanley Global Economics Team The past …. The future …. Source: CEIC estimates & World Economic Outlook, IMF, UBS IB research and estimates as of Mar 2011
  • 4. EM, an increasingly significant contributor to global GDP Share of Global GDP Major EM economies projected to be 42% of global GDP by 2020 Notes: We assume share of “Others” remains constant at 5% of world GDP. The projections assume nominal GDP growth at potential real GDP growth and central banks inflation target. To compute FX for periods beyond 2010, we assume the normalization of REER over the forecasted period. Source: IMF, J.P. Morgan research as of December 2010
  • 5. Source: CEIC, UBS as of Apr 2011 Inflation a key risk Asia inflation Food inflation Headline inflation Core inflation
  • 6. Central banks already exiting – to fight asset inflation Examples of policies Source: J.P. Morgan estimates and research as of Nov 2010
    • Hong Kong Monetary Authority – Lower loan to value ratio
      • Loan-to-valuation ratios for luxury property (more than HK$20 million) from 70 percent to 60 percent and tighten mortgage insurance criteria.
    • Reserve Bank of India – Higher provisioning
      • RBI increased banks’ provisioning requirement for commercial real estate from 0.40 per cent to 1 per cent.
    • Korea – Higher taxes plus more supply
      • Increase in ownership and capital gains taxes on owners of multiple homes
      • More homes in southern Seoul and its satellite cities.
    • China – raised reserve requirement ratios; city level measures to regulate the property sector
      • Shanghai and Chongqing government have announced the respective local version of the Real Estate Tax
      • Beijing set a new target of 50% of land supply and new construction starts in 2010 for affordable housing (economic and price-cap housing).
    • Government of Singapore – To curb speculative activity in the residential property sector
      • Seller’s Stamp Duty: applicable to vendors of properties bought and sold within one year. Normal stamp duty rates apply, with a tiered rate to 3%.
      • Lowering the max LTV ratio from 90% to 80%: the LTV cap was raised in Aug 05 to 90% and banks currently charge a significantly higher rate on mortgages with a LTV above 80%. Less than 10% of mortgages are with LTVs in excess of 80%.
  • 7. Rate hikes, currency appreciation to mitigate inflation pressure Asia ex Japan Policy rate (%) Source: UBS IB research as of March 2011 Currencies (Dec 2009 – Mar 2011) 1 1. Currencies indexed to Dec 2009 (RH chart) Source: Bloomberg, UBS Global Asset Management
  • 8. EM public, corporate and households debt levels are low Public debt as % of GDP Source: CLSA research as of April 2011. Data for 2009-2010 Asset turnover up, gearing down (ratios) Source: UBS IB GEM Inc Workbook, UBS Global Asset Management Consumer credit as % of GDP Source: UBS IB research as of 2010
  • 9. Asia ex Japan consumer sector valuations look attractive Source: J.P.Morgan Quant Strategy as of Apr 2011 Markets have corrected on the back of macro concerns PE Fwd to Mar 2011
  • 10. SECTION 2 The Opportunity
  • 11. Every minute…
    • 50 BABIES are born in India 1
    • 46 VISITORS arrive in China 2
    • 28 CHINESE RURAL DWELLERS migrate to the city 3
    Source: UBS Global Asset Management 1 Estimated from 2008/2009 crude birth rate as provided by The World Bank 2 Based on number of visitor arrivals in 2008 as provided by the Nation Bureau of Statistics of China 3 Estimated from urban population in China from 2008 to 2009 as provided by The World Bank
  • 12. Asian Consumption – multi decade theme Consumption in Asia has been growing – and will continue to be so Source: CLSA
    • Young population
    • More wealth
    • Urbanization More consumption
    • More debt
    • Low penetration of consumer goods
    • Asia Consumption Potential
    • Did you know?
    • One in four billionaires is now in Asia, up from one in ten in 2005
    • Greater China consumers will account for 44% of global luxury sales by 2020
    • Wine sales in Hong Kong rose 268% in 2010, making it arguably the world’s largest wine market
    • In India, only 17% of households have taken a mortgage loan
    • In Indonesia, 67% of households plan to buy a car in the next three years
  • 13. Young population => more consumers Asia accounts for 60% of world population, substantially younger than DM % of population aged 25 years and less Source: UN population database, Merrill Lynch research as of July 2010 Prediction, projection and forecast of economies or markets are not necessary indicative of future or likely performance of the UBS Asian Consumption Fund. Expected addition (m) to working age population (15 – 64 age group) during 2010 – 2030 Source: United Nations Population Division estimates as of 2010 Expected addition of 283 mn working age population from IN, ID and CH by 2030 16x that from U.S.
  • 14. Urbanization => more economic activity => more consumption Source: UN Population Statistics, GS Global ECS Research as of June 2010 Urbanisation ratio (%) Much room for urbanization trend to continue in China, India, Indonesia From… To… Japan (1962) Korea (1972) 45% India (2037E) China, Indonesia (2010) … leads to changes in culture & spending habits
  • 15. Rising income levels => greater propensity to spend E = Euromonitor estimates. Source: Euromonitor, Morgan Stanley Research as of Aug 2010 India: Income Pyramids China: Income Pyramids 3x 2x
  • 16. Low penetration of consumer goods in Asia Source: Ashwin Chotai, CEIC, CLSA Asia-Pacific Markets Apr 2010 Light vehicle ownership vs GDP per capita Australia New Zealand Taiwan Malaysia Singapore Korea Japan Thailand Hong Kong Indonesia China Vietnam India Pakistan Philippines PC Penetration (PCs per 1,000 population) Source: Gartner Data, Goldman Sachs Research March 2010
  • 17. Increasing acceptance and accessibility to credit Credit card per capita 2009 data Source: CEIC, CLSA Asia-Pacific Markets as of April 2010 Household savings/disposable income Household debt can grow from its current low base as receptivity to debt increases
  • 18. SECTION 3 UBS Asian Consumption Fund
  • 19. How is UBS Asian Consumption Fund managed? Asian consumption companies with substantial business exposure to Asia Non-Asian consumption companies with substantial business exposure to Asia Non-Asian consumption companies with substantial business exposure outside Asia Asian consumption companies with substantial business exposure outside Asia A theme product rather than sector product Note: Asia refers to Asia ex Japan Business Exposure Outside Asia Asia Domicile     Outside Asia Asia 
  • 20. UBS Asian Consumption Fund The fund mainly invests in Asia ex Japan consumption companies with substantial business exposure to Asia
    • Includes:
    • Food: e.g. ITC, Lotte
    • Beverages: e.g. China Mengniu Dairy, Uni President
    • Agriculture: e.g. Olam
    • Tobacco: e.g. British American Tobacco
    • Consumables: e.g. Unilever
    • Includes
    • Retail: e.g. Parkson Retail
    • Autos: e.g. Honda, Tata Motors
    • Media: e.g. Clear Media, Focus Media
    • Gaming and hotels: e.g. Genting International
    • Apparel: e.g. Giordano, Esprit, Ports Design
    • Includes
    • Hospitals: e.g. Apollo hospital
    • Pharmaceuticals: e.g. Sun Pharma
    • Medical services: e.g. Mindray Medical International
    Note: This information should not be considered as a recommendation to purchase or sell any security. Consumer staples (basic needs) Consumer discretionary (“good to have”) Healthcare
  • 21. Luxury Spending Theme Source: CEIC, CLSA Asia-Pacific Markets Luxury market size and growth – by domestic spend
    • Example: China ZhengTong Auto Services
    • Car dealer (and service) of premium brands including BMW, MINI and Audi.
    Note: This information should not be considered a recommendation to purchase or sell any security Source: Bloomberg
    • Example: Trinity (China)
    • High end apparel
  • 22. Disciplined investment philosophy and process Example: China Mengniu Dairy Proven Investment Philosophy Established Investment Process
    • Price/Intrinsic Value Philosophy
    • Identify significant market price to fair value discrepancies
    • Research: Long-term focus, deep industry knowledge
    • Risk control: Starts at the company level
    2008 2009 Source: Bloomberg Milk Scandal Sep 2008
  • 23. Consumer Staple stock example: ITC
    • Leading player in India’s cigarette market
    • Strong and resilient growth in cigarette market, especially in the higher end
      • High consumer loyalty
    • Strong pricing power, ability to pass on tax increase
    • Extensive distribution network - >1.2mn outlets
    Entrenched brand name in strong growth cigarette industry Note: This information should not be considered a recommendation to purchase or sell any security Source: Industry sources, IIFL research as of Dec 2010 Cigarette Consumption (Number of cigarettes per adult per year) India’s cigarette per capita consumption is abysmal Price (indexed from Mar 2008 to April 2011) Source: Bloomberg
  • 24. UBS Asian Consumption Characteristics and portfolio structure
    • Investment o bjective : Stocks of companies that are engaged in business activities of providing goods/services to Asian consumers.
    • Number of stocks: Concentrated portfolio with 30-60 stocks
    • Universe: Asia (ex Japan) stocks and other equity rights.
    • Benchmark : MSCI Asia ex Japan Consumer and Healthcare sectors*
    * There was no representative benchmark up to 31 March 2010. Since 1 April 2010, the MSCI Asia ex Japan Consumer and Health Care Sectors Index (i.e. comprising of the consumer staples, consumer discretionary and healthcare sectors of MSCI Asia ex Japan) has been used as the benchmark. Source: UBS Global Asset Management, 31 March 2011 Sector allocation Country allocation
  • 25. Asian Consumption Composite: Performance Performance since inception to 31 March 2011 Source: UBS Global Asset Management, Factset. *Strategy was incepted in 29 February 2008 ** There was no representative benchmark up to 31 March 2010. Since 1 April 2010, the MSCI Asia ex Japan Consumer and Health Care Sectors Index (i.e. comprising of the consumer staples, consumer discretionary and healthcare sectors of MSCI Asia ex Japan) has been used as the benchmark. Based on Asian Consumption Fund (USD) . Returns are gross of fees. The Asian Consumption Strategy was launched in February 2008 with the UBS (Lux) Institutional Sicav – Asian Consumption (USD)/(SGD) RA. This institutional vehicle was subsequently terminated after it was moved into the retail vehicle – the UBS (Lux) Equity Fund - Asian Consumption (USD) P-acc (valor 1041161) in Jul 2009. Please note that performance refers to the Asian Consumption Composite, which is not indicative of the future performance of UBS (Lux) Equity Fund – Asian Consumption USD/SGD P-acc. The manager of the UBS (Lux) Equity Fund – Asian Consumption USD/SGD P-acc will apply the same investment strategy, guidelines and objectives as those of the existing Asian Consumption Composite. -4.3% -4.6% 0.9% 1.2% -3.4% YTD Mar 2011         5.3% 6.2% 4.6% -7.0% Value added against MSCI Asia ex Japan Consumer and Healthcare sectors** 36.9% 9.5% 21.1% 2.6% Value added against MSCI Asia ex Japan index 35.5% -44.5% 88.6% 29.2% MSCI Asia ex Japan Consumer and Healthcare sectors ** 3.9% -47.8% 72.1% 19.6% MSCI Asia ex Japan index 40.8% -38.3% 93.2% 22.2% Asia Consumption Composite Since inception (cumulative) 2008* 2009 2010  
  • 26. Conclusion Asia’s growth and consumption set to rise Credible team, philosophy & process Fund – Unique, proven track record ACF for Asian Consumption Fund and for…
  • 27. APPENDIX A Investment philosophy and process
  • 28. Client portfolio Risk system Accurately quantify all portfolio risks Portfolio team Work as a team to challenge and implement best research ideas Global-Local Fundamental research 70 – 80% of valued-added … to create a single ´Optimal’ portfolio Investment process Disciplined application of global fundamental research…
  • 29. Research drives results Proven Investment Philosophy
    • Research with global and local perspectives
    • Common valuation process and system (GEVS)
    • Career analysts and PMs are ‘equals’
    Established Investment Process
    • Remuneration linked to results
    • Analysts manage ‘real’ money
    Experienced Investment Team
    • Sector portfolios = buy list
    • Comprehensive research database (Pedestal)
  • 30. Industry-leading risk system – GERS Comprehensive risk factors Note: For illustrative purposes only. This information should not be considered a recommendation to purchase or sell any security Source: GERS, UBS Global Asset Management, as at 1 March 2011 Highest conviction ideas Industry and country risk factors that mirror the way we manage regional portfolios
  • 31. Distinctive investment philosophy & process
    • Intrinsic value is defined by the fundamentals which determine a security’s cash flows
    • Discrepancies between price and intrinsic value combined with market behaviour provide opportunities to add value
    Overvalued Price Time Intrinsic value Undervalued Price / intrinsic value is our only focus Buy decisions Sell decisions
    • Declining alpha – price appreciation has reduced price/value discrepancy
      • Decrease / eliminate weight as security moves toward fair value / becomes overvalued
      • Fund new investment with sale of relatively less attractive holding
    • Thesis violation
    • High alpha – significant price/value discrepancy
    • Supporting industry analysis
    • Strong thesis on why we want to hold the stock
    • Portfolio weight is a function of:
      • Size of mispricing
      • Degree of conviction
      • Impact on risk
  • 32. Asia ex Japan Equities Team A stable and experienced team. Avg investment experience ~14 years Note: As of April 2011 Source: UBS Global Asset Management Part of a globally integrated team of over 100 analysts Asia ex Japan Research Universe Emerging Asia AC Asia ex Japan Greater China Asian Consumption Asia 130-30 Geoffrey Wong Head Asia Pacific Equities Singapore / Hong Kong Cheah Yit Mee Portfolio Manager Manish Modi Portfolio Manager Bin Shi Portfolio Manager Jimmy Chua Head Trader Choo Shou Pin Analyst Projit Chatterjee Equity Strategist Dorothy Lek T r a d e r Sophia Tang Equity Strategist Han Yaw Juan T r a d e r Chan Chee Seng A n a l y s t Reginald Oh T r a d e r Hai Huang A n a l y s t Paul Hillman Trader Joanna Mak A n a l y s t Namit Nayegandhi A n a l y s t, Portfolio Manager Roger Lum A n a l y s t Matthew Adams A n a l y s t Sanjeev Joshi A n a l y s t Leslie Chow A n a l y s t
  • 33. Why Asian consumption?
    • Sustainable growth story , both geographically and sector wise
    • Strong historical consumption growth
    • Young population and more consumers set the foundation for sustained domestic demand
    • Movement from villages to cities and associated increase in income will fuel consumption expenditure
    • Low penetration of consumer goods such as mobile phones, personal computers, etc. provides exponential growth opportunities
    • Low consumer debt levels – consumers are more inclined to use credit to fund purchases, creating a multiplier effect on consumption
    • Domestic Asian brands have become regional and are poised to develop into tomorrow’s global brands
  • 34. APPENDIX B Biographies
  • 35. Sophia Tang Equity Strategist, Global Emerging Markets and Asia Pacific Equities, Director Years of investment industry experience: 5 Education: Nanyang Technological University (Singapore), B Acc.
    • Sophia Tang is a member of the Global Emerging Markets and Asia Pacific Equities team, which is responsible for constructing and managing global emerging markets and Asia Equity portfolios.
    • Sophia has responsibility for communicating the above equity strategies to existing and prospective clients globally.
    • Prior to this, Sophia was a strategy project manager with UBS’s Wealth Management division in Singapore. In this role, Sophia developed business plans for market entry strategies, conducted product feasibility and market sizing studies.
    • Before joining UBS in 2006, Sophia was a consultant with several leading consultancy firms, including Boston Consulting Group, where she had extensive experience in strategic business development and project management.
  • 36. Namit Nayegandhi
    • Namit is a member of the Asia (ex-Japan) investment team, located in Singapore. As an analyst, h e covers the regional consumer sector and is also Country Analyst for India focusing on Indian stocks in addition to some regional stocks. He is the Portfolio Manager for the Asian Consumption Fund and the India Country Fund.
    • Prior to joining UBS in February 2006, Namit spent three years in private wealth management with JM Morgan Stanley, one of the largest Investment Banks in India. Prior to that, Namit worked as a research analyst at ICICI Bank and was instrumental in setting up its private wealth investment advisory business. He started his career as a sell side analyst covering the consumer sector in India.
    Research Analyst, Global Emerging Markets and Asia Pacific Equities, Executive Director Years of investment industry experience: 13 Education: St. Xaviers College (India), BA; K J Somaiya Institute of Management Studies and Research (India), MBA
  • 37. Asian Consumption Composite Schedule of composite performance The composite's past performance is not necessarily an indication of how it will perform in the future.
  • 38. Disclaimer UBS 2011. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved. This document is for Professional Clients only. It is not to be distributed to or relied upon by Retail Clients under any circumstances. This material supports the presentation(s) given. It is not intended to be read in isolation and may not provide a full explanation of all the topics that were presented and discussed. Care has been taken to ensure the accuracy of the content, but no responsibility is accepted for any errors or omissions. Please note that past performance is not a guide to the future. The value of investments and the income from them may go down as well as up, and investors may not get back the original amount invested. This document is a marketing communication. Any market or investment views expressed are not intended to be investment research. The document has not been prepared in line with the FSA requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. The information contained in this document should not be considered a recommendation to purchase or sell any particular security and the opinions expressed are those of UBS Global Asset Management and are subject to change without notice. Furthermore, there can be no assurance that any trends described in this document will continue or that forecasts will occur because economic and market conditions change frequently. This document does not create any legal or contractual obligation with UBS Global Asset Management. The recipient agrees that this information shall remain strictly confidential where it relates to the Investment Manager's business. The prior consent of UBS Global Asset Management (UK) Ltd should be obtained prior to the disclosure of commercially sensitive information to a third party (excluding the professional advisors of the recipient). Information reasonably deemed to be commercially sensitive and obtained from UBS Global Asset Management (UK) Ltd should not be disclosed. This information is supplied with a reasonable expectation that it will not be made public. If you receive a request under the Freedom of Information Act 2000 for information obtained from UBS Global Asset Management (UK) Ltd we ask that you consult with us. We also request that any information obtained from UBS Global Asset Management (UK) Ltd in your possession is destroyed as soon as it is no longer required.