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Investment Community Conference Call Presentation Investment Community Conference Call Presentation Presentation Transcript

  • Khiem Do October 29, 2008 The Asia Pacific Fund, Inc. Investment Community Conference Call Asian Investment Outlook www.asiapacificfund.com
  • Table of Contents Page Section 1: Asian Markets Review 2 - 4 Section 2: Global and Asian Investment Outlook 5 - 15 Appendix: Can China Save the World ? 16 - 25
  • Section 1 Asian Markets Review
  • Asian Stock Markets: Country Performance (Year-to-date to October 24, 2008) Gross return in USD Country - Index (%) North Asia MSCI Taiwan Free -46.6 MSCI Hong Kong Free -55.7 MSCI China Free -62.8 MSCI Korea Free -66.1 ASEAN MSCI Malaysia Free -45.3 MSCI Thailand Free -50.4 MSCI Philippines Free -51.7 MSCI Singapore Free -55.1 MSCI Indonesia Free -57.6 MSCI AC Far East Free Ex Japan Gross -58.1 MSCI India Free -68.5 Vietnam (HCM Local price index) -62.8 Source: Factset, Bloomberg
  • Asian Stock Markets: Sectoral Performance (Year-to-date to October 24, 2008) Source: Factset MSCI Utilities -38.0 MSCI Telecommunication Services -48.7 MSCI Information Technology -52.4 MSCI Consumer Staples -54.4 MSCI Financials -56.6 MSCI Consumer Discretionary -58.4 MSCI Real Estate -60.9 MSCI Health Care -62.7 MSCI Energy -66.4 MSCI Materials -67.1 MSCI Industrials -69.3 Sector Gross return in USD (%)
  • Section 2 Global and Asian Investment Outlook
  • Risk Aversion Soared: Implications of a freeze-up in the Global Banking system Source: BCA Research (10/2008) Will global action succeed in thawing the frozen banking system ?
  • Global Risk Appetite still Very Weak: Hide in cash/government bonds or buy cheap equities ? Investors , in general, have been hiding in cash Source: Credit Suisse (10/2008) Global Risk Appetite Since 1981 01/81 01/85 01/89 01/93 01/97 01/01 01/05 Euphoria Panic Latest = -4.56 (17 Oct 08) Risk Index -5 0 5 10
  • Significant Flows out of EM Asia: Unprecedented, continuing selling Significant de-risking and de-leveraging by global investors Note: EM Asia here includes India, Indonesia, Korea, Taiwan, Thailand and the Philippines. Net Foreign Buying in EM Asia – Source: Morgan Stanley (10/2008) Net Foreign Buying in EM Asia ex-China & Malaysia – Source: Credit Suisse estimates (10/2008) Net Foreign Flows in EM Asia (ex-China & Malaysia) Net Foreign buying/selling in EM Asia (ex-China and Malaysia)
  • Our Key Long-Term Views: Still positive on Asia
    • Asia – Positive long-term fundamentals remain intact
    • Secular growth driven by domestic demand
    • Supportive liquidity – excess domestic savings, healthy banking system
    • Very attractive equity valuations, plus conservative corporate balance sheets
    • Three short-term issues:
    • 1) Normalisation of the Western banking system: when ?
    • 2) Global recession: how deep and how long ?
    • 3) US equity market: when will it bottom ?
  • Barings’ Base Case Scenario: Still ‘cautiously’ optimistic Potential upside in equity markets higher than downside risk on a 1 to 2 year view
    • Flat to low OECD GDP growth in 2009
    • Mid-term correction in a long up-cycle in Asia, but no recession
    • Chinese government and PBOC have already started to reflate, more to come
    • Looking for an upturn in sentiment in the equity markets within the next 3-6 months
  • Asian vs US Financials: ‘ Chalk and cheese’ Do Asian banks deserve the same share price treatment as their US counterparts ? Source: Bloomberg (9/2008)
  • Commodities Correction: How deep ? Source: BCA Research (10/2008) Demand Destruction Underway More Downside to Come Positive for Asian inflation and interest rates
  • Earnings Growth vs Valuations: Consensus expectations for Asia and the World More realistic earnings growth expected in Asia vs US, and Asian valuations are offering attractive investment entry level * Excludes Australia, HK and Singapore Source: JPM, IBES (10/2008) 15.4 4.7 11.1 1.4 7.3 8.1 Emerging Asia * World 6.1 3.1 2008 E 12.4 11.1 2009 E 3.3 4.4 2008 E Div. Yield ROE (%) EPS Growth (%) P/E (E) 2008 E 2009 E 2008 E 17.1 8.6 9.7 US 15.5 7.6 8.5
  • Asian Equity Markets Valuation: Lowest over past 18 years ! Fundamental ‘Buy’ signal hoisted, based on very cheap valuation Source: Credit Suisse (10/2008) Credit Suisse’s Asian Markets - 6 Factor Valuation Indicator Asia ex-Japan Historic P/E 200 600 1000 1400 1800 2200 Price Index -40 -20 0 20 40 60 6 factor Asian valuation indicator "Buy" signal Fairly Valued 30% overvalued 11 May 04 20-Apr-05 19-Oct-05 6-Jun-06 05-Sep-08 Jan-90 Jan-93 Jan-96 Jan-99 Jan-02 Jan-05 Jan-08
  • Concluding Remarks: Stay defensive for now, and looking for re-entry points
    • We expect to see more policy action
    • In the meantime we remain cautious
    • We remain defensive, focusing on quality stocks with strong valuation support
    • But opportunities will present themselves
    • Looking to accumulate stocks with distressed valuation and high net free cash flow
  • Appendix: Can China Save the World ?
  • The Emerging World: Share of World GDP – Long-Term Perspective Source: UBS (8/2008) The emerging force of the Emerging World ! 0% 1% 2% 3% 4% 5% 6% 7% 1960 1970 1980 1990 2000 0% 10% 20% 30% 40% 50% 60% 70% 80% Developed countries Emerging markets Emerging growth share (right scale) Contribution to world growth (pp) Share of world growth (%)
  • China vs Other Emerging: Share of World GDP (in 2005 Dollars) Source: UBS (8/2008) Emerging share of global GDP (2005 dollars, %) China’s economic importance has been steadily rising 0% 5% 10% 15% 20% 25% 30% 35% 40% 1960 1970 1980 1990 2000 Other emerging markets China
  • China And Other Emerging: Share of World GDP in 2007 (in current 2007 dollars) Source: UBS (8/2008) World (2007) = US$54.3 tn Emerging (2007) = US$17.2 tn Emerging: 31% …. Developed World: 69% World (2007 PPP) = US$65.0 tn Emerging (2007 PPP) = US$30.8 tn Emerging: 48% …. Developed World: 52% Japan 8% US 26% Other developed 4% Europe 31% Other emerging 19% Brazil 2% China 6% India 2% Russia 2% Japan 7% US 21% Other developed 3% Europe 21% Other emerging 26% Brazil 3% China 11% India 5% Russia 3%
  • Contribution To World GDP Growth: The rise of China and other emerging Source: UBS (8/2008) 4.3% GDP growth in 2007: China 0.8% , Other EM: 1.8% , Developed: 1.7% Contribution to world GDP growth (‘blended’ weights – PPP and 2007 dollars) -1% 0% 1% 2% 3% 4% 5% 6% 7% 1960 1970 1980 1990 2000 Developed countries China Other emerging markets
  • China’s Place In The Developed World: Consumption vs Investment/Exports share China (as a percentage of the developed world*) * using the US, Japan and 27 European countries as a proxy for the developed world Source: Credit Suisse (8/2008) China claims a big share of the world’s exports and CAPEX spending
  • Drivers Of China’s GDP Growth: CAPEX and, recently, net exports Source: Lehman (8/2008) Private consumption, though rising, has not been as powerful as the growth in CAPEX or net exports How strong will the government boost domestic demand to offset a potential nil or negative contribution of net exports in ’09 ?
  • China’s Fixed Asset Investment Growth: More volatile growth Source: Lehman (8/2008) Chinese government’s principal tool for managing GDP growth ! YoY Growth (%)
  • China’s Retail Sales: Steady growth Source: Lehman (8/2008) Steady 12-13% annual growth in real terms YoY Growth (%)
  • Can China Save The World ? No, but ……..
    • China has the flexibility of fiscal and monetary levers
    • China’s banking system is healthy and liquid
    • China’s inflation and interest rates are easing
    • China’s medium-term GDP growth expected to remain solid (8-10% p.a.)
    • Hence, China (and other Emerging nations) can help to smooth out the decline in global GDP growth
  • Important Information This document is provided as a service to professional investors/advisers. It is issued in the United Kingdom by Baring Asset Management Limited and/or by its investment adviser affiliates in other jurisdictions. The affiliate serving as the Asia Pacific Fund’s investment adviser is Baring Asset Management (Asia) Limited. In the United Kingdom this document is issued only to persons falling within a permitted category under (i) the FSA’s rules made under section 238(5) of the Financial Services and Markets Act 2000 and (ii) the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001. This is not an offer nor a solicitation to buy or sell any investment referred to in this document. Baring Asset Management group companies, their affiliates and/or their directors, officers and employees may own or have positions in any investment mentioned herein or any investment related thereto and from time to time add to or dispose of any such investment. The contents of this document are based upon sources of information believed to be reliable but no guarantee, warranty or representation, express or implied, is given as to their accuracy or completeness. This document may include forward-looking statements, which are based upon our current opinions, expectations and projections as of the date on the cover hereof. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. The value of any investments and any income generated may go down as well as up and is not guaranteed. Past performance will not necessarily be repeated. Changes in rates of exchange may have an adverse effect on the value, price or income of an investment. There are additional risks associated with investments (made directly or through investment vehicles which invest) in emerging or developing markets. Compensation arrangements under the Financial Services and Markets Act 2000 of the United Kingdom will not be available. Private investors in the Company referred to herein should obtain their own independent financial advise before making investments. This document must not be relied on for purposes of any investment decisions. Before investing in the Company, we recommend that all relevant documents, such as reports and accounts and prospectus should be read, which specify the particular risks associated with investment in the Company, together with any specific restrictions applying and the basis of dealing. The Company may not be available for investment in all jurisdictions. There may also be prohibitions or restrictions on distribution of this document and other material relating to the Company and accordingly recipients of any such documents are advised to inform themselves about and to observe any such restrictions. Research Material Baring Asset Management only produces research for its own internal use. Where details of research are provided in this document it is provided as an example of research undertaken by Baring Asset Management and must not be used, or relied upon, for the purposes of any investment decisions. The information and opinions expressed herein may change at anytime. For data sourced from Morningstar: © 2008 Morningstar, Inc. all rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Complied (Boston): October 27, 2008