APB Roadshow Presentation


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  • Our investment process is focused on delivering added value from both countries and companies and given the asset class remains relatively undeveloped we believe the country aspect still remains very important e.g. 2002 Argentina -50% / Russia+17%. How do we do this? - well our competitive strength is that we have a framework consisting of 5 drivers G/L/C/M/V At the research stage this means we are looking to answer the questions - For Growth - can we see scope for positive or negative surprise For Liquidity - can our growth expectations be met based on the financial condition of the country or company Currency - what are the implications of our expectations of currency weakness or strength Management: Is political leadership committed to economic orthodoxy and reform and companies sincere about corporate governance issues Valuations: Is the above analysis of GLCM in the price already At the decision making stage? We use the framework initially to summarise our conclusions by scoring each driver - ranges from +2 to -2 and we have clear definitions as to what each score means. It is not a quant tool because the final stage has to be judgemental - so by way of illustration if you look at the 5 scores on the slide, 4 of the 5 drivers have positive scores but the judgemental aspect is recognising that today the valuation is the over riding influence. The strength of the framework is that it gives us a common language to communicate across the team, to structuring and rationalising our research and decision making. John will illustrate this with examples shortly. LINK: Now a second strength aside from the framework is our attention to portfolio construction.
  • Many questions have understandably been asked about our sell disciplines. During 2000 we tended to hold onto stocks for too long, and during this year, where there have been torpedoes in our portfolios, some have been stocks that should have been sold earlier. The Investment Board has endorsed the following common sell disciplines in Baring Asset Management and reinforced their importance: Stocks are reviewed for sale when: we detect a fundamental deterioration in earnings expectations the stock achieves its Relative Valuation target the stock ranks among the best and worst performing stocks in the portfolio the quantitative screen identifies stock on sell list Once a sell candidate has been identified it is explored, in depth, at the next SIT stock meeting- held at least once a week. A decision is then made to hold or sell. I explained earlier that the Fundamental Research process will include relative valuation targets. These will be one of the fundamental triggers for review when all stock notes are updated by the end of the year. The key point is a commitment to adhere to our sell disciplines with more rigour. We believe that selling well is as challenging, and can be as rewarding, as buying well. The combination now of portfolio valuation bands, and good use of Factset PMW analytics, means we have a strong platform for implementing our sell disciplines.
  • The relative performance of the Basic Material sectors against the DJ World Index over the last 5 years illustrates how bad it has been.Chemicals the best of the sectors down 39% while steel is down 78%, mining down 52% and paper down 58% The key strategy question is why and will the trend continue for the next 5 years We believe the underperformance is a combination of poor ROIC performance of basic materials in the last five years caused by low commodity, little pricing power in a period of deflation. Overinvestment caused by the capex surge from 1994 to 1996 has kept prices depressed. The investor sentiment did the rest with large flows into TMTs the demise of hedge funds, the collapse of value funds all lead to distressed selling leading to in general very cheap equities compared to other global sectors. Basic Materials has EV/EBITDA ratios 33% cheaper than world average Next five will be different and we will talk about those differences now
  • APB Roadshow Presentation

    1. 1. THE ASIA PACIFIC FUND, INC. www.asiapacificfund.com September 2007
    2. 2. Baring Asset Management <ul><li>Principal business lines: </li></ul><ul><ul><li>Institutions, Mutual Funds, Private Clients & Alternative Investments </li></ul></ul><ul><li>Current assets under management US$46.3 bn (Global), US$9.3 bn (Asia) </li></ul><ul><li>4 main investment offices covering each major financial time-zone. </li></ul><ul><li>Long history of investing from a local presence: </li></ul><ul><ul><li>London 1955 </li></ul></ul><ul><ul><li>Hong Kong 1976 </li></ul></ul><ul><ul><li>Boston 1978 </li></ul></ul><ul><ul><li>Tokyo 1982 </li></ul></ul><ul><li>109 investment professionals: proven, experienced team </li></ul><ul><li>Owned by Massachusetts Mutual Life Insurance Company (MassMutual) </li></ul>Assets as at 30 th June 2007 Investment Professionals as at 1 st June 2007 Toronto London Guernsey Paris San Francisco Boston Tokyo Taipei Hong Kong Frankfurt
    3. 3. The Asia Pacific Fund, Inc. Long-Term Performance (Cumulative NAV Returns over 1, 3, 5 and 10 year periods to July 31, 2007) Morningstar Ranking 18/202 28/175 33/149 8/85 Fund performance are bid to bid, net of fees, gross income, US$. For risks associated with investment securities in emerging and less developed markets, please refer to the Offering Document for details. Transactions in derivatives, warrants and forward contracts and other fund derivatives instruments may be used for the purpose of meeting the investment objective of the Fund. The Net Asset Value of the Fund may have a high volatility due to these instruments and techniques being included in its scheme property and may involve a greater degree of risk. Past performance is not an indication of future performance. Data source - © 2007 Morningstar, Inc. All Rights Reserved; data as at 31/07/2007. 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. Past performance is no guarantee of future results.
    4. 4. Our Team and Process
    5. 5. Executive Summary Our competitive advantage is our people <ul><li>Performance driven team - clear accountability and quick decision making </li></ul><ul><li>Experienced investment professionals - deep market and stock knowledge </li></ul><ul><li>High conviction portfolios – no unintended positions </li></ul><ul><li>Research focuses on what matters </li></ul><ul><li>Tight risk management – including proprietary risk measures </li></ul><ul><li>GARP style accommodates market leadership changes </li></ul>Model
    6. 6. The Asian Team Henry Chan Eunice Hong Korea Hyung Jin Lee Australia / New Zealand ASEAN (incl. Singapore) Kai Yang Lee Franki Chung Soo-Hai Lim Greater China Global Sector Team Global Emerging Market Team Strategic Policy Group Khiem Do India Manoj Shroff William Fong Henry Chan Adrian Au Agnes Deng Edward Wang
    7. 7. GARP – Growth at a Reasonable Price Combined discipline of growth and valuation Model Valuation CHEAP HIGH LOW EXPENSIVE Growth Torpedoes Value Traps Growth at a Reasonable Price
    8. 8. How we structure our research Common language structures our judgemental decisions Research Applied to both countries and companies Is the outlook reflected in the price? V aluation Potential for growth surprise G rowth Ability to finance growth L iquidity Sensitivity to currency, currency outlook C urrency Strategy and execution M anagement Research key to good idea generation
    9. 9. Setting Research Priorities Reducing a large universe to focused Buy/Sell candidates Stock Universe Positive & Negative BAM Top Down Local Contacts Quantitative Screens and Sector Views & Newsflow Company Overseas Analyst Meetings Trips Discussions Stock ideas Client Portfolio Source: Baring Asset Management Model
    10. 10. Buy Disciplines <ul><li>Under-appreciated earnings growth prospects </li></ul><ul><li>Undervaluation, based on comprehensive understanding of corporate strategy, fundamentals and peer comparables </li></ul><ul><li>Catalysts that will lead to the stock being re-rated within a defined time frame </li></ul>We buy when we identify Model
    11. 11. <ul><li>Stock reaches our target price </li></ul><ul><li>We detect deterioration in fundamental outlook </li></ul>Sell Disciplines Triggers for Stock Review Model
    12. 12. Baring Asia High Alpha Investment Approach <ul><li>Best bottom-up opportunities as the key building block – benchmark helps risk management and sizing of positions </li></ul><ul><li>Positive bets against the comparative index – either overweight or no exposure, eliminate underweight & neutral bets </li></ul><ul><li>Mixed market cap – do not focus on large cap only </li></ul><ul><li>Higher stock concentration for large cap stocks – no need to own two stocks for same trade. </li></ul><ul><li>More diversified on small to mid-cap stocks to avoid “accidents” as a result of under-coverage by analysts, lower management quality, illiquidity, etc. </li></ul><ul><li>More flexible use of cash expected </li></ul><ul><li>More flexible use of non-index bets </li></ul>Model
    13. 13. Themes and Outlook
    14. 14. Asia Pacific – Major Investment Themes <ul><li>China consumption and the rise of the middle class </li></ul><ul><li>Regional asset reflation – Singapore, Indonesia, Taiwan, Malaysia and the Philippines </li></ul><ul><li>M&A theme driven by overseas expansion of PRC companies </li></ul><ul><li>Petro-dollar recycling “Middle East construction boom” – shipbuilding, oil services and engineering </li></ul><ul><li>Reconstruction of Asia – engineering, construction, building materials, capital goods </li></ul><ul><li>Improved supply side discipline of “cyclical” sectors – energy, materials, technology </li></ul>Consumption, Asset Reflation and Re-construction
    15. 15. China: Rising Income <ul><li>GDP per capita surpassed the magical US$1,000 threshold since 2003 </li></ul><ul><li>Emerging middle income class!! </li></ul>Source: UBS (06/2007) GDP/Capita USD
    16. 16. Chinese equities’ rally: Heading towards a ‘bubble’ ? As with Japan, Korea and Taiwan in the 80s …. will a Chinese market ‘bubble’ materialise? Source: Macquarie Bank (6/2007) % change since Jan 02 for China; Jan 82 for elsewhere -500 0 500 1,000 1,500 2,000 2,500 Month 1 M13 M25 M37 M49 M61 M73 M85 M97 M109 M121 China Korea Taiwan Japan
    17. 17. Overseas Expansion of PRC Companies Drives M&A Theme China’s Net FDI overseas Source: CSFB (7/2007)
    18. 18. Singapore: Office rental to rise Positive for office landlords Source: Deutsche Bank (6/2007) Rental costs as percentage of GDP Demand to outstrip supply Rental Rates Rental costs/GDP Rental costs/GDP Rental - 1 2 3 4 5 6 7 8 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 0% 2% 4% 6% 8% 10% 12% 14% -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 1995 1997 1999 2001 2003 2005 2007F 2009F 74 76 78 80 82 84 86 88 90 92 94 96 Net supply (LHS) Take-up (LHS) Occupancy (RHS) (m sf) (%)
    19. 19. Taiwan Domestic The Most Undiscounted Reflation Story Property price recovery an early indicator of asset reflation Rise in residential construction licence issuance Domestic sector re-rating to continue Source: JP Morgan (6/2007)
    20. 20. Middle East Construction Boom Benefits Korea Engineering Companies Regional construction boom is coming! New overseas construction orders by region Source: Nomura (5/2007) 2005 2006 No. of No. of y-y chg (US$m) projects Value projects Value (%) Middle East 73 6,445 59 9,530 47.9 Asia 158 2,611 187 4,046 55.0 Africa 15 1,275 27 1,557 22.1 Other 35 528 53 1,335 152.8 Total 281 10,859 326 16,468 51.7
    21. 21. Taiwan: Bad Market but Good Stocks Source: Factset (8/2007) We invest in stocks, not markets Model
    22. 22. Tech Consolidation : Hon Hai/Foxconn Empire A true growth stock! Consecutive EPS growth for more than 10 years Hon Hai Precision Source: Factset (6/2007) Phenomenal Growth of Subsidiaries EPS Growth 2007E 2006 2005 2004 Foxconn International (2038 HK) +36% +83% +66% +100% Foxconn Tech (2354 TT) +58% +76% +71% +14% Innolux Display (2481 TT() +243% +523% - - Source: Bloomberg (6/2007) Price Return 0 10 20 30 40 50 60 70 80 90 100 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007E EPS Growth 0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000 12/94 12/95 12/96 12/97 12/98 12/99 12/00 12/01 12/02 12/03 12/04 12/05 12/06
    23. 23. Resources Upcycle to Continue on Chinese Demand Source: Macquarie Research & IRESS (8/2007) The Ebb and flow of Resource performance All Mining Index 1936 to Current 1 10 100 1000 10000 36 41 46 51 56 61 66 71 76 81 86 91 96 01 06 OPEC 1 OPEC 2 87 The rise of China? Industrialisation of Japan Index on log scale
    24. 24. Asia : Investment Strategy and Outlook <ul><li>Expect another year of positive return and relative out-performance </li></ul><ul><li>China growth will drive reflation of the region </li></ul><ul><li>Earnings inflection point of export cyclicals such as technology </li></ul><ul><li>High alpha approach captures the best stock opportunities in the region and expresses conviction in portfolios </li></ul><ul><li>Bottom-up opportunities point to overweighting in China/HK, Singapore, Malaysia, Indonesia and the Philippines. Early signs of earnings inflection warrants gradual rebuilding of positions in Korea and Taiwan </li></ul>Secular Growth in Asia Drives Out-performance
    25. 25. Appendix
    26. 26. <ul><li> </li></ul><ul><li>Fund Index * </li></ul><ul><li>(%) (%) </li></ul><ul><li>China 31.5 21.5 </li></ul><ul><li>Korea 22.5 26.8 </li></ul><ul><li>Hong Kong 8.3 13.7 </li></ul><ul><li>Taiwan 16.2 19.7 </li></ul><ul><li>Singapore 13.1 8.1 </li></ul><ul><li>Thailand 0.0 2.5 </li></ul><ul><li>Indonesia 2.2 2.6 </li></ul><ul><li>Malaysia 3.9 4.3 </li></ul><ul><li>Philippines 0.7 0.9 </li></ul><ul><li>Cash & others 0.3 0.0 </li></ul><ul><li>India 1.2 0.0 </li></ul>The Asia Pacific Fund, Inc. Asset and Sector Allocations as at 31 st July 2007 * MSCI AC Far East ex Japan (free) Source: Baring Asset Management Asset Allocation Sector Allocation Fund Index * (%) (%) Financials 25.9 30.5 Info. Technology 18.1 18.9 Industries 18.8 14.4 Materials 11.1 7.9 Con. Discretionary 8.6 7.0 Energy 5.5 6.6 Consumer Staples 3.7 3.4 Telecom. Services 3.8 7.5 Health Care 0.0 0.3 Cash & Others 3.2 0.0 Utilities 1.3 3.5
    27. 27. The Asia Pacific Fund, Inc. Top Ten Active Positions as at 31 st July 2007 Overweight Positions Underweight Positions Source: Baring Asset Management Active Weight (%) Guangzhou R&F Properties 3.5 Yangzijiang Shipbuilding Holdings 3.3 Xinhua A50 China Tracker 2.9 Zijin Mining Group 2.2 Innolux Display 1.9 Firich Enterprises 1.8 China Merchants Bank 1.8 Hengan International Group 1.8 Taiwan Fertilizer 1.7 GS Engineering & Construction Corp 1.7 Active Weight (%) China Petroleum & Chemical -0.9 Industrial & Comm. Bank of China -1.0 United Overseas Bank -1.0 CNOOC -1.0 Singapore Telecommunications -1.0 Cheung Kong (Holdings) -1.1 Hutchison Whampoa -1.2 China Life Insurance -1.6 POSCO -1.7 Taiwan Semiconductor Manufacturing -2.2
    28. 28. The Asia Pacific Fund, Inc. Portfolio Characteristics as at 31 st July 2007 Portfolio Characteristics Fund Index * Forward P/E 23.9 19.4 Price/Book 12.2 4.1 ROE 23.3% 18.8% Portfolio Turnover The rolling 12 month portfolio turnover as at 31 st July 2007 = 87.4% Risk Summary Tracking Error vs. Index 5.0% Beta vs. Index 1.15 Portfolio Risk 19.34% Index Risk 16.39% * Index : MSCI AC Far East ex Japan (free) Market Capitalization Comparison Fund Index * (%) (%) Over US$10bn 47.4 59.4 US$1-10bn 50.2 39.2 Below US$1bn 2.1 1.4 Weighted Avg (US$bn) 27.8 36.1 Source: Baring Asset Management
    29. 29. Important Information Ensure Complied Date is added at foot of Disclosure 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. Complied (Boston): 5 September 2007 Disclosure for presentations to PUBLIC