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Excel China Fund Hamon Investment Group June 2006
H AMON  I NVESTMENT   G ROUP Introduction – Hamon Profile Section I – Investment Philosophy & Style Section II – Current V...
Hamon Investment Group - Profile <ul><li>Established in 1989 and based in Hong Kong </li></ul><ul><li>Over US$700 million ...
Investment Team Experience Pre-Hamon Bernard To CFA Hugh Simon Raymond Ip CFA Adrian Au CFA Alex So ASCPA/ MBA Nina Wu CFA...
Investment Philosophy & Style SECTION I
Investment Process - Criteria <ul><li>Research and Stock Selection </li></ul><ul><ul><li>Fundamental research done by Fund...
Current Views SECTION II
Recent Development & Market View <ul><li>Government has raised both interest rate by 27 bps on April 28 and reserve requir...
Correction leading back to attractive valuation Hang Sang H-share Trailing PER Hang Sang H-share ROE Current PE = 12.3X So...
Trend of Industrialization & Urbanization Remain Intact <ul><li>4 th  Largest and Fastest growing </li></ul><ul><li>Econom...
Changing Chinese Investment Landscape  <ul><li>Youth less interested in political debate </li></ul><ul><li>than in search ...
Establishing High Level Diplomatic Links <ul><li>Next “Super Nation” with unique links </li></ul><ul><li>to the Middle Eas...
High Focus on Infrastructure & Rural Development <ul><li>Infrastructure & Environmental Protection </li></ul><ul><li>have ...
GDP Steadily Growing GDP growth in US$ bn per annum since 1989 GDP growth % per annum since 1989 Source: World Bank Database
Source: Wikipedia GDP figures for 2004, www.chinatoday.com   Beijing/Bohai Area GDP: USD$274 billion Population: 117 milli...
Consumption takes off - Income per Capita Exceeds US$1000 Source: BNP Paribas Peregrine YoY Growth Strong Urban Income Gro...
China Market – Too Important to Ignore Source: Bloomberg  Market cap of major oil companies Market cap of major banks CAGR...
Pre-emptive measures to prevent over-heating Source: Bloomberg M2 Money Supply CPI
<ul><ul><li>Financial  market liberalization </li></ul></ul><ul><ul><ul><ul><li>China Construction Bank </li></ul></ul></u...
Financial Market Liberalization Methods for Saving Money in China at the Household Level (2005) Source: Credit Suisse
Themes & Ideas SECTION III
<ul><li>Agricultural  reform </li></ul><ul><ul><ul><ul><li>SinoChem – Chemical and fertilizer import and manufacturing </l...
<ul><ul><li>Infrastructure  development in energy resources, environment and transportation </li></ul></ul><ul><ul><ul><ul...
China is Leading the Global Energy Demand Growth Source: BP China Forecast  China Oil Balance Mm’s bbl
<ul><ul><li>Growing consumption of hard and soft  commodities   </li></ul></ul><ul><ul><ul><ul><li>Jiangxi Copper Co – Cop...
<ul><ul><li>Secular demand in  niche consumer  products or services </li></ul></ul><ul><ul><ul><ul><li>Hua Han Bio-Pharmac...
Strong Secular Growth in Niche Consumer Areas Online Game Market Tripling in 4 years Source: IDC as at March 2006 Source: ...
Risk Factors <ul><li>Breakdown of Sino-Taiwan dialogue </li></ul><ul><li>Revaluation of the RMB; rising interest rates  </...
Fund Profile & Performance SECTION IV
Excel China Fund – Fund Profile & Performance <ul><li>To seek  long-term capital appreciation  through investment into sto...
Country Allocation Sector Allocation Excel China Fund – Asset Allocation Top Ten Holdings <ul><li>China Mobile China 3.7% ...
Above data as of  June 22, 2006 Excel China Fund – Portfolio Characteristics Characteristics of the current Excel China Fu...
Important Information The information provided within this presentation is for use by professional investors and has been ...
3510 – 3515 Jardine House 1 Connaught Place, Central Hong Kong Tel : (852) 2526 4268 Fax : (852) 2526 7277 Email :  [email...
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  1. 1. Excel China Fund Hamon Investment Group June 2006
  2. 2. H AMON I NVESTMENT G ROUP Introduction – Hamon Profile Section I – Investment Philosophy & Style Section II – Current Views Section III – Themes & Ideas Section IV – Fund Profile & Performance Contents
  3. 3. Hamon Investment Group - Profile <ul><li>Established in 1989 and based in Hong Kong </li></ul><ul><li>Over US$700 million Assets Under Management </li></ul><ul><li>Majority-owned by Management; Mellon Financial Corporation is a minority stakeholder </li></ul><ul><li>Managing Asian equities for over 16 years; specialist focus on Asia including Japan and India </li></ul><ul><li>16 team members dedicated to managing and servicing portfolios in Asia </li></ul><ul><li>Regulated by the SFC in Hong Kong and SEC in the United States </li></ul>
  4. 4. Investment Team Experience Pre-Hamon Bernard To CFA Hugh Simon Raymond Ip CFA Adrian Au CFA Alex So ASCPA/ MBA Nina Wu CFA Ann Peng Experience in Asian Markets 4 years 3 years Responsibility Financial Analyst Manager, Fund Marketing & Investor Relations Fund Manager Chief Financial Officer Fund Manager Fund Manager Chief Executive Fund marketing, Client Servicing Greater China Overall N Asia Research & stock selection Research & stock selection Finance & Operations 12 years 3 years 5 years 10 years Over 20 years Merrill Lynch, Morgan Stanley Hua An Fund Management, China Bank of America, ABN Mount Lucas IBJ, Daiwa Morgan Stanley, Invesco Lazard, Schroders
  5. 5. Investment Philosophy & Style SECTION I
  6. 6. Investment Process - Criteria <ul><li>Research and Stock Selection </li></ul><ul><ul><li>Fundamental research done by Fund Managers: </li></ul></ul><ul><ul><ul><li>Review business prospects, products & services </li></ul></ul></ul><ul><ul><ul><li>Assess management quality and track record </li></ul></ul></ul><ul><ul><ul><li>Valuation methodology: </li></ul></ul></ul><ul><ul><ul><ul><li>Balance sheet (P/B), analyzing cash flow </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Relationship to PBR and ROE </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Earnings (ROE; PER) </li></ul></ul></ul></ul><ul><ul><ul><li>Stock price drivers </li></ul></ul></ul><ul><ul><ul><ul><li>Catalysts to share price moves; </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Historical price and volume movements </li></ul></ul></ul></ul>
  7. 7. Current Views SECTION II
  8. 8. Recent Development & Market View <ul><li>Government has raised both interest rate by 27 bps on April 28 and reserve requirement ratio by 50 bps on June 16. Government also targets property market to dampen surplus liquidity and eventually to alleviate appreciation pressure on RMB </li></ul><ul><li>As of June 22, the Hong Kong Hang Seng Index and H-share Index registered 8.5% and 15.3% decline respectively from the peaks in May following the correction in global equity markets </li></ul><ul><li>GDP growth remained robust at 10.3% in 1Q06 with benign inflation of 1.4% (peak 5.3% in 2004). But the government is targeting to dampen surplus liquidity in the economy to avoid the repeat of overheating in 2004. </li></ul><ul><li>Strong consumption growth together with infrastructure development in inland areas and prior to Beijing’s Olympics and Shanghai’s Expo to maintain 7-8% GDP growth for next three years </li></ul><ul><li>Valuation not stretched and “dips” provide buying opportunity </li></ul>
  9. 9. Correction leading back to attractive valuation Hang Sang H-share Trailing PER Hang Sang H-share ROE Current PE = 12.3X Source: UBS Estimates
  10. 10. Trend of Industrialization & Urbanization Remain Intact <ul><li>4 th Largest and Fastest growing </li></ul><ul><li>Economy in the world, achieved </li></ul><ul><li>through a Centrally Planned Economy </li></ul><ul><li>The Biggest Economic Transformation </li></ul><ul><li>since the Industrial Revolution </li></ul>
  11. 11. Changing Chinese Investment Landscape <ul><li>Youth less interested in political debate </li></ul><ul><li>than in search of better lifestyles </li></ul><ul><li>The Chinese Government is targeting </li></ul><ul><li>for more balanced and productive </li></ul><ul><li>economic growth </li></ul>
  12. 12. Establishing High Level Diplomatic Links <ul><li>Next “Super Nation” with unique links </li></ul><ul><li>to the Middle East, Russia and Africa </li></ul><ul><li>in addition to the West </li></ul><ul><li>Capital Markets are still underdeveloped </li></ul><ul><li>but with great potential </li></ul><ul><ul><ul><li>Exchange Rate Flexibility </li></ul></ul></ul><ul><ul><ul><li>Domestic Stock Market Reform </li></ul></ul></ul><ul><ul><ul><li>Financial Institutions going Public </li></ul></ul></ul>
  13. 13. High Focus on Infrastructure & Rural Development <ul><li>Infrastructure & Environmental Protection </li></ul><ul><li>have been the focus of the 11 th Party </li></ul><ul><li>Congress </li></ul><ul><li>Congress to implement policies to </li></ul><ul><li>improve rural conditions including </li></ul><ul><li>tax and land reforms </li></ul>
  14. 14. GDP Steadily Growing GDP growth in US$ bn per annum since 1989 GDP growth % per annum since 1989 Source: World Bank Database
  15. 15. Source: Wikipedia GDP figures for 2004, www.chinatoday.com Beijing/Bohai Area GDP: USD$274 billion Population: 117 million Area: 181,000 sq km Pennsylvania State GDP: USD$408 billion Population: 12.4 million Area: 116,076 sq km Michigan State GDP: USD$359 billion Population: 10.1 million Area: 147,100 sq km Yangtze River Delta GDP: USD$276 billion Population: 92 million Area: 108,800 sq km New York State GDP: USD$900 billion Population: 19.2 million Area: 122,300 sq km Pearl River Delta GDP: USD$194 billion Population: 83 million Area: 186,000 sq km China United States China Market – Driven By Different Regions
  16. 16. Consumption takes off - Income per Capita Exceeds US$1000 Source: BNP Paribas Peregrine YoY Growth Strong Urban Income Growth Growing Rural Disposable Income Household Income Per Capita Source: BNP Paribas Peregrine 0 2000 4000 6000 8000 10000 12000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 urban rural
  17. 17. China Market – Too Important to Ignore Source: Bloomberg Market cap of major oil companies Market cap of major banks CAGR 5% CAGR 34% CAGR 35% US$ millions US$ millions
  18. 18. Pre-emptive measures to prevent over-heating Source: Bloomberg M2 Money Supply CPI
  19. 19. <ul><ul><li>Financial market liberalization </li></ul></ul><ul><ul><ul><ul><li>China Construction Bank </li></ul></ul></ul></ul><ul><ul><ul><ul><li>China Life Insurance </li></ul></ul></ul></ul><ul><ul><ul><ul><li>PICC Property & Casualty </li></ul></ul></ul></ul>Current Views – Themes & Ideas
  20. 20. Financial Market Liberalization Methods for Saving Money in China at the Household Level (2005) Source: Credit Suisse
  21. 21. Themes & Ideas SECTION III
  22. 22. <ul><li>Agricultural reform </li></ul><ul><ul><ul><ul><li>SinoChem – Chemical and fertilizer import and manufacturing </li></ul></ul></ul></ul><ul><ul><ul><ul><li>China Milk – Cattle breeding & milk production </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Xinjiang Tianye Water Saving – Installation of irrigation system </li></ul></ul></ul></ul>Current Views – Themes & Ideas
  23. 23. <ul><ul><li>Infrastructure development in energy resources, environment and transportation </li></ul></ul><ul><ul><ul><ul><li>Harbin Power Equipment Company – Manufacturer of Power Equipment </li></ul></ul></ul></ul><ul><ul><ul><ul><li>China Oilfield Services – Operator of offshore oil rigs </li></ul></ul></ul></ul>Current Views – Themes & Ideas <ul><ul><li>Environmental improvement </li></ul></ul><ul><ul><ul><ul><li>Sino-environment Tech – Air filtering for factories </li></ul></ul></ul></ul><ul><ul><ul><ul><li>NWS & Bio-Treat Tech – Water sewage treatment </li></ul></ul></ul></ul>
  24. 24. China is Leading the Global Energy Demand Growth Source: BP China Forecast China Oil Balance Mm’s bbl
  25. 25. <ul><ul><li>Growing consumption of hard and soft commodities </li></ul></ul><ul><ul><ul><ul><li>Jiangxi Copper Co – Copper Mining and Refining </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Zijin Mining – The most efficient gold miner in China </li></ul></ul></ul></ul>Current Views – Themes & Ideas
  26. 26. <ul><ul><li>Secular demand in niche consumer products or services </li></ul></ul><ul><ul><ul><ul><li>Hua Han Bio-Pharmaceutical – research, develops and manufactures traditional Chinese medicine </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Sohu.Com, The 9 – internet portal, online advertising & gaming </li></ul></ul></ul></ul>Current Views – Themes & Ideas
  27. 27. Strong Secular Growth in Niche Consumer Areas Online Game Market Tripling in 4 years Source: IDC as at March 2006 Source: China Statistic Yearbook 2004 Consumption Pattern Change in China (1995-2003 )
  28. 28. Risk Factors <ul><li>Breakdown of Sino-Taiwan dialogue </li></ul><ul><li>Revaluation of the RMB; rising interest rates </li></ul><ul><li>Rising energy costs </li></ul><ul><li>Trade war </li></ul><ul><li>US housing market weakness leading to lower US demand </li></ul><ul><li>Outbreak of epidemics </li></ul>
  29. 29. Fund Profile & Performance SECTION IV
  30. 30. Excel China Fund – Fund Profile & Performance <ul><li>To seek long-term capital appreciation through investment into stock markets in the Greater China region, which include China and Hong Kong </li></ul><ul><li>Launched in May 2003 with over 3 years track record </li></ul><ul><li>Performance driven by non-benchmark investment style and tactical market and sector allocation </li></ul>Excel China Fund Above data as of May 31, 2006 Performance in CAD and net of fees 14.3 7.3 22 33.8 7.3 -5.5 24.4 Excel China Fund 10.4 2.7 0.7 0 -3.6 -6.5 +6.2  HANG SENG Total Return Index 3 yrs. 2 yrs. 1 yr. 6 mo. 3 mo. 1 mo. YTD INDEX
  31. 31. Country Allocation Sector Allocation Excel China Fund – Asset Allocation Top Ten Holdings <ul><li>China Mobile China 3.7% </li></ul><ul><li>Harbin Power Equipment China 3.4% </li></ul><ul><li>Zijin Mining China 3.0% </li></ul><ul><li>Aluminum Corp of China China 3.0% </li></ul><ul><li>PetroChina China 3.0% </li></ul><ul><li>Tianjin Development China 2.8% </li></ul><ul><li>PICC Ppt & Casaulty China 2.8% </li></ul><ul><li>Sinochem Hong Kong 2.7% </li></ul><ul><li>Sohu.com China 2.5% </li></ul><ul><li>Jiangxi Copper China 2.5% </li></ul>Company Country Weighting 29.4% Above data as of May 31, 2006
  32. 32. Above data as of June 22, 2006 Excel China Fund – Portfolio Characteristics Characteristics of the current Excel China Fund: <ul><li>Approximately 39 stocks </li></ul><ul><li>Weighted average market capitalization of US$18.3 billion with a median of US$1.5 billion </li></ul><ul><li>Stocks with market capitalization less than US$1 billion: 35% of the portfolio </li></ul><ul><li>Average holding size: 1.9% </li></ul>2006 2007 2006 2007 Excel China 16.8% 14.5% 9.5X 8.3X EPS Growth PER
  33. 33. Important Information The information provided within this presentation is for use by professional investors and has been prepared by Hamon Investment Group for information purposes only and is correct to the best of our knowledge. This document does not constitute a prospectus, an offer or an invitation to invest or a recommendation in relation to any investments. Portfolio holdings and investment ideas are subject to change at any time without notice. The information provided is for illustrative purposes only and should not be construed as a recommendation to purchase or sell any security. Past performance is not necessarily a guide to future performance. Investments are subject to risk and there is no guaranty that these investment objectives will be achieved. The value of unit trusts, shares and income from them can fall as well as rise and investors may not get back the full amount originally invested. Please note that the fund prospectus should be read before an investment is made. This document may not be used for the purpose of an offer or solicitation in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorized. This document should not be copies or circulated without the permission of Hamon.
  34. 34. 3510 – 3515 Jardine House 1 Connaught Place, Central Hong Kong Tel : (852) 2526 4268 Fax : (852) 2526 7277 Email : [email_address] Website : http://www.hamon.com.hk Hamon Investment Group

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