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2012 China Confidential - Excel China Fund

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Key investment themes: Inflation and policy risk should start moderate. Policy sensitive sector could reverse the
under-performance.

􀀁 Market valuation is close to the historical trough on bearish sentiment. Upcoming earning
downgrade risk is largely priced in.

􀀁 Expect China policy to place more emphasis on “pro-growth”. Policy easing targeting the
small and medium enterprises already begun.

􀀁 Raising wages will continue to support consumption. Social housing and public utilities
becomes the new driver for fixed asset investment growth. Domestic demand will largely
offset export slowdown.

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2012 China Confidential - Excel China Fund

  1. 1. For Professional Investors Only China Confidential EXCEL CHINA FUND Agnes Deng Co-Portfolio Manager of Excel China Fund & Head of Hong Kong Equities at Barings February 2012For Dealer Use Only February 2012
  2. 2. Excel Funds Management Inc. is Canada’s first and only emerging markets focused mutual fundprovider. For over 12 years, we have been partnering exclusively with best in class, on-the-groundportfolio managers that bring Canadian investors firsthand insight and expertise in these flourishingeconomies. Through our funds, investors gain early exposure to companies positioned to becomefuture leaders in some of the world’s fastest growing markets. Excel Funds maintains a highly rankedfund family that is focused on emerging market growth opportunities.1
  3. 3. China MarketInvestment Strategy
  4. 4.   Inflation and policy risk should start moderate. Policy sensitive sector could reverse the under-performance.  Market valuation is close to the historical trough on bearish sentiment. Upcoming earning downgrade risk is largely priced in.  Expect China policy to place more emphasis on “pro-growth”. Policy easing targeting the small and medium enterprises already begun.  Raising wages will continue to support consumption. Social housing and public utilities becomes the new driver for fixed asset investment growth. Domestic demand will largely offset export slowdown.3
  5. 5. Tightening bias to remain, key is when it will peak out Source: NBS, CEIC, UBS estimates (January 2012)4
  6. 6. China: Purchasing Manager Index Interest rate(PMI) Economic Expansion Economic Contraction China shifting policy, but slowly Source: HSBC as at January 2012 Source: CLSA as at January 20125
  7. 7. YoY growth rate of M2 Loan-to-deposit ratio We do not share the view of an ‘imminent’ banking crisis in China Source: YoY growth rate of M2 – CLSA as at January 2012; Loan-to-deposit ratio - CEIC, RBS as at January 20126
  8. 8. Central Government Debt Outstanding (as a % of GDP) China appears to be able to service its debt with ease, even if it had to absorb all local government debt Source :IMF, RBS as at September 20117
  9. 9. China: average annual wage Wage inflation in different sectors Double compared with 2010 Note: Assuming the average annual wage for 2015 = twice that for 2009, as 2010 figure is not available Source: (China: average annual wage) Ministry of Human Resources and Social Security, Daiwa Securities Group as of 30 September 2010; (Wage inflation in different sectors) CEIC, HSBC as at September 20118
  10. 10. Offshore-listed Chinese stocks are trading below the historicalmean in P/E termsForward P/E for MSCI China Source: Goldman Sachs as at January 20129
  11. 11.   Increase exposure in policy sensitive sector valuation largely priced in policy risk and concern of economic slowdown  Property stocks become attractive on low valuation and recovery of transaction volume  Focus on earnings visibility and quality growth ideas in Technology and Internet sector  Revisit the export sector focus on market leaders which play consolidator roles and with strong balance sheet Source: Barings10
  12. 12. China’s Team andInvestment Process
  13. 13. Agnes Deng Head of HK China Equities Investment Experience: 13 Years Investment Managers Analysts William Fong Jim Chen Winston Ke Derick Leung Lin Tang Zhi Zhi Tan Nicola LaiInvestment Experience: Investment Experience: Investment Experience: Investment Experience: Investment Experience: Investment Experience: Investment Experience: 12 Years 9 Years 6 Years 6 Years 3 Years 6 Years 6 Years (Taiwan Specialist) Strategic Policy Group Portfolio Analytics Risk Management Asian Country Specialists Source: Barings12
  14. 14. Cheap Valuation Expensive  We seek to identify “Unrecognized Growth” High opportunities at their earliest stages in an unconstrained investment universe. Growth at a reasonable price  90/120 rule : 90-120% of market PER Growth Low We seek under-recognised growth companies that will deliver positive surprise Source: Barings Source: Barings13
  15. 15. GROWTH VALUATION MANAGEMENT LIQUIDITY CURRENCY Unrecognized Favorable Credible Ability to finance Sensitivity to growth risk/reward management growth currencyResearch augmented by regular contact with target companies Enterprise Value/Earnings Before Interest, Tax, Depreciation and Amortization14
  16. 16. Consumer - C. Staples - Healthcare Construction - C. Disc. - Retails Financials: Banks . Insurance . Brokerage Property - Commercial - Residential Telecoms Manu- IT + Internet facture Transportation: Airline . Shipping . Port . Toll Road Commodities - Energy Utilities - Basic Material - IPP CoalEffective, Efficient and Focus15
  17. 17. Stock Universe 1720 Screening Process Primary Companies Researched 169 Index Stocks Covered 78 Index weight researched 84.4% Non-index names researched 91 “1” & “2” rated stocks 104 Company visit in last twelve months 1001* Active comprehensive coverage and rating Data as of 31 January 2012, Source: Barings, MSCI, Factset * Data as at 30 June 201116
  18. 18. Common, transparent stock Stock Score versus Benchmarkresearch and scoring system June 2007 to June 2011   All research ideas scored by conviction: 1 (outperform) to 5 (underperform)   Same treatment on index stocks vs non index stock, small-mid caps vs big caps   Portfolio focused on companies scored 1 and 2   System engenders accountability, transparency and communicationTransparent methodology of conviction based scoring17
  19. 19. We buy when we identify Triggers for a sell  Unrecognised earnings growth prospects   Stock is downgraded to sell  Bottoming of earnings expectations and   We detect deterioration in fundamental outlook valuations   We believe valuations have fully discounted  Catalyst that will lead to the stock being re-rated growth prospects   We have a significantly more attractive idea  Focus on stocks rated 1 to 2IPO Process   Selective in IPO subscription   Focus on long term investment conviction   Clear target on both price and position sizeA disciplined approach to buy and sell18
  20. 20. Portfolio Construction& Fund Performance
  21. 21. Greater focus on China direct plays, due to their compelling valuation and growth prospects Source: Baring Asset Management20
  22. 22. Sector Allocation vs Index* Fund (%) Index (%)*Major Underweight/Overweight PositionsInformation Tech 24.4 6.0Consumer Disc 13.2 6.0Health Care 4.0 0.8[Cash] 2.3 --Materials 5.0 5.3Industrials 5.9 6.6Utilities -- 2.1Consumer Staples 0.9 5.3Energy 13.4 19.0Telecom Services 4.0 12.7Financials 27.0 36.2Focusing on the secular ‘growth’ sectors * Index - MSCI China Source: Baring Asset Management21
  23. 23. Portfolio Characteristics Market Capitalization Comparison Portfolio Index* Portfolio Benchmark* (%) (%) (%) (%)Forward P/E (FY2) 10.2x 8.9x Over US$10 bn 39.8 63.9Price/Book 2.2x 1.9x US$1-10 bn 51.3 34.7ROE 22.8% 21.4% Below US$1 bn 7.7 1.4Number of Stocks 60 148 Weighted Avg (US$ bn) 24.1 54.3Portfolio Turnover Risk SummaryThe rolling 12 month portfolio 79.2% Tracking Error vs. Index* 8.1%turnover (adjusted) Beta vs. Index* 1.1 Remarks: Investment involves risk. Past performance is not an indication of future performance. Please refer to the Regulatory Disclosure. Source : MSCI, Style Research, Barings * Index: MSCI China22
  24. 24. Agnes Deng, CFA Head of Hong Kong China Equities Last updated: 30th January 2012 Investment Director, Asia Pacific Equity Location: Hong Kong Investment Experience: 13 YearsAgnes is the investment manager of the Baring Hong Kong China Fund and Greater China Fund Inc. She also takes the lead role in Hong Kong China specialistresearch. Agnes joined Baring Asset Management in 2007 from Standard Life Investment (SLI) in Asia where she was an Investment Director with considerableexperience in running portfolios focusing on the Hong Kong China as well as the Asian region. The SLI China Fund she managed consistently ranked in the top quartilepositions in the peer group performance surveys. Agnes also worked closely with Standard Life’s asset management joint venture in China and providedrecommendations on strategy and asset allocation. Agnes received a BA in English Literature from Xiang Tan University (Hunan) China and an M.B.A. from the McGillUniversity, Montreal, Canada. Agnes was awarded the CFA designation in 2001. She speaks English, Mandarin and Cantonese fluently.William Fong, CFA Investment Director, Asia Pacific Equity Last updated: 30th January 2012 Location: Hong Kong Investment Experience: 12 YearsWilliam is the lead manager of Baring China Select Fund and Baring China Growth Fund. He also manages a number of dedicated Hong Kong China portfolios includingthe co-manager role of Greater China Fund, Inc. His research responsibilities include Hong Kong, China and Taiwan. He is also a member of the Technology Globalsector team. William joined Baring Asset Management in 2004 from Primasia Securities where as an Investment Analyst specialising on Taiwanese stocks. He received aB.B.A. (Hons.) in Finance from The Chinese University of Hong Kong. William was awarded the CFA designation in 2003. He is fluent in Cantonese, English andMandarin. 23
  25. 25. Jim Chen, CFA Investment Manager, Asia Pacific Equity Last updated: 30th January 2012 Location: Hong Kong Investment Experience: 9 Years Industry Experience: 11 YearsJim is an investment manager responsible for institutional China portfolios in our Hong Kong China equities team. He joined Barings in July 2010 from Sumitomo MitsuiAsset Management (Hong Kong) where he managed Greater China funds and led the China research analyst team. Prior to that, he worked for CITIC Capital Holdingsas a fund manager of its China funds. Jim received a BA in International Trade from Wuhan University China, an MA in Financial Economics from the University of Maine,USA, and an MBA from Northeastern University, Boston, USA. He is also a CFA Charterholder. Jim speaks English, Cantonese and Mandarin fluently.Winston Ke, CFA Senior Investment Analyst, Asia Pacific Equity Last updated: 30th January 2012 Location: Hong Kong Investment Experience: 6 YearsWinston has research responsibility for Hong Kong and China. He joined Baring asset management in April 2010 from First State Cinda Asset Management where hecovered China A share market as a senior equity analyst. He started his career as a management trainee with HSBC. He is a CFA Charterholder and received a BA anda MA from Nanjing University. He is fluent in English and Mandarin. 24
  26. 26. Derick Leung Investment Analyst, Asia Pacific Equity Last updated: 30th January 2012 Location: Hong Kong Investment Experience: 6 YearsDerick Leung has research responsibility for Hong Kong and China . He joined Baring Asset Management in May 2008 from Geminis Capital International, where heworked as an analyst covering Greater China markets. He received a BEng from The University of Hong Kong and an Msc from University of Warwick. He is fluent inCantonese, English and Mandarin.Zhi Zhi Tan Investment Analyst, Asia Pacific Equity Last updated: 30th January 2012 Location: Hong Kong Investment Experience: 6 YearsZhizhi has research responsibility for Hong Kong and China. He joined Baring Asset Management in December 2011 from Heju Investment, where he was a seniorequity analyst. Prior to that, he worked as an investment analyst for ABN AMRO TEDA Fund Management, covering commodities and telecommunication sector from2006 to 2010. Zhizhi received a BA from Renmin University of China. He is fluent in English and Mandarin.25
  27. 27. Lin Tang Investment Analyst, Asia Pacific Equity Last updated: 30th January 2012 Location: Hong Kong Investment Experience: 3 YearsLin Tang has research responsibility for Hong Kong and China. She joined Baring Asset Management in October 2010 from HSBC Markets (Asia) Limited, where sheworked as an equity sales covering Hong Kong and China markets. She received an MBA in Finance from The University of Chicago Graduate School of Business. Sheis fluent in Mandarin, English and Cantonese.26
  28. 28. EXCEL FUNDSCommissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the simplified prospectus beforeinvesting. The indicated rates of return are the historical annual compounded total return including changes in unit value and reinvestment of all distributions and do nottake into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds arenot guaranteed, their values change frequently and past performance may not be repeated. The rates of return shown are used only to illustrate the effects of thecompound growth rate and are not intended to reflect future values of the returns on investment in Excel Funds.BARINGS ASSET MANAGEMENT (ASIA) LIMITEDThis document is issued by Baring Asset Management (Asia) Limited. This document is intended for receipt solely by persons who are professional investors/advisorsand must not be circulated or distributed to other persons. The information in this document does not constitute investment, tax, legal or other advice orrecommendation or, an offer to sell or an invitation to apply for any product or service of Baring Asset Management. We reasonably believe that the informationcontained herein is accurate as at the date of publication but no warranty (express or implied) or guarantee is given as to accuracy. The information and any opinionsexpressed herein may change at any time. This document must not be used, or relied on, for purposes of any investment decisions. Baring Asset Management groupand its affiliates/staff 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 anysuch investment. This document may include forward-looking statements which are based on our current opinions, expectations and projections as of the date on thecover 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.Transactions in derivative instruments may be used to meet the investment objectives of the Fund and may therefore lead to higher volatility to its net asset value andmay involve a greater degree of risk than is the case with conventional securities.A portion of the fund’s portfolio is invested into emerging markets and investors should be aware of the risk associated with such investments.Investment involves risks. The price of units may go down as well as up and the past performance does not indicate future performance. Investors should read theoffering documents for details and the risk factors. Investors should not base on this document alone to make investment decisions. Investors please refer to offeringdocuments for further details, including risk factors. This document has not been reviewed by the Securities and Futures Commission of Hong Kong.Research MaterialBaring 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 ofresearch undertaken by Baring Asset Management and must not be used, or relied upon, for the purposes of any investment decisions. The information and opinionsexpressed herein may change at anytime. 27

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