microsoft powerpoint - gch presentation -february 2007
Post on 21-Oct-2014
714 views
DESCRIPTION
TRANSCRIPT
Baring Asset Management (Asia) Limited19th Floor, Edinburgh Tower
15 Queen’s Road Central, Hong KongTel: (852) 2841 1411Fax: (852) 2868 4110
www.barings.com
The Greater China Fund, Inc.
Investment Outlook
Henry Chan – Head of Asian Investment TeamFebruary 2007
1
(S:\Investment Management\Accounts\GCH\Presentation\Year 2007\20070201 - GCH Board Meeting Presentation update.ppt)
China: Outlook Summary
! We remain positive on China, but 2007 will not be as spectacular as 2006 as valuation has gone up
Growth + +
Liquidity + +
Currency +
Management +
Valuation =
2
(S:\Investment Management\Accounts\GCH\Presentation\Year 2007\20070201 - GCH Board Meeting Presentation update.ppt)
Economic Growth: No Boom-Bust Cycle
Real GDP Growth
! Government Target for 2006-2010:
7.5% GDP growth p.a.
2006 = 10.7%
Source: BCA Research, JP Morgan as at 31 January 2007, Bloomberg
Year-on-year Percentage (%)
0
2
4
6
8
10
12
14
16
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
9% Swing
10% Swing
Only 3% swing
3
(S:\Investment Management\Accounts\GCH\Presentation\Year 2007\20070201 - GCH Board Meeting Presentation update.ppt)
05
10152025303540455055
2000 2001 2002 2003 2004 2005 2006
Fixed Asset Investment
Source: CEIC, ABN AMRO (01/31/2007)
Fixed Asset Investment Growth
! Fixed asset investment growth moderating but remain well-supported
! Driven by infrastructure investments: railway, roads, properties, Olympics (Beijing), World Expo (Shanghai)
! Positive for infrastructure and basic material sectors
Year-on-year Percentage (%)3 month moving average
Overheating
4
(S:\Investment Management\Accounts\GCH\Presentation\Year 2007\20070201 - GCH Board Meeting Presentation update.ppt)
10
12
14
16
18
20
22
24
26
1999 2000 2001 2002 2003 2004 2005 2006
Money supply M2 Loans
Money Supply & Loan Growth
Dec’06 M2 : 16.9% yoy
! Liquidity remains abundant – reason for the strong “A”share market rally
Dec’06 Loan: 15.1% yoy
Source: CEIC, ABN AMRO (01/31/2007), Bloomberg
Year-on-year Percentage (%)
5
(S:\Investment Management\Accounts\GCH\Presentation\Year 2007\20070201 - GCH Board Meeting Presentation update.ppt)
-10-505
1015202530354045
Jan-9
4
Jul-
95
Jan-9
7
Jul-
98
Jan-0
0
Jul-
01
Jan-0
3
Jul-
04
Jan-0
6
CPI: Overall CPI: Food CPI: Non-food
Inflation
China CPI Inflation
! Latest inflation data shows some sign of picking up
Source: CEIC, ABN AMRO (01/31/2007)
Hyperinflation
Dec’06 CPI: 2.8% yoy
Year-on-year Percentage (%)
6
(S:\Investment Management\Accounts\GCH\Presentation\Year 2007\20070201 - GCH Board Meeting Presentation update.ppt)
China: Further Interest Rate Hike Likely
Source : UBS, Aug’06
0
2
4
6
8
10
12
14
1990 1995 2000 2005
China - 1-year base lending rate
US - Prime lending rate
Percent per annum
- US: Raised 17 times or 4.25%
- China: Raised 3 times or 0.81%
7
(S:\Investment Management\Accounts\GCH\Presentation\Year 2007\20070201 - GCH Board Meeting Presentation update.ppt)
Bank Reserve Requirement Ratio
Source: JP Morgan as at 31 January 2007
! The PBOC has been raising bank reserve requirement ratio to reign in excess credit
Figure 1: History of reserve requirement hikes announcement since 2003
8
(S:\Investment Management\Accounts\GCH\Presentation\Year 2007\20070201 - GCH Board Meeting Presentation update.ppt)
0%
2%
4%
6%
8%
10%
12%
14%
ICBC BOC CCB BoCom
2002 YTD
Health of Banking System has Improved Since Recapitalization
NPL Ratio Trend
! Banks remain as core holdings
Source: Citibank (01/2007)
Internationalstandard
Capital Adequacy Ratios
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Dec-
03
Feb
-04
Ap
r-0
4
Jun
-04
Au
g-0
4
Oct
-04
Dec-
04
Feb
-05
Ap
r-0
5
Jun
-05
Au
g-0
5
Oct
-05
Dec-
05
Feb
-06
Ap
r-0
6
Jun
-06
Au
g-0
6
9
(S:\Investment Management\Accounts\GCH\Presentation\Year 2007\20070201 - GCH Board Meeting Presentation update.ppt)
5%
10%
15%
20%
25%
30%
35%
40%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006E
2007E
Capex to Sales
China Has Become More Disciplined In Capex
Capex To Sales
Source: UBS (01/2007)
! Over capacity being addressed
! Focus on industries with improving supply discipline e.g. steel, cement
10
(S:\Investment Management\Accounts\GCH\Presentation\Year 2007\20070201 - GCH Board Meeting Presentation update.ppt)
7.7
7.8
7.9
8.0
8.1
8.2
8.3
8.4
01/0
6/05
01/0
8/05
01/1
0/05
01/1
2/05
01/0
2/06
01/0
4/06
01/0
6/06
01/0
8/06
01/1
0/06
01/1
2/06
01/0
2/07
The Rmb keeps on appreciating gradually
Source: Bloomberg (02/2007)
" Rmb exchange rate has surpassed that of HKD/USD
" Positive : Retail/Luxury goods
" Negative: Exporters
Rmb per USD since revaluationRmb/USD
Appreciation
11
(S:\Investment Management\Accounts\GCH\Presentation\Year 2007\20070201 - GCH Board Meeting Presentation update.ppt)
70
75
80
85
90
95
100
105
Jan-
04
May
-04
Sep
-04
Jan-
05
May
-05
Sep
-05
Jan-
06
May
-06
Sep
-06
Jan-
07
China vs. Global Emerging Markets
Source: Datastream, JPMorgan (01/31/2007)
Relative Performance – MSCI China vs. MSCI Emerging Markets
Indexed Performance
Jan 2004 = 100
China OutperformsChina Underperforms
" China benefited from investor re-rating in
2006, especially in the fourth quarter
12
(S:\Investment Management\Accounts\GCH\Presentation\Year 2007\20070201 - GCH Board Meeting Presentation update.ppt)
0
10
20
30
40
50
60
70
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Shanghai A shares H shares
H shares still more attractive than A shares
" H shares look undervalued when compared with
the surging A shares
Price-Earnings Ratio
Source: Bloomberg, JP Morgan, as at 1/31/2007
Shanghai A shares
H shares
times
13
(S:\Investment Management\Accounts\GCH\Presentation\Year 2007\20070201 - GCH Board Meeting Presentation update.ppt)
0
10
20
30
40
50
60
Jan-9
9Ju
l-99
Jan-0
0Ju
l-00
Jan-0
1Ju
l-01
Jan-0
2Ju
l-02
Jan-0
3Ju
l-03
Jan-0
4Ju
l-04
Jan-0
5Ju
l-05
Jan-0
6Ju
l-06
Jan-0
7
PE
Market Valuation - China
Return on Equity
Source: UBS (02/2007)
MSCI China Price-Earnings
! Valuation still not excessive, with improving shareholders’ value
Price-to-Earnings ratio (times) Percentage (%)
0
2
4
6
8
10
12
14
16
18
20
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006E
2007E
2008E
ROE
14
(S:\Investment Management\Accounts\GCH\Presentation\Year 2007\20070201 - GCH Board Meeting Presentation update.ppt)
Conclusion
! Macro
- China – Growth remains strong, some concerns on further credit tightening measures.
- Hong Kong – Domestic economy picking up.
! Micro
- China likely to consolidate after the strong rally lately but nochange to long term trend. Buy on weakness.
- Stock specific in Hong Kong.
Investment Strategy
16
(S:\Investment Management\Accounts\GCH\Presentation\Year 2007\20070201 - GCH Board Meeting Presentation update.ppt)
Investment Strategy
! Focus on infrastructure and related basic materials e.g. railwayconstruction, steel
! Buy on weakness on Chinese domestic – banks and properties -- but will be more selective on individual stocks. Avoid insurance for the time being
! Leading manufacturers in selective industries with favourabledynamics, e.g. Foxconn International, Nine Dragons Paper, Li & Fung
! Continue to add “A” share exposure on weakness and on further QFII quotas
! Hong Kong – focus on China beneficiaries and industrials
17
(S:\Investment Management\Accounts\GCH\Presentation\Year 2007\20070201 - GCH Board Meeting Presentation update.ppt)
Sept. 30, 2006 Jan. 31, 2007
Market (%) (%)
Hong Kong - Red Chips 22.4 26.0
Hong Kong - Others 29.5 22.9
China ‘H’ 32.5 36.9
China ‘A’ 4.5 5.8
China ‘B’ 3.1 3.3
Taiwan 4.9 1.9
Cash 0.2 1.5
Other 2.8 1.7
The Greater China Fund, Inc. Asset Allocation by Market
Source: Baring Asset Management (02/02/2007)
18
(S:\Investment Management\Accounts\GCH\Presentation\Year 2007\20070201 - GCH Board Meeting Presentation update.ppt)
Automobile 0.1 0.0
Commodities 10.5 11.2
Conglomerates 0.8 0.4
Consumption & Services 17.9 23.3
Electrical & Electronics 2.2 0.0
Energy 8.3 4.6
Financial Services 19.4 16.8
Machinery & Engineering 3.0 8.7
Real Estates 13.8 11.4
Technology 10.8 5.7
Telecommunications 1.9 3.6
Transportation 3.0 6.8
Utilities 0.0 0.0
Miscellaneous 8.1 5.9
Cash 0.2 1.5
The Greater China Fund, Inc.Asset Allocation by Sector
Sept. 30, 2006 Jan. 31, 2006
Sector (%) (%)
Source: Baring Asset Management (02/01/2007)
19
(S:\Investment Management\Accounts\GCH\Presentation\Year 2007\20070201 - GCH Board Meeting Presentation update.ppt)
The Greater China Fund, Inc. Top Ten Holdings as at January 31, 2007
Portfolio weightStock (%)
China Communications Construction 5.0
Guangzhou R&F Properties 4.6
Parkson Retail 3.9
Ports Design 3.6
China Overseas Land 3.4
Foxconn International 3.3
BOC Hong Kong (Holdings) 3.0
Angang New Steel 2.7
China Mobile 2.7
China Construction Bank 2.6
Source: Baring Asset Management as at 01/31/2007
20
(S:\Investment Management\Accounts\GCH\Presentation\Year 2007\20070201 - GCH Board Meeting Presentation update.ppt)
The Greater China Fund, Inc.Portfolio Characteristics as at January 31, 2007
Portfolio Characteristics
Fund Benchmark*
Forward P/E 26.8x 20.4x
Price/Book 8.2x 4.8x
ROE 22.8% 19.2%
Portfolio Turnover
The rolling 12 month portfolio turnover as at January 31, 2007 = 95.2% (usually higher by turn of year)
Market Capitalization Comparison
Fund Benchmark*(%) (%)
Over US$10 bn 25.0 68.7
US$1-10 bn 56.8 28.7
Below US$1 bn 16.7 2.6
Weighted Avg(US$bn) 19.4 55.7
Risk Summary
Tracking Error vs. Benchmark 8.1%
Beta vs. Benchmark 1.15
Portfolio Risk 19.6%
Benchmark Risk 15.7%
* Benchmark : MSCI Zhong Hua
Source: Baring Asset Management as at 01/31/2007
21
(S:\Investment Management\Accounts\GCH\Presentation\Year 2007\20070201 - GCH Board Meeting Presentation update.ppt)
Investment Professionals
HENRY CHAN, CFA, CPA Head of Asian Investment TeamHong KongInvestment Experience: 12 Years
Henry is responsible for the Asian investment policy and portfolio construction. He became the Head of the Asian Investment Team in 2006. Henry joined Baring Asset Management in 2004 and assumed the lead role in driving our Asian institutional mandates and flagship retail products, namely, Baring Asia Growth and Baring Eastern Trust. At the specialist level, Henry is the co-manager the Baring China Absolute Return Fund and Baring Korea Trust. Henry has extensive experience in the management of both Asian regional and specialist mandates. Prior to joining Baring Asset Management he worked at INVESCO (formerly LGT) where he handled a number of Pacific Basin (including Japan) and Asia ex Japan portfolios. His specialist experience covered a number of markets including Taiwan, Hong Kong, China, Korea and Japan. He was also the lead fund manager of INVESCO Asia NET Fund, INVESCO GT Taiwan Fund and a number of Greater China portfolios. Henry received his Bachelor Degree from the London School of Economics and Political Science in 1992. He was awarded the CPA designation in 1994 and became a CFA in 1997. Henry speaks fluent English, Cantonese and Mandarin. .
Last updated: 29th January 2007
LILIAN CO, CFAHead of Hong Kong China EquitiesHong KongInvestment Experience: 12 Years
Lilian heads up the HK China team, overseeing research generation and HK China products. She is the fund manager of Baring HK China Fund (a long-only product) and involved in the management of Baring China Absolute Return Fund (a long/short China hedge fund). She also has the responsibility for a few HK segregated institutional accounts and is a member of the Global Consumer Discretionary Sector Team. Lilian joined Baring Asset Management in 1997 as an analyst covering Taiwan and was promoted to Investment Manager in 2000. Lilian was appointed Divisional Director in 2004. Prior to joining Baring Asset Management, Lilian worked for Credit Agricole Asset Management covering Taiwan, Indonesia and India. Lilian received a Bachelor of Commerce from the University of Alberta (Canada) and an M.B.A. from the University of Nottingham (UK). Lilian was awarded the CFA designation in 2000. She speaks English, Mandarin and Cantonese fluently.
22
(S:\Investment Management\Accounts\GCH\Presentation\Year 2007\20070201 - GCH Board Meeting Presentation update.ppt)
Regulatory 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 Greater China 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’srules 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 advice 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.
Compliance (HK): 7 February 2007