Notre Dame - Asia Pacific Fund

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Transcript Notre Dame - Asia Pacific Fund

The Asia Pacific Fund, Inc.
Virtual Forum
Baring Asset
Management (Asia)
Limited
19/F, Edinburgh Tower,
15 Queen’s Road Central,
Hong Kong
Asian Equities:
The “Absolute” Case
Tel +852 2841 1411
www.barings.com
www.asiapacificfund.com
Khiem Do
Authorised and regulated by the
Financial Services Authority
December 9, 2008
Asian Equities
The “Absolute” Case

Cyclical, not secular, growth downturn

Healthy balance sheet, plus room to manoeuvre

Almost ‘bargain’ valuations

A ‘victim’ of forced liquidation
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The Last Olympic Gold Medal goes to …
Synchronised Diving … or …
Synchronised Diving Stockmarkets
Returns YTD to 31/10/08, in USD terms
US
-33.00%
Europe
-45.00%
Japan
-33.60%
Far East ex Japan
-52.40%
GEM
-53.00%
China A Shares
-64.90%
Source: Stock market returns-Factset (11/2008) MSCI USA, Europe, Japan, AC Far East ex Japan, EM and Shanghai SE A Share Index
Photo—The Official Website of the Beijing 2008 Olympic Games August 8-24, 2008
2
From Crisis to Crisis
Asia Financial Crisis 1997-98
Global Financial Tsunami 2007-
Malaysia introduced capital controls
Short selling ban
Hong Kong Government market intervention
Stock lending withdrawal
Re-capitalisation – IMF, foreign investors
Government rescue plans – our life savings !
China started to “test pilot” margin lending
and short selling !
3
How Asia Has Transformed Itself
Pre- and post-financial crisis
Pre- 1997
Post- 1998
Deficit
Surplus
Overvalued
Undervalued
High
World’s major lender
Leverage
Excessive
Deleveraging
Capacity expansion
Excessive
Disciplined
Falling
Rising
Premium
Discount
Exports
Consumption
Current account
Currency
Foreign borrowing
Corporate RoE
Relative valuation
Growth driver
Derivative of global growth
Driver of global growth
Healthier balance sheet and stronger profitability
4
Chinese Economy
More sustainable GDP growth
Real GDP Growth (year-on-year change, %)
(%)
CREDIT
TIGHENING
16
CREDIT
EASING
14
12
9% swing
10
3% swing
10% swing
8
6
4
2
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
0
Pro-active management of the economy
to ensure sustainability
Source: BCA Research, JP Morgan as at 20 October 2008, Bloomberg
2008-2010 Forecast, Baring Asset Management (5 November 2008)
5
China vs US Decision-Making Process
Debating vs doing it
US
President
Congress
Voters
Treasury
Senate
CNN
Fed
States
CNBC
Lots of debates
China
The Party
JUST DO IT!
6
China
Fiscal policy has a lot of room to expand
% of GDP
% of GDP
3.0
18
2.5
16
14
2.0
12
1.5
10
1.0
8
0.5
6
0.0
4
-0.5
-1.0
2
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007E
Chinese Government Deficit (Surplus)
Chinese Government debt (RHS)
Source: CEIC, Credit Suisse estimates (September 2008)
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0
Asia vs US
Savings and Banks’ Loan/Deposit Ratio
Gross savings
Banking loan/deposit ratio
%
120
% of GDP
35
110
30
100
25
90
20
80
15
70
97
10
90
92
94
96
Asia
98
00
02
04
06
98
99
00
US
01
02
03
05
04
06
Asia
US
Healthier Asian banking system
Source: CEIC, JP Morgan as at August 2008 – Gross savings include pension contributions are corporates.
8
Rise of “Chindia”
An emerging economic force
Total GDP US$m
(% )
14
70
12
60
10
50
8
40
6
30
4
20
2
10
0
0
1990
India
1995
China
2000
2005
2010
2015
2020
Chindia as % of US GDP (RHS)
Source: CLSA (11/2008)
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China vs World
Share of world GDP in 2007
GDP growth contribution projection for 2009
Share of World GDP
(in %, based on 2007 dollars)
Brazil China
2%
6% India
2%
Russia
2%
Europe
31%
2009 GDP Growth Contribution
Projection: Indicative Direction Only
China/India
50%
Emerging
Markets
50%
Other
emerging
19%
Other
developed
4%
Japan
8%
US
26%
China: 6%, EM: 25%,
Developed World: 69%
Source: World & Emerging (2007) - UBS (8/2008)
2009 Projection – Baring Asset Management forecast (11/2008)
China/India: 50%, EM: 50%,
Developed World: 0%
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Asian vs US Financials
‘Chalk and cheese’
Do Asian banks deserve the same share price treatment
as their US counterparts ?
Source: Bloomberg (9/2008), earnings per share average for Asia ex Japan financials & S&P 500 financials 31/12/99 – 01/10/08. Share price
performance Asia ex Japan financials & S&P 500 financials, 31/12/99 – 01/10/08.
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Asian Market Valuations
Cheap
MSCI AC Asia ex Japan Trailing
P/Book Valuation band
MSCI AC Asia ex Japan 12-month
forward P/E band
800
800
700
600
Index
P/B = 1.3
P/B = 1.0
P/B = 1.6
P/B = 1.9
P/B = 2.5
P/B = 2.2
P/B = 2.8
Index
P/E = 10
P/E = 14
P/E = 18
700
600
500
500
400
400
300
300
200
200
P/E = 8
P/E = 12
P/E = 16
P/E = 20
100
100
90
92
94
96
98
00
02
04
06
08
90
92
94
96
98
00
02
04
06
Source: MSCI, Citi Investment Research as at November 2008
12
08
10
Asian Equity Markets Valuation
Lowest for 18 years!
Credit Suisse’s Asian Markets 6 Factor Valuation Indicator
60
40
Price Index
1800
30% overvalued
20
1400
0
Fairly Valued
1000
-20
600
"Buy" signal
-40
200
-60
Jan-90
Jan-93
Jan-96
Price Index (LHS)
Jan-99
Jan-02
Jan-05
Jan-08
6 factor Asian valuation indicator (RHS)
30
6 factor Asian valuation indicator
2200
Asia ex-Japan Historic P/E
25
20
15
10
5
Jan-90
Jan-93
Jan-96
Jan-99
Jan-02
Jan-05
Jan-08
Asia ex-Japan - PE
Fundamental ‘Buy’ signal hoisted, based on very cheap valuation
Source: 6 Factor Valuation Indicator – Credit Suisse (11/2008)
Asia ex-Japan Historic P/E - Credit Suisse (11/2008)
13
Global Risk Appetite
Still in ‘panic’ mode
Global Risk Appetite Since 1981
10
Risk Index
Euphoria
5
0
-5
Jan-81
Latest = -4.95
(26 Nov 08)
Panic
Jan-85
Jan-89
Jan-93
Jan-97
Jan-01
Jan-05
Result of de-leveraging and de-risking
Source: Credit Suisse (12/2008). Risk Index measures risk appetite of global investors
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Money Flows: EM Asia
De-risking, De-leveraging, and Capitulation
Net Foreign Flows in
EM Asia (ex-China & Malaysia)
Net Foreign Buying in
EM Asia (ex-China and Malaysia)
6%
10 (US$bn)
4%
2.7
5
2%
(5)
0%
(20)
Feb-03
-18.3
(15)
Feb-04
Feb-05
Feb-06
Feb-07
-14.8
-15.2
(10)
-12.9
-10.3
-11.1
-5.4
-4.8
-
-2%
-4%
-6%
Feb-08
Monthly Net Foreign Buying in EM Asia
97
98
99
00
01
02
03
04
05
06
07
08
EM Asia ex-China & Malaysia
Asia was one of the working ATMs!
Note: EM Asia here includes India, Indonesia, Korea, Taiwan, Thailand and the Philippines.
Net Foreign Buying in EM Asia – Source: Morgan Stanley (11/2008)
Net Foreign Buying in EM Asia ex-China & Malaysia – Source: Credit Suisse estimates (11/2008)
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End of redemptions in Asian Equities ?
Perhaps …
Total Foreigners’ net purchases
10,000
US$m
4,147
5,000
4,502
2,681
476
0
-618
-1,754
-5,000
-4,629
-7,335
-10,000
-8,151
-11,453
-15,000
-15,025
-4,870
-10,232
-11,333
-15,473
Inflow
Outflow
Source: Credit Suisse (11/2008)
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Nov-08
Oct-08
Sep-08
Aug-08
Jul-08
Jun-08
May-08
Apr-08
Mar-08
Feb-08
Jan-08
Dec-07
Nov-07
Oct-07
Sep-07
Aug-07
-20,000 -17,548
Asian Stock Markets
To the precipice and back!
Gross returns in USD, year-to-date to 28 November, 2008
Bear period
YTD to 27 Oct 2008 (%)
Recovery
28 Oct to 28 Nov 2008 (%)
MSCI Taiwan Free
-49.4
1.8
MSCI Hong Kong Free
-60.9
20.1
MSCI China Free
-67.3
36.1
MSCI Korea Free
-65.6
9.1
MSCI Malaysia Free
-45.3
0.9
MSCI Thailand Free
-57.1
5.8
MSCI Philippines Free
-58.2
16.7
MSCI Singapore Free
-55.3
10.3
MSCI Indonesia Free
-63.4
-3.8
MSCI AC Far East Free Ex Japan Gross
-60.8
15.0
MSCI India Free
-69.1
4.2
Vietnam (HCM Local price index)
-64.5
-4.4
Country - Index
North Asia
ASEAN
Source: Factset, Bloomberg
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The “Absolute” Case for Asian Equities

We believe the case for Asia looks compelling
unless ….

You happen to believe the global economy will be in recession for the
next 3 years!
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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
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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.
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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
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Complied (Boston): December 2, 2008
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