Transcript APB - CEF Conference

The Asia Pacific Fund, Inc.
Baring Asset
Management (Asia)
Limited
19/F, Edinburgh Tower,
15 Queen’s Road Central,
Hong Kong
Tel +852 2841 1411
CEF Conference
www.asiapacificfund.com
www.barings.com
Khiem Do
Authorised and regulated by the
Financial Services Authority
October 2009
Table of Contents
Page
Section 1: Asian Markets Review
2-4
Section 2: Global and Asian Investment Outlook
5 - 14
1
Section 1
Asian Markets Review
Baring Asset
Management (Asia)
Limited
19/F, Edinburgh Tower,
15 Queen’s Road Central,
Hong Kong
Tel +852 2841 1411
www.barings.com
Authorised and regulated by the
Financial Services Authority
Asian Markets
Market Returns
(3 month period to September 30, 2009)
Gross return in USD
(%)
Country - Index
North Asia
MSCI Korea Free
MSCI Taiwan Free
MSCI Hong Kong Free
MSCI China Free
34.5
23.1
14.4
7.9
ASEAN
MSCI Indonesia Free
MSCI Thailand Free
MSCI Singapore Free
MSCI Philippines Free
MSCI Malaysia Free
38.1
20.0
19.4
15.2
14.8
MSCI AC Far East Free Ex Japan Gross
19.1
MSCI India Free
Vietnam (HCM Local price index)
19.6
29.6
Significant underperformance of China
Source: Factset, Bloomberg
3
Asian Markets
Sectoral Returns
(3 month period to September 30, 2009)
Gross return in USD
(%)
MSCI Information Technology
MSCI Consumer Discretionary
MSCI Materials
MSCI Consumer Staples
MSCI Financials
MSCI Industrials
MSCI Energy
MSCI Health Care
MSCI Utilities
MSCI Real Estate
MSCI Telecommunication Services
34.3
30.6
23.3
20.4
15.4
14.2
14.2
13.7
9.5
8.0
5.8
High beta cyclicals outperformed
Source: Factset
4
Section 2
Investment Outlook & Strategy
Baring Asset
Management (Asia)
Limited
19/F, Edinburgh Tower,
15 Queen’s Road Central,
Hong Kong
Tel +852 2841 1411
www.barings.com
Authorised and regulated by the
Financial Services Authority
Out of the woods, but ….
Is the global economic recovery sustainable ?
Global industrial production
and final sales
1. Aggressive cost-cutting
Index, Jan 00 - Jul 09 average = 100
115
2. Re-stocking
110
105
3. Final demand
100
95
90
85
2000
2002
2004
J.P. Morgan final sales proxy
2006
2008
Industrial production
Will the world be able to create top line growth
on a sustainable basis ?
Source: JP Morgan Global Datawatch, 18th September 2009
6
Debt de-leveraging
Uncertain US consumption trend
US household net worth and owners’
equity in real estate1
65
(US$tn)
(US$tn)
US consumer credit growth2
(US$bn)
(% YoY)
13
30
20
55
11
20
45
9
35
7
25
5
-20
0
15
3
-30
-5
15
10
10
5
2008
2006
2004
2002
2000
1998
1996
1994
1992
-10
1990
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
0
US household net worth at market value (LHS)
Monthly net increase in US consumer credit (LHS)
Owners' equity in household real estate (RHS)
US consumer credit % YoY (RHS)
US households getting poorer, and spending less
Source 1: Federal Reserve (Flow of Funds Accounts) CLSA Asia-Pacific Markets, Greed & Fear, 13 August 2009
Source 2: Federal Reserve, CLSA Asia-Pacific Markets, Greed & Fear, 10th September 2009
7
Chinese Economy: Long-term trend
Climbing the growth “S-curve”
Average change in consumption
EM average change in consumption
Across 17 categories in 23 markets between 1972
and 2008 (GDP/capita 5K US$ =100)
Across 16 categories from 1986 to 2008
(GDP/capita 5K US$ =100)
190
330
170
290
150
250
130
210
China
170
China
110
90
5000
130
90
6000
7000
8000
9000
GDP per capita
10000
11000
5000
6000
7000
8000
9000
10000
11000
GDP per capita
“Explosive” sustainable growth expected in
consumption, once GDP/capita exceeds US$ 6,000
Source: Nomura (August 2009)
8
Chinese Economy: Short-term Trend
Growth is bouncing back nicely
Property1
Automobile sales volume2
Power Generation Growth3
120
60
30
50
25
40
20
15
30
10
20
5
10
May-09
Jan-09
Sep-08
May-08
Jan-08
Jun-09
Dec-08
Jun-08
-15
Dec-07
-20
Jun-07
-10
Dec-06
-10
Jun-06
-5
Dec-05
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
Sep-07
Jun-07
Mar-07
Dec-06
95
0
Jun-05
100
0
Sep-07
105
May-07
110
Jan-07
115
% YoY
China: New residential price index
Beijing
Shanghai
Source 1: CEIC, Credit Suisse
Source 2: CEIC, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse
Source 3: China Electricity Council and Citi Investment Research as at July 2009
Cyclical correction is over,
back to business as usual …
9
When Will the PBOC Tighten Monetary Policy ?
Key monitors
China Inflation
China Import & Export Growth:
Still in deflationary zone
Bottoming out, but still weak
10
60
50
40
30
20
10
0
-10
-20
-30
-40
China Consumer Price Index
Export Growth
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
-4
Jan-02
-2
Jan-01
0
Jan-00
2
Jan-99
4
Jan-98
6
Jan-97
8
YOY, %
Jan-96
YoY, %
Import Growth
PBOC unlikely to tighten aggressively, until annual inflation
exceeds 4% and export growth becomes positive
Source: JP Morgan China Consumer Prix Index (9/2009)
JP Morgan China Import & Export Growth (7/2009)
10
Asian Equities – Investor’s Sentiment
Aversion or appetite ?
3
Risk deviation in SDs from mean
MSCI Asia index
Euphoria
2
720
620
1
520
0
420
-1
320
Distress
-2
220
-3
120
94
95
96
97
98
99
00
01
Asia ex Japan Risk-love Indicator (S.D., LHS)
02
03
04
05
06
07
08
09
MSCI AC Asia ex Japan (RHS)
Risk appetite still rising, but
not at euphoric levels yet !
Source: Citi (September 2009)
11
Global & Asian Equities
Growth forecasts and valuations
P/E (x)
*
Div. Yield
(X)
P/BV (x)
Earning growth (%)
Country
Current
Trailing
12m fwd
Current
Trailing
Current
Trailing
2008
2009E
2010E
Global *
15.4
14.2
2.7
1.8
-26.8
-19.7
20.0
USA *
24.5
15.2
2.0
2.1
-18.3
-11.8
20.9
EMF Asia
16.9
14.1
2.1
2.1
-30.9
5.8
23.4
China
15.9
13.4
2.5
2.2
-12.7
8.5
21.6
India
20.1
17.2
1.1
3.1
-1.1
4.2
21.0
Market forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using I/B/E/S estimates. US trailing PE is calculated as per reported earnings. For all other markets
and sectors, forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using JPM estimates for covered stocks and I/B/E/S estimates for the rest. Companies with
different yearends are calendarised to December yearends and are free float adjusted for aggregation. Historical numbers are from MSCI.
China and Asia are well placed to grow earnings sustainably,
although good news in India appear to be fully priced
Source: JP Morgan (10/2009)
12
Asian Markets Valuation
In the middle of long-term historical valuation range
Asia ex Japan trailing P/BV band
800
P/B = 1.9
P/B = 2.2
P/B = 2.5
P/B = 2.8
Index
P/B = 1.0
P/B = 1.3
P/B = 1.6
700
600
500
400
300
200
100
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
Global search for sustainable growth and low interest rates
may drive Asian markets to expensive levels
Source: Citi (10/2009)
13
Financial Dictionary
East (can do) versus West (discuss and set up a
steering committee)
Proverb
In the West
In the East *
One swallow does not make
a summer …
… call health and safety …
… breed more swallows
Many a slip between cup
and lip ...
… set up a support group,
arrange counselling …
… get a straw
The horse has bolted …
… we’ll never recover,
arrange counselling …
… buy 5 more horses
A problem aired is a problem …
… group, reach out to other
support groups…
… dealt with, halved,
move on
Two wrongs …
… do not make a right …
… but 3 left turns do … !!
We remain bullish on Asia economies’ and
equity markets’ long-term prospects
* Source: Barings (10/2009)
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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
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Complied (Boston): October 19 2009
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