Post on 20-Jun-2015
GLOBAL EMERGING MARKETS
Investing for the long termInvesting for the long term
www.martincurrie.com
1
THE GLOBAL EMERGING MARKETS TEAM
Jeff Casson
Experience: 12 years
Andrew Ness
Experience: 17 years
Alastair Reynolds
Experience: 20 years
Experience: 12 years
Kim Catechis
Experience: 24 years Mohammed Zaidi
Experience: 15 years
Andrew Mathewson
Experience: 9 years
Divya Mathur James Chong
2
y
Experience: 15 years
g
Experience: 17 years
Opinionated, experienced and integratedOpinionated, experienced and integrated
INDUSTRY GROWTH RATESINDUSTRY GROWTH RATES
2011 2012 2013 20142011 2012 2013 2014
Smartphone 55% 35% 20% 20%
Tablet 240% 50% 30% 30%
Laptop 4% 8% 7% 7%
PC 0% 2.5% 1.5% 1%
33Source: IDC, September 2011.
looking beyond headline growth rateslooking beyond headline growth rates
2nd lar est PC ompan loball
Market cap of USD7 billion and 29,000 employees
2nd largest PC company globally
Largest PC company in China with 31% market share
40% share of sales from developed markets
35% of sales from desktop PCs
Acquired IBM PC business in 2005q
4
not just an emerging markets companynot just an emerging markets companySource: Martin Currie. The information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the securities transactions discussed here were or will prove to be profitable. This stock is selected purely to demonstrate the investment process. Past performance is not a guide to future returns.
LENOVO – THE OPPORTUNITYLENOVO THE OPPORTUNITY
Increasing market share in both emerging and developed markets
China ‐ strong distribution network, particularly in the tier 3‐5 cities
Balance sheet strength to acquire PC vendors in developed markets, such as NEC and Medion
Economies of scale = higher margins
5
growth opportunities in a mature industrygrowth opportunities in a mature industrySource: Martin Currie. The information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the securities transactions discussed here were or will prove to be profitable. This stock is selected purely to demonstrate the investment process. Past performance is not a guide to future returns.
THE PC INDUSTRYTHE PC INDUSTRY
Impacted by competing products and slowing western market economies
Growth is in emerging markets, China now the largest PC market
Global PC market share is changing – Asian brands are winning
Developed market companies are re‐evaluating their strategies
Market share gains for Lenovo, Asus and Samsung; but Acer is struggling
6
the industry structure is changingthe industry structure is changingSource: Martin Currie. The information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the securities transactions discussed here were or will prove to be profitable. This stock is selected purely to demonstrate the investment process. Past performance is not a guide to future returns.
VARIETY OF FUNDAMENTAL ANALYSIS PARAMOUNTVARIETY OF FUNDAMENTAL ANALYSIS PARAMOUNT
Components Manufacturer
Consultants Retailer
7
Logistics FinanceThe information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the securities transactions discussed here were or will prove to be profitable. This stock is selected purely to demonstrate the investment process. Past performance is not a guide to future returns.
2011 RELATIVE PERFORMANCE TO MSCI GEM INDEX2011 RELATIVE PERFORMANCE TO MSCI GEM INDEX
8Source: Bloomberg L.P. In US$ from 1.1.11 to 9.11.11 The information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the securities transactions discussed here were or will prove to be profitable. This stock is selected purely to demonstrate the investment process. Past performance is not a guide to future returns.
the importance of stock selectionthe importance of stock selection
INDIAN CONSUMPTIONINDIAN CONSUMPTION
9The information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the securities transactions discussed here were or will prove to be profitable. This stock is selected purely to demonstrate the investment process. Past performance is not a guide to future returns.
traditional areas of interesttraditional areas of interest
LOCAL KNOWLEDGE IS IMPORTANTLOCAL KNOWLEDGE IS IMPORTANT
THEME FACT OPPORTUNITYTHEME FACT OPPORTUNITY
• Largest consumer of gold • Jewellery retail• Largest consumer of gold• Wedding tradition• Wealth effect
• Jewellery retail• Gold lending finance
companies
• Tourism• Wedding tradition
• Luggage manufacturers• Travel agents• Wedding tradition • Airlines and hotels
• Largest market for pressure cookers
• Pressure cooker manufacturers
10
understanding trends in the local marketunderstanding trends in the local market
10
India’s largest branded watch and jewellery retailer
Exposure to both the rural and urban marketExposure to both the rural and urban market
Partly owned by Tata Group, one of the most respected Indian business Groupsrespected Indian business Groups
Hedges its Gold Exposure – a play on Jewellery VolumesVolumes
Revenue growth of over 34% pa in the last 5 years
11The information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the securities transactions discussed here were or will prove to be profitable. This stock is selected purely to demonstrate the investment process. Past performance is not a guide to future returns.
established playerestablished player
TITAN – SHARE PRICE PERFORMANCETITAN SHARE PRICE PERFORMANCE
200
250
R)
Titan industries
150
200
mance (IN
100
ce perform
50
Share pri
0
Oct 2008 Apr 2009 Oct 2009 Apr 2010 Oct 2010 Apr 2011 Oct 2011
12
p p p
Source: Bloomberg L.P. The information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the securities transactions discussed here were or will prove to be profitable. This stock is selected purely to demonstrate the investment process. Past performance is not a guide to future returns.
sustained share price performancesustained share price performance
SUSTAINABILITY ‐ COUNTRYSUSTAINABILITY COUNTRY
Share of middleclass consumption in IndiaShare of middleclass consumption in India50% of India’s population is below 25 years old now, and the median age by 2030 will be 31, far below China’s 42.,
By 2030 ‐ 70% of India’s population will be between 15 and 64between 15 and 64.
13Source: OECD.
best demographics in the BRIC countriesbest demographics in the BRIC countries
SUSTAINABILITY ‐ INDUSTRYSUSTAINABILITY INDUSTRY
Will Indian consumers continue to buy Gold and Jewellery?
Move towards Branded chains from family jewellers:Move towards Branded chains from family jewellers:
•Trust•Service LevelsService Levels•Jewellery Designs•Credit Facilities and Promotions
14
potential in organised retailpotential in organised retail
SUSTAINABILITY ‐ COMPANYSUSTAINABILITY COMPANY
Management execution and Group reputation
Dealing with changing consumer tastesDealing with changing consumer tastes
Self‐funding growth – no need to raise equity
Availability and cost of retail space
il bili d f lAvailability and cost of employees
15
ability to manage sustainability challenges paramountability to manage sustainability challenges paramount
WHY CHOOSE MARTIN CURRIE FOR GLOBAL EMERGING MARKETS?
Experienced team High calibre, highly‐experienced and deeply‐resourced global emerging markets equities team
I di id l k l d Th t h 15 ’ i t t i fIndividual knowledge The team has on average 15 years’ investment experience, many of which have been gained as colleagues and peers.
Sustainability of investment ideas They focuses on companies with strong management and clear titi d t t ti t i bl t th lcompetitive advantages, targeting sustainable returns over the long
term.
Interpretation of fundamental All investment ideas are rigorously analysed and all ideas are debated d h ll d hi fil h ‘ i ’ d ll f d i iresearch and challenged; this filters out the ‘noise’ and allows for decisions to
be made based on the relevant information.
Look beyond the obvious Sector expertise means the managers can look along the value chain, with each link in the chain representing an opportunity; as active portfolio managers this allows us to find and test companies that others may miss.
16Committed to deliver for clientsCommitted to deliver for clients
GLOBAL EMERGING MARKETS AT MARTIN CURRIE
17
INVESTMENT PHILOSOPHY AND APPROACH
We believe…
Share prices will reflect long‐term cash flow generation
Fundamental, bottom‐up research drives alpha generation
Sector specialisation enhances information flow Sector specialisation enhances information flow
Sustainability assessment enhances fundamental analysis
High conviction best ideas portfolios are inherently risk aware
18Consistent and disciplined
STRATEGY DETAILS
Global emerging markets
Performance target (gross of fees) Index +3% p.a. over rolling 5 year periods
Benchmark index MSCI Emerging Markets
Tracking error range 5‐8% p.a.
Number of stocks 40‐60
Capitalisation focus All‐cap
19
GLOBAL EMERGING MARKETS TEAM – RESEARCH RESPONSIBILITIESGLOBAL EMERGING MARKETS TEAM RESEARCH RESPONSIBILITIES
Alastair Reynolds Durable Goods and Homebuilders
Andrew Mathewson Healthcare and Consumer StaplesAndrew Mathewson Healthcare and Consumer Staples
Andrew Ness Financials
Di M h T h l d UtilitiDivya Mathur Technology and Utilities
James Chong China Specialist
Jeff Casson Telecoms, Media and Civil Engineering
Kim Catechis Oil and Gas
Mohammed Zaidi Natural Resources and Transport
20Sector specialisation encourages thought beyond country borders
INVESTMENT PROCESS
Risk management
Idea generation Fundamental analysis
Peer group review
Risk aware portfolio
Stage 1 Stage 2 Stage 3 Stage 4
Research priority list
y
Published investment thesis
Unanimous stock rating
pconstruction
Best ideas
High conviction
Focused
21Rigorous and transparent
STAGE 1: IDEA GENERATION
Team discussion
GEMs team
Screening Research trips
Team of 8
16 years' average experience
J M C ChiJason McCayDirector, Head of Asia team
Team of 6
15 years’ average experience
China
Jamie MarianiDirector of research
Team of 11
James FairweatherDirector, Head of global equities
Team of 5
22Research priority list
12 years’ average experience 21 years’ average experience
STAGE 2: FUNDAMENTAL ANALYSIS
Quantitative Qualitative
Long‐term modelling
Financial analysis
Company life cycle analysis
Sustainability analysisFinancial analysis
Focus on cash flows and return on capital
Sustainability analysis
Extensive management contact
Macro factors
A source of risk, not alpha
Macro risk reflected via cost of equity
23Published investment thesis
STAGE 3: PEER GROUP REVIEW
Check
“Reality check” with Martin
Conviction
Wider team discussion builds
Challenge
GEMs team challenges yCurrie research platform conviction
ginvestment case
24Unanimous stock rating
STAGE 4: RISK AWARE PORTFOLIO CONSTRUCTION
Portfolio
Best ideas
Positive relationship between position size and upside to target
High active risk
Country and sector agnosticCountry and sector agnostic
Independent quantitative factor analysis
Strong buy/sell discipline
25Best ideas, high conviction and risk aware portfolio
MANAGER’S TRACK RECORDGlobal emerging markets – record at Martin Currie
4.5
+3.9
3 5
4.0
3.0
3.5
%)
+2.12.0
2.5
return (%
1.0
1.5
Relative r
0 0
0.5
R
26Source: Martin Currie calculated internally using StatPro, gross of fees in USD for the Martin Currie Emerging Markets fund. In October 2010 Kim Catechis, Alastair Reynolds and Andrew Ness joined Martin Currie’s global emerging markets team, with Kim as team head. Jeff Casson, Divya Mathur and Mohammed Zaidi joined Martin Currie in September 2010. *To 31 October 2011.
0.0
1 year Year to date*
APPENDICES
27
INTRA‐GEM TRADINGINTRA GEM TRADING
China became India’s largest trading partner in 2008
The t o o ntries si ned a $100bn bilateral tradeThe two countries signed a $100bn bilateral trade target by 2015, up from $60bn in 2010
Chi d d l i I di l h i iChinese trade delegation to India larger then visits by the the US, British and French
‘ d d h ll ’‘India and China will co‐operate in many areas’‐Premier Wen
‘S hi b i ’‘Strong partnership between our two countries’ –Premier Singh
28
GOVERNMENT SPENDING: CONVERGING CREDIT RATINGS
June 2006 Latest Change
Developed markets
UK AAA AAA 0
USA AAA AA+ ‐1USA AAA AA+ 1
Spain AAA AA ‐2
Portugal AA‐ BBB‐ ‐6
Ireland AAA BBB+ ‐7
Greece A CC ‐11
Emerging markets
Russia BBB BBB 0
India BB+ BBB‐ +1
Brazil BB BBB‐ +2
Turkey B+ BB +2
Colombia BB BBB +2Colombia BB BBB‐ +2
China A‐ AA‐ +3
Source: Bloomberg L.P. 29
EMERGING POWERS
20301870 1973 2010
2030Forecast
16.4 18.6 13.3 18.0
9.3 8.0 12.3 10.1
8 0 6 3
Source: Arvind Subramanian.
8.3 8.0 6.9 6.3
30
KEY CHANGES TO THE UK UPSTREAM OIL AND GAS TAX REGIME2002 to March 2011
KEY CHANGES TO THE UK UPSTREAM OIL AND GAS TAX REGIME (2002 TO MARCH 2011)KEY CHANGES TO THE UK UPSTREAM OIL AND GAS TAX REGIME (2002 TO MARCH 2011)
A 10% supplementary charge on ring‐fence profits introduced Budget 2002
Introduction of 100% first‐year allowance for expenditure incurred on almost all ring fence capital expenditure Budget 2002
Introduction of a 24% allowance for long‐life assets Budget 2002Introduction of a 24% allowance for long‐life assets Budget 2002
Abolition of Royalty for all fields Pre‐Budget 2002
Tariff receipts for new fields and certain new assets exempted from Petroleum Revenue Tax (PRT) Budget 2003
Introduction of the Exploration Expenditure Supplement (EES) Budget 2004Introduction of the Exploration Expenditure Supplement (EES) Budget 2004
Payments of the ring fence corporation tax and supplementary charge to move from four instalments to three Budget 2005
Supplementary charge increased to 20% Pre‐Budget 2005
The Ring Fence Expenditure Supplement (RFES) introduced, which extended and replaced the EES Pre‐Budget 2005g p pp ( ) , p
100 per cent first year allowances for new expenditure on long‐life assets and mid‐life decommissioning Budget 2008
Provide for companies to claim post‐cessation costs of decommissioning fields for tax purposes Budget 2008
Allow companies to carry back decommissioning costs Budget 2008
Introduction of a “New Field Allowance” for small fields and challenging HPHT and Heavy Oil fields Budget 2009
Removal of chargeable gains from license swaps and making gains exempt where disposal proceeds from ring fence assets are reinvested within the UKCS
Budget 2009
E i f h fi ld ll d fi ld f d i W f Sh l d h
31
Extension of the field allowance to remote deep water gas fields, as are found in West of Shetland March 2010
Increase in supplementary charge on corporation tax from 20% to 32% De‐linking of tax relief on decommissioning costs from tax rate on production
Budget 2011
Source: Based on information from HM Revenue and Customs and Oil & Gas UK.
REGULATORY INFORMATION
Important information:Martin Currie Investment Management Ltd (‘MCIM’) and Martin Currie Inc (‘MCI’) have jointly issued and approved this presentation in their capacity as investment advisers. MCIM and MCI are referred to throughout at ‘Martin Currie’. Both companies are authorized and regulated by the Financial Services Authority. MCI is incorporated with limited liability in New York, USA. MCIM and MCI are registered in Scotland (no 66107 and no BR2575), registered address Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2ES.are registered in Scotland (no 66107 and no BR2575), registered address Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2ES.
The presentation may not be distributed to third parties and is intended only for the attendee. The presentation does not form the basis of, nor should it be relied upon in connection with, any subsequentcontract or agreement. It does not constitute, and may not be used for the purpose of, an offer or invitation to subscribe for or otherwise acquire shares in any of the products mentioned.
The information contained in this presenter has been compiled with considerable care to ensure its accuracy. But no representation or warranty, express or implied, is made to its accuracy or completeness.Martin Currie has procured any research or analysis contained in this presentation for its own use. It is provided to you only incidentally, and any opinions expressed are subject to change without notice.
Past performance is not a guide to future returns. Markets and currency movements may cause the value of investments and income from them to fall as well as rise and you may get back less than you investedwhen you decide to sell your investments. There can be no assurance that you will receive comparable performance returns, or that investments will reflect the performance of the stock examples, contained inthis presenter. Movements in foreign exchange rates may have a separate effect, unfavourable as well as favourable, on the gain or loss otherwise experienced on an investment.
Investing in securities in international markets involves certain risks and special considerations.
Investment in the securities of smaller and unquoted companies can involve greater risk than is customarily associated with investment in larger, more established, companies. In particular, smaller companiesoften have limited product lines, markets or financial resources and their management may be dependent on a smaller number of key individuals. In addition, the market for stock in smaller companies is oftenless liquid than that for stock in larger companies, bringing with it potential difficulties in acquiring, valuing and disposing of such stock. Proper information for determining their value, or the risks to which theyare exposed, may not be available.
In some international markets and particularly in emerging markets the marketability of quoted shares may be limited due to foreign investment restrictions, wide dealing spreads, exchange controls, foreignownership restrictions, the restricted opening of stock exchanges and a narrow range of investors. Trading volume is lower than on more developed stock markets, and equities are less liquid. Volatility of pricesp , p g g g g p , q q y pcan also be greater than in more developed stock markets. The infrastructure for clearing, settlement and registration, on the primary and secondary markets of many emerging markets, may be undeveloped.Under certain circumstances, there may be delays in settling transactions in some of the markets.
Many emerging markets, and the companies quoted on their stock exchanges, are exposed to the risks of political, social and religious instability, expropriation of assets or nationalisation, rapid rates ofinflation, high interest rates, currency depreciation and fluctuations and changes in taxation which may affect the income and the value of its investments.
Companies in emerging markets are not always subject to disclosure accounting auditing and financial standards which are equivalent to those applicable in more developed countries Such information as isCompanies in emerging markets are not always subject to disclosure, accounting, auditing and financial standards which are equivalent to those applicable in more developed countries. Such information, as isavailable, is also often less reliable. There may be less rigorous government supervision and regulation.
Investment in derivative instruments, including futures, options or contracts for differences, carries a high risk of loss, the markets in these investments being very volatile. A relatively small adverse marketmovement may result not only in the loss of the original investment but also in unquantifiable further loss exceeding any margin deposited. Warrants often involve a high degree of gearing so that a relativelysmall movement in the price of the security to which the warrant relates may result in a disproportionately large movement, unfavourable as well as favourable, in the price of the warrant.
32