Baring Asset Management (Asia) Limited

download Baring Asset Management (Asia) Limited

of 21

  • date post

    01-Nov-2014
  • Category

    Documents

  • view

    881
  • download

    1

Embed Size (px)

description

 

Transcript of Baring Asset Management (Asia) Limited

  • 1. THE ASIA PACIFIC FUND, INC. 2007 : Outlook Update for Asian Markets Investment Community Conference Call www.asiapacificfund.com Khiem Do Fund Manager March 20, 2007
  • 2. Table of Contents Page Section 1: Asian Markets Review 2 - 5 Section 2: Economic and Investment Outlook Update 6 - 19
  • 3. Section 1: Asian Markets Review
  • 4. Local Currency Exchange Rate (US$/Local Rate) Year to March 5, 2007 12/31/2006 03/05/2007 Change % * North Asia Chinese Renminbi 7.81 7.75 +0.7 Hong Kong Dollar 7.78 7.81 -0.5 New Taiwan Dollar 32.59 32.88 -0.9 South Korean Won 930 951 -2.2 ASEAN Thai Baht 36.15 33.15 +9.0 Malaysian Ringgit 3.53 3.52 +0.3 Singaporean Dollar 1.53 1.53 +0.2 Philippine Peso 49.01 48.93 +0.2 Indonesian Rupiah 8,994 9,255 -2.8 Indian Rupee 44.26 44.63 -0.8 *: + denotes an appreciation of the local currency vs the USD (and vice-versa) Source: Factset Mixed performances vs USD, with small ASEAN currencies out-performing their Northern counterparts
  • 5. Stock Market Performance Year to March 5, 2007 Return in USD Country - Index (%) North Asia MSCI China Free -13.4 MSCI Hong Kong Free -6.1 MSCI Taiwan Free -8.5 MSCI Korea Free -4.0 ASEAN MSCI Indonesia Free -11.2 MSCI Philippines Free 0.3 MSCI Singapore Free 0.3 MSCI Malaysia Free 2.2 MSCI Thailand Free 9.5 MSCI India Free -11.1 MSCI AC Far East Free Ex Japan Gross -6.3 Source: Factset Small ASEAN markets out-performed their Northern peers and India
  • 6. Sectoral Performance Year to March 5, 2007 Source: Factset Return in USD (%) MSCI Materials 1.7 MSCI Industrials -2.1 MSCI Real Estate -3.9 MSCI Utilities -5.1 MSCI Consumer Discretionary -5.4 MSCI Telecommunication Services -5.7 MSCI Financials -7.0 MSCI Consumer Staples -7.5 MSCI Information Technology -9.2 MSCI Energy -11.4 MSCI Health Care -15.5 No clear trend, with the two heavy-weights Energy and Technology under-performing Materials and Industrials
  • 7. Section 2: Economic and Investment Outlook Update
  • 8. Barings Global Economic forecasts: Basically unchanged from our December 2006 stance
    • US economy expected to grow more slowly in H1 07 (pulled down by housing), but to recover in H2 07
    • Europe expected to continue to grow reasonably strongly, and Japan to recover modestly
    • US Federal Reserve expected to continue to pause for remainder of 2007
    • Oil prices likely to trade between $US 50-70/bbl
    Still a relatively benign global backdrop, but direction of US monetary policy is key
  • 9. Barings Asia Pacific Economic forecasts: Basically unchanged from our December 2006 stance
    • China expected to continue to grow solidly (910%) and drive the region
    • Other Asian economies likely to grow at long-term trend rates
    • Asian central banks policy direction expected to be mixed ( Indonesia and Thailand to cut, China and India to raise, while others to maintain status quo )
    • Asia Pacific currencies likely to continue to strengthen modestly vs the USD
    Still a favourable regional economic backdrop for 2007 and beyond
  • 10. Global equity risk appetite: Falling recently, thus causing selling in high beta asset classes Source: UBS (3/2007) High risk appetite Low risk appetite Short-term investors recently became more risk-averse, thus offering long-term investors with another opportunity to buy Asian equities
  • 11. Which Asian markets have fallen the most YTD ? Answer is Price change Drop from YTD 2006 Peak- Markets from YTD peak change to-bottom (local currency) Local Index Feb-26 (%) (%) (%) % drop ChinaH HSCEI -14% -22% -18% -21% Malaysia KLCI -13% -14% 1% -9% Philippines PCOMP -11% -12% 1% -22% ChinaRed HSCCI -11% -13% -5% -20% Singapore STI -11% -11% -1% -15% India SENSEX -9% -16% -10% -31% Hong Kong HSI -8% -10% -6% -12% Japan TPX -8% -8% 0% -19% Taiwan TWSE -7% -8% -6% -17% Australia AS51 -6% -7% 0% -12% Korea KOSPI -6% -6% -4% -19% Indonesia JCI -4% -7% -5% -21% Thailand SET -1% -14% 0% -25% Source: Goldman (3/2007) The winners of 2006 (i.e., mean reversion phenomenon occurring)!
  • 12. Is the Yen carry-trade correction over ? Yen/USD Exchange Rate MSCI Far East Free ex-Japan Index Yen Carry-trade correction over? Impact of Yen carry-trade correction over? Source: Bloomberg Yes, most probably !
  • 13. Foreign flows of funds in (and out) of Asia: Has Asia seen the bulk of redemptions ? Asia ex Japan Regional and Country Equity Funds Source: Citigroup (3/2007) Yes, most probably !
  • 14. Top 50 China A-share tracker: A good gauge of investors sentiment for Chinese equities Source: CICC (3/2007) The craze for Chinese A-shares (premium) has turned to fear (discount), offering a potential long-term buying opportunity -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 A50 Tracker Premium (Discount) to NAV
  • 15. Is China trading at bubble valuations ? No, not at 13X forward P/E ! Source: CICC (3/2007) China: solid growth, at a reasonable price! 10 15 20 25 30 35 40 45 50 55 60 Jan-00 May-00 Sep-00 Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 MSCI China 12 month forward P/E band 9x 8x 10x 11x 12x 13x 7x 14x 15x 16x 17x
  • 16. Chinas profitability trend: Positive Note : Ex-energy means exlcuding PetroChina and Sinopec Source: UBS (3/2007) Strong sales growth, plus stable margins and efficient management of capital have helped to raise ROE trend 5% 7% 9% 11% 13% 15% 17% 19% 94 95 96 97 98 99 00 01 02 03 04 05 06 07E 08E H-share Index ROE (%) H-share Index ROE (Ex-Energy) (%)
  • 17. Chinese and Asian market valuations: Undemanding Growth at a reasonable price Source: Goldman Sachs (03/2007) * H share index Index PE (X) PBV (X) ROE (%) EPS growth (%) Year-to-date Country 2006E 2007E 2006E 2007E 2006E 2007E 2006E 2007E performance China * 16.2 14.2 2.7 2.3 18.6 17.3 18.8 13.8 -6.6% India 19.4 16.4 3.9 3.4 24.1 22.2 24.0 17.8 -9.2% Indonesia 16.0 13.3 3.7 3.2 26.6 25.9 19.7 19.6 -5.9% Malaysia 17.0 16.2 2.3 2.1 14.1 13.5 14.7 5.2 +6.2% Philippines 17.1 15.7 2.6 2.4 16.3 15.8 12.6 8.5 +2.6% South Korea 12.0 11.5 1.6 1.6 13.5 13.6 (4.4) 4.6 -0.3% Taiwan 15.7 13.1 2.0 1.9 13.7 15.1 18.3 20.4 -6.0% Thailand 10.4 10.5 1.8 1.7 18.2 17.2 (17.6) (0.7) -1.3% EM Asia 14.8 13.2 2.1 2.0 15.3 15.4 16.9 12.3 -4.8%
  • 18. Long-term Asian valuations: Still attractive Source: Morgan Stanley (3/2007) Asian markets have been re-rated since 98: a long-term trend which is likely to continue Asia Pac ex Jap fwd P/E Discount to US at 7.0% Asia Pac ex Jap Bond Yield-Earnings Yield Gap is still a high -2.4% >> Equities are cheap versus Bonds Fed Tightening S&P 500 AP ex JP 10Y Bond Yield - Fwd Earnings Yield (%) Avg. -1 Std dev Avg. +1 Std dev US$ Price (Right) 12M Fwd PE 7 9 11 13 15 17 19 21 23 25 27 Jan-88 Jan-91 Jan-94 Jan-97 Jan-00 Jan-03 Jan-06 APXJ -6.0 -5.0 -4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 Apr-95 Oct-96 Apr-98 Oct-99 Apr-01 Oct-02 Apr-04 Oct-05 - 50 100 150 200 250 300 350 400 450
  • 19. General Conclusions : Still Bullish on Asian equities
    • Chinas and Asias strong and sustainable domestic demand growth theme remains intact
    • This should lead to further re-rating of Asian equity markets
    • Any weakness caused by a reduction of global risk appetite in 2007 should be used as a buying opportunity for long-term investors
  • 20. Investment Themes for 2007: Still focused on domestic demand
    • Pro-growth strategy maintained, with a focus on growth in Asian domestic demand
    • Chinas sustainable growth plays real estate and retail, financials, and selective manufacturing and infrastructure plays
    • ASEAN and Taiwan domestic reflation plays - property, banks, telecoms, consumer
    • Technology: looking to rebuild positions selectively in H2 07
  • 21. Important Information Ensure Complied Date is added at foot of Disclosure This document is provided as