JPMorgan Chinese Investment Trust plc: Annual General Meeting - - PowerPoint PPT Presentation

JPMorgan Chinese Investment Trust plc: Annual General Meeting

January 2019

Howard Wang, Managing Director Portfolio Manager and Head of the Greater China Equities Team Rebecca Jiang, Executive Director Portfolio Manager

1

Questions from investors

 What’s your view on US-China trade?  Several sectors have sold off quite sharply this year.. what is going on?  Given all that has happened, what have you done with the portfolio?  What are some of the interesting new ideas for the portfolio this year?

2

Outlook Opportunities? Drivers of returns? Risks? Positioning?

Secular corporate earnings growth in “New China”, widening foreign access and attention to A-share market, and attractive valuation driven by extreme market sentiment Corporate earnings growth coupled with valuation normalization Escalation of global trade tensions, growth headwinds from domestic financial deleveraging, and policy over-tightening Key stock overweights remain in structural growth sectors, including consumer, technology / internet, healthcare and environmental services

Source: J.P. Morgan Asset Management. As of December 2018. Opinions, estimates, forecasts, projections and statements of financial market trends are based on market conditions at the date of the publication, constitute our judgment and are subject to change without notice. There can be no guarantee they will be met.

3

Trade wars: It’s a systematic approach

Source: Market Insights – Market Bulletin: Investors eye the negotiating table: Rebalancing China-U.S. trade and markets. U.S. Bureau of Economic Analysis, U.S. Census Bureau, J.P. Morgan Asset Management. *Sales data is as of 2015, which is the most recent year for which sales of multinational firms are available. Data reflect most recently available as of 10/5/18.

Where China makes concessions: Old China

Opening up market access Auto, financial services Lowering import tariff Auto & auto parts, consumer products (cosmetics, perfumes, spirits etc.) Increasing imports Oil & LNG, agricultural products

Where China holds the line: New China

Made in China 2025 Software, automation, healthcare services Goods Goods Services Services Sales* Sales* $0 $100 $200 $300 $400 $500 $600 U.S. China USD Billions, 2017* Currently targeted with tariffs Could be targeted Likely next target for China $150 billion level

What China has on hand: things beyond tariffs

“Just had a long and very good call with President Xi of China. Deal is moving along very well. If made, it will be very comprehensive, covering all subjects, areas and points of dispute. Big Progress being made!”

• President Trump via Twitter on

Dec 30, 2018.

Image source: Shutterstock.

4

Monetary policy focus changed from deleveraging to stabilizing leverage

Short term rates declined rapidly with more liquidity injection from PBOC Credit growth has bottomed

Source: Bloomberg, J.P. Morgan Asset Management. As of December 31 2018

Source: WIND. Data as of end Dec 2018.

5% 10% 15% 20% 25% 30% 01/13 04/13 07/13 10/13 01/14 04/14 07/14 10/14 01/15 04/15 07/15 10/15 01/16 04/16 07/16 10/16 01/17 04/17 07/17 10/17 01/18 04/18 07/18 10/18

Domestic Credit YoY growth

2 2.5 3 3.5 4 4.5 5 5.5 6 Shibor (3M) China Corp Bond AA (1Yr)

A 6/24 People’s Bank of China (PBOC) cut Reserve Requirement Ratio (RRR) by 50bp B 7/18 PBOC will offer Medium-term Lending Facility (MLF) liquidity to banks specifically to buy low grade corp bonds C 7/20 Eased Wealth Management Product (WMP) rule is announced from PBOC/China Banking and Insurance Regulatory Commission (CBRIC) with more flexibility given to banks D 10/7 PBOC to cut Reserve Requirement Ratio (RRR) by 100bps E 10/30 CBIRC urges banks to support SMEs and private sector F 12/19 PBOC to offer banks Targeted Medium-term Lending Facility (TMLF) to support SMEs lending G 2019/1/4 PBOC to cut Reserve Requirement Ratio (RRR) by 100bps

A B C F E D G

5

More proactive fiscal policies

Pick up in local government bond issuance to support infrastructure investment

Source: WIND, Ministry of Finance, CICC Estimates. Data as of end Dec 2018.

Source: WIND. Data as of end Dec 2018.

500 1000 1500 2000 2500 3000 3500 2016 2017 2018 2019E

Rmb bn

Net increase of special-purpose local government bond Net increase of local government bond

Fiscal policy to reverse

0% 5% 10% 15% 20% 25% 03/16 05/16 07/16 09/16 11/16 01/17 03/17 05/17 07/17 09/17 11/17 01/18 03/18 05/18 07/18 09/18 11/18 Government revenue growth Government expenditure growth Government revenue growth is faster than government expenditure growth Government expenditure growth is faster than revenue growth

• 1. Personal income tax cut

(0.5% of GDP)” – 20 Oct 2018

• 2. Corporate VAT cut

expected in 2019

Expect government expenditure to outgrow revenue

6

More coordinated policies to support confidence and growth

Source: Bloomberg, J.P. Morgan Asset Management. As of December 31 2018

Source: Data as of end Dec 2018.Data as of end Dec 2018. Rolling 3M = Rolling 3 months.

On November 1, 2018 Xi gave major speech on the importance of private sectors and entrepreneurs in the economy…

• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 50%

• Avg. 3M16

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16

• Avg. 3M17

Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17

• Avg. 3M18

Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18

Rolling 3M sales volume growth

Tier 1 Tier 2 Tier 3

Property: Relaxation of mortgage and in selective cities

400 450 500 550 600 650 700

Stock market:

• 19 Oct - Coordinated effort

to resolve pledged stock issue

• Promote onshore equity

market financing via pro- market reforms

7

200 250 300 350 400 450 500

01/18 02/18 03/18 04/18 05/18 06/18 07/18 08/18 09/18 10/18 11/18 12/18

YTD stock price performance

Sector level tinkering denting confidence

Source: Bloomberg, J.P. Morgan Asset Management. As of 31 Dec 2018. The securities above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell.

Past performance is not a reliable indicator of current and future results.

40 45 50 55 60 65 70 75 80 85 2 4 6 8 10 12 14 16

01/18 02/18 03/18 04/18 05/18 06/18 07/18 08/18 09/18 10/18 11/18 12/18

YTD stock price performance

SinoBiopharm (LHS) Hengrui (RHS)

Vaccine scandal CFDA reshuffle Centralized procurement

Healthcare examples – Jiangsu Hengrui / Sino Biopharm Tech example - Tencent

2Q18 results Planned measures to reduce the prevalence

• f myopia

Start of game approval suspension

…Perception that government favors SOEs over the Private Sector prevails…

8

Sector level tinkering denting confidence

Source: Bloomberg, J.P. Morgan Asset Management. As of 31 Dec 2018. The securities above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell.

Past performance is not a reliable indicator of current and future results.

40 50 60 70 80 90 100 110 1 2 3 4 5 6 7 8

01/18 03/18 05/18 07/18 09/18 11/18

YTD stock price performance

Wisdom Education (LHS) New Oriental (RHS)

Education examples – Wisdom / New Oriental

Revised Draft of the China Private Education Promotion Law Regulations for after-school tutoring

…Perception that government favors SOEs over the Private Sector prevails…

6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 7 7.1 2500 3000 3500 4000 4500 CSI300 (LHS) USD / CNY ( RHS - Inverted)

Combined macro and micro level pressures punishing

9

What have we done?

Source: J.P. Morgan Asset Management. Opinions, estimates, forecasts, projections and statements of financial market trends are based on market conditions at the date of the publication, constitute

• ur judgment and are subject to change without notice. There can be no guarantee they will be met.

Select additions Select reductions Software / Internet: Structural Growth with attractive expected return Consumer cyclicals: Real estate Growth Staples: Steady earnings growth Electronics/tech:

• End demand weakness
• Trade-related uncertainties
• The selloff of the market has opened up certain opportunities
• We have initiated and added to companies with high expected returns post the market

panics and the ones continue to execute and whose normalised earnings are unlikely to see any change

10

Going forward…

Source: J.P. Morgan Asset Management. As of 31 Dec 2018. Opinions, estimates, forecasts, projections and statements of financial market trends are based on market conditions at the date of the publication, constitute our judgment and are subject to change without notice. There can be no guarantee they will be met.

Past performance is not a reliable indicator of current and future results.

… and onshore underperformed offshore Growth has underperformed Value…

• Our base case remains: Controlled China growth moderation
• Interest from foreign investors in the domestic market remains strong
• Valuations are also fairly supportive
• We maintain a long-term view and remain focused on structural opportunities in the

consumer, technology, and healthcare sectors

70 80 90 100 110 120 MSCI China MSCI China Growth MSCI China Value 70 80 90 100 110 120 MSCI China CSI300

11

We are positioned towards long term structural growth opportunities

Healthcare Technology and Automation Consumption

Technology  Mobility device functionality upgrades  Surveillance solutions  Factory automation  Software solution services

Consumption Upgrade

 Household durables  Food & beverages  Leisure & entertainment  Education

Healthcare

 Innovative drug R&D  Consumer-oriented traditional Chinese medicine  Healthcare services

12

Stock example: Shanghai International Airport (China, industrials)

Source: J.P. Morgan Asset Management, as of end May 2018. Capex = Capital Expenditure. The companies above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell.

Benefitting from China’s outbound travel growth Economics



Excellent profitability: highest margins among listed Chinese

• airports. In 2016, it achieved a 41% operating margin and a 43%

net margin vs. average of 35% and 26%, respectively.



Non-aeronautical revenue is mainly driven by high-margin retail rentals and concessions.

Duration



Super hub with highest international exposure: Benefiting from its strategic location in the affluent Yangtze River Delta (YRD) area and differentiated positioning, SIA has the highest international passenger mix among all three super hubs in China which is key to non-aeronautical revenue.

Governance



The company’s decision of using redundant cash to fund capex of the satellite terminal helps improve return.

Offline travel/leisure spending outgrowing overall consumption

5 10 15 20 25 30 35 40 12/09 12/10 12/11 12/12 12/13 12/14 12/15 12/16 12/17

%

Domestic tourism revenue growth (YoY%) Total retail sales volume growth (YoY%)

13

Stock example: Wuxi Biologic (China, health care)

Source: J.P. Morgan Asset Management, as of end June 2018. *JPMAM Estimates. Opinions, estimates, forecasts, projections and statements of financial market trends are based on market conditions at the date of the publication, constitute our judgment and are subject to change without notice. There can be no guarantee they will be met. The companies above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell.

Leading Chinese Contract Research Organization (CRO) in the biologics space

Economics



The Company is well positioned to grow well beyond forecasted global market growth with China market CAGR forecasted to grow in the mid 30s through the duration

Duration



Strong macro drivers into the future due to enduring rise of chronic illnesses/aging population with strong demand for biologic therapies

Governance



Strong management/scientific team with a good track record of high quality R&D

China’s Biologics Outsourcing Market- Growing Faster than Global Outsourcing Market with Wuxi being the dominant player 1 2 3 4 5 6 7 8 5,000 10,000 15,000 20,000 25,000 30,000 2017 2020E* 2023E*

Biologics Outsourcing Market Wuxi Revenue % of Market Share

Wuxi CAGR 17-23E: 41% Industry CAGR 17-23E :18%

USD mn %

14

Stock example: Kingdee International (China, information technology)

Source: J.P. Morgan Asset Management. Updated as of end Jan 2018. ROE = Return on Equity. JPMAM Estimates. Opinions, estimates, forecasts, projections and statements of financial market trends are based on market conditions at the date of the publication, constitute our judgment and are subject to change without notice. There can be no guarantee they will be met. The companies above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell.

Market leader in China’s Enterprise Software-as-a-Service (SaaS) Market Economics



Free Cashflow expected to continue improving along with the growth of its cloud Enterprise Resource Planning (ERP) business



ROE expected to recover as it moves toward SaaS-based pricing model

Duration



Duration expected to improve substantially, as the company moves aggressively to the subscription-based business model that has much stronger customer stickiness and visibility in service renewal because it’s quite difficult to switch vendors given the complexity of ERP software embedded deeply in enterprise organisations

Governance



Management has a clear strategic direction of cloud migration

China’s enterprise software industry is expected to benefit from accelerating spending in software

13% 3% 0% 3% 3% 7% 7% 8% 5%

• 5%
• 7%
• 4%
• 3%

0%

• 10%
• 5%

0% 5% 10% 15% 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 2011 2012 2013 2014 2015 2016 2017 2018E 2019E IT spending in enterprise software (L) YoY (R) YoY (subtracting GDP growth, R) RMB bn

Underinvestment

15

JPMorgan Chinese Investment Trust plc Update

16

Greater China investment professionals

* Based in China - JPMorgan Asset Management (Shanghai) Limited (Asset Management Wholly Foreign Owned Enterprise) Source: J.P. Morgan Asset Management As of 4th January 2019 Number of years experience: Industry/Firm as of 4th January 2019

Select GEM Global and Sector Analysts

Andrew Tan Natural Resources Experience: 24/11 Paul Chan Technology Experience: 25/19 Simmy Qi Industrials Experience: 8/8 Denise Valentine Biotechnology Experience: 23/3 Penny Tu Internet / Media Experience: 13/5

Richard Titherington Head of EMAP Equities Team Experience: 35/33

Joelian Tseng Experience: 21/<2 Howard Wang Head of Greater China Experience: 24/14 Lilian Leung Experience: 24/9 James Yeh Experience: 23/17

China and Greater China Growth

Rebecca Jiang Experience: 14/2

Greater China Team Portfolio Managers

Shumin Huang Head of Greater China Research Experience: 27/13 Bonnie Chang Automobiles / Industrials Experience: 19/4 Robert Yen Technology Experience: 16/2 Elizabeth Pang Domestic HK / China Industrials Experience: 14/14

Greater China Team Research Analysts

Lin He Industrials / Consumer Experience: 16/<2 Dong Xu* Experience: 16/2 Eva Wang Consumer Experience: 14/2 Vincent Yu Healthcare / Industrials Experience: 13/6 Connie Shen Real Estate / Financials Experience: 8/5 Mark Mao Industrials Experience: 9/2

China Income and Hong Kong Core Taiwan Growth

Yunyun Hu* Consumer Experience: 10/<2

Weiying Dong Small Cap Experience: 13/4

Willy Chen* Industrials Experience: 9/<2 Elizabeth Pang

Experience: 14/14

Edward Yen Technology Experience: 14/<1 Li Tan Financials Experience: 7/7 Ansel Lin Internet / Media Experience: 6/<1

17

Performance

Fund launch date = 19 Oct 1993. ^ Dividends reinvested after deduction of withholding tax. Prior to 26 Jan 2016, MSCI Golden Dragon (NDR).Prior to 1 Jun 2002, MSCI Provisional Golden Dragon Index (NDR). Prior to 1 Oct 2001, Customised benchmark (Calculated by J.P. Morgan Asset Management and comprised 40% HSI, 40% Taiwan Weighted and 20% BNP Paribas China Price). Prior to 1 Oct 1998, BNP Paribas China Price. * Arithmetic excess return presented. Source: J.P. Morgan Asset Management. Net Asset Value (NAV) Performance data has been calculated on NAV to NAV basis, including ongoing charges and any applicable fees, with any income reinvested, in GBP. The benchmark is for comparative purposes only, unless otherwise indicated in the Investment Trust’s Investment Objective and Policy.

Past performance is not a reliable indicator of current and future results.

JPMorgan Chinese Investment Trust plc as of 31st December 2018

Three months Six months One year Three years Five years Since launch JPMorgan Chinese Investment Trust plc

• 14.57
• 25.73
• 25.15

9.94 8.53 5.39 MSCI China Index (NDR)^

• 8.60
• 14.41
• 13.83

14.20 10.78 4.69 Excess return*

• 5.98
• 11.32
• 11.31
• 4.25
• 2.26

0.71 2013 2014 2015 2016 2017 2018 JPMorgan Chinese Investment Trust plc 13.66 13.12 0.14 15.42 53.82

• 25.15

MSCI China Index (NDR)^ 4.91 14.42

• 2.07

22.81 40.73

• 13.83

Excess return* 8.75

• 1.30

2.21

• 7.38

13.09

• 11.31

Annualised performance (%) Calendar year performance (%)

Market value JPMorgan Chinese Investment Trust GBP 186.5m

Overall 10-Year

Morningstar Overall RatingsTM

18

Country and sector positions

Source: J.P. Morgan Asset Management. Individual figures may not add up exactly to the total due to rounding. The investment trust is actively managed. Holdings, sector weights, allocations and leverage, as applicable, are subject to change at the discretion of the investment manager without notice

JPMorgan Chinese Investment Trust plc as of 31st December 2018

Active and absolute sector positions Country positions

Benchmark MSCI China Index (NDR) Portfolio Weight (%) 117.0 35.3 22.9 1.1 0.5

• 18.6

Portfolio Weight (%) 30.6 13.1 11.3 4.8 7.7 6.4 3.4 0.7 18.8 9.5 1.1 8.3 0.0 21.8

• 18.6

Relative to benchmark (%) 10.7 10.2 8.7 2.2 2.0 1.0 0.4

• 1.3
• 4.5
• 5.4
• 1.0

2.0

• 5.2
• 5.6
• 18.6
• 24.0
• 18.0
• 12.0
• 6.0

0.0 6.0 12.0 18.0 Consumer Discretionary Health Care Information Technology Consumer Staples Real Estate Industrials Utilities Materials Financials Banks Diversified Financials Insurance Energy Comm. Services Cash 17.0 32.9 1.3 1.1 0.5

• 18.6
• 30.0
• 10.0

10.0 30.0 50.0 China A-shares ADRs Hong Kong Taiwan Cash Relative to benchmark (%)

19

Portfolio Fund Benchmark

Number of Holdings 66 410 12-Month Forward Price to Earnings (x) 13.4 9.9 3-5 Year Earnings Per Share Growth (%) 20.2 17.5 Dividend Yield (%) 1.5 2.4 Return on Equity (%) 19.8 15.9 Active Share (%) 81.6

Portfolio characteristics

Portfolio yield is the aggregate weighted sum of the estimated yields of the stocks in which the fund invested. It is calculated as (12-month forward DPS / Current price)*100. It is not based on the fund’s dividend distributions. Source: FactSet, J.P. Morgan Asset Management. The investment trust is actively managed. Holdings, sector weights, allocations and leverage, as applicable, are subject to change at the discretion of the Investment Manager without notice.

JPMorgan Chinese Investment Trust plc as of 31st December 2018

Market capitalisation (USD)

46.2 32.5 20.4 16.9 2.4 55.7 14.9 16.8 12.0 0.6

0% 10% 20% 30% 40% 50% 60% > 30 bn 10 bn <> 30 bn 4 bn <> 10 bn 1 bn <> 4 bn < 1 bn

Fund Benchmark

Benchmark MSCI China Index (NDR)

20

Appendix

21

Portfolio positions

JPMorgan Chinese Investment Trust plc as of 31st December 2018

Benchmark MSCI China Index (NDR)

Top 10 holdings Fund weight (%) Tencent Holdings Ltd. 12.1 Alibaba Group Holding Ltd. 11.3 Ping An Insurance (Group) Company of China, Ltd. 8.3 Baidu, Inc. 4.8 China Merchants Bank Co., Ltd. 4.8 China Overseas Land & Investment Limited 3.8 Shenzhou International Group Holdings Limited 2.8 Country Garden Holdings Co. Ltd. 2.5 ENN Energy Holdings Limited 2.5 Jiangsu Hengrui Medicine Co., Ltd. 2.2

Source: J.P. Morgan Asset Management. The investment trust is actively managed. Holdings, sector weights, allocations and leverage, as applicable, are subject to change at the discretion of the investment manager without notice.

Top 5 overweights Fund weight (%) Relative position (%) Ping An Insurance (Group) Company of China, Ltd. 8.3 5.0 China Merchants Bank Co., Ltd. 4.8 3.7 China Overseas Land & Investment Limited 3.8 2.9 Jiangsu Hengrui Medicine Co., Ltd. 2.2 2.2 Shenzhou International Group Holdings Limited 2.8 2.2 Top 5 underweights Fund weight (%) Relative position (%) China Construction Bank Corporation 0.0

• 5.4

China Mobile Limited 0.0

• 4.0

Tencent Holdings Ltd. 12.1

• 3.5

Industrial and Commercial Bank of China Limited 0.0

• 3.4

Bank of China Limited 0.0

• 2.4

22

Investment objective and risk profile

JPMorgan Chinese Investment Trust plc

Risk profile



The value of investments and the income from them can go down and up, and you may not get back as much as you paid in. Past performance is not a guide to the future.



Exchange rate changes may cause the value of underlying overseas investments to go down as well as up.



Investments in emerging markets may involve a higher element of risk due to political and economic instability and underdeveloped markets and

• systems. Shares may also be traded less frequently than those on established markets. This means that there may be difficulty in both buying and

selling shares and individual share prices may be subject to short-term price fluctuations.



This fund may use derivatives for investment purposes or for efficient portfolio management.



External factors may cause an entire asset class to decline in value. Prices and values of all shares or all bonds could decline at the same time.



This trust may utlilise gearing (borrowing) which will exaggerate market movements both up and down.



This trust may also invest in smaller companies which may increase its risk profile.

Please refer to the Investor Disclosure Document, latest annual report, and Key Information Document (KID) for more information relating to the Company

Investment objective The Company aims to provide long term capital growth by investment in companies which are quoted on the stock exchanges of Hong Kong, China and Taiwan or which derive a substantial part of their revenues or profits from these territories. The Company has the ability to use borrowing to gear the portfolio within the range of 10% net cash to 20% geared in normal market conditions.

23

Important information

This is a marketing communication and as such the views contained herein do not form part of an offer, nor are they to be taken as advice or a recommendation, to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of the products or underlying overseas investments. Past performance and yield are not reliable indicators of current and future results. There is no guarantee that any forecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment products, there can be no assurance that those objectives will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. Investment is subject to documentation. The Investor Disclosure Document, Key Features and Terms and Conditions and Key Information Document can be obtained free of charge from JPMorgan Funds Limited or www.jpmam.co.uk/investmenttrust. This communication is issued by JPMorgan Asset Management (UK) Limited, which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No: 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP. Material ID: 0903c02a824c0251