Remaining Calm Amid The Storm Rahul Chadha Co-Chief Investment - - PowerPoint PPT Presentation

Remaining Calm Amid The Storm

Rahul Chadha

Co-Chief Investment Officer Mirae Asset Global Investments (HK) Limited

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5 10 15 20 25 10 20 30 40 50 60 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Shanghai Composite P/E ratio (12m trailing, LHS) China Nominal GDP growth (%, RHS)

A-share market – Don’t Panic!

1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500 6,000 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Shanghai Composite Index Source: Bloomberg, 13 Jan 2016

+150%

• 40%

Shanghai Composite Index Price Chart

• Latest rally had little fundamental support
• 06-07 rally was supported by strong GDP growth,

unlike the latest rally

• Despite having corrected by 40% in recent months, A-

share market is still over-valued

• A-share market is driven by retail investors, often

inexperienced and with a trading mentality

• Don’t panic over the Chinese A-share market

85% 81%

⅔

portion retail investors in A-share market, vs. 20% in HK

• f retail investors in A-share market trade at

least once a month, vs. 53% in US more than 2/3 of China’s new investors didn’t attend or finish high school

A-share market in numbers

Source: CNBC, Mirae Asset, 9 July 2015 Source: Bloomberg, Jan 2016

Shanghai Composite P/E ratio vs. GDP growth

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Renminbi – trade weighted basket

6.00 6.10 6.20 6.30 6.40 6.50 6.60 6.70 97.0 98.0 99.0 100.0 101.0 102.0 103.0 104.0 105.0 106.0 107.0 108.0 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 CFETS Index CNY (RHS)

• Need to look at CNY vs. a trade weighted basket of

currencies, rather than CNY vs. USD

• CNY has depreciated by ~4% post Aug 2015 and has

been broadly stable vs. trade weighted basket

• China’s FX reserves still stand at US$3.3tn – risk of a

sharp devaluation is limited

• We expect CNY to be broadly stable vs. the trade

weighted basket, implying ~5% depreciation vs. USD this year

CFETS CNY Index CFETS CNY Index vs. CNYUSD China FX Reserves (US$bn)

75.0 80.0 85.0 90.0 95.0 100.0 105.0 110.0 Source: Bloomberg, 7 Jan 2016 Source: Bloomberg, 7 Jan 2016 Source: Bloomberg, Dec 2015

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Supply-side Reforms – Near term pain, Long term gain

• China’s leaders focusing on supply-side reforms to

revive economy

• Accelerate overcapacity reduction in “zombie” industries
• Raw materials and commodities industries such as

steel, coal, cement, aluminum and glass

• M&A the preferred route, as well as some

bankruptcies

• Unlikely to see massive factory closures and layoffs

(like in late-1990s)

• Banks will also bear the pain of reforms as bad assets

surface

• Near term pain, long term gain

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“Make in India” – Propelling India to the next orbit

• “Make in India” program aims to boost manufacturing

share in GDP to 25% and create 100mn new jobs

• India will need US$0.5tn in incremental investment to

reach these goals – need to attract FDI

• Government has initiated measures such as increasing

FDI limits, streamlining approval process and improving ease of doing business

Source: BofA Merrill Lynch, Jan 2016

India is 3rd most preferred host for FDI according to the UN India total FDI

Source: DIPP, Ministry of Commerce and Industry, BofA Merrill Lynch, Jan 2016

“Make in India” program

Source: UNCTAD, MNE: Multi National Enterprises, BofA Merrill Lynch, Jan 2016

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Infrastructure – Roads and Freight Corridor

360,000km of rural roads built under PMGSY Strong order flow in road projects

Source: PMGSY, Min. of Rural Development, Credit Suisse Estimates Source: ADSEZ presentation, BofA Merrill Lynch

• Dedicated Rail Freight Corridors (DFC) key to address

logistics bottlenecks

• Improved road connectivity is the most important factor

for Rural India’s prosperity (which accounts for 50% of population)

• With better roads, more remunerative and perishable

products can be transported from production to demand centers

DFC to improve logistics in West India

Source: BofA Merrill Lynch, Jan 2016

• 1,000

2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 NHAI - BOT NHAI - EPC States & Others Morth & NHAI target

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Unique ID (UID) ─ To Ensure Significant Savings & Financial Inclusion

UID covers 55% of Population Subsidies have ballooned over last 5 years

Source: UIDAI, IIFL Research

• UID key tool in PM’s Financial Inclusion plan, good

progress with 87% of the country’s adults enrolled

• Provides a fool proof identity with biometric verification

like IRIS / Fingerprint / Face Matcher

• Payment bridges enable direct cash transfer, saving

nearly 2% of GDP in leakage of subsidies

• Financial inclusion for large rural population who borrow

at 24% - 30% from moneylenders

Source: GOI budget, IIFL Research

Initiatives Potential savings (Rs bn) % of GDP Aadhaar based transfer by Central government 350 0.35 Automation of delivery channels by Central government 249 0.25 Central government moving out of delivery 802 0.80 States replicating the Centre 600 0.60 Total 2,001 2.00 Full roll out of UID enabled cash transfers can save 2ppt of GDP

Source: IIFL Research

Monthly UID enrolment (LHS) Cumulative UID enrolment Enrolments to accelerate again post government approval

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Benign Global Monetary Policy

• Post December US interest rate hike, subsequent hikes

to be measured. Europe, Japan, EMs a growth drag

• USD strength equivalent to 100-125 bps of monetary

tightening

• Asian economies are less vulnerable vs. Asia Financial

Crisis and taper-tantrum in 2013

External Vulnerability Score (higher score indicate more vulnerability)

Source: Haver, CEIC, FactSet, MSCI, Goldman Sachs, Mirae Asset, July 2015

2 4 6 8 10 12 14

1996 2Q13 1Q15 Vulnerability Score

Scoring method Factors Metrics 1 pt 2 pts External balances Current acct % GDP <-2.5 <-5.0 BBOP % GDP <-1.0 <-2.5 Credit growth Excess credit growth since '09 >30% %60% FX reserves and external funding position External debt % GDP >25% >40% FX Reserves % GDP <20% <10% Short-term debt % FX reserves >100% >200% Fiscal position Fiscal balance % GDP <-2.5% <-5.0% Banking sector NPL ratio % >85% >110% LDR (%) >85% >110% Asset valuations Valuation (12m fwd. PE) Z-score >1.0 >2.0 MSCI Asia ex Japan PB PB at start PB at trough/peak Avg PB thru period Bubbles 2.30 (P) 2.91 2.49 Normal 1.75 NA 1.83 Slowdown / Fears of Recession 1.79 (T) 1.50 1.70 Recession 1.91 (T) 1.30 1.63 Financial Crisis 1.58 (T) 1.09 1.32 Normalization 1.26 NA 1.47 Current fwd P/E: 11.7x Current P/B: 1.25x

Valuations across different historic periods

Source: Datastream, UBS, Mirae Asset, January 2016

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Valuation

100% 89% 73% 70% 53% 45% 60% 30% 17% 5% 3%

• 11%
• 20%

0% 20% 40% 60% 80% 100% 120% < 1x PB 1-1.25x PB 1.25-1.5x PB 1.5-1.75x PB 1.75-2x PB >2x PB Probability of Positive Return in subsequent 12 months Average Return in subsequent 12 months 0.5 1.0 1.5 2.0 2.5 3.0 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

• Valuations remain very attractive in Asia
• Price-to-Book at 1.25x – 1 standard deviation below long

term average

• Historically, investors stood high chance of achieving

positive returns in subsequent 12 months by investing at these levels

Source: Bloomberg, Mirae Asset, as of Dec 2015

MSCI AxJ Valuation and Subsequent 12-month return MSCI Asia ex Japan Price-to-Book Ratio

Source: Bloomberg, Mirae Asset, as of Dec 2015

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Portfolio Positioning – Good China vs. Bad China

Source: Bloomberg, Mirae Asset, as of November 2015 48 50 52 54 56 58 60 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Manufacturing PMI Service PMI

Manufacturing vs. Service PMI

Good China

• Under-penetrated, less capital intensive
• Sustainable economic moats
• Healthcare, insurance, clean energy, internet / e-commerce,

travel & tourism Bad China

• Well-penetrated, capital intensive
• Low barriers to entry, weak pricing power
• Steel, cement, capital goods, banks

Internet / e- commerce, 12% Healthcare, 9% Insurance, 9% Telecom, 4% Environment, 2% Tourism, 2% Food, 1% Gaming, 1% Bank, 1% Internet / e- commerce, 21% Insurance, 13% Healthcare, 6% Tourism, 3% Food, 3% Others, 3%

Asia Sector Leader Fund: 99% in “Good China” Asia Great Consumer Fund: 100% in “Good China”

Source: Mirae Asset, as of December 2015 Source: Mirae Asset, as of December 2015

ASL AGC

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Mirae Asset Asia Sector Leader Equity Fund Portfolio Manager: Rahul Chadha

Data as of 31 December 2015. Source: Mirae Asset Global Investments (Hong Kong) Limited, Morningstar, Bloomberg, FactSet. The performance figures shown are at the master share class level of the Mirae Asset Asia Sector Leader Equity Fund (the "Fund"). The net asset value per share of the master share class of the Fund is calculated by using the total net asset value of the Fund divided by the total number of units issued by the Fund and is represented in the reference currency of the Fund (i.e. US dollars). Performance figures of the Fund is net of fees, NAV to NAV, in USD with dividends reinvested. The benchmark is MSCI AC Asia Ex Japan Index (Gross). The Morningstar 5-star rating was assigned to Class K of the Fund as of 31 December 2015.

For Professional Investor Only. Not For Public Distribution.

Fund Performance (Master Class in USD), as of 31 December 2015

Cumulative Returns 3 Months 6 Months YTD 1 Year 2 Years 3 Years Since Inception 2013 2014 2015 Fund (Master Class, USD)

6.75%

• 9.23%
• 3.79%
• 3.79%

6.56% 23.93% 47.20% 16.30% 10.76%

• 3.79%

MSCI AC Asia ex Japan (Gross) USD

3.87%

• 13.72%
• 8.90%
• 8.90%
• 4.24%
• 1.05%

18.89% 3.33% 5.11%

• 8.90%

Excess Return

2.88% 4.49% 5.11% 5.11% 10.80% 24.98% 28.31% 12.97% 5.65% 5.11%

Date of fund inception : 23 May 2012

80 90 100 110 120 130 140 150 160 170 180 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Fund Benchmark

147.3 118.9

Stock Selection Effect (3 Yr) Sector Country

81% 74%

Risk Statistics (3 Yr) Annualised volatility Beta Alpha Sharpe ratio Tracking error Information ratio

12.15% 0.82 7.77% 0.60 5.80% 1.34

Capture Ratio (3 Yr) Upside Downside

104.63 67.67

Rebased at 100

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Mirae Asset Asia Great Consumer Equity Fund Portfolio Manager: Joohee An

Data as of 31 December 2015. Source: Mirae Asset Global Investments (Hong Kong) Limited, Morningstar, Bloomberg, FactSet. The performance figures shown are at the master share class level of the Mirae Asset Asia Great Consumer Equity Fund (the "Fund"). The net asset value per share of the master share class of the Fund is calculated by using the total net asset value of the Fund divided by the total number of units issued by the Fund and is represented in the reference currency of the Fund (i.e. US dollars). Performance figures of the Fund is net of fees, NAV to NAV, in USD with dividends reinvested. The benchmark is MSCI AC Asia ex Japan Index (Gross). The Morningstar 5-star rating was assigned to Class A, Class I and Class K of the Fund as of 31 December 2015.

For Professional Investor Only. Not For Public Distribution.

Fund Performance (Master Class in USD), as of 31 December 2015

Cumulative Returns 3 Months 6 Months YTD 1 Year 2 Years 3 Years Since Inception 2012 2013 2014 2015 Fund (Master Class, USD)

5.30%

• 10.16%
• 2.78%
• 2.78%

15.68% 23.91% 30.86% 28.15% 7.12% 18.98%

• 2.78%

MSCI AC Asia ex Japan (Gross) USD

3.87%

• 13.72%
• 8.90%
• 8.90%
• 4.24%
• 1.05%
• 1.36%

22.70% 3.33% 5.11%

• 8.90%

Excess Return

1.43% 3.56% 6.12% 6.12% 19.92% 24.96% 32.22% 5.45% 3.79% 13.87% 6.12%

Date of fund inception : 7 June 2011

Stock Selection Effect (3 Yr) Sector Country

74% 99%

Risk Statistics (3 Yr) Annualised volatility Beta Alpha Sharpe ratio Tracking error Information ratio

13.99% 0.85 7.76% 0.52 8.51% 0.91

Capture Ratio (3 Yr) Upside Downside

108.32 66.65 70 80 90 100 110 120 130 140 150 160 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Fund Benchmark

131.0 98.6

Rebased at 100

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Disclaimer

Certain information contained in this document is compiled from third party sources. Whilst Mirae Asset Global Investments (Hong Kong) Limited ("Mirae Asset HK") has, to the best

• f its endeavor, ensured that such information is accurate, complete and up-to-date, and has taken care in accurately reproducing the information, it shall have no responsibility or

liability whatsoever for the accuracy of such information or any use or reliance thereof. Mirae Asset HK accepts no liability for any loss or damage of any kind resulting out of the unauthorized use of this document. This document is strictly for information purposes only and does not constitute a representation that any investment strategy is suitable or appropriate for an investor’s individual circumstances. Further, this document should not be regarded by investors as a substitute for independent professional advice or the exercise

• f their own judgment. Investment involves risk. It cannot be guaranteed that the performance of the Fund will generate a return and there may be circumstances where no return is

generated or the amount invested is lost. Past performance is not indicative of future performance. Before making any investment decision to invest in the Fund, investors should read the Prospectus for details and the risk factors. Investors should ensure they fully understand the risks associated with the Fund and should also consider their own investment

• bjective and risk tolerance level. Investors are advised to seek independent professional advice before making any investment. This document has been prepared for presentation,

illustration and discussion purpose only to persons reasonably believed to be within one of the professional investor exemptions contained in the Securities and Futures Ordinance or “professional/qualified investors” in relevant jurisdiction and is not legal binding. It is not intended for general public distribution. The investment is designed for professional

• investors. It may not be suitable for persons unfamiliar with the underlying securities or who are unwilling or unable to bear the risk of loss and ownership of such investment. You

are advised to exercise caution and if you are in any doubt of the contents of this document, you should seek independent professional advice before you make any investment. Certain of the statements contained in this document are statements of future expectations and other forward-looking statements. These expectations are based on our management’s current views, assumptions or opinions and involve known and unknown risks and uncertainties. Views, opinions and estimates may change without notice and are based on a number of assumptions which may or may not eventuate or prove to be accurate. Actual results, performance or events may differ materially from those in such statements . References to particular sectors, securities or companies are for general information and illustration purposes only and are not recommendations to buy or sell a security, or an indication of the author’s holdings at any one time. This document is issued by Mirae Asset HK and has not been reviewed by the Hong Kong Securities and Futures Commission.

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