Undiscovered global leaders in Asia

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1 Undiscovered global leaders in Asia Emily Whiting, Investment Specialist, EMAP Equities PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

2 Not your father s Emerging Markets What is behind Trump s protectionist agenda in emerging markets 1. Low cost wages in Mexico 2. Made in China Currency manipulation 4. Bad trade deals Image source: Shutterstock 1 PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

3 1% in MSCI Emerging Markets Index is misleading China A-share inclusion in the MSCI EM Index First inclusion step: May 2018 Second inclusion step: Aug 2018 (5% inclusion factor for 234 A-shares) China Weight 30.2% China 29.5 China A 0.7 By 2025* (10\0% inclusion factor for 234 A-shares) China Weight 39.3% China 25.6 China A 13.7 China A-shares will drive Emerging Markets in the future Source: MSCI Consultation on China A-Shares Potential Inclusion, June Citi Research. *Based on free float market-cap of 234 A-share stocks to be included, and a 30% upper limit of foreign ownership. EM = Emerging Markets 2 PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

4 China A-shares: large, liquid, inefficient and lowly correlated 3,467 A-shares USD67bn Daily Traded Value In % Foreign ownership 0.19 *Correlation to MSCI Europe Source: J.P. Morgan Asset Management, Bloomberg. Data as of as of 31 December 2017 Source: Bloomberg. *Correlations of Weekly Returns in USD (31 March 2008 to 30 March 2018) Indices do not include fees or operating expenses and are not available for actual investment. 3 PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

5 You re probably already thinking about Market cap Home appliances Whirlpool Beverages Diageo Dairy products Danone USD 12bn USD 90bn USD 57bn Midea Group Kweichou Moutai Inner Mongolia Yili USD 60bn USD 146bn USD 32bn Source: Bloomberg, Company Accounts, J.P. Morgan Asset Management. Data as of 31 December The companies above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell. The use of their logos is in no way an endorsement of those companies by J.P. Morgan Asset Management nor is it intended to indicate an endorsement of J.P. Morgan Asset Management by those companies. 4 PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

6 but the opportunities lie in the next wave Consumption upgrade n Leisure, travel & entertainment Healthcare n Chinese healthcare Consumption Upgrade Healthcare Technology Technology n Artificial intelligence and voice recognition Image source: Shutterstock 5 PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

7 iflytek: a leading voice recognition and artificial intelligence solution provider Technology Image source: Shutterstock, The companies above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell. 6 PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

8 The rise of Generation - Z Consumption Upgrade In 2014, Gen Z ers consumed 35% of online video, by 2020, what % will they consume? 1. 48% 2. 67% 3. 82% Source: iresearch, Bank of America Merrill Lynch (BofAML) Equity Research. Data as of May Image source: Shutterstock. 7 PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

9 Increasing spending power of Gen-Z in China s online entertainment market Consumption Upgrade Generation Z s market share contribution (%) E Online entertainment Online video Mobile games Live broadcasting Source: iresearch, BofAML Equity Research. Data as of end May PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

10 AfreecaTV: riding the e-sports wave Consumption Upgrade Image source: Shutterstock, The companies above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell. 9 PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

11 Huazhu Group: will this be the world s biggest hotel company? Consumption Upgrade Image source: Shutterstock, The companies above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell. 10 PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

12 Shenzhou: opportunities exist outside the new economy Consumption Upgrade Image source: Shutterstoc. The companies above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell. k 11 PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

13 Wuxi Bio: following the molecule to become a global leader Healthcare Image source: Shutterstock. The companies above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell. 12 PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

14 Finding global leaders before they list How many start-ups have reached unicorn status in China since 2013? Source:. Unicorns Abroad: The creation of billion-dollar start-ups is shifting out of the US, October 2017; Image source: Shutterstock 13 PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

15 Finding global leaders before they list How many start-ups have reached unicorn status in China since 2013? Source: Unicorns Abroad: The creation of billion-dollar start-ups is shifting out of the US, October Image source: Shutterstock 14 PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

16 Who are these unicorns? Top 10 Unicorns, February 2018 Company Latest Valuation Company Latest Valuation Ant Financial $150 billion Apr-18 SpaceX $21 billion Jul-17 Uber $68 billion Jun-16 WeWork $20 billion Jul-17 Didi Chuxing $56 billion Dec-17 Palantir $20 billion Oct-15 Airbnb $31 billion Mar-17 Spotify $19 billion Dec-17 Meituan-Dianping $30 billion Oct-17 Lufax $18 billion Jan-16 Source: Unicorns Abroad: The Creation Of Billion-Dollar Startups Is Shifting Out Of The US (link) October Image source: Shutterstock. The companies above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell. 15 PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

17 FinTech unicorns Insert Chris Birney video 16 PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

18 Where are all the unicorns in India? Key players along with key investors n Walmart n Microsoft n Tiger Global n Tencent n SoftBank n Alibaba n SAIF Partners n n SoftBank Tencent Sources: Company data, Economic Times. VC Circle. Inc42.com. Crunchbase. Company data. Morgan Stanley Research. The companies above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell. The use of their logos is in no way an endorsement of those companies by J.P. Morgan Asset Management nor is it intended to indicate an endorsement of J.P. Morgan Asset Management by those companies. 17 PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

19 Deep fundamental research is key to unearthing new opportunities investment professionals locations languages $150m *research budget across equities 17 analysts covering China A shares Source: J.P. Morgan Asset Management as of 31 August *as of 30 th June PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

20 51Job: Insert Dong video 19 PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

21 JPM Asia Growth Fund High conviction, concentrated Quality growth tilt Top quartile over 1 and 3 years All-cap exposure PM team based in Asia Mark Davids Joanna JPM for 21 JPM for 16 years Tapping into the consumer of tomorrow Strong risk adjusted returns Past performance is not a reliable indicator of current and future results. 20 PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

22 In summary n The investment universe is rapidly evolving n You need to think forward and be ahead of the curve n to do that you need deep fundamental research 21 PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION

23 FOR PROFESSIONAL CLIENTS/ QUALIFIED INVESTORS ONLY NOT FOR RETAIL USE OR DISTRIBUTION. This is a marketing communication and as such the views contained herein are not to be taken as an advice or 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 investors may not get back the full amount invested. Past performance and yield are not a reliable indicator of current and future results. There is no guarantee that any forecast made will come to pass. 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 This communication is issued in Europe (excluding UK) by JPMorgan Asset Management (Europe) S.à r.l., 6 route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR This communication is issued in the UK by JPMorgan Asset Management (UK) Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England No Registered address: 25 Bank Street, Canary Wharf, London E14 5JP. 0903c02a82388e6c 22 PROFESSIONAL CLIENTS ONLY NOT FOR RETAIL USE OR DISTRIBUTION