The Developing Asian Capital Markets

Transcription

1 The Developing Asian Capital Markets

2 Is GDP growth correlated to equity returns? Source: Bloomberg Data

3 GDP growth is not correlated with equity returns in Asia Unlike what we saw in the US, in Korea from , GDP rose 3.5x while the KOSPI was flat Source: Bloomberg Data

4 Market Capitalization: 1950 Japan 9% Other 6% Europe 26% U.S. 59% US + Japan = 68%

5 Market Capitalization: 1988 Other 14% Europe 17% Japan 40% U.S. 29% US + Japan = 69%

6 Market Capitalization: 2012 Europe 23% Japan 7% U.S. 34% Source: Bloomberg, 10/4/2012. Other 36% US + Japan = 41%

7 Percentage of Population in Asia s Middle Class Malaysia 2014 China Thailand Indonesia Philippines India % 10% 20% 30% 40% 50% 60% 70% Sources: Euromonitor; World Bank; CLSA Asia-Pacific Markets / 2010

8 Growth of the Middle Class Number of Households (Millions) with Annual Incomes at Least US$10, China/India 160 Western Europe United States Brazil/Russia Source: Economist Intelligence Unit; Citi Investment Research and Analysis

9 India s Developing Middle Class Percent of Total Population by Age 100% 80% 60% 5% 14% 31% 46% Wealthy Middle Class 40% 20% 2000 Source: Eurostat (EU27 projections) Aspiring Middle Class Impoverished

10 Bank Source: Bloomberg, 10/4/2012. Top 10 World Banks Ranked by Assets (US$ Billions) Country Total Assets Market Cap 1 Deutsche Bank Germany $2,840 $39 2 Ind & Com Bank of China China $2,690 $207 3 HSBC Holdings U.K. $2,650 $177 4 Mitsubishi UFJ Financial Grp Japan $2,650 $66 5 Barclays U.K. $2,560 $44 6 BNP Paribas France $2,490 $62 7 JPMorgan Chase U.S. $2,290 $159 8 Crédit Agricole France $2,280 $19 9 Royal Bank of Scotland U.K. $2,220 $47 10 Bank of America U.S. $2,160 $101

11 Institutional Investor Base for Non-investment Grade Loans Banks CLOs Hedge, distressed and high-yield funds Prime rate funds, financial and insurance companies 100% 80% 60% 40% 20% Sources: S&P LCD, JPMorgan (4/12/2010).

12 Equity Market Cap to GDP (2011) 160% 120% 80% 40% India Taiwan U.S. Source: The World Bank, Wind, CEIC, FCLAS (CLSA Investors), ( Primed for Reform ) Japan South Korea China (A+B+H) China (A+B only)

13 Corporate Bonds to GDP (2011) 35% 25% 15% 5% U.S. Japan Source: Wind, CEIC, FCLAS (CLSA Investors), ( Primed for Reform ) Taiwan Hong Kong China India

14 Bank Assets as Percent of Debt & Equity Sources: IMF, BIS, S&P and Milken Institute April 2012

15 Composition of Financing in China Others Non-financial corp equity Corporate bonds Bank loans 100% 80% 60% 40% 20% Sources: Bloomberg; Dow Jones VentureSource; FCLSA, ( Primed for Reform )

16 Chinese small businesses are the engine of growth, but large enterprises get the lion s share of bank loans 100% = ~5.1 million 770 million $4.9 trillion $5.0 trillion Large enterprises 10% 2% 23% 35% 61% Midsize enterprises 88% 33% 30% Small enterprises 44% 35% 22% 17% Number of enterprises Number employed GDP Bank loans Source: McKinsey.

17 Comparison of Raising Funds 100% 75% Loans 50% 25% Bond U.S. Equity India China Sources: Bloomberg; Dow Jones VentureSource; FCLSA, ( Primed for Reform )

18 Most Chinese bond issuers are rated A or higher 2011 Share of all bond issuers 35% 30% 25% 20% 15% 28.7% 18.6% 24.6% 18.9% 10% 5% 0% 6.1% 1.8% 0.50% 0.34% 0.34% 0.06% 0.06% 0.03% AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB- Sources: China Central Depository and Clearing Co., China CITIC Bank.

19 Negative real deposit rate in China: Households and businesses are searching for yield One-year deposit rate minus inflation rate, percent Source: DataStream, National Bureau of Statistics, People s Bank of China.

20 Average Expected Return Assumption 9% 8% 7% Sources: EuroStat, HUD, Milken Institute.

21 America Goes to Work U.S. and Fortune 500 Employment New financial technologies are fully implemented U.S. = +62 million jobs Modern capital markets begin Fortune 500 = minus 4 million Index 1970 = 100

22 Asian private credit: Attractive risk/reward Asian private credit investments are expected to provide an opportunity to capture growth and entrepreneurial value creation in the region while both earning a recurring income stream and protecting capital Returns are typically structured to provide a combination of fixed income return and profit share or equity warrants Credit quality frequently enhanced through collateralization Loans secured by hard assets, operating company shares, etc. Potentially provides investors with higher returns than public markets Target strong covenants that potentially trigger ahead of operating company debt Target seniority in capital structure Different jurisdictions often require specific regional legal and investment expertise Tax and legal issues related to investment and repatriation of capital offshore Expertise of local bankruptcy processes Unlike US, defaults are more common, necessitating workout experience Weigh sponsor quality against collateral enforceability Intense monitoring of sponsor s other business interests

23 Asian private credit vs. US mezzanine structures Note: The information is based on market standards

24 The Developing Asian Capital Markets