Economic Outlook & Investment Strategy

Transcription

1 Economic Outlook & Investment Strategy 1

2 YTD Global Stock Market Performances MSCI ACWI DOW JONES INDUS. AVG S&P 500 INDEX NASDAQ COMPOSITE INDEX STXE 50 Pr FTSE 100 INDEX DAX INDEX CAC 40 INDEX NIKKEI 225 TAIWAN TAIEX INDEX KOSPI INDEX ALL ORDINARIES INDX Straits Times Index STI FTSE Bursa Malaysia KLCI STOCK EXCH OF THAI INDEX MICEX INDEX BRAZIL IBOVESPA INDEX S&P BSE SENSEX INDEX CSI 300 INDEX SHANGHAI SE A SHARE INDX SHANGHAI SE B SHARE INDX SHENZHEN SE A SHARE INDX SHENZHEN SE B SHARE INDX CSI Hong Kong 100 Index HANG SENG INDEX HANG SENG CHINA ENT INDX % % -3.37% -1.73% -4.62% -4.37% -2.92% -6.09% -4.96% -4.53% -1.33% 9.27% 15.02% 16.15% 19.95% 7.13% 12.29% 6.45% 11.20% 4.50% 1.95% 6.99% 14.09% 14.28% 17.30% 30.10% Source: Bloomberg Data as of 31/8/2013; Fund performance is calculated in the fund s base currency on NAV-to-NAV basis with gross dividend reinvested. 2

3 Market Concerns on US, Europe and China Economy When Will US Tapering Begin Market Concerns Will Euro Debt Crisis Reignite Will China Tighten Policy 3

4 US 4

5 Bernanke s First Tapering Talk On May 22, Bernanke first expressed his view in the Q&A session at Congress testimony that the Fed might consider tapering its bond purchase program later this year if the US economy growth is strong and sustainable. US 10-Year Treasury Yield Trend US 美國 10-Year 年期國債孳息 Treasury Yield 2.89% % / / / / / / / / / / / /2013 Source: Bloomberg Data as of 31/8/2013 5

6 Volatile Investment Market Equity Major Stock Market Index Year to Date on May 22 (Before Bernanke s First Tapering Talk) MSCI World Index 12.63% -2.98% S&P 500 Index 17.05% -0.77% STOXX Europe 50 Index 13.12% -5.30% MSCI Asia ex-japan Index 4.03% -7.93% Shanghai Shenzhen CSI 300 Index 3.95% -9.65% Hang Seng China Enterprises Index -3.25% -7.83% Hang Seng Index 3.43% -4.60% Nikkei 225 Index 51.60% % May 22 to Present (After Bernanke s First Tapering Talk) Source: Bloomberg Data as of 31/8/2013; Fund performance is calculated in the fund s base currency on NAV-to-NAV basis with gross dividend reinvested. 6

7 Volatile Investment Market Currency Major Currency Performance against USD Source: Bloomberg Data as of 31/7/2013 Year to Date on May 22 (Before Bernanke s First Tapering Talk) JPY % 5.38% AUD -6.69% -7.39% CHF -6.44% 5.62% NZD -2.53% -1.15% GBP -7.41% 1.04% KON -4.93% -0.34% EUR -2.54% 3.45% TWD -2.97% -0.31% RMB 1.64% 0.04% May 22 to Present (After Bernanke s First Tapering Talk) 7

8 Volatile Investment Market Bond Major Country Government Bond Yield As of 22 May 2013 (Before Bernanke s First Tapering Talk) US 10-Year Govt Bond % % Spain 10-Year Govt Bond % % Italy 10-Year Govt Bond % % Greece 10-Year Govt Bond % % Japan 10-Year Govt Bond % % Germany 10-Year Govt Bond % % UK 10-Year Govt Bond % % Source: Bloomberg Data as of 31/8/2013 As of 31 August 2013 (After Bernanke s First Tapering Talk) 8

9 Fed hints at tapering On 19 June, Bernanke stated, after the FOMC policy meeting, growth in jobs market could lift consumers sentiment, and if the unemployment rate fell to 7%, which signaled a continuous improvement in labour market, a timetable for exiting QE would be laid out. Reduce bond purchase later this year End QE in the middle of next year 2015 will be a suitable time for the 1 st interest rate hike US economy forecast by Fed (Sep 2013) Economics growth 2.0%-2.3% 2.9%-3.1% 3.0%-3.5% Unemployment 7.1%-7.3% 6.5%-6.8% 5.9%-6.2% Source: US Fed Note: The thresholds for raising rate are 6.5% unemployment rate and 2.5% inflation. 9

10 US economy recovery on track, unemployment rate fall Nonfarm payroll net change( 000) and unemployment rate(%) Source: Bloomberg Data as of 31/8/

11 Improvement in housing market US S&P/CS Composite-20home price index(yoy) Source: Bloomberg Data as of 31/7/

12 US stock earnings record decent growth Dow Jones Industrial Average Trailing 12M Earning per share 2007 level: USD Current level: USD Source: Bloomberg Data as of 31/8/

13 US stocks reaching new high Dow Jones Industrial Average vs. S&P 500 Source : Bloomberg Data as of 31/8/

14 Coming new chairman for Fed It was widely expected Obama will nominate the next Fed chairman within month, taking over Bernanke whose tenure ends at Jan After Lawrence Summers withdrawal from consideration, Yellen has become the front-runner for the quest. Yellen, the Fed s vice chairman since 2010, has participated in policy formulation, and has a similar stance to Bernanke, implying a continuation of current policy, bringing stability for the market. Janet Yellen Lawrence Summers

15 Europe 16

16 Euro debt crisis fades European countries can trigger Outright Monetary Transaction (OMT) at any time, which significantly reduce the Euro sovereignty risk. 10 Years Treasury Bond Yield of European Countries Source: Bloomberg Data as of 31/8/

17 Manufacturing Back into Expansionary Territory Eurozone Manufacturing PMI Eurozone 歐元區 Germany 德國 France 法國 Italy 意大利 / / / / / / / / / / / / / / /2013 Source: Bloomberg Data as of 31/8/

18 German election In the German federal election, the Christian Democratic Union (CDU) led by Chancellor Angela Merkel won with 41.5% of the vote, much higher than 33% in previous election. Being the largest economy in the Eurozone, Germany s political situation remains crucial in the progress of Euro-debt crisis and shaping the future policy.

19 China 20

20 Concerns on liquidity risk In Fitch s view, wealth management products (WMP) continues to pose a risk to the banking sector in China because it accounts for a sizable amount of funding. The primary risk centers on the cash payout pressure posed by WMPs short-term nature, the poor liquidity of underlying assets, the high mobility of WMP investors, and banks mismatched assets and liabilities. Number of Products Issued Per Day SHIBOR (Overnight) 15.0% 13.4% 12.0% 9.0% 6.0% 3.0% 1yr average:2.4% 1 年平均 : 2.4% 3.7% 0.0% Source: Wind, Puyi Wealth Mgmt 07/ / / / / / / / / / / / /2013 Source: Bloomberg As of 31/7/

21 Stabilized Manufacturing PMI China s Manufacturing PMI / / / / / / / / / / / /2012 中國官方製造業採購經理指數 China Official Manufacturing PMI 滙豐中國製造業採購經理指數 HSBC China Manufacturing PMI 12/ / / / / / / / / Source: Bloomberg As of 31/8/

22 No imminent and large-scale stimulus Domestic Chinese economic growth momentum continued to slow down without imminent signs of a new round of government stimulus policy. Investors sentiment recovered to some extent triggered by Chinese government showing attitude to set up economic growth bottom line. China Main Economic goals Item GDP 7.5% 7.5% CPI 3.5% 4.0% M2 13% 14% Investment in Fixed Assets 18% 16% Retail Sales 14.5% 14.0% Trade Balance 8% 10% Urbanization rate 53.37% 52.07% Source: Report on the Work of the Government,

23 In fact, China s Econ has Bottomed Out in 2012 Q3 China GDP (year-on-year) 9.0% 8.5% 8.0% 7.5% 8.1% 7.6% 7.4% 7.9% 7.7% 7.5% 7.5% 7.0% 6.5% 6.0% 03/ / / / / /2013 Source: Bloomberg Data as of 30/6/

24 Inflation Under Control China CPI Components Growth YoY China CPI YoY Food 食品 4.7% 5.0% Residence 居住 2.6% 2.8% Clothing 衣履 2.2% 2.2% Household 家居用品 Facilities 1.4% 1.4% Recreation 娛樂及教育 & Education 1.2% 1.3% Health 醫藥及保健 Care Tobacco 煙酒 & Liquor Transportation 交通及通訊 1.2% 1.2% 0.0% 0.2% 0.0% -0.1% 8 月份 August 7 月份 July -2.0% 0.0% 2.0% 4.0% 6.0% ( % ) % 01/ / / / / / / / / / % 2.6% Source: National Bureau of Statistics Data as of 31/8/2013 Source: Bloomberg Data as of 31/8/

25 Monetary policy back to normal Monthly new yuan loans is above five-year average. China Money Supply M2 and New Yuan Loans 35% 30% 25% 20% 15% 10% M2 Money 貨幣供應按年增長 Supply M2 YoY 月度新增人民幣貸款 New Yuan Loans (billion) ( 億 ) Stimulus amid financial crisis 應對金融海嘯的放寬政策 % 億 bil % 0% 5-yr average: 691 bil 5 年平均 :6914 億 / / / / / / / / / / / / / / / / / /2013 Source: Bloomberg Data as of 31/8/

26 Low rate environment US unlimited QE - Monthly purchase of USD 45 billion worth of long term treasury bond - Interest rate and QE would hinge on unemployment and inflation. Outright Monetary Transaction by ECB(OMT) - Offer to purchase sovereignty bonds of indebted countries in the secondary market without limit. Japan expands scale of quantitative easing - Aim to achieve 2% inflation target - Large scale increase of bond purchase, monthly purchase of 7 trillion yen long term bond. - New framework for asset purchase. From overnight interest rate targeting to monetary base targeting. Source: HKET,as of 3/

27 U.S. steady recovery supports China exports Destinations of China exports China Exports/Imports Growth YoY Others 38% Hong Kong 15% U.S. 17% Exports Growth YoY (%) Imports Growth YoY (%) 7.2% 7% 0.0 Europe 20% Korea 3% Japan 7% / / / / / / / / / / / / / / / /2013 Source: Bloomberg, General Administration of Customs of PRC Data as of 31/7/2013 Source: Bloomberg Data as of 31/8/

28 China is still expected to have a higher econ growth Major Regions GDP Growth 15% China Eurozone U.S. World Forecast 10% 7.7% 8.0% 7.9% 5% 0% 2.2% 3.0% 3.3% 2.0% 2.8% 3.0% 0.9% 1.5% -0.6% -5% Source: The World Bank Global Economic Prospects (Jun 2013) 29

29 Stabilizing growth, adjusting structure, promoting reform On June 26, Premier Li Keqiang chaired a State Council executive meeting stressing the need to adhere to the steady and promising progress, and actively taking measures promoting steady growth, structural adjustment, which effectively facilitate immediate and long-term benefit, focusing on expanding domestic demand. It was noted there is a need to adjust and optimize the investment arrangements, reduce general investment, targeting part of the funds to support these areas, guiding and driving credit and other social capital investment; at the same time continuing to promote institutional innovation, continue to unleash reform bonus to stimulate vitality of the market, promoting economic and social development to achieve annual goals. On July 16, Premier Li set the floor for economic growth to ensure economic growth stay above bottom line while unemployment and CPI do not rise above the limit. For intermediaries reference only, investment involves risks, please read the important information. 30

30 Focus on structural change and reform Urbanization Policy: -National Development and Reform Commission, for the first time, explicitly put forward a new round of urbanization roadmap, which includes fully liberalizing registration restrictions in small cities, orderly liberalized registration restrictions in medium-sized city, gradually loosen urban registration restriction; also establish a system to ensure that property prices and purchasing power fundamentally adapt. In order to safeguard the livelihood of farmers moving into the city, the Government will accelerate the improvement of urban basic public services, including efforts to achieve compulsory education, employment services, basic medical care, affordable housing and other urban resident population coverage. For intermediaries reference only, investment involves risks, please read the important information. 31

31 Awaiting the Third Plenary Session for specific structural reform (in Nov) The Third Plenary Session: -According to past experience, each session of the important government reform decisions basically was made a year after the leadership took office, presented at the Third Plenum. - As it has been nearly one year since Xi Li step in, judging from the recent reform plan, the Third Plenary Session is highly anticipated in terms of economic reform, especially the reform of household registration and deepening of financial reforms. For intermediaries reference only, investment involves risks, please read the important information. 32

32 China, HK - two of World s Cheapest Stock Markets Major Stock Market Index Closing as of 31 Aug 2013 Historical High From the Historical High Price Earning Ratio (P/E) As of 31 Aug Year Average Historical High MSCI World Index % S&P 500 Index 1, , % STOXX Europe50 Index 2, , % DAX 30 Index 8, , % Shanghai Shenzhen CSI 300 Index Hang Seng China Enterprises Index 2, , % , , % Hang Seng Index 21, , % Nikkei 225 Index 13, , % Source: Bloomberg 33

33 Corporate earning expected to improve CSI 300 Sector Indices EPS* 2012 EPS 201 Est. EPS change% 2014 Est. EPS change % 2012 P/E 2013 Est. P/E 2014 Est. P/E P/E CSI 300 Index % % Energy Index % % Materials Index % % Industrials Index % % Consumer Discretionary Index % % Consumer Staples Index % % Healthcare Index % % Financials Index % % Information Technology Index % % Telecommunication Index % % Utilities Index % % * 2012 EPS is the weighted average of index constituents in financial year 2012;2013 Estimated EPS is the weighted average of index constituents in financial year 2013;2014 Estimated EPS is the weighted average of index constituents in financial year 2014 ;Calculated in RMB Past performance is not indicative of future performance Source Bloomberg As of 31/8/

34 Great development potential of urbanization in China Source: United Nations Urbanization Ratio US China Japan Germany FORECAST McKinsey expected that China's urban population will increase from 570 million in 2005 to 925 million in In future, there will be million people moving into the city, where the 242 cities in China will Urbanization ratio in China has just past 50%, (and only about 35% in terms of household population), far lower than the average level of 80% in developed countries Estimated Urbanization Rate ( ) Urbanization Ratio and Urban Population 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% Vietnam India Thailand China Philippines Indonesia Developed Countries contribute 1/4 of growth to global GDP 0.0% 0% 20% 40% 60% 80% 100% Urban Population Ratio Source: United Nations, 2011 Revision of the World Urbanization Prospects 35

35 Retail sector Detailed table for China retail sales (Jan-Jul 2013) Total Retail Sales and its growth YoY (%) Jewelry Furniture Construction Materials Pharmaceuticals Household Electronics Daily-use Items Retail Sales 20.7% 18.9% 15.9% 15.0% 14.1% 12.8% 32.4% RMB billions 25,000 20,000 15,000 10,000 5, % 9.1% Retail Sales (LHS) Retail Sales Growth YoY (RHS) 12.9% 21.6% 13.7% 16.8% 18.4% 17.1% 15.5% 14.3% 25% 20% 15% 12.8% 10% 5% Cosmetics Garments/Textiles Automobiles 12.4% 11.9% 9.0% Jan-Jul % 0% 5% 10% 15% 20% 25% 30% 35% Source : National Bureau of Statistics Data as of 31/7/

36 Substantial increase in middle-class & upper-class families Disposable Income 城鎮居民人均可支配收入 Urban Population Disposable ( 左軸 Income )( 人民幣 (LHS))(RMB) % 城鎮居民人均可支配收入按年增長 YoY Growth (RHS) ( 右軸 ) 元 % 12.6% 10% 5% % Source: Bloomberg As of 31/12/2012 McKinsey expected that the annual income of urban households in China in 2012 is RMB39,000, and will reach RMB112,000 by The middle class and upper class families will account for 87% of urban households (71% at this stage). 37

37 Driving up consumption power significantly Contributions of Countries to Global Economic Growth between China Southeast Asia Latin America Eastern Europe Middle East and North Africa Sub-Saharan Africa Developing Regions US and Canada Western Europe Northeast Asia Australia Developed Regions Total Source: 2012 McKinsey Annual Chinese Consumer Survey According to McKinsey, during the current decade, the share of urban households with average annual disposable incomes high enough to afford family cars and small luxury items is expected to grow by nearly six times, accounting for 57% of all urban households in It is expected that the top 225 Chinese cities will contribute 29% of global GDP growth over

38 City tiers attributable to different consumption patterns Reasons for Spending More on Personal Care Products and Services Making first purchases Trading Up Buying more frequently First Tier Second Tier Third Tier Cities Cities Cities Source: 2012 McKinsey Annual Chinese Consumer Survey According to McKinsey, higher-spending consumers in tier 2 cities were predominantly trading up. Meanwhile, in tier 3, the higher spending was attributable to consumers buying larger quantities more frequently. 39

39 Favor Automobiles Strong correlations between number of households in the US$3,000 and above income categories and car sales signify that the sales of new cars are driven by the households having annual income over US$3,000. Extract from Dec 2011, Deloitte Driving Through BRIC Markets Lessons for Indian Car Manufacturers 40

40 Underweight Department Stores The central government strengthened anti-corruption efforts and regulated administrative expenses, dragged department store industry. Retail Sales Growth slowdown YoY Growth Source: Bloomberg As of 31/8/

41 Market Volatility increased HSI Volatility Index (LHS) and HK stock short selling ratio (RHS) Source: Bloomberg Data as of 31/8/

42 Asset Allocation is more important amid volatile market Investors may adjust the ratios investing among different regions and different asset classes in response to changes in market conditions, so as to choose the appropriate portfolio. Conservative Portfolio Balanced Portfolio Aggressive Portfolio 70% 10% 20% 40% 30% 20% 45% 30% 35% 中國股票 China Equity 香港股票 Hong Kong Equity 債券 Bond

43 Major risk factors US tapering pace and scale US Fed chairman successor US Debt ceiling dispute between the two parties Impact of European countries austerity measures China credit risk and anti-corruption campaign Fund flows on Emerging Market Syria s affairs 44

44 Important Information Investment involves risk and is subject to market fluctuations and inherent risks. Investment in emerging markets involves special risks and considerations. Investors could face no returns and / suffer significant loss related to the investments. Past performance is not indicative of future performance. The information contained herein is based on sources believed to be reliable. Information, opinions and projections in this document reflect a judgment at its original date of publication and are subject to change without notice. The information, opinions and projections contained herein are for reference only. This document should not be reproduced or further distributed to any person or entities, whether in whole or in part, for any purposes. This document does not constitute any distribution, or any recommendation, offer, invitation or solicitation to buy or sell any investment. This document is issued by BOCI-Prudential Asset Management Limited. It has not been reviewed by the SFC.