Think Asia. Think Schroders Access Asia s Potential with Schroders Suite of Award Winning Asian Products

Transcription

1 Think Asia. Think Schroders Access Asia s Potential with Schroders Suite of Award Winning Asian Products July 2014 Represented by Albert Tse, CFA, CAIA Head of Intermediary Distribution, South East Asia Schroder Investment Management (Singapore) Ltd

2 Agenda 1. 4 sad truths of Asian equity investing 2. Market outlook (the good to know, but not useful) 3. Schroders Asian Equity Perspective 4. Schroders Suite of Award Winning Asian Products 5. Appendix 1

3 1. 4 Sad Truths of Asian Equity Investing

4 1. 4 Sad Truths (Hard Truths) of Asian Equity Investing On the back of more than 30 months of underperformance vs developed markets equities since mid 2011, Asian equity investors are losing patience and are evaluating the investment case of Asian equities of late: 4 sad truths about Asian equity investing 1. Weak link between GDP & equity prices 2. It is all about getting the re-rating timing right 3. Top down investing has proven to be flawed 4. Stock specific factors increasingly drive the bulk of investment returns 3

5 Sad Truth 1 Weak Link Between GDP & Equity Prices This means you shouldn t always ask what is your view of this country? There is a weak negative relationship between GDP growth and real stock market performance ( ) Mean real geometric return (%) South Africa United Kingdom Australia Sweden United States Canada Netherlands Denmark Switzerland Ireland R² = Correlation = -37% Japan France Belgium Spain Germany Italy Real per capita GDP growth (%) Source: Dimson, Elroy, Marsh, Paul, Staunton, Mike, Triumph of the Optimists: 101 Years of Global Investment Returns. Princeton University Press, Princeton. Source: Dimson, Elroy, Marsh, Paul, Staunton, Mike, Global Investment Returns Yearbook ABN Amro, Amsterdam. 4

6 Sad Truth 2 It is All About Getting the Re-rating Timing This means the next question is when is the next re-rating for Asian/EM equities 1 P/B ratio of Asia Pacific Equity from September 1995 to May Relative P/B ratio from Dec 2002 to Dec Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 MSCI DM vs EM MSCI G7 vs APxJ 1 Source: Factset, as at 31 May Source: MSCI, Bloomberg, as at 31 December

7 Sad Truth 3 Top Down Investing Has Proven to be Flawed The main reason is that equity index is a poor reflection of local economies MSCI AC Asia ex Japan stock market index weight 1 Other domestic demand No decoupling in Asia as much of index earnings are global 2 USD returns, indexed 400 Financials 33% Consumer & Defensives 17% Global cyclicals Cyclicals 50% MSCI AC Asia ex Japan MSCI AC World 1 Source: Factset, August 2013 Consumer & Defensives include GICS sectors Consumer Staples, Healthcare, Telecoms and Utilities Cyclicals include GICS sectors Consumer Discretionary, Energy, Materials, Industrials and Information Technology 2 Source: Bloomberg, from 1 st January 1992 to 31 st August

8 Sad Truth 4 It is All about Stock Picking Stock specific factors increasingly drive the bulk of investment returns Percentage of Returns Explained by Country, Sector, Style and Macro 100% 12 Month Rolling Average of Adjusted R-squared 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Country Sector Style Macro Stock Source: Macquarie, June

9 2. Market Outlook (the good to know, but does it matter anymore?)

10 Market Outlook Asian Equity in 2014 Schroders remain neutral on macro front, but see valuation opportunities 1. An ASEAN crisis is unlikely 2. We are still not excited about China in 2014 (since 2011) 3. Get used to political uncertainty (Thailand) 4. See beyond the cyclical headwinds to understand the structural trend (Indonesia) 5. Every growth story has a price (Be very selective in Philippines) For more information, (charts & write up on the above 5 points), please refer to appendix 9

11 3. Schroders Asian Equity Perspective

12 Return on Invested Capital Helps Identify Stronger Firms ROIC Sets our long-term strategic view of the company Classification Company Characteristics Industry Growth Superior Superior ROIC > WACC and stable/rising e.g. BOC(HK), AIA, Bank Mandiri, LGH&H, UOB, TSMC, BEC Negative Transition Positive Transition ROIC < WACC but improving to a positive spread e.g. HSBC, Taiping, Samsonite, TTI, China Lodging, Astro Negative Transition ROIC > WACC but deteriorating e.g. Li & Fung, HK Exchange, Minsheng Bank Positive Transition Inferior Inferior ROIC < WACC and still deteriorating Citic Pacific, New World Development, KEPCO, CHALCO Competitive Position Source: Schroders Presentation to NTUC Jan

13 Focus on ROIC Helps Identify Key Value Drivers Declining ROIC's an early indicator of trouble for Li & Fung Li & Fung versus Schroders Fair Value estimate Analyst FV consistently < sell-side and structurally cautious given declining ROIC Li & Fung Earnings versus ROIC Over reliance on M&A to deliver growth and mask the decline in underlying returns Dilution from equity & debt issuance 40% 35% 30% 25% % Grade 3 Grades 1 or 2 Negative Grades 3 or 4 May-03 May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May Falling ROIC's EBIT US$ EPS US$ ROIC (RHS) 15% 10% 5% 0% Li & Fung Consensus sell-side price target FV Source: Bloomberg, Schroders, May 2013 Source: Schroders Presentation to NTUC Jan

14 Trading Inferior Businesses a Dangerous Game Second guessing short-lived cycles is not our focus Neptune Orient Lines Cathay Pacific S$ HK$ Sep-93 Jun-94 Mar-95 Dec-95 Sep-96 Jun-97 Mar-98 Dec-98 Sep-99 Jun-00 Mar-01 Dec-01 Sep-02 Jun-03 Mar-04 Dec-04 Sep-05 Jun-06 Mar-07 Dec-07 Sep-08 Jun-09 Mar-10 Dec-10 Sep-11 Jun-12 Mar-13 Sep-93 Oct-94 Nov-95 Dec-96 Jan-98 Feb-99 Mar-00 Apr-01 May-02 Jun-03 Jul-04 Aug-05 Sep-06 Oct-07 Nov-08 Dec-09 Jan-11 Feb-12 Mar-13 Source: Bloomberg, September 2013 For illustrative purpose only, it does not represent any recommendation to invest or disinvest in the above-mentioned securities. 13

15 Schroders in Asia Strong regional presence - our information advantage 10 Asia Pacific ex Japan fund managers based in Singapore and Hong Kong. 30 regional Asia Pacific ex Japan analysts in 6 countries conduct more than 5,200 company visits per year*. Schroders office Tokyo Opened 1974 Seoul Opened 1987 Beijing Opened 1996 Mumbai^ Opened 2012 Taipei Opened 1989 Shanghai Opened 1994 Hong Kong Opened 1971 Singapore Opened 1977 Jakarta Opened 1991 Sydney Opened 1963 Melbourne Opened 2007 Investment office Representative office ^A joint venture fund management company with Axis Asset Management Company Source: Schroders, as at May 2014 *For the year

16 Investment Theme - Dividend Dividend yielding stocks represent >60% of total return in long run Dividends have historically been the largest component of long-term equity returns in Asia. Investing for dividends allows investors to participate in the strong Asian economic growth story but at lower volatility % MSCI Asia Pacific ex Japan 0 Dec-87 Dec-89 Dec-91 Dec-93 Dec-95 Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Source: Factset, MSCI as at March Cumulative Returns (%) Dividend Return Proportion of Total Return Dividend Return % Capital Appreciation % Total Return 943 Price Appreciation 15

17 Investment Theme and Stock Examples Investing in powerful growth and restructuring themes e.g. Baoxin, Chow Sang Sang, BEC World, Emperador, China Lodging, AIA Asian Domestic Consumption e.g. companies which are beneficiaries of the Asian consumption story Best Turn-around/ Positive Transition Stories e.g. restructuring or potential takeover candidates e.g. Techtronic Industries, HSBC, Samsonite, MCX, Astro e.g. Mindray, Yue Yuen, TSMC, Samsung, Hyundai Motor, Hankook Tire, Keppel Corp Discounted Valuation e.g. stocks with extremely attractive valuations and/or attractive yields e.g. Swire Properties, Jardine Strategic, Hana Financial, Taiping Thematic Long-Term Source: Schroders The above is for illustrative purposes only and does not constitute a recommendation to invest in the stocks securities of the above mentioned companies Past performance is not indicative of future returns Schroder Asian Growth Fund (the "Fund") 16

18 When You are Selecting a Benchmark Relative China Fund Expensive new economy stocks versus very cheap old economy stocks New economy on the rise whilst old economy in the decline China New China Old China 40 Feb 07 Feb 08 Feb 09 Feb 10 Feb 11 Feb 12 Feb 13 Feb 14 Sectors Old Economy Energy Industrials Materials Telecommunication Banks New Economy Consumer Discretionary Consumer Staples Health Care Information Technology Growth driver Investment-driven Consumption-driven Source: Bloomberg, Citi Research, March 2014

19 4. Schroders Suite of Award Winning Asian Products

20 Schroders Latest Awards in 2014 Think Asia. Think Schroders The Edge-Lipper Fund Awards Morningstar Awards Asia Asset Management Best of the Best Awards 2013 Schroder Asian Growth Fund Best Fund Over 3 Years Equity Asia Pacific Ex Japan Schroder Asian Growth Fund Best Fund Over 5 Years Equity Asia Pacific Ex Japan Schroder ISF Korean Equity Best Fund Over 3 Years Equity Korea Best Fund House: Equity Schroder Asian Growth Fund Best Asia ex-japan Equity Fund Schroder ISF Hong Kong Equity Best Greater China Equity Fund Schroder Singapore Trust Best Singapore Equity Fund Best Retail House Singapore 19

21 Schroders Flagship Asian Products in Singapore Schroder Asian Growth + Schroder Asian Equity Yield + Schroder Asian Income 20

22 THANK YOU!!!

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