Emerging Market Overview - China. Presented by Liang Du June 2017

Transcription

1 Emerging Market Overview - China Presented by Liang Du June 2017

2 Billion of US$ SIZE World Bank GDP per Capita in 2005 US$ World Bank GDP in 2005 US$ US Japan Brazil South Africa 6498 China (2015 Data) 4561 China (2010) China (2000) India China (1990) China (1980) US China China Japan India Brazil China China South (2015) (2010) (2000) (1990) Africa China (1980)

3 CHINESE ECONOMY REVIEW Prescient Economic Indicator 6,00 5,00 4,00 3,00 2,00 1,00 China Interest Rates Repo 7D SLF 7D MLF 6M SHIBOR 1Y -10 -

4 Y-o-Y Change PROPERTY MARKET 35 China Property Prices 45% Annual Total Social Financing (Debt Creation) % 35% 30% 25% 20% 15% 10% 5% 0% Total Average Tier 1 City Tier 2 City Tier 3 City Annual Debt Creation to GDP ratio Annual Total Social Financing

5 WHAT ABOUT THE DEBT? Housing 30% Deposit first property. 50% Second if property, 70% non-residential property. Benchmark interest rate first one, 110% of interest rate second one. Shanghai Hukou 2 per married couple. Non-Hukou very difficult, need to pay taxes in the city for 5 years before you can buy. 30% drop across the whole country, 5% is underwater on equity basis. Peer-to-Peer E-platform. Private company set up with RMB 60 million, in Total assets RMB 300 million. Lend to small business averaging 200k, They visit every company Lend to businesses at 18% amortising effective 30% Pay investors on platform 9% Lent to 3000 companies since inception current book around 1500 companies Non-performing loans < 3% Biggest challenge can t deploy capital

6 DON T FORGET GOVERNMENT OWNERSHIP 80,00 Government Ownership 70,00 60,00 50,00 40,00 30,00 20,00 10,00 - China GDP China Gov Controlled Market Cap China Gov Owned Market Cap China Gov owned earnings Estimated China Gov Non-listed Earnings Non-Financial Assets Non-Financial Debt Source Wind

7 GOVERNMENT FOCUS 2016 Lowest unemployment in 5 years Services make up 51.6% of economy Business registration in new economy industries up 24.5%, over business registrations per day Over 1 million patents, IT growth 56.2% y-o-y Disposable income was up 6.3% Rural population lifted out of poverty line 12.4 million Lowered tax by 570 billion RMB for small companies Lowered interest rate bill of local government by 400 Billion RMB Steel excess capacity reduced by 65 million tons, and coal by 290 million tons Removed 165 requirements for approvals, allowed free business for 220 new business categories. PM 2.5 average of 74 cities dropped by 9% % GDP, 11 million new people urbanised 4.5% urban unemployment Steel capacity a further 50million tons reduction, coal 150 million tons reduction, and coal power 50 Gigawatt reduction Further tax cut for small business, further incentives to high innovation industry Less red tape, lower administration fees for 50% of items. RMB 800 billion in rails RMB 1.8 trillion in road and water Continue to lower telecommunication costs 11 new free trade zones after 2016 successful trial of Shanghai free trade zone

8 KEY TAKEAWAYS Government is a much bigger entity than imagined More resources than typical of government, certainly do not think of it as an emerging market government No cycle is ever the same difficult to predict the future, history is unique A lot of risks but also many risk mitigation tools and policies available Difference to other EM Very success at keeping money internal Almost all debt internal Though sometimes leaky exchange control managed to keep the money within China

9 CHINA VS S&P China and S&P 500 Total Return Performance Year Forward PE Ratio Source : Bloomberg S&P 500 CSI 300 CHINA US

10 STOCK MARKET Over 2700 stocks listed 1500 More liquid than our Top 40 2 nd largest equity market in the world 68 Million Accounts with money in it Global IFRS Reporting standard Quarterly reporting, semi-annual audit Banks, Financial, Property, insurance, healthcare, consumer staples, industrials, materials, IT Private vs. Public Companies in China Public Companies Private Companies

11 LONG-TERM CHINA CHART Total Return In US$, Since Inception of CSI 300 Index (12 years) 25.00% Efficient Frontier 16,00% China (CSI 300) in TR RMB 14,00% 20.00% 12,00% 10,00% 8,00% 15.00% US Equities (S&P 500 Total Return) SA Equity (J203 total return) 6,00% 10.00% 4,00% Uk Equities (FTSE 100 Total Return) 5.00% 2,00% 0,00% SA Equity US Equities German Equities Uk Equities China Japan Equities French Equities MSCI World 0.00% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00%

12 OPPORTUNITY FOR ALPHA Percentage of Fund Beaten by Large Cap Index over 5 year 70.00% Prescient Fund Full Period Attribution 90,00% 80,00% 70,00% 60.00% 50.00% 40.00% Fees Active Returns 60,00% 30.00% 50,00% 20.00% 40,00% 30,00% 10.00% Passive Returns 20,00% 0.00% Fund Return Interaction Factor 12.58% 10,00% Asset Allocation Alpha 11.70% Securities Selection Alpha 21.22% 0,00% US China Fixed Income Contribution 1.20% Equity Index Contribution 19.78% Source Morningstar/Bloomberg/Prescient

13 ALPHA GENERATION Value Sentiment Sentiment Equity Selection Asset Allocation Valuation Quality Policy Combine Outperformance of Benchmark Outperformance of Passive Best chance of generating strong real returns Outperform Peers

14 Performance FUND PERFORMANCE China Balanced Fund Net of Fees 20,00% 15,00% 10,00% 5,00% 0,00% -5,00% 1 Month 3 Month YTD 1 Year 3 Years (p.a.) Since Inception Fund NAV -0,69% 2,02% 4,86% 6,25% 18,27% 10,92% 65% EQ/ 35% Cash -0,54% 0,79% 3,32% 1,16% 11,06% 6,22% China CPI+3 0,29% 2,05% 0,76% -0,80% 0,87% 2,20% Source: Morningstar/Prescient, as at end April 2017

15 KEY TAKEAWAYS Don t believe the hype and stories Currently cheap relative to history, cheap relative to global market Listed companies have limited debt When it moves, it moves Great diversifier, very low correlation Inefficient market, high alpha available Consistent outperformance of the market means outperforming our competitors Top 1% since inception of all Mixed Allocation Asia focussed funds

16 DISCLAIMER Collective Investment Schemes in Securities (CIS) should be considered as medium to long-term investments. The value may go up as well as down and past performance is not necessarily a guide to future performance. CIS s are traded at the ruling price and can engage in scrip lending and borrowing. The collective investment scheme may borrow up to 10% of the market value of the portfolio to bridge insufficient liquidity. A schedule of fees, charges and maximum commissions is available on request from the Manager. There is no guarantee in respect of capital or returns in a portfolio. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. CIS prices are calculated on a net asset basis, which is the total value of all the assets in the portfolio including any income accruals and less any permissible deductions (brokerage, STT, VAT, auditor s fees, bank charges, trustee and custodian fees and the annual management fee) from the portfolio divided by the number of participatory interests (units) in issue. Forward pricing is used. The Fund's Total Expense Ratio (TER) reflects the percentage of the average Net Asset Value (NAV) of the portfolio that was incurred as charges, levies and fees related to the management of the portfolio. A higher TER does not necessarily imply a poor return, nor does a low TER imply a good return. The current TER cannot be regarded as an indication of future TER's. During the phase in period TER s do not include information gathered over a full year. A Money Market portfolio is not a bank deposit account and the price is targeted at a constant value. The total return is made up of interest received and any gain or loss made on any particular instrument; and in most cases the return will have the effect of increasing or decreasing the daily yield, but in the case of abnormal losses it can have the effect of reducing the capital value of the portfolio. The yield is calculated as a weighted average yield of each underlying instrument in the portfolio. Excessive withdrawals from the portfolio may place the portfolio under liquidity pressures and a process of ring-fencing of withdrawal instructions and managed pay-outs over time may be followed. Where a current yield has been included for Funds that derive its income primarily from interest bearing income, the yield is a weighted average yield of all underlying interest bearing instruments as at the last day of the month. This yield is subject to change as market rates and underlying investments change. The Manager retains full legal responsibility for any third-party-named portfolio. Where foreign securities are included in a portfolio there may be potential constraints on liquidity and the repatriation of funds, macroeconomic risks, political risks, foreign exchange risks, tax risks, settlement risks; and potential limitations on the availability of market information. The investor acknowledges the inherent risk associated with the selected investments and that there are no guarantees. Please note that all documents, notifications of deposit, investment, redemption and switch applications must be received by Prescient by or before 13:00 (SA), to be transacted at the net asset value price for that day. Where all required documentation is not received before the stated cut off time Prescient shall not be obliged to transact at the net asset value price as agreed to. Money market Funds are priced at 1pm all other Funds are priced at either 3pm or 5pm depending on the nature of the Fund. Prices are published daily and are available on the Prescient website. Performance has been calculated using net NAV to NAV numbers with income reinvested. The performance for each period shown reflects the return for investors who have been fully invested for that period. Individual investor performance may differ as a result of initial fees, the actual investment date, the date of reinvestments and dividend withholding tax. Full performance calculations are available from the manager on request. For any additional information such as fund prices, brochures and application forms please go to

17 Contact Details Management Company: Prescient Management Company (RF) (Pty) Ltd, Registration number: 2002/022560/07 Physical address: Prescient House, Westlake Business Park, Otto Close, Westlake, 7945 Postal address: PO Box 31142, Tokai, Telephone number: address: Website: Trustee: Nedbank Investor Services Physical address: 2nd Floor, 16 Constantia Boulevard, Constantia Kloof, Roodepoort, 1709 Telephone number: Website: The Management Company and Trustee are registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002). Prescient is a member of the Association for Savings and Investments SA. Investment Manager: Prescient Investment Management (Pty) Ltd, Registration number: 1998/023640/07 is an authorised Financial Services Provider (FSP 612) under the Financial Advisory and Intermediary Services Act (No.37 of 2002), to act in the capacity as investment manager. This information is not advice, as defined in the Financial Advisory and Intermediary Services Act (N0.37 of 2002). Please be advised that there may be representatives acting under supervision. Physical address: Prescient House, Westlake Business Park, 04 Otto Close, Westlake 7945 Postal address: PO Box 31142, Tokai 7966 Telephone number: Website: This presentation is for information purposes only and does not constitute or form part of any offer to issue or sell or any solicitation of any offer to subscribe for or purchase any particular investments. Opinions expressed in this document may be changed without notice at any time after publication. We therefore disclaim any liability for any loss, liability, damage (whether direct or consequential) or expense of any nature whatsoever which may be suffered as a result of or which may be attributable directly or indirectly to the use of or reliance upon the information.