JPMorgan Chinese Investment Trust: Annual General Meeting

Transcription

1 JPMorgan Chinese Investment Trust: Annual General Meeting January 2017 Shumin Huang, Head of Greater China Research INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

2 Top reasons to be concerned about China Will the style trends continue? What is happening with the Renminbi? Is a credit crisis likely? Where are the opportunities? Source: Shutterstock.com. J.P. Morgan Asset Management, as of 24 January 2017 The opinions and views expressed here are those held by the author at the time of publication, which are subject to change and are not to be taken as or construed as investment advice. 1 INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

3 What is in store for 2017? Source: Shutterstock.com. J.P. Morgan Asset Management, as of 24 January INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

4 Style and allocation headwinds create opportunities MSCI China A Growth vs. Value MSCI China Growth vs. Value MSCI China A Growth MSCI China A Value MSCI China Growth MSCI China Value % -20.5% % -1.8% /15 03/16 06/16 09/16 12/ /15 03/16 06/16 09/16 12/16 Source: Credit Suisse, MSCI. Rebased December 2015 = 100. Data as of 31 December Indices do not include fees or operating expenses and are not available for actual investment. Past performance is not necessarily a reliable indicator for current and future performance. 5 year returns are presented in a slide in appendix. 3 INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

5 New China names, having underperformed, are looking attractive New vs. Old China valuation gap 200% 180% 160% 140% Relative P/E: China "New" sectors vs "Old" sectors New China Sectors: IT, Healthcare, Consumer Old China Sectors: Energy, Materials, Industrials 120% 100% 80% 60% 40% 20% 0% Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Dec-14 Dec-16 Source: Credit Suisse, MSCI. Data as of 31 December Past performance is not necessarily a reliable indicator for current and future performance 4 INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

6 Renminbi weakness driving capital flows Chinese yuan exchange rate: NEER* vs. USD Index, rebased 2013 = 100 USD / CNY and change in FX reserves Change in monthly FX reserves (USD billions) USD / CNY USD / CNY 115 Stronger yuan Nominal effective exchange rate (NEER) Weaker yuan USD / CNY Change in monthly FX reserves '13 '14 '15 ' '13 '14 '15 '16 '17 Source: FactSet, People s Bank of China, J.P. Morgan Asset Management. Guide to the Markets Asia 1Q Data reflect most recently available as of 12/31/16. 5 INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

7 Financial system risks still contained NPL level versus industrial EBIT interest coverage 14% 10 Wealth Management Product yield coming off 9 12% 10% Reported NPL ratio EBIT interest coverage ratio (RHS) % 6% % 2% 6 5 % % 4 1H04 2H05 1H07 2H08 1H10 2H11 1H13 2H14 1H * NPL = non-performing loans. EBIT = earnings before interest and taxes Source: (Left) Semi-annual EBIT interest coverage ratio is based on year-to-date financial data. CBRC, NBS, Wind, Credit Suisse, J.P. Morgan Asset Management.. Data reflect most recently available as of 31 December (Right) WIND, CICC, data as of 31 December Past performance is not necessarily a reliable indicator for current and future performance. 6 INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

8 Old China is mending cyclically, New China continues to grow structurally China is transforming to a service-led economy Alibaba revenue (YoY%, YTD, LHS) Retail sales (YoY%, YTD, RHS) Keqiang Index (YoY%, YTD, RHS) /12 12/12 06/13 12/13 06/14 12/14 06/15 12/15 06/16-5 Note: Keqiang Index is created by The Economist, combining Li Keqiang s three preferred indicators of electricity consumption, rail cargo volume and bank loans. Source: WIND, Bloomberg, CICC Research, J.P. Morgan Asset Management. Data available as of 31 December INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

9 Where do we see opportunities? Source: Shutterstock.com. J.P. Morgan Asset Management, as of 24 January INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

10 H-shares A-shares MSCI China A-Shares are the opportunity, particularly Shenzhen Hang Seng China AH Premium Index since December / / / / / / / / / / / / /2016 The A-share market has greater diversity, more private companies and more growth 3% 0% 2% 2% 1% 1% 0% 6% 2% 12% 71% 2% 6% 3% 11% 1% 6% 6% 9% 16% 35% 5% 2% 3% 9% 8% 4% 1% 7% 32% 27% 5% 2% Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Real Estate Telecommunication Services Utilities Source: Bloomberg. Data as of 12/31/2016. H-shares = Hang Seng China Enterprise Index; A-shares = CSI 300 The opinions and views expressed here are those held by the author at the date of publication which are subject to change and are not to be taken as or construed as investment advice. Indices do not include fees or operating expenses and are not available for actual investment. Past performance is not necessarily a reliable indicator for current and future performance. 9 INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

11 Valuations are attractive in A-shares... CSI300 Index 12-Month Forward PE 35 x CSI300 Index Trailing PB 7 x sd sd Avg Avg sd /05 8/07 8/09 8/11 8/13 8/ sd /05 8/07 8/09 8/11 8/13 8/ PE = Price to Earnings Ratio; PB = Price to Book Ratio Source: Thomson Reuters Datastream, Bloomberg. As of 31 st December Past performance is not indicative of future performance" with "Past performance is not necessarily a reliable indicator for current and future performance 10 INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

12 ... As well as H-shares MSCI China 12-Month Forward PE MSCI China Trailing PB 25 x x sd Avg sd sd Avg sd PE = Price to Earnings Ratio; PB = Price to Book Ratio Source: Thomson Reuters Datastream, Bloomberg. As of 31 st December The opinions and views expressed here are those held by the author at the date of publication which are subject to change and are not to be taken as or construed as investment advice. 11 INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

13 We are positioned towards long term structural growth opportunities Technology Technology (internet, software, hardware, surveillance) Healthcare (hospital reform and drug innovation) Healthcare Environmental Protection Environmental Protection (clean energy, water and waste treatment) Consumption Upgrades (household durables, online retailers, leisure & entertainment) Consumption The opinions and views expressed here are those held by the author at the date of publication which are subject to change and are not to be taken as or construed as investment advice. 12 INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

14 Despite heavy-handed stimulus supporting Old China, New China is still winning Trailing EPS: New China has been rising while Old China has stagnated Equity Performance MSCI China New China Old China MSCI China New China Old China /07 12/08 12/09 12/10 12/11 12/12 12/13 12/14 12/15 12/16 ROE: New China has been trending higher along with China s economic transformation 25% 20% 15% MSCI China New China Old China % 5% 0% 12/09 12/10 12/11 12/12 12/13 12/14 12/15 12/ /07 12/08 12/09 12/10 12/11 12/12 12/13 12/14 12/15 12/16 New China = Information Technology, Consumer, Healthcare Old China = Energy, Materials, Industrials Source: Factset, Morgan Stanley Research, J.P. Morgan Asset Management. Data available as of 17 Jan Indices do not include fees or operating expenses and are not available for actual investment. Past performance is not necessarily a reliable indicator for current and future performance. 13 INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

15 Investment themes in the new normal : Healthcare Jiangsu Hengrui Medicine: deep pipeline of oncology drugs and surgical anaesthetics with overseas expansion Economics: Superior R&D capabilities evidenced by strong sales of oncology drugs and surgical anaesthetics. Duration: Best positioned in oncology treatment market Structurally growing sector supported by demographics and rising healthcare spend. Governance: Hansoh Pharma, owned by chairman's spouse, is in the process of IPO; connected transactions, if any, will be closely monitored. Leading position in China s oncology market 100,000 China oncology market (in RMB mn, LHS) 90,000 Market share 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10, % 16% 14% 12% 10% 8% 6% 4% 2% 0% Source: R&D = Research and Development; PDB (China Prescription Sales Database), J.P. Morgan Asset Management, as of 25 Jan The use of the above company logos is in no way an endorsement for JPMAM investment management services. J.P. Morgan Asset Management may or may not hold positions on behalf of its clients in any or all of the aforementioned securities. Past performance is not necessarily a reliable indicator for future performance. Forecasts, projections and other forward looking statements are based upon current beliefs and expectations. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with forecasts, projections and other forward statements, actual events, results or performance may differ materially from those reflected or contemplated. 14 INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

16 Investment themes in the new normal : Consumer technology upgrades Largan Precision: beneficiary of structural growth trend coupled with market share gains Economics: Superior industry positon and margin structure Robust free cash flow generation Dual-camera revenue contribution to Largan 40% 35% 32% 35% 37% 30% 29% Duration: Optical specification upgrade still in for a long haul potential market expansion into automobile Governance: 30% owned by the founding Lin family No particular governance issue in the past 25% 20% 15% 10% 5% 0% 24% 8% 1% 1% E 2017E 2018E 2019E 2020E 2021E Source: J.P. Morgan Asset Management, as of 12 Jan The use of the above company logos is in no way an endorsement for JPMAM investment management services. J.P. Morgan Asset Management may or may not hold positions on behalf of its clients in any or all of the aforementioned securities..past performance is not necessarily a reliable indicator for future performance. Forecasts, projections and other forward looking statements are based upon current beliefs and expectations. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with forecasts, projections and other forward statements, actual events, results or performance may differ materially from those reflected or contemplated. 15 INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

17 JPMorgan Chinese Investment Trust Update 16 INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

18 Performance JPMorgan Chinese Investment Trust as of 31 st December 2016 Annualised performance (%) Market value JPMorgan Chinese Investment Trust GBP 168.2m Three months Six months One year Three years Five years Since launch JPMorgan Chinese Investment Trust plc MSCI China (NDR)^ Excess return* Calendar year performance (%) JPMorgan Chinese Investment Trust plc MSCI China (NDR)^ Excess return* Fund launch date = 19 Oct ^ Dividends reinvested after deduction of withholding tax. Prior to 26 Jan 2016, MSCI Golden Dragon (NDR).Prior to 1 Jun 2002, MSCI Provisional Golden Dragon Index (NDR). Prior to 1 Oct 2001, Customised benchmark (Calculated by J.P. Morgan Asset Management and comprised 40% HSI, 40% Taiwan Weighted and 20% BNP Paribas China Price). Prior to 1 Oct 1998, BNP Paribas China Price. * Arithmetic excess return presented. Source: J.P. Morgan Asset Management. Performance data has been calculated on NAV to NAV basis, including ongoing charges and any applicable fees, with any income reinvested, in GBP. Please note Benchmark Indices do not operating expenses and are not available for actual investment. Past performance is not necessarily a reliable indicator for current and future performance. 17 INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

19 Performance JPMorgan Chinese Investment Trust as of 31 st December 2016 Market value JPMorgan Chinese Investment Trust GBP 168.2m Rolling 12 Months at Year Ends (%) JPMorgan Chinese Investment Trust plc (Share Price) JPMorgan Chinese Investment Trust plc (NAV) MSCI China Index (NDR)^ Fund launch date = 19 Oct ^ Dividends reinvested after deduction of withholding tax. Prior to 26 Jan 2016, MSCI Golden Dragon (NDR). Prior to 1 Jun 2002, MSCI Provisional Golden Dragon Index (NDR). Prior to 1 Oct 2001, Customised benchmark (Calculated by J.P. Morgan Asset Management and comprised 40% HSI, 40% Taiwan Weighted and 20% BNP Paribas China Price). Prior to 1 Oct 1998, BNP Paribas China Price. * Arithmetic excess return presented. Source: J.P. Morgan Asset Management. Performance data has been calculated on NAV to NAV basis, including ongoing charges and any applicable fees, with any income reinvested, in GBP. Please note Benchmark Indices do not operating expenses and are not available for actual investment. Past performance is not indicative of future performance. 18 INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

20 Current position is geared towards structural growth We are positioned in long-term consumer services opportunities, less so in the investment-driven economy Investment opportunities Portfolio Weighting (%) Structural Growth 97.5 Consumption 31.3 Internet 27.9 SOE Consolidators 11.5 Insurance 11.1 Environmental 7.3 Healthcare 7.0 Property 1.4 Reform + Recovery / Restructuring 10.7 Investment opportunities breakdown Reform + Recovery / Restructuring 9.9% ROE and EPS growth vs. MSCI China ROE (%) yr EPS growth (%) Structural Growth 90.1% 13 Portfolio Benchmark 0 Portfolio Benchmark *Gearing 8.2% Source: Factset, J.P. Morgan Asset Management; MSCI China NDR; as of 31 December 2016 Holdings, sector weights, allocations and leverage, as applicable are subject to change without notice. Past performance is not an indication of current and future performance. 19 INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

21 Relative to benchmark (%) Relative to benchmark (%) Overweighting New China : Consumer, healthcare, technology JPMorgan Chinese Investment Trust as of 31st December 2016 Active and absolute sector positions Benchmark MSCI China (NDR)* We added to consumer and IT Consumer Health Care Industrials Information Consumer Discretionary Technology Staples We trimmed from banks and added to insurance Utilities Materials Financials Banks Diversified Financials Insurance Energy Real Estate -6.2 Telecom Services -8.2 Cash Portfolio Weight (%) Country positions We added to China, including A-shares, funding from Hong Kong and Taiwan China A Shares B Shares China Others H Shares P Chip Red Chip Hong Kong Taiwan Cash *Prior to 01/02/16 the benchmark was MSCI Golden Dragon Index (NDR) Source: J.P. Morgan Asset Management. Individual figures may not add up exactly to the total due to rounding. Holdings, sector weights, allocations and leverage, as applicable are subject to change without notice. Past performance is not an indication of current and future performance. 20 INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

22 Appendix 21 INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

23 Portfolio positions JPMorgan Chinese Investment Trust as of 31 st December 2016 Benchmark MSCI China (NDR)* Top 10 holdings Fund weight (%) Top 5 overweights Fund weight (%) Relative position (%) Tencent 10.0 Alibaba Group 9.7 China Merchants Bank 7.4 Ping An Insurance 6.5 CNOOC 4.3 Bank of China 3.6 JD.com 3.2 Postal Savings Bank of China 2.6 AAC Technologies 2.5 Ctrip.com International 2.2 China Merchants Bank Ping An Insurance Postal Savings Bank of China CNOOC Taiwan Semiconductor Manufacturing Top 5 underweights Fund weight (%) Relative position (%) China Mobile China Construction Bank Industrial and Commercial Bank of China Tencent Holdings Baidu *Prior to 01/02/16 the benchmark was MSCI Golden Dragon Index (NDR) Source: J.P. Morgan Asset Management. The holdings represent the current holdings of the fund. However, it cannot be assumed that these types of investments will be available to or will be selected by the fund in the future. 22 INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

24 Portfolio characteristics JPMorgan Chinese Investment Trust as of 31 st December 2016 Benchmark MSCI China (NDR)* Portfolio Fund Benchmark Market capitalisation (USD) Number of Holdings % Fund Benchmark Month Forward Price to Earnings (x) % 40% Year Earnings Per Share Growth (%) % 30.7 Dividend Yield (%) % Return on Equity (%) Active Share (%) % 0% > 30 bn 10 bn - 30 bn 4 bn - 10 bn 1 bn - 4 bn < 1 bn *Prior to 01/02/16 the benchmark was MSCI Golden Dragon Index (NDR) Source: FactSet, J.P. Morgan Asset Management. The Fund is an actively managed portfolio, holdings, sector weights, allocations and leverage, as applicable are subject to change at the discretion of the Investment Manager without notice. 23 INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

25 Policy changes to the benchmark Past policy Policy changes Benchmark MSCI Golden Dragon MSCI China Country Constraints China A-shares: 20% max Active weight per country: +/- 25% relative to index China A-shares: 50% max Taiwan and Hong Kong (off-benchmark stocks): 30% max Gearing 15% max 20% max Number of Stocks Note: The benchmark change was effective 26 January 2016 and the corresponding policy changes stated above are included in the Chairman s Statement in the Annual report & Accounts for the year ended 30 th September 2016 for the JPMorgan Chinese Investment Trust. 24 INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

26 Index performance MSCI China style index performance (rebased December 2011 = 100) MSCI China A Growth MSCI China A Value MSCI China Growth MSCI China Value / / / / / /2016 Hang Seng China AH Premium Index /12 07/12 01/13 07/13 01/14 07/14 01/15 07/15 01/16 07/16 Source: Bloomberg. Data as of 31 December MSCI China indices in local currency. Hang Seng China AH Premium Index, in USD. The opinions and views expressed here are those held by the author at the date of publication which are subject to change and are not to be taken as or construed as investment advice. Past performance of an index needs to go back five years. In this case, you could also include the additiona information in the footnote. Indices do not include fees or operating expenses and are not available for actual investment. Past performance is not necessarily a reliable indicator for current and future performance. 25 INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS

27 J.P. Morgan Asset Management This is a promotional document 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 taxation agreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of the product(s) or underlying overseas investments. Both past performance and yield may not be a reliable guide to future performance. There is no guarantee that any forecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment product(s), there can be no assurance that those objectives will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co and its affiliates worldwide. You should note that if you contact J.P. Morgan Asset Management by telephone those lines may be recorded and monitored for legal, security and training purposes. You should also take note that information and data from communications with you will be collected, stored and processed by J.P. Morgan Asset Management in accordance with the EMEA Privacy Policy which can be accessed through the following website Investment is subject to documentation (Investment Trust Profiles, Key Features and Terms and Conditions), copies of which can be obtained free of charge from JPMorgan Asset Management Marketing Limited. Issued by JPMorgan Asset Management Marketing Limited which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No: Registered address: 25 Bank St, Canary Wharf, London E14 5JP. eca66790-e3d0-11e6-a58e c8a 26 INVESTMENT INVOLVES RISK. PLEASE REFER TO THE OFFERING DOCUMENT(S) FOR DETAILS, INCLUDING THE RISK FACTORS