SMSF Investment Seminar Sydney. 18 Oct 2010

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2 SMSF Investment Seminar Sydney 18 Oct 2010

3 Important Notice This document has been prepared by Asian Masters Fund Limited (Asian Masters Fund). The material that follows is a presentation of general background information about the activities of Asian Masters Fund current as at the date of the presentation. It is information given in summary form and does not purport to be complete. This presentation is not an offer or invitation for subscription or purchase of or a recommendation of securities or other financial products. It is not intended as investment or financial advice and may not be relied upon as such. You should obtain independent professional advice and conduct your own investigation and analysis prior to making any decision. Due care and attention has been used in the preparation of forecast information. Any forecast or future looking statement contained in this presentation may involve significant elements of subjective judgment and assumptions as to future events which may or may not be correct. Past performance is not a reliable indication of future performance. The information in this presentation remains subject to change without notice. Circumstances may change and the contents of this presentation may be outdated as a result.

4 Agenda Chairman s Address Investment Update Ordinary Business 3

5 Relative performance (1 year) 30 June 2009 to 30 June % 15.38% 16.48% AUF MSCI Asia Ex Japan AUD MSCI Asia Ex Japan USD Underperformance of 1.1% in FY

6 Relative performance (Since IPO) 4 December 2007 to 30 June % 19.63% 22.10% AUF MSCI Asia Ex Japan AUD MSCI Asia Ex Japan USD Outperformance of 26.2% since listing on 4 Dec

7 Highlights Orient Pacific Partners steps down as investment manager of AUF to pursue other projects. Dixon Advisory appointed as investment manager of AUF at a General Meeting on 4 December Independent director Kevin Chin stepped down on 29 January John Holland appointed to the board as an independent director on 20 July

8 Highlights AUF undertook four placements in FY2010 raising over $17 million. Subsequent to the end of FY2010 AUF has undertaken two placements raising $5.5 million Share buy-back program opened on 23 June 2010 and suspended on 29 July 2010 with no shares bought back. 7

9 Highlights Asian Masters Fund paid its maiden dividend of 1 cent per share, fully franked, on 10 June 2010 A second fully franked dividend of 1.5 cents per share has been declared on 23 September 2010 Investment mandate broadened to allow AUF to access a wider range of investment strategies. 8

10 Agenda Chairman s Address Investment Update Ordinary Business 9

11 Our economic growth is now more linked with China s then with the US Rolling correlation of real quarterly GDP growth, 10 year window Correlation Source: RBA China s growth is key for Australia s continued prosperity 10

12 Australia s growth outpaced the developed world Real GDP per Capita (March Quarter 1998 = 100) Source: RBA Australia has emerged from the GFC in strong shape 11

13 Income has grown faster than productivity Productivity and Income (March 1990 = 100) Source: RBA Productivity looms as a problem 12

14 Terms of Trade are at historic highs Terms of Trade (2007/08 = 100) Source: RBA Surge in prices of Australia s exports has delivered a once in a generation windfall 13

15 Australia export destination has changed Share of total exports at current prices Source: RBA China s surge coincided with Japan s lost decade perfect timing for Australia 14

16 And Australia s export composition has changed Share of total exports at current prices Source: RBA Australia is increasingly reliant on exports of Coal and Iron ore to Asia 15

17 Australian Dollar strong but vulnerable? AUD / USD from 31/12/1998 to present Source: Bloomberg When the AUD is high domestic investors should look to international assets 16

18 Equity markets are still recovering Source: IMF Currency is a major factor affecting returns MSCI Asia Ex Japan USD MSCI World USD MSCI Asian Ex Japan AUD MSCI World AUD

19 But not all recoveries are the same Industrial Production Trade Volumes Asia 110 Asia Latin America US Japan Europe World Source: IMF Asia has led the world out of recession 18

20 Resulting in Asia being at the forefront of stimulus removal Monetary authorities increase interest rates and take measures to drain liquidity from the banking system: Peoples Bank of China raises reserve requirement ratio three times in 2010 Reserve Bank of India increases repo and reverse repo rates four times to 5.5% and 5.75% respectively Bank Negara Malaysia raised overnight policy rate three times to 2.75% Bank of Thailand tightened its benchmark rate for the first time in two years to 1.5% Bank of Korea raised seven day repo rate once to 2.25% China & HK authorities take steps to cool their property markets But interest rates are still low relative to history 19

21 Asian Governments have the firepower to spend Fiscal balance as a percentage of GDP 4% 2% 0% Asia 2% 4% 6% Developed 8% 10% Source: UBS Should a double-dip occur, Asian governments have the means to re-stimulate 20

22 There is upward pressure on Asian currencies Chinese Renminbi vs US Dollar Dec-04 to present Major currencies vs US Dollar Dec-08 to present AUD KRW SGD INR CNY EUR Source: Bloomberg Will the resumption in Chinese Renminbi appreciation continue? 21

23 Developed and Emerging world snapshot Share of total population, land mass, FX reserves, GDP, exports and market cap Population Land mass Emerging Developed Foreign exchange reserves GDP at PPP Exports GDP at market rates Market cap (full market) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: IMF The market cap of emerging countries is still to catch up with their share of inputs 22

24 The world as it is now The largest economies in ,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Source: IMF US & Europe dominate but China moves into second place 23 United States China Japan Germany France UK Italy Brazil Canada Russia Spain India Australia Mexico Korea Netherlands Turkey Indonesia Switzerland Poland Belgium Sweden

25 A new world in the making What the largest economies could be in ,000 50,000 40,000 30,000 20,000 10,000 0 The above forecast is indicative only Source: Goldman Sachs, China & India rise, Europe replaced by Emerging markets 24 China United States India Japan Brazil Mexico Russia Germany UK France Indonesia Nigeria Korea Italy Canada Vietnam Turkey Philippines Egypt Pakistan Iran Bangladesh

26 Asia s population is relatively young Age structure of population 80% 70% 60% Below 15 yrs Between 15 and 64 yrs Above 64 yrs 50% 40% 30% 20% 10% 0% India Indonesia China Australia Source: IMF Rising affluence among a young population is a strong driver of consumption growth 25

27 Increasing urbanisation from a low base Growth in urban population between Million People China Africa India Latin America North America World North America Latin America Europe Oceania China Africa Urbanisation Level % 81% 77% 72% 71% 43% 38% % 83% 81% 74% 72% 52% 43% Europe Oceania India 29% 32% Source: UN, CEIC Another 90 million Chinese people will move to cities by

28 Untapped potential from high savings rate Savings rate across countries China India Household Corporate Government Taiwan Germany France United States 0% 10% 20% 30% 40% 50% 60% Source: IMF Asian governments are beginning to provide safety nets to encourage spending of savings 27

29 Unleashing Consumption: China s social security reforms Increasing minimum wages across cities by 15% in 2010 RMB 63.2 billion investment in public housing New Rural pension scheme Compulsory health insurance Drug price controls 28

30 Economic prospects remain uneven between regions Projected Real GDP Growth during Source: IMF Big contrast between Developed and Emerging economies 29

31 Asia is advancing with resilience Asia entered the GFC on a strong footing and continues to lead recovery Projected Real GDP Growth during Handoff from public to private sector driven growth is well underway Region is projected to grow by 7.9% in 2010 and 6.7% in 2011 Source: IMF Strong growth relative to the rest of the world leads to capital inflows 30

32 Asia is experiencing a revival in capital inflows Total Capital Inflows to Emerging Asia as a percentage of GDP Total inflows in the last four quarters were quadruple 2008 level Capital Inflows still small compared to current account surplus Authorities are trying to discourage speculative inflows Source: IMF Capital Inflows are coming under increasing control whilst outflows are being liberalised 31

33 Investing in Asia adds diversification to a shares portfolio Sector make-up of MSCI Asia Ex Japan and ASX 200 (as a % at 31 Aug 2010) Utilities exposure Utilities, 3.91% Consumer Staples, 5.18% Health Care, 0.74% Utilities, 1.39% Health Care, 3.55% Consumer Staples, 9.41% Consumer Discretionary, 8.14% Telecommunication Services, 6.84% Telecommunication Services, 3.41% Materials, 7.90% Energy, 7.81% Industrials, 10.42% Increased and diversified Telcos exposure Consumer Discretionary, 3.99% Materials, 25.37% Australian market is dominated by Materials Energy, 7.05% Information Technology, 17.32% Information Technology, 0.60% Industrials, 6.38% Financials, 31.74% Much more exposure to IT companies Financials, 38.85% and Financials Asia Ex Japan Australia Asia also provides investors with at least 13 more countries to invest in 32

34 Asia Ex-Japan long term outperformance Global markets performance 31 Dec 2002 to 23 September Source: Bloomberg 33 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 MSCI Asia Ex Japan MSCI World S&P 500 ASX 200

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