Greater China. David Raper, Baijing Yu Pavillon Cambon, Paris. For Professional Investors only

Transcription

1 Greater China David Raper, Baijing Yu Pavillon Cambon, Paris For Professional Investors only

2 2 WHY BE EXCITED BY CHINA? REFORM It s the fundamental reason to invest in any emerging market over the long term: there is a possibility that an emerging market moves towards being a developed market

3 3 EMERGING MARKET ECONOMICS: GOVERNMENT POLICY The job of the government in any emerging economy is to build the infrastructure for economic development. Both types of infrastructure: Hard infrastructure (easy in a command economy) Soft infrastructure (hard in a command economy)

4 EMERGING MARKET ECONOMICS: GOVERNMENT POLICY and then step back and allow the population to get on with "prospering" State-owned entreprises vs. Private industrial companies (profit share, %) (Share, %) SOE PVT Source: CLSA, CEIC

5 5 SOFT INFRASTRUCTURE REFORM Reform means: Change / Progress / Development More than just political or legal, it encompasses social development and takes a very long time

6 6 HUKOU REFORM: BASICS Implemented in 1958, it divided the population into rural and urban, with different benefits and systems applied to each. Migrant workers in the coastal cities have very limited rights. The system has been progressively relaxed, allowing urban migration, but in 2014 we ve finally seen a plan for a major overhaul announced.

7 7 HUKOU REFORM: EFFECTS (%) Urban population/total population Urban hukou/total population Source: NBS, BNP Paribas

8 8 HUKOU REFORM: BENEFICIARIES Growth in China s middle class Largest mass-market jewellery brand Best-known personal hygiene paper-product brand China s largest dairy brand China s best residential air-con brand Two national insurance incumbents Best-known Chinese white liquor brand Largest auto group in China Best-known instant noodle and beverage brand in China The material presented in this document is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The contents of this document should not be treated as advice in relation to any potential investment.

9 9 HEALTHCARE REFORM: BASICS China healthcare Like in many emerging economies the healthcare systems of China are underdeveloped. The population is demanding improved services which the system isn t able to meet. The hospital and pharma system is seeing the early signs of massive investment to improve the quality of care. Source: Google Public Data

10 HEALTHCARE REFORM: EFFECTS 10

11 11 HEALTHCARE REFORM: BENEFICIARIES Quality Chinese healthcare names Private: Wuxi Pharmatech (in CNY, base 100 = 28/10/2011) Oct-07 Dec-08 Feb-10 Apr-11 Jun-12 Aug-13 Oct-14 Allowing private companies to provide services and products that the large SOEs simply aren t structured to do, without unfair competition Price EPS Next 12 months Source: Bloomberg 28/10/2014 Past performance is no guarantee of future results. The material presented in this document is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The contents of this document should not be treated as advice in relation to any potential investment.

12 12 INFORMATION REFORM: BASICS Controlling a large population means controlling the information flow, historically it has meant almost complete control of the written and spoken word. Signs of reform are everywhere, in the Chinese internet giants with their messaging, online video, gaming, etc. Censorship becomes harder by the day!

13 13 INFORMATION REFORM: EFFECTS Source: Chinese Social Media Prism inspired by Brian Solis and JESS3, 2008

14 14 INFORMATION REFORM: BENEFICIARIES #1 IT companies directly The dominant digital search player in China, the franchise has broadened into general digital ads The dominant social media player, broadening into every aspects of users lives The global example of the power of e-commerce, Taobao and T-Mall dominate the e-commerce landscape in China The material presented in this document is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The contents of this document should not be treated as advice in relation to any potential investment.

15 15 INFORMATION REFORM: BENEFICIARIES #2 Systems that allow data networks The major chip manufacturer for today s mobile devices and tomorrow s Internet of Things The designer of the most popular low-cost chips that power most of China s mobile internet access devices The dominant mobile player with what is fast becoming the world s greatest data network An absolutely and relatively cheaper way to gain exposure to the same underlying trends. The trade off is that they aren t growing as fast, but the business models are strong and the moats remain very high. The material presented in this document is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The contents of this document should not be treated as advice in relation to any potential investment.

16 16 AGRICULTURE INSURANCE REFORM: BASICS The majority of the population still lives in rural areas. A major problem for emerging market farmers is the volatility of incomes, not only the level of income. Volatility makes agricultural investment difficult. Since 2007 there has been a new scheme which has grown considerably, allowing a minimum guaranteed return for farmers without dictating production or price

17 AGRICULTURE INSURANCE REFORM: EFFECTS 17

18 AGRICULTURE INSURANCE REFORM: BENEFICIARIES 18

19 19 SOE REFORM: BASICS A history of a command economy still clearly marks the Chinese corporate landscape, State Owned Enterprises still make up +80% of the stock market today. From July 2014 the government is pushing through mixed ownership systems, which amount to partial privatisation.

20 20 SOE REFORM: EFFECTS Return on assets of Chinese industrial firms, % Source: Gavekal Dragonomics

21 CHINA LIFE & WUXI PHARMA: Reform beneficiaries but not dependent Reform helps different portions of the market differently 21 SOEs: China Life (in CNY) Private: Wuxi Pharmatech (in CNY, base 100 = 28/10/2011) % CAGR H14 Embedded Value Market Cap Where an SOE has an inherent advantage being allowed to focus on shareholder returns is a clear positive. 0 Oct-07 Dec-08 Feb-10 Apr-11 Jun-12 Aug-13 Oct-14 Price EPS Next 12 months Allowing private companies to provide services and products that the large SOEs simply aren t structured to do, without unfair competition. Source: HSBC (left) / Bloomberg (right) 28/10/2014 Past performance is no guarantee of future results. The material presented in this document is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The contents of this document should not be treated as advice in relation to any potential investment.

22 22 FINANCIAL MARKET REFORM: BASICS Control has been the name of the game in China, control of the factors of production, most notably capital. If you control the capital and you control the companies then you can direct the economy. The best antiseptic is a more open financial market. The opening up of the Shanghai Hong Kong stock connect allows significant foreign access.

23 23 FINANCIAL MARKET REFORM: EFFECTS Interest-rate liberalisation Capital account opening Capital market Banking sector

24 24 FINANCIAL MARKET REFORM: BENEFICIARIES Comgest s portfolio Best-known Chinese white liquor brand China s largest dairy brand China s best residential air-con maker and brand Largest auto group in China The world s largest freight railway The material presented in this document is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The contents of this document should not be treated as advice in relation to any potential investment.

25 25 COMGEST GROWTH GREATER CHINA Performance* (net, in EUR) Cumulative performance since inception (%) % change Dec 2001 Dec 2003 Dec 2005 Dec 2007 Dec 2009 Dec 2011 Dec 2013 Fund MSCI Golden Dragon - NR Rolling performance (%) QTD YTD 1 Year 3 Years annualised 5 Years annualised 10 Years annualised Inception annualised Portfolio Index *Net performance in EUR as of 31/10/2014. Source: FactSet/Comgest Past performance is no guarantee of future results. Indices are used for comparison of past performance only. Performance calculation based on NAV to NAV variation expressed in euros Morningstar, Inc. All rights reserved. Ratings and awards mentioned in this document can change at any time and do not constitute a buy recommendation.

26 26 CONCLUSION Chinese government reform appears to be real, and structural For long-term investors this is very interesting to see as it allows real development For non-index aware investors we should avoid the negative impact and focus on the positive trends

27 27 IMPORTANT INFORMATION This document has been prepared for professional investors only and may only be used by these investors. This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The contents of this document should not be treated as advice in relation to any potential investment. The securities discussed herein may not be held in the portfolio at the time you receive this presentation. Performance figures are provided net of all fees unless otherwise stated and are calculated on a time-weighted, total return basis. Funds which specialise in a particular region or market sector may entail higher risks than those which hold a very broad spread of investments. Past investment results are not necessarily indicative of future investment results. The value of all investments and the income derived therefrom can decrease as well as increase. This may be partly due to exchange rate fluctuations in investments that have an exposure to currencies other than the base currency of the Fund. Reference to market indices or other measures of relative market performance over a specified period of time are provided for your information only. Reference to an index does not imply that the portfolio will achieve returns, volatility or other results similar to the index. The composition of the index will not reflect the manner in which a portfolio is constructed. The information and any opinions have been obtained from or are based on information from sources believed to be reliable, but accuracy can not be guaranteed. No liability is accepted by Comgest in relation to the accuracy or completeness of the information contained in this document. The information in this document is not comprehensive and is presented for informational purposes only. All opinions and estimates constitute our judgment as of the date of this presentation and are subject to change without notice. Comgest does not provide tax or legal advice to its clients and all investors are strongly urged to consult their own tax or legal advisors concerning any potential investment. Before making any investment decision, investors are advised to check the investment horizon and category of the Fund in relation to any objectives or constraints they may have. Investors must read the latest Fund prospectus and the Key Investor Information Document ( KIID ), available at our offices and on our website Investors shall undertake to respect the legal, regulatory and deontological measures relative to the fight against money laundering, as well as the texts that govern their application, and if modified investors shall ensure compliance with the applicable texts. This material is in no case an offer for people living in a specific jurisdiction which does not authorize the distribution of the Funds mentioned herein. The investment professionals listed in this document are employed either by Comgest S.A., Comgest Asset Management International Limited, Comgest Far East Limited, Nippon Comgest Inc, Comgest Singapore Pte. Ltd. Comgest S.A. is regulated by the Autorité des Marchés Financiers (AMF). Comgest Far East Limited is regulated by the Hong Kong Securities and Futures Commission. Comgest Asset Management International Limited is regulated by the Central Bank of Ireland. Nippon Comgest Inc. is regulated by the Financial Service Agency of Japan (registered with Kanto Local Finance Bureau (No. Kinsho 1696)). Comgest Singapore Pte Ltd, created 18 August 2010, is a Licensed Fund Management Company & Exempt Financial Advisor (for Institutional and Accredited Investors) regulated by the Monetary Authority of Singapore.