The Rise of Asian Capital Markets JC de Swaan Renmin University June 10 th, 2009
Overview of Lectures 1. Introduction to Asian Capital Markets 2. China 3. India 4. Japan 5. Corporate Governance in Asia 6. Investments in Asia 7. Investment Case Study: Daphne 8. Prospects for Asian Capital Markets 1
AGENDA Asian Capital Markets in Context The Decoupling Debate An Inflection Point? 2
New Capital Raised by IPOs In US$ Billions 100.9 2002 2007 2008 76.6 50.0 31.7 26.9 8.1 13.4 13.3 3.5 4.7 14.1 23.7 17.5 9.5 5.2 5.0 0.0 0.7 NYSE/ Nasdaq London Euronext HK/ Shanghai/ Shenzhen India Nasdaq Dubai Note: India comprises Bombay SE and National Stock Exchange World Federation of Exchanges Members, Nasdaq Dubai 3
Share of Top IPOs Number of IPOs in top 20 2007 2008 HK/ Shanghai 5 4 Saudi 0 4 NYSE/ Nasdaq 2 3 London 1 0 Mumbai/ NSE 1 1 Dealogic, Thomson Financial, Ernst & Young 4
IPOs by Foreign Companies Percent of Total IPO Value 100% NYSE/Nasdaq London HK 80% 60% 40% 20% 0% 2002 2003 2004 2005 2006 McKinsey Global Institute, Dealogic 5
Net Capital Flows to Asia ex-japan Public and Private Capital Flows In USD Billions 145.6 164.8 127.9 Private flows Official flows 24.3-13.1 2.6 23.9 66.9 85.3 31.8-18.4-13.4-21.7-21.7-36.6-13.1 2001 2002 2003 2004 2005 2006 2007 2008 IMF 6
Net Private Capital Flows to Asia ex-japan Private Capital Flows Decomposed In USD Billions 70.7 44.6 15.2 11.2 222.6 Other FDI FII 21.4 31.7 53.5 52.4-50.7-60.2 10.3 10.2 70.6 64.7-13.9 100.5 94.3-5.3-10 -107.2 138.5-65.9-28.7 2001 2002 2003 2004 2005 2006 2007 2008 IMF 7
Global Financial Assets 1980-2007 In US$ trillions 196 CAGR = 10.9% 65 Equity securities 94 51 32 28 43 22 9 12 10 14 53 8 3 16 25 52 1980 1990 2000 2007 Private debt securities Govt debt securities Deposits McKinsey Global Institute 8
Contribution to Global Financial Assets Growth 1990-2007 In % 100% = $4.3T $8.8T $9.0T $20.4T Other developing markets 11.7 9.0 3.4 4.5 19.8 24.9 China 6.7 23.5 Developed markets 84.9 86.5 73.4 51.6 1990-95 1995-2000 2000-05 2007 Note: 1990-2005 data shows average for each 5-year period. McKinsey Global Institute 9
Capitalization of Global Capital Markets Equity Market Capitalization Other Asia UK Japan Euro US 11% 8% 8% 8% 16% 50% 20% 21% 6% 7% 15% 31% Bond Market Capitalization Other Asia UK Japan Euro 2001 2007 11% 12% 3% 4% 5% 6% 15% 11% 22% 29% US 45% 38% Federal Reserve Board, IMF 2001 2007 10
Capital Markets Penetration by Region 2006 Equity and private debt as % of GDP 301 266 196 152 107 95 US UK Eurozone Japan China India McKinsey Global Institute 11
Financial Assets by Region 2006 As % of total financial assets Equity securities Private debt Govt debt Bank deposits 35 38 23 30 5 32 10 36 25 8 17 11 55 18 29 27 45 33 2 19 17 17 36 31 US UK Eurozone China India Japan McKinsey Global Institute 12
Market Capitalization of Stock Markets 2008 Year-End In US$ Trillions 11.6 1.9 2.1 3.1 1.2 3.3 0.2 NYSE/ Nasdaq London Euronext HK/ Shanghai/ Shenzhen India Tokyo/ Osaka Nasdaq Dubai Note: India comprises Bombay SE and National Stock Exchange World Federation of Exchanges Members, Nasdaq Dubai 13
GDP Comparison 2008 GDP In $ Billions GDP per Capita In $ 14,265 46,859 38,559 30,755 4,924 4,402 216 1,210 3,315 1,016 US Japan HK China India US Japan HK China India Note: Based on market exchange rates. IMF 14
GDP Comparison on PPP Basis 2008 GDP In $ Billions GDP per Capita In $ 14,265 46,859 43,811 7,916 34,100 4,354 307 3,288 5,963 2,762 US Japan HK China India US Japan HK China India Note: On PPP basis IMF 15
AGENDA Asian Capital Markets in Context The Decoupling Debate An Inflection Point? 16
Asian Earnings Growth Forecasts Pre-Crisis 2009 EPS Growth Consensus Estimates In % As of August 29, 2008 Asia ex- Japan 13.1 China 21.5 HK 6.3 India 5.0 Goldman Sachs, FactSet, IBES, MSCI 17
Asian Earnings Growth Changes in Forecast 2009 EPS Growth Consensus Estimates In % As of August 29, 2008 Asia ex- Japan -3.0 13.1 As of June 5, 2009 China 21.5 5.0 HK 6.3-13.2 India 0.6 5.0 Goldman Sachs, FactSet, IBES, MSCI 18
China Monthly Trade Balance In $ Billions 45 40 35 30 25 20 15 10 5 0 2005 2006 2007 2008 2009 Bloomberg 19
Asia ex-japan and US Performance Since Peak S&P 500 and MXASJ Index 0% -10% S&P 500-20% -30% 10/07 11/07 12/07 1/08 2/08 3/08 4/08 5/08 6/08 7/08 8/08 9/08 10/08-40% -50% 11/08 12/08 1/09 2/09 3/09 4/09 5/09-60% -70% 20 Bloomberg MXASJ
China Aggregate New Lending In Rmb Billions 2,000 1,750 1,500 1,250 1,000 750 500 250 0 2006 2007 2008 2009 Bloomberg 21
Asia ex-japan Historical Performance MXASJ Index 800 700 600 500 400 300 200 100 0 Asian Financial Crisis SARS 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 Bloomberg 22
Net Equity Inflows to Selected Emerging Asia In US$ Billions 10 5 0-5 -10-15 -20 2000 2001 2002 2003 2004 2005 2006 2007 2008 Note: Includes South Korea, India, Taiwan, and India Bloomberg 23
Major Index Performance 2007-2009 YTD 2007 2008 96.6% 2009 YTD 39.3% 30.6% 54.7% 54.7% 57.7% 3.5% 4.3% 3.8% 0.9% -38.5% -31.3% -48.2% -65.4% -51.8% S&P 500 FTSE 100 Hang Seng Shanghai Composite NSE Nifty Note: 2009 YTD as of June 10 th Bloomberg 24
Asian Corporate Bond Spreads Credit Suisse Asian Corporate Bond Index Spread in bps over US Treasuries 1200 800 400 0 Bloomberg 1/07 3/07 5/07 7/07 9/07 11/07 1/08 3/08 5/08 7/08 9/08 11/08 1/09 3/09 5/09 25
1/09 7/08 1/08 7/07 1/07 7/06 Hong Kong Small Caps HK GEM Index 2000 1600 1200 800 400 0 1/03 7/03 1/04 7/04 1/05 7/05 1/06 Bloomberg Down 63% from peak 26
Asia ex-japan Valuation MXASJ Trailing PE 30 25 20 15 15.0x 10 5 5.6x 8.6x Hit 7.3x on October 24 th 0 95 97 99 01 03 05 07 09 Note: Adjusted for positive earnings Bloomberg 27
Asia ex-japan Valuation MXASJ Forward PE 20 18 16 14 12 10 8 6 4 2 0 7.9x 1/06 7/06 1/07 7/07 1/08 7/08 12/08 16.2x Note: Adjusted for positive earnings Bloomberg 28
Asia ex-japan Valuation Adjusted MXASJ PB 3.0 2.9x 2.5 2.0 1.5 1.8x 1.0 0.5 0.9x 1.0x 0.0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 Bloomberg 29
AGENDA Asian Capital Markets in Context The Decoupling Debate An Inflection Point? 30
Major China Themes to be Discussed Decoupling Real economies Markets Institutional development of capital markets New products and markets Rmb convertibility and dismantlement of capital controls Greater opening up of capital markets to foreign investors Shift in geoeconomic standing Acceleration of pre-existing trends More assertive voice 31