Deutsche Asset & Wealth Management Marketing Material www.chinaetf.co.uk 1st quarter 2014 Your gateway to China A-Shares db x-trackers Harvest CSI300 Index UCITS ETF (DR)
Contents 3 db x-trackers Harvest CSI300 Index UCITS ETF (DR): the first physical CSI300 China A-Shares ETF in Europe 4 Your gateway to China A-Shares: db x-trackers Harvest CSI300 Index UCITS ETF (DR) 5 Why China? Investing in one of the world s fastest-growing economies 6 The potential trajectory of A-Shares 7 Why ETFs for access to China A-Shares? 8 Activating passive investing with Deutsche Asset & Wealth Management 9 Important risk information 11 Disclaimer 2 Contents
db x-trackers Harvest CSI300 Index UCITS ETF (DR): the first physical CSI300 China A-Shares ETF in Europe The Chinese domestic equity market is one of the largest in the world by total market capitalization. 1 However, China remains underrepresented among global investors portfolios, primarily due to foreign investment restrictions. 2 Under current regulations, foreign investors can access Chinese stocks in just a few ways: China B-Shares, H-Shares, Red Chips and P-Chips (which are quoted in foreign currencies) and China A-Shares (which are quoted in Chinese Renminbi). Because China A-Shares provide direct access to a wide array of Chinese equities quoted in local currency, they are in high demand. However, China A-Shares are generally only available for purchase by mainland citizens; foreign investment is only allowed through tightly regulated structures known as the Qualified Foreign Institutional Investor (QFII) and the Renminbi Qualified Foreign Institutional Investor (RQFII) systems. Thanks to the general positive development of China s economy, plus the dramatic expansion of both QFII and RQFII, the Chinese A-Shares market has experienced tremendous growth in recent years. 3 Recognizing the need for reform, China began working to allow more direct foreign investment in China A-Shares, and now there s a vehicle that makes that investment possible. db x-trackers Harvest CSI300 Index UCITS ETF (DR), an exchange-traded fund (ETF) that consists of some of the largest and most-liquid stocks in the world s second-largest economy. 4 China A-Shares access to companies largely unavailable to international investors $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 3,000 2,500 2,000 1,500 1,000 500 0 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Total market capitalisation Number of listed companies Source: CEIC data and World Bank as of December 2012. 1 Source: World Federation of Exchanges as of May 2013. 2 Source: Deutsche Bank as of June 2013 and CFA Institute as of August 2013. 3 Source: Deutsche Bank as of June 2013. 4 Source: CIA World Factbook as of 2012. db x-trackers Harvest CSI300 Index UCITS ETF (DR) 3
Your gateway to China A-Shares: db x-trackers Harvest CSI300 Index UCITS ETF (DR) With db x-trackers Harvest CSI300 Index UCITS ETF (DR) you can access some of the largest and most-liquid stocks in the world s second-largest economy. 5 The ETF uses a passive investment approach to seek investment results that correspond generally to the performance, before fees or expenses, of the CSI300 Index. A broader opportunity set. Many sectors and companies are only available via China A-Shares, meaning the ability to invest in China A-Shares opens up a broader opportunity set. Low historical correlation. The Chinese market historically has displayed relatively low correlation with other major markets, especially those in the United States and Europe. 6 This is an attractive attribute for investors who seek to more effectively diversify their portfolios. Enhanced return potential. As discussed on the following pages, the China A-Shares market also offers the potential for enhanced return, given its low price-to-earnings (P/E) ratio and potential for growth. Well-known companies. The CSI300 Index is composed of the 300 largest and most-liquid stocks in the China A-share market, which trade on the Shanghai Stock Exchange and the Shenzhen Stock Exchange. Room for growth: foreign ownership as a percentage of domestic market 60% 50% 40% 51.2% 30% 20% 10% 0% 1.5% 11.4% 13.6% 14.0% 17.1% 22.8% 24.1% 28.0% 30.5% 30.6% 40.1% China China (excluding (including securities securities listed listed overseas) overseas) United States Russia India Japan Taiwan Mexico Brazil Korea United Kingdom Germany Source: Deutsche Bank, International Monetary Fund, World Bank, Bank for International Settlements, CEIC Data, WIND and Haver Analytics as of 2012. 5 Source: CIA World Factbook as of 2012. 6 Source: Empirical Evidence of Co-Movements Between China and Global Stock Markets as of October 2012. 4 Your gateway to China A-Shares
Why China? Investing in one of the world s fastest-growing economies With gross domestic product (GDP) of approximately $8 trillion, China is one of the world s fastest-growing major economies, where growth rates averaged 9% over the past 30 years. 7, 8 Moreover, a number of factors could support the economy in the long term. China is still catching up with other advanced economies. China s per-capita GDP was $5,450 in 2011, which is half the world s average of $10,040 and one-seventh of the Organisation for Economic Cooperation and Development s (OECD s) average of $36,994. 9 Given that China s per-capita GDP is so low relative to other advanced economies, China s economic momentum could remain rapid for the foreseeable future. Structural factors such as growth in consumption and urbanization could support the economy in the long term. Consumption accounts for only half of China s GDP, which is low relative to its emergingmarket neighbors in Asia but given the country s high personal-income growth, consumption is likely to expand. 10 Additionally, China s 52.7% urbanization ratio hints at 20% to 25% upward potential, while research suggests that a onepercentage-point increase could occur each year for the next 20 years meaning that each year, tens of millions of workers will enter cities, demanding infrastructure and services and driving economic growth. 10 The Chinese equity market has significant upside potential. The Chinese A-Share market currently trades at 9.1 times its forward P/E ratio, which is 25% below the average of 44 other countries included in the MSCI Emerging Market Index and MSCI Developed Market Index. 11 Comparison of nominal per-capita GDP $40,000 $35,000 $30,000 $36,994 $25,000 $20,000 $15,000 $10,000 $5,000 $10,040 $0 $5,450 China World average OECD Source: Deutsche Bank as of 2011. 7 Source: CIA World Factbook as of 2012. 8 Source: National Bureau of Statistics of China as of 2012. 9 Source: Deutsche Bank as of 2011. 10 Source: Deutsche Bank and World Development Indicators as of 2011. 11 Source: Deutsche Bank as of 2012. Why China 5
The potential trajectory of A-Shares While the Chinese equity market is the world s third largest by total market capitalization (at the end of 2012) the total value of China A-Shares held by foreign 12, 13 investors was 1.5% of total market capitalization. As a result, many global benchmarks currently include relatively few Chinese equities but that could change. In June of 2013 MSCI announced that it was considering the addition of A-Shares to its most tracked global benchmarks, such as the MSCI Emerging Markets Index and MSCI All Country World Index. That followed FTSE s announcement that it was kicking off the process of preparing for China A-Shares to join the FTSE global equity indices. If MSCI decides to include China A-Shares then the first change could be implemented as early as May 2015 and it s a change that would be a milestone in the world of equity indices and the ETFs that track them. Assuming full inclusion of China A-Shares, for example, China s weight in the MSCI Emerging Markets Index could increase from its current 18% to almost 30%, and its weight in the MSCI All Country World Index could increase from its current 2.4% to 4.2%. 12 Based on the estimated assets benchmarked to major global indices (assuming these assets will be allocated according to the country weight in the indices), China could witness inflows of more than $180 billion as a result of this change. In addition to driving up share prices, these inflows would likely improve market liquidity and stability, which could potentially attract $500 billion to $1.5 trillion of inflows in the medium to long term. 12 China s potential representation in the MSCI Emerging Markets Index Market capitalisation (in billions) $6,000 $5,000 China now China future $4,000 $3,000 $2,000 India Brazil $1,000 Russia Korea $0 Thailand Mexico Malaysia South Africa Taiwan 0% 5% 10% 15% MSCI EM Index weight 20% 25% 30% 35% Source: Deutsche Bank, World Development Indicators and MSCI as of December 2012. The countries in this universe include all current MSCI Emerging Markets Index constituents: Brazil, China, Chile, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and Turkey. 12 Source: Deutsche Bank as of June 2013. 13 Source: Deutsche Bank, International Monetary Fund, World Bank, Bank for International Settlements, CEIC Data, WIND and Haver Analytics as of 2012. 6 The potential trajectory of A-Shares
Why ETFs for access to China A-Shares? ETFs are investment funds that trade on a stock exchange, much like a stock. They are called passive products because they typically seek to match the performance of an index and are not actively managed by an investment team. Due to their passive nature, ETFs are among the most cost-effective investment tools available for equity investors, a factor which has driven the growth of the market. Since the first ETF was launched in 1989, the global market has grown to $1.7 trillion. Growth of assets in global ETFs (2003 2012, in billions) $1,800 $1,600 $1,683.7 $1,400 $1,200 $1,261.8 $1,300.1 $1,000 $800 $998.4 $600 $769.1 $689.8 $400 $549.0 $200 $0 $198.1 $274.4 $384.1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Deutsche Bank, Bloomberg Finance LP, Reuters as of 31.12.2013. Definitions Correlation is a measure of how closely two variables move together over time. A 1.0 equals perfect correlation. A 1.0 equals total negative correlation. An exchange-traded product, such as an exchangetraded fund, is a security that tracks an index or asset like an index fund, but trades like a stock on an exchange. Gross domestic product (GDP) is the value of all goods and services produced by a country s economy. The MSCI All Country (AC) World Index tracks the performance of 23 developed and 23 emerging markets. The MSCI Developed Markets Index tracks the performance of stocks in select developed markets. The MSCI Emerging Markets Index tracks the performance of stocks in select emerging markets. Price-to-earnings ratio (P/E) compares a company s current share price to its per-share earnings. Red chips are the stocks of mainland China companies incorporated outside mainland China and listed in Hong Kong. The CSI300 Index is composed of the 300 largest and most-liquid stocks in the China A-share market, which trade on the Shanghai Stock Exchange and the Shenzhen Stock Exchange. Urbanization rate describes the projected average rate of change of the size of the urban population over the given period of time. Valuation is a strategy that seeks to generate returns by capturing the fair-value differential between currencies. The valuation methodology is based on the view that currencies tend to move towards their fair value over time. Why ETFs for access to China A-Shares? 7
Activating passive investing with Deutsche Asset & Wealth Management About Deutsche Asset & Wealth Management With around EUR 950 billion of invested assets, Deutsche Asset & Wealth Management is one of the world s leading asset managers. The ETF platform db X-trackers, which was launched in 2007 is, alongside actively managed products and private wealth management, one of the core business areas. As a result, Deutsche Asset & Wealth Management offers its clients the broadest range of index funds in Europe (exchange-traded funds, or ETFs) in terms of the number of products on offer (Source: DB-ETF Research). Deutsche Asset & Wealth Managements ETFs have currently over EUR 38 billion in assets under management, making it the second largest ETF provider in Europe and one of the top five providers worldwide (source: Deutsche Bank, as of March 2013). With a portfolio of more than 230 products, db X-trackers ETFs offer investors access to global markets, covering all major asset classes worldwide. db X-trackers ETFs are listed on ten different stock exchanges in Europe, Asia and the US. About Harvest Group Deutsche Bank Group and Harvest Group have benefited from a successful Chinese foreign asset-management joint venture that was jointly established in 2005. Today, the continued strategic partnership between Deutsche Asset & Wealth Management and sub-advisor Harvest Global Investments Limited provides investors with unique access to the expansive Chinese economy and stock market. The relationship between our two organizations allows us to successfully leverage the strength of each respective firm. Harvest Global Investments Limited was amongst the first few Chinese asset managers in Hong Kong to obtain Renminbi Qualified Foreign Institutional Investor (RQFII) status in China, and has successfully launched four RQFII products, including two RQFII ETFs. Harvest Global Investments Limited is a wholly owned subsidiary of Harvest Fund Management, China s second largest asset manager by assets. Harvest Group, which has managed China A-share passive strategies since 2005, managed 18 index funds, including seven exchange-traded funds (ETFs) with total asset under management in excess of $10 billion as of June 2013. Harvest Group s extensive resources and networks within China provide it with first-hand information, enabling it to respond quickly to changing market conditions. 8 Activating passive investing
Important risk information An investment in the db x-trackers CSI300 UCITS ETF (DR) will not match the performance of the CSI300 Index due to the impact of management fees and potential taxes. For further information on these management fees and any potential taxes please refer to the prospectus. Not all db X-trackers ETFs are suitable for all investors. Investors should note that the db X-trackers ETFs are not capital protected or guaranteed and investors in each db X-trackers ETF should be prepared and able to sustain losses up to the total capital invested. The value of an investment in a db X-trackers ETF may go down as well as up and past performance is not a reliable indicator of future results. For further information regarding risk factors, please refer to the risk factors section of the prospectus and/or the Key Investor Information Document. db X-trackers UCITS ETF s risk factors Investments risk relating to db X-trackers UCITS ETFs. Investors should note that the db X-trackers UCITS ETFs are not capital protected or guaranteed and investors in each db X-trackers UCITS ETF should be prepared and able to sustain losses of the capital invested up to a total loss. Investment in db X-trackers UCITS ETFs involve numerous risks including among others, general market risks relating to the relevant index, exchange rate risks, interest rate risks, inflationary risks, liquidity risks and legal and regulatory risks. Not all db X-trackers UCITS ETFs may be suitable for all investors so please consult your financial advisor before you invest in a db X-trackers UCITS ETF The db X-trackers UCITS ETFs with an indirect investment policy are mainly synthetically replicated and use Deutsche Bank AG as the counterparty for OTC derivative transactions. In the event of a default under the terms of the OTC derivative transaction by Deutsche Bank AG, the db X-trackers UCITS ETFs would be liquidated and investors could lose up to 10% of the NAV of the ETFs. The NAV at the time of default also may be considerably less than the amount an investor originally invested depending on the performance of the relevant underlying index. You should therefore understand and evaluate the counterparty credit risk prior to making any investment. The value of an investment in a db X-trackers UCITS ETF may go down as well as up and past performance is not a guide to the future. An investment in a db X-trackers UCITS ETFs is dependent on the performance of the underlying index less costs, but an investment is not expected to match that performance precisely. There may be a tracking difference between the performance of the db X-trackers UCITS ETFs and the underlying index e.g. due to the impact of annual fund management fees among other things. The returns on the db X-trackers UCITS ETFs may not be directly comparable to the returns achieved by direct investment in the underlying assets of the db X-trackers UCITS ETFs or the underlying index. Investors income is not fixed and may fluctuate. db X-trackers UCITS ETFs may be unable to replicate precisely the performance of an index. The value of any investment involving exposure to foreign currencies can be affected by exchange rate movements. db X-trackers UCITS ETFs shares may be denominated in a currency different to that of the traded currency on the stock exchange in which case exchange rate fluctuations may have a negative effect on the returns of the fund. Tax treatment of the db X-trackers UCITS ETFs depends on the individual circumstances of each investor. The levels and bases of, and any applicable relief from, taxation can change. db X-trackers may trade in limited markets. Important risk information 9
Shares purchased on the secondary market cannot usually be sold directly back to the UCITS ETFs. Investors must buy and sell shares on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. In addition, investors may pay more than the current net asset value when buying shares and may receive less than the current net asset value when selling them. Full disclosure on the composition of the Fund s portfolio and information on the Index constituents, as well as the indicative Net Asset Value, is available free of charge at www.etf.db.com For further information regarding risk factors, please refer to the risk factors section of the prospectus, or the Key Investor Information Document. Investors should be aware that Deutsche Bank or its affiliates ( DB Affiliates ) may from time to time own interests in any db x-trackers UCITS ETF which may represent a significant amount or proportion of the overall holdings in the relevant db x-trackers UCITS ETF. Investors should consider what possible impact such holdings, or any disposal thereof, by DB affiliates may have on them. 10 Important risk information
Disclaimer Deutsche Bank AG 2013. Stand: 16.01.2014 This document is intended for discussion purposes only and does not create any legally binding obligations on the part of Deutsche Bank AG and/or its affiliates ( DB ). Without limitation, this document does not constitute an offer, an invitation to offer or a recommendation to enter into any transaction. When making an investment decision, you should rely solely on the final documentation relating to the transaction (including most recent Key Investor Information Document which is available in English and certain other languages at the following website: www.dbxtrackers.com ) and not the summary contained herein. DB is not acting as your financial adviser or in any other fiduciary capacity with respect to this proposed transaction. 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Any individual intending to invest in any investment described in this document should consult his/her professional adviser and ensure that he/she fully understands the risks associated with making such an investment and has sufficient financial resources to sustain any loss that may arise from it. ETFs: All ETFs are sub-funds of one of the following platforms: db x-trackers, db x-trackers II or Concept Fund Solutions plc. Further details on any ETF can be found in the Key Investor Information Document or full prospectus of db x-trackers, db x-trackers II or Concept Fund Solutions plc these documents can be obtained in English and certain other languages at the following website: www.dbxtrackers.com. They constitute the only binding basis for purchase of shares of the ETFs. The ETFs described in this document track the performance of the index included in the relevant ETF name. The indices are registered trademarks of their respective licenser. 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Disclaimer 11
db x-trackers Harvest CSI300 Index UCITS ETF (DR) For more information Internet: www.dbxtrackers.com Product information Deutsche Bank AG Deutsche Asset & Wealth Management db X-trackers ETF team Pinners Hall 105/108 Old Broad St London EC2N 1EN Internet: www.dbxtrackers.com E-mail: etf@db.com Hotline: +44 20 7547 1747 January 2014 Deutsche Bank AG D-60311 Frankfurt am Main db X-trackers_1356