SMSF Investment Seminar Sydney 18 Oct 2010
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 Circumstances may change and the contents of this presentation may be outdated as a result.
Agenda Chairman s Address Investment Update Ordinary Business 3
Relative performance (1 year) 30 June 2009 to 30 June 2010 22.13% 15.38% 16.48% AUF MSCI Asia Ex Japan AUD MSCI Asia Ex Japan USD Underperformance of 1.1% in FY 2010 4
Relative performance (Since IPO) 4 December 2007 to 30 June 2010 6.56% 19.63% 22.10% AUF MSCI Asia Ex Japan AUD MSCI Asia Ex Japan USD Outperformance of 26.2% since listing on 4 Dec 2007 5
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 2009. Independent director Kevin Chin stepped down on 29 January 2010. John Holland appointed to the board as an independent director on 20 July 2010 6
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
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
Agenda Chairman s Address Investment Update Ordinary Business 9
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
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
Income has grown faster than productivity Productivity and Income (March 1990 = 100) Source: RBA Productivity looms as a problem 12
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
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
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
Australian Dollar strong but vulnerable? AUD / USD from 31/12/1998 to present 1.10 1.00 0.90 0.80 0.70 0.60 0.50 0.40 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Bloomberg When the AUD is high domestic investors should look to international assets 16
Equity markets are still recovering 500 450 400 350 300 250 200 150 100 50 Source: IMF Currency is a major factor affecting returns 17 12 2002 06 2003 12 2003 06 2004 12 2004 06 2005 12 2005 06 2006 12 2006 06 2007 12 2007 06 2008 12 2008 06 2009 12 2009 06 2010 MSCI Asia Ex Japan USD MSCI World USD MSCI Asian Ex Japan AUD MSCI World AUD
But not all recoveries are the same Industrial Production Trade Volumes 130 115 120 Asia 110 Asia 110 105 100 90 Latin America US Japan Europe 100 95 90 World 80 85 70 80 60 2008 2009 2010 75 2008 2009 2010 Source: IMF Asia has led the world out of recession 18
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
Asian Governments have the firepower to spend Fiscal balance as a percentage of GDP 4% 2% 0% Asia 2% 4% 6% Developed 8% 10% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: UBS Should a double-dip occur, Asian governments have the means to re-stimulate 20
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 130 125 120 115 110 105 100 95 150 140 130 120 110 100 90 AUD KRW SGD INR CNY EUR 90 80 12 2004 08 2005 04 2006 12 2006 08 2007 04 2008 12 2008 08 2009 04 2010 12 2008 02 2009 04 2009 06 2009 08 2009 10 2009 12 2009 02 2010 04 2010 06 2010 08 2010 Source: Bloomberg Will the resumption in Chinese Renminbi appreciation continue? 21
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
The world as it is now The largest economies in 2010 16,000 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
A new world in the making What the largest economies could be in 2050 60,000 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
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
Increasing urbanisation from a low base Growth in urban population between 2005-2015 Million People 160 140 120 100 80 60 40 20 0 China Africa India Latin America North America World North America Latin America Europe Oceania China Africa Urbanisation Level 2005 51% 81% 77% 72% 71% 43% 38% 2015 56% 83% 81% 74% 72% 52% 43% Europe Oceania India 29% 32% Source: UN, CEIC Another 90 million Chinese people will move to cities by 2015 26
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
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
Economic prospects remain uneven between regions Projected Real GDP Growth during 2010-11 Source: IMF Big contrast between Developed and Emerging economies 29
Asia is advancing with resilience Asia entered the GFC on a strong footing and continues to lead recovery Projected Real GDP Growth during 2010-11 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
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
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
Asia Ex-Japan long term outperformance Global markets performance 31 Dec 2002 to 23 September 2010 310 260 210 160 110 60 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