mirae asset 2016 markets outlook for europe with rahul chadha
TRANSCRIPT
Remaining Calm Amid The StormRahul Chadha
Co-Chief Investment OfficerMirae Asset Global Investments (HK) Limited
For Professional Investor Only. Not For Public Distribution. 2
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150
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25Shanghai Composite P/E ratio (12m trailing, LHS)China Nominal GDP growth (%, RHS)
A-share market – Don’t Panic!
Jan-14 Jul-14 Jan-15 Jul-15 Jan-161,5002,0002,5003,0003,5004,0004,5005,0005,5006,000
Shanghai Composite Index
Source: Bloomberg, 13 Jan 2016
+150% -40%
Shanghai Composite Index Price Chart• Latest rally had little fundamental support
06-07 rally was supported by strong GDP growth, unlike the latest rally
• Despite having corrected by 40% in recent months, A-share market is still over-valued
• A-share market is driven by retail investors, often inexpe-rienced and with a trading mentality
• Don’t panic over the Chinese A-share market
85% 81%
⅔
portion retail investors in A-share market, vs. 20% in HK
of retail investors in A-share market trade at least once a month, vs. 53% in US
more than 2/3 of China’s new investors didn’t attend or finish high school
A-share market in numbers
Source: CNBC, Mirae Asset, 9 July 2015Source: Bloomberg, Jan 2016
Shanghai Composite P/E ratio vs. GDP growth
For Professional Investor Only. Not For Public Distribution. 3
FX Reserves (Dec '14)
Trade Surplus Est. Outflow FX Reserves (Dec '15)
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Renminbi – trade weighted basket
• Focus on CNY vs. a trade weighted basket of currencies, rather than USD
• CNY has depreciated by ~4% post Aug 2015 and has been broadly stable vs. trade weighted basket
• China’s FX reserves still stand at US$3.3tn – risk of a sharp devaluation is limited
• We expect CNY to be broadly stable vs. the trade weighted basket, implying ~5% depreciation vs. USD this year
CFETS CNY Index
Credit outflow – unwinding of carry tradeChina FX Reserves (US$bn)
Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-1685
90
95
100
105
110
Source: Bloomberg, 7 Jan 2016
Source: Bloomberg, Jan 2016Source: Bloomberg, Dec 2015
+US$600bn
-US$1.1tn
US$bn
Unwinding of carry trade
For Professional Investor Only. Not For Public Distribution. 4
Supply-side Reforms – Near term pain, Long term gain
• China’s leaders focusing on supply-side reforms to re-vive economy
• Accelerate overcapacity reduction in “zombie” industries
Raw materials and commodities industries such as steel, coal, cement, aluminum and glass
M&A the preferred route, as well as some bankrupt-cies
Unlikely to see massive factory closures and layoffs (like in late-1990s)
• Banks will also bear the pain of reforms as bad assets surface
• Near term pain, long term gain
For Professional Investor Only. Not For Public Distribution. 5
HKD – Why the HKD peg will not break
Source: Nomura, 21 Jan 2016
• HKD peg is as much a political decision as a financial one
• HKMA has shown willingness to endure pain to defend the peg (Asian Financial Crisis, SARS, GFC)
• Deterioration of competitiveness not as acute as run-up to AFC
• HKMA has a lot of ammunition in its war-chest
FX reserves US$340bn = 120% of GDP
Low loan-to-deposit ratio at ~75%
Current account balance 2% of GDP; Fiscal surplus 1% of GDP Jan-95 Jan-00 Jan-05 Jan-10 Jan-15
80
90
100
110
120
130
140
150
160
170
HKD real effective exchange rate
2010=100
HKD real effective exchange rate (trade weighted basket of currencies)
Nov-85 Nov-90 Nov-95 Nov-00 Nov-05 Nov-10 Nov-150
20
40
60
80
100
120
140
160
180
200HKDAll currencies
%HK Banks’ loan-to-deposit ratios HK’s FX and fiscal reserves
Source: Nomura, 21 Jan 2016
Source: Nomura, 21 Jan 2016
Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-150
50100150200250300350400450500
Fiscal ReservesFX Reserves
USDbn
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“Make in India” – Propelling India to the next orbit
• “Make in India” program aims to boost manufacturing share in GDP to 25% and create 100mn new jobs
• India will need US$0.5tn in incremental investment to reach these goals – need to attract FDI
• Government has initiated measures such as increasing FDI limits, streamlining approval process and improving ease of doing business
Source: BofA Merrill Lynch, Jan 2016
India is 3rd most preferred host for FDI according to the UN India total FDI
Source: DIPP, Ministry of Commerce and Industry, BofA Merrill Lynch, Jan 2016
“Make in India” program
Source: UNCTAD, MNE: Multi National Enterprises, BofA Merrill Lynch, Jan 2016
7For Professional Investor Only. Not For Public Distribution.
Infrastructure – Roads and Freight Corridor
360,000km of rural roads built under PMGSY
Strong order flow in road projectsSource: PMGSY, Min. of Rural Development, Credit Suisse Estimates
Source: ADSEZ presentation, BofA Merrill Lynch
• Dedicated Rail Freight Corridors (DFC) key to address logistics bottlenecks
• Improved road connectivity is the most important factor for Rural India’s prosperity (which accounts for 50% of population)
• With better roads, more remunerative and perishable products can be transported from production to demand centers
DFC to improve logistics in West India
Source: BofA Merrill Lynch, Jan 2016
FY02FY03
FY04FY05
FY06FY07
FY08FY09
FY10FY11
FY12FY13
FY14FY15
FY16E
FY17E
FY16E
FY17E
- 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
10,000
NHAI - BOT NHAI - EPC States & Others Morth & NHAI target
km
8For Professional Investor Only. Not For Public Distribution.
Unique ID (UID) ─ To Ensure Significant Savings & Financial InclusionUID covers 74% of Population Subsidies have ballooned over last 5 years
Source: UIDAI, IIFL Research
• UID key tool in PM’s Financial Inclusion plan, good progress with 87% of the country’s adults enrolled
• Provides a fool proof identity with biometric verification like IRIS / Fingerprint / Face Matcher
• Payment bridges enable direct cash transfer, saving nearly 2% of GDP in leakage of subsidies
• Financial inclusion for large rural population who borrow at 24% - 30% from moneylenders
Source: GOI budget, IIFL Research
Initiatives Potential
savings (Rs bn)% of GDP
Aadhaar based transfer by Central government 350 0.35
Automation of delivery channels by Central government 249 0.25
Central government moving out of delivery 802 0.80
States replicating the Centre 600 0.60
Total 2,001 2.00
Full roll out of UID enabled cash transfers can save 2ppt of GDP
Source: IIFL Research
Monthly UID enrolment (LHS)Cumulative UID enrolment
Enrolments to accelerate againpost government approval
9For Professional Investor Only. Not For Public Distribution.
Benign Global Monetary Policy
• Post December US interest rate hike, subsequent hikes to be measured. Europe, Japan, EMs a growth drag
• USD strength equivalent to 100-125 bps of mone-tary tightening
• Asian economies are less vulnerable vs. Asia Fi-nancial Crisis and taper-tantrum in 2013
External Vulnerability Score (higher score indicate more vulnera-bility)
Source: Haver, CEIC, FactSet, MSCI, Goldman Sachs, Mirae Asset, July 2015
0
2
4
6
8
10
12
14 19962Q131Q15
Vulnerability Score Scoring method
Factors Metrics 1 pt 2 pts
External balances Current acct % GDP <-2.5 <-5.0
BBOP % GDP <-1.0 <-2.5Credit growth Excess credit growth since '09 >30% %60%
FX reserves and external funding position
External debt % GDP >25% >40%
FX Reserves % GDP <20% <10%
Short-term debt % FX reserves >100% >200%Fiscal position Fiscal balance % GDP <-2.5% <-5.0%
Banking sector NPL ratio % >85% >110%
LDR (%) >85% >110%Asset valuations Valuation (12m fwd. PE) Z-score >1.0 >2.0
MSCI Asia ex Japan PB PB at start PB at trough/peakAvg PB
thru period
Bubbles 2.30 (P) 2.91 2.49
Normal 1.75 NA 1.83
Slowdown / Fears of Recession 1.79 (T) 1.50 1.70
Recession 1.91 (T) 1.30 1.63
Financial Crisis 1.58 (T) 1.09 1.32
Normalization 1.26 NA 1.47
Current fwd P/E: 11.7x Current P/B: 1.25x
Valuations across different historic peri-ods
Source: Datastream, UBS, Mirae Asset, January 2016
For Professional Investor Only. Not For Public Distribution. 10
Jun-13Au
g-13Oct-
13Dec-
13Feb
-14Ap
r-14Jun
-14Au
g-14Oct-
14Dec-
14Feb
-15Ap
r-15Jun
-15Au
g-15Oct-
1540
50
60
70
80
90
100
110
120
Crude India China TaiwanIndonesia Malaysia Thailand
Asia benefits from weak oil price
Crude vs. pump price (indexed)
Source: UBS, Mirae Asset, 8 Jan 2016Note: Indian consumer companies include HUL, ITC, Asian Paints, Nestle, Dabur, Godrej, Marico, Emami, Colgate, Britannia, Unted Spirits, United Breweries, Titan.
Source: Morgan Stanley, Mirae Asset, Nov 2015
Benefits to consumer
Benefits to country
Indian consumer sector*: Gross margin expansion
Long-term Avg. (FY05-15E)
FY16E47.0%47.5%48.0%48.5%49.0%49.5%50.0%50.5%51.0%51.5%
Avg. 240bpGPM expansion
• Asian governments and consumers share benefits from weaker oil price
• Corporates also benefit from lower input prices, result-ing in margin expansion
China consumer sector: Gross margin expansion
Long-term Avg. (07-15) 2016E23.0%23.5%24.0%24.5%25.0%25.5%26.0%26.5%27.0%
Avg. 210bpGPM expansion
GPM (%)
GPM (%)
Source: Bloomberg, MSCI, Mirae Asset, 22 Jan 2016
For Professional Investor Only. Not For Public Distribution. 11
Consumers prioritizing spending
Year-on-year growth rates of selective sectors
Source: Mirae Asset, Bernstein, RBI, Ent Group, India Ministry of Civil Aviation, Bloomberg, Jan 2016
(yoy growth) May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15
China Movie Box Office 43.2% 18.8% 51.3% 38.0% 82.3% 52.4% 14.5% 62.4%
China Airline Passengers 12% 10% 9% 11% 9% 9% 9% na
China 4G Mobile Subscriptions 419% 231% 195% 124% 61% 46% 19% na
India New Car Sales 8% 2% 18% 6% 9% 22% 11% na
India Gasoline Consumption 9% 10% 13% 10% 25% 14% 17% 12%
India Domestic Air Travel 20% 17% 30% 19% 16% 20% 26% na
(yoy growth) 2Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15
Alibaba GMV 46% 45% 34% 49% 40% 34% 42% na
China Travel Tours 74% 76% 68% 88% 135% 84% na na
(yoy growth) F2012 F2013 F2014 F2015 F1Q16 F2Q16 Oct-2015 Nov-2015
India Retail Credit 12% 15% 13% 16% 17% 18% 17% 18%
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< 1x PB 1-1.25x PB 1.25-1.5x PB
1.5-1.75x PB
1.75-2x PB >2x PB-20%
0%
20%
40%
60%
80%
100%
120%
100%
89%
73% 70%
53%45%
60%
30%
17%
5% 3%
-11%
Probability of Positive Return in subsequent 12 monthsAverage Return in subsequent 12 months
Valuation
'95'96'97'98'99'00'01'02'03'04'05'06'07'08'09'10'11'12'13'14'150.5
1.0
1.5
2.0
2.5
3.0
• Valuations remain very attractive in Asia
• Price-to-Book at 1.25x – 1 standard deviation below long term average
• Historically, investors stood high chance of achieving pos-itive returns in subsequent 12 months by investing at these levels
Source: Bloomberg, Mirae Asset, as of Dec 2015
MSCI AxJ Valuation and Subsequent 12-month return
MSCI Asia ex Japan Price-to-Book Ratio
Source: Bloomberg, Mirae Asset, as of Dec 2015
For Professional Investor Only. Not For Public Distribution. 13
Portfolio Positioning – Good China vs. Bad China
Source: Bloomberg, Mirae Asset, as of November 2015
Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-1548
50
52
54
56
58
60 Manufacturing PMIService PMISeries3
Manufacturing vs. Service PMI
Good China• Under-penetrated, less capital intensive• Sustainable economic moats• Healthcare, insurance, clean energy, internet / e-commerce,
travel & tourism
Bad China• Well-penetrated, capital intensive• Low barriers to entry, weak pricing power• Steel, cement, capital goods, banks
Internet / e-commerce;
12%
Healthcare; 9%Insurance; 9%
Telecom; 4%
Environment; 2%
Tourism; 2%Food; 1%Gaming; 1% Bank; 1%
Internet / e-commerce; 21%
Insurance; 13%
Healthcare; 6%
Tourism; 3%
Food; 3%Others; 3%
Asia Sector Leader Fund: 99% in “Good China”
Asia Great Consumer Fund: 100% in “Good China”
Source: Mirae Asset, as of December 2015
Source: Mirae Asset, as of December 2015
ASL
AGC
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14
Mirae Asset Asia Sector Leader Equity FundPortfolio Manager: Rahul Chadha
Data as of 31 December 2015. Source: Mirae Asset Global Investments (Hong Kong) Limited, Morningstar, Bloomberg, FactSet. The performance figures shown are at the master share class level of the Mirae Asset Asia Sector Leader Equity Fund (the "Fund"). The net asset value per share of the master share class of the Fund is calculated by using the total net asset value of the Fund divided by the total number of units issued by the Fund and is represented in the reference currency of the Fund (i.e. US dollars). Performance figures of the Fund is net of fees, NAV to NAV, in USD with dividends reinvested. The benchmark is MSCI AC Asia Ex Japan Index (Gross). The Morningstar 5-star rating was assigned to Class K of the Fund as of 31 December 2015.
For Professional Investor Only. Not For Public Distribution.
Fund Performance (Master Class in USD), as of 31 December 2015
Cumulative Returns
3 Months 6 Months YTD 1 Year 2 Years 3 Years Since Inception 2013 2014 2015
Fund (Master Class, USD) 6.75% -9.23% -3.79% -3.79% 6.56% 23.93% 47.20% 16.30% 10.76% -3.79%
MSCI AC Asia ex Japan (Gross) USD 3.87% -13.72% -8.90% -8.90% -4.24% -1.05% 18.89% 3.33% 5.11% -8.90%
Excess Return 2.88% 4.49% 5.11% 5.11% 10.80% 24.98% 28.31% 12.97% 5.65% 5.11%
Date of fund inception : 23 May 2012
May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-158090
100110120130140150160170180
Fund Benchmark
147.3
118.9
Stock Selection Effect (3 Yr)
Sector Country
81% 74%
Risk Statistics (3 Yr)
Annualised volatility Beta Alpha Sharpe ratio Tracking error Information ratio
12.15% 0.82 7.77% 0.60 5.80% 1.34
Capture Ratio (3 Yr)
Upside Downside
104.63 67.67
Rebased at 100
For Professional Investor Only. Not For Public Distribution.
15
Mirae Asset Asia Great Consumer Equity FundPortfolio Manager: Joohee An
Data as of 31 December 2015. Source: Mirae Asset Global Investments (Hong Kong) Limited, Morningstar, Bloomberg, FactSet. The performance figures shown are at the master share class level of the Mirae Asset Asia Great Consumer Equity Fund (the "Fund"). The net asset value per share of the master share class of the Fund is calculated by using the total net asset value of the Fund divided by the total number of units issued by the Fund and is represented in the reference currency of the Fund (i.e. US dollars). Performance figures of the Fund is net of fees, NAV to NAV, in USD with dividends reinvested. The benchmark is MSCI AC Asia ex Japan Index (Gross). The Morningstar 5-star rating was assigned to Class A, Class I and Class K of the Fund as of 31 December 2015.
For Professional Investor Only. Not For Public Distribution.
Fund Performance (Master Class in USD), as of 31 December 2015
Cumulative Returns
3 Months 6 Months YTD 1 Year 2 Years 3 Years Since Inception 2012 2013 2014 2015
Fund (Master Class, USD) 5.30% -10.16% -2.78% -2.78% 15.68% 23.91% 30.86% 28.15% 7.12% 18.98% -2.78%
MSCI AC Asia ex Japan (Gross) USD 3.87% -13.72% -8.90% -8.90% -4.24% -1.05% -1.36% 22.70% 3.33% 5.11% -8.90%
Excess Return 1.43% 3.56% 6.12% 6.12% 19.92% 24.96% 32.22% 5.45% 3.79% 13.87% 6.12%
Date of fund inception : 7 June 2011
Stock Selection Effect (3 Yr)
Sector Country
74% 99%
Risk Statistics (3 Yr)
Annualised volatility Beta Alpha Sharpe ratio Tracking error Information ratio
13.99% 0.85 7.76% 0.52 8.51% 0.91
Capture Ratio (3 Yr)
Upside Downside
108.32 66.65
7080
90100110120130140150160
Fund Benchmark
131.0
98.6
Rebased at 100
16
Disclaimer
Certain information contained in this document is compiled from third party sources. Whilst Mirae Asset Global Investments (Hong Kong) Limited ("Mirae Asset HK") has, to the best of its endeavor, ensured that such information is accurate, complete and up-to-date, and has taken care in accurately reproducing the information, it shall have no responsibility or liability whatsoever for the accuracy of such information or any use or reliance thereof. Mirae Asset HK accepts no liability for any loss or damage of any kind resulting out of the unauthorized use of this document. This document is strictly for information purposes only and does not constitute a representation that any investment strategy is suitable or appropriate for an investor’s individual circumstances. Further, this document should not be regarded by investors as a substitute for independent professional advice or the exercise of their own judgment. Investment involves risk. It cannot be guaranteed that the performance of the Fund will generate a return and there may be circumstances where no return is generated or the amount invested is lost. Past performance is not indicative of future performance. Before making any investment decision to invest in the Fund, investors should read the Prospectus for details and the risk factors. Investors should ensure they fully understand the risks associated with the Fund and should also consider their own investment objective and risk tolerance level. Investors are advised to seek independent professional advice before making any investment. This document has been prepared for presentation, illustration and discussion purpose only to persons reasonably believed to be within one of the professional investor exemptions contained in the Securities and Futures Ordinance or “professional/qualified investors” in relevant jurisdiction and is not legal binding. It is not intended for general public distribution. The investment is designed for professional investors. It may not be suitable for persons unfamiliar with the underlying securities or who are unwilling or unable to bear the risk of loss and ownership of such investment. You are advised to exercise caution and if you are in any doubt of the contents of this document, you should seek independent professional advice before you make any investment. Certain of the statements contained in this document are statements of future expectations and other forward-looking statements. These expectations are based on our management’s current views, assumptions or opinions and involve known and unknown risks and uncertainties. Views, opinions and estimates may change without notice and are based on a number of assumptions which may or may not eventuate or prove to be accurate. Actual results, performance or events may differ materially from those in such statements . References to particular sectors, securities or companies are for general information and illustration purposes only and are not recommendations to buy or sell a security, or an indication of the author’s holdings at any one time. This document is issued by Mirae Asset HK and has not been reviewed by the Hong Kong Securities and Futures Commission.
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