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Wednesday
Lecture Theatre 16
August 25, 6pm
Semi Annual
Investment
ForumProgramme
5.30pm Registration
6.00pm Market Outlook & Stock Picks
(Calvin Tan, NUS Invest Research Director))
6.30pm Economic Overview
(Liang Shibin, Investment Analyst at Phillips
Securities)
7.15pm Asian Growth Story, Strategies & Insights
(Ow Tai Zhi, NUS Invest President)
7.45pm Value Investing & Portfolio Management
(Jason Low, Portfolio Manager)
8.45pm Refreshments and End of Event
Supported By:
http://www.phillip.com.sg/index.htm8/8/2019 Asian Growth Story
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The Semi-Annual Investment Forum (SIF) is an ongoing initiative by NUS Invest to promote
financial literacy and provide a platform to share investment knowledge in the NUS community.
The inaugural SIF held in March 2009 features the Research Team from DMG & Partners
Securities speaking on the Market Outlook as well as the Real Estate and Oil & Gas Sector.
The 4th SIF held on 24 August 2010 features the Research Team from Phillips Securities
providing an economic overview and listing out asset classes which are attractive to investors in
the current economic climate. Members were also exposed to the new Asia Pacific Ex Japan
Absolute Return portfolio and several conviction stock picks by NUS Invest Exco Research Team.
For the very first time, Mr. Jason Low, an experienced portfolio manager who has managed
funds in excess of US$500 million for the last 5 years, shared his value investing tips and how
retail investors should construct their portfolio.
EVENT SYNOPSIS
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This research material has been prepared by NUS Invest.
NUS Invest specifically prohibits the redistribution of this material in whole or in part without the
written permission of NUS Invest.
The research officer(s) primarily responsible for the content of this research material, in whole or
in part, certifies that their views are accurately expressed and they will not receive direct or
indirect compensation in exchange for expressing specific recommendations or views in this
research material.
DISCLOSURES & DISCLAIMERS
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Nothing in this research material constitutes a representation that any investment strategy or
recommendation contained herein is suitable or appropriate to a recipients individual
circumstances or otherwise constitutes a personal recommendation. It is published solely for
information purposes, it does not constitute an advertisement and is not to be construed as a
solicitation or an offer to buy or sell any securities or related financial instruments.
No representation or warranty, either expressed or implied, is provided in relation to the
accuracy, completeness or reliability of the information contained herein. The research material
should not be regarded by recipients as a substitute for the exercise of their own judgement. Any
opinions expressed in this research material are subject to change without notice.
DISCLOSURES & DISCLAIMERS
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Compliance
Equity Research & Portfolio
Administration
Stock-brokering & WealthManagement
Macro Investment
Research at Hedge Fund
National Service
Studies
Speaker Profile Ow Tai Zhi [President, NUS Invest]
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Asian Growth Story Strategies & Insights
[25 August 2010]
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Encouraging Global Economic Outlook
DivergingGrowth
Trajectory
Shift inGlobal Asset
Allocation
AsianCentral Bank
Rate Hikes
QuantitativeEasing by
the U.S.
InvestmentStrategies
Risk
IMF World Growth Figures
1Q 2010 5.00%
IMF World Growth Projection
2010 4.50%
2011 4.25%
Modest but steady recovery in most advanced economies
Strong growth in many emerging and developing economies
Recent turbulence in financial markets caused by fiscal positions in Euro-zone
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Divergence in Growth Outlook
2010 2011
United States 3.3% 2.9%
Japan 2.4% 1.8%
United Kingdom 1.2% 2.1%
Euro Area 1.0% 1.3%
Germany 1.4% 1.6%
France 1.4% 1.6%
Italy 0.9% 1.1%
Developing Asia 9.2% 8.5%
China 10.5% 9.6%
India 9.4% 8.4%
Singapore 9.9% 4.9%
ASEAN 5 6.4% 5.5%
Source: IMF World Economic Outlook
Strong rebound in
exports and resilient
domestic demand
Robust corporate
profits and FDI
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2010 2011
World Trade Volume (goods & services) 9.0% 6.3%
Imports
Advanced Economies 7.2% 4.6%
Emerging & Developing Economies 12.5% 9.3%
ExportsAdvanced Economies 8.2% 5.0%
Emerging & Developing Economies 10.5% 9.0%
Consumer Prices
Advanced Economies 1.4% 1.3%
Emerging & Developing Economies 6.3% 5.0%
Advanced Economies (U.S., Europe) vs Emerging & Developing Economies (Asia)
Divergence in Growth Outlook
Tendency for Central
Bank policy rate hiketo contain inflation
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In 2011, when inventory cycle
runs its full course and stimulus
is withdrawn in several
countries, Asias GDP will settleto a more moderate but
sustainable rate (est. 6.75%)
Divergence in Growth Outlook
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Downside Scenario Additional Worsening in Eurozone
Downside Risks
1. Poor fiscal consolidation stifles
weak domestic demand (eg.
austerity measures)
2. Management of fiscal deficits
over medium to long-term
3. Renewed weakness in U.S.
property market
GPM World Simulations
World growth will reduce from
4.50% to 3.00%
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Shift in Global Funds Allocation
China more than doubled (up 111%) South Korean debt holdings to US$3.4 billion
in 2010 (0.1% of its US$2.45 trillion reserves) as global trend of policy makers is to
gradually shift foreign reserves out of USD
Foreign holdings of South Koreas outstanding govt debt (accounts for 6.3%)increased 20% from US$9.6 billion to US$57.5 billion in 1H 2010
China purchase US$20.1 billion of Japanese Govt Bonds in 1H 2010
The number of long-term investors who view Korean bonds as a new safe haven has
increased Director of the Ministry of Strategy & Finance's govt bond policy division
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Central Banks Tendency for Rate Hikes
Petroleum price projection
US$75.3/bbl for 2010
US$77.5/bbl for 2011
2 Key Influencing Factors
Broad inflation targeting between 2% to 4%
Asset price pressures
Base Case
Advanced Economies unlikely to tighten
before 2011, in fear of undermining the
recovery
Emerging & Developing Economies have
started to tighten (eg. Korea, India, Taiwan,
Malaysia)
DivergingGrowth
Trajectory
Shift inGlobal Asset
Allocation
Asian CentralBank Rate
Hikes
QuantitativeEasing by the
U.S.
InvestmentStrategies
Risk
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Explanation Notes on Central Bank Rate Hike
Assume the entire economy consist only Jack and 10 apples.
Jack has $10 and decides to use all his money to buy the 10 apples,
because the 0.75% interest rate on deposits simply sucks.
Then
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U.S. Federal Reserve Bank raises benchmark rates and Citibank raises the
interest rate on deposits to 2.99% accordingly.
Jack is now enticed by the attractive interest rate, and decides to put some
money in the bank and consequently spend less on apples.
Explanation Notes on Central Bank Rate Hike
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Quantitative Easing by the U.S.
DivergingGrowth
Trajectory
Shift inGlobal Asset
Allocation
Asian CentralBank Rate
Hikes
QuantitativeEasing by the
U.S.
InvestmentStrategies
Risk
27 Aug Nobel Prize-winning economist Paul
Krugman suggest the Federal Reserve and
President Barack Obamas administration
should launch further stimulus programs.
Krugman, a Princeton University professor,
wrote in his New York Times column policy
makers should be doing everything they can
to change that fact.
Ben Bernanke is likely to spell out options for
restarting large-scale purchases of securities,
a strategy known as quantitative easing.
Impact
Quantitative Easing will put
downside pressure on the USDagainst major currencies.
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Investment Strategies Long Asian Currencies
1. Future growth likely to decelerate but continue
Recent economic indicators points to slowdown in 2H 2010. However, growth likely
to continue, although at a slower pace.
2. Relative strategy as opposed to Absolute strategy to limit downside risk
Investment in equities pose downside risk as expectations of growth are priced in,
but slowdown in growth may not. Commodities largely depends on industrial
demand and pose downside risk as well.
3. Need to cherry-pick the top few Asian currencies as fundamentals differ
Different growth trajectory within Asia, different drivers of economic growth,
different inflation levels and central bank policy stance.
DivergingGrowth
Trajectory
Shift inGlobal Asset
Allocation
AsianCentral BankRate Hikes
QuantitativeEasing bythe U.S.
InvestmentStrategies
Risk
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Chinese Renminbi (CNY)
Central banks Policy Stance
Large fluctuations not desired, need to
support relatively fast growth while
managing inflation expectations
FX Impact on ExportsNet Exports US$250 billion
GDP US$4,814 billion
Industry accounts for 47% of GDP
Exports to U.S. 20% and Germany 4%
Key Statistics
GDP 2010F 10.5%
GDP 2011F 9.6%
Central Bank Rate 5.31% -> 5.85% by end 2010
Latest Rate Hike 12.5bps in June 2010
Spot Rate 6.7988
Consensus Est Appreciate 4.7% to 6.48
Implied Based on NDF Depreciate 1.6% to 6.69
Herein lies the arbitrage opportunity!
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Euro Debt
Crisis1st Reforms in yuan
exchange rate
Risk
Aversion
+/- 0.5% from
daily fixing
2nd Reforms in yuan
exchange rate
10.2% appreciation over last 3 years
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Euro Debt Crisis
2nd Reforms in yuan
exchange rate
Risk Aversion
+/- 0.5% band
from daily fixing
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Malaysian Ringgit (MYR)
Central banks Policy Stance
Expects domestic economy to
remain strong with continued
improvements in private
consumption and investment
FX Impact on ExportsNet Exports US$38 billion
GDP US$209 billion
Industry accounts for 41% of GDP
Exports to U.S. 12%
Key Statistics
GDP 2010F 6.7%
GDP 2011F 5.3%
Central Bank Rate 2.75% -> 2.75%
Latest Rate Hike 25bps each in May and July 2010
Spot Rate 3.14
Consensus Est Appreciate 1.6% to 3.09
Implied Based on NDF Depreciate 1.6% to 3.19
Herein lies the arbitrage opportunity!
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Risk Aversion
Euro Debt Crisis
Rate Hike
10.0% appreciation over last 3 years
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Euro Debt
Crisis
Risk
Aversion
Rate Hike
Rate Hike
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Singapore Dollar (SGD)
Central banks Policy StancePolicy band re-centered upwards in
April 2010 and switch from 0%
appreciation to modest and gradual
appreciation
FX Impact on ExportsNet Exports US$34 billion
GDP US$177 billion
Industry accounts for 28% of GDP
Exports to U.S. only 6.6% in 2009
Key Statistics
GDP 2010F 9.9% -> 13%
GDP 2011F 4.9%
Central Bank Rate 0.67% borrowing rate; 0%
deposit
Latest Rate Hike -
Spot Rate 1.3584
Consensus Est Appreciate 1.4% to 1.34
Implied Based on NDF Stay flat
Herein lies the arbitrage opportunity!
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Euro DebtCrisis
S$NEER Re-centered
downwards
Risk
Aversion
11.0% appreciation over last 3 years
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Euro Debt
Crisis
Risk
Aversion
Re-centering of
S$NEER band
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Potential Returns
DivergingGrowth
Trajectory
Shift inGlobal Asset
Allocation
AsianCentral BankRate Hikes
QuantitativeEasing bythe U.S.
InvestmentStrategies
Risk
Leverage Characteristics Currencies typically has more than 4x leverage
Past 3 Years Returns (incl Great Financial Crisis and Euro Debt Crisis)
CNY 10.2% x 4 = 40.8% 14.0% p.a.
MYR 10.0% x 4 = 40.0% 13.6% p.a.
SGD 11.0% x 4 = 44.0% 15.2% p.a.
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Possibility of Monetary Intervention
All except India have healthy trade
surplus
Exchange rates appreciation is needed if
excess demand pressures build
(ie. excessive trade surplus or asset price
pressures)
-1,000
0
1,000
2,000
3,000
4,000
5,000
6,000
China India Indonesia Japan Korea Malaysia Taiwan
Trade Data
Trade Surplus GDP
DivergingGrowth
Trajectory
Shift inGlobal Asset
Allocation
AsianCentral BankRate Hikes
QuantitativeEasing bythe U.S.
InvestmentStrategies
Risk
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Q&A
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Japanese Yen (JPY)
Central banks Policy Stance
Extremely accommodative monetary
policy, uptrend in exports expected to
continue, although pace to moderate
gradually, domestic demand and private
consumption generally picking up
FX Impact on Exports
Net Exports US$43 billion
GDP US$4,150 billion
Industry accounts for 22% of GDP
Exports to U.S. 16%
Key Statistics
GDP 2010F 2.4% -> 2.6%
GDP 2011F 1.8%
Central Bank Rate 0.10%
Latest Rate Hike -
Spot Rate 84.55
Consensus Est Depreciate 12.4% to 95.00
Implied Based on NDF Appreciate 0.6% to 84.07
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Risk Aversion
Euro Debt
Crisis
Euro Debt
Crisis
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Euro Debt
Crisis
Risk
Aversion
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Korean Won (KRW)
Central banks Policy Stance
Accommodative monetary policy to
target price stability and sustained
growth
Inflation targeting of 2% to 4% from
2010 to 2012
CPI will accelerate and interest rate
is still not appropriate as inflation
expectations climb
Key StatisticsGDP 2010F 5.7%
GDP 2011F 5.0%
Central Bank Rate 2.25% -> 2.75% by end 2010
Latest Rate Hike 25bps in July 2010
Spot Rate 1,184
Consensus Est Appreciate 7.6% to 1,100
Implied Based on NDF Depreciate 1.3% to 1,199
Net Exports US$56 billion compared to US$809 billion GDP
Industry accounts for 39% of GDP
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Euro Debt Crisis
Rate Hike
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Taiwanese Dollars (TWD)
Central banks Policy Stance
continue gradually adjusting interest
rate upwards in response to strong
domestic economic activity
Key Statistics
GDP 2010F 7.7%
GDP 2011F 4.3%
Central Bank Rate 1.375% -> 1.75% by end 2010
Latest Rate Hike 12.5bps in June 2010
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Euro Debt Crisis
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Indonesia Rupiah (IDR)
Central banks Policy Stance
Inflation targeting of 4% to 6% (Jul
2010: 6.2%) for 2010 and 2011, no
immediate intent of rate hike
Key Statistics
GDP 2010F 6.0%
GDP 2011F 6.2%
Central Bank Rate 6.50%
Latest Rate Hike -
Spot Rate 6.79
Consensus Est Appreciate 2.2% to 8,800
Implied Based on NDF Depreciate 4.5% to 9,397
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Euro Debt Crisis