Catching the Flying Dragon - LarrainVial · 2011-12-06 · March 2008 Robeco Chinese Equities 8 2....

Catching the Flying Dragon

Robeco Chinese Equities

Victoria MioSenior Portfolio Manager

Latin America, March 2008

For professional investors only

2March 2008 Robeco Chinese Equities

– Why China?Growth, sources, risks 3

– Which Strategy?Process, themes, results 16

– Summary 21

– Appendix 22

Index


Market Performance HistorySince 2003, China’s offshore market moved up strongly

Source: Bloomberg, monthly prices from start 2003 to 22 February 2008

5 year stock performance: China, GEM and World

0

100

200

300

400

500

600

700

800

900

1000

1100

Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07

China H-shares

China A-shares

MSCI GEM

MSCIWorld


Why China?An economic sensation…

Source: National Bureau of Statistics of China, Bloomberg (left); Morgan Stanley Research (right)

Chinese GDP and Growth Rate

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1979 1983 1987 1991 1995 1999 2003 2007

0%

2%

4%

6%

8%

10%

12%

14%

16%GDP in billion USD (left)GDP growth rate (right)

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

0 5 10 15 20 25 30 35 40 45

Years after growth takeoff

1990 USD '000, log

scale

Japan NIEsASEAN-4 ChinaIndia Other Asia


Economic Outlook shows global “hot spots”China main contributor to world GDP growth

Source: IMF, World Economic Outlook (as of October 2007)


The Chinese growth engine – firing at all cylinders

Source: National Bureau of Statistics of China (facts), UBS (2007 and 2008 estimates)

Why China?

Contribution to GDP Growth in %

-4

-2

0

2

4

6

8

10

12

14

16

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

E

20

08

E

Government Expenditure

Household Consumption

Investment

Net Exports


Why China?

– The 5-year Program 2005-2010 targets:– “Cleaner growth”– “Fairer income distribution”– “More balanced growth”

– 2007 national congress of CPC:– “Scientific development”– “New generation” political leaders

– Next Key events:– National People’s Congress (March) – Beijing 2008 Olympics (August)

1. Government promotes a more balanced growth

-10

0

10

20

30

40

50

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Year of change of government

Investment growth (%)

Source:


2. Domestic consumption is only just taking off…

Why China?

Source: Bloomberg, monthly data from begin 2003 to end 2007

– Higher disposable income

– Rise of the middle class

– Urbanization

– Mortgages and consumer credits

– Inflation persists: +6.5% p.a.

Retail Sales and CPI Growth

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

22%

2003 2004 2005 2006 2007

Retail Sales Growth CPI


3. Investments sustain high economic growth

Why China?

– Investments in infrastructure– Development of rural areas and Western China– Urbanization and industrialization

Source: CEIC; Morgan Stanley Research

-20

0

20

40

60

80

100

Jan-

96M

ay-9

6S

ep-9

6Ja

n-97

May

-97

Sep

-97

Jan-

98M

ay-9

8S

ep-9

8Ja

n-99

May

-99

Sep

-99

Jan-

00M

ay-0

0S

ep-0

0Ja

n-01

May

-01

Sep

-01

Jan-

02M

ay-0

2S

ep-0

2Ja

n-03

May

-03

Sep

-03

Jan-

04M

ay-0

4S

ep-0

4Ja

n-05

May

-05

Sep

-05

Jan-

06M

ay-0

6S

ep-0

6

-10

0

10

20

30

40

50Exports (%yoy, 3mma)

FAI growth (%YoY, 3mma, rhs)

Asia financial crsis

Internet bubble burst


4. Net Exports – Third-largest global trading nation

Source: Bloomberg, monthly data from February 2003 to January 2008

Why China?

– Foreign trade volume grew 68 times from 1978 to 2005

– Cheap production workshop with a large pool of workers

– Steady/rising global demand for low-cost goods “made in China”during economic slowdowns

Import and Export Growth

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2003 2004 2005 2006 2007

Export Import


% Share of China Exports

15

19

23

27

31

35

2000 2001 2002 2003 2004 2005 2006 2007

USAEUPan AsiaRest of the world

%

4. Net Exports – China is becoming less dependent on US

Why China?

– Slowing share of exports to US and Pan Asia

– More exports go to Europe and rest of the world – in particular to other emerging markets

– Rapidly moving up the value chain towards capital goods:– Textiles & clothing– Consumer-PCs– Cars & Ships– Machinery & equipment– Planes…

Source: Goldman Sachs Global Investment Research

% Share of China Exports

30

35

40

45

50

55

60

65

70

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Consumer goods*

Capital goods

%

* Consumer goods include textile, garment, consumer electronics and misc. consumer goods.


Why China?

– World’s largest reserves:USD 1,528 billion!

– Fuelled by continued trade surpluses

– Yuan (Chinese currency) to appreciate even faster: by 8-10% during 2008

– H-shares quoted in HK Dollar (which is pegged to USD)

indirect US Dollar exposure

Stronger currency as “bonus” to investment case

Source: Bloomberg, monthly data from begin 2003 to end 2007 (reserves) / January 2008 (currency)

Total Foreign Exchange Reserves (in billion USD)

200

400

600

800

1,000

1,200

1,400

1,600

2003 2004 2005 2006 2007

Yuan versus US Dollar

6.5

7.0

7.5

8.0

8.5

2003 2004 2005 2006 2007 2008


Why China? – Risks: internal and external

INTERNAL

Slowdown GDP growth

Downward earnings revisions

Severe winter storms decelerates activities

Extended valuation, in particular A-share stock market bubble

Imbalances rural versus urban population / social unrest

EXTERNAL

US impact: Less consumer spending / “sub-prime” effects

Global economic slowdown

Global commodities supply constraints


Why China? – Risk Chinese Policy TighteningChinese CPI driven by food prices, core inflation under control

Source: CEIC, Morgan Stanley China Economics Team.

-3

-1

1

3

5

7

9

11

13

15

Jan-

02A

pr-0

2Ju

l-02

Oct

-02

Jan-

03A

pr-0

3Ju

l-03

Oct

-03

Jan-

04A

pr-0

4Ju

l-04

Oct

-04

Jan-

05A

pr-0

5Ju

l-05

Oct

-05

Jan-

06A

pr-0

6Ju

l-06

Oct

-06

Jan-

07A

pr-0

7Ju

l-07

Oct

-07

Jan-

08A

pr-0

8Ju

l-08

Overall CPIFoodNon-Food




– Summary 21

– Appendix 22

Index


Which Strategy?

A two-step investment process

- Macro economic developments

- China specific aspects

- Fundamental analysis

Step 2

Stock Selection

- Fundamental framework

- Valuation

- Quantitative ranking

Portfolio

- Currency hedge

Overview of Robeco investment process

Step 1

Thematic overlay


Private and Public Consumption– Theme #1: Rising disposable income– Theme #2: Universal banking– Theme #3: Beijing Olympics

Fixed Asset Investment– Theme #4: Improvement on infrastructure– Theme #5: Urbanization– Theme #6: Development of rural areas

Government Policies– Theme #7: Industry restructuring– Theme #8: Asset injections– Theme #9: New special economic zones

Our top down analysis yields many investment themes

Which Strategy?


Sources of earnings growth Growth– Nominal GDP growth 15%– Tax unification 5%– RMB appreciation 8%– Asset injections, M&A, consolidation 2% ?– Cost pressure, export slowdown - 5% ?

Consensus earnings growth 2008 20%

Our top down analysis suggests strong earnings growth

Which Strategy?


Which Strategy?

* All figures in EUR and gross of fees, based on net asset value / ** multiplicative calculation of outperformance

0.79%

55.34%

56.56%

2003

Yearly performance Robeco Chinese Equities

2.25%

61.42%

65.06%

2006

-4.09%

-5.10%

-8.98%

2004

26.86%56.37%Robeco Chinese Equities*

32.58%48.19%MSCI UCITS 10/40 World China (net)

-4.31%5.53%Outperformance**

20052007

-0.020.010.240.490.81Information Ratio

Performance Robeco Chinese Equities (as of 31 January 2008)

0.32%

-23.05%

-22.81%

YTD

5.77%

2.85%

28.25%

31.90%

2 Year

4.36%

0.05%

28.56%

28.63%

5 Year

7.66%

-0.12%

0.87%

0.74%

Dec-97(inception)

35.24%22.38%Robeco Chinese Equities*

33.55%17.82%MSCI UCITS 10/40 World China (net)

1.27%3.87%Outperformance**

5.28%4.77%Tracking error

3 Year1 Year

Track Record Robeco Chinese Equities EUR D-shares




– Summary 21

– Appendix 22

Index


Summary

– Sustainable economic boom

– Ample investment opportunities

– Excellent risk-reward trade-off

– Combination of top down and bottom up stock selection

– Active management pays off

Robeco Chinese Equities Fund


– Investment style Active (since mid-2004), all-caps, 30-40 holdings

– Investment approach Themes , Stock selection

– Benchmark MSCI UCITS 10/40 World China (Net Return)better diversified market exposure

– Tracking error* Ex-ante limit 8%, ex-post 5.3% p.a. last 3 years

– Fund size* EUR 272.5 million, launched December 1997, ca. EUR 800 million across Robeco products

– Fees Management 1.5%, total expense ratio 1.73%

– Legal status Luxembourg SICAV, UCITS III

– Fund codes ISIN: LU0187077309, Bloomberg: ROCHINE LX* Data as of 31 January 2008

Fund SpecificationsGeneral facts Robeco Chinese Equities EUR D-shares

Appendix


Important Information

This presentation has been carefully prepared by Robeco Asset Management, a trade name of Robeco Institutional Asset Management B.V. (hereafter Robeco). It is intended to provide the audience with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell securities or investment products.

The contents of this presentation are based upon sources of information believed to be reliable, but no warranty or declaration, either explicit or implicit, is given as to their accuracy or completeness. This presentation is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.

Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Results obtained in the past are no guarantee for the future.

No rights whatsoever are licensed or assigned or shall otherwise pass to persons accessing this information. Robeco Institutional Asset Management B.V. is registered with the Netherlands Authority for the Financial Markets in Amsterdam.

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Catching the Flying Dragon - LarrainVial · 2011-12-06 · March 2008 Robeco Chinese Equities 8 2....

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