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Eastern Promise: Can Asian growth be sustained?

Eastern Promise: Can Asian growth be sustained?. Investment Presentation Jersey - October 2009. Speakers Tristan Hanson Jonathan Schiessl Craig Farley. Jonathan Schiessl. Ashburton Investment Models. Ashburton view from China/India Climbing the wall of worry October 2009.

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Eastern Promise: Can Asian growth be sustained?

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  1. Eastern Promise: Can Asian growth be sustained? Investment Presentation Jersey - October 2009 Speakers Tristan Hanson Jonathan Schiessl Craig Farley

  2. Jonathan Schiessl Ashburton Investment Models Ashburton view from China/India Climbing the wall of worry October 2009

  3. Stunning growthGDP per Capita growth, 1978 and 2009 Rank according to 1978 GDP/Capita Source: Nationmaster.com (1978) World Bank (2009), JI

  4. India (Nifty) H shares A shares S&P So lets look at the marketsVarious markets from Oct 08 to beginning Oct 09 % move from Oct 08 60 40 20 0 -20 -40 -60 Jul-09 Jun-09 Apr-09 Nov-08 Jan-09 Mar-09 Feb-09 Aug-09 Oct-08 Oct-09 Sep-09 Dec-08 May-09 Source: Bloomberg

  5. Stunning growthWhat about Asia ex-Japan vs. the world over the 10 years - performance We might have a correlation of 0.91 in the 12m rate of change, but… 7 Source: GaveKal

  6. Stunning growthWhat about Asia ex-Japan vs. the world over the 10 years - volatility And most surprisingly Asian markets are less volatile than world markets 7 Source: GaveKal

  7. So lets look at valuationsMSCI China from Jan 96 to end Sept 09 MSCI China P/E ratio (trailing) 60 50 40 30 20 mean 10 0 Jan-00 Jan-01 Jan-05 Jan-06 Jan-07 Jan-02 Jan-03 Jan-04 Jan-98 Jan-99 Jan-96 Jan-97 Jan-08 Jan-09 Source: Bloomberg, BNP

  8. So lets look at valuationsMSCI India from Jan 96 to end Sept 09 MSCI India P/E ratio (trailing) 35 30 25 20 mean 15 10 5 0 Jan-01 Jan-02 Jan-03 Jan-05 Jan-00 Jan-04 Jan-06 Jan-98 Jan-99 Jan-07 Jan-96 Jan-97 Jan-08 Jan-09 Source: Bloomberg, BNP

  9. Basic Materials Staples Technology Technology Staples Capital Goods Capital Goods Financials Communications Cyclical Financials Cyclical Energy Energy So lets look at current positioningAs at beginning October 09 MSCI China/India sector weightings Ashburton Chindia Fund weightings Source: MSCI, Ashburton

  10. So lets look at current positioningThe joy of China Mobile (941 HK) • Earnings growth estimates (consensus) • 2007 17% • 2008 18% • 2009 16% • 2010 13% • 11% • 6% Other data (consensus) P/E 12x Divi yield 3.7% Source: Bloomberg

  11. Cash Real asset plays Others Commodities Infrastructure Banks Clean & Green Energy Consumer related So lets look at current positioningAs at beginning Oct 09 Ashburton Chindia Fund thematic weightings Source: Ashburton

  12. And now for something differentR&D – an emerging investment focus • China and India were both global innovators in the past. Before 1600 there were 24 key inventions that spread to the West - compass, printing, cast iron, gunpowder etc etc • R&D intensity (R&D spend as a % of GDP) increasing rapidly in China (1.42% in 2006 vs EU 1.76%, US 2.62%, Japan 3.39% and India 1%) China targeting 2% by 2010 and 2.5 to 3% by 2020 • Some Chinese statistics: • China now registering more patents than the UK • 412,000 patents certified in 2008 (up 17%) • No 4 in scientific articles in international journals • 1,160 research institutes - massive inter-provincial competition • 75% of enterprise R&D done by domestic companies • Comparative advantage in sectors with large domestic market and export potential

  13. And now for something differentR&D – an emerging investment focus • Scale and low cost - the law of large numbers • Low cost innovation starting to replace low cost manufacturing as key advantage • Risks - more focus needed on innovative research, too much on technology transfer, process improvement • IP - lack of enforcement, but is slowly changing as China has more skin in the game (as happened in Taiwan when it finally reached scale) • Education - lack of focus on creativity • Opportunities – some great developments in IT, consumer goods, telecoms, chemicals and autos

  14. So lets look at China/India...Still the best horse in the glue factory China • China continues to stand in good stead amid global financial problems - strong GDP growth (back to double digit rates), low inflation • Policy remains “appropriately loose” as long as “uncertainties” persist (exports, private sector investment) • The message from Beijing is clear - no change in monetary policy • Global factors aside, we are cautiously optimistic on Chinese equities India • One of best performing markets in the face of scepticism about earnings, capital raisings, a poor monsoon and an insipid budget • Worries over fiscal deficit well known, but other macro indicators positive • Domestic demand robust, property prices reflating • BUT earnings estimates are still running below long-term trends, so still scope for upgrades • To conclude – global risks aside, if you want growth in a growth starved world…

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