Invest in China

1. Invest in China

2. Why the China Region? China Region China Region = Mainland, Taiwan and South Korea Competitive: A trade surplus of 200 billion US$ underscores how competitive Chinese enterprises are today RMB Revaluation (or free currency float): the question is when no if. This will mean that Chinese shares get a higher value in terms of Danish Crones There has been a string of very succesful IPOs suggesting that the Chinese people is getting interested in investing in stocks of their home market

3. The Chinese Capital Chinese people are getting interested in investing in shares. But do they have the capital for it? Savings are about 40% of the GNP, i.e. about 5 trilion RMB. Most of these savings are on bank savings accounts with low Interest rate (return)

4. My point China Region Technology Chinese Capital Good Company (share)

5. What is a share? A share is a part of a company. First of all it is a part of that companys future earnings. If those earnings vanish or even turn negative for too long, the value of the share will converge towards zero. Therefore: The management of that company get paid with your money so you want them to be capable and comitted to generating an increasing profit for the company and hence a profit for you. That said: be patient. To get to the top of the mountain, one often has to take a cumbersome detour (grafik)

6. Technology Why technology?

7. Why technology? In 2004 China imported 160 billion US$ worth of hightech Products, 8 times more that it did in 1994. This amounts to 120 US$ or about 1000 RMB for every single chinese. For semiconductors and other electronic components alone, China has a trade deficit of 59 billion US$. This means: China is increasingly hungry for technology and It needs imports to satisfy this hunger

8. 2 reasons for this hunger • China needs more raw materials. Technology replaces raw materials or encounterthe scarcity of it. • 2. China has always given high priority to education, • and Information Technology is a great tool for that.

9. Example: Solar cells and LEDs • Saves energy, material and environment • Can provide light and energy locally without powergrid

10. LED Applications

11. Enourmous color varity

12. Which companies? Good Company The four-way test • Company must have great share of the Chinese market or a product that will be interesting for the Chinese market • Company must have a solid history of making profits • Company must have clever and committed management • Company must shape its own market

13. Case 1: Lenovo Holdings Lenovo founded in Beijing in 1984 is today the third largest computer manufacturer of the world (after DELL and HP) after acquiring the PC-division of IBM. This acquisition underscores the true global vision for the company. Lenovo is dedicated to becoming the biggest, most profitable and most innovative computer manufacturer around

14. The four-way test on Lenovo • Lenovo has 35% share of the Chinese computer market • For 8 out of the last 10 years Lenovo has made strong profit and high ROIC (Return On Invested Capital) • Lenovo has clever and committed management that admits its own mistakes • The company has always been the pioneer an leader of its market The Trigger: A RMB revaluation will have strong positive effect On Lenovo profit because this profit is generated from buying Components in $ and selling in RMB.

15. Case 2: Taiwan Semiconductor Manufacturing Company Founded in 1987, TSMC the worlds number 1 semiconductor foundry. Foundry refers to the concept of manufacture services for companies that do not have the size and capital to have their own manufacture facility. Today it costs more than $5 Billion to build a wafer factory of competitive quality and size. Therefore, TSMC is the virtual factory of primarily small innovative chip design companies throughout North America and Asia

16. TSMC - The four-way test • China has a huge trade deficit on semiconductors. Demand is estimated to increase 30% annually • TSMC has shown impressive profit margins for the last 10 years. • The founder, Morris Chang is still chairman of the Board. • TSMC invented the foundry semiconductor business and has consistently led it since then with revenue more that double of its closest competitor (UMC), higher profit margins and technology leadership.

17. Case 3: Seoul Semiconductor Company Founded in Seoul in 1987, SSC makes LEDs for all applications. The company is aiming to be among the 3 world top LED manufacturers. SSC makes systems, not LED chips and its core competence is in packaging and flourescence materials.

18. The four-way test on SSC • LEDs are very interesting for the Chinese market • SSC has made profit for every year during the last 6 years • The CEO is there since 1992 • Together with American Cree, SSC is leading the way in the new white AC LEDs. The 2 companies are sharing patents

19. The UPstream Portfolio • Lenovo • Samsung Electronics • Taiwan Semiconductor Manufacturing Company • Topsil • Danware • Seoul Semiconductor Company • NC Soft • Diodes • Optical Communication Products 1

20. Advice ”It is much harder to follow good advice that it is to give it” John Fitzgerald Kennedy President of the United States 1961-63

21. My Service Invest your money in The UPstream Portfolio of Technology shares that will prosper wth the China Region. Then I will make sure that the good advice is followed. The Portfolio has shown an annual return of 18% for the last 4 years compared to the Nasdaq Technology Index that has shown only 11%. Win-Win situation: Only if your return is better than The Nasdaq Index, will my service as Portfolio Manager be of any cost to you. Then I will charge ¼ of the return above The Nasdaq Index.

22. Conclussion Shares of good technology companies that are active in the China Region offer better than average return/risk Take my advice: Invest in these shares Even better: Invest in The UPstream Portfolio so that things are taken care of in time