Transcript Notre Dame - Asia Pacific Fund, Inc. (The)

The Asia Pacific Fund, Inc.
Baring Asset
Management (Asia)
Limited
19/F, Edinburgh Tower,
15 Queen’s Road Central,
Hong Kong
Tel +852 2841 1411
Global and Asian Investment Outlook
www.asiapacificfund.com
www.barings.com
Khiem Do
Authorised and regulated by the
Financial Services Authority
May 15, 2009
China To Lead The World In 2009 ?
Equity markets’ performance since 27/10/08
China up 63%, Asia up 39% and US down 1%
Source: Bloomberg (04/2009)
1
US Economy:
Where are we now ?
Banks Tightening C&I Loans to
Large Firms (%) vs. S&P 500 (Y/Y)
ISM Mfg: PMI Composite Index
Index
75
-40
70
50%
40%
65
60
55
50
45
40
30%
0
20%
20
10%
0%
40
-10%
60
-20%
-30%
80
100
Jan-09
Jan-07
Jan-05
Jan-03
Jan-01
Jan-99
Jan-97
Jan-95
Jan-93
Jan-91
Jan-89
Jan-87
Jan-85
Jan-83
Jan-81
30
-40%
Q1-91
Q1-92
Q1-93
Q1-94
Q1-95
Q1-96
Q1-97
Q1-98
Q1-99
Q1-00
Q1-01
Q1-02
Q1-03
Q1-04
Q1-05
Q1-06
Q1-07
Q1-08
Q1-09
35
-50%
Recession
Banks Tightening C&I Loans to Large Firms (%) (Left)
S&P 500 Composite (EOP 1941-43=10)
‘Green shoots’ are appearing
Source: Citi (4/2009)
2
S&P 500 (Y/Y)
Tightening - Inverted
-20
Global Economy:
Where are we now ?
G4 Economies - PMI New Orders
Emerging Economies - PMI New Orders
Index
Index
68
64
60
56
India
52
China
(sa)
48
44
US
Euro Area
UK
Japan
Russia
40
36
Brazil
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
Jul-04
28
Jan-04
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
Jul-04
32
Jan-04
64
60
56
52
48
44
40
36
32
28
24
20
16
72
‘Green shoots’ are appearing
Source: Credit Suisse (4/2009)
3
Quantitative Easing:
Every OECD central bank is doing it …..
G3+ Central Bank Balance Sheet Size
350
Size index
(100 at Jan ’07)
300
250
200
150
100
50
Jan 07
Apr 07
Euro Area
Jul 07
Japan
Oct 07
Jan 08
UK
Apr 08
Jul 08
Oct 08
Jan 09
Apr 09
US
Positive for the trend of ‘risk’ assets …..
Source: Credit Suisse (4/2009)
4
US Property Price Trend:
We seem to get closer to the bottom …..
US Real Average Existing House Price (log scale)
7.40
Real house price
7.20
Trend = 1.5% per annum
1 annualised SD = 6.9%
7.00
6.80
6.60
Aug 73
Okt 74
2.79 %
14 months
6.40
6.20
Jan 68
Jan 73
Jan 78
Jun 79
Sep 82
8.46 %
39 months
Jan 88
Dez 90
11.35 %
35 months
Jan 83
Jan 88
Jul 91
Apr 95
6.1 %
45 months
Jan 93
Jan 98
Nov 05
Feb 09
26.33 %
39 months
Jan 03
Jan 08
Real Average Existing House Price (log)
Last two months’ prices showed a slight rise:
encouraging sign …..
Source: Credit Suisse (4/2009)
5
Asia’s Balance Sheet Revisited:
Healthy
Asian corporate debt levels are close to 25 year lows
Asian banks have capacity to lend
90%
100%
Asia ex-Japan Net Debtto-Equity Ratio
80%
GDP-wgt Loan-to-Deposit Ratio
(major financial institutions)
95%
70%
90%
60%
85%
50%
40%
80%
30%
75%
20%
70%
10%
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008E
The external position of Asia is healthier today than
20 years ago in terms of current account balance...
8
6
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
... as well as external debt levels
% of GDP
% of GDP
Asia ex HK/Sing Total
External Debt as % of GDP
Asia ex HK/Sing Current Account Balance as % of GDP
31
4
26
2
0
21
-2
-4
16
84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Data prior to 1995 excludes Taiwan
Data prior to 1995 excludes Taiwan
It is most likely that Asia can weather this storm well
Source: Citi (4/2009)
6
Corporate Earnings Growth:
Downgrades bottoming out
US
120
Asia Pacific ex-Japan
Earnings Revisions Index
120
110
110
100
100
Earnings Revisions Index
90
90
80
80
70
70
60
60
50
50
Feb-08
40
Feb-08
May-08
2009
Aug-08
2010
Nov-08
Feb-09
May-08
2009
Aug-08
Nov-08
Feb-09
2010
Room for upward surprise in 2009 ?
Source: JP Morgan (4/2009)
7
Asian Equities’ Valuations:
Challenging growth in 2008/09, recovery in 2010 ?
P/E (x)
Div. Yield
(X)
P/BV (x)
Earning growth (%)
ROE (%)
Country
Current
Trailing
12m fwd
Current
Trailing
Current
Trailing
2008E
2009E
2010E
2009E
Global *
9.2
10.0
4.3
1.2
-10.3
-15.1
17.3
11.5
USA *
15.5
12.8
3.0
1.8
-22.1
-9.8
22.5
10.7
EMF Asia
10.5
10.9
3.7
1.3
-15.4
-10.7
23.0
11.2
China
12.9
12.3
3.2
1.8
-9.7
-0.8
20.4
13.3
Korea
14.5
14.0
1.7
1.2
-32.6
-9.5
44.4
7.6
*
Market forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using I/B/E/S estimates. US trailing PE is calculated as
per reported earnings. For all other markets and sectors, forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using
JPM estimates for covered stocks and I/B/E/S estimates for the rest. Companies with different yearends are calendarised to December yearends and are free
float adjusted for aggregation. Historical numbers are from MSCI.
Source: JP Morgan (4/2009)
8
Asian Equities’ Valuation:
P/B close to historical bottom
3.5
P/B
70%
60%
3.0
% Stock
trading
below book
50%
2.5
1.8x, both10and 30-yr avg
40%
2.0
30%
1.5
20%
0.92x, MXASJ at 195
1.0
0.5
Jan75 Jan79 Jan83 Jan87 Jan91 Jan95 Jan99 Jan03 Jan07
MSCI AC Asia ex Jp PBV
10%
0%
Dec-93
Dec-96
Dec-99
Dec-02
Dec-05
Dec-08
Asia Ex-Japan
Cheap
Source: Citi (4/2009)
9
US Money Market vs Equities:
Where’s the money ?
S&P 500 Market Cap vs. Household Deposits &
Currency + S&P 500 Non-Financial Corporate Cash
72%
$Millions
69%
12,000
66%
10,000
63%
8,000
Deposits + Corporate Cash
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
45%
Jan-98
Q1-2008
Q1-2006
Q1-2004
Q1-2002
48%
Q1-2000
0
Q1-1998
51%
Q1-1996
2,000
Q1-1994
54%
Q1-1992
4,000
Q1-1990
57%
Q1-1988
6,000
Jan-97
60%
Jan-96
14,000
Equity Mutual Fund Assets as a % of Total
Assets (ex Institutional Money Market Assets)
S&P 500: Market Capitalization (Bil.$)
Note: 1Q09 reading for deposits and cash held steady from 4Q08
Mountain of cash in money markets !
Source: Citi (4/2009)
10
Asian Excess Liquidity:
Accelerating
%YoY
20
% Chg
100
80
15
60
10
40
5
20
0
0
-20
-5
-40
-10
-60
-15
-80
84
86
88
90
92
94
Asian Domestic Excess Liquidity (%YoY, LHS)
96
98
00
02
04
06
08
MSCI AC Asia ex-Jp US$ Index 12-m % Chg (RHS)
Bullish for share prices
Source: Citi (4/2009)
11
Risk Appetite for Asian Equities:
Aversion or appetite ?
3.0
Risk deviation in
SDs from mean
MSCI Asia index
720
Euphoria
2.0
620
1.0
520
0.0
420
-1.0
320
-2.0
220
Distress
-3.0
120
92
93
93
94
95
96
97
98
99
00
Asia ex Japan Risk-love Indictor (S.D.,LHS)
01
02 03
04
05
06
07
08
MSCI AC Asia ex Japan (RHS)
Risk aversion has abated, but risk appetite remains low
Source: Citi (4/2009)
12
Let’s Assume That US Equities Have Troughed:
What is the upside potential ?
S&P 500 Bear Markets and Subsequent Performance
Date
Peak
09/07/1929
09/07/1932
07/18/1933
02/05/1934
03/06/1937
11/09/1938
10/25/1939
11/09/1940
05/29/1946
06/15/1948
08/02/1956
12/12/1961
02/09/1966
11/29/1968
01/11/1973
11/28/1980
08/25/1987
03/24/2000
10/09/2007
Average
Level
31.92
9.31
12.20
11.81
18.68
13.79
13.21
11.40
19.25
17.07
49.75
72.64
94.06
108.37
120.24
140.52
336.77
1527.46
1565.15
Date
Trough
06/01/1932
02/27/1933
10/21/1933
03/14/1935
03/31/1938
04/08/1939
06/10/1940
04/28/1942
05/17/1947
06/13/1949
10/22/1957
06/26/1962
10/07/1966
05/26/1970
10/03/1974
08/12/1982
12/04/1987
10/09/2002
03/09/2009
Level
4.41
5.53
8.56
8.06
8.50
10.19
8.99
7.47
13.72
13.55
38.98
52.32
73.20
69.29
62.28
102.42
223.92
776.76
676.53
Peak to Trough
% Change
1 Year Performance
from Trough
-86.18%
-40.60%
-29.82%
-31.77%
-54.48%
-26.12%
-31.94%
-34.46%
-28.75%
-20.59%
-21.65%
-27.97%
-22.18%
-36.06%
-48.20%
-27.11%
-33.51%
-49.15%
-56.78%
120.85%
95.44%
5.29%
81.41%
29.18%
23.61%
9.24%
53.68%
21.12%
42.05%
31.02%
32.66%
33.21%
43.73%
38.01%
58.33%
22.78%
33.73%
-37.23%
43.08%
S&P 500 at 966 in March 2010 ?
Source: Citi (4/2009)
13
The Asian 8-year Market Cycle:
Will 2009 be the trough for coming 8-year cycle ?
Last trough 2001 >>> next trough 2009?
P/B (X)
3.5
From trough-to-peak:
6yrs 2mths
3.0
3yrs 4mths
2.5
6yrs 2mths
4yrs 11mths
2.0
1.5
1.0
From trough-to-trough: 8yrs
0.5
Dec74
Dec78
Dec82
7yrs 11mths
Dec86
8yrs
Dec90
Dec94
Trough in 2009?
Dec98
Dec02
Dec06
Dec10
MSCI AC Asia ex Jp PBV
Good prospects for Asia’s re-rating
Source: Citi (4/2009)
14
Foreign Investors’ Flow Analysis for Asia:
Back as buyer ?
(US$m)
Total Net Flows for Asia (ex Mal/HK-China)
10,000
5,000
0
-5,000
-10,000
-15,000
-20,000
Apr-06
Aug-06
Dec-06
Apr-07
Aug-07
Dec-07
Apr-08
Aug-08
Dec-08
Apr-09
USD 4.4 bn inflow in April month-to-date !
Source: Credit Suisse (4/2009)
15
Change
Fund Strategy
Looking to add growth with focus on earnings delivery

We expect to see a continuation of relaxed macro policies globally,
as short-term economic data is expected to remain weak

Asian economies, led by China, are expected to slow down
cyclically, but remain solid structurally

With Asian equity valuations looking fair value, we continue to
selectively add to growth/cyclicals on weakness

Stock selection focuses on earnings delivery following the strong
share price rebound from distressed valuations
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Important Information
This document is provided as a service to professional investors/advisers. It is issued in the United Kingdom by Baring Asset Management Limited
and/or by its investment adviser affiliates in other jurisdictions. The affiliate serving as the Asia Pacific Fund’s investment adviser is Baring Asset
Management (Asia) Limited. In the United Kingdom this document is issued only to persons falling within a permitted category under (i) the FSA’s rules
made under section 238(5) of the Financial Services and Markets Act 2000 and (ii) the Financial Services and Markets Act 2000 (Promotion of Collective
Investment Schemes) (Exemptions) Order 2001.
This is not an offer nor a solicitation to buy or sell any investment referred to in this document. Baring Asset Management group companies, their
affiliates and/or their directors, officers and employees may own or have positions in any investment mentioned herein or any investment related thereto
and from time to time add to or dispose of any such investment. The contents of this document are based upon sources of information believed to be
reliable but no guarantee, warranty or representation, express or implied, is given as to their accuracy or completeness. This document may include
forward-looking statements, which are based upon our current opinions, expectations and projections as of the date on the cover hereof. We undertake
no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking
statements. Changes in rates of exchange may have an adverse effect on the value, price or income of an investment. There are additional risks
associated with investments (made directly or through investment vehicles which invest) in emerging or developing markets. Compensation
arrangements under the Financial Services and Markets Act 2000 of the United Kingdom will not be available.
Private investors in the Company referred to herein should obtain their own independent financial advise before making investments. This document
must not be relied on for purposes of any investment decisions. Before investing in the Company, we recommend that all relevant documents, such as
reports and accounts and prospectus should be read, which specify the particular risks associated with investment in the Company, together with any
specific restrictions applying and the basis of dealing. The Company may not be available for investment in all jurisdictions. There may also be
prohibitions or restrictions on distribution of this document and other material relating to the Company and accordingly recipients of any such documents
are advised to inform themselves about and to observe any such restrictions.
Complied (Boston): May 13, 2009
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