Transcript Document

Opportunities in a Changing Japan
International Investment – Italian Forum 2007
November 2007
Stephen Tong
President and CEO, AllianceBernstein Japan
Team Leader, Japan Growth Equities
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obtained from the Distributor.
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capital variable), an open-ended investment company organized under the laws of Luxembourg, which conducts business outside of Germany, Austria and Switzerland under the
name AllianceBernstein.
There is no guarantee that any forecasts or opinions in this material will be realized. Information should not be construed as investment advice.
For financial representative use only. Not for inspection by, distribution or quotation to, the general public.
Opportunities in a Changing Japan
Surging BRICs economies supporting high growth of export-related equities.
Stable domestic economic recovery should support stable growth in domestic-oriented names.
Through their distinct fundamental research capabilities, our AllianceBernstein Japan Growth
investment team and our AllianceBernstein Japan Strategic Value investment team are both
finding compelling investment opportunities.
Current analysis does not guarantee future results.
As of October 2007
Source: AllianceBernstein
For financial representative use only. Not for inspection by, distribution or quotation to, the general public.
AllianceBernstein
1
What’s Changed? More Consistent Domestic Contribution to GDP
Percent Contribution to GDP Growth
Contribution to GDP Growth
Export Growth – Consumption Growth
3.0
12
2.5
10
2.0
8
6
1.5
4
1.0
2
0.5
0
0.0
(2)
(0.5)
(4)
(1.0)
Domestic
(1.5)
Exports
(2.0)
FY1997
2000
2003
2006
(6)
(8)
(10)
FY1997
2000
2003
2006
Current analysis and estimates do not guarantee future results.
As of October 2007
Source: Goldman Sachs and AllianceBernstein
For financial representative use only. Not for inspection by, distribution or quotation to, the general public.
AllianceBernstein
2
Half of the Japan Equity Market is Exports
Global-related
Pharmaceuticals
Machinery
Resources-related
100
Exports
90
80
Cap Ex
Auto-related
Percent of
70
Government
60
Technology
50
Domestic-related
Other
Food
Retail
Transportation
Utilities
Info/Communication
Chemicals
Financials
40
30
Consumption
20
10
0
GDP
TOPIX
Current analysis does not guarantee future results.
As of October 2007
Source: Bank of Japan, Tokyo Stock Exchange and AllianceBernstein
For financial representative use only. Not for inspection by, distribution or quotation to, the general public.
AllianceBernstein
3
Exporters Delivering Robust Recurring Profit Growth This Year
18%
Recurring Profit Growth (%)
16%
14%
12%
10%
8%
6%
4%
2%
0%
2007
2008E
Domestic
Export
Current analysis and estimates do not guarantee future results.
As of October 2007
Source: I/B/E/S, Tokyo Stock Exchange and AllianceBernstein
For financial representative use only. Not for inspection by, distribution or quotation to, the general public.
AllianceBernstein
4
Large Business Confidence Steady: Tankan Survey
BOJ Tankan
60
Corporate Forecasts
Diffusion Index (%)
40
20
0
-20
-40
-60
90
91
92
93
94
95
96
Large Manufacturing
Small Manufacturing
97
98
99
00
01
02
03
04
05
06
07Q4
07
Large Nonmanufacturing
Small Nonmanufacturing
Current analysis and estimates do not guarantee future results.
Through October 2007
Source: Japan Cabinet Office and AllianceBernstein
For financial representative use only. Not for inspection by, distribution or quotation to, the general public.
AllianceBernstein
5
BRICs-bound Exports Have Surpassed US-bound Exports
Export Value Bound for the US and BRICs
Exports to BRICs
1.8
300
140
US-Bound Exports
1.6
120
250
General Machinery Exports
100
Yen Billions
1.2
1.0
0.8
200
80
60
150
Yen Billions
Yen Trillions
1.4
40
0.6
100
0.4
Car Exports
BRICs-Bound Exports
0.2
50
93
95
97
99
01
03
05
07
20
0
96
98
00
02
04
06
Current analysis does not guarantee future results.
Through February 2007
Source: Japan Ministry of Finance and AllianceBernstein
For financial representative use only. Not for inspection by, distribution or quotation to, the general public.
AllianceBernstein
6
Investment Opportunity: Nickel Price Forecasts
Nickel Price (Left Scale)
2,500 LME Inventories
2,000 (Right Scale)
1,500
1,000
500
0
89
92
95
160
120
80
40
1,000 Tonnes
 Nickel prices have surged to record highs on
supply constraints, falling inventories and strong
demand for stainless steel, which consumes some
65% of the world’s nickel
USc/lb
Nickel Price vs. LME Inventory
0
98
01
04
07 08
China’s Role in World Nickel Demand
2004
Others
27%
 While there are concerns that de-stocking of
stainless steel inventories in the US may start
pressuring nickel prices, we believe growing nickel
demand from China continue to underpin the
market
2007
North America
11%
China
12%
Europe
36%
North America
11%
Others
24%
China
21%
Japan
14%
Europe
32%
Japan
12%
Nickel Price Forecast
 Longer-term, sustained difficulties in developing
greenfield nickel projects are likely to keep prices
supported for longer than widely assumed
US$/lb
Nickel LME
2,650
2,150
1,650
1,150
650
150
Spot/Forward Curve
Alliance Growth
Equities Estimates
Consensus
Current analysis and estimates do not guarantee future results.
88
90
92
94
96
98
00
02
04
06
For illustrative purposes; the stock example above is intended only to illustrate the application of our investment philosophy, and this particular security may or may not be held in the current Japan
Growth portfolio. The reader should not assume that this was, or will be, a profitable investment. Please read Disclosure on Stock Examples.
As of March 2007
Source: Bloomberg, LME, Morgan Stanley and AllianceBernstein
For financial representative use only. Not for inspection by, distribution or quotation to, the general public.
AllianceBernstein
7
Investment Opportunity: Stock Example
Pacific Metals, Sumitomo Metal Mining
Our EPS Estimates vs. Consensus: Pacific Metals
 Pacific Metals, Japan’s largest ferronickel
producer, is likely to benefit most from strong nickel
prices and sustained revisions in consensus
expectations
207
175
151
153
Mar 07E
Alliance Forecasts
Mar 08E
Consensus Forecasts
World Nickel Reserve Potential by Ore Type
120
100
Mt
 Sumitomo Metal Mining’s innovative technologies*
in processing nickel from low-grade laterite ore will
enable aggressive production growth; The firm
aims to double annual nickel production to 100,000
tonnes by 2013, with more upside potential
80
Laterite Ore
(Low grade)
60
40
Sulfide Ore
(High grade)
20
0
Existing Mines
Undeveloped Mines
Current analysis and estimates do not guarantee future results.
For illustrative purposes; the stock example above is intended only to illustrate the application of our investment philosophy, and this particular security may or may not be held in the current Japan
Growth portfolio. The reader should not assume that this was, or will be, a profitable investment. Please read Disclosure on Stock Examples.
*Some of those technologies include the Matte Chlorine Leach Electrowinning (MCLE) method, which enables more efficient leaching of nickel using less energy, and the High Pressure Acid
Leach (HPAL) technology, which facilitates nickel extraction from low-grade laterite ore
As of March 2007
Source: Commonwealth Scientific Industrial Research Organization, BEST, JOGMEC and AllianceBernstein
For financial representative use only. Not for inspection by, distribution or quotation to, the general public.
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8
Interest Rate Differential Limits Yen Strength, Benefitting Exporters
Dollar/Yen and Interest Rate Differential
10-Yr Treasury vs 10-Yr JGB
(Right Scale)
125
3.3
Weaker Yen
120
115
2.9
110
Dollar/Yen
(Left Scale)
Percentage Points
Dollar/Yen
3.1
2.7
105
Stronger Yen
100
12/04
2.5
3/05
6/05
9/05
12/05
3/06
6/06
9/06
12/06
3/07
6/07
9/07
Current analysis does not guarantee future results.
As of October 2007
Source: Bloomberg
For financial representative use only. Not for inspection by, distribution or quotation to, the general public.
AllianceBernstein
9
Slow Pace of Monetary Policy Normalization Sustains Rate Differential
Estimated Neutral Policy Rate
2.0
1.5
% Point
Real Interest Rates
Forecast Interest Rates
1.0
0.5
0.0
(0.5)
99
00
01
02
03
04
05
06
07
08
Current analysis and estimates do not guarantee future results.
As of October 2007
Source: Bloomberg, Japan Ministry of Internal Affairs and Communication and AllianceBernstein.
For financial representative use only. Not for inspection by, distribution or quotation to, the general public.
AllianceBernstein
10
GDP Growth Steady But Lower Than Other Regions
GDP Growth
8.8%
8.8%
Non-Japan Asia
6.6
EEMEA*
6.2
4.9
Latin America
4.2
3.5
3.4
Global
Euro Area
Japan
US
2.7
2.2
2.0
2.0
2007E
2.0
2.6
2008E
Current analysis and estimates do not guarantee future results.
As of October 2007
*Eastern Europe, Middle East and Africa
Source: AllianceBernstein
For financial representative use only. Not for inspection by, distribution or quotation to, the general public.
AllianceBernstein
11
Strong Employment Growth Should Support Consumption …
Regular Employment and
Estimates on Wage Income
Consumption Composite Index
6
August
111
5
4
109
Regular Employment
2
107
1
Index
YoY % Change
3
0
105
(1)
(2)
103
(3)
Cash Salary (3mma)
(4)
101
(5)
91
93
95
97
99
01
03
05
07
03
04
05
06
07
Current analysis does not guarantee future results.
Through April 2007
Source: Japan Cabinet Office, Ministry of Health, Labor and Welfare and AllianceBernstein
For financial representative use only. Not for inspection by, distribution or quotation to, the general public.
AllianceBernstein
12
… But the Population is Set to Decline
Population
0.0
140
(0.2)
130
(0.4)
Millions
(0.6)
110
(0.8)
YoY % Change
120
100
(1.0)
90
(1.2)
80
(1.4)
05
10
15
20
25
30
35
40
45
50
55
Current analysis and estimates do not guarantee future results.
As of September 2007
Source: National Institute of Population and Social Security Research and AllianceBernstein
For financial representative use only. Not for inspection by, distribution or quotation to, the general public.
AllianceBernstein
13
Steady Decline in Cross-Shareholdings
Distribution Percent of Market Value Owned
by Type of Shareholder
35
Business Corporations
30
25
Individuals
Percent
20
15
Banks (ex Trust banks)
10
Foreigners
Pension Plan Trusts
5
Investment Trusts
Public/Governments
0
80
82
84
86
88
90
92
94
96
98
00
02
04
06
Current analysis does not guarantee future results.
Through December 2006
Source: Daiwa, Tokyo Stock Exchange and AllianceBernstein
For financial representative use only. Not for inspection by, distribution or quotation to, the general public.
AllianceBernstein
14
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Percent of Sector Market Cap
16% of TOPIX Market Cap Has Adopted Takeover Defense Measures
100
80
60
40
20
0
Current analysis does not guarantee future results.
As of 31 May 2007
Source: ISS, Tokyo Stock Exchange and AllianceBernstein.
For financial representative use only. Not for inspection by, distribution or quotation to, the general public.
AllianceBernstein
15
Japan Market Valuations Have Normalized
P/E
80
MSCI Japan
MSCI North America
MSCI Europe
MSCI Pacific ex JP
Percent
60
40
20
0
87
90
93
96
99
02
05
Current analysis does not guarantee future results.
As of August 2007
P/E is based on I/B/E/S 12-month forecast.
Source: I/B/E/S, MSCI and Morgan Stanley Research
For financial representative use only. Not for inspection by, distribution or quotation to, the general public.
AllianceBernstein
16
Japan More Attractive After Pacific Ex-Japan Re-Rating
EPS Growth & Price-to-Earnings
Pacific ex-Japan High
1.0
5.0
P/E
(Pacific ex-Japan / Japan)
(right scale)
40
4.5
0.8
4.0
ROE
3.5
20
0
0.4
-20
3.0
Ratio
0.6
Ratio of P/E
Difference of EPS Growth (Percent)
60
Ratio of ROE & Price-to-Book
(Pacific ex-Japan / Japan)
2.5
2.0
1.5
0.2
-40
Japan High
-60
88
91
94
EPS Growth
(Pacific ex-Japan – Japan)
(left scale)
0.0
97
00
03
06
1.0
P/B
0.5
0.0
88
91
94
97
00
03
06
Current analysis does not guarantee future results.
Through September 2007
Source: IBES, MSCI, Morgan Stanley Research and AllianceBernstein
For financial representative use only. Not for inspection by, distribution or quotation to, the general public.
AllianceBernstein
17
Future Style Leadership Within Japan Not Clear
Relative Style Index Valuation
Ratio of MSCI Japan Growth P/B to
MSCI Japan Value P/B
3.0
2.5
2.0
1.5
1.0
89
91
94
97
00
03
06
Current analysis, estimates and valuations do not guarantee future results.
As of August 2007
Source: FactSet, I/B/E/S and MSCI
For financial representative use only. Not for inspection by, distribution or quotation to, the general public.
AllianceBernstein
18
Value Opportunity is at a Low
Discount to Fair Value*
60
50
Percent
40
30
20
10
0
71
73
76
79
82
85
88
91
94
97
00
03
06
Current analysis, estimates and valuations do not guarantee future results.
Discount to Fair Value = As of 1 January 2007; P/E, P/B = As of 31 May 2007
*Chart represents the amount by which the most attractively priced quintiles of Japanese stocks sell below overall market valuations. The proportion of Bernstein investments in stocks from this
group will vary over time but will typically be high. Bernstein’s estimates of fair value of these stocks may not be realized for variety of reasons.
Source: Compustat, DataStream, DRI, FactSet, I/B/E/S, MSCI and Bernstein estimates
For financial representative use only. Not for inspection by, distribution or quotation to, the general public.
AllianceBernstein
19
AllianceBernstein: Japan Equity Portfolios
Alliance
Bernstein─J
apan
Strategic
Value
50%
50%
AllianceBernstein─
Japan Equity Blend
Alliance
Bernstein─
Japan
Growth
Japan Strategic Value
Japan Equity Blend
Japan Growth
 High-alpha Value strategy
 High-alpha Core strategy
 High-alpha Growth strategy
 Invests in companies that are
valued at a discount relative to
their long-term earnings power
 Initial combination of 50% Growth
and 50% Value strategies
 Invests in the “Dynamic Gap”:
Growth companies that are set to
deliver earning growth that is
higher than market expectations
 High-conviction portfolio of 30-50
stocks
 Maintains high-conviction stockpicking of style-based strategies
 High information ratio as premium
of the Value strategy is not
correlated with that of the Growth
strategy, and therefore mitigates
style risk
 High-conviction portfolio of 40-50
stocks
 Systematic rebalancing when mix
reaches 55%/45%
 High-conviction portfolio of 55-85
stocks
Investment policies apply under normal market conditions.
As of 30 September 2007
For financial representative use only. Not for inspection by, distribution or quotation to, the general public.
AllianceBernstein
20
Disclosure on Stock Examples
References to specific securities are presented to illustrate the application of
our investment philosophy only and are not to be considered recommendations
by AllianceBernstein. The specific securities identified and described in this
presentation do not represent all of the securities purchased, sold or
recommended for the portfolio, and it should not be assumed that investments
in the securities identified were or will be profitable.
For financial representative use only. Not for inspection by, distribution or quotation to, the general public.
AllianceBernstein
21