Transcript Document

Asia grows - grow with it
March 2006
Presented by
Stuart Parks, Head of Asian Equities
This presentation is aimed at professional investors and market counterparties and should not be distributed or redistributed to any
other persons.
Table of
of contents
contents
2
Section 01 Asian economies and market outlook
Section 02 Valuations
Section 03 Portfolio positioning
Section 04 Performance review
Section 03 Appendix: Investment process
This document is exclusively for use by investment professionals in Continental Europe and is not for consumer use. Data as at February
2006, unless otherwise stated.
For information on fund registrations, please refer to the appropriate internet site or your local INVESCO office. This marketing document does not form
part of any prospectus. Whilst great care has been taken to ensure that the information contained herein is accurate, no responsibility can be accepted
for any errors, mistakes or omissions or for any action taken in reliance thereon. Opinions and forecasts are subject to change without notice. The value
of investments and the income from them can go down as well as up (this may partly be the result of exchange rate fluctuations in investments which
have an exposure to foreign currencies) and investors may not get back the amount invested. Past performance is not necessarily a guide to the future.
The performance data shown does not take account of the commissions and costs incurred on the issue and redemption of units. There is potential for
increased volatility in emerging stock markets, and only a modest proportion of investable wealth should be invested in them. Investing in funds focused
on specific themes, particular areas of the market or small capitalisation companies may increase the risk associated with them due to the volatility
and/or the concentrated nature of these investments. You should read the fund prospectus for specific risk factors and further information. This document
is not an invitation to subscribe for shares in the fund and is by way of information only. Asset management services are provided by INVESCO in
accordance with appropriate local legislation and regulations. www.invescoeurope.com
Asian Economies and market outlook
3
01
Forecast Summery
4
2004
China
10.1
9.5
10.1
Hong Kong
8.6
7.3
4.7
India
7.1
8.1
8.5
Indonesia
4.9
5.6
4.3
Korea
4.6
4.0
4.4
Malaysia
7.1
5.4
6.5
Philippines
6.0
5.1
5.1
Singapore
8.9
6.4
7.0
Taiwan
Thailand
6.1
6.2
4.1
4.4
5.0
4.7
Source: CSFB as at 1st March 2006
2005
2006F
Real GDP (y-y%)
Asian economies: exports and domestic demand driving
growth
5
(%YoY)
(% YoY)
12
35
10
30
8
25
20
6
15
4
10
2
5
0
0
-2
-5
-4
-10
-6
-15
-8
-20
00
00
01
02
02
03
Asian Industrial Production
Source: UBS, as at February 28, 2006
(LHS)
04
04
Asian Exports
(RHS)
05
Asia: becoming a region of spenders
6
(bn)
2,00
43%
1,80
41%
1,60
39%
1,40
37%
1,20
35%
1,00
33%
0,80
31%
0,60
0,40
29%
0,20
27%
0,00
25%
1950
1960
1970
1980
1990
Asia population aged 30-59
Source: CLSA, United Nations. Actual data to & estimates made at 1st April 2005
2000
2010E
2020E
2030E
as % of total pop (RHS)
China: cost competitiveness
7
USD/week
600
US - weekly wages
China - weekly wages
500
400
300
200
100
0
1990
1992
1994
1996
1998
Source: Bloomberg; China Statistical Yearbook; BNP Paribas Peregrine to 31st December 2004.
2000
2002
2004
Low labour costs: Exporting deflation
8
120
100
115
90
110
80
105
70
100
Chinese:
Unit Labor Costs* (LHS)
Export Prices** (RHS)
60
50
95
90
1985
1990
1995
2000
Source: © BCA Research 2005
*BCA calculation, rebased to Jan. 1995 = 100.
**defined as U.S. import prices from China. Hong Kong re-export prices prior to December 2003.
2005
Central banks are comfortable
9
35
China Bank Lending and M2 3m-moving average quarter-on-quarter
seasonally adjusted annualised growth
30
M2
Bank loans
25
20
15
10
5
0
Dez.00 Jun.01 Dez.01 Jun.02 Dez.02 Jun.03 Dez.03 Jun.04 Dez.04 Jun.05 Dez.05
Source: CLSA, as at 20th January, 2006
Valutations
10
02
Asian six-month forward P/E
11
40
35
30
25
20
15
10
5
0
Jän.95
Jän.96
Jän.97
Source: UBS as at 28th February 2006
Jän.98
Jän.99
Jän.00
Jän.01
Jän.02
Jän.03
Jän.04
Jän.05
Jän.06
Asian aggregate price-to-book value vs. ROE
12
3,0x
16%
14%
2,5x
12%
10%
2,0x
8%
6%
1,5x
4%
Asian PBV (LHS)
2%
Asian ROE (RHS)
1,0x
0%
Jän.95 Jän.96 Jän.97 Jän.98 Jän.99 Jän.00 Jän.01 Jän.02 Jän.03 Jän.04 Jän.05 Jän.06
Source: UBS as at 28th February 2006
2006 Asian earnings growth
13
EPS growth
2001
2002
2003
2004
2005
2006E
Banks & Finance
18.1%
0.5%
12.7%
37.3%
13.4%
11.3%
Basic Materials
-33.1%
60.4%
71.4%
82.2%
7.6%
-16.1%
Consumer Cyclicals
-7.5%
82.3%
1.2%
26.2.%
-2.8%
17.9%
Consumer Non-cyclicals
5.3%
30.2%
10.0%
3.8%
8.0%
15.9%
Energy
-12.4%
13.8%
31.1%
57.5%
23.9%
17.0%
Healthcare
66.6%
48.6%
18.5%
-0.7%
-7.6%
36.0%
Industrial
-10.6%
23.3%
28.7%
18.7%
-9.4%
35.8%
Real Estate
-5.7%
8.4%
5.5%
29.2%
4.2%
17.5%
Technology
-76.7%
156.4%
19.3%
116.0%
-19.6%
32.0%
Telecom
16.1%
2.3%
16.6%
28.4%
14.8%
12.1%
Utilities
5.1%
24.5%
-1.9%
12.8%
4.4%
9.4%
-17.0%
24.9%
20.2%
43.2%
6.4%
14.9%
Asia ex Japan
Source: UBS. Data & estimates as at 1st March 2005
Valuation discount to developed markets
14
 We believe the sharp discount is unwarranted and expect Asia to continue to
outperform global equities
P/E
P/B
Yield
06
07
06
07
06
07
Asia ex Japan
12.4
10.9
1.8
1.6
3.0
3.4
World
14.3
12.9
2.3
2.1
2.4
2.6
S&P 500
14.6
13.1
2.7
2.5
1.9
2.0
Europe
13.6
12.3
2.1
1.9
3.1
3.3
Source: UBS estimates as at 1st March 2006
Portfolio Positioning
15
03
INVESCO Asian Equity Fund – Sector over/underweights
16
Active sector weights
Sector
Feb-06
Benchmark
% active
Cash
7.4
0.0
7.4
Cons. Staples
8.0
3.9
4.1
Cash
Cons. Staples
Cons. Discretionary
Cons.
Discretionary
12.4
8.6
3.8
Industrials
13.0
11.1
1.9
Health Care
1.3
0.8
0.5
Telecomms Svs.
6.1
7.3
-1.2
Utilities
2.2
4.6
-2.4
Materials
3.6
6.2
-2.6
IT
20.3
23.6
-3.3
Financials
23.2
27.3
-4.1
Energy
2.4
6.9
-4.5
Industrials
Health Care
Telecomms Svs.
Utilities
Materials
IT
Financials
Energy
-10%
Source: INVESCO as at 28th February 2006. Benchmark: MSCI AC Asia Free ex Japan
*financials weighting includes positions in conglomerates Jardine Matheson and Jardine Strategic
-6%
-2%
2%
6%
10%
INVESCO Asian Equity Fund – Country over/underweights
17
Active country weights
Feb-06
Benchmark
% active
Cash
7.4
0.0
7.4
Cash
Hong Kong
16.7
14.6
2.1
Hong Kong
Indonesia
3.6
2.2
1.4
Indonesia
Thailand
3.5
2.7
0.8
Thailand
Singapore
8.2
7.5
0.7
Singapore
UK
0.7
0.0
0.7
UK
Philippines
1.3
0.7
0.6
Philippines
Malaysia
4.6
4.2
0.4
Malaysia
India
8.3
8.9
-0.6
Taiwan
16.6
20.1
-3.5
Korea
22.9
26.5
-3.6
Korea
China
6.1
12.2
-6.1
China
Country
India
Taiwan
-6,0% -4,0%
Source: INVESCO as at 28th February 2006
Benchmark: MSCI AC Asia Free ex Japan
-2,0%
0,0%
2,0%
4,0%
6,0%
8,0%
Stock example: United Phosphorus – acquisitive in
agrochemicals
18



Supportive industry backdrop
– Reduction in arable land => increased need for farm inputs
– Shift from branded/patented to generic agrochemicals
– high entry barriers, highly consolidated, distributor controlled
Expanding into high margin
export markets
300
Share price (Rs)
– organically
250
– acquisitions
Attractive valuations
200
Purchased here
150
100
Dez.04
Source: Bloomberg as at 26 February 2006
Jun.05
Dez.05
†
Stock example: Orion Corp.
19


Leading confectionary manufacturer in Korea with consistently rising market share, plus
successful expansion into China
New lottery, management and media businesses significantly exceeding forecasts
300000
Share price (KRW)
250000
200000
Purchased here
150000
100000
Jän.05
Jul.05
Jän.06
†
Source: Goldman Sachs, Bloomberg as at 28 February 2006
Performance Review
20
04
Discrete year performance (%) – INVESCO Asian Equity
Fund
21
The fund has a track record of outperforming the peer group and benchmark in bull
and bear market conditions.
1998
INVESCO Asian Equity
Fund (%)
Quartile
Sector position
MSCI AC Asia Free
ex Japan (%)
1999
2000
2001
2002
2003
2004
2005
2006
ytd
-3.6
87.8
-28.7
2.3
0.2
50.9
16.6
21.2
8.6
2
1
2
1
1
1
2
2
30/103
19/118
51/138
33/151
21/161
42/171
53/178
65/186
32/194
-7.8
64.7
-35.2
-3.8
-8.3
47.0
17.7
23.2
7.3
Past performance is not a guide to the future
Source: Standard & Poor’s on a mid-price, UK non taxpayer basis with gross income reinvested in US dollars. Quartile rank & sector position refer
to the S&P Offshore Equity Asia ex Japan sector.
As at 31st January 2006.
1
Fund awards
22
Appendix: Investment Philosophy & Process
23
05
Process Overview
24
Top Down
• liquidity backdrop
• country analysis
• sector research
Portfolio construction tilts • growth / defensive
Bottom Up
•
•
•
•
large / small cap
sector
market
position size
•
•
•
•
divergence from consensus expectations
valuation
performance catalysts
potential returns
Top
Down
Liquidity Trend Analysis
25

Liquidity conditions are the key determinant in shaping the environment for equities

Liquidity is best gauged by changes to balance of payments conditions

Findings of liquidity trend analysis determines the portfolio bias to growth or value stocks, large
vs. small caps

A projected deterioration of liquidity conditions will emphasise need for capital preservation
20
110
Asia ex China free liquidity (6mma) minus US free liquidity
Asia performance relative to US (RHS)
15
100
90
10
80
5
70
0
60
-5
50
-10
Okt.97
40
Aug.98
Jun.99
Source: UBS to October 2005
Apr.00
Feb.01
Dez.01
Okt.02
Aug.03
Jun.04
Apr.05
Feb.06
Company Research
Bottom
Up
26

Research aims to
– gain intimate understanding of the company (strategy, track record, growth potential,
financial strength)
– establish where consensus may be wrong in its assessment of the company’s
prospects

Primary research
–
–
–
–

company visits in Asia (3-4 trips per annum per fund manager)
conference calls from Henley
company meetings / conferences in London
team coverage: more than 700 company meetings per year
Secondary research
– sellside analysis helps to establish where consensus is
Portfolio Construction
Bottom
Up
27



If expected investment return of a stock looks attractive compared with
the return outlook for the asset class, include in portfolio
If expected investment return of a stock is negative, then zero weight
irrespective of benchmark weight
Size of holding in portfolio is determined by diversification, not
benchmark considerations:
large cap target weight 2%, small cap target weight 1%
Risk control
 Bottom up: usually no more than 5% in single holding, 60-85 stocks in
the portfolio, maximum 50% in small caps

Top down: maximum double or half-weighted in core markets or
sectors. Maximum 10% cash
Wichtige rechtliche Hinweise
28
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