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WHY JAPAN NOW?

Keith DonaldsonDirector, Japan


Where did it all go wrong

600

500

400

300

200

100

0

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

MSCI Japan

MSCI World

WHERE DID IT ALL GO WRONG?

Source: Datastream. As at 31 December 2005.



Bankingcrisis

14 year bear market


Deflation

14 year bear market


Unwind

14 year bear market


Income correction

14 year bear market


Then and now post bubble problems

Land price*

Bank sector performance**

400

1600

TopixBanks

350

1400

Topix

300

1200

CORNER TURNED IN 2003

250

1000

200

800

150

600

100

400

50

200

0

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

Mar-91

Mar-92

Mar-93

Mar-94

Mar-95

Mar-96

Mar-97

Mar-98

Mar-99

Mar-00

Mar-01

Mar-02

Mar-03

Mar-04

Mar-05

THEN AND NOWPost bubble problems

*Source: Japan Real Estate Institute. As at 30 November 2005. ** Source: Datastream. As at 31 December 2005.


Then and now price deflation is the bear

3.50

3.00

2.50

2.00

INFLATION IS THE BULL

1.50

1.00

0.50

0

-0.50

-1.00

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

CPI % change

Martin Currie estimate

THEN AND NOWPrice deflation is the bear

Source: Datastream. As at 31 December 2005.


Then and now unwind

1000

500

0

-500

-1000

-1500

-2000

-2500

1997

1998

1999

2000

2001

2002

2003

2004

2005 to date

Banks

Insurance companies

THEN AND NOWUnwind

Bn ¥

Source: Tokyo Stock Exchange. As at 31 October 2005.


Then and now corporate restructuring ended now investing again
THEN AND NOWCorporate restructuring ended – now investing again

Capacity*

ROE**

12.0

10.0

Denial

8.0

Growth

6.0

Correction

Bull market

4.0

2.0

0.0

-2.0

-4.0

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

*Source: METI and KBC. As at 31 December 2005. **Source Daiwa. As at 31 December 2005.


Then and now tightening labour market

1.6

1.4

1.2

1

Job offers:applicants

0.8

0.6

0.4

0.2

0

Mar-88

Mar-89

Mar-90

Mar-91

Mar-92

Mar-93

Mar-94

Mar-95

Mar-96

Mar-97

Mar-98

Mar-99

Mar-00

Mar-01

Mar-02

Mar-03

Mar-04

Mar-05

THEN AND NOWTightening labour market

RISING INCOMES

Source: Ministry of Health, Labour and Welfare. As at 30 November 2005.


Outlook
OUTLOOK

Economy 

Consumption 

Capex 

Corporate change 

Financial system 

Supply and demand 

Reform 



Japan investment team

Keith Donaldson:

Director

26 years’ investment experience

17 years’ experience of Japan

John Millar:

Director

11 years’ experience of Japan

Michael Thomas:

Director, team leader

30 years’ experience of Japan

16 years at Martin Currie

Michael McNaught-Davis:

Director

17 years’ experience of Japan

JAPAN INVESTMENT TEAM

John-Paul Temperley:

Director, Japanese linguist

8 years’ experience of Japan

Kevin Troup:

Director

10 years’ experience of Japan

Katy Marchbank-Smith:

Investment analyst

3 years’ experience of Japan

Eri McKenna:

Japan investment research co-ordinator

Japanese national

As at 31 December 2005.


Our competitive advantages
OUR COMPETITIVE ADVANTAGES

  • Proven and experienced team

    • Independence of mind

    • Dynamic decision-making

    • Collaboration

  • Size and location advantage

    • Big enough to get quality service

    • Investment team in one location

    • Ideal time zone – reflect on Tokyo, react to Wall Street


Investment universe
INVESTMENT UNIVERSE

Japan equity universe

Research universe

Topix 33 sectors1,643 stocks

Other2,057 stocks

Total3,700 stocks

Research focus

Japan core

65-75 stocks

700 stocks

200 to300 stocks

Japan Alpha

30-40 stocks

  • Select for portfolios on:

    Fundamental analysis

    Company meetings

    Team discussion

    Valuation screens

    Technical analysis

Filter on:

Liquidity (>$2m of average daily turnover)

Market cap >$300m

Filter on:Relevance to top-down analysis


Investment process
INVESTMENT PROCESS

Technical overlay

  • Supply/demand

  • Entry/exit points

  • Bottom-up

    • Prospects for top line growth

    • Competitive advantage

    • Attractive stage in margin cycle

    • Focused management

    • Financial strength

    • Valuation

Top-down

  • Macro analysis

  • Market structure

  • Regulatory environment

  • Looking for top line growth


+21.3

+20.4

+16.4

+11.8

+7.9

+7.1

+6.5

+6.2

+5.9

+4.7

+3.3

+1.6

+0.9

+0.5

+0.2

-1.7

-4.2

1989*

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

LONG-TERM PERFORMANCE RECORD

Martin Currie Japan Fund

Martin Currie Japan Fund – Out-performance versus the Topix

Past performance is not a guide to future returns.Source: Lipper Hindsight. Bid-bid basis with gross income reinvested over calendar years to 31 December 2005 (£). Net of fees performance has been grossed up internally using a fee rate of 1.25% to 31 May 2002 and 1.50% going forwards. *From 14 September 1989.


Summary
SUMMARY

  • The bear market is over

  • The economic backdrop is positive

  • We have an experienced and well resources team

  • We have a proven, tried and tested investment process


Regulatory information
REGULATORY INFORMATION

Martin Currie Investment Management Limited (MCIM) has issued and approved this presentation in its capacity as investment adviser. MCIM is referred to throughout as ‘Martin Currie’. MCIM is authorised and regulated by the Financial Services Authority and is a member of the Investment Management Association. Registered in Scotland (no 66107), registered address Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2ES.

The presentation may not be distributed to third parties and is intended only for the attendee. The presentation does not form the basis of, nor should it be relied upon in connection with, any subsequent contract or agreement. It does not constitute, and may not be used for the purpose of, an offer or invitation to subscribe for or otherwise acquire shares in any of the products mentioned.

The information contained in this presenter has been compiled with considerable care to ensure its accuracy. But no representation or warranty, express or implied, is made to its accuracy or completeness. Martin Currie has procured any research or analysis contained in this presentation for its own use. It is provided to you only incidentally, and any opinions expressed are subject to change without notice.

Past performance is not a guide to future returns. Markets and currency movements may cause the value of investments and income from them to fall as well as rise and you may get back less than you invested when you decide to sell your investments. There can be no assurance that you will receive comparable performance returns, or that investments will reflect the performance of the stock examples, contained in this presenter. Movements in foreign exchange rates may have a separate effect, unfavourable as well as favourable, on the gain or loss otherwise experienced on an investment.

Funds which invest in one country carry a higher degree of risk than those with portfolios diversified across a number of markets.

Investment in the securities of smaller and unquoted companies can involve greater risk than is customarily associated with investment in larger, more established, companies. In particular, smaller companies often have limited product lines, markets or financial resources and their management may be dependent on a smaller number of key individuals. In addition, the market for stock in smaller companies is often less liquid than that for stock in larger companies, bringing with it potential difficulties in acquiring, valuing and disposing of such stock. Proper information for determining their value, or the risks to which they are exposed, may not be available.

Investment in derivative instruments, including futures, options or contracts for differences, carries a high risk of loss, the markets in these investments being very volatile. A relatively small adverse market movement may result not only in the loss of the original investment but also in unquantifiable further loss exceeding any margin deposited. Warrants often involve a high degree of gearing so that a relatively small movement in the price of the security to which the warrant relates may result in a disproportionately large movement, unfavourable as well as favourable, in the price of the warrant.


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