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ISI Far East

ISI Far East. Things will never be the same again …. Overview. ISI facts Important Far Eastern trends Far Eastern trade Sound businesses Characteristics of the Far East and China Country and industry preferences Risks Investment philosophy and investment process

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ISI Far East

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  1. ISI Far East Things will never be the same again …

  2. Overview • ISI facts • Important Far Eastern trends • Far Eastern trade • Sound businesses • Characteristics of the Far East and China • Country and industry preferences • Risks • Investment philosophy and investment process • Questions

  3. Urbanisation in Asiacurrent migration Migration from rural to urban areas a long-term trend contributing to growth and demand for commodities

  4. Rising income in China- also for rural population Rising income = growing private consumption

  5. Disposable income andhouse price developments in China Wages House prices Wage rise faster than house prices

  6. China an agricultural country? Source: GaveKal Too many employed on inefficient farms

  7. Household debt/GDP Other debt Mortgage debt Source: GaveKal

  8. Chinese savings motivations Source: HSBC

  9. USD/RMB . USA Japan Korea Kina kilde: BCA Research The only way is …

  10. Exports from Asia to USA declining . USA Japan Korea Kina Source: BCA Research Result: less dependency on debt-ridden US consumers

  11. Declining debt/equity ratio butROE remains high Debt/equity ROE Source: CLSA Reduced risk at lower global growth

  12. Equity yields exceed bond yields Source: CLSA Numerous opportunities of finding secure equities in Far East

  13. Far East • Economic growth is stable and high • likely to remain so in 10-15 years • Rapidly rising purchasing power among private households • new consumers appear every day • Positive demographic development • Swelling trade in the Far East • reduces dependency on USA • Positive development of various balances • countries capable of countering recession • Sound companies with good earnings

  14. China • Share markets are liquidity driven • 90,000 new stock accounts every day • Reduction in corporation tax • from 33% to 25% • Rising exchange rate • High growth in earnings • Listing of H shares in China • PetroChina and China Mobile • 2008 Olympics

  15. Country weights Overweights • China, Hong Kong and Macau • Singapore • Malaysia Underweights • Korea • Taiwan • Thailand

  16. Industry preferences • Real property • private homes, office buildings and hotels • Retail sales • Financials • Infrastructure • Telecommunication • Food • Commodities • food, metals and oil • Technology – substantial underweight

  17. Risks • Measures imposed by Chinese authorities to bring booming economy to a halt are too stringent • US housing market to weaken and USD to plunge • Growth in global economy triggers rising inflation and interest rates • Oil price to exceed USD 100 per bbl

  18. Investment philosophy Sydbank Emerging Markets & Structured Credit aims to offer customized, premium quality investment products as well as active investment management ensuring high, long-term performance. By investing in Emerging Markets we believe that we can generate risk adjusted excess value based on seven fundamental elements: Active management enables us to generate outperformance. We access the market with a top-down approach, focussing on getting countries and sectors right. We believe that investing in long or short themes can add value to the portfolio. Identification of differences between market value and fair value that are not due to fundamental issues can contribute to outperformance. We believe that ability to act fast on new information is crucial for our outperformance. We believe that teamwork and a disciplined investment process is necessary in order to be fast-reacting. We believe that cooperation with external advisors is necessary and value adding.

  19. Investment process PHASE 1 PHASE 2 PHASE 3 GLOBAL VIEW COUNTRY / SECTOR ALLOCATION STOCK SELECTION Global factors and themes Interest rates Currency Inflation Growth Geopolitics Commodities Structural changes Market analysis Relative pricing Risk aversion Supply/demand Quantitative factors Macro economy Valuation Geographical placement Trading relations Credit rating Qualitative factors Political stability/prospects Reform agenda Budget planning Financial system International relations Central bank • Micro research • External advisors • Valuation • Management quality • Top line growth • Earnings growth / quality • CF generation • Balance sheet strength • Investment horizon: • Strategic/tactical Portfolio risk profile and themes Country / sector selection Final portfolio Feedback to the process: Investment guidelines, legislative investment rules, attribution analysis etc.

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