ISI Far East

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
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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

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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.

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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 Commod
ities Structural changes Market
analysis Relative pricing Risk aversion Supply/dem
and
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.