asian equities: past the low point, where...
TRANSCRIPT
Raymond Chan, Chief Investment Officer Equity, Asia Pacific
Asian Equities: Past the Low Point, Where Next?
Berlin, May 2017
Allianz Global Investors Asia Conference
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Forward P/E May 2016 May 2017
MSCI China 10.7x 12.4x
MSCI AC Asia ex Japan 12.3x 12.8x
60
70
80
90
100
110
120
130
140
150
Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17
Since this time last year…..
Source: AllianzGI, Bloomberg, as at 30 April 2017. Past performance is not a reliable indicator of future results.
5-Year China Government CDS
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0,0
0,2
0,4
0,6
0,8
1,0
1,2
1,4
1,6
1,8
2007 2009 2011 2013 2015 2017
# S
tock
s U
pgra
ded
/ # D
owng
rade
d
Powerful combination of low valuations and improving earnings
Asia Pacific ex Japan - 3 Months Earnings Revision Ratio
Source: BofA Merrill Lynch, MSCI, IBES, Allianz Global Investors, as at March 31 2017. Past performance is not a reliable indicator of future results.
Earnings Revision Ratio at highest level since 2011
As of 2017/03/31
1 Year Total Return (EUR)
Asia Pacific ex Japan 26.5%
Pakistan 48.4%
Taiwan 31.9%
Korea 29.1%
China 27.6%
India 26.0%
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3 Key Questions
1) Is it too late to buy Asia now?
2) Will the volatility return, especially in China?
3) After the strong run, where are the opportunities?
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Valuations still attractive, especially compared to developed markets
Forward P/E of Asia ex Japan and US Equity Markets
Source: Thomson Reuters Datastream, Allianz Global Investors, as of 4 May 2017. Past performance is not a reliable indicator of future results.
Oct-09 P/E May-17 P/E
US 14.5 18.0
Asia 14.5 12.8
AsiaDiscount 0% 29%
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Despite the focus on debt in Asia, corporate balance sheets generally resilient
% of net cash companies (ex-financials) in each region
Source: CLSA, Allianz Global Investors, as at April 2017. Past performance is not a reliable indicator of future results.
USA Asia Pacific Europe
10
15
20
25
30
35
40
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Internal
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Global investors skeptical, remain significantly underweight
Emerging Markets Weight in Global Equity Funds (ACWI + Frontier Markets)
Source: MSCI, EPFR Global, Thomson Reuters DataStream, HSBC. As of September 30, 2016 (latest available). Past performance is not a reliable indicator of future results.
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
2008 2009 2010 2011 2012 2013 2014 2015 2016
Biggestunderweight in 5 years
EM weight in MSCI ACWI +FM EM weight in Global Equity Funds
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Retail investors buying on margin fuels excessive A
share market rally
Will China equity volatility return? Not for the same reason
China Margin Trading Balance Amount
Source: Thomson Reuters DataStream, Bloomberg, Allianz Global Investors, as at 12 December 2016. Volatility is based on MSCI China A Index annualized volatility of the relative price change for the 90 most recent trading days. This is for guidance only and not indicative of future results.
Unwinding of margin positions creates extreme
selling pressure
Margin finance bubble unwound, selling pressure eases
Key reason for 2015 volatility is behind us:July 15 China A Share vol: 47.9%
Mar 17 China A Share vol: 10.2%
China macro, debt, RMB depreciation: work in progress
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China Interbank 1M Repo Rate
300
400
500
600
700
800
900
Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17
2
3
4
5
6
7
8
Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17
DCE Iron Ore Futures
Chinese authorities will not allow growth to slow too fast – stability is the key
Exceptionally easy monetary and fiscal policy in China supported economic growth
Recent tightening to prevent excessive credit growth
Global markets concerned about China weakness –falling commodity prices
Where next for China?
Source: AllianzGI, Bloomberg, as at 30 April 2017. Past performance is not a reliable indicator of future results.
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Relatively stable political situation, Trump and Kim Jong Un the unknown
Source: AllianzGI Research, as at April 2017. This document contains the current opinions of AllianzGI and its employees and such opinions are subject to change without notice. Statements concerning financial market trends are based on current market conditions, which will fluctuate. Forecasts are inherently limited and should not be relied upon as an indicator of future results. This document has been distributed for informational purposes only, does not constitute investment advice and is not a recommendation or offer of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but AllianzGI cannot guarantee that the information is accurate, current or complete.
Country Status Comments
Expect President Xi to be in power for another 5-year term. Political stability conducive for reforms. Watch for National People Congress in Q4 2017.
Modi’s party victory in key state of Uttar Pradesh Feb 2017. More confident of implementation of reform agenda.
Jakarta Governor election result a hiccup for Jokkowi mandate. Will need to monitor execution going forward.
New President Moon elected after impeachment of President Park ousted. Mandate for much-needed reform of chaebols.
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A checklist for investors in Asia
Source: www.pixabay.com, www.flicker.com
Earnings momentum
Valuations
Global investors positioning
Macro / debt stabilization
US Dollar
Geo-Politics
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12Where Are We Seeing Opportunities Internal
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Asian equity indices still biased to ‘traditional’ sectors –significant alpha opportunities in consumer, services, technology
Traditional sectors as % of index vs. GDP per capita
Source: UBS, Allianz Global Investors, as of March 2017. Traditional sectors include banks, oil & gas, basic resources, utilities and telecoms.
USJapan
Europe
Korea
Taiwan
China
MalaysiaThailand
Indo
IndiaPhilippines
Pakistan
Vietnam
10%
20%
30%
40%
50%
60%
0 10.000 20.000 30.000 40.000 50.000 60.000
Trad
ition
al s
ecto
rs a
s %
of i
ndex
GDP per capita (US$) Internal
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Samsung Elec +74%Taiwan Semi +49%Alibaba +33%Tencent +46%
MSCI AC Asia ex Japan‘The Asian STATs’
Asia big 4 tech names – ‘STATs’ - leading the market higher
Source: AllianzGI, Thomson Reuters DataStream, as at 31 March 2017. The above information is used for the purpose to demonstrate AllianzGI's research technique, it is not a recommendation or investment advice to buy or sell any particular securities and should not be considered investment advice. Past performance is no guarantee of future results. There is no assurance that any securities discussed herein will remain in the fund/portfolio at the time you receive the document.
Performance of ‘Asian STATs’ vs MSCI AC Asia ex Japan
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Areas of Opportunity: Small and mid caps catch up potential
Past 1 Year Relative Underperformance of Asian Small Caps vs Broader Market
Source: Thomson Reuters, Allianz Global Investors, as at 28 April 2017. Data is based of MSCI AC Asia ex Japan Index and MSCI AC Asia ex Japan Small Cap IndexPast performance is not a reliable indicator of future results.
Tota
l Ret
urn
in U
SD
PEG
Small Cap 0.9x
Broader Market 1.3x
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Areas of Opportunity: Unwinding Korea discount
Source:, Korea Exchange, Thomson Reuters Datatstream, Allianz Global Investors, as at April 2017. This is for guidance only and not indicative of future results.
Increasing dividend payouts by listed Korean companies
Year % of firms paying dividends
Total dividend paid (KRW trn)
2012 62.0 11.1
2013 63.4 11.8
2014 66.0 15.1
2015 66.8 19.1
2016 72.0 20.1
0
5
10
15
20
25
2012 2013 2014 2015 2016
Korean equities trade at low valuations for corporate governance reasons
More active and engaged investor base - Number of rejection votes by Korea National Pension Fund on proposed dividends
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Key Takeaways
Source: Allianz Global Investors, as at May 2017. This document contains the current opinions of AllianzGI and its employees and such opinions are subject to change without notice. Statements concerning financial market trends are based on current market conditions, which will fluctuate. Forecasts are inherently limited and should not be relied upon as an indicator of future results. This document has been distributed for informational purposes only, does not constitute investment advice and is not a recommendation or offer of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but AllianzGI cannot guarantee that the information is accurate, current or complete.
02 Market structure in
China changed, key source of volatility removed
03 Asia’s future will be
led by consumption and services, good stock picking opportunities especially mid and small caps
01 Valuations, corporate
fundamentals, global investor positioning –all supportive
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Photo sources for “Relatively stable political situation, Trump and Kim Jong Un the unknown”
• Xi Jinping Photo (cropped): http://commons.wikimedia.org
• Narendra Modi Photo (cropped): http://commons.wikimedia.org
• Joko Widodo Photo (cropped): http://commons.wikimedia.org
• Donald Trump Photo (cropped): https://en.wikipedia.org/wiki/Donald_Trump
• Moon Jae-in Photo (cropped): https://en.wikipedia.org/wiki/Moon_Jae-in
• Kim Jong-Un Photo (cropped): http://geografi.tjek.net/foto.aspx?id=868
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Disclaimer
Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors might not get back the full amount invested.
Past performance is not a reliable indicator of future results. If the currency in which the past performance is displayed differs from the currency of the country in which the investor resides, then the investor should be aware that due to the exchange rate fluctuations the performance shown may be higher or lower if converted into the investor’s local currency.
The views and opinions expressed herein, which are subject to change without notice, are those of the issuer companies at thetime of publication. The data used is derived from various sources, and assumed to be correct and reliable, but it has not been independently verified; its accuracy or completeness is not guaranteed and no liability is assumed for any direct or consequential losses arising from its use, unless caused by gross negligence or wilful misconduct. The conditions of any underlying offer or contract that may have been, or will be, made or concluded, shall prevail.
This is a marketing communication issued by Allianz Global Investors GmbH, www.allianzgi.com, an investment company with limited liability, incorporated in Germany, with its registered office at Bockenheimer Landstrasse 42-44, 60323 Frankfurt/M, registered with the local court Frankfurt/M under HRB 9340, authorised by Bundesanstalt für Finanzdienstleistungsaufsicht(www.bafin.de). The duplication, publication, or transmission of the contents, irrespective of the form, is not permitted.
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