trends and opportunities of investing in emerging market

Investing in Emerging Market 4th Dec 2014

Trends and opportunities of

investing in emerging market

Steven Yang Yu

1


What should you consider

before designing investment

strategy?

2


1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400GBP Millions

3

Begin with the end in mind

Assets:

£1.6bn

Assets:

£1.8bn

Required Return:7% per

year

Required Return: 5% per

year

Liabilities:

£2.3bn

Return Requirement?

Risk budget?

Governance

structure?

Liquidity profile?

Full Funding

(Assets =

Liabilities)

“All investment strategy starts with the clear

goals, objectives & constraints of the client,

including a defined and agreed risk budget”

- Redington Investment Principle

Investing in Emerging Market 4th Dec 2014 4

Achieving your end game

Assets with

Cash FlowsSmooth Volatility

Liability Driven

Investment /

Hedging

Property Leases

Corporate Bonds

Developed Market Equity

Emerging Market Equity

Emerging Market Debt

Risk Parity

Multi-Asset

Infrastructure

Meeting the Gap


Why Emerging Market?

5


Capital Market Under Represented

Source: Neuberger Berman

7.0%

15.0%

41.0%

49.0%

64.0%

75.1%

82.9%

93.0%

85.0%

59.0%

51.0%

36.0%

24.9%

17.1%

0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0%

Debt Market Cap

Equity Market Cap (Float Adjusted)

GDP at Market Rates

GDP at PPP

Foreign Exchange Reserves

Land Mass

Population

Emerging Market Economies as % of Total World

Emerging Markets Developed Markets


Economic Contribution Continues to Increase

Source: IMF World Economic Outlook, April 2014

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Contribution of GDP by Country

others Latin America Rest of EM Asia China Japan Japan North America

North America (35% to 24%)

Developed Europe (27% to 23%)

Japan (13% to 6%)

China (4% to15%)

Rest of EM Asia (3% to 7%)

Latin America (5% to 7%)

Others (12% to 18%)


Rising Domestic Consumption

2634

12

30

0

10

20

30

40

50

60

70

2010 2025

in $

Tri

llio

n

World Consumption Growth

Developed Market Emerging Market

Compound Growth 2.0%

Compound Growth 8.4%

Source: FundSmith

4

6

8

10

12

14

16

18

20

% of Households with Disposable Income > $25,000 USD in China


Healthy Balance Sheets

0

20

40

60

80

100

120

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

General Government Gross Debt (% of GDP)

Developed Market Emerging Market

Source: IMF World Economic Outlook, April 2014


Growing Investment Universe

EM Fixed Income Universe EM Equity Market Cap (USD Trillions)

Source: Ashmore


Asset Strategies

• Passive Equity

• Active EquityEquity

• Sovereign Bond

• Corporate Bond

Fixed Income

• Property

• Private EquityIlliquid


I skate to where the puck is going to be, not where it has been.

Wayne Gretzky

Identifying Trends and Opportunities


Case Study for ChinaTrends due to technological change

13


“Internet will change

people’s life”

1999 Jack Ma –

Founder of Alibaba Group

Technological Change


E-commerce company,

founded in 1999

$9.3 billion sales on 11 Nov 2014

Market value $280 billion

Instant/mobile messenger, founded in 1998

850 million monthly active users


Search engine, founded in 2000

Handling 5 billion search queries per day




“take a human desire, preferably one that has

been around for a really long time. Identify that

desire and use modern technology to take out

steps.”

Evan Williams – Co-Founder of

Twitter

Technological Change1 – Eliminating steps


Who stole my cheese??

Technological Change2 – Cross Sector Competition


Technological Change2 – Cross Sector Competition


MACHINERY LABOUR

CAPITALLAND

Intellectual property

Patents

Brand

New Technology

Data

User Platform

Goodwill

Customer Base

Human Capital

I

n

t

a

n

g

i

b

l

e

s

T

a

n

g

i

b

l

e

s

Technological Change3 – Recognition of Intangible Assets


Technological Change4 – Innovate or Die


QQ Online

Game

QQ Blog

Webmail

QQ Mobile

App, Expand

Value Added

Services

Mobile IM

Wechat

Launched

Mobile Social

Media

Apps for

taxi/flight

booking

Mobile

Payment

Platform

Technological Change4 – Innovate or Die


Customer First

Team Work

IntegrityEmbrace Change

Passion Commitment

Technological Change5 – Unique and clear differentiation


Technological Change5 – Unique and clear differentiation


Embracing Changes

trends and opportunities of investing in emerging market

Economy & Finance