Japan: Groundhog day? COMMONLY HELD VIEWS “I’ve only ever lost clients money in Japan.” “I don’t need to have anything in Japan. I’d rather own Asia.” “Why should I buy the Japanese market when Japanese investors don’t?” FINDING AN OPPORTUNITY 110 1900 105 1700 100 1500 95 90 1300 85 1100 80 Leading Indicators (LHS) 70 1993 900 TOPIX (RHS) 75 700 1994 1995 1996 Source: KBC Securities Japan 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 FINDING AN OPPORTUNITY 1000 1800 800 1600 600 400 1400 200 De c08 ay -0 8 M O ct -0 7 ar -0 7 M -0 6 Au g Ja n06 -0 5 Ju n -0 4 No v Ap r04 O ct -0 3 -0 2 ar -0 3 M -200 1200 Au g Ja n02 0 1000 -400 -600 800 -800 -1000 Copyright 2007 Bloomberg LP 600 INVESTING IN THE LONGER TERM Standard Deviation from PSR Current 10-Year Mean 10-Year Mean Standard Deviation from 10-Year Mean 0.5x 0.9x (1.7) (2.2) 0.5x 0.9x (1.9) 2.6x (2.9) 0.9x 1.4x (1.8) 1.2x 2.4x (2.0) 1.3x 2.2x (2.1) Nippon Electric 1.6x 2.1x (1.1) 2.4x 2.4x 0.0 Shionogi 0.9x 2.0x (1.2) 1.0x 1.4x (0.5) PBR current 10-Year Mean Toyota Motor 0.9x 1.8x (2.0) Denso 0.8x 1.5x Canon 1.1x Shin-Etsu Chemical Source:Macquarie as at 23 February 2009 SO WHY BOTHER WITH JAPAN? Global-leading, well-managed companies Strength of the “Japanese business model” drives home competitive advantage Key beneficiaries of long-term Asian growth Country of domicile is an advantage – “Japan discount” weighs heavy on valuations Listed corporate earnings are very different from Japanese GDP CASE STUDY Toyota 150.00 QUALITY - Balance sheet strength driving market share gains 140.00 VALUE - Trading at significant discounts to long-term valuations 130.00 120.00 110.00 100.00 GROWTH - Continued investment has created the platform for sustainable future growth 90.00 CHANGE - Inventory adjustment nearing completion. Cost reduction is important theme 80.00 09 nJa 08 vNo 08 pSe 8 l-0 Ju 08 ay M 08 ar M 8 0 nJa 07 vNo 07 pSe 7 l-0 Ju 07 ay M 07 ar M 7 0 nJa 06 vNo 06 pSe 6 l-0 Ju 06 ay M 06 ar M 6 0 nJa 05 vNo 05 pSe 5 l-0 Ju 05 ay M 05 ar M 5 0 nJa 04 vNo 04 pSe 4 l-0 Ju 04 ay M 04 ar M 4 0 n- Ja Past performance is not a guide to future returns. Source: Thomson Datastream. As at 19 February 2009. This information does not constitute investment advice, nor is it an offer or invitation to subscribe for shares in the stock. CASE STUDY Denso 170.00 160.00 QUALITY - Balance sheet strength offers defensive appeal in the face of net losses VALUE - Trading at a large discount to book value 150.00 140.00 130.00 120.00 110.00 GROWTH - Rising value of sales per vehicle and business won from overseas car-makers 100.00 90.00 CHANGE - Aggressive cost reduction measures 80.00 n- 09 nJa 08 vNo 08 pSe 8 l-0 Ju 08 ay M 08 ar M 8 0 nJa 07 vNo 07 pSe 7 l-0 Ju 07 ay M 07 ar M 07 nJa 06 vNo 06 pSe 6 l-0 Ju 06 ay M 06 ar M 06 nJa 05 vNo 05 pSe 5 l-0 Ju 05 ay M 05 ar M 05 nJa 04 vNo 04 pSe 4 l-0 Ju 04 ay M 04 ar M 4 0 Ja Past performance is not a guide to future returns. Source: Thomson Datastream. As at 19 February 2009. This information does not constitute investment advice, nor is it an offer or invitation to subscribe for shares in the stock. CASE STUDY Canon 140 QUALITY - Leading market shares in copiers, laser beam printers (LBP), digital still cameras. Large net cash position 130 VALUE - Cyclical downturn has pushed down valuations 120 110 100 GROWTH - Growing sales of LBPs in emerging markets 90 CHANGE - Analyst revision stabilising would be the first sign of recovery. Weak yen benefits. Scope to cut costs 80 09 nJa 08 vNo 08 pSe 8 l-0 Ju 08 ay M 08 ar M 8 0 nJa 07 vNo 07 pSe 7 l-0 Ju 07 ay M 07 ar M 7 0 nJa 6 0 vNo 06 pSe 6 l-0 Ju 6 -0 ay M 6 -0 ar M 6 0 nJa 05 vNo 05 pSe 5 l-0 Ju 05 ay M 05 ar M 5 0 nJa 04 vNo 04 pSe 4 l-0 Ju 04 ay M 04 ar M 4 0 n- Ja Past performance is not a guide to future returns. Source: Thomson Datastream. As at 19 February 2009. This information does not constitute investment advice, nor is it an offer or invitation to subscribe for shares in the stock. CASE STUDY Shin-Etsu Chemical 140 QUALITY - Global leader in silicon wafers and PVC. Excellent long-term record in value creation, consistent growth 130 VALUE - Cheap against long-term history. PER 11x 120 110 100 90 80 GROWTH - Strong record in new product innovation CHANGE - Aggressive attitude in cutting depreciation 70 60 n- 09 nJa 8 0 vNo 8 0 pSe 8 l-0 Ju 8 -0 ay M 8 -0 ar M 8 0 nJa 7 0 vNo 7 0 pSe 7 l-0 Ju 7 -0 ay M 7 -0 ar M 7 0 nJa 6 0 vNo 6 0 pSe 6 l-0 Ju 6 -0 ay M 6 -0 ar M 6 0 nJa 5 0 vNo 5 0 pSe 5 l-0 Ju 5 -0 ay M 5 -0 ar M 5 0 nJa 4 0 vNo 4 0 pSe 4 l-0 Ju 4 -0 ay M 4 -0 ar M 4 0 Ja Past performance is not a guide to future returns. Source: Thomson Datastream. As at 19 February 2009. This information does not constitute investment advice, nor is it an offer or invitation to subscribe for shares in the stock. CASE STUDY Nippon Electric Glass 240 QUALITY - Historic margins and cash generation high 220 VALUE - Hit hard by production adjustment at customers. Valuations sent to large discount to book, despite balance sheet strength 200 180 160 140 GROWTH - Expect volume growth to continue. Pricing power still good 120 100 CHANGE - Share price will respond aggressively to improving levels of capacity utilisation 80 09 nJa 8 0 vNo 8 0 pSe 8 l-0 Ju 8 -0 ay M 8 -0 ar M 8 0 nJa 7 0 vNo 7 0 pSe 7 l-0 Ju 7 -0 ay M 7 -0 ar M 7 0 nJa 6 0 vNo 6 0 pSe 6 l-0 Ju 6 -0 ay M 6 -0 ar M 6 0 nJa 5 0 vNo 5 0 pSe 5 l-0 Ju 5 -0 ay M 5 -0 ar M 5 0 nJa 4 0 vNo 4 0 pSe 4 l-0 Ju 4 -0 ay M 4 -0 ar M 4 0 n- Ja Past performance is not a guide to future returns. Source: Thomson Datastream. As at 19 February 2009. This information does not constitute investment advice, nor is it an offer or invitation to subscribe for shares in the stock. CASE STUDY Shionogi 160 140 QUALITY - The “right size” – big enough to spend on R&D, small enough to enjoy the benefits VALUE - Attractive PER valuation (13x 3/10). Scope to expand shareholder returns given strong cash-flows 120 GROWTH - Anti-cholesterol treatment Crestor is the main top-line driver 100 CHANGE - Stock sold-off on shift out of defensives. This created a good buying opportunity 80 60 40 n- 09 nJa 08 vNo 08 pSe 8 l-0 Ju 08 ay M 08 ar M 8 0 nJa 7 0 vNo 07 pSe 7 l-0 Ju 07 ay M 07 ar M 7 0 nJa 06 vNo 06 pSe 6 l-0 Ju 06 ay M 06 ar M 6 0 nJa 05 vNo 05 pSe 5 l-0 Ju 5 -0 ay M 5 -0 ar M 5 0 nJa 04 vNo 4 0 pSe 4 l-0 Ju 4 -0 ay M 04 ar M 4 0 Ja Past performance is not a guide to future returns. Source: Thomson Datastream. As at 19 February 2009. This information does not constitute investment advice, nor is it an offer or invitation to subscribe for shares in the stock. WHAT YOU NEED FROM A JAPANESE EQUITIES MANAGER Long-term focus Identifying companies with sustainable business models and the ability to generate value for shareholders Timing Understanding the profit cycle Buy and sell decisions And one who will tell you when to take money off the table MARTIN CURRIE’S JAPAN CREDENTIALS 50% of our £9.9 billion of assets are invested in Asia Stable and deeply resourced team Differing perspectives, complementary skill-sets Strength and continuity of relationships 19 year record in Japan – outperformance of 3.7% p.a. vs. Topix over this period* Clear investment philosophy and disciplined process ** Investment experience 81 years Experience of investing in Japan 69 years Past performance is not a guide to future returns. Source: Lipper Hindsight. Fund: Martin Currie Japan Fund. Bid-bid basis with gross income reinvested. *From 14 September 1989 to 31 January 2009. **3 years to 31 December 2008 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. Martin Currie Investment Funds (MCIF) Martin Currie Japan Fund (the fund) is a subfund of an Open-ended investment company (Oeic). The fund is referred to throughout as the Japan OEIC Fund. Martin Currie Unit Trusts Limited is the Authorised Corporate Director for the Oeic, and is an affiliate of MCIM. It is also authorised and regulated by the Financial Services Authority. MCIM is the investment adviser to the fund. In the exceptional event that an Oeic subfund’s liabilities exceed its net assets, the Oeic structure allows for these liabilities to be allocated across other subfunds in the Oeic. Investment in the fund can only be made in accordance with the terms and conditions outlined in the Simplified Prospectus or Key features document available at the time of investing. Performance information - with the exception of any figures calculated on a fund's net asset value, which fall outside the scope of the GIPS standards, all performance information calculated by Martin Currie complies with the GIPS standards. 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. 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