Investing in China
What we should know in this fast growing
market
Investing in China
4th July 2014
1
Pension fund asset allocation 10 years ago
Investing in China
4th July 2014
2
Assets Pension funds consider now
LDI Hub
Liquid Markets
Liquid Credit
Illiquid Credit
Illiquid Markets
Collateral Mgt.
Equities (EM, DM)
Sterling Credit (IG)
Structured Finance
Reinsurance
Pooled vs. Seg
DGFs
Global Credit (IG)
Infrastructure Debt
Private Equity
Leverage & Liquidity
Style Premia
HY/Loans
Senior Direct Lending
Infrastructure
Overlay Strategies
Risk Parity
ABS
Mezzanine Finance
Real Estate
CTA
Emerging Market
Debt
Distressed Debt
Global Macro
Absolute Return
Bonds
Senior CRE Debt
Equity Long-Short
Total Return Sub-IG
Credit Relative Value
Investing in China
4th July 2014
3
Development of China
Shenzhen - 30 years ago
Investing in China
4th July 2014
4
Development of China
Shenzhen - Now
Investing in China
4th July 2014
5
Development of China
20 years ago
Investing in China
4th July 2014
6
Development of China
Now
Investing in China
4th July 2014
7
Development of China
Investing in China
4th July 2014
8
Development of China
Investing in China
4th July 2014
9
Development of China
Investing in China
4th July 2014
10
Development of China
Investing in China
4th July 2014
11
Stock Market Performance
Financial
Crisis
Collapse
Strong
Growth
Recent
Underperfor
mance
Post
Crisis
Recovery
Investing in China
4th July 2014
12
Opportunities
I skate to where the
puck is going to be, not
where it has been.
Wayne Gretzky
Investing in China
4th July 2014
13
Opportunities
Healthcare
Percentage of Order Adults (Age 65+) in China
Investing in China
•
Far less mature industry than developed
countries
•
Demographic change and aging population
•
Rising income and affordability
•
Healthcare reform
•
Healthcare awareness
4th July 2014
14
Opportunities
Environmental Protection
Investing in China
•
Serious environmental degradation driven by
economic development
•
Strong government support
•
Clean China over the next 5 years
•
Higher desire for clean energy
4th July 2014
15
Opportunities
Technology
Investing in China
•
Government Investment: Biotech, energy
saving, environmental protection, high-end
manufacturing
•
Internet Penetration
4th July 2014
16
Technological Change
“Internet will change
people’s life”
1999 Jack Ma –
Founder of Alibaba Group
Investing in China
4th July 2014
17
Technological Change
Search engine, founded in
2000
E-commerce company,
founded in 1999
Instant/mobile messenger,
founded in 1998
Handling 5 billion search
queries per day
Handled 1.1 Trillian Yuan in
sales in 2012
850 million monthly active
users
Market value $65 billion
Estimated market value
$120 billion
Market value $150 billion
Investing in China
4th July 2014
18
Technological Change
Investing in China
4th July 2014
19
Technological Change
1 – Eliminating steps
“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
Investing in China
4th July 2014
20
Technological Change
1 – Eliminating steps
Investing in China
4th July 2014
21
Technological Change
1 – Eliminating steps
Investing in China
4th July 2014
22
Technological Change
1 – Eliminating steps
Investing in China
4th July 2014
23
Technological Change
2 – Cross Sector Competition
Who stole my
cheese??
Investing in China
4th July 2014
24
Technological Change
3 – Recognition of Intangible Assets
Patents
Intellectual property
LAND
MACHINERY
CAPITAL
T
a
n
g
i
b
l
e
s
I
n
t
a
n
g
i
b
l
e
s
Brand
New Technology
Data
Goodwill
User Platform
Human Capital
Customer Base
LABOUR
Investing in China
4th July 2014
25
Technological Change
4 – Innovate or Die
Investing in China
4th July 2014
26
Technological Change
4 – Innovate or Die
Mobile
Payment
Platform
Apps for
taxi/flight
booking
QQ Mobile
App, Expand
Value Added
Services
Mobile IM
Wechat
Launched
Mobile Social
Media
Webmail
QQ Online
Game
QQ Blog
Investing in China
4th July 2014
27
Technological Change
5 – Distinction and uniqueness, not just scale
Customer
First
Team Work
Embrace
Change
Integrity
Passion
Commitment
Investing in China
4th July 2014
28
Technological Change
5 – Distinction and uniqueness, not just scale
Investing in China
4th July 2014
29
Ways to access Chinese market
Type of
Investment
Domestic/NonDomestic
Currency
Additional
Information
A Share
Domestic
RMB
QFII license
required
B Share
Non-Domestic
USD
H Share
Non-Domestic
HKD
Other share
Non-Domestic
classes traded on
foreign stock
exchange
Currencies in
local stock
market
e.g. NYSE, NASDAQ,
Singapore
Indirect
Investment
Currencies in
local stock
market
Shares of companies in
developed countries
which have significant
business operation in
China
Non-Domestic
Investing in China
4th July 2014
30
Limitation and Risk
• Less capacity to access the market for foreign investors
• Lack of transparency
• Lack of using derivatives for hedging and portfolio replication
• Demographic shift
• Political risk
• Increased concerns of credit growth
• Property bubble
• Perceived slowdown in growth
Investing in China
4th July 2014
31
Summary
•
Fast growing market
•
More open to the world
•
Opportunities include
 Health Care
 Environmental Protection
 Technology
•
Technological Change
 Positive to technology sector and those which use technology in the right way
 Winners
 Meet human desire (take out steps)
 Innovate
 Monetise intangible assets
 Unique and distinct market position
 Negative Impact
 Some traditional sectors, e.g. retailers, sales agents, intermediaries
 Business impacted by cross-sector competition
Investing in China
4th July 2014
32