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China
- Treasures in your hand
Contents
1. Market Performance & Flows
2. Pop Quiz
3. China’s Overview & Trends
4. Shanghai-Hong Kong Stock Connect & It’s Implication
5. Reforms & It’s Implication
6. Market Drivers
7. Views & Products Solutions
8. Appendix
14 Sep 2014
2
Market Performance so far
 It is worth noting that laggards continue to catch
up in terms of performance. MSCI LATM +14.5%,
EM+10.3%, AxJ +9%
YTD Index Returns % (as of 5 Sep)
14.4% MSCI Latin America
 Chinese markets who were in the Red in 1H
turned Green 2 months after, making up for loss
ground and delivered +9.25% HSCEI and +8.7%
Hang Seng.
10.1%
MSCI AsiaXJapan
10.0%
Citi Global Emerging Mkt Sovereigns
9.1%
8.2%
HK Hang Seng
8.1%
US S&P 500
6.3%
Europe Stoxx Europe 600
5.8%
MSCI AC World
5 Sep
30 Jun
Markets
YTD
1H
Change
5.5%
Citi World Broad Inv Grade
MSCI AC Worl d
7.80%
4.94%
2.86%
5.3%
Citi High Yield
4.8%
Gold
S&P 500
8.10%
6.05%
2.05%
4.8%
China HSCEI
Stoxx Europe 600
6.30%
4.14%
2.16%
1.9%
UK FTSE 100
MSCI As i a XJp
10.00%
5.09%
4.91%
1.9%
Korea KOSPI
Chi na HSCEI
4.80%
-4.45%
9.25%
HK Ha ng Seng
8.20%
-0.50%
8.70%
Japan TPX Index
-0.7%
Market
Performance
Taiwan TAIEX
MSCI Emerging Europe
-10.6%
-20%
14 Sep 2014
Oil
-4.0%
-10%
0%
10%
20%
3
Where did money go?
1
18 weeks of outflow from DM to EM
 Asia ex-Japan has attracted more
inflows than other emerging markets
led by China, Taiwan and Korea
 The inflows is believed to be capitalizing
On the upbeat of the Chinese market.
….. “Go with the Flows”

Market
Performance
2
14 Sep 2014
3
Fund Flows into China Focused ETFs
4
QUIZ
POP QUIZ:
14 Sep 2014
Chinese talent on the World’s stage.
5
POP QUIZ:
QUIZ
Q1: Largest Population?
• China: close to 20% of world’s
population. Projections
2025 - 1,470,787
2050 - 1,462,058
14 Sep 2014
Q2: Largest Economy?
As of: 8 Sep2014
As of: Mar 2014
• China overtaken Japan 2 years ago and
now 2nd largest economy.
6
POP QUIZ:
Q3: Which country has the largest
Foreign Reserve?
Q4: Net Exporter / Importer?
30% of GDP.
China major exports are:
China – the largest foreign reserve
•
•
China’s main export partners:
United States 17%
European Union 16%
ASEAN 10% Japan 7% and South Korea.
QUIZ
•
Currently stood at US$4 trillion.
Twenty years ago it had only US$18
billion and
Ten years ago US$146 billion.
57% Electromechanical
20% Clothing, textiles, footwear, furniture, plastic products,
bags and toys
29% High tech products
14 Sep 2014
7
Both Info as of Sunday, September 7, 2014.
Pop Quiz:
Q5: What is the top 10 most-used currencies in the world?
Q6: What are the reserved currencies?
Q1 2014 Currency composition of official foreign exchange reserves
•
•
QUIZ
•
Source: IMF and Citi Research
According to SWIFT, more than 1,050 financial
institutions in over 90 countries are already doing
business in RMB;
Is currently the seventh most active currency for global
payments, accounting for 1.57% of payments worldwide.
This is the third consecutive month when the currency
has been ranked among the 10 most-used currencies.
14 Sep 2014
Expecting that in 10 years
• RMB may become one of the top five reserve
currencies
• May approach 2% by 2020, and exceed 4% by
2025.
8
Pop Quiz:
Q7: Do you know there are more than one Chinese currencies?
1
RMB deposits at key offshore
RMB centers, Jun 2014
China
Country
2
Offshore
Onshore
Markets
market
market
Source: Citi Research
3
Currencies
CNH
NDF
CNY/RMB
CNY vs. CNH
QUIZ
Features
14 Sep 2014
• Offshore RMB
traded in HK (initial)
• Currency exchange
derivative product
• Now 5, adding more
• No physical
delivery
• Deliverable,
transferable
• Transfers to onshore
subject to
regulations and
approvals
• Cash settled in USD
• Used as a leverage
FX play
• Official currency
of People’s
Republic of China,
legal tender
• Settlement
currency for
onshore asset
investment
9
Pop Quiz:
Q8: How big is China’s Capital Market?
Largest Domestic Equity Market Capitalization at Year-End 2013
(US$ Billion)
Exchange
1. NYSE Euronext (US)
2. NASDAQ OMX (US)
3. Japan Stock Exchange
4. London Stock Exchange
5. NYSE Euronext (Europe)
6. Hong Kong Exchanges
7. Shanghai SE
8. TMX Group
9. Deuctsche Borse
10. SIX Swiss Exchange
End-2013
17,950
6,085
4,543
4,429
3,584
3,101
2,497
2,114
1,936
1,541
End-2012
14,086
4,582
3,681
3,397
2,832
2,832
2,547
2,059
1,486
1,233
• Hong Kong Stock Exchange and Shanghai
Stock Exchange is the world’s 6th and 7th
largest stock market respectively by
market capitalization
• Two markets combined (US$5.5 trillion)
allow them  will leap ahead of Japan
and London markets  become 3rd
largest
QUIZ
Source: World Federation of Stock Exchange
14 Sep 2014
10
China - Overview
Opportunities for
RETAIL Investors
Opportunities for
Institutions
1
2004 HK
2009: London
2013: TW & SG
2014: Lux, FRA
REFORMS
2002 QFII
2013 RQFII
2013
Oct 2014
By 2020
Settlement Hub
for RMB
QFII & RQFII
Fiscal and SOE
Reforms
Shanghai-Hong
Kong Stock Connect
Hukou Reforms
Internationalization
Increasing
RQFII
Multi spectrum
reforms
To promote
capital flows.
Urbanizing
millions in 6
years’ time.
HK, SG,
London, France,
Korea, Germany
Started in 2013,
implemented
across 2014,
2015
Allowing mutual
access between
China and HK
investors.
Providing internal
passport to 300
million by 2020.
Currently, HK, TW
SG, London. Lux
30 Aug: signed
MOU with and
France, Germany.
2
MARKET
DRIVERS
14 Sep 2014
VALUATION
POSITIVE
MXCN now stands at 9.2X P/E, 2% below the 2H13 peak at 9.4X
and 12% below the later-12 peak at 10.3
LIQUIDITY
POSITIVE
Outflows from DM into EM in the past 18 weeks.
EARNINGS
POSITIVE
10% EPS CAGR. Has recovered lately post recent weakness,
revision toward the low end of the range.
SENTIMENTS
POSITIVE
Remains risk averse. Positioning still very risk averse at the
stock level.
Long
Term
China
rerating
11
Capital Market Structure
Chinese Companies
Incorporation
Traded In
On the Mainland
Shanghai
Hong Kong
Outside Mainland
Foreign
jurisdictions
State-Owned
Hong Kong
Cayman Island, Bermuda etc.
Currency - RMB
A-Share
H-Share
P-Chips
Red-Chips
Tencent
Currency - USD
B-Share
N-Chips
Capital Market
U.S-Listed or on the NYSE or Nasdaq
Baidu, Sina, NetEast
PowerShares Golden Dragon Portfolio: PGJ
Alibaba
14 Sep 2014
12
Capital Market
Regulatory Trends
14 Sep 2014
13
Trends of PRC Securities Market
1990
2003
2012
2014
QFII
RQFII
Shanghai-HK
RMB250bn
USD150Bn
Objective: To channel
offshore RMB back to China
Top 5 origin jurisdictions –
Hong Kong, US, UK, Japan,
Korea
RMB550Bn
6
Northbound
Market Participants are
controlled. Mainly Asset Mgt
Southbound
5
+ Investments Flows
+ RMB Appreciation
In RMB
Retail Investors
Direct Stock Access
For Foreign Retail Investors
Capital Market
Open up RMB Security
Brokerage account in HK
Products
14 Sep 2014
• A-share ETFs
• SFC-licenced mutual fund
• Private funds domiciled in
Cayman islands, etc
ETF
Mutual Funds
Structured Products
14
Capital Market
Potential Future Developments
Shanghai-Hong Kong Stock Connect: Oct 19
Connectivity Model:
Northbound
Existing RQFII Quota – RMB 601bn (USD96.8bn)
Northbound
Southbound
Greater
Liquidity
•
•
•
•
New Stock Connect Quota –RMB300bn (USD48bn),
33% of total
Southbound
Existing QDII Quota – RMB500bn (USD80bn)
New Stock Connect Quota –RMB250bn (USD40bn),
33% of total
Promotes capital flow;
Another step towards gradual internationalization of RMB / RMB Appreciation
Provides a convenient channel for Chinese investors to invest overseas and for international
investors to invest in A-Shares
MSCI denied China A-Shares inclusion in indices due to limited access. Upcoming Through
Train scheme helps to alleviate this concern in future review
•
•
The opening will narrow significant gaps in A/H share prices
Allow for trading opportunities previously not available in respective exchanges
Signals for
More Reforms
to come
•
Size of Quota is small but will likely increase substantially as initial period smoothens
out and when they have better control
14 Sep 2014
16
Capital Market
Greater Market
Efficiency
SH-HK Connect: Implication and Opportunities
Sectors
Opportunity
A-Share:
Banks | Healthcare | Internet |
Consumer | Telecoms |
Northbound A-Share
Implications
Positive
Capital Market
Southbound: H-Share
1.
In a broad base, the A shares market could have more upside given the more attractive valuations than with H shares.
2.
A/H price gap likely to narrow Winners will likely be dual-listed stocks with sizable A/H premium. For companies with meaningful price
gaps in their A and H shares, A/H premium may narrow noticeably even ahead of the program's actual launch.
3.
While the Shanghai A shares index converged to the Hang Seng Composite Large Cap Index (HSLI) in recent years, its forward PE had
been consistently lower than that of the HSLI.
Domestic banks
 Banks could be re-rated due to the A-H discount.
Healthcare and Consumer
 As foreign participation in Shanghai A shares increases
 Overseas investors will likely be positioning for more
opportunities in consumer discretionary, healthcare,
industrials and materials.
Negative
H-Share:
Brokerages | Internet | Telecoms | Energy
Energy
 The energy sector in A shares could be under pressure, as
it is more expensive than in H shares as energy is more of a
global play.
Brokerages
 Relatively sizable compared to the market turnover of HK$41bn for
the Hang Seng Index, and HK$27.6bn for HSCEI (as of 10 April 2014).
The impact of domestic Chinese investors in the H share market may
rise gradually from an 11.1% share in the Hong Kong market.
Telecoms and Energy and Internet
 Compared to MSCI China A, MSCI China has high weights in some
sectors: Energy (H:13.9% versus. A:4.3%), IT/internet (H:12% vs.
A:5.4%), and telecoms (H:9.7% vs. A:0.8%). These sectors are likely to
benefit from the rebalancing needs of domestic investors.
REFORMS
12th National People’s Congress – Reforms 2014
In March 2014 – 2nd Annual session of China’s NPC in Beijing
•
Financial reforms – to only be undertaken under no systematic risks:
1. PBOC Governor said restrictions on deposit interest rates are expected
to be fully lifted within 1-2 years. Develop deposit insurance scheme
2. CBRC unveiled the pilot programme of five private-owned banks
3. Widen RMB floating band
4. Premier Li permits defaults, but moral hazard of systematic default risks
will be prevented
5. Launch of A/H through train by SHEX and HKEX
•
Property – Taking a differentiated approach across cities through supply and demand policies
•
Continued cutting of red tape – 200 more cuts after 416 reductions since March 2013
•
Environmental Reform: Energy intensity cut by 3.9% YoY through reduction of coal consumption in
2014, various policies to remove pollution
•
Tax reforms: VAT reform applied to rail transport, post services and telecoms, plan to introduce a “tax
on aggregate income” scheme.
•
Hukou reform: China will set up a unified household registration system for urban and rural areas. Rural
people no longer need to give up their property rights to rural land and collective undertakings when
obtaining urban Hukou
•
Demographics: Seven more regions announced loosening on one-child policy
14 Sep 2014
18
REFORMS
SOE Reforms

Anti-corruption:
o Over 30 senior SOE executives investigated in 2013; approaching 60 for the 1H 2014
o ~380 non-executive directors for A-share companies resigned since last October; new rule bans
retired officials from taking up such positions

Mixed ownership development plans:
o In February, Sinopec opened its distribution network to private capital – sale of minority stakes
in its marketing division is estimated at RMB100bn
o In mid-May, PetroChina unveiled a plan to sell its entire stake in some sections of its west-toeast natural gas pipelines, worth about RMB39bn
o Asset injections in the financial sector impacting Citic group and Everbright hopes to
encourage greater awareness and private capital to improve governance

Promoting efficiency:
o The telecom sector announced in May the establishment of a national tower company to
promote the sharing of basic telecom facilities and lower network construction and operation
costs

Local SOE Reforms as a solution to tackle local government debt:
o Over a dozen regions have also released local SOE reforms guidelines
14 Sep 2014
19
REFORMS
Hukou Reforms: “Internal Passport” – Most Talked About Now
What is it?
• It’s also called China’s Internal Passport
• China’s State Council released a master plan that will
promote urbanization of 300 million population by 2020
• With the aim of gradual provision of an equitable public
service system, demonstrating the government’s proactive
reform stance.
DRIVERS
POTENTIAL RURAL
LAND
SECTORS
Banks with high rural
exposure
Infrastructure
52%
Lives in
cities
NETWORK SUPPORT
Utilities
Only 35%
Have urban
Hukou
Master Plan:
100million migrant workers to obtain Hukou and become
permanent urban residents.
Social Housing
HOUSING NEEDS
Mass Developers
COSNUMER
DURABLES
100million residing in urban villages or slums that would
get renovated
100million to settle in central or western China.
Insurance
PENSION &
MEDICAL
MARKET
CONSUMPTION
HealthCare
Air-con
Computers
Automobiles
Clothing
Education
Food & Beverage
Benefits of having a Beijing Hukou:
Welfare housing/lesser education fees/ higher college admission/ free bus fares for seniors/ cheaper healthcare/higher personal subsidy.
REFORMS
Fiscal and SOE Reforms – For 2H 2014
14 Sep 2014
21
REFORMS
Fiscal and SOE Reforms – For 2H 2014
14 Sep 2014
22
REFORMS
Healthcare Reforms
14 Sep 2014
23
Structural [5] SOE reforms
[6] Servi ce s ector deregul a tion
[7] Urba ni za tion
+
+
+
+
+
[8] Fi s ca l reforms
[9] Interes t-ra te l i bera l i za tion
[10] Envi ronment i ni a tives
-
+
+
+
+
+
-
+
+
-
+
+
+
+
+
+
+
-
+
+
Utility
+
Transportation
s
-
+
+
+
+
+
+
-
Telecom
Internet
Industrials &
Infra
Insurance and
AMC
+
-
Property
[3]
l AMCs
[4] Loca
Pol i cy
ea s i ng & fa l l i ng cos t of
ca pi tal
-
+
+
+
+
+
Oil & Gas
[2] RMB Depreci a tion
+
HealthCare
-
Consumern
Disc
Consumern
Staple
-
Materials
Cyclical
Reforms
[1] Sca ttered property pri ce bubbl e
burs t
Banks
Summary of Sector Impact from Chinese Reforms
Auto
REFORMS
29
+
+
+
-
+
+
+
+
+
+
+
• Citi views that structural reforms (service sector deregulation, urbanization and environment drive) should generate
organic growth in New China.
• Since the injection of the stimulus, New China has taken off ahead of Old China and Hybrid China. This is in line with our
view of sector divergence.
MARKETS
Slower Growth, will this time be different?
China is entering a new era. Sustainable growth through Reforms
execution.
 Historical inflection point as the world navigate to slower China’s growth, market
will be bumpy but trending upwards!

14 Sep 2014
25
MARKETS
Sector performance increasingly reform-focused
14 Sep 2014
26
MARKETS
Performance upon Reforms execution
Citi analysts view service sector deregulation, urbanization and environment
initiatives, will be key drivers of organic growth in New China.
Index performance: New China, Old China and Hybrid China
New China (consumer di, staples, healthcare, IT),
Old China (banks, diversified, financials, energy, industrial).
Hybrid China (capital goods, insurance, transportation, utility) .
MARKETS
Current Low Valuation
Current low valuation is near previous troughs since 2009 GFC
China Equity Indices – Trailing Price-to-earnings ratio
40
x
High since 2009
High during 2012-2013
35
34.0
Now
30
Low since 2009
29.0
25
22.1
21.4
20
15
13.9
13.2
10
10.2
11.1
7.8
10.3
8.1
11.1
10.9
9.7
9.5
6.8
5
0
MSCI China
HSCEI
SHCOMP
CSI 300
Updated: 8 September 2014
14 Sep 2014
28
MARKETS
MXCN reaching historical high at 66, again
 With the MSCI China index reaching a historical peak, for the third time in past two
years, we expect it to break out of the trading range this time.
 Valuation cheap now given ~10% EPS CAGR delivery in past two years: MXCN now
stands at 9.2X P/E, 2% below the 2H13 peak at 9.4X and 12% below the later-12 peak
at 10.3X.
target at 72, representing 10% potential upside
14 Sep 2014
29
MARKETS
View
Bullish and expect Chinese equity to break out of their trading ranges.
 Cyclical indicators: Credit conditions suggest a still easing bias despite modest seasonal
pullback in July and stable IP/PMI outlook.
 Reform initiatives: Reform progress to support the valuation.
 Mid 2015 target – MSCI China: 72; HSCEI: 12,000; CSI300: 2,500.

EPS
Index
level
PE
14 Sep 2014
30
MARKETS
View

Reiterate mid-15 MXCN target 72, +10%

Stay positive with EPS/ reform focus.
Positive given a stabilizing economy and more concrete positive reforms ahead.

OVERWEIGHT

Banks, Insurance, IT, Utilities, and Health Care Insurance and Banks given strong earnings revision momentum and as key
beneficiaries from macro stabilization and potential fiscal/SOE reform initiatives.

IT - 30%+ earnings growth for next 12 months is attractive without a valuation contribution, and the earnings revision
momentum has remained positive recently;
Buy on dips:

Health/Care Utilities sectors, both of which have lagged significantly in the past one month and since the March low level,
because we believe the still decent earnings outlook in the coming 12 months could deliver decent sector returns. Offer
great entry points
Underweight on Materials, Telecom, Energy – given lack of earnings support

Action: Take Profit
In our base case,

Expect the property investment slowdown to continue despite a soft landing, from 14% in 2014 to 9% in 2015E, resulting in
potential 2ppt slowdown of total FAI.

Thus we expect the macro stabilization will not be able to translate into meaningful earnings improvement.

Unfortunately, we think the earnings outlook actually lags the index performance, and we expect potential
underperformance from here, hence mid-15 MSCN target of 72, +10%
14 Sep 2014
31
Thank You
- Treasures of wealth in your hand
Appendix
More insights on SH-HK Stock Connect
14 Sep 2014
33
Stock Connect vs. QFII/RQFII
Source: Markets and Security Services, Citi ICG
Key Features
Source: Markets and Security Services, Citi ICG
Key Takeaways
Source: Markets and Security Services, Citi ICG
Investment Ideas (JP Morgan)
Stock Ideas
14 Sep 2014
38
Appendix
Insights on Products
14 Sep 2014
39
MARKETS
Products Available in SG
 Dim Sum Bonds
ICBC 3.75% (Sr Uns A) VANKE 4.5% (Sr Uns BBB) AGILE 6.5% (Sr Uns BB-)
 CNH-Linked Deposit
 Structured Products linked to CNH and Chinese
companies
Ping-An, China Life, China Pacific
 Premium Account or Dual Currency Accounts : Currencies
are paired with CNH
 ETFs
Hang Seng H-Share (2828)
CSOP FTSE China A50
China AMC CSI300
 Mutual Funds
Greater China and / or A-Share allocation
14 Sep 2014
 Aberdeen China
Opportunities
 Allianz China Equity
SGD
 DWS China Equity
Fund SGD
 Eastspring Inv China
Equity Fund SGD
 JPM China A
 Wells Fargo China
Equity Fund
40
PRODUCTS
How to participate in the China story?
H-Shares
Greater China
MUTUAL FUNDS
Capital
Growth
ALPHA
CSOP FTSE China A 50 ETF
(2822 HK Equity)
China AMC CSI 300 Index
(83188 HK Equity)
Invesco Greater China Fund
GAM Star China Equity
JPM China Pioneer
Value Partner Classic
UBS China Opportunities
Schroder China Equity Alpha
Income &
Growth
Schroder Asian Growth
Fidelity Pacific
Value Partner High Dividend
Income from
Fidelity Asian High Yield
More
Diversified
Bonds
OPPORTUNITY
STRUCTURED PRODUCTS
China Re-Rating
iShares FTSE A50 China Index
(2823 HK Equity)
ETF
BETA
OPPORTUNITY
A-Shares
SH-HK
Theme
HuKou
Theme
Fixed Coupon Autocall 1
Yr USD 8%pa coupon
Fixed Coupon Autocall 1
Yr USD 8%pa coupon
Daily Range Accrual
Autocall 12%pa coupon
Daily Range Accrual
Autocall 12%pa coupon
Participation Note
2.5% pa coupon
Participation Note
2.5% pa coupon
Fund Outperformance vs. Index Returns
•
•
Over the last 3 months when returns on China market turned positive, Premier Funds have
delivered excess returns over their respective indices
Funds with H-Shares tilt has the biggest outperformance of +6.8% (Value Partner Classic).
•
A-shares fund – Schroder China Equity Alpha also delivered an excess of +320bps from benchmark
3M Performance of Funds with China Allocation
Asia Equity Funds
% of
China H
23%
36%
A-Shares Funds
H-Shares Funds
% of
52%
H-Share
70%
74%
80%
% of
A-Share
73%
100%
14.4%
9.1%
8.9%
8.7%
7.6%
5.3%
MSCI AxJ
11.9%
11.6%
Alpha from
Funds
8.0%
7.0%
5.0%
Schroder
Value
Asian Growth Partners High
Dividend
HSCEI (HInvesco
Share)
Greater China
Value
Partners
Classic
GAM Star
China Equity
UBS (Lux)
China
Opportunities
Shanghai
Compsite AShare
JPM China
Pioneer AShares
Schroder
China Equity
Alpha
MF For Clients with Higher Risk Appetite
Greater China Funds with H-Shares allocation of:
52%
Fund Name
Invesco Greater
China
70%
Value Partners
Classic
74%
GAM Star China
Equity
A-Shares allocation :
80%
73%
UBS (Lux) China JPM China Pioneer
Opportunities
A Shares
100%
Schroder China
Equity Alpha
Geographical
Allocation
52.7%
70%
74.22%
80.7%
73.8%
99.5%
(B,H & Red Chi ps )
(A, B, H & Red Chi ps )
(B, H & Red chi ps )
(H & Red Chi ps )
(A Sha res )
(A Sha res )
Hong Kong
18.30%
23%
24.43%
8.00%
26.20%
Taiwan
25.90%
4%
1
Info Tech: 32.3%
Healthcare: 23%
Financials: 26.78%
Financial:22.6%
Financials: 29.6%
Financials: 21.35%
2
Cons. Disc: 22.0%
Cons. Disc: 20%
Info Tech: 25.74%
Info Tech: 18.1%
Cons. Disc: 17.1%
Cons. Disc: 20.81%
3
Financials: 9.9%
Info Tech: 14%
Cons. Disc: 24.82%
Healthcare: 14.0%
Info Tech: 15.3%
Industrials: 17.62%
3M
8.89
14.4
6.99
11.62
7.98
11.88
YTD
8.2
6.54
1.93
9.26
-6.95
-0.07
1Y
21.91
21.67
19.05
25.32
-4.32
-0.79
3Y
12.04
5.16
11.23
13.49
-2.53
-
1Y
10.24
13.08
15.06
11.45
12.94
13.86
3Y
17.04
21.64
22.75
22.05
19.66
-
China
Top 3 Sectors
Performance %
Volatility %
MF For Clients Who Need Diversification
Asian Funds with
H-share
allocation:
Fund Name
23%
32%
36%
Value Partners High Dividend
48%
Schroder Asian Growth
Fidelity Pacific Fund
Fidelity Asian High Yield
1
China: 23.6%
China: 32.1%
2
3
Hong Kong: 22.4%
S. Korea: 16.1%
Japan: 21.0%
S. Korea: 11.2%
Hong Kong: 18%
S. Korea: 23%
India: 13%
Indonesia: 12%
1
Financials: 26%
Info Tech: 20.0%
Cons. Disc: 19.0%
Real Estate: 26%
2
Cons. Disc: 26%
Cons. Disc: 19.8%
Banks: 17%
Basic Industry: 21%
3
Info Tech: 24%
Financials: 18.8%
Real Estate: 12%
Technology: 7%
3M
4.99
6.66
9.12
3.18
YTD
9.96
9.18
11.2
6.1
1Y
21.24
28.25
17.05
12.92
3Y
11.74
13.3
10.09
7.6
1Y
9.9
11.51
8.99
3.08
3Y
16.61
16.4
14.85
11.62
Geographical Allocation
China: 36.0%
(B,H s ha res & Red Chi ps )
China: 48%
Top 3 Sectors
Performance %
Volatility %
FUND SOLUTIONS:
In Focus: Value Partners High-Dividend Stocks Fund
Consistent Performance, Long Track Record
Highlights:
Return YTD
11.2%
Annualized
Return (%)
Value Partners
High-Dividend
Stocks Fund
Return 1Y
17%
Portfolio
Running Yield
(4.7%
current)
MSCI AC Asia
Pacific ex Japan
TR Index
Annualized
return
 18.5%
13.1%
Annualized
volatility
 19.2%
21.2%
Monthly Distribution share classes available in:
USD, AUD/CAD/NZD - hedged
Source: Value Partners
TALKING POINTS:
1. "Strategy may be considered appropriate for investors seeking equity
income from an Asian all cap equity strategy, with a particular focus on
Greater China equity markets.
2. Historically, the Fund displayed sizeable bias towards small/mid and
microcap companies (sub USD 500m market cap).
3. Total return focused: able to employ fixed income, cash and hedging
techniques to dampen potential drawdown.
4. Managed by an established, Asia dedicated asset management firm, with
a long tenure in this region dating back to 1993. Monthly distribution
available with no specific targets). 5 stars Morningstar Rating."
For Internal Use
Source: Value Partners
FUND SOLUTIONS:
In Focus: UBS (Lux) China Opportunity Fund
Strong Performance vs. Index and Peers
Highlights:
Return YTD
9.3%
Return 1Y
25.3%
TALKING POINTS:

The Fund may be regarded as appropriate for investors who seek to
participate in the long-term capital appreciation of China markets
including but not limited to H-shares and Red Chips.

Benchmark unconstrained strategy. Flexible in selecting stocks that
can benefit from China’s structural reform. No sector restrictions.

High conviction strategy investing in about 40-70 stocks. Strategy
differentiates itself from peer strategies by having a sizeable
historical bias towards small/mid cap companies (approx 40%) to
generate alpha.

The Fund is currently overweight Info Tech and Healthcare sectors in
line with Citi analysts' sectoral preference in China.

Managed by Bin Shi an experienced manager with over 21 years of
investment experience.
For Internal Use
Source: UBS Asset Management, June 2014
Top Stock Holdings:
Outperforms
benchmark by
+7.8%
Shanghai-Hong Kong Stock Connect : 3 Investment Ideas
Hong Kong Exchange & Clearing ~
388 HK (Buy Rating)
Hang Seng Bank ~ 11 HK (Buy
Rating)
 Citi Research sees the SH-HK Stock
Connect scheme as a key step towards
China¡¦s eventual capital account
liberalization, which should
structurally increase the turnover on
Hong Kong Exchange in the long run.
 Citi Research forecasts upside
Potential if the bank disposes of
investment stakes in Industrial
Bank, which would provide excess
capital for the firm to seek new
growth opportunities.
 HKEx is seen as a China macro play
given more than 70% of stock
turnover is attributable to Chinese
companies, beneficiary of capital
inflows with further China
liberalization.
 SH-HK Stock Connect scheme will
likely improve the revenue stream
for the bank (where stockbroking
has historically accounted for up to
10% of fee income).
 By allowing Mainland investors to
trade HK-listed stock using RMB, this
move should also reinforce Hong
Kong¡¦s status as the premier offshore
RMB activity center, a huge draw for
firms seeking IPOs.
 The history of the bank dates way
back to 1933 (with stock listing in
early 1970s), with services ranging
from retail banking / wealth
management / private &
commercial banking to RMB
services.
BOC Hong Kong Holdings ~ 2388 HK
(Buy Rating)
 Citi Research favors BOC HK as new
sector top pick, due to these catalysts 1)
Positive impact on liquidity / funding
costs, RMB banking opportunities and
brokerage income arising from SH-HK
Stock Connect scheme; 2) Renewed
mortgage loan growth expected, with
the company¡¦s prime position as both a
major syndicated loan arranger and a
Mortgage lender.
 As the largest domestic Hong Kong bank
(total assets / loans / deposits), the firm
provides comprehensive banking
services (e.g. corporate banking / wealth
management) and is also one of the 3
note-issuing banks in Hong Kong.
 Sole RMB clearing bank status in Hong
Kong, coupled with close to 270
branches in Hong Kong ups the ante on
its value.
Hukou Reforms: 3 Investment Ideas
Tencent Holdings ~ 700 HK
(Buy Rating)
Ping An Insurance Group ~ 2318
HK (Buy Rating)
Belle International Holdings ~ 1880
HK (Buy Rating)
 Citi Research believes the
 Citi Research believes Chinese life
insurers deserve a valuation
premium over European peers given
the stronger growth, higher margin,
more protected pricing, and better
market positions.
 Citi Research expects sales growth for
sportswear/apparel to be strong at
19% YoY, and expects further market
penetration in Mainland China to takes
on a new supporting role for the
company's growth prospects.
 Listed on HKSE since 2004, the firm
has developed into a personal
integrated financial services group
with three core businesses of
insurance, banking and investment.
 Listed on HKSE since 2007, Belle has
transformed into a leading footwear
retailer and sportswear (sports)
distributor for international sports
brands e.g. Nike, Adidas, PUMA,
Converse, Mizuno etc in Greater China
(Mainland China, Hong Kong and
Macau).
company is well positioned to
capture the evolutionary trend
in mobile Internet, thanks to its
solid execution and huge social
traffic.
 Listed on HKSE since 2004, the
firm has grown into China's
largest and most used Internet
service portal (owns QQ Instant
Messenger ~ 800 MM monthly
active users in 2013).
 Provides value-added Internet,
mobile and telecom services
under strategic goal of ¡§onestop lifestyle services¡¨ provider.
 Multitude of subsidiaries to cover
the financial services spectrum: Ping
An Life, Ping An Property & Casualty,
Ping An Annuity, Ping An Health, Ping
An Bank, Ping An Securities, Ping An
Trust and Ping An-UOB Fund.
 Adopts a vertically integrated business
model for company owned brands (i.e.
product research / development,
procurement, manufacturing /
distribution / retailing).
FUND SOLUTIONS:
In Focus: JPMorgan China Pioneer A-Share Fund
JPMorgan China Pioneer A-share Fund
Highlights:
Return YTD
-7.0%
1.9% annualised
excess return since
inception*
Return 1Y
-4.3%
87% in A-shares
Daily Liquidity
The portfolio is well positioned to benefit from both reform and the
restructuring of China’s SOE sector. SOEs account for 65% of the
A-share market
Source: JPM Asset Management; Annualised returns for 3 & 5 year periods as of July 31, 2014
TALKING POINTS:
1. A suitable core holding for investors in China A-shares. Launched
in 2006, 1st QFII A-share fund for Hong Kong investors.
2. Active Style of portfolio management, combines both top-down
macroeconomic analysis for sector allocation and bottom-up
securities selection. Concentrated portfolio. 70-100% invests in
A-shares and 0-30% invests in H-shares. Benchmark: CSI 300.
Sector Allocation (%)
33.9
19.5
12.8
7.6
6.4
4.6
3.2
3. Company visits and local knowledge give JPMorgan an edge. In
2013, the team conducted 1,100 visits in China.
4. Stock selection provides the greatest part of our added value
(70%) to the portfolio.
5. JPM leverage the local insights of China International Fund
Management, JPM’s joint venture based in Shanghai.
6. Morningstar Rating - **
For Internal Use
* Fund benchmark CSI 300 Net, as of Aug 29,2014
Source: J.P. Morgan Asset Management. As at 29 August 2014.
Individual figures may not add up exactly to the total due to rounding.
2.9
2.2
1.6
4.7
0.6
FUND SOLUTIONS:
In Focus: Growth: Schroder China Equity A Shares
Highlights:
Schroder China Equity Alpha
YTD
%
Schroder China Equity
Outperforming
Alpha
Fund & Schroder
Dynamic P-Note*
1 years
%
2 years
Since
inception1
% (p.a.)
% (p.a.)
-0.07
-0.79
12.79
6.52
CSI 300 Index
1.57
3.49
7.49
2.21
Valued Added
-1.64
-4.28
+5.30
+4.31
1 Inception date: 27th June 2012. Source: Schroders, net returns in USD, as at 31 August 2014
* Net Return: from 27 June 2012 to 31 March 2013: Schroder Dynamic P-Note (Net Return); afterward:
Schroder China Equity Alpha Fund - Class A
Performance shown is past performance. Past performance is not a guide to future performance. The value of
investment can go down as well as up and is not guaranteed.
TALKING POINTS
 Strategy provides exposure primarily to a high conviction portfolio of about
30-60 China A-shares.
 The fund has outperformed it benchmark and peers since inception
 This was the first QFII China A shares fund to be launched in Hong Kong.
Strategy is appropriate for investors who wish to participate in the longterm development and growth of the China A-Shares market.
 A diversified exposure to growth / traditional sectors whilst
maintaining a strong valuation discipline.
 Bottom up and unconstraint stock selection, focus on
fundamentals and quality
 Strong, consistent performance over 2yrs, and since Inception
vs peers and benchmark
For Internal Use
Return YTD
-0.07%
Return Since
Inception1(%p.a.)
6.52%
Experienced Fund Manager,
Jack Lee
11 years dedicated to
managing China A-share
equities
Outperforms
benchmark (%p.a.)
4.31% (Inception1)
High conviction
portfolio
30-60 names
ETF:
iShares FTSE A50 China Index (2823 HK Equity)
Index: FTSE A50 China Net Tax HKD Index
Inception Date: 15 Nov 2004
AUM: US$9.2 Bn
30D Average Trading Vol: US$27.4 MM
Tracking Error: 1.29%
ETF Returns
3M: 17.68%
YTD: 4.07%
1Y: 3.35%
Index Returns
14.53%
7.58%
7.57%
CSOP FTSE China A 50 ETF (2822 HK Equity)
Index: FTSE A50 China Index CNY
Inception Date: 28 August 2012
AUM: US$ 6.3 Bn
30D Average Trading Vol: US$31.5 MM
Tracking Error: 1.621%
ETF Returns
3M: 18.52%
YTD: 8.65%
1Y: 6.62%
Index Returns
11.30%
4.51%
2.31%
ChinaAMC CSI 300 Index (83188 HK Equity)
Index: CSI 300 Index
Inception Date: 16 July 2012
AUM: US$1.67bn
30D Average Trading Vol: US$1.3MM
Tracking Error: 2.472%
ETF Returns
3M:16.86%
YTD: 9.74%
1Y: 7.87%
Index Returns
16.47%
7.95%
Source Bloomberg, 8 Sep 2014
7.53%
How Bank Works





Bank’s Treasury to avail RMB Offshore (CNH) as a new currency on current integrated FX platform
Bank’s Treasury to offer Time Deposits, Call Deposit and Spot FX
No physical deposit / withdrawal in CNY. All settlement in foreign currency (FCY)
Offers convenience, security and returns compared with physical holding of CNY
Settlement account for direct investment into offshore RMB products (bonds, stocks, mutual funds,
structured securities, Premium Deposits) as and when these products are available
Flowchart
FCY
Local
GCG
CM
• CM open CNH
account
• Receive statement
and advice, see
CNH credit
• Cannot deposit,
withdraw CNY
from account
14 Sep 2014
FCY
CNH
credit
• Spot CNH is
different from CNY
•As of 21 Jan,
indicative CNH at
6.580 vs 6.584 for
CNY
USD
Bank’s
Treasury
CNH
credit
•Can only settle in
USD for RMB
Nostro
•Subject to
interbank FX
liquidity
USD
ICG
HK
CNY
Nostro
credit
BOC HK /
Interbank
market
CNY
• Money market
placement with
BOC HK /
interbank market
• Depressed MM
rates (1 yr only
0.40% vs China
onshore TD rate of
2.50%) due to
ample liquidity
• BOC HK act as mkt
maker for trade
related spot FX
conversions
• Subject to credit
line limit available
• For non trade
related flows, BOC
HK has no
obligation to make
market, need to
rely on internal
matching or via
interbank
55
Last price
52-Week
52-Week
05-Sep-14
High
Low
1 week
1 month
Historical Returns (%)
1 year
Year-to-date
432.08
434.24
369.32
0.13%
3.03%
16.71%
5.76%
Dow Jones Industrial Average 17069.58
17161.55
14719.43
-0.17%
3.90%
14.27%
2.97%
S&P 500
1997.65
2011.17
1640.62
-0.29%
4.03%
20.70%
8.08%
NASDAQ
4562.29
4610.14
3618.77
-0.39%
4.81%
24.69%
9.23%
MSCI Europe
481.38
506.61
426.93
0.53%
1.87%
12.55%
-0.20%
Stoxx Europe 600
348.89
349.71
303.01
2.01%
5.06%
14.56%
6.28%
FTSE100
6877.97
6904.86
6316.91
0.85%
2.93%
5.29%
1.91%
CAC40
4494.94
4598.65
3985.77
2.60%
6.19%
12.18%
4.63%
DAX
9724.26
10050.98
8174.32
2.68%
5.82%
18.08%
1.80%
15666.71
16320.22
13748.94
1.57%
2.26%
11.39%
-3.83%
1293.43
1308.08
1121.50
1.21%
2.37%
11.71%
-0.68%
MSCI Emerging Market
1100.23
1104.31
913.65
1.14%
3.49%
16.10%
9.73%
MSCI Latin America
3662.88
3720.81
2810.92
-0.02%
6.97%
16.80%
14.44%
MSCI Emerging Europe
179.08
214.02
155.88
4.06%
4.34%
-3.35%
-10.56%
US / Global
MSCI World
Europe
Japan
NIKKEI225
Topix
Emerging Markets
MSCI EM Middle East & Africa
Brazil Bovespa
Russia RTS
335.11
354.90
295.28
3.12%
3.83%
9.08%
2.04%
60800.02
62304.88
44904.83
-0.80%
8.18%
16.14%
18.04%
1241.51
1521.05
1016.01
4.31%
4.21%
-7.34%
-13.95%
606.97
608.06
508.53
0.97%
2.10%
17.25%
10.07%
Asia
MSCI Asia ex-Japan
Australia S&P/ASX 200
5598.80
5679.50
5028.20
-0.48%
1.45%
8.87%
4.61%
China HSCEI (H-shares)
11331.95
11638.27
9159.76
3.36%
2.93%
9.61%
4.77%
2314.41
2327.56
1974.38
4.38%
4.26%
9.05%
9.38%
Hong Kong Hang Seng
25223.62
25362.98
21137.61
1.95%
2.33%
11.62%
8.23%
India Sensex30
China Shanghai Composite
27123.53
27225.85
18929.38
1.82%
4.69%
42.91%
28.12%
Indonesia JCI
5211.40
5232.66
4012.68
1.45%
2.00%
28.65%
21.93%
Malaysia KLCI
1868.66
1896.23
1719.83
0.14%
-0.43%
8.58%
0.09%
Korea KOSPI
2048.94
2093.08
1885.53
-0.95%
-0.84%
4.99%
1.87%
Philippines PSE
7258.10
7264.87
5709.34
2.94%
4.07%
21.80%
23.23%
Singapore STI
3326.12
3387.84
2953.01
-0.03%
-0.05%
9.43%
5.01%
Taiwan TAIEX
9395.87
9593.68
8093.82
-0.43%
2.78%
15.02%
9.11%
Thailand SET
1582.00
1586.93
1205.44
1.30%
3.47%
20.44%
21.81%
Commodity
Oil
Gold spot
94.44
110.46
91.24
-1.58%
-3.02%
-12.85%
-4.04%
1263.28
1394.80
1182.52
-1.90%
-1.98%
-7.62%
4.78%