CLSA Forum Voices a 20121105

7/29/2019 CLSA Forum Voices a 20121105

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Global and AsianInvestment strategy

Christopher Wood

5-7 Nov 2012

Equity strategist


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2012 CLSA Asia-Pacific Markets (CLSA).

IMPORTANT: The content of this report is subject to and should be read in conjunction with the disclaimer and CLSA's Legal and Regulatory Notices as set outat www.clsa.com/disclaimer.html, a hard copy of which may be obtained on request from CLSA Publications or CLSA Compliance Group, 18/F, One Pacific Place,88 Queensway, Hong Kong, telephone (852) 2600 8888.

US total debt as % of GDP

Note: Include public debt and private financial & non-financial sector debt.Source: CLSA Asia-Pacific Markets, Federal Reserve - Flow of Funds Accounts (1945-2012 data),Census Bureau Historical Statistics of the United States, Colonial Times to 1970 (1916-1944 data).

100

150

200

250

300

350

400

1916 1925 1934 1943 1952 1961 1970 1979 1988 1997 2006

US total debt as % of GDP(%)

1933=299%

2Q09=386%

2Q12=354%


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Western central banks total assets as % of GDP

The Feds and the BoEs total assets have risen from 6% of GDP in 2007 to 18% and 27% at present, while theECBs and the Swiss National Banks assets have risen from 13% and 21% of GDP in 2007 to 32% and 85%.The BoJs balance sheet has also risen from 19% in 2007 to 32.5% at present.Source: Bloomberg, CEIC Data, CLSA Asia-Pacific Markets

20

30

40

50

60

70

80

90

5

10

15

20

25

30

35

2007 2008 2009 2010 2011 2012

Bank of England

ECB

Federal Reserve

Swiss National Bank (RHS)

(%) (%)


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Federal Reserve balance sheet expansion

At the proposed US$40bn/month buying of mortgage-backed securites (MBS), it will take about three years for the Fed to achieve asimilar scale of balance-sheet expansion as was added in QE1 between November 2008 and March 2010 when the Fed bought aboutUS$1.6tn of securities (Treasuries, MBS and agency debt). Note: Projections based on the open-ended QE3 (MBS buying ofUS$40bn/month) announced on 13 September 2012. Source: Federal Reserve

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2007 2008 2009 2010 2011 2012 2013 2014 2015

(US$bn) Agency debt

MBS

Treasuries

Fed assets

projection


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US and Japan household interest incomes

Japanese households interest income received has fallen by 80% from a peak of Y37.5tn in FY91 to Y7.4tn in FY10 ended March 2011.US annualised personal interest income has declined by 31% from a peak of US$1.422tn reached in Aug-08 to US$976bn in Sep-12.Note: Fiscal years beginning 1 April for Japan, calendar year data for US with annualised data for Jan-Sep 2012.Source: US Bureau of Economic Analysis, Japan Cabinet Office

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

0

5

10

15

20

25

30

35

40

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

(Yen tn) Japan household interest income

US personal interest income (RHS)

(US$bn)


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US and Japanese banks asset yields

Japanese banks asset yield has fallen from 6.9% in 1990 to 1.2% in 2011, while US banks asset yield has declined from 6.5% in 2007to 4% in 1H12. Source: Japanese Bankers Association, FDIC, CLSA Asia-Pacific Markets

0

1

2

3

4

5

6

7

8

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Japan asset yield (1988-2011)US asset yield (2005-1H12)

(%)


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US M2 velocity (Nominal GDP/M2)

Note: US M2 velocity, measured as the nominal GDP to M2 ratio, has fallen from 1.96 in May 2006 to 1.56 inSeptember 2012. Source: Federal Reserve, CLSA Asia-Pacific Markets

1.5

1.6

1.7

1.8

1.9

2.0

2.1

2.2

1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009

US M2 Velocity (Nominal GDP/M2)(x)


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US household debt growth

US household debt increased by an annualised 1.2% in 2Q12, the strongest growth since 1Q08. The increase is due to an annualised6.2% rise in consumer credit, of which federal guaranteed student loans accounted for 85% of the increase over the past 12 months.While home mortgages declined for the 13th consecutive quarter, falling by an annualised 2.1% in 2Q12. Domestic financial-servicessector has also reduced its debt for 14 straight quarters, declining by an annualised 5.1% in 2Q12 and down 19% since 4Q08.Source: Federal Reserve Flow of Funds Accounts

(10)

(5)

0

5

10

15

20

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

(QoQ saar) US household debt growth

Home mortgages

Consumer credit


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S&P500 companies net income

S&P500 companies total quarterly net income declined by 6.9%YoY in 2Q12. On an annualised basis, the netincome of S&P500 companies rose by a mere 1.9%YoY in the four quarters ended June. Excluding Apple, annualisednet income for the S&P500 declined by 0.1%YoY, the first such decline since 3Q09. Source: Bloomberg

0

100

200

300

400

500

600

700

800

900

2005 2006 2007 2008 2009 2010 2011 2012

(US$bn,annualised)

S&P500 excl. Apple Apple Inc.


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US average hourly earnings growth

US average hourly earnings for private production/non-supervisory workers rose by 1.1%YoY in October, thelowest annual growth rates since the data series began in 1964.Source: US Bureau of Labour Statistics

1

2

3

4

5

6

7

8

9

10

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

US average hourly earnings growth of privateproduction/non-supervisory workers

(%YoY)


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Number of Americans on food stamps

A total of 46.7m Americans or 22.5m American households were on food stamps as of July 2012.Note: Fiscal year ending 30 September. Data up to July 2012.Source: US Department of Agriculture (USDA) Food and Nutrition Service

0

5

10

1520

25

30

35

40

45

50

1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009

Number of Americans on food stamps(m)


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US housing starts and new home sales

US housing starts in multifamily units (buildings with 5 units or more) are now 391% above the trough levelreached in Oct-09, while single-family housing starts are only 71% above their March 2009 low. Multifamily homesaccounted for 30% of total housing starts in September, up from 10% in Oct-09. New home sales are now 42%above their Feb-11 low but still 72% below the peak reached in July 2005. Source: US Census Bureau

0

500

1,000

1,500

2,000

2,500

2004 2005 2006 2007 2008 2009 2010 2011 2012

(thousand, saar)

Other starts (buildings with 2-4 units)

Starts in buildings with 5 units or more

Single-family housing starts

US new home sales


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US mortgage application index

The US mortgage refinancing application index has risen by 151% since February 2011. But the new purchasemortgage application index has remained broadly flat since 2Q10, and is still 65% below its June 2005 peak.Source: Mortgage Bankers Association of America

500

1500

2500

3500

4500

5500

6500

7500

150

200

250

300

350

400

450

500

550

2005 2006 2007 2008 2009 2010 2011 2012

US new purchase mortgage application index

US mortgage refinancing application index (RHS)


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Residential investment and exports as % of US GDP

Residential investments share of US nominal GDP has fallen from a high of 6.3% in 4Q05 to 2.5% in 3Q12, whileexports share of GDP has risen from 10.5% to 13.8% over the same period.Source: US Bureau of Economic Analysis

0

2

4

6

8

10

12

14

16

1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012

(%GDP)

Residential investment Exports


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US Dollar Index

Source: Bloomberg

70

72

74

76

78

80

82

84

86

88

90

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

US Dollar Index


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Eurozone bank assets to nominal GDP ratio

Eurozone bank assets totaled 33tn at the end of 2Q12, or 3.5x Eurozone nominal GDP.Source: ECB, Eurostat

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

1998 2000 2002 2004 2006 2008 2010 2012

(x)Eurozone credit institutions' total assetsto Eurozone nominal GDP ratio


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Eurozone nominal GDP growth

Eurozone nominal GDP rose by 0.4%YoY in 2Q12, down from 1.5%YoY in 1Q12. Germany nominal GDP rose by1.7%YoY in 2Q12 vs 2.8%YoY in 1Q12. While nominal GDP in Eurozone excl. Germany declined by 0.1%YoY in 2Q12compared with a 1.0%YoY increase in 1Q12. Note: Based on unadjusted nominal GDP data. Source: Eurostat

(8)

(6)

(4)

(2)

0

2

4

6

8

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

(%YoY) Eurozone Germany Eurozone excl. Germany


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Eurozone private sector loan growth

German banks loans to the private sector rose by 1.4%YoY in September while private-sector loans in the rest ofthe Eurozone declined by 1.6%YoY. Note: Based on ECB data for monetary financial institutions loans to theprivate sector (excl. monetary financial institutions and general government). Source: ECB

-4

-2

0

2

4

6

8

10

12

14

16

18

2005 2006 2007 2008 2009 2010 2011 2012

(%YoY) Germany Eurozone excl. Germany


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10-year and 2-year Spanish government bond yield

The 10-year and 2-year Spanish government bond yields have fallen by 203bp and 368bp from their recent highof 7.62% and 6.64% reached on 24 July to 5.59% and 2.96%. Source: Bloomberg

1

2

3

4

5

6

7

8

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

(%) Spanish 10-year government bond yield

Spanish 2-year government bond yield


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Spanish banks borrowings from the ECB

ECB gross lending to Spanish banks has risen by 265bn or 197% in the first nine months of this year to 400bn inSeptember, accounting for 33% of the ECBs gross lending to Eurozone banks.Note: Average of daily data. Source: Bank of Spain

0%

5%

10%

15%

20%

25%

30%

35%

0

50

100

150

200

250

300

350

400

450

2000 2002 2004 2006 2008 2010 2012

(Euro bn) (%)

ECB gross lending to Spanish banks

as % of ECB gross lending to Eurozone banks (RHS)


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Spain monthly net capital flows

Spain has recorded 14 consecutive months of capital outflows as of August, totalling 343bn or 32% of GDP.Note: Balance of payments: financial account balance excluding Bank of Spain operations. Source: Bank of Spain

(80)

(60)

(40)

(20)

0

20

40

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

(Euro bn) Spain monthly net capital inflows/outflows


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Spain current account balance

Spain recorded a current account surplus of 500m in July and 1.24bn in August, its first monthly current accountsurplus since August 1998. Source: Bank of Spain

(14)

(12)

(10)

(8)

(6)

(4)

(2)

0

2

1998 2000 2002 2004 2006 2008 2010 2012

(Euro bn) Spain monthly current account balance


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Bundesbank Target2 balance

Bundesbanks Target2 claims against other European national central banks rose by 288bn in the first 8 monthsof 2012 to a record 751.4bn at the end of August, but fell 56bn in September to 695.5bn. While the Bank ofSpains Target2 liabilities rose by 259bn in Jan-Aug 2012 to 434bn but down 34bn in September to 400bn.Source: Bundesbank, Bank of Spain

0

100

200

300

400

500

600

700

800

2007 2008 2009 2010 2011 2012

( bn)Bundesbank Target2 balance


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Brent crude oil price

Source: Bloomberg

30

40

50

60

70

80

90

100

110

120

130

140

150

2006 2007 2008 2009 2010 2011 2012

Brent crude oil priceUS$/bbl


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Asia ex-Japan CPI inflation and CRB Index

Note: WPI for India. Headline inflation rates weighted by five-year average (2007-11) nominal personal consumption.Source: CEIC Data, Bloomberg, CLSA Asia-Pacific Markets

150

200

250

300

350

400

450

500

-2

-1

0

12

3

4

5

6

7

8

9

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Asia ex-Japan CPI inflation

CRB Index (RHS)

(%YoY)


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MSCI China and Emerging Markets relative to S&P500

The MSCI Emerging Markets Index has underperformed the S&P500 by 27% since October 2010, while the MSCI China Index,which accounts for 17% of the MSCI Emerging Markets Index, has underperformed the S&P500 by 31% over the sameperiod. The MSCI China has outperformed the S&P500 by 16% since early September while the MSCI Emerging Markets hasoutperformed by 6%. Source: Datastream

50

100

150

200

250

300

350

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

(1/1/00=100) MSCI China relative to S&P500

MSCI Emerging Markets relative to S&P500


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MSCI AC Asia Pacific ex-Japan trailing price-to-book

MSCI AC Asia Pacific ex-Japan Index now trades on 1.61x trailing price-to-book, compared with a long-termaverage since 1995 of 1.82x and a late 2008 low of 1.16x. Source: Bloomberg

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

1995 1997 1999 2001 2003 2005 2007 2009 2011

(x)

mean

-1sd

+1sd


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CLSA Asia Pacific ex-Japan asset allocation

Source: MSCI, CLSA Asia-Pacific Markets

MSCI AC Asia

Pacific ex-Japan

weightings

28-Sep-12

CLSA

recommended

weightings

28-Sep-12

Mismatch

from current

benchmark

Australia 25.2% 8.0% -17.2%

China 17.3% 18.0% 0.7%

Hong Kong 8.9% 8.0% -0.9%

India 7.0% 8.0% 1.0%

Indonesia 2.7% 6.0% 3.3%

Korea 15.5% 14.0% -1.5%

Malaysia 3.6% 6.0% 2.4%

New Zealand 0.4% 0.0% -0.4%

Philippines 0.9% 8.0% 7.1%

Singapore 5.4% 6.0% 0.6%

Taiwan 11.1% 8.0% -3.1%

Thailand 2.2% 8.0% 5.8%

Vietnam -- 2.0% 2.0%Total 100.0% 100.0% --

A i J th ti it tf li


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Asia ex-Japan thematic equity portfoliofor long-only absolute-return investors

Source: CLSA Asia-Pacific Markets

Regional consumer 4% Samsonite

Australia gold mining 10% Newcrest Mining

China internet search engine 6% Baidu

China internet company 4% Tencent

India consumer 8% Titan Industries (3%), Godrej Consumer (5%)

India banks 4% HDFC Bank

India housing finance 4% HDFC

India infrastructure finance 4% IDFC

India infrastructure 3% Bharat Heavy Electricals (BHEL)

India internet play 4% Info Edge

Indonesia autos 4% Astra International

Indonesia cement 4% Indocement

Indonesia fuel distribution 3% AKR Corporindo

Korea electronics 5% Samsung Electronics

Korea internet search portal 3% NHN Corp

Philippines banks 5% Security Bank

Philippines consumer 5% Universal Robina

Singapore dividend plays 10% StarHub (5%), SATS (5%)

Thailand banks 4% Krung Thai Bank

Thailand consumer 6% CP All


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CLSA thematic portfolio relative to MSCI Asia ex-Japan

Note: Data up to 1 November 2012. This portfolio has risen by 691% in US$ terms since its inception on 30 Sep 2002,compared with a 200% gain in the MSCI AC Asia ex-Japan Index. The portfolio rose by an annualised 22.7% since inception,compared with an annualised 11.5% increase in the MSCI AC Asia ex-Japan Index. Based on the thematic portfolio for long-only absolute-return investors. Excluding dividends paid. Source: Datastream, CLSA Asia-Pacific Markets

0

100

200

300

400

500

600

700

800

900

Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12

Asia ex-Japan thematic portfolio

MSCI AC Asia ex-Japan Index

(30 Sep 02=100)


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India: WPI and CPI inflation

Headline WPI inflation rose from 7.55%YoY in August to 7.8% in September, while core WPI inflation (non-foodmanufactured products) was unchanged at 5.6%. Food WPI inflation eased from 9.1% in August to 8.5% inSeptember. CPI inflation slowed from 10%YoY in August to 9.7%YoY in September.Source: Ministry of Commerce & Industry, CEIC Data

-2

0

2

4

6

8

10

12

2006 2007 2008 2009 2010 2011 2012

India WPI inflation

Core WPI inflationNew CPI inflation

(%YoY)


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India: RBI policy rates

The RBI cut the repo rate by 50bps to 8% on 17 April, and has cut the cash reserve ratio (CRR) by 175bps sinceJanuary to 4.25%. Source: Reserve Bank of India, Bloomberg

3

4

5

6

7

8

9

10

11

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

RBI repo rate

Reverse repo rate

Cash reserve ratio (CRR)

(%)


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India: Real GDP growth

India real GDP growth slowed to 5.5%YoY in Apr-Jun 12. CLSAs economics team forecast real GDP to grow by5.5% this fiscal year (FY13 ending 31 March 2013) and 6.0% in FY14.Source: CEIC Data, CLSA Asia-Pacific Markets

0

2

4

6

8

10

12

1997 1999 2001 2003 2005 2007 2009 2011

India real GDP growth

(%YoY)


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India: Investment as % of GDP

Annualised gross fixed capital formation to nominal GDP ratio has fallen from a peak of 33.3% in 3Q08 to 29.2%in 2Q12. Source: CEIC Data, Reserve Bank of India

22

24

26

28

30

32

34

1997199819992000200120022003200420052006200720082009201020112012

India gross fixed capital formation as % of GDP(%, 4Qma)


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India: Growth in value of investment projects

The growth in value of investment projects under implementation slowed from 39%YoY in Sep-10 to 8.3%YoY inSep-12. Source: Centre for Monitoring Indian Economy (CMIE)

0

10

20

30

40

50

60

2004 2005 2006 2007 2008 2009 2010 2011 2012

(%YoY)Growth in value of investment projects under implementation


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India: New investment projects announced

New investment project announcements during the July-September quarter fell by 77%YoY to Rs585bn, the lowestlevel since April-June 2004. Source: Centre for Monitoring Indian Economy (CMIE)

0

1

2

3

4

5

6

7

8

9

2004 2005 2006 2007 2008 2009 2010 2011 2012

(Rs tn)New investment projects annoucements


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India: Bank credit growth

India bank credit growth slowed from 24.5%YoY at the end of 2010 to 16.0%YoY on 19 October 2012.Source: Reserve Bank of India

8

10

12

1416

18

20

22

24

26

28

30

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

India total bank credit growth

%YoY


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India: Current account balance

Note: July 2011-June 2012 = 4.2% of GDP.Source: CEIC Data, RBI

-5

-4

-3

-2

-1

0

1

2

3

4

1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012

India current account as % of GDP(%, annualised)


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India: Rupee/US$ (inverted scale)

Indian rupee has appreciated by 6% against the US dollar since June, after depreciating by 15% from earlyFebruary high. The rupee has still fallen by 18% against the US dollar since 1 August 2011. Source: Bloomberg

1518

21242730333639

42454851545760

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Indian rupee/US$ (inverted scale)


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India: Cumulative FII net equity investment

Note: FII data up to 31 October 2012. FIIs have bought a net US$18bn worth of Indian equities so far this year.Source: Bloomberg, SEBI

2,000

4,000

6,000

8,00010,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

0

10

20

3040

50

60

70

80

90

100

110

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Cumulative FII net equity investment

BSE Sensex (RHS)

US$bn


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India: Cumulative net buying by mutual funds

Indian domestic mutual funds have sold a net Rs151bn worth of Indian equities so far this year.Note: Data up to 1 November 2012. Source: Bloomberg, SEBI

-50

0

50

100

150

200

250

300

350

400450

500

550

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Cumulative net buying of Indian stocksby domestic mutual funds

(Rs bn)


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India: Sensex one-year forward PE

Note: Sensex now trades on 14.4x one-year forward earnings, compare with a 10-year average of 15x and a long-termaverage of 17.7x since 1990. Source: CLSA Asia-Pacific Markets

5

10

15

20

25

30

35

40

45

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

(x)

average

d d l


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India: MSCI India relative to Asia ex-Japan

Source: Datastream, CLSA Asia-Pacific Markets

40

60

80

100

120

140

160

180

200

220

240

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

MSCI India relative to MSCI AC Asia Pacific ex-Japan Index

Ch C fl


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China: CPI inflation

China headline CPI inflation slowed from 6.5%YoY in July 2011 to 1.9%YoY in September 2012, while food CPIinflation slowed from 14.8%YoY to 2.5%YoY over the same period. Non-food CPI rose by 1.7%YoY in Septemberwhile core CPI (excl. food & energy) rose by 1.6%YoY. Source: CEIC Data, National Bureau of Statistics

-5

0

5

10

15

20

25

2006 2007 2008 2009 2010 2011 2012

Food CPI

China CPI inflation

Non-food CPI

(%YoY)

Chi N i l GDP h


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China: Nominal GDP growth

China nominal GDP growth has slowed from 18.4%YoY in 3Q11 to 8.5%YoY in 3Q12.Source: CEIC Data, CLSA Asia-Pacific Markets

0

5

10

15

20

25

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

(%YoY)

China nominal GDP growth

Chi A h i i th


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China: A-share companies earnings growth

China A share companies aggregate net profits fell 3.6%YoY in 3Q12, compared with a 2.4%YoY decline in 2Q12.Total bank profits were up 15.8%YoY in 3Q12 vs 16.8%YoY increase in 2Q12. Non-bank A share companies profitsfell 20.6%YoY in 3Q12 vs 17.4%YoY decline in 2Q12. Source: FortuneCLSA, Wind

(30)

(20)

(10)

0

10

20

30

40

50

2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12

(%YoY) Total A shares A shares excluding banks

Chi C t ib ti t l GDP th


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China: Contribution to real GDP growth

Gross capital formation contributed less to real GDP growth than final consumption in 2011 and 1-3Q12 for the first timesince 2005. Final consumption (household & government) contributed 4.2ppts to the real GDP growth of 7.7%YoY in 1-3Q12while gross capital formation contributed 3.9ppts. In 2011, consumption contributed 5.2ppts to the real GDP growth of9.3%YoY while investment contributed 4.5ppts. Source: CEIC Data, National Bureau of Statistics (NBS)

(6)

(4)

(2)

02

4

6

8

1012

14

16

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1-3Q

2012

(ppt)Final consumption Gross capital formation Net exports

Chi B h k i t t t d RRR


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China: Benchmark interest rates and RRR

The PBOC cut the benchmark one-year lending and deposit rates by 25bp in June to 6.31% and 3.25%, and by afurther 31bp and 25bp in July to 6.0% and 3.0%. RRR has been cut by 150bp since December 2011 to 20%.Source: CEIC Data, PBOC

0

2

4

68

10

12

14

16

18

20

22

1

2

3

4

5

6

7

8

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

One-year lending rate

One-year deposit rate

Reserve requirment ratio (RHS)

(%) (%)

Ch b b k l d d b d f


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China: New renminbi bank lending and corporate bond financing

New renminbi bank lending totaled Rmb623bn in September, up 33%YoY from Rmb469bn in September 2011.New loans in the first 9 months of 2012 rose by 18%YoY to Rmb6.72tn, accounting for 79-84% of the anticipated loanquota of Rmb8-8.5tn for 2012. Loan outstanding rose by 16.3%YoY in September, up from 15%YoY in January. Short-termloans and bill financing accounted for 62% of new bank lending in Jan-Sep 2012. Net corporate bond financing rose by85%YoY to Rmb1.56tn in Jan-Sep 2012, equivalent to 66% of medium/long-term bank lending.Source: CEIC Data, PBOC, CLSA Asia-Pacific Markets

0

2

4

6

8

10

12

2007 2008 2009 2010 2011 Jan-Sep11 Jan-Sep12

Short-term bank lending & bill financing

Medium/long-term bank lending

Net corporate bond financing

(%YoY)

Chi A d il id ti l t l


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China: Average daily residential property sales

Average daily residential sales in 13 big mainland cities rose by 38%YoY in October.Note: Based on official sales data in 13 Tier 1-2 cities in floor space terms.Source: City-level Government Real Estate Information Centres, China Reality Research

0

10

20

30

40

50

60

70

80

90

100110

120

130

Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12

Average daily residential sales index (13 big cities)Nov-07=100

Chi N h i i Ti 1 iti


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China: New home prices in Tier-1 cities

New home prices in Beijing, Shanghai, Shenzhen and Guangzhou rose by 0.1%, 0.0%, 0.1% and 0.4% MoM inSeptember, but are still down 0.7%, 1.9%Y, 2.2% and 0.7% YoY.Note: Based on monthly NBS home price survey of 70 major cities. Source: National Bureau of Statistics (NBS)

(4)

(2)

0

2

4

6

8

10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

(%YoY) Beijing Shanghai

Shenzhen Guangzhou

Chi I t t i i f t t d l t t


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China: Investment in infrastructure and real estate

Fixed asset investment in infrastructure rose by 23.2%YoY in September, up from 2.2%YoY in December, and is up 13.8%YoYin the first 9 months of this year compared with an average growth of 22%YoY during 2005-2011. Residential real estateinvestment growth slowed to 4.8%YoY in July and 10%YoY in August and September.Source: National Bureau of Statistics, CEIC Data, CLSA Asia-Pacific Markets

0

10

20

30

40

50

60

2006 2007 2008 2009 2010 2011 2012

(%YoY) China residential real estate investment

Fixed asset investment in infrastructure

China: Capital flows


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China: Capital flows

Chinas capital outflows, measured as foreign exchange reserve accumulation less trade balance, totalled US$172bnin the past five quarters, equivalent to 1.8% of GDP. Note: Quarterly data up to 3Q12.Source: Peoples Bank of China, CEIC Data, CLSA Asia-Pacific Markets

(4)

(2)

0

2

4

6

8

10

(150)

(100)

(50)

0

50

100

150

200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

(US$bn) (%GDP, annualised)

China quarterly change in foreign reserves - trade balance

as % of GDP (annualised, RHS)

China Renminbi 12m non deli e able fo a d p emi m


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China: Renminbi 12m non-deliverable forward premium

The renminbi non-deliverable forward (NDF) market now assumes a 1.7% depreciation against the US dollar 12months forward. The renminbi has appreciated by 1.0% against the US dollar so far this year. Source: Bloomberg

-8

-6

-4

-2

0

2

4

6

8

10

12

14

2007 2008 2009 2010 2011 2012

(%)

China: Shanghai Composite Index


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China: Shanghai Composite Index

Source: Bloomberg

1,600

1,800

2,000

2,2002,400

2,600

2,800

3,000

3,200

3,400

3,600

Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12

Shanghai Composite Index

200-day moving average

China: MSCI China relative to Asia Pac ex Japan


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China: MSCI China relative to Asia Pac ex-Japan

Source: Datastream

80

90

100

110

120

130

140

150

160

170

180

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

(1/1/02=100)MSCI China relative to Asia Pacific ex-Japan Index

Recommended long-only asset allocation for


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g yUS-dollar-denominated pension funds

Source: CLSA Asia-Pacific Markets

Weight Investment Type

45% Physical gold bullion

30% Asia ex-Japan equities, weighted according to the long-only

thematic portfolio

20% Unhedged gold mining stocks

5% Japanese equities, weighted according to the Japan long-

only portfolio

Gold bullion price in US dollar terms


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Gold bullion price in US dollar terms

Source: Bloomberg

200

400

600

800

1000

1200

1400

1600

1800

2000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Gold bullion spot price

200-day moving average

(US$/oz)

Gold mining stocks relative to gold price


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Gold mining stocks relative to gold price

Note: NYSE Arca Gold BUGS Index is a modified equal-dollar weighted index of 17 unhedged gold mining stocks.Source: Bloomberg

0.1

0.2

0.3

0.4

0.5

0.6

0.7

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

NYSE Arca Gold BUGS Index / Gold bullion price ratio(x)

Official sector gold demand


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Official sector gold demand

Note: Central banks gold reserves increased by 157.5tn tonnes in 2Q12, the largest quarterly net buying sincethe official sector became a net buyer in 2Q09. Source: World Gold Council

(200)

(160)

(120)

(80)

(40)

0

40

80

120

160

1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12

(tonne) Official sector gold demand

Upcoming CLSA Forums


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Upcoming CLSA Forums

Japan Forum 201325-28 February, Tokyo

ASEAN CORPORATE

ACCESS FORUM

Asean Corporate Access Forum 201313-15March, Bangkok

China Forum 201313-15 May, Beijing

Investors Forum 201323-27 September, Hong Kong

Important notices


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Important notices2012 CLSA Asia-Pacific Markets ("CLSA").

Key to CLSA/Credit Agricole Securities investment rankings: BUY: Total return expected to exceed market return AND provide 20% or greater absolute return; O-PF: Total return expected to be greater than marketreturn but less than 20% absolute return; U-PF: Total return expected to be less than market return but expected to provide a positive absolute return; SELL: Total return expected to be less than market return AND toprovide a negative absolute return. For relative performance, we benchmark the 12-month total return (including dividends) for the stock against the 12-month forecast return (including dividends) for the local market wherethe stock is traded.

CLSA has produced this publication/communication for private circulation to professional, institutional and/or wholesale clients only. The information, opinions and estimates herein are not directed at, or intended fordistribution to or use by, any person or entity in any jurisdiction where doing so would be contrary to law or regulation or which would subject CLSA to any additional registration or licensing requirement within such

jurisdiction. The information and statistical data herein have been obtained from sources we believe to be reliable. Such information has not been independently verified and we make no representation or warranty as to i tsaccuracy, completeness or correctness. Any opinions or estimates herein reflect the judgment of CLSA at the date of this publication/ communication and are subject to change at any time without notice. Where any part ofthe information, opinions or estimates contained herein reflects the views and opinions of a s ales person or a non-analyst, such views and opinions may not correspond to the published view of t he CLSA research group. This isnot a solicitation or any offer to buy or sell. This publication/communication is for i nformation purposes only and does not constitute any recommendation, representation, warranty or guarantee of performance. Any pricetarget given in the report may be projected from 1 or more valuation models and hence any price target may be subject to the inherent risk of the selected model as well as other external risk factors. This is not i ntended toprovide professional, investment or any other type of advice or recommendation and does not take into account the particular investment objectives, financial situation or needs of individual recipients. Before acting on anyinformation in this publication/ communication, you should consider whether it is suitable for your particular circumstances and, if appropriate, seek professional advice, including tax advice. CLSA does not accept anyresponsibility and cannot be held liable for any persons use of or reliance on the information and opinions contained herein. To the extent permitted by applicable securities laws and regulations, CLSA accepts no liabilitywhatsoever for any direct or consequential loss arising from the use of this publication/communication or its contents. Where the publication does not contain rating, the material should not be construed as research but isoffered as factual commentary. It is not intended to, nor should it be used to form an investment opinion about the not rated companies.

The analyst/s who compiled this publication/communication hereby state/s and confirm/s that the contents hereof truly reflect his/her/their vi ews and opinions on the subject matter and that the analyst/s has/have not beenplaced under any undue influence, intervention or pressure by any person/s i n compiling such publication/ communication.

Subject to any applicable laws and regulations at any given time CLSA, its affiliates or companies or individuals connected with CLSA may have used the information contained herein before publication and may have positionsin, may from time to time purchase or sell or have a material interest in any of the securities mentioned or related securities or may currently or in future have or have had a business or financial relationship with, or mayprovide or have provided investment banking, capital markets and/or other services to, the entities referred to herein, their advisors and/or any other connected parties. As a result, investors should be aware that CLSAand/or such individuals may have one or more conflicts of interests that could affect the objectivity of this report.

The Hong Kong Securities and Futures Commission requires disclosure of certain relationships and interests with respect to companies covered in CLSA's research reports and the securities of which are listed on The Stock

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This publication/communication is distributed for and on behalf of CLSA Limited (for non-US markets research) and /or Credit Agricole Securities (USA) Inc. (for US research) in Australia by CLSA Australia Pty Ltd; in HongKong by CLSA Research Ltd.; in India by CLSA India Ltd. (Address: 8/F, Dalamal House, Nariman Point, Mumbai 400021. Tel No: +91-22-66505050. SEBI Registration No: BSE Capital Market Segment: INB010826432; BSEF&O Segment: INF010826432; NSE Capital Market Segment: INB230826436; NSE F&O Segment: INF230826436 ); in Indonesia by PT CLSA Indonesia; in Japan by Credit Agricole Securities Asia B.V., Tokyo Branch, amember of the JSDA licensed to use the "CLSA" logo in Japan; in Korea by CLSA Securities Korea Ltd.; in Malaysia by CLSA Securities Malaysia Sdn Bhd; in the Philippines by CLSA Philippines Inc. (a member of PhilippineStock Exchange and Securities Investors Protection Fund); in Thailand by CLSA Securities (Thailand) Limited; and in Taiwan by CLSA Limited, Taipei Branch.

United States of America: This research report is distributed into the United States by CLSA solely to persons who quali fy as "Major U.S. Institutional Investors" as defined in Rule 15a-6 under the Securities and ExchangeAct of 1934 and who deal with Credit Agricole Corporate & Investment Bank. However, the delivery of this research report to any person in the United States shall not be deemed a recommendation to effect any transactionsin the securities discussed herein or an endorsement of any opinion expressed herein. Any recipient of this research in the United States wishing to effect a transaction in any security mentioned herein should do so bycontacting Credit Agricole Securities (USA) Inc. (a broker-dealer registered with the Securities and Exchange Commission) and an affili ate of CLSA.

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Singapore: This publication/communication is distributed for and on behalf of CLSA Limited (for non-US markets research) and /or Credit Agricole Securities (USA) Inc. (for US research) in Singapore through CLSA SingaporePte Ltd solely to persons who qualify as Institutional, Accredited and Expert Investors only, as defined in s.4A(1) of the Securities and Futures Act. Pursuant to Paragraphs 33, 34, 35 and 36 of the Financial Advisers(Amendment) Regulations 2005 with regards to an Accredited Investor, Expert Investor or Overseas Investor, sections 25, 27 and 36 of the Financial Adviser Act shall not apply to CLSA Singapore Pte Ltd. Please contactCLSA Singapore Pte Ltd in connection with queries on the report. MICA (P) 162/12/2011

The analysts/contributors to this publication/communication may be employed by a Credit Agricole or a CLSA company which is different from the entity that distributes the publication/communication in the respectivejurisdictions.

MSCI-sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not bereproduced, redisseminated or used to create any financial products, including any indices. This information is provided on an "as is" basis. The user assumes the entire risk of any use made of this information. MSCI, itsaffiliates and any third party i nvolved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose

CLSA Forum Voices a 20121105

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