Spotlight on china

In this issue CHINA GOES FOR ‘GENTLY DOES IT’ Page 5

SOME ARE MORE EQUAL THAN OTHERS Page 6

CHINA’S MOUTH-WATERING INVESTMENT OPPORTUNITIES Page 8

SPOTLIGHT ON CHINAA collection of articles to commemorate Robeco’s sponsorship of the Volvo Ocean Race

JAN/FEB 2015

CONTENTS

3 Foreword

5 China goes for ‘gently does it’

6 Some are more equal than others

8 Riding the Chinese e-commerce boom

10 Navigating your way out of trouble

12 China’s mouth-watering investment

opportunities

14 Facts and figures

15 Fresh opportunities in Asia

16 Contact

For professional investors

14-15 March Auckland

18-19 April Itajaí

16-17 May Newport

6-7 June Lisbon

14-17 June Lorient

19 June The Hague (Pit Stop)

27 June Gothenburg

4-11 October Alicante

15-19 November Cape Town

2-3 January Abu Dhabi

7-8 February Sanya

2 |

| 3

FOREWORD

There’s an old saying about ‘taking a slow boat to

China’ – and that’s about as far removed as you

can get for the Volvo Ocean Race. After a voyage of

more than 20,000 km, competition in the ‘Formula

One’ of ocean racing is now seriously heating up as

the boats reach the Chinese port of Sanya.

The leg was one of the most difficult in the nine-

month race as it meant navigating busy shipping

lanes and treacherous currents on the way from the

last stopover port of Abu Dhabi. The dangers of the

race cannot be underestimated after one boat hit

a reef during the second leg, temporarily reducing

the race field to six.

To commemorate the Sanya stopover, we are

pleased to publish our fourth magazine, focusing

on China as well as some stories directly from our

sponsored boat, Team Brunel. In this edition, we

feature a double interview with Pim van Vliet,

portfolio manager for Robeco Conservative Equities,

and Bouwe Bekking, Team Brunel’s skipper.

Investors target the same markets, and the race

boats are identical – so how do both men go the

extra nautical mile to beat competitors?

China is itself steadily winning the global economic

race. Robeco’s Chief Economist Léon Cornelissen

gives his view on Chinese growth potential, while

Victoria Mio, portfolio manager of the Chinese

Equities fund, reveals how e-commerce lies at the

heart of the country’s new-found consumerism.

Some of this growth however has come at a

price to the environment, particularly in resource

management. Dieter Küffer of RobecoSAM explains

how China is seriously working on improving its

water resources and how investors can benefit from

the opportunities this presents.

And what are the best picks in 2015 for the wider

Asian region? Arnout van Rijn, Chief Investment

Officer of Robeco Asia Pacific, outlines his three

favorite equity markets.

Finally, in our latest race report, Team Brunel

navigator Andrew Cape discusses how he planned

to tackle the tricky third leg, using a combination of

advanced technology and pure gut instinct.

We hope you enjoy our magazine and will continue

to follow the race with us.

Tony Edwards

Chief Executive Officer Robeco Asia Pacific

| 5

CHINA GOES FOR ‘GENTLY DOES IT’

Léon Cornelissen

The Chinese economy is struggling with headwinds.

In 2014, third-quarter growth was the lowest in five

and a half years and there is a big chance that the

growth target of 7.5% will be missed. This growth

deceleration is partly related to the curbs in credit

lending, a measure the authorities adopted to

prevent the real estate market from overheating.

Measures taken to reduce pollution also had a

negative impact in growth.

Welcome support from low oil pricesAnd yet Robeco’s chief economist Léon Cornelissen

is not somber about the growth outlook for this

year: “The Chinese authorities will probably go for

a growth target of 7% this year, but they will not

accept a lower growth number as this would have a

serious effect on employment. And 7% is doable.”

According to Cornelissen, the lower oil prices

will quickly drive inflation lower in China, which

in turn creates more room for stimulus through

interest rates. That China wants to reduce its major

dependence on foreign oil supplies is not an issue

at this point: “Low oil prices are very favorable for

China. The country has major coal reserves, but in

‘The condition the authorities place on the reforms is that growth does not come under too much pressure’

Chinese economic reforms continue, but the authorities are going about it carefully.

After all, they don’t want to risk missing their growth targets. Oil price declines and the

US growth recovery are providing some welcome wind in China’s wings.

the central government has pumped capital into

the banks and invested further in infrastructure

projects. What’s more, the continuing recovery

in the US economy is having a positive effect on

growth in China.

‘The condition the authorities place on the reforms

is that growth does not come under too much

pressure’

Weak domestic spendingCornelissen is a little less positive though for the

longer term. “Private sector debt and debt at

lower levels of government are not likely to put any

pressure on growth this year. But debt problems are

increasing and that is unfavorable for the longer

term.”

This publication is intended to provide investors with

general information on Robeco’s specific capabilities,

but does not constitute a recommendation or an

advice to buy or sell certain securities or investment

products.

terms of CO2 emissions, that is not handy, and at

this price oil is irresistible.”

The reforms the authorities are currently

implementing are in Cornelissen’s opinion not

a major threat to growth. “In the past, there

was a tendency to push regional leaders to

maximize economic growth. But now the focus

is on budgetary discipline, too. However, if this is

excessively stringent, it puts a brake on growth,

though the effects are not so dramatic in practice.

Further, they are compensating this with monetary

stimulus measures or letting the yuan weaken

faster versus the dollar.”

This method of sliding exchange with the dollar

is not a pertinent issue at the moment. However,

Another problem is domestic spending: “This is

weak because the Chinese are keen savers due

to inadequate social provisions”, according to

Cornelissen. “It would be better – for the global

economy, too – if there was a greater focus on this

issue.” The transition the government is pursuing

from an export-led economy to a consumption-

driven economy could do with changing up a gear

or two, says the economist.

“It is under way, but they’re opting for a ‘gently

does it’ approach. The condition the authorities

place on the reforms is that growth does not come

under too much pressure, as that would threaten

social and political stability.”

Investment funds target the same markets, and the Volvo Ocean Race teams

are competing with identical boats. So if all things are equal, how do Robeco’s

fund managers and Team Brunel generate a winning performance?

SOME ARE MORE EQUAL THAN OTHERS

Pim van Vliet and Bouwe Bekking

more traction and investors worldwide are

gradually increasing their allocations.”

“Our approach differs in many ways, because we

add elements to decrease risk or enhance return,”

he says. “We select stocks on the basis of volatility,

beta, low default risk and value- and momentum-

driven factors. So we consider not only historical

volatility, but also include other factors to enhance

returns and avoid unnecessary risks and costs.

We use the term ‘Conservative’ instead of ‘low

volatility’ because this is not a generic low-volatility

or minimum variance investment strategy.”

For Team Brunel skipper Bouwe Bekking, using

specialist skills to gain an advantage works the

same way when racing around the world. “The

boats are identical, so several factors are involved in

whether you win or lose,” he says. “We had a good

training program, but most importantly we have

a fantastic team who never ever give up. They are

fighting and believing in themselves until the end.”

“The factors that make all the difference in winning

using identical boats are preparation, the actual

execution of the game plan according to the

weather, the tactics when the weather changes,

and how well the team is functioning and sailing as

a whole.”

Survival of the fittestBekking’s crew is one of the most experienced, and

one of the most international: the Dutch captain is

competing in his seventh Volvo Ocean Race while

Australian navigator Andrew Cape is on his sixth.

“You need a highly experienced crew, otherwise

you don’t stand a chance,” says Bekking. “You have

to be physically fit, or you will not get around the

world in a Formula 1 sailboat. Of course a 25-year-

old guy who is half my age is potentially fitter than

me, but then for my age I am super fit. I work hard

on that, such as daily training during stopovers,

no alcohol and eating only healthy food.” (Cape

admits to having the occasional drink and smoke!)

Maximizing the winning margin while reducing risk

is a strategy used by both Robeco and Team Brunel.

“In order to enhance the risk-return-profile, Robeco

Conservative Equities strategy applies its philosophy

Quantitative techniques pioneered by Robeco

since the 1990s aim to get more performance out

of the same markets than the competition. And

Team Brunel likewise relies on the skills of its highly

experienced sailors to get more speed out of the

same boat as its rivals.

The rewards are plain to see: Robeco Conservative

Equities strategy have achieved success over the

past eight years by moving away from the crowd,

while Team Brunel likewise increases its chances of

winning by outsmarting the other boats. The team

currently heads the race leaderboard after winning

the second leg.

Aiming high by looking lowThe Robeco Conservative Equities strategy does

this by exploiting an anomaly in the equity market

where low-volatility stocks have been shown to

generate better performance at lower levels of risk.

“In 2006 Robeco was one of the first asset

managers to adopt low-volatility equity investing,”

says Pim van Vliet, portfolio manager of the

strategy. “Low-volatility investing is slowly gaining

6 |

Pim van Vliet

of not going against other factors such as

momentum and value when selecting low-volatility

stocks,” says Van Vliet. “Thorough empirical

research shows the benefits of this approach in

generating higher risk-adjusted returns.”

“When we first started, the challenge was how to

convert the low-volatility factor, or anomaly, into an

efficient portfolio,” he says. “Because in the end,

not all low-volatility stocks perform the same, so we

want to select the most attractive ones.”

Making the most of momentum“Adding price momentum helps to improve

‘up-capture’, the percentage of market gains

captured by a manager, he says. “Why should you

hold a stock that is gradually going down – one that

has low volatility but negative momentum in an up

market?” And adding valuation factors mitigates

valuation risk: “We consider it to be risky to ignore

the price you actually pay for a stock.”

Another thing that Van Vliet wants to avoid is

distress risk – when a company has difficulty paying

off its financial obligations to its creditors. “We

look at more than backward-looking statistical

risk measures,” he says. “The negative impact of

leverage is picked up by distress risk factors but

not by volatility or beta. The main result of taking

distress factors into account is smaller drawdowns

compared to a generic low-volatility strategy.”

And teamwork is key. Bekking, for example, is not

impressed by the fact that some of his competitors

– notably Abu Dhabi Ocean Racing captain Ian

Walker, who won the first leg – have won medals

at the Olympics. In fact, he thinks it may even

negatively impact them.

“Of course they have performed under a lot of

pressure, but only by themselves or with one other

person on Olympic boats,” he says. “I actually

think it is a minus, as these Olympic sailors are very

often individuals used to putting themselves at the

forefront, instead of making sure that the team is

the most important thing.”

So what about the boat itself? The Volvo Ocean 65

is technologically more advanced but much slower

than the predecessor, the Volvo Open 70, in which

| 7

‘You need a highly experienced crew, otherwise you don’t stand a chance’





products. Bouwe Bekking

Bekking set an English Channel speed record some

years ago.

“I never had any expectations for the new boat,

and I told my team the same,” he says. “The boat is

what it is and we have to make the best out of it. It

is smaller, slower, and heels more than the VO 70,

but it is much dryer. And it does have the ability to

break records when the conditions are right.”

8 |

RIDING THE CHINESE E-COMMERCE BOOM

Victoria Mio

China’s rapid growth is now being fueled by e-commerce as the country becomes more consumerist, says Chinese Equities

portfolio manager Victoria Mio. And that means investors should target those internet or consumer-orientated companies

whose profile was recently massively raised by the flotation of industry titan Alibaba, she says.

5-year plan which aims to steer the country away

from exports towards domestic consumption. To

do this, the country has engaged in a massive

infrastructure drive.

“The government has helped to construct 200

logistics parks in major economic zones and

has made investments in highways, railways,

waterways, as a key initiative to improve the

infrastructure to support the growth in domestic

consumption and commerce,” says Mio.

“The national postal system was not big enough to

support the growth in e-commerce, so companies

have built their own logistics networks. There are

now many third party logistics suppliers. Alibaba

totally outsourced the logistics to a network of

companies, and also has a subsidiary that owns

warehouses and last-mile delivery companies.”

Western model for servicesShe says e-commerce is not the only major

growth area as the country restructures towards

a more Western model. “Another thing that is

exciting in China is the growth of services such as

China has a clear strategy to move away from

its export-led economy, where growth is now

unsustainable, to one more focused on the vast

internal market for consumer products and services.

And there is certainly plenty of growth potential.

China’s real consumption in 2013 was 36% of

total GDP at USD 3.4 trillion – significantly lower

than that of other developed countries. As China

becomes more of a consumption-driven economy,

consumption share is expected to make up a larger

percentage of GDP, which in turn will benefit the

e-commerce industry.

World leader in online“China’s consumption engine has turned to online,”

says Mio. “China now accounts for about 35% of all

global e-commerce sales, which makes it the world

leader. This is expected to become half of the global

market by 2018.”

“These are huge numbers. Initially, China’s

consumption story was negatively impacted by

the lack of a social security safety net, the lack of a

physical infrastructure, and regional imbalances.

But in the last few years there has been a digital

revolution thanks to the advance of smartphones

and the penetration of internet services in China.”

“Many of the sectors have now embraced the

internet. China now has the largest internet market

in the world with 618 million users in 2013 and the

penetration rate is 46% of the population. Thanks

to this, e-commerce can expand very rapidly.”

China is skipping years of business evolution by

embracing e-commerce without first having had

traditional ‘high streets’, in the same way that

many emerging countries have completely skipped

the era of fixed line telephone.

Mio says the lack of physical shopping facilities

within China – despite some recent headline-

grabbing developments – has facilitated online. The

world’s largest shopping mall recently opened in

Tianjin, but you would need to live in the city to be

able to take advantage of it.

“In terms of shopping space, China as a whole has

retail space per capita of about 0.6 square meters,

which is much lower than the US, which has 2.6

square meters,” Mio says. “A major reason why

e-commerce has developed so quickly in China

is the inadequate offline retail market. When

consumers want to buy things, they have no better

choice than to go online.”

Alibaba as the role modelThe growth of e-commerce can be seen in the

astonishing valuation of Alibaba, an e-commerce

platform that operates a customer-to-customer

(C2C) market that is similar to eBay. Alibaba’s

flotation in September 2014 instantly made it worth

more than both eBay and Amazon and turned

founder Jack Ma – who was already the richest man

in China – into a multi-billionaire. In January 2015,

the company was worth USD250 billion.

“Jack Ma said: ‘In the US, e-commerce is just online

shopping. In China, e-commerce is a lifestyle’,” says

Mio, whose portfolio includes Alibaba shares. “Most

of the Chinese e-commerce market is internal;

Alibaba’s international sales only account for 10%

of its revenues - 90% are in the domestic market.”

Part of the growth has been due to China’s 12th

‘As consumers get enough handbags and shoes, they will buy services – that’s the next mega trend’





products.

tourism, financial services, entertainment, and

personal services such as massages,” says Mio. “As

consumers get enough handbags and shoes and so

on, they are going out to buy services – that’s the

next mega trend.”

So how can investors benefit? Mio’s strategy

is to buy Chinese stocks that are best placed to

take advantage of the growth story fueled by

e-commerce or more traditional industries like

autos. The sector may also insulate investors

against any potential slowdown in the rest of

Chinese GDP.

“Logistics, e-commerce, internet and tourism

companies, along with mass market consumer

products like sportswear and alcohol are the best

investments,” she says. “Despite some restrictions

on car ownership, the auto market is still growing

at the high end for SUVs and foreign brands such

as BMW.”

“We have a positive outlook for Chinese equities

in 2015 because of two things: continued reforms

in major economic sectors to make growth more

| 9

Victoria Mio

sustainable, and the fact that valuations in Chinese

stocks are quite low. Chinese domestic A-shares

staged a spectacular rally of 53% last year, but

Chinese offshore stocks have some catching up to

do. I’m really quite enthusiastic about the Chinese

market.”

‘To avoid collisions, we use radar, the Automatic Identification System and charts. But the eyes of the crew are the number one means of keeping a lookout’

10 |

| 11

The third leg from Abu Dhabi to Sanya in southern China is one of the most difficult

to navigate as it passes through some of the world’s busiest shipping lanes. But for

experienced Team Brunel navigator Andrew Cape, it’s just another day at the office.

disadvantage to other boats in busy seas because

they only have wind power – with no brakes. While

a powered boat could maneuver its way out of

a collision by simply turning up the throttle and

steering clear, sailing boats can only use their skill

and ingenuity.

“It can be difficult encountering a fishing boat

that is in the way because trying to talk to a

Vietnamese fisherman with a radio he doesn’t

have in a language he doesn’t understand is pretty

pointless,” says Cape. “So we just steer clear of

them.”

Aside from other boats and reefs, the competitors

also needed to avoid maritime exclusion zones

off the coasts of trouble spots such as Iran while

finding their way to Sanya. But the biggest problem

of all is looking for the one thing they need to

encounter – the best winds.

Winds of changeCape’s navigational skills came to the fore during

the closing stages of the second leg when he

noticed a wind change and got skipper Bouwe

Bekking out of bed to order a change in course to

take advantage of it. The tactical maneuver proved

critical in overtaking the Dongfeng race team and

winning the leg.

“The night before the finish, the distance between

us was 1.5 nautical miles, and we had fought back

to a distance of 0.7 nautical miles,” recalls Cape.

“Nobody slept, it was a drag race. Suddenly the

wind shifted slightly, and this meant we could

sail the last miles with a bit more speed and pass

Dongfeng. But we did it together as a team.”

“Going east, the challenge is clearly to stay in front,

and just to win the race. That’s why we are here.”

Trusting your instincts So after two long legs covering over 20,000 km,

what now dictates success? Is it the use of charts,

technology and data, or is it now more experience

and gut instinct?

“It’s a bit of both – 50/50, I think,” says Cape.

“Some of the situations we will face will be similar

to other stages in the race, so here, having the

experience and a certain level of confidence

definitely helps.”

“However, the third leg is the one that I am not

looking forward to, because of all the problems and

randomness involved. The Southern Ocean leg from

Auckland to Brazil is always a good one. That’s the

one I am really looking forward to.”

The dangers of collisions were made all too real

during the second leg, when Team Vestas Wind hit

a reef in the Indian Ocean and capsized. Watching

out for reefs, or other boats, involves a mixture of

technology and good old-fashioned instinct.

“We will encounter narrow waters, sandbanks,

islands, fishing nets, sea ships and a lot of fishing

boats during the voyage to Sanya … so the plan is

not to hit them,” laughs the genial Australian, who

is competing in his sixth Volvo Ocean Race.

“To avoid collisions, we use radar, the Automatic

Identification System and charts, but the eyes of

the crew are the number one means of keeping a

lookout.”

There’s no brakes The dangers of the Volvo Ocean Race were laid

bare during the second leg when Team Vestas Wind

collided with a hidden reef in the Indian Ocean

in the middle of the night. The crew was safely

rescued but the boat was written off.

Volvo Ocean Race competitors are at a

NAVIGATING YOUR WAY OUT OF TROUBLE

Andrew Cape

“The world’s most populous country, China, is one of the areas that offer many investment

opportunities in water and waste infrastructure,” says Dieter Küffer, water specialist and

portfolio manager at RobecoSAM.

‘China needs to sharply increase its wastewater treatment and waste management capacity’

government, one of the measures in the plan is

to increase water pipe networks from 166,000km

in 2010 to 325,000 km by 2015 to improve

distribution and collection efficiency. Currently

around 50% of this target has been met.

Opportunities for investorsThe water challenge presents significant

opportunities for providers of water and waste

water treatment technologies. According to

Küffer, one of the growth areas is industrial water

treatment – for example in the textile, mining,

energy, and petrochemicals industries – which is

currently very low in China. ”Companies providing

water distribution and wastewater treatment

solutions in China are expected to benefit,” Küffer

concludes.

CHINA’S MOUTH-WATERING INVESTMENT OPPORTUNITIES

Dieter Küffer

to 20% of the world’s population, it only has 7% of

the world’s freshwater resources.”

Building up water infrastructure“All this means that more water distribution

networks, sanitation systems and wastewater

treatment facilities need to be built, especially

because current infrastructure investments have

not kept pace with the speed of urbanization,”

Küffer explains. As a result, growing demand is

benefiting water providers located farther away,

which pump more water over longer distances

to consumers, and use more sophisticated water

treatment technology that enables water recycling.

Troubled watersThe drawback of China’s economic growth is

increasing water pollution. The water quality of

61 key lakes and reservoirs was surveyed. Küffer

cites research by the Communiqué on Land and

Resources of China in 2012 by the Ministry of

Environmental Protection which showed that 40%

of China’s water was graded of very poor quality

and not suitable for any human contact. “High

concentrations of heavy metals and chemicals

compounds are present in both surface and ground

water,” he says. “This is partly due to low treatment

rates and wastewater collection efficiency. As a

result, the wastewater discharged is not captured

and treated before being released back into the

natural waterways.”

A government priorityRecognizing the country’s water challenges, the

Chinese government has made water one of its

priorities. In its 12th Five Year Plan (2011-2015),

it has allocated RMB 3.4 trillion (USD 547 billion)

to environmental protection, including waste

water treatment, water efficiency improvements,

and distribution. In addition, it has imposed

pollution targets on each province, which will be

enforced more vigorously. According to the Chinese

12 |

Water is a precious resource in short supply. Long-

term trends such as population growth, increasing

water consumption per person, and pollution are

major drivers of water scarcity. This is aggravated by

an inadequate water infrastructure.

More cities, more demand for waterIn China, major drivers of water challenges are

continuous urbanization, the insufficient build-up

of infrastructure and pollution, says Küffer. “Over

the last 30 years, China’s urban population has

grown tremendously. In the early 1980s, around

20% of the population lived in cities, against 53%

in 2014.

As the Chinese government aims to promote

economic growth and consumption, urbanization is

likely to continue. The urban population is projected

to account for 70% of China’s total population

within the next 15 years. As a result, urban demand

for water is expected to increase by 70% to 100%

from 2005 to 2025, according to research by

McKinsey Global Institute in 2009.

Supply is lagging, however. Although China is home

VOLVO OCEAN RACE

Facts & Figures

– This is the 12th edition of the race, and the 5th under the name

Volvo Ocean Race

– The Netherlands and Sweden (Volvo’s home country) have the

strongest history in the race in terms of the number of teams

and sailors taking part

– 7 teams are in this edition, including the first women’s team

(Sweden) in over a decade

– Each boat has 8 sailing crew and one on-board reporter

– Some 22,000 corporate guests will be invited at stopovers and

other hospitality events by sponsors of the race and the teams

– The total TV audience is expected to be 1.65 billion people,

on a par with the Olympics and World Cup

The teams in the race are:

– The Netherlands: Team Brunel

– Abu Dhabi: Abu Dhabi Ocean Racing

– China: Dongfeng Race Team

– Sweden: Team SCA (all-female)

– America/Turkey: Team Alvimedica

– Spain: Team España

– Denmark: Team Vestas Wind

The other sponsors of Team Brunel are:

– Brunel: project management, staff secondment and

consultancy

– Schouten Global: training and development

– Moduleo IVC: premium vinyl flooring

– Sub-sponsors: Gaastra (teamwear);

Ernst & Young (accountancy)

14 |

‘China cut interest rates and markets rose strongly’

| 15

“We turned bullish on Asian equity markets in

September 2014, mostly on the idea that worries

about China were more than priced in. Any relief

here would pull the whole region back up again,”

says, Arnout van Rijn, Chief Investment Officer for

Robeco Asia Pacific.

“And that is what happened – China cut interest

rates and markets rose strongly. Before, I was

just bullish on Japan and considered other Asian

markets to be range-trading. So we’re more bullish

on the region than we have been for quite some

time.”

Bottom-up stock pickingThe top-down approach is relevant, but you don’t

need strong macroeconomics to find great stocks,

he says. Japan is a perfect example of how you can

pick winners, even if the over-arching environment

is more negative.

“It’s hard to make a bullish case from the top-

down perspective in Japan; its central bank is

trying to create some inflation but it doesn’t

seem to be working very well,” he says. “The bull

FRESH OPPORTUNITIES IN ASIA

Arnout van Rijn

story for Japan really focuses on the bottom-up

improvements that you see in corporates. Generally

they are evolving towards more shareholder-

friendly behavior, so we are seeing more share

buybacks, dividends being raised, and a nice

tailwind from the weakness of the yen.”

“So we do think that earnings growth in Japan will

be pretty solid, even though the domestic economy

may be going nowhere. And that is combined with

pretty low valuations for Japanese equities, which

makes us quite bullish.”

Better corporate governanceVan Rijn says much of the renewed attractiveness

of Asian stocks is due to improvements in corporate

governance, partly thanks to pension fund pressure.

“A new corporate governance index in Japan is

being followed by the largest domestic pension

fund – if you don’t have independent directors

or if your return on equity is too low, you can be

disqualified from this index,” he says. “It’s really

pushing the discussion in the boardroom in Japan

into a more Western style of thinking about

creating shareholder value.”

Robeco’s Asian equities team is more bullish on the region’s stocks than before,

thanks to improved prospects for the China market.

“Likewise, the national pension fund in South

Korea, a very large shareholder that owns about

8% of the domestic equity market, has started to

demand that companies improve their pay-out

ratios. That’s the thing that I think will drive the

South Korean equity market, particularly if interest

rates stay low or go lower, and dividend yields go

up.”

“Last year South Korea was the weakest equity

market in the region, but it’s one of our favorites for

2015. The Korea (corporate governance) discount is

bigger than ever just as companies start to address

the root cause of it.”

Avoiding Australia and IndonesiaElsewhere, opportunities are more limited says Van

Rijn. “We are neutral on India. We do believe it is a

bull market but it is hard to find attractively priced

stocks. We need to see inflation come under control

– and there are signs of that now – so discount

rates in our models can be reduced to make the

valuations work.”

“Australia has seen a lot of currency weakness

which was one reason to be underweight.

Resources stocks have been under pressure and the

overall domestic economy is also weak. In some

sectors valuations start to look more appealing. Our

underweight stance may not last for all of 2015.”

Van Rijn has not been invested in Indonesia since

2013 after the rupiah fell badly. “Currency moves

can be powerful and over-riding, and it’s a big

mistake to ignore currency risk in this region,” he

says. “You can find many good stocks, but if the

currency moves against you, you still lose your

shirt.”





products.

16 |

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This document has been distributed by Robeco Hong

Kong Limited (‘Robeco’). Robeco is regulated by the

Securities and Futures Commission in Hong Kong.

This publication is intended for professional investors.

Robeco Institutional Asset Management B.V. (trade

register number: 24123167) has a license as manager

of UCITS and AIFs from the Netherlands Authority for

the Financial Markets in Amsterdam. This document

is intended to provide general information on

Robeco¹s specific capabilities, but does not constitute

a recommendation or an advice to buy or sell certain

securities or investment products. The prospectus and

the Key Investor Information Document for the

Robeco Funds can all be obtained free of charge at

www.robeco.com.

This document and the information contained in it is

only available to select targeted investors in the PRC.

For Volvo Ocean Race use only and not for public

distribution or use in the PRC.

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