The next chapter of Asia’s growth story...For Institutional Use Only The next chapter of Asia’s...
Transcript of The next chapter of Asia’s growth story...For Institutional Use Only The next chapter of Asia’s...
For Institutional Use Only
The next chapter of Asia’s growth story Asian Equities Outlook April 2018
Catherine Yeung Investment Director, Asian Equities
839319.1.0 © 2018 Fidelity Investments Canada ULC. All rights reserved
| 1 Asian Equities Outlook
Three drivers of the market: Sentiment
Fund Flows to Developed Markets
Source: EPFR, Morgan Stanley Asia/GEM Strategy Research, January 2018
Fund Flows to Asia Pacific ex Japan 2016-2017
2016-2017 2013-2015 2013-2015
-20
-15
-10
-5
0
5
10
15
Jan-
08Ju
l-08
Jan-
09Ju
l-09
Jan-
10Ju
l-10
Jan-
11Ju
l-11
Jan-
12Ju
l-12
Jan-
13Ju
l-13
Jan-
14Ju
l-14
Jan-
15Ju
l-15
Jan-
16Ju
l-16
Jan-
17Ju
l-17
Jan-
18
-80
-60
-40
-20
0
20
40
60
80
Jan-
08Ju
l-08
Jan-
09Ju
l-09
Jan-
10Ju
l-10
Jan-
11Ju
l-11
Jan-
12Ju
l-12
Jan-
13Ju
l-13
Jan-
14Ju
l-14
Jan-
15Ju
l-15
Jan-
16Ju
l-16
Jan-
17Ju
l-17
Jan-
18
| 2 Asian Equities Outlook
Three drivers of the market: Valuations
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
Forward PE – Asia ex Japan vs. Developed World 10 years to 28 February 2018
Forward PB – Asia ex Japan vs. Developed World 10 years to 28 February 2018
Asia ex-Japan relative to developed markets
Source: Thomson Reuters DataStream, 28 February 2018. MSCI Asia ex Japan Index vs. MSCI World Index.
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
| 3 Asian Equities Outlook
40
50
60
70
80
90
100
110
120
130
140
Jun Aug Oct Dec Feb Apr Jun Aug Oct DecEPS09E EPS10E EPS11E EPS12E EPS13E EPS14E EPS15E EPS16E EPS17E EPS18E
0
40
80
120
160
200
Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec
Source: IBES Aggregate, Thomson Financials DataStream, February 2018. These forecasts are not a reliable indicator of future performance .
Three drivers of the market: Fundamentals
Asia ex Japan earnings estimates
Sustained EPS upgrades Asia ex Japan IT sector earnings estimates
Asia ex Japan Energy sector earnings estimates
2010
2017
2017
406080
100120140
Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec
2017
2018
2018
2018
| 4 Asian Equities Outlook
Fighting political battles Pushing for reform vs.
Political stability – Is Asia a relative safe haven? Uncertainty causes market nervousness
For illustrative purposes only.
| 5 Asian Equities Outlook
Asia: Strong governance in motion
Source: Fidelity International, 31 August 2017.
Asian political leadership has a strong mandate for driving reforms
Growth-oriented political backdrop in Asia
China Status Supply Side Reforms Mixed Ownership Reforms India Goods & Services Tax (GST) Demonetization South Korea Improving corporate governance Thailand Stability of the new government Long term economic policies
| 6 Asian Equities Outlook
China’s “Belt and Road” initiative is gaining momentum
Source: AsiaOne, April 2015
Will all roads lead back to China?
| 7 Asian Equities Outlook
Source: WIPO, The Global Innovation Index 2015; OECD; Macquarie Equity Strategy Research, January 2016. Investors should note that the views expressed may no longer be current and may have already been acted upon.
R&D as % of GDP; 25 largest countries
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
%
2005 Current
CHINA
The ‘Made in China 2025’ Strategy Aiming to graduate from copycat to innovator
| 8 Asian Equities Outlook
Year Flagship Smartphone Models Selling Price for flagship models
(in USD) Annual total sales volume
(mn units)
2010 U8500 175~206 1.8
2011 U8800 286~349 17.1
2012 P1 349~444 29.1
2013 P6 Mate 349~429; 349~430 49.0
2014 P7 Mate 7 286~458; 407~587 73.8
2015 P8 Mate 8 301~458; 436~791 107.0
2016 P9 Mate 9 468~811; 499~1,323 139.3
2017 P10 Mate 10 577~821 150.0
Source: Company data, Morgan Stanley. Investors should note that the views expressed may no longer be current and may have already been acted upon
China’s IT companies are challenging global market leaders Annual sales volume of Huawei’s smartphones
Reference to specific securities is for illustration only and should not be construed as a recommendation to buy or sell these securities.
| 9 Asian Equities Outlook
In the long-term, what should investors focus on when it comes to investing in China? A different mindset and focus - Free Cash Flow Yield and Dividend Yield
-3
-2
-1
0
1
2
3
4
5
6
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
%
Free Cash Flow Yield Dividend Yield
Source: Fidelity International and Factset, July 2017
| 10 Asian Equities Outlook
Innovation from Korean biotech companies
-50%-40%-30%-20%-10%
0%10%20%30%40%50%60%
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
Volume mkt shr of Celltrion's biosimilarRevenue yoy % of original drug
Biosimilar disruption in Europe Biosimilar disruption in US
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
Revenue yoy % of original drug
Source: Fidelity International, February 2018
| 11 Asian Equities Outlook
Source: Department of Industrial Policy & Promotions (DIPP), Ministry of Commerce & Industry, December 2017
India: The ease of doing business could further underpin levels of foreign direct investments
6.1 9.0
22.8
34.8
41.9 37.7
34.8
46.6
34.3 36.0
45.1
55.6 60.1
48.2
0
10
20
30
40
50
60
70FY
05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
(upt
oD
ec 2
017)
Net
flow
s in
US$
bill
ion
| 12 Asian Equities Outlook
ASEAN – Asia’s next FDI magnet Five strong pull factors to encourage FDI into ASEAN
Large and growing domestic markets
More infrastructure, reforms and the ease of doing business
More open and liberal FDI regimes
Sound economic management and relative political stability
The availability of low-cost labour
Source: Nomura, as of 1 August 2017.
Pull Factors
| 13 Asian Equities Outlook
Asia has structurally underperformed and global investors remain underweight yet…
The region tends to outperform during periods of rising US interest rates
Earnings momentum is building and non-earnings based valuation measures remain attractive
Structural reform is evident in pockets across Asia such as China and India
To conclude…
| 14 Asian Equities Outlook
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