The development of China and ways to access the Chinese market.

1. Investing in China 4th July 2014
Investing in China
What we should know in this fast growing
market
1

2. Investing in China 4th July 2014 2
Pension fund asset allocation 10 years ago

3. Investing in China 4th July 2014 3
Assets Pension funds consider now
LDI Hub Liquid Markets Liquid Credit Illiquid Credit Illiquid Markets
Collateral Mgt. Equities (EM, DM) Sterling Credit (IG) Structured Finance Reinsurance
Pooled vs. Seg DGFs Global Credit (IG) Infrastructure Debt Private Equity
Leverage & Liquidity Style Premia HY/Loans Senior Direct Lending Infrastructure
Overlay Strategies Risk Parity ABS Mezzanine Finance Real Estate
CTA
Emerging Market
Debt
Distressed Debt
Global Macro
Absolute Return
Bonds
Senior CRE Debt
Equity Long-Short Total Return Sub-IG
Credit Relative Value

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Shenzhen - 30 years ago
Development of China

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Shenzhen - Now
Development of China

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20 years ago
Development of China

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Now
Development of China

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Development of China

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Development of China

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Development of China

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Development of China

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Strong
Growth
Financial
Crisis
Collapse
Post
Crisis
Recovery
Recent
Underperfor
mance
Stock Market Performance

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I skate to where the
puck is going to be, not
where it has been.
Wayne Gretzky
Opportunities

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Percentage of Order Adults (Age 65+) in China
• Far less mature industry than developed
countries
• Demographic change and aging population
• Rising income and affordability
• Healthcare reform
• Healthcare awareness
Opportunities
Healthcare

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• Serious environmental degradation driven by
economic development
• Strong government support
• Clean China over the next 5 years
• Higher desire for clean energy
Opportunities
Environmental Protection

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• Government Investment: Biotech, energy
saving, environmental protection, high-end
manufacturing
• Internet Penetration
Opportunities
Technology

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“Internet will change
people’s life”
1999 Jack Ma –
Founder of Alibaba Group
Technological Change

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E-commerce company,
founded in 1999
Handled 1.1 Trillian Yuan in
sales in 2012
Estimated market value
$120 billion
Instant/mobile messenger,
founded in 1998
850 million monthly active
users
Market value $150 billion
Search engine, founded in
2000
Handling 5 billion search
queries per day
Market value $65 billion
Technological Change

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Technological Change

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“take a human desire, preferably one that has
been around for a really long time. Identify that
desire and use modern technology to take out
steps.”
Evan Williams – Co-Founder of
Twitter
Technological Change
1 – Eliminating steps

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Technological Change
1 – Eliminating steps

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Technological Change
1 – Eliminating steps

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Technological Change
1 – Eliminating steps

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Who stole my
cheese??
Technological Change
2 – Cross Sector Competition

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MACHINERY LABOUR
CAPITALLAND
Intellectual property
Patents
Brand
New Technology
Data
User Platform
Goodwill
Customer Base
Human Capital
I
n
t
a
n
g
i
b
l
e
s
T
a
n
g
i
b
l
e
s
Technological Change
3 – Recognition of Intangible Assets

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Technological Change
4 – Innovate or Die

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QQ Online
Game
QQ Blog
Webmail
QQ Mobile
App, Expand
Value Added
Services
Mobile IM
Wechat
Launched
Mobile Social
Media
Apps for
taxi/flight
booking
Mobile
Payment
Platform
Technological Change
4 – Innovate or Die

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Customer
First
Team Work
Integrity
Embrace
Change
Passion Commitment
Technological Change
5 – Distinction and uniqueness, not just scale

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Technological Change
5 – Distinction and uniqueness, not just scale

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Type of
Investment
Domestic/Non-
Domestic
Currency Additional
Information
A Share Domestic RMB QFII license
required
B Share Non-Domestic USD
H Share Non-Domestic HKD
Other share
classes traded on
foreign stock
exchange
Non-Domestic Currencies in
local stock
market
e.g. NYSE, NASDAQ,
Singapore
Indirect
Investment
Non-Domestic Currencies in
local stock
market
Shares of companies in
developed countries
which have significant
business operation in
China
Ways to access Chinese market

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• Less capacity to access the market for foreign investors
• Lack of transparency
• Lack of using derivatives for hedging and portfolio replication
• Demographic shift
• Political risk
• Increased concerns of credit growth
• Property bubble
• Perceived slowdown in growth
Limitation and Risk

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• Fast growing market
• More open to the world
• Opportunities include
 Health Care
 Environmental Protection
 Technology
• Technological Change
 Positive to technology sector and those which use technology in the right way
 Winners
 Meet human desire (take out steps)
 Innovate
 Monetise intangible assets
 Unique and distinct market position
 Negative Impact
 Some traditional sectors, e.g. retailers, sales agents, intermediaries
 Business impacted by cross-sector competition
Summary