The document summarizes perspectives from a UBS mid-year forum on the Greater Bay Area. It outlines that trade tensions could slow Asia's export recovery in 2019 unless a US-China deal is reached. UBS predicts China will grow at 6.2% and Asia at 5.8% without further tariffs. The presentation recommends overweighting defensive sectors and bonds in China and Southeast Asia. It highlights opportunities in technology, smart cities, and real estate development across Hong Kong, Shenzhen, and Guangzhou as these cities integrate their economies under the Greater Bay Area initiative.

1. UBS Mid-Year Forum:
Perspectives into Greater Bay Area
Eunice KHOO, Dexter KHOO
24 June, 2019

2. Economy
• Heightened trade tensions between the US and China could delay Asia’s export recovery into 2H19. If no further tariff hikes
this year, China will grow at 6.2% and Asia at 5.8%.
• The Trump-Xi meeting at the G20 summit will be the next key signal, although UBS predicted a 20% chance of reaching a
deal. In the base case, an ongoing negotiation process is expected until a deal a finalized by end-2019.
• Amid an extended period of slower trade, Asia could cut policy rates by a further 25-75bps this year and China could cut the
RRR by another 100-200bps

3. Asset Allocation
• Closed overweight on MCSI AxJ
• Downgrade MSCI Taiwan to neutral
• US’s Huawei ban
• Upgrade MSCI Malaysia to overweight
• Investors likely to seek shelter in
defensive laggards
• Overweight MSCI China
• Underweight MSCI HK
• Overweight IDRPHP and SGDTHB

4. Equities
• High-quality and defensive segments
• Asian large caps, stocks with high
dividend yields
• Select technology and financial
leaders
• Attractive mix of value and growth
• Companies with structural growth
opportunities
• Beneficiaries of smart cities and GBA
developments

5. Japanese Equities
• Digital payments
• Government support for digital payment
platformers spurring rapid adoption
• Top operators have strong barriers of entry
and should enjoy competitive advantage
over the long-run
• Large value stocks with high dividends
• Quality Japanese companies with dividend
yields above 3% trading at 25-30% discount
to the average valuations and enjoy
downside protection

6. Bonds
• Select China property bond issues
• Good-quality China property names
• Prefer BB to B from a valuation perspective
• Improving credit stories and names committed to
gaining rating upgrades
• Perpetuals with strong structures
• Attractive yield pick-up and strong coupon step-
up features at the call date offer attractive risk-
reward
• Select BBB bonds
• Chinese government-related issuers

7. Currencies
• Long IDRPHP
• IDR offers an attractive 4.5% yield carry vs
PHP
• Indonesia has stronger BoP dynamics –
better stability
• Long SGDTHB
• Deteriorating economic fundamentals in
Thailand forebode a reversal of THB
strength
• SGD derives stability from its central bank’s
policy of gradual currency appreciation

8. Greater Bay Area
• World-class city with Technology + Finance Hub + Manufacturing
• 2 systems (HK/China), 3 types of taxation systems, 4 cities
Hong
Kong
(+Macau)
– New
York
Guangzhou -
Tokyo
Shenzhen
– Silicon
Valley
Core Strengths:
AI, 5G, Internet, chips
design, biomedicine,
hleathcare, equipment
Core Strengths: Integrated circuit, LCD/OLED, Electric Vehicle,
Chips manufacturing, Robotics
Core Strengths:
Finance, Law, Tourism,
Entertainment,
Logistics

9. GBA: Property
• Rising Investment Activity in GBA but narrowly focused in Guangzhou and Shenzhen
• Investment activity witnessed a strong pick-up since 2017, with 57.5B RMB in 2017, 3.1x 2016 (17.5B).
Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 ‘19Q1
Shenzhen 3.0 0.5 3.1 2.6 8.0 1.5 8.0 14.6 37.1 27.8 19.0
Guangzhou 4.1 7.3 7.9 15.8 4.7 10.6 5.1 2.9 20.4 26.7 3.7
Total 7.1 7.8 11 18.4 12.7 12.1 13.1 17.5 57.5 54.5 22.7
62%
21%
10%
4%
3%
Guangzhou
RMB 26.7B
Office
Retail
Residential
Mix-used
Industrial
49%
27%
18%
6%
Shenzhen
RMB 27.8B
Office
Industrial
Residential
Retail
Property
Investment
interest in
2018
Source: Cushman & Wakefield

10. UBS presentation on GBA
• Shenzhen is the fastest growing city on earth since 1980
• 20% of sector’s top-5 China companies are from GBA, 36% of top 25 CN/HK listed companies for highest return
since 2010 are from GBA
• GBA has more population than many other countries, although its GDP per capita is low, every 4 years it would
produce a new Hong Kong (population).
• Hong Kong’s advantage over Shenzhen/Guangzhou:
1) There are a lot of great, fast growing companies from HK
2) International city
3) Lots of capital due to low policy restrictions from government
4) Its real estate has much higher liquidity