CLSA Forum Voices A 20121105

Global and Asian
Investment strategy
Christopher Wood
5-7 Nov 2012
Equity strategist
Prepared for - W: kchih@tiedemannfunds.com
Page 2
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 out
at 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%
Page 3
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 the
ECBs 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)
(%) (%)
Page 4
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 a
similar scale of balance-sheet expansion as was added in QE1 between November 2008 and March 2010 when the Fed bought about
US$1.6tn of securities (Treasuries, MBS and agency debt). Note: Projections based on the open-ended QE3 (MBS buying of
US$40bn/month) announced on 13 September 2012. Source: Federal Reserve
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2007 2008 2009 2010 2011 2012 2013 2014 2015
(US$bn) Agency debt
MBS
Treasuries
Fed assets
projection
Page 5
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$976bn in Sep-12.
Note: Fiscal years beginning 1 April for Japan, calendar year data for US with annualised data for Jan-Sep 2012.
Source: US Bureau of Economic Analysis, Japan Cabinet Office
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
1,500
0
5
10
15
20
25
30
35
40
1
9
8
6
1
9
8
7
1
9
8
8
1
9
8
9
1
9
9
0
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
(Yen tn)
Japan household interest income
US personal interest income (RHS)
(US$bn)
Page 6
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 2007
to 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)
(%)
Page 7
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 in
September 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)
Page 8
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 annualised
6.2% 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 13
th
consecutive quarter, falling by an annualised 2.1% in 2Q12. Domestic financial-services
sector 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
Page 9
S&P500 companies net income
S&P500 companies total quarterly net income declined by 6.9%YoY in 2Q12. On an annualised basis, the net
income of S&P500 companies rose by a mere 1.9%YoY in the four quarters ended June. Excluding Apple, annualised
net 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.
Page 10
US average hourly earnings growth
US average hourly earnings for private production/non-supervisory workers rose by 1.1%YoY in October, the
lowest 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 private
production/non-supervisory workers
(%YoY)
Page 11
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
15
20
25
30
35
40
45
50
1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009
Number of Americans on food stamps
(m)
Page 12
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 level
reached in Oct-09, while single-family housing starts are only 71% above their March 2009 low. Multifamily homes
accounted 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
Page 13
US mortgage application index
The US mortgage refinancing application index has risen by 151% since February 2011. But the new purchase
mortgage 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)
Page 14
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, while
exports 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
Page 15
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
Page 16
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 assets
to Eurozone nominal GDP ratio
Page 17
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 by
1.7%YoY in 2Q12 vs 2.8%YoY in 1Q12. While nominal GDP in Eurozone excl. Germany declined by 0.1%YoY in 2Q12
compared 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
Page 18
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 of
the Eurozone declined by 1.6%YoY. Note: Based on ECB data for monetary financial institutions loans to the
private 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
Page 19
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 high
of 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
Page 20
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 in
September, 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)
Page 21
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
Page 22
Spain current account balance
Spain recorded a current account surplus of 500m in July and 1.24bn in August, its first monthly current account
surplus 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
Page 23
Bundesbank Target2 balance
Bundesbanks Target2 claims against other European national central banks rose by 288bn in the first 8 months
of 2012 to a record 751.4bn at the end of August, but fell 56bn in September to 695.5bn. While the Bank of
Spains 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
Page 24
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 price
US$/bbl
Page 25
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
1
2
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)
Page 26
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 same
period. The MSCI China has outperformed the S&P500 by 16% since early September while the MSCI Emerging Markets has
outperformed 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
Page 27
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-term
average 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
Page 28
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% --
Page 29
Asia ex-Japan thematic equity portfolio
for 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
Page 30
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)
Page 31
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-food
manufactured products) was unchanged at 5.6%. Food WPI inflation eased from 9.1% in August to 8.5% in
September. 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 inflation
New CPI inflation
(%YoY)
Page 32
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 since
January 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)
(%)
Page 33
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 by
5.5% 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)
Page 34
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)
Page 35
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 in
Sep-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
Page 36
India: New investment projects announced
New investment project announcements during the July-September quarter fell by 77%YoY to Rs585bn, the lowest
level 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
Page 37
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
14
16
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
Page 38
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)
Page 39
India: Rupee/US$ (inverted scale)
Indian rupee has appreciated by 6% against the US dollar since June, after depreciating by 15% from early
February high. The rupee has still fallen by 18% against the US dollar since 1 August 2011. Source: Bloomberg
15
18
21
24
27
30
33
36
39
42
45
48
51
54
57
60
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Indian rupee/US$ (inverted scale)
Page 40
India: Cumulative FII net equity investment
Note: FII data up to 31 October 2012. FIIs have bought a net US$18bn worth of Indian equities so far this year.
Source: Bloomberg, SEBI
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
0
10
20
30
40
50
60
70
80
90
100
110
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Cumulative FII net equity investment
BSE Sensex (RHS)
US$bn
Page 41
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
400
450
500
550
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Cumulative net buying of Indian stocks
by domestic mutual funds
(Rs bn)
Page 42
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-term
average 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
Page 43
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
Page 44
China: CPI inflation
China headline CPI inflation slowed from 6.5%YoY in July 2011 to 1.9%YoY in September 2012, while food CPI
inflation slowed from 14.8%YoY to 2.5%YoY over the same period. Non-food CPI rose by 1.7%YoY in September
while 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)
Page 45
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
Page 46
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 profits
fell 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
Page 47
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 time
since 2005. Final consumption (household & government) contributed 4.2ppts to the real GDP growth of 7.7%YoY in 1-3Q12
while gross capital formation contributed 3.9ppts. In 2011, consumption contributed 5.2ppts to the real GDP growth of
9.3%YoY while investment contributed 4.5ppts. Source: CEIC Data, National Bureau of Statistics (NBS)
(6)
(4)
(2)
0
2
4
6
8
10
12
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
Page 48
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 a
further 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
6
8
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)
(%) (%)
Page 49
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 loan
quota of Rmb8-8.5tn for 2012. Loan outstanding rose by 16.3%YoY in September, up from 15%YoY in January. Short-term
loans and bill financing accounted for 62% of new bank lending in Jan-Sep 2012. Net corporate bond financing rose by
85%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)
Page 50
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
100
110
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
Page 51
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 in
September, 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
J
a
n
-
1
1
F
e
b
-
1
1
M
a
r
-
1
1
A
p
r
-
1
1
M
a
y
-
1
1
J
u
n
-
1
1
J
u
l
-
1
1
A
u
g
-
1
1
S
e
p
-
1
1
O
c
t
-
1
1
N
o
v
-
1
1
D
e
c
-
1
1
J
a
n
-
1
2
F
e
b
-
1
2
M
a
r
-
1
2
A
p
r
-
1
2
M
a
y
-
1
2
J
u
n
-
1
2
J
u
l
-
1
2
A
u
g
-
1
2
S
e
p
-
1
2
(%YoY)
Beijing Shanghai
Shenzhen Guangzhou
Page 52
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%YoY
in the first 9 months of this year compared with an average growth of 22%YoY during 2005-2011. Residential real estate
investment 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
Page 53
China: Capital flows
Chinas capital outflows, measured as foreign exchange reserve accumulation less trade balance, totalled US$172bn
in the past five quarters, equivalent to 1.8% of GDP. Note: Quarterly data up to 3Q12.
Source: Peoples Bank of China, CEIC Data, CLSA Asia-Pacific Markets
(4)
(2)
0
2
4
6
8
10
(150)
(100)
(50)
0
50
100
150
200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
(US$bn) (%GDP, annualised)
China quarterly change in foreign reserves - trade balance
as % of GDP (annualised, RHS)
Page 54
China: Renminbi 12m non-deliverable forward premium
The renminbi non-deliverable forward (NDF) market now assumes a 1.7% depreciation against the US dollar 12
months 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
(%)
Page 55
China: Shanghai Composite Index
Source: Bloomberg
1,600
1,800
2,000
2,200
2,400
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
Page 56
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
Page 57
Recommended long-only asset allocation for
US-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
Page 58
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)
Page 59
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)
Page 60
Official sector gold demand
Note: Central banks gold reserves increased by 157.5tn tonnes in 2Q12, the largest quarterly net buying since
the 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
Page 61
Upcoming CLSA Forums
Japan Forum 2013
25-28 February, Tokyo
ASEAN CORPORATE
ACCESS FORUM
Asean Corporate Access Forum 2013
13-15 March, Bangkok
China Forum 2013
13-15 May, Beijing
Investors Forum 2013
23-27 September, Hong Kong
Page 62
Important notices
2012 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 market
return 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 to
provide 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 where
the stock is traded.

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