WEBVTT 00:00:00.000 --> 00:00:06.500 align:middle line:90% 00:00:06.500 --> 00:00:08.400 align:middle line:84% Good morning, ladies and gentlemen. 00:00:08.400 --> 00:00:11.510 align:middle line:84% So first of all, thank you very much for coming to the AGM 00:00:11.510 --> 00:00:12.480 align:middle line:90% in person. 00:00:12.480 --> 00:00:15.050 align:middle line:84% So just a few words to introduce myself. 00:00:15.050 --> 00:00:19.330 align:middle line:90% 00:00:19.330 --> 00:00:20.330 align:middle line:90% I don't know. 00:00:20.330 --> 00:00:26.690 align:middle line:90% 00:00:26.690 --> 00:00:30.080 align:middle line:84% Yeah, this is much better now, OK. 00:00:30.080 --> 00:00:31.400 align:middle line:90% So you didn't miss much. 00:00:31.400 --> 00:00:33.680 align:middle line:84% So I'm about to introduce myself. 00:00:33.680 --> 00:00:37.370 align:middle line:84% So I am Simmy Qi, a portfolio manager of the greater China 00:00:37.370 --> 00:00:38.300 align:middle line:90% equities team. 00:00:38.300 --> 00:00:41.900 align:middle line:84% So I joined JP Morgan in 2010 as a graduate 00:00:41.900 --> 00:00:44.000 align:middle line:84% in the commercial and investment banking 00:00:44.000 --> 00:00:45.530 align:middle line:90% actually based in London. 00:00:45.530 --> 00:00:49.910 align:middle line:84% So I joined the emerging market and Asia-Pacific equities team 00:00:49.910 --> 00:00:53.330 align:middle line:84% in 2014, initially, as a sector analyst 00:00:53.330 --> 00:00:56.690 align:middle line:84% covering the industrial and manufacturing companies. 00:00:56.690 --> 00:01:01.700 align:middle line:84% I relocated to Shanghai in 2019 and became a portfolio manager 00:01:01.700 --> 00:01:04.200 align:middle line:90% of the company. 00:01:04.200 --> 00:01:08.240 align:middle line:84% So while 2023 has been a very challenging year 00:01:08.240 --> 00:01:11.840 align:middle line:84% for Chinese equities, the performance of the company 00:01:11.840 --> 00:01:14.720 align:middle line:84% is certainly very, very disappointing. 00:01:14.720 --> 00:01:18.020 align:middle line:84% We understand your frustration or perhaps even anger. 00:01:18.020 --> 00:01:21.320 align:middle line:84% And we are not happy about the performance ourselves. 00:01:21.320 --> 00:01:24.260 align:middle line:84% Thank you for coming here today to give me an opportunity 00:01:24.260 --> 00:01:28.070 align:middle line:84% to explain what has happened, also mistakes we've made, 00:01:28.070 --> 00:01:30.420 align:middle line:84% and at this point, everything feels 00:01:30.420 --> 00:01:33.420 align:middle line:84% so desperate and pessimistic, where we still 00:01:33.420 --> 00:01:35.955 align:middle line:84% see opportunities in the asset class. 00:01:35.955 --> 00:01:42.650 align:middle line:90% 00:01:42.650 --> 00:01:45.050 align:middle line:84% So the first slide, I think, many of you 00:01:45.050 --> 00:01:48.290 align:middle line:84% probably puzzled that we were waiting for China to reopen. 00:01:48.290 --> 00:01:49.490 align:middle line:90% Now it reopen. 00:01:49.490 --> 00:01:50.420 align:middle line:90% So what? 00:01:50.420 --> 00:01:52.850 align:middle line:84% Why the performance has been so poor? 00:01:52.850 --> 00:01:55.100 align:middle line:84% So I think on the first slide, it's 00:01:55.100 --> 00:01:59.060 align:middle line:84% worthwhile to just recap what has happened. 00:01:59.060 --> 00:02:03.890 align:middle line:84% So China abruptly entered the COVID lockdown 00:02:03.890 --> 00:02:05.840 align:middle line:90% at the end of 2022. 00:02:05.840 --> 00:02:10.100 align:middle line:84% So in 2023, initially, the enthusiasm 00:02:10.100 --> 00:02:14.870 align:middle line:84% was very strong in China on recovery and also the pick up 00:02:14.870 --> 00:02:16.140 align:middle line:90% of consumption. 00:02:16.140 --> 00:02:19.760 align:middle line:84% So that hope was somehow realized in the first quarter, 00:02:19.760 --> 00:02:22.490 align:middle line:84% but from the second quarter, data points 00:02:22.490 --> 00:02:25.280 align:middle line:84% start a weakening trend, especially 00:02:25.280 --> 00:02:27.500 align:middle line:90% on sentiment and consumption. 00:02:27.500 --> 00:02:30.040 align:middle line:90% 00:02:30.040 --> 00:02:34.000 align:middle line:84% Policy responses to the slowdown in economy, 00:02:34.000 --> 00:02:38.020 align:middle line:84% initially, was a little bit slow because for a very long time, 00:02:38.020 --> 00:02:42.050 align:middle line:84% the government's priority was to contain the debt level 00:02:42.050 --> 00:02:45.920 align:middle line:84% and to deflate the asset bubble in the property market. 00:02:45.920 --> 00:02:52.450 align:middle line:84% But as economic growth the trend keeps weakening, 00:02:52.450 --> 00:02:57.100 align:middle line:84% the response has been geared up to be more proactive. 00:02:57.100 --> 00:02:59.740 align:middle line:84% The company underperformed the market 00:02:59.740 --> 00:03:02.830 align:middle line:84% both in stock selection and sector allocation 00:03:02.830 --> 00:03:04.430 align:middle line:90% in this decline market. 00:03:04.430 --> 00:03:07.210 align:middle line:84% Unfortunately, the use of [INAUDIBLE] also 00:03:07.210 --> 00:03:10.040 align:middle line:90% contributed negatively. 00:03:10.040 --> 00:03:12.910 align:middle line:84% So we believe, at this moment, valuation 00:03:12.910 --> 00:03:15.730 align:middle line:90% is extremely supportive. 00:03:15.730 --> 00:03:18.490 align:middle line:84% There is a lot of pessimism pricing 00:03:18.490 --> 00:03:23.950 align:middle line:84% in the valuation, which we will discuss later in the slides. 00:03:23.950 --> 00:03:27.460 align:middle line:84% Personally I question whether all of those pessimism 00:03:27.460 --> 00:03:29.350 align:middle line:90% is fully justified. 00:03:29.350 --> 00:03:31.630 align:middle line:84% At this point in time, we acknowledge 00:03:31.630 --> 00:03:36.100 align:middle line:84% that the share price of the asset class and the company 00:03:36.100 --> 00:03:40.060 align:middle line:84% could be very, very sensitive to incremental policy 00:03:40.060 --> 00:03:43.840 align:middle line:84% support and also perhaps improvement 00:03:43.840 --> 00:03:47.260 align:middle line:84% in the fundamental economic performance. 00:03:47.260 --> 00:03:48.805 align:middle line:90% Let's get into the details. 00:03:48.805 --> 00:03:52.330 align:middle line:90% 00:03:52.330 --> 00:03:54.970 align:middle line:84% I think even in this challenging period of time, 00:03:54.970 --> 00:03:59.060 align:middle line:84% it's still worthwhile to restate what we are trying to do here. 00:03:59.060 --> 00:04:01.600 align:middle line:84% First of all, we acknowledge the Chinese market 00:04:01.600 --> 00:04:04.930 align:middle line:84% is very volatile, but it is also very broad 00:04:04.930 --> 00:04:07.900 align:middle line:84% and with a lot of depth of companies. 00:04:07.900 --> 00:04:11.560 align:middle line:84% We believe in this market an active and longer-term 00:04:11.560 --> 00:04:15.040 align:middle line:84% bottom-up investment approach should work. 00:04:15.040 --> 00:04:19.570 align:middle line:84% We are predominantly growth-oriented investors, 00:04:19.570 --> 00:04:23.510 align:middle line:84% and we invest in companies with higher quality. 00:04:23.510 --> 00:04:27.160 align:middle line:84% We focus on fundamental bottom-up stock selection 00:04:27.160 --> 00:04:29.930 align:middle line:84% leveraging on our comprehensive research. 00:04:29.930 --> 00:04:33.280 align:middle line:84% There may be questions on macro and geopolitical risk. 00:04:33.280 --> 00:04:36.460 align:middle line:84% Just want to say here, the way we address it, 00:04:36.460 --> 00:04:40.630 align:middle line:84% is we try to incorporate those considerations in the valuation 00:04:40.630 --> 00:04:43.990 align:middle line:84% and the forecast, but predominantly, our approach 00:04:43.990 --> 00:04:45.175 align:middle line:90% is bottom up. 00:04:45.175 --> 00:04:51.760 align:middle line:90% 00:04:51.760 --> 00:04:53.920 align:middle line:84% Just to give you a few examples of where 00:04:53.920 --> 00:04:57.490 align:middle line:84% we see long-term sustainable opportunities in China, 00:04:57.490 --> 00:05:01.720 align:middle line:84% they are in areas such as technology, carbon neutrality, 00:05:01.720 --> 00:05:03.040 align:middle line:90% and consumption. 00:05:03.040 --> 00:05:05.800 align:middle line:84% For example, in technology, we see 00:05:05.800 --> 00:05:10.210 align:middle line:84% China continue to automate its industrial capability. 00:05:10.210 --> 00:05:13.720 align:middle line:84% We also see in companies are developing their enterprise 00:05:13.720 --> 00:05:15.760 align:middle line:90% digitalization capability. 00:05:15.760 --> 00:05:19.450 align:middle line:84% In carbon neutrality, as many of you probably already read 00:05:19.450 --> 00:05:22.090 align:middle line:84% on the newspaper, China is the leader 00:05:22.090 --> 00:05:25.210 align:middle line:84% in battery and also electric vehicles. 00:05:25.210 --> 00:05:27.490 align:middle line:84% In consumption, we still firmly believe 00:05:27.490 --> 00:05:31.300 align:middle line:84% that as household disposable income keep growing, 00:05:31.300 --> 00:05:34.810 align:middle line:84% people will demand better products, better services, 00:05:34.810 --> 00:05:36.820 align:middle line:84% and especially better health care. 00:05:36.820 --> 00:05:40.320 align:middle line:90% 00:05:40.320 --> 00:05:42.450 align:middle line:84% All those good opportunities will not 00:05:42.450 --> 00:05:46.110 align:middle line:84% be realized without the support of our research team. 00:05:46.110 --> 00:05:48.390 align:middle line:84% At the moment, I believe we have one 00:05:48.390 --> 00:05:52.860 align:middle line:84% of the biggest dedicated China research team on the street. 00:05:52.860 --> 00:05:56.460 align:middle line:84% We have 15 dedicated China research analysts. 00:05:56.460 --> 00:05:59.910 align:middle line:84% On average, they have over 15 years of experience. 00:05:59.910 --> 00:06:02.160 align:middle line:84% And our research is further supported 00:06:02.160 --> 00:06:04.260 align:middle line:90% by our sector analysts. 00:06:04.260 --> 00:06:05.650 align:middle line:90% There are five of them. 00:06:05.650 --> 00:06:09.630 align:middle line:84% So for example, in some sectors, such as tech hardware, 00:06:09.630 --> 00:06:12.930 align:middle line:84% our analysts covers companies in mainland China, 00:06:12.930 --> 00:06:15.100 align:middle line:90% in Taiwan, and in Korea. 00:06:15.100 --> 00:06:19.860 align:middle line:84% So this allows him to provide international and holistic view 00:06:19.860 --> 00:06:21.645 align:middle line:90% on the entire supply chain. 00:06:21.645 --> 00:06:26.480 align:middle line:90% 00:06:26.480 --> 00:06:31.340 align:middle line:84% We are also pleased to inform our shareholders that in 2023, 00:06:31.340 --> 00:06:35.930 align:middle line:84% we complete the acquisition of our China JV partner, China 00:06:35.930 --> 00:06:37.820 align:middle line:90% International Fund Management. 00:06:37.820 --> 00:06:42.540 align:middle line:84% This is a fully licensed China domestic mutual fund, 00:06:42.540 --> 00:06:46.490 align:middle line:84% which we funded as a JV, back in 2004, 00:06:46.490 --> 00:06:49.010 align:middle line:84% and we completed the acquisition. 00:06:49.010 --> 00:06:52.020 align:middle line:84% Integration, of course, is still a work in progress. 00:06:52.020 --> 00:06:57.390 align:middle line:84% But we are glad to have 34 experienced investors joining 00:06:57.390 --> 00:06:57.890 align:middle line:90% us. 00:06:57.890 --> 00:07:02.900 align:middle line:84% Many of them have very long working experience 00:07:02.900 --> 00:07:04.790 align:middle line:90% in the Asia market. 00:07:04.790 --> 00:07:07.560 align:middle line:84% And their capability comprehend with us, 00:07:07.560 --> 00:07:10.100 align:middle line:84% especially in the small and mid-cap space 00:07:10.100 --> 00:07:14.030 align:middle line:84% in Chinese A-shares, and also in some of the new growth 00:07:14.030 --> 00:07:16.880 align:middle line:84% areas such as EV, and solar, they 00:07:16.880 --> 00:07:20.640 align:middle line:84% have been positioned in these sectors for a very long time. 00:07:20.640 --> 00:07:26.760 align:middle line:84% So in this picture, the research team, myself and Rebecca, 00:07:26.760 --> 00:07:30.570 align:middle line:84% we joined them for combined research offset. 00:07:30.570 --> 00:07:33.540 align:middle line:84% In the offset, we discussed and debate 00:07:33.540 --> 00:07:36.720 align:middle line:84% on the key structure themes in each 00:07:36.720 --> 00:07:39.090 align:middle line:90% of the sectors we invested in. 00:07:39.090 --> 00:07:46.250 align:middle line:90% 00:07:46.250 --> 00:07:49.090 align:middle line:84% So now let's dig into the details of the portfolio 00:07:49.090 --> 00:07:50.530 align:middle line:90% and performance. 00:07:50.530 --> 00:07:54.100 align:middle line:84% On this slide, first of all, I'd like to just demonstrate 00:07:54.100 --> 00:07:58.210 align:middle line:84% what kind of environment we have been in in 2023, 00:07:58.210 --> 00:08:00.760 align:middle line:84% so on the left-hand side chart, what 00:08:00.760 --> 00:08:05.650 align:middle line:84% we show here is the relative valuation of China growth 00:08:05.650 --> 00:08:08.090 align:middle line:90% and China value stocks. 00:08:08.090 --> 00:08:13.300 align:middle line:84% So as you can see, in 2023, the relative valuation 00:08:13.300 --> 00:08:17.620 align:middle line:84% of the MSCI China growth has done quite a lot. 00:08:17.620 --> 00:08:19.870 align:middle line:84% In other words, the growth companies 00:08:19.870 --> 00:08:23.020 align:middle line:84% were de-rated more than the value companies. 00:08:23.020 --> 00:08:28.570 align:middle line:84% On the right-hand chart, is basically the same thing, 00:08:28.570 --> 00:08:33.039 align:middle line:84% but this is illustrated in the way of relative performance. 00:08:33.039 --> 00:08:36.700 align:middle line:84% As you can see, there is a very sharp fall of the performance 00:08:36.700 --> 00:08:38.980 align:middle line:90% of the growth companies. 00:08:38.980 --> 00:08:42.400 align:middle line:84% But there is actually a piece of additional information 00:08:42.400 --> 00:08:46.010 align:middle line:84% in this chart, which is if you look at the longer term, 00:08:46.010 --> 00:08:47.900 align:middle line:90% the trend is still upward. 00:08:47.900 --> 00:08:51.170 align:middle line:84% We believe that in the longer term, growth companies 00:08:51.170 --> 00:08:54.860 align:middle line:84% in China, will still post a better performance 00:08:54.860 --> 00:08:56.760 align:middle line:90% than the value companies. 00:08:56.760 --> 00:08:58.010 align:middle line:90% So step back. 00:08:58.010 --> 00:09:01.130 align:middle line:84% Why value companies outperformed in China? 00:09:01.130 --> 00:09:05.990 align:middle line:84% It is because in 2023, there is people have uncertainty 00:09:05.990 --> 00:09:07.460 align:middle line:90% on the growth outlook. 00:09:07.460 --> 00:09:09.290 align:middle line:84% Some of the high-growth companies 00:09:09.290 --> 00:09:12.470 align:middle line:84% that we used to believe will grow very fast, 00:09:12.470 --> 00:09:14.630 align:middle line:90% actually reduce their guidance. 00:09:14.630 --> 00:09:17.030 align:middle line:84% And in this uncertain time, people 00:09:17.030 --> 00:09:21.050 align:middle line:84% seeking safety and certainty in some of the high yield 00:09:21.050 --> 00:09:25.400 align:middle line:84% and low growth companies such as coal mines, large SOE 00:09:25.400 --> 00:09:27.890 align:middle line:90% banks, and utilities in China. 00:09:27.890 --> 00:09:32.090 align:middle line:84% We do not tend to invest heavily in these sectors with very 00:09:32.090 --> 00:09:35.210 align:middle line:84% little growth, and these factors contributed 00:09:35.210 --> 00:09:36.830 align:middle line:90% to the underperformance. 00:09:36.830 --> 00:09:39.870 align:middle line:90% 00:09:39.870 --> 00:09:41.680 align:middle line:90% Let's move to the next slide. 00:09:41.680 --> 00:09:44.280 align:middle line:84% So this is another background, which 00:09:44.280 --> 00:09:49.080 align:middle line:84% is that since the second quarter of 2023, 00:09:49.080 --> 00:09:54.060 align:middle line:84% as the incremental economic prints become weaker, 00:09:54.060 --> 00:09:59.760 align:middle line:84% money flew out of both the domestic A-share market, 00:09:59.760 --> 00:10:03.040 align:middle line:84% as well as the offshore Chinese listed companies. 00:10:03.040 --> 00:10:06.690 align:middle line:84% So this fund outflow hits the valuation 00:10:06.690 --> 00:10:09.030 align:middle line:90% of some of the growth companies. 00:10:09.030 --> 00:10:11.700 align:middle line:84% And on the right-hand side, it basically 00:10:11.700 --> 00:10:15.270 align:middle line:84% tells you that for a manager with a global mandate, 00:10:15.270 --> 00:10:18.750 align:middle line:84% or emerging market mandate, or Asia-Pacific mandate, 00:10:18.750 --> 00:10:26.380 align:middle line:84% for all of them the weighting in China in Asia is very, very low 00:10:26.380 --> 00:10:37.750 align:middle line:84% and perhaps has been even reduced in 2023. 00:10:37.750 --> 00:10:40.910 align:middle line:84% So this is the performance in calendar year. 00:10:40.910 --> 00:10:44.830 align:middle line:84% This is probably my least favorite slide in this deck. 00:10:44.830 --> 00:10:47.260 align:middle line:84% I think the point we are trying to make 00:10:47.260 --> 00:10:50.680 align:middle line:84% is, the performance is certainly very disappointing, 00:10:50.680 --> 00:10:53.380 align:middle line:84% but China being China, it has always 00:10:53.380 --> 00:10:55.270 align:middle line:90% been very, very volatile. 00:10:55.270 --> 00:10:58.120 align:middle line:84% And fundamentally, we believe there are still 00:10:58.120 --> 00:11:00.820 align:middle line:84% a lot of good companies in China. 00:11:00.820 --> 00:11:04.690 align:middle line:84% And at this valuation at this moment of the cycle, 00:11:04.690 --> 00:11:07.870 align:middle line:84% actually, we do find some of the attractive business 00:11:07.870 --> 00:11:09.500 align:middle line:90% are selling at a discount. 00:11:09.500 --> 00:11:13.750 align:middle line:84% So what we do is we continue to fortify our forecast 00:11:13.750 --> 00:11:16.390 align:middle line:84% and rotating our fund into companies 00:11:16.390 --> 00:11:18.610 align:middle line:90% we see greater opportunities. 00:11:18.610 --> 00:11:22.160 align:middle line:90% 00:11:22.160 --> 00:11:25.910 align:middle line:84% This is a detail of the sectors that has underperformed 00:11:25.910 --> 00:11:29.000 align:middle line:84% and the top contributors and detractors. 00:11:29.000 --> 00:11:32.990 align:middle line:84% So perhaps our focus on the bottom two, 00:11:32.990 --> 00:11:37.790 align:middle line:84% which is information technology and consumer discretionary. 00:11:37.790 --> 00:11:41.000 align:middle line:84% I'll give you a bit more details on where we underperformed 00:11:41.000 --> 00:11:44.010 align:middle line:84% and why we think the performance will come back. 00:11:44.010 --> 00:11:46.910 align:middle line:84% So for example, in information technology, 00:11:46.910 --> 00:11:50.150 align:middle line:84% there were two groups of companies that detracted. 00:11:50.150 --> 00:11:53.300 align:middle line:84% One is anything semiconductor related. 00:11:53.300 --> 00:11:57.590 align:middle line:84% The other is things not related to solar and the solar panel. 00:11:57.590 --> 00:12:00.020 align:middle line:84% So for example, in semiconductor, 00:12:00.020 --> 00:12:05.510 align:middle line:84% as we may know, the companies, they actually 00:12:05.510 --> 00:12:07.170 align:middle line:90% have great growth potential. 00:12:07.170 --> 00:12:10.770 align:middle line:84% But in any time, semiconductor can be a very volatile-- 00:12:10.770 --> 00:12:13.740 align:middle line:90% the industry has its own cycle. 00:12:13.740 --> 00:12:17.960 align:middle line:84% So what happened here, is that the inventory destocking 00:12:17.960 --> 00:12:21.780 align:middle line:84% cycle of semiconductor came a few quarters later 00:12:21.780 --> 00:12:23.070 align:middle line:90% than we expected. 00:12:23.070 --> 00:12:25.950 align:middle line:84% Share price reacted very negatively, 00:12:25.950 --> 00:12:29.400 align:middle line:84% but actually, in the fourth quarter of 2023, 00:12:29.400 --> 00:12:31.980 align:middle line:84% and in the first quarter of 2024, 00:12:31.980 --> 00:12:34.710 align:middle line:84% because the inventory has finally cleared out, 00:12:34.710 --> 00:12:37.650 align:middle line:84% share price actually rebounded very strongly. 00:12:37.650 --> 00:12:39.510 align:middle line:84% So being a long-term shareholder, 00:12:39.510 --> 00:12:43.140 align:middle line:84% we think we should have the capability to see through it 00:12:43.140 --> 00:12:45.330 align:middle line:90% and invest through the cycle. 00:12:45.330 --> 00:12:50.430 align:middle line:84% In the solar industry, China has been a global leader in this. 00:12:50.430 --> 00:12:53.880 align:middle line:84% But this industry, for a very short period of time, 00:12:53.880 --> 00:12:56.130 align:middle line:90% suffered from oversupply. 00:12:56.130 --> 00:13:00.420 align:middle line:84% We foresaw this coming, but the degree of oversupply 00:13:00.420 --> 00:13:04.330 align:middle line:90% was bigger than we expected. 00:13:04.330 --> 00:13:08.190 align:middle line:84% So at the moment, we are still invested in this sector 00:13:08.190 --> 00:13:11.250 align:middle line:84% because we believe the long-term growth 00:13:11.250 --> 00:13:15.360 align:middle line:84% opportunity will eventually digest the overcapacity. 00:13:15.360 --> 00:13:18.300 align:middle line:84% We are just making some preference changes 00:13:18.300 --> 00:13:22.110 align:middle line:84% within the sector to position in the components that 00:13:22.110 --> 00:13:24.600 align:middle line:84% have the best supply and the demand dynamic. 00:13:24.600 --> 00:13:31.320 align:middle line:90% 00:13:31.320 --> 00:13:36.390 align:middle line:84% So on this slide, it shows you the portfolio characteristics. 00:13:36.390 --> 00:13:41.340 align:middle line:84% Basically, in short sentence, we remain a growth investor. 00:13:41.340 --> 00:13:44.910 align:middle line:84% The expected growth of our portfolio 00:13:44.910 --> 00:13:47.220 align:middle line:84% remains higher than the benchmark. 00:13:47.220 --> 00:13:52.500 align:middle line:84% Of course, we pay a bit more for it than the benchmark level, 00:13:52.500 --> 00:13:56.010 align:middle line:84% but the quality of our companies are also higher. 00:13:56.010 --> 00:14:00.600 align:middle line:84% This is supported by the higher ROE, as well as the lower debt 00:14:00.600 --> 00:14:01.270 align:middle line:90% level. 00:14:01.270 --> 00:14:10.380 align:middle line:84% So our companies combined is in a net cash position. 00:14:10.380 --> 00:14:15.900 align:middle line:84% On the right-hand side, this is our investment distribution 00:14:15.900 --> 00:14:17.130 align:middle line:90% by market cap. 00:14:17.130 --> 00:14:19.390 align:middle line:84% To illustrate what I said earlier, 00:14:19.390 --> 00:14:22.290 align:middle line:84% we see opportunities in technology 00:14:22.290 --> 00:14:24.600 align:middle line:90% in industrial and manufacturing. 00:14:24.600 --> 00:14:27.270 align:middle line:84% Many of those companies are what we 00:14:27.270 --> 00:14:29.460 align:middle line:84% would consider as small and mid-cap, 00:14:29.460 --> 00:14:32.620 align:middle line:84% basically, with market cap below $10 billion. 00:14:32.620 --> 00:14:36.630 align:middle line:84% They are listed in Asia, and this is a very rich ground 00:14:36.630 --> 00:14:38.400 align:middle line:90% where we find opportunities. 00:14:38.400 --> 00:14:40.320 align:middle line:90% And that's how we positioned. 00:14:40.320 --> 00:14:44.820 align:middle line:90% 00:14:44.820 --> 00:14:50.100 align:middle line:84% So this shows our sector active bet. 00:14:50.100 --> 00:14:53.910 align:middle line:84% So as I mentioned earlier, the way we invest 00:14:53.910 --> 00:14:58.470 align:middle line:84% is consistent with what we tell investors how we invest. 00:14:58.470 --> 00:15:02.880 align:middle line:84% For example, we have always been overweighting the information 00:15:02.880 --> 00:15:05.830 align:middle line:84% technology and health care industry. 00:15:05.830 --> 00:15:10.230 align:middle line:84% On the other hand, we tend to underweight old economy 00:15:10.230 --> 00:15:14.220 align:middle line:84% industries with very little growth, such as financials, 00:15:14.220 --> 00:15:20.340 align:middle line:84% especially large SOE banks and energies and even utilities. 00:15:20.340 --> 00:15:24.000 align:middle line:84% Unfortunately, in 2023, all those value 00:15:24.000 --> 00:15:26.700 align:middle line:84% sectors outperformed and combined, 00:15:26.700 --> 00:15:28.650 align:middle line:90% they detracted performance. 00:15:28.650 --> 00:15:35.970 align:middle line:90% 00:15:35.970 --> 00:15:40.310 align:middle line:84% So this slide shows the biggest holding of our companies 00:15:40.310 --> 00:15:44.045 align:middle line:84% and also the relative holdings by active bets. 00:15:44.045 --> 00:15:47.870 align:middle line:90% 00:15:47.870 --> 00:15:50.060 align:middle line:90% I think we've discussed a lot. 00:15:50.060 --> 00:15:53.900 align:middle line:84% Perhaps it's best to give you some stock examples of what 00:15:53.900 --> 00:15:55.880 align:middle line:90% we are investing in China. 00:15:55.880 --> 00:15:59.690 align:middle line:84% I guess some of them, you may never heard of. 00:15:59.690 --> 00:16:02.480 align:middle line:84% But in a way, is try to illustrate that China 00:16:02.480 --> 00:16:04.250 align:middle line:90% isn't just about property. 00:16:04.250 --> 00:16:06.920 align:middle line:84% It is not just about internet companies. 00:16:06.920 --> 00:16:09.050 align:middle line:84% There are a lot of companies we find 00:16:09.050 --> 00:16:11.720 align:middle line:84% good opportunities that are under-covered 00:16:11.720 --> 00:16:13.400 align:middle line:90% by the Western media. 00:16:13.400 --> 00:16:18.380 align:middle line:84% So the first one is called Foxconn Industrial Internet. 00:16:18.380 --> 00:16:22.730 align:middle line:84% This is actually a subset of assets from Hon Hai, which 00:16:22.730 --> 00:16:25.310 align:middle line:90% is a Taiwan listed company. 00:16:25.310 --> 00:16:28.310 align:middle line:90% It has been Apple assembler. 00:16:28.310 --> 00:16:30.860 align:middle line:84% You may have read it on the newspaper. 00:16:30.860 --> 00:16:34.070 align:middle line:84% But for this specific company, the good assets 00:16:34.070 --> 00:16:37.670 align:middle line:84% we like not owned by them, is they actually make 00:16:37.670 --> 00:16:41.310 align:middle line:84% the data center and the high power computing. 00:16:41.310 --> 00:16:47.130 align:middle line:84% So in this AI era, you can't just have an Nvidia chip. 00:16:47.130 --> 00:16:50.970 align:middle line:84% You have to have an Nvidia chip via high-power computing. 00:16:50.970 --> 00:16:54.390 align:middle line:84% And those equipment made by Foxconn. 00:16:54.390 --> 00:16:57.900 align:middle line:84% They have good relationships with American clients 00:16:57.900 --> 00:17:00.960 align:middle line:84% such as Microsoft and also Nvidia. 00:17:00.960 --> 00:17:05.040 align:middle line:84% So they are very well positioned to capture the capacity build 00:17:05.040 --> 00:17:08.200 align:middle line:90% up of generative AI computing. 00:17:08.200 --> 00:17:10.859 align:middle line:84% So this company actually have factories 00:17:10.859 --> 00:17:13.500 align:middle line:84% around the world in mainland China, 00:17:13.500 --> 00:17:16.589 align:middle line:84% in Taiwan, even in Czech Republic. 00:17:16.589 --> 00:17:20.190 align:middle line:84% What does it mean is that they can make things 00:17:20.190 --> 00:17:23.250 align:middle line:84% as their clients requested them without being 00:17:23.250 --> 00:17:25.020 align:middle line:90% trapped in geopolitics. 00:17:25.020 --> 00:17:28.770 align:middle line:84% If US want them to make things out of China or even 00:17:28.770 --> 00:17:33.720 align:middle line:84% out of Taiwan, they can totally supply it. 00:17:33.720 --> 00:17:37.200 align:middle line:84% A more near-term driver is that this company also 00:17:37.200 --> 00:17:40.800 align:middle line:84% makes the new titanium enclosure for the new iPhone, 00:17:40.800 --> 00:17:44.250 align:middle line:84% so this component is much harder to make 00:17:44.250 --> 00:17:45.930 align:middle line:90% than previous enclosure. 00:17:45.930 --> 00:17:49.470 align:middle line:84% Therefore, the current Apple promised to Foxconn 00:17:49.470 --> 00:17:50.610 align:middle line:90% is also higher. 00:17:50.610 --> 00:17:57.230 align:middle line:90% 00:17:57.230 --> 00:18:01.940 align:middle line:84% So the next example, is Asia material company with a market 00:18:01.940 --> 00:18:04.380 align:middle line:90% cap of around three billion. 00:18:04.380 --> 00:18:06.620 align:middle line:90% The company is called Sunresin. 00:18:06.620 --> 00:18:11.660 align:middle line:84% What it makes is a type of resin that is used in purification. 00:18:11.660 --> 00:18:14.480 align:middle line:90% It is called ion-exchange resin. 00:18:14.480 --> 00:18:17.660 align:middle line:84% For some of you, if you have a background in science 00:18:17.660 --> 00:18:19.970 align:middle line:84% and engineering, this is basically 00:18:19.970 --> 00:18:21.980 align:middle line:90% a resin filled into a column. 00:18:21.980 --> 00:18:25.460 align:middle line:90% And you flow a fluid over it. 00:18:25.460 --> 00:18:29.810 align:middle line:84% Either the resin captures the substance that is desired, 00:18:29.810 --> 00:18:32.670 align:middle line:84% or it captures things that you want to get rid of, 00:18:32.670 --> 00:18:35.880 align:middle line:84% so the end result is purification. 00:18:35.880 --> 00:18:38.510 align:middle line:90% So why this is a good product? 00:18:38.510 --> 00:18:42.770 align:middle line:84% Because a lot of the products are customized for clients 00:18:42.770 --> 00:18:47.990 align:middle line:84% depending on what clients want to purify and the purity level 00:18:47.990 --> 00:18:49.310 align:middle line:90% they required. 00:18:49.310 --> 00:18:53.000 align:middle line:84% The cost of this material actually 00:18:53.000 --> 00:18:56.600 align:middle line:84% accounts for a very small percentage of the manufacturing 00:18:56.600 --> 00:18:58.630 align:middle line:90% cost of the end product. 00:18:58.630 --> 00:19:01.170 align:middle line:84% And because it's so important to purity, 00:19:01.170 --> 00:19:03.990 align:middle line:84% so client tend to be very, very loyal. 00:19:03.990 --> 00:19:08.730 align:middle line:84% And this is a product involves a lot of scientific R&D and also 00:19:08.730 --> 00:19:12.170 align:middle line:90% engineering solution. 00:19:12.170 --> 00:19:15.640 align:middle line:84% And so in the near term, two of the biggest-- 00:19:15.640 --> 00:19:18.430 align:middle line:84% and application area is first of all, 00:19:18.430 --> 00:19:23.260 align:middle line:84% to extract the lithium, which is used in electric vehicle 00:19:23.260 --> 00:19:24.040 align:middle line:90% batteries. 00:19:24.040 --> 00:19:27.010 align:middle line:84% The second, they are also onboarded 00:19:27.010 --> 00:19:30.280 align:middle line:84% to purify peptide, which eventually 00:19:30.280 --> 00:19:33.550 align:middle line:84% turned into very popular drug nowadays, which 00:19:33.550 --> 00:19:35.150 align:middle line:90% is the weight loss drug. 00:19:35.150 --> 00:19:39.250 align:middle line:84% So they are already a supplier to Eli Lilly's weight loss 00:19:39.250 --> 00:19:40.000 align:middle line:90% drug. 00:19:40.000 --> 00:19:43.000 align:middle line:84% And there are also new areas they could potentially 00:19:43.000 --> 00:19:44.110 align:middle line:90% gain market share. 00:19:44.110 --> 00:19:47.080 align:middle line:84% For example, they are trying to gain market share 00:19:47.080 --> 00:19:50.470 align:middle line:90% in ultrapure water purification. 00:19:50.470 --> 00:19:53.440 align:middle line:84% This type of ultrapure water is used 00:19:53.440 --> 00:19:56.000 align:middle line:90% in the semiconductor industry. 00:19:56.000 --> 00:20:00.850 align:middle line:84% So the technology can be used in many applications, 00:20:00.850 --> 00:20:03.640 align:middle line:84% and we think there is a very long way for this company 00:20:03.640 --> 00:20:06.550 align:middle line:84% to grow by getting into new applications 00:20:06.550 --> 00:20:10.300 align:middle line:84% and also growing their shares in existing applications. 00:20:10.300 --> 00:20:13.270 align:middle line:90% 00:20:13.270 --> 00:20:18.020 align:middle line:84% Finally, I'd like to just illustrate a property company. 00:20:18.020 --> 00:20:20.470 align:middle line:84% Some of you may notice that actually we 00:20:20.470 --> 00:20:23.860 align:middle line:84% do have investment in the sector called real estate, 00:20:23.860 --> 00:20:27.140 align:middle line:84% but we are not investing in developers. 00:20:27.140 --> 00:20:31.570 align:middle line:84% So this company is an example of even in this industry in China, 00:20:31.570 --> 00:20:33.400 align:middle line:90% there was so much bad news. 00:20:33.400 --> 00:20:37.210 align:middle line:84% There are still companies we can find have strong balance sheet 00:20:37.210 --> 00:20:39.420 align:middle line:90% and keeps growing. 00:20:39.420 --> 00:20:43.170 align:middle line:84% China Resources MixC is a facility management company. 00:20:43.170 --> 00:20:45.190 align:middle line:90% It has two core business. 00:20:45.190 --> 00:20:47.850 align:middle line:84% One is to manage the residential properties. 00:20:47.850 --> 00:20:50.340 align:middle line:84% Basically, that's the facility management fee 00:20:50.340 --> 00:20:53.160 align:middle line:84% you pay to the management company. 00:20:53.160 --> 00:20:56.490 align:middle line:84% This is a very cash generative business. 00:20:56.490 --> 00:21:00.660 align:middle line:84% And household tend to have very short payment terms. 00:21:00.660 --> 00:21:04.980 align:middle line:84% Another part of the business is they manage the shopping malls 00:21:04.980 --> 00:21:07.980 align:middle line:90% for the property owners. 00:21:07.980 --> 00:21:11.850 align:middle line:84% They help them with the cleaning, the security, 00:21:11.850 --> 00:21:14.760 align:middle line:84% and they also help them finding leases. 00:21:14.760 --> 00:21:19.530 align:middle line:84% And in return, they get a slice of the sales generated 00:21:19.530 --> 00:21:21.480 align:middle line:90% by these shopping malls. 00:21:21.480 --> 00:21:25.860 align:middle line:84% So this industry is actually a capital like industry. 00:21:25.860 --> 00:21:30.270 align:middle line:84% This company has always been in net-net cash position. 00:21:30.270 --> 00:21:34.920 align:middle line:90% And ROE has been around 25%. 00:21:34.920 --> 00:21:37.310 align:middle line:84% So the shopping malls it operated 00:21:37.310 --> 00:21:39.470 align:middle line:90% are all luxury shopping malls. 00:21:39.470 --> 00:21:42.470 align:middle line:90% It operates 88 malls in China. 00:21:42.470 --> 00:21:47.630 align:middle line:84% And out of them, 37 ranked number one in terms of sales 00:21:47.630 --> 00:21:49.500 align:middle line:90% in the cities. 00:21:49.500 --> 00:21:53.390 align:middle line:84% And so the trust in the data on the left, 00:21:53.390 --> 00:21:55.820 align:middle line:84% was trying to say that the company keeps 00:21:55.820 --> 00:21:59.450 align:middle line:84% growing its revenue, and most importantly, it's free cash 00:21:59.450 --> 00:22:01.730 align:middle line:90% flow across the COVID time. 00:22:01.730 --> 00:22:08.120 align:middle line:84% And even in 2022, when China was subject to severe lockdowns, 00:22:08.120 --> 00:22:12.830 align:middle line:84% revenue sales of its shopping malls still grew 6%. 00:22:12.830 --> 00:22:19.640 align:middle line:84% And in the first half of 2023, as traffic and demand 00:22:19.640 --> 00:22:23.870 align:middle line:84% recovered quite quickly, the growth was 41%. 00:22:23.870 --> 00:22:27.230 align:middle line:84% Part of that is same store sales, but part of that 00:22:27.230 --> 00:22:29.330 align:middle line:84% is also opening new shopping malls. 00:22:29.330 --> 00:22:35.970 align:middle line:90% 00:22:35.970 --> 00:22:38.100 align:middle line:84% Finally, I'd like to give you an example of how 00:22:38.100 --> 00:22:41.860 align:middle line:84% we engage with company on the ESG front, 00:22:41.860 --> 00:22:45.600 align:middle line:84% which is fully incorporated in the research and investment 00:22:45.600 --> 00:22:46.630 align:middle line:90% process. 00:22:46.630 --> 00:22:48.820 align:middle line:84% So the example here is called Silergy. 00:22:48.820 --> 00:22:52.600 align:middle line:90% 00:22:52.600 --> 00:22:55.780 align:middle line:84% The example here is called Silergy Corp. It is actually 00:22:55.780 --> 00:23:01.360 align:middle line:84% a Chinese semiconductor design house but is listed in Taiwan. 00:23:01.360 --> 00:23:04.390 align:middle line:84% Collectively, JP Morgan Asset Management 00:23:04.390 --> 00:23:07.160 align:middle line:90% owns over 5% of the company. 00:23:07.160 --> 00:23:09.700 align:middle line:84% Given our large shareholding, we think 00:23:09.700 --> 00:23:14.330 align:middle line:84% we have a good chance to impart positive impact to the company. 00:23:14.330 --> 00:23:18.220 align:middle line:84% So our research analysts and our dedicated sustainable 00:23:18.220 --> 00:23:21.490 align:middle line:84% investment team, have been engaging with the company. 00:23:21.490 --> 00:23:26.890 align:middle line:84% We identified issues that are specific to the company. 00:23:26.890 --> 00:23:30.220 align:middle line:84% For example, we like to see more independent directors 00:23:30.220 --> 00:23:33.070 align:middle line:84% and perhaps also more female directors. 00:23:33.070 --> 00:23:35.110 align:middle line:84% We like the company to strengthen 00:23:35.110 --> 00:23:37.930 align:middle line:90% their cybersecurity risk review. 00:23:37.930 --> 00:23:42.280 align:middle line:84% And we set specific targets for our actions. 00:23:42.280 --> 00:23:46.130 align:middle line:84% We don't just impose those targets to them. 00:23:46.130 --> 00:23:48.160 align:middle line:84% We also help them to achieve them. 00:23:48.160 --> 00:23:52.580 align:middle line:84% For example, our sustainable investment research team, 00:23:52.580 --> 00:23:57.140 align:middle line:84% they recommended best practice and global standards on supply 00:23:57.140 --> 00:23:59.270 align:middle line:90% chain audit to the company. 00:23:59.270 --> 00:24:01.760 align:middle line:84% We also shared incidents we learned 00:24:01.760 --> 00:24:05.510 align:middle line:84% from other companies what could happen if you don't take 00:24:05.510 --> 00:24:08.120 align:middle line:90% cybersecurity risk seriously. 00:24:08.120 --> 00:24:12.380 align:middle line:90% The engagement is ongoing. 00:24:12.380 --> 00:24:16.490 align:middle line:90% 00:24:16.490 --> 00:24:19.880 align:middle line:84% I think next, I'm going to turn it to Rebecca. 00:24:19.880 --> 00:24:26.390 align:middle line:84% She is going to cheer us up by discussing the market outlook. 00:24:26.390 --> 00:24:31.540 align:middle line:84% Thank you, Simmy and a very warm welcome to all our shareholders 00:24:31.540 --> 00:24:37.810 align:middle line:84% who joined the AGM, either in person or via Zoom. 00:24:37.810 --> 00:24:40.030 align:middle line:84% Now, I'll just spend a few minutes 00:24:40.030 --> 00:24:45.740 align:middle line:84% to talk about how we think about market, the Chinese equities. 00:24:45.740 --> 00:24:50.080 align:middle line:84% And I want to address both the structural challenges, 00:24:50.080 --> 00:24:53.080 align:middle line:84% as well as highlighting some of the positive incremental 00:24:53.080 --> 00:24:55.500 align:middle line:90% changes and opportunities. 00:24:55.500 --> 00:25:00.010 align:middle line:84% But let me start with the hard one first, the key challenges. 00:25:00.010 --> 00:25:02.950 align:middle line:84% Now, we think the biggest and most structural challenge 00:25:02.950 --> 00:25:06.310 align:middle line:84% that China faces is its property market, which 00:25:06.310 --> 00:25:09.350 align:middle line:84% has been in a downcycle for about three years now. 00:25:09.350 --> 00:25:11.620 align:middle line:84% And if we go to the next page, the chart 00:25:11.620 --> 00:25:14.890 align:middle line:84% there will give you a bit of flavor 00:25:14.890 --> 00:25:17.665 align:middle line:90% on how bad things have looked. 00:25:17.665 --> 00:25:21.130 align:middle line:90% 00:25:21.130 --> 00:25:23.860 align:middle line:90% Next page, please. 00:25:23.860 --> 00:25:30.960 align:middle line:84% Now, what has started as a self-inflicted correction, i.e. 00:25:30.960 --> 00:25:35.100 align:middle line:84% a government imposed deleveraging campaign 00:25:35.100 --> 00:25:37.830 align:middle line:84% on the property developers, has really 00:25:37.830 --> 00:25:42.960 align:middle line:84% turned into a full-scale property downcycle in China. 00:25:42.960 --> 00:25:46.890 align:middle line:84% Just let me just give you a couple of numbers. 00:25:46.890 --> 00:25:52.840 align:middle line:84% Property prices in China has fallen 20% from the peak. 00:25:52.840 --> 00:25:56.360 align:middle line:84% Property sales were down 40% from the peak, 00:25:56.360 --> 00:26:01.120 align:middle line:84% and property new starts were down 60%. 00:26:01.120 --> 00:26:03.250 align:middle line:84% So as you could imagine, this has 00:26:03.250 --> 00:26:07.760 align:middle line:84% had a very significant impact on both economic growth, 00:26:07.760 --> 00:26:11.460 align:middle line:84% as well as consumer sentiment, which 00:26:11.460 --> 00:26:16.200 align:middle line:84% in turn, impacted a lot of the companies that the trust owns. 00:26:16.200 --> 00:26:19.200 align:middle line:84% Now, while China, in our view, is still 00:26:19.200 --> 00:26:21.900 align:middle line:84% going through the property downturn, 00:26:21.900 --> 00:26:25.870 align:middle line:84% we are seeing some light at the end of the tunnel. 00:26:25.870 --> 00:26:29.130 align:middle line:84% Now, first of all, China is no longer 00:26:29.130 --> 00:26:34.110 align:middle line:84% adding to its problem, I.e. it is no longer building 00:26:34.110 --> 00:26:38.280 align:middle line:84% properties that is more than what people need. 00:26:38.280 --> 00:26:43.050 align:middle line:84% So what China is currently dealing with, 00:26:43.050 --> 00:26:47.640 align:middle line:84% is to digest the inventories that it has built out 00:26:47.640 --> 00:26:52.800 align:middle line:84% over the last five years, instead of adding on 00:26:52.800 --> 00:26:54.250 align:middle line:90% to the problem. 00:26:54.250 --> 00:27:00.060 align:middle line:84% Secondly, we've seen government policies, although, have been 00:27:00.060 --> 00:27:05.100 align:middle line:84% slow to react, has finally turned more supportive 00:27:05.100 --> 00:27:06.480 align:middle line:90% six months ago. 00:27:06.480 --> 00:27:09.570 align:middle line:84% Now, the most important policy, in our view, 00:27:09.570 --> 00:27:13.500 align:middle line:84% is a government-led investment program 00:27:13.500 --> 00:27:19.440 align:middle line:84% that in the form of urban village renovation 00:27:19.440 --> 00:27:23.160 align:middle line:90% and affordable housing projects. 00:27:23.160 --> 00:27:26.490 align:middle line:84% We're talking about a scale of over a trillion 00:27:26.490 --> 00:27:29.160 align:middle line:84% in the next 12 to 18 months, which 00:27:29.160 --> 00:27:33.930 align:middle line:84% we think should provide enough cushion to the private demand. 00:27:33.930 --> 00:27:37.290 align:middle line:84% So instead of looking for a double digit 00:27:37.290 --> 00:27:41.040 align:middle line:84% in property-related investment demand decline this year, 00:27:41.040 --> 00:27:46.920 align:middle line:84% we're expecting a more modest decline. 00:27:46.920 --> 00:27:50.520 align:middle line:84% Potentially, no decline this year. 00:27:50.520 --> 00:27:57.690 align:middle line:84% And again, moving forward, a smaller decline in 2025. 00:27:57.690 --> 00:28:02.790 align:middle line:84% Last but not least, we think there is very little likelihood 00:28:02.790 --> 00:28:06.870 align:middle line:84% that the current property market downcycle will trigger 00:28:06.870 --> 00:28:13.170 align:middle line:84% a systemic financial risk as the bank's balance sheet is well 00:28:13.170 --> 00:28:18.240 align:middle line:84% provided on property related lendings. 00:28:18.240 --> 00:28:25.440 align:middle line:84% So if I could wrap that up, China is in a property down 00:28:25.440 --> 00:28:28.140 align:middle line:84% market for some time and is still 00:28:28.140 --> 00:28:30.690 align:middle line:84% working through some of the problems that 00:28:30.690 --> 00:28:32.800 align:middle line:90% has accumulated in the past. 00:28:32.800 --> 00:28:36.690 align:middle line:84% However, we think we probably seen the worst impact already 00:28:36.690 --> 00:28:40.600 align:middle line:84% and things are going to moderate going forward. 00:28:40.600 --> 00:28:43.330 align:middle line:84% Now moving on, in our view, China 00:28:43.330 --> 00:28:47.860 align:middle line:84% is still a growing economy with a lot of opportunities. 00:28:47.860 --> 00:28:51.610 align:middle line:84% And they continue to gain importance on a global scale. 00:28:51.610 --> 00:28:54.040 align:middle line:84% If we move to the next page, this 00:28:54.040 --> 00:28:58.840 align:middle line:84% shows you the China's importance to the world. 00:28:58.840 --> 00:29:01.840 align:middle line:84% As shown in the chart on the left, 00:29:01.840 --> 00:29:04.750 align:middle line:84% China has been continuously gaining 00:29:04.750 --> 00:29:08.420 align:middle line:84% market share in the global trades 00:29:08.420 --> 00:29:17.980 align:middle line:84% even with all the talks around decoupling and deglobalization. 00:29:17.980 --> 00:29:24.670 align:middle line:84% What's more important, is what's behind the numbers, i.e. 00:29:24.670 --> 00:29:28.370 align:middle line:84% what China is exporting now versus 10, 00:29:28.370 --> 00:29:31.820 align:middle line:84% 20 years ago, is totally different. 00:29:31.820 --> 00:29:34.360 align:middle line:84% So while China is still exporting 00:29:34.360 --> 00:29:39.190 align:middle line:84% a lot of textiles and toys to the rest of the world, 00:29:39.190 --> 00:29:44.260 align:middle line:84% China is also exporting much more 00:29:44.260 --> 00:29:46.370 align:middle line:90% higher value added products. 00:29:46.370 --> 00:29:50.590 align:middle line:84% So for example, China has overtaken Japan this year 00:29:50.590 --> 00:29:54.840 align:middle line:84% as the world's largest auto exporter. 00:29:54.840 --> 00:29:59.310 align:middle line:84% So in our view, this is very important 00:29:59.310 --> 00:30:03.630 align:middle line:84% because it really boils down to company 00:30:03.630 --> 00:30:08.090 align:middle line:84% specific investment opportunities for us. 00:30:08.090 --> 00:30:15.770 align:middle line:84% We have seen very convincing increased competitiveness 00:30:15.770 --> 00:30:18.620 align:middle line:84% of Chinese companies, which not only comes 00:30:18.620 --> 00:30:22.700 align:middle line:84% from competitive cost structure but increasingly, 00:30:22.700 --> 00:30:29.570 align:middle line:84% from better product quality and more advanced technologies. 00:30:29.570 --> 00:30:36.680 align:middle line:84% As Simmy alluded to in some of her stock examples, 00:30:36.680 --> 00:30:42.230 align:middle line:84% we are actually finding a lot of interesting Chinese companies 00:30:42.230 --> 00:30:44.930 align:middle line:84% that can leverage on this increased global 00:30:44.930 --> 00:30:46.750 align:middle line:90% competitiveness. 00:30:46.750 --> 00:30:51.460 align:middle line:84% Now, moving on to the market itself, 00:30:51.460 --> 00:30:56.300 align:middle line:84% I just want to highlight two incremental positives 00:30:56.300 --> 00:30:57.800 align:middle line:90% for the market. 00:30:57.800 --> 00:31:01.190 align:middle line:84% Now, the first one is on Chinese policies. 00:31:01.190 --> 00:31:04.010 align:middle line:84% Chinese policies, as we have lived 00:31:04.010 --> 00:31:08.690 align:middle line:84% through the ups and downs, can be quite volatile and tricky. 00:31:08.690 --> 00:31:11.960 align:middle line:84% Now, over the last 12 months, there 00:31:11.960 --> 00:31:16.440 align:middle line:84% are three key important policy changes, in my view. 00:31:16.440 --> 00:31:21.190 align:middle line:84% So first of all is, on a holistic level, 00:31:21.190 --> 00:31:26.020 align:middle line:84% the central government of China has made it clear 00:31:26.020 --> 00:31:28.570 align:middle line:84% that it wants to introduce more policies 00:31:28.570 --> 00:31:33.040 align:middle line:84% to help stabilize expectation and help to improve growth 00:31:33.040 --> 00:31:35.190 align:middle line:90% and employment. 00:31:35.190 --> 00:31:40.450 align:middle line:84% Now, this is reflected in both monetary and fiscal policies, 00:31:40.450 --> 00:31:43.200 align:middle line:84% including a more expansionary and accommodative 00:31:43.200 --> 00:31:48.450 align:middle line:84% monetary policies with rate cuts and injected liquidity, 00:31:48.450 --> 00:31:53.320 align:middle line:84% but also on the fiscal side, with raised fiscal budgets, 00:31:53.320 --> 00:31:58.980 align:middle line:84% both last year, and we are expecting a similar increase 00:31:58.980 --> 00:32:01.190 align:middle line:90% in this year, as well. 00:32:01.190 --> 00:32:05.110 align:middle line:84% Last but not least, there are more supportive policies 00:32:05.110 --> 00:32:09.130 align:middle line:90% related to capital markets, i.e. 00:32:09.130 --> 00:32:16.110 align:middle line:84% stock market, both onshore and offshore. 00:32:16.110 --> 00:32:23.990 align:middle line:84% And really, this also let the way to my last page 00:32:23.990 --> 00:32:30.750 align:middle line:84% here on market, which is stock market valuation. 00:32:30.750 --> 00:32:33.350 align:middle line:84% If we look at the next page, this 00:32:33.350 --> 00:32:40.010 align:middle line:84% shows you the current PE and PB valuation for Chinese equities. 00:32:40.010 --> 00:32:44.150 align:middle line:84% As you could see, they are at historical low. 00:32:44.150 --> 00:32:46.370 align:middle line:84% The most interesting bit, for me, 00:32:46.370 --> 00:32:54.830 align:middle line:84% is the price-to-book ratio for China is now at 1.2 times. 00:32:54.830 --> 00:32:57.800 align:middle line:84% And historically, there are only three times 00:32:57.800 --> 00:33:01.760 align:middle line:84% when Chinese equities have hit a valuation that low. 00:33:01.760 --> 00:33:07.970 align:middle line:84% And every time, the stock return on a 18-month basis 00:33:07.970 --> 00:33:09.590 align:middle line:90% have always been positive. 00:33:09.590 --> 00:33:13.280 align:middle line:84% So really, as Simmy mentioned, we 00:33:13.280 --> 00:33:16.940 align:middle line:84% are seeing valuation becoming extremely attractive. 00:33:16.940 --> 00:33:21.260 align:middle line:84% So all in all, despite a lot of the challenges 00:33:21.260 --> 00:33:24.890 align:middle line:84% that fundamentally China is facing, 00:33:24.890 --> 00:33:28.190 align:middle line:84% particularly property market downturn, 00:33:28.190 --> 00:33:30.450 align:middle line:84% we think the longer-term perspective 00:33:30.450 --> 00:33:34.230 align:middle line:84% for Chinese equities is still very attractive, particularly, 00:33:34.230 --> 00:33:37.240 align:middle line:84% given the valuations that you see here. 00:33:37.240 --> 00:33:41.280 align:middle line:84% Now, let me hand it back to Simmy, who will wrap us up 00:33:41.280 --> 00:33:44.440 align:middle line:84% before we open the floor for questions. 00:33:44.440 --> 00:33:46.650 align:middle line:90% Thank you, Rebecca. 00:33:46.650 --> 00:33:50.260 align:middle line:84% Actually this slide illustrates Rebecca's point perfectly, 00:33:50.260 --> 00:33:54.360 align:middle line:84% which is unfortunately, the Chinese market 00:33:54.360 --> 00:33:56.910 align:middle line:84% remained quite volatile historically. 00:33:56.910 --> 00:33:59.670 align:middle line:84% But luckily, the market do bounce back. 00:33:59.670 --> 00:34:03.840 align:middle line:84% And if you ask me what is going to trigger that point 00:34:03.840 --> 00:34:06.570 align:middle line:84% or when it is going to happen precisely, 00:34:06.570 --> 00:34:09.179 align:middle line:84% the answer is, honestly, I don't really know. 00:34:09.179 --> 00:34:15.210 align:middle line:84% But what I know is that although things timing is very difficult 00:34:15.210 --> 00:34:17.670 align:middle line:84% to predict, but the bounce, initially, 00:34:17.670 --> 00:34:20.130 align:middle line:84% can be very quick and very abrupt. 00:34:20.130 --> 00:34:25.280 align:middle line:84% We have seen it multiple times in history. 00:34:25.280 --> 00:34:27.550 align:middle line:84% So the next slide is, this is trying 00:34:27.550 --> 00:34:30.440 align:middle line:84% to answer, OK, where the money is going to come from. 00:34:30.440 --> 00:34:33.610 align:middle line:84% First of all, I think, on the left-hand side, 00:34:33.610 --> 00:34:36.940 align:middle line:84% this shows how household allocate their wealth 00:34:36.940 --> 00:34:38.440 align:middle line:90% in different countries. 00:34:38.440 --> 00:34:43.659 align:middle line:84% The data is, by the end of 2022, in China, 00:34:43.659 --> 00:34:45.969 align:middle line:84% on average household only allocate 00:34:45.969 --> 00:34:50.900 align:middle line:84% 10% of their wealth in equity and mutual funds. 00:34:50.900 --> 00:34:54.679 align:middle line:84% I bet by now, this ratio is even lower. 00:34:54.679 --> 00:34:57.130 align:middle line:84% So as we know, property going forward, 00:34:57.130 --> 00:34:59.740 align:middle line:84% is unlikely to be a place people are 00:34:59.740 --> 00:35:01.660 align:middle line:90% going to put more invested in. 00:35:01.660 --> 00:35:06.700 align:middle line:84% And therefore, that money has to rotate into equities 00:35:06.700 --> 00:35:08.560 align:middle line:90% sooner or later. 00:35:08.560 --> 00:35:12.100 align:middle line:84% On the left-hand chart, what we're trying to show here is, 00:35:12.100 --> 00:35:19.130 align:middle line:84% we try to compare the dividend yield of CSI 300, 00:35:19.130 --> 00:35:23.350 align:middle line:84% which is the onshore Asia index with the 10-year government 00:35:23.350 --> 00:35:25.220 align:middle line:90% bond also onshore. 00:35:25.220 --> 00:35:27.590 align:middle line:84% At the moment, the 10-year government bond 00:35:27.590 --> 00:35:29.990 align:middle line:90% is around a 2.7%. 00:35:29.990 --> 00:35:34.460 align:middle line:84% This level may even go lower in the longer future, 00:35:34.460 --> 00:35:37.100 align:middle line:84% and therefore, for household, for pension, 00:35:37.100 --> 00:35:40.640 align:middle line:84% for insurance to meet their liability requirement 00:35:40.640 --> 00:35:42.860 align:middle line:84% and to support their living standard, 00:35:42.860 --> 00:35:45.680 align:middle line:84% they will have to invest more in equities. 00:35:45.680 --> 00:35:49.600 align:middle line:90% 00:35:49.600 --> 00:35:53.340 align:middle line:84% So finally, I'd like to wrap up of all the things we 00:35:53.340 --> 00:35:55.120 align:middle line:90% have discussed today. 00:35:55.120 --> 00:35:57.360 align:middle line:84% So in China, the economy recovery 00:35:57.360 --> 00:36:01.920 align:middle line:84% has been disappointing, but the economy is recovering. 00:36:01.920 --> 00:36:05.760 align:middle line:84% And it's just not as strong and not as widespread 00:36:05.760 --> 00:36:08.250 align:middle line:90% as people originally anticipate. 00:36:08.250 --> 00:36:11.510 align:middle line:90% 00:36:11.510 --> 00:36:14.060 align:middle line:84% In response to all of those challenges, 00:36:14.060 --> 00:36:17.750 align:middle line:84% luckily, the government has turned more proactive 00:36:17.750 --> 00:36:20.450 align:middle line:84% in stimulating demand and growth. 00:36:20.450 --> 00:36:25.070 align:middle line:84% Hopefully, we will see more policies coming in 2024 00:36:25.070 --> 00:36:27.830 align:middle line:90% and especially on consumption. 00:36:27.830 --> 00:36:30.800 align:middle line:84% Valuation is extremely supportive. 00:36:30.800 --> 00:36:34.310 align:middle line:84% I think that is itself a very strong support 00:36:34.310 --> 00:36:37.610 align:middle line:90% of long-term return. 00:36:37.610 --> 00:36:41.420 align:middle line:84% Given how dire the situation is, a lot of the companies 00:36:41.420 --> 00:36:44.030 align:middle line:84% they are responding to it themselves. 00:36:44.030 --> 00:36:46.640 align:middle line:84% For example, some of the very cash 00:36:46.640 --> 00:36:49.850 align:middle line:84% generative internet companies, such as Tencent 00:36:49.850 --> 00:36:53.300 align:middle line:84% has been buying back shares in the Hong Kong market. 00:36:53.300 --> 00:36:55.670 align:middle line:90% And the shares will be canceled. 00:36:55.670 --> 00:36:59.450 align:middle line:84% There is also a growing focus on quality, not just 00:36:59.450 --> 00:37:01.850 align:middle line:90% on size by the Chinese company. 00:37:01.850 --> 00:37:05.240 align:middle line:84% This is a positive change we'd like to see. 00:37:05.240 --> 00:37:07.490 align:middle line:84% And finally, I think, the consensus 00:37:07.490 --> 00:37:12.230 align:middle line:84% is that US Fed has finally completed with rate hikes. 00:37:12.230 --> 00:37:18.650 align:middle line:84% In general, this is helpful to emerging market assets. 00:37:18.650 --> 00:37:21.410 align:middle line:84% We also acknowledge there are still risks 00:37:21.410 --> 00:37:25.250 align:middle line:84% and not all the problems are perfectly resolved yet. 00:37:25.250 --> 00:37:28.250 align:middle line:84% Property market weakness may continue 00:37:28.250 --> 00:37:31.580 align:middle line:84% to weight on GDP growth and also we 00:37:31.580 --> 00:37:36.260 align:middle line:84% expect some geopolitical tension between US and China 00:37:36.260 --> 00:37:37.710 align:middle line:90% is here to stay. 00:37:37.710 --> 00:37:41.550 align:middle line:84% But our view is that all of the high-level discussion 00:37:41.550 --> 00:37:46.320 align:middle line:84% has reduced tail risks and also miscalculation risks. 00:37:46.320 --> 00:37:49.140 align:middle line:84% I conclude the presentation of today, 00:37:49.140 --> 00:37:52.190 align:middle line:84% and now I'm going to turn back to Ali. 00:37:52.190 --> 00:38:08.000 align:middle line:90%