bin yuan capital china nov 2017€¦ · kpmg and h2 ventures has released 2017’s top 100 leading...

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BinYuanCapital–November2017

• Mr.ZhouPingandMs.CicyWumanagedGEHandA-ShareStrategies.• GEH-ShareFundslaunchedJuly‘02withperformancethroughDec‘10.• GEA-ShareStrategylaunchedApril‘07withperformancethroughDec‘11.

• CHINAAcanonlyinvestinChinaAEquitymarket,benchmarkedwithMSCIChinaAIndex.• ALLCHINAIrepresentstheoffshorecomminglefund.NoAshareexposurebeforeConnectbeinglaunchedinthe

endof2015.FullflexibilitytoinvestinChinaA/B,H,USADRandTaiwanMarketstartingthebeginningof2016.• ALLCHINAIIrepresentstheoffshoresegregateaccounts,benchmarkedwithMSCIAllChinaIndex.Fullflexibility

toinvestinChinaA/B,H,USADRandTaiwanMarketinceptfromMay2016.• CHINAHhasnoChinaAShares,benchmarkedwithMSCIChinaIndex.• *representsthereturnfromMay2016.

• Founderswith35+yearscombinedinvestmentexperience

• CoreteamformerlywithGEAssetManagement(“GEAM”)managing$5Bacross3funds;EM,GreaterChina&ChinaAShares

• +24%annualizedreturnGEAMGreaterChina/+37%cumulativereturnGEAMChinaA

Note:ThesizeofBubblesrepresentsthesizeofweightings

AllChinaPortfolioHighlightsExecutiveSummary

SpecializedChinaManager

ExperiencedTeam

• Shanghai/HongKong-based,valuefocusedChinamanager

• Longonlyabsolutereturnmindset• $500M+AUMinvestedinAllChinaandChinaAshare

strategies

• ClassA–ManagementFee1.5%• ClassB–ManagementFee1%,PerformanceFee10%• ClassC–ManagementFee2%,PerformanceFee20%

FundFeeStructure

Strategy 1YR 3YR 5YR Cumulative AnualizedGEH-ShareFunds 13.21% -7.44% 182.53% 545.78% 24.54%MSCIChinaIndex 2.32% -21.88% 126.90% 306.55% 17.94%GEA-ShareStrategy -22.05% 49.83% 39.21% 36.92% 6.84%MSCIChinaAIndex -27.15% 29.76% -14.53% -13.86% -3.09%

TeamHistoricalTrackRecord

YEARCHINAA(CNY)

BinYuanFund(USD)

ALLCHINA(USD)

CHINAH(USD)

MSCICHINAA(CNY)

MSCIALLCHINA(USD)

MSCICHINA(USD)

2013 9.40% 18.98% 24.80% -7.08% 0.36%2014 31.00% 6.05% 10.87% 46.84% 4.67%2015 26.11% -2.91% -4.99% 10.77% -10.05%2016 -9.31% -11.23% 1.85% -6.06% -14.74% -12.20%/1.47%* -1.43%2017JAN 4.14% 4.80% 4.68% 5.64% 1.27% 4.06% 6.81%FEB 1.74% 0.35% 2.90% 1.98% 2.46% 2.98% 3.52%MAR 0.01% 2.91% 2.06% 2.70% -0.37% 0.45% 2.13%APR -0.05% 0.73% 0.93% 1.71% -1.53% 0.14% 2.65%MAY 1.34% 3.04% 4.78% 5.04% -1.23% 2.24% 5.08%JUN 6.82% 3.98% 5.37% 2.17% 5.29% 4.67% 1.53%JUL 2.43% 2.66% 3.58% 5.68% 2.19% 5.73% 8.32%AUG 1.89% 3.49% 3.39% 4.55% 2.09% 4.26% 3.97%SEP 0.69% -1.38% 0.10% -0.94% 1.10% 0.70% 0.82%OCT 3.68% 9.58% 7.19% 6.91% 2.68% 3.37% 3.98%NOV -0.99% -2.38% -0.19% 1.16% -2.99% -0.88% 1.54%YTD 23.67% 30.91% 40.49% 42.97% 11.21% 31.20% 48.27%ITD 102.71% 42.36% 43.08% 76.56% 43.29% 15.19% 38.08%

Annualized 17.00% 7.72% 25.39% 12.96% 8.32% 7.66% 7.03%

BINYUANPerformance Benchmark

Top5HoldingsIndustrials(Ashare)Financials(Hshare)Financials(Hshare)InformationTechnology(Hshare)RealEstate(Ashare)

Top5ContributorsFinancials(Hshare)InformationTechnology(Hshare)Industrials(Ashare)Industrials(Ashare)RealEstate(Ashare)

Bottom5ContributorsConsumerDiscretionary(Hshare)Industrials(Hshare)InformationTechnology(Ashare)InformationTechnology(USADR)

InformationTechnology(Hshare)

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PerformanceSnapshotandMarketUpdate

BinYuanAllChinaI(BinYuanFund)wasdownby2.38%inNovember2017,underperformingthebenchmarkby1.50%.SincetheinceptionofMarch2013toNovember2017,thefundrecordedagross return of 42.36%. Bin Yuan All China II was down by 0.19% in November 2017,outperformingthebenchmarkby69bps.Sinceinceptionof2016,AllChinaIIrecordedareturnof43.08%,outperformingthebenchmarkby9.95%

ChinesestocksfellafterhittingtheYTDhighestpoint inNovember.ShanghaiComposite Indexlost2.24%andHangSengChinaEnterpriseIndexdroppedslightlyby0.28%inNovember.

China’seconomymaintainedstableinNovember.Theproducerpriceindex(PPI)rose5.8%yearonyear(YoY)inNovember,downfrom6.9%inOctober.Theconsumerpriceindex(CPI)dropped0.2 percentage point, rising 1.7% YoY. The officialmanufacturing PurchasingManagers' Index(PMI)pickedupto51.8 inNovemberfrom51.6 inOctoberandtheofficialnon-manufacturingPMI in November was also up to 54.8 in November from 54.3 in the previous month. Bothmanufacturingandnon-manufacturingPMIwaswellabovetheexpansion/contractionthresholdof50.Railcargovolumegrew4.9%YoYinOctobertoreachabout322.0milliontons,markingthefifteenthconsecutiveYoYmonthlyrise.

KPMGandH2Ventureshasreleased2017’stop100LeadingGlobalFintechInnovatorsrecently.Chinesecompaniestookallthetop3positionsinthelist.WithitswidelyusedmobilepaymentapplicationAlipay,AntFinancial(anaffiliateofAlibaba)remainsthemostsuccessfulglobalfintechcompany.ChineseonlineinsurancecompanyZhongAnclaimedthesecondpositionthisyear.AndthethirdpositionstillbelongedtoaChinesecompanynamedQufenqi,anonlinelendingcompanywhichoffersconsumerelectronicsdevicestostudentsandprofessionalsoninstallment.ThelistshowedthatChinacontinuedtodominatetheFintechlandscapeintheworld.

With the government’s deleverage effort, China’s wealth management products’ leverageproblemhasalreadyimproved.Inordertocontinuetocurbfinancialrisks,China’stopfinancialregulatorsissuedguidancethatunifiedrulescoveringassetmanagementproductsissuedbyalltypesof financial institutions.Webelieve thenew regulation aims to solve the issuesof highleveraging, supervisory arbitrage and implicit guarantee of potential returns on assetmanagementproducts.Themainsourcesofshadowbankingriskswillbemitigatedwiththenewregulationtobeeffective.

PerformanceAttribution

In November, Industrials and Financials were the top two contributors while ConsumerDiscretionary lagged.Comparedto thebenchmark,MaterialsandUtilitiesoutperformedwhileConsumerDiscretionaryunderperformed.

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Atthestocklevel,aninsurancecompanyoutperformedinNovemberprimarilyduetoitgoodQ3financial result. The company’s net profit rose 46% YoY inQ3 2017. In recent years, trend ofconsumerupgradesincreasesthedemandforinsuranceservices.Thecompanybenefitedfromtherisingindustrycycleandwasexpectedtofurtherenhancetheprofitabilitybyimprovingtheefficiency of customer acquisition and the brand value under the synergies across differentbusinessunits.Thecompanyhasagoodperformancetrackrecordandwebelieveitcanachieveasustainablegrowththroughitsuniquebusinessmodel.

AcompanyfocusingonrenewableenergybusinessunderperformedinNovemberprimarilyduetotheprofittakingeffectafteritssurgeinOctober.Thecompanyisaleaderofthephotovoltaictracking system market. The product can improve generation efficiency by 20%, which isattracting increasing operators to procure amid the pressure of cost hike. Tracking system isnearly 0%penetration in China comparedwith 20% in overseasmarkets. The company has astrongmarketpositionandalmostdominantinthisareawithtechnologypatent.

LocalInsightsandPortfolioPositioning

During the past 300 years, mankind experienced three industry revolutions driven by steampower,electricity,andelectronics&IT.Andnowweareembracingthefourthone,usuallycalledIndustry4.0,which refers toa collectionofnewdigital industry technologies suchasPhysicalCyberSystem(PCS).

Asthemanufacturingcenteroftheworld,Chinaisalsopayingmuchattentiontothisnewtrendandlaunchedthenationalstrategyofsmartmanufacturein2015,whichisequivalenttoIndustry4.0.WethinkIndustry4.0willbringthreemajorchangestothemanufacturingspaceinChinainthelongterm:

(1)Digitization:Thepre-conditionofanIndustry4.0factoryliesindigitizationofthewholevaluechain.ByusingPCS to simulate theproductionprocess,peoplecanmirror thephysicalworld.Thenreal-timedatacouldbeleveragedtotestandoptimizeallthesettingsbeforethephysicaldeployment.Costandtimecanbesavedandefficiencyincreases;

(2)Verticalandhorizontalintegration:Inatraditionalfactory,therearelotsofisolatedoptimizedcells: different departments / functions. While in an Industry 4.0 factory, all parts of theorganizationarenetworkedandoptimizedsothattheycanreactrapidlytochanges inorders,stock level, faults, etc. This considerably improves theefficiencyandproductivity. In addition,suppliersandcustomersarerarelycloselylinkedinthepast.UnderthevisionofIndustry4.0,allthe business partners are also networked and the whole value chain become increasinglytransparentandflexible.

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(3)Cloud:Asallthemachinesneedtobelinkedandalltheinformationneedstobesharedandanalyzedacross sites, functionalitiesandcompanyboundaries, cloud-based softwarewill beamustinIndustry4.0.

(4) From mass production to mass customization: As Industry 4.0 significantly increases theflexibilityofmanufacturing,masscustomizationwillbepossibletomeetpersonalizeddemand.

StockImplication

WeidentifiedthefollowingsectorsortechnologiesthatareemergingandpromisinginthewaveofIndustry4.0.

i. AdvancedManufacturingTechnologies

Robotshave longbeenusedtotackleroutine jobsandtosavecostsbyusing lesspeople.However,inanIndustry4.0factory,robotswillundertakemorecomplexordangerousjobsandwillbemoreversatile,autonomousandcooperative.Eventually,they will be inter-connected and work more safely and efficiently with people.What’smore,automatedmachinesmayreplacepeoplenotonlyforthoseroutinejobs, but also for those jobs that people totally cannot do. Thus advancedmanufacturing technologies such as laser machines are very important and willsignificantlyimprovethemanufacturingefficiency.

Midea, China’s top electrical appliancemanufacturer, acquired Kuka, theworld’sleadingindustrialrobotsmanufacturer,in2016.Ontheonehand,MideacandirectlybenefitfromKuka’sIndustry4.0expertisetobuildupitsownsmartfactory.Ontheotherhand,MideacanalsoassistKukatosellitsrobotsintoChinawhichisnowthebiggestrobotmarketintheworlddrivenbyitsrisinglaborcostsandmanufacturingupgrade.Weexpectbothcompanieswillbenefitfromthesynergycreated.

InovanceTechnology,focusedonservodriveandinverters,isthedomesticleaderinmotion control. InovanceTechnology is now substituting importedgoodswith itsowninnovativeproducts.

Han’s Laser is the largest laser processing equipment manufacturer in Asia. ThecompanyspecializesinR&Dandmanufacturinghighpowerlasercutterandwelder.It isoneof the fewvertical integrators indevelopingcomputernumerical controlsystem,precisemachinetoolsandhigh-powerlasergenerators.

ii. Sensorandtesting

SensorandtestinghavethemostvarietiesofproductsamongallsectorsofIndustry4.0,includingvariouskindsofsensors,transducersandtestingdevices.Theyaretheeyesandnerveendingsofindustrialsystems.

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Hikvision,ahigh-techcompanybasedinHangzhou,ZhejiangProvince,istheworld’sleadingproviderofvideosurveillanceproductsandsolutions.Duetoitsadvantagesincost,technologyandresearch&development,Hikvisionaccountedforamarketshareof29%inChinaand8.5%overseasin2016.ThecompanyisnowextendingitsbusinessintoindustrialvisionsolutionsthroughintensiveR&Dinindustrialcameraandartificialintelligence(“AI”).AtImageNet2016challenge,Hikvisionrankedfirstinscene classification category and second in object detection category whichdemonstrateditsstrongR&Dcapability.ThedevelopmentofAIapplicationwillalsobenefitHikvision and lead to the company’smarket share expansion in industrialvision.

SunnyOpticalisaleadingcompanyinintegratedopticaldevicemanufacturersandan optical imaging system solution provider. The company is one of the fewenterprisesinChinathathavethefirst-classdesigncapabilityandmassproductioncapacity for integrated products combining optics, mechanics electronics andsoftware technology. The company is also entering the industrial vision solutionmarketbyleveragingitsknow-howinopticsandelectronics.

iii. TheCloudComputing,BigDataAnalyticsandCyberSecurity

Asmentionedabove,inasmartfactory,allthemachinesneedtobelinkedandallthe information needs to be shared and analyzed, cloud computing and big dataanalyticswillbeanecessity.Asaresult,machinedataandsoftwarewillincreasinglybedeployedtothecloud,enablingmoredata-drivenservicesforproductionsystems.Evensystemsthatmonitorandcontrolprocessesmaybecomecloudbased.

Withtheincreasedconnectivityanduseofstandardcommunicationprotocols,theneedtoprotectcriticalindustrialsystemsfromcybersecuritythreatsalsoincreasesdramatically.

Apart from the E-commerce business, Alibaba is also China's largest provider ofpubliccloudservicesin2016byrevenue.ThetechnologiesthatpowerAlibabaCloudgrewoutofitsownneedtooperatethemassivescaleandcomplexityofthecoreE-commerce business. Alibaba Cloud offers a complete suite of cloud services,includingelasticcomputing,database,storageandlarge-scalecomputing,security,big data analytics and amachine learning platform. As of 30 June, 2017, AlibabaCloudhadapproximately1.01millionpayingcustomers.WebelieveAlibabaCloudwillreplicatethesuccessofAWSandbecomethedominantplayerinChina’scloudcomputingandbigdataanalyticsindustry.

iv. ArtificialIntelligence

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AI’srevolutionaryimpactontheIndustry4.0isuncontroversial.Itistherealbrainofan Industry 4.0 factory, where machines can perceive the environment andconsequently,cantakeactionstowardsincreasingthechancesofsuccess.

BaiduhasbeeninvestinginAIformanyyearsandhasbeenrecognizedasoneoftheleadingAIinnovatorsglobally.Baiduoperatesfourresearchlabsundertheumbrellaof Baidu Research, the Augmented Reality (AR) Lab, the Silicon Valley ArtificialIntelligence (AI) Lab, the BeijingDeep Learning Lab and the Beijing BigData Lab.Currently, Baidu’s AI mainly comprises three types of technologies, namely,parameter& sample& feature learning, computing capabilities (servers andGPUclusters) and big data (search data, image and video data and locating data).IntegratingthesethreetypesofAItechnologies,BaiduisabletoapplyAIintoareassuch as natural language processing, speech recognition, image recognitionprocessing, user portrait and other capabilities. Its Conversational Interfaces hasbeen recognized by MIT Technology Review as one of the ten breakthroughtechnologies in 2016. Its AI has now been applied to Baidu Search, Duer,AutonomousDrivingCarandwillbeappliedtoIndustry4.0infuture.

Apart from those discussed above, other technologies such as additivemanufacturing,augmentedrealityarealsoquitepromising.

v. Semi-conductorManufacturer

Requirements for AI at cloud and close to terminal create demand for semi-conductors,whichdrivesthevolumeofCPU,GPU,MCU,storage,etc.Andontheotherside,Industry4.0canalsohelpsemi-conductormanufacturertoachievehigherlevelsofoperationalexcellence.

SemiconductorManufacturingInternationalCorporation(SMIC)isoneoftheleadingsemiconductorfoundriesintheworldandthelargestandmostadvancedfoundryinmainland China. With China’s national strategy to support its semi-conductorindustry and China’s increasing demand for integrated circuit, SMIC has a brightfuture.

vi. VerticalOpportunities

ApartfromthoseIndustry4.0technologiessuitableforgeneraldemandsacrossallmanufacturingindustries,therearealsosomespecializedtechnologiesforaspecificindustry such as smart grid technology for the power industry or the AI forautonomousdrivingcars.

NARI is the leader in the global smart grid industry. The company has the rightincentiveandtrainingsystemfortheR&Dteam,whichhelpsNARItobecomethe

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domesticfirstmoverandbuildatechnologybarrier.Besides,experiencefromStateGrid’s project help NARI accumulate know-hows about the most advancedtechnologiessuchasUHVDCandflexibleDCtransmission.Cross-majorR&Dplatformstrengthens the capability of delivery and service, which also differentiates NARIfromitscompetitors.

Asmentionedabove,Baiduhasbeenrecognizedastheleader intheautonomousdrivingindustry.WiththegoalofachievingLevel4Autonomy,i.e.,fullyautonomousdriving, Baidu leveraged its technical accumulation in AI and deep learning, anddevelopedsomeindustry-leadingtechnologiesintheautonomousdrivingcarfield,including environment sensing, behavior prediction, planning control, operationsystem,highprecisionlocalization,highprecisionmapandsystemsafety.In2016,Baidu’sautonomousdrivingcarscompletedmultipleurbanpublicroadtestingsinanumberoflocationsinChinaandCalifornia.

All in all, we tried to identify those companies that can provide solutions for flexiblemanufacturing at competitive prices for Industry 4.0. They should have data analysiscapabilitywithaccumulatedindustryknow-how.

China is now encouraging companies to strive for greater productivity and promote fasteradoption of new technologies, targeting to seize the Industry 4.0 opportunity to become theleader in themanufacturing space in both quantity and quality.We believe Industry 4.0 willpresent tremendous opportunities for innovative producers, infrastructure providers andtechnologysuppliersinChina.MoreandmoreChinesecompanieswillcometotheglobalstagefortheiroutstandingperformancesandwewilltrytoidentifythemandseizetheopportunitytogrowthwiththem.

Sincerely,

BinYuanCapital

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The information contained herein is subject to revision and completion. The historical performanceinformationincludedhereinmaynotbeindicativeoftheperformanceoffutureresults.Nothingcontainedherein should be relied upon by prospective investors as a promise or representation as to the futureperformance.

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