investing in asian equities_jk
DESCRIPTION
Investing in Asian Equities_JKTRANSCRIPT
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This presentation is intended for professional and qualified investors only
Investing in Asian equities with a value approach
LFP JKC China Value
LFP JKC Asia Value
March 2013
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This presentation is intended for professional and qualified investors only
Table of contents
JK Capital Management Ltd
7
LFP JKC China Value
21
36
49
LFP JKC Asia Value
Asia rising: One continent 54
61
66
80
Appendices
84
94
2
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This presentation is intended for professional and qualified investors only
JK Capital Management Ltd
Overview
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This presentation is intended for professional and qualified investors only
JK Capital Management Ltd. Company information
4
JK Capital Management is a Hong Kong based fund management company. It is owned by Randolph Kwei, a well-known
local investor, and by Fabrice Jacob, a fund manager who moved to Hong Kong 18 years ago. JK Capital Management is the
result of the merger of their companies four years ago. Out of the five long-only products currently managed, two of them enjoy
the longest and most successful track records available on the market.
JK Capital Management Ltd. is :
18 years of existence under the supervision of the Hong Kong Securities and Futures Commission
Two founders with extensive backgrounds in banking and private equity
Eleven employees including four specialized analysts
US$350 million under management
Two UCITS IV SICAVs for European investors: LFP JKC China Value with a 15- year track record and LFP JKC Asia
Value
A managed account for US-based manager Russell Investments under the China Value strategy
A managed account for Danish manager Danske Capital under a PIPE version of the China Value strategy
A Limited Partnership for US investors: JK Asian Invest LP with an 18- year track record
A coverage of equity markets spanning nine countries of Asia
A specific expertise in bottom-up stock picking with special emphasis on due diligence
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This presentation is intended for professional and qualified investors only
JK Capital Management Ltd. Company structure
5
I.T.* Garrick Chan
Administration Bela Chu
Compliance* Compliance Asia
CFO/Risk Manager Alex Leung, CFA
Accounting* Edmund Lo
LFP JKC China Value PM: Fabrice Jacob
JK Asian Invest
LP PMs: Randy Kwei &
Fabrice Jacob
LFP JKC Asia Value PM: Fabrice Jacob
Analysis
Joel Chow CFA
Terence Tsui CFA
Patrick Tang
Yu Tao Zhang CFA
Research
Walter Woo
Jackie Xu
Product Specialist Guillaume
Dhamelincourt
Chief Executive Officer Fabrice Jacob
27 years of experience in corporate finance
and portfolio management including 18 in
Asian equity markets
35 years of experience in banking and
portfolio management in Asia
Chairman Randy Kwei
Administration Finance and
compliance Fund Management Equity Research
Business
Development
*delegated Russell Investments Managed Account
PM: Fabrice Jacob
Walter Woo
Jackie Xu
Middle Office
Support
Danske Capital Managed Account
PMs: Fabrice Jacob &
Joel Chow
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This presentation is intended for professional and qualified investors only
Yu Tao Zhang, CFA
Born in Shanghai. Bachelor degree in Commerce from the University of Sydney
Property, infrastructure and commodities
China, Indonesia, Malaysia and the
Philippines
Joined JK Capital in
2011
Joel Chow, CFA
Born in Macau. Bachelor degree in
science, Hong Kong University.
Industrial and consumer China, Korea, Thaland
and Indonesia
Joined JK Capital in
2006
Analyst Education Sector coverage Geographical specialisation JKC
Randy Kwei, PM
Born in Shanghai and having studied in the US Randy
moved back to Hong Kong 33 years ago.
Before the creation of his own management company in
1994, Randy had many different functions in the
investment and private equity sector in the US, Asia and
the Middle East.
Fabrice Jacob, PM
Born in France, Fabrice has been in Hong Kong for 18 years.
Private equity specialist, Fabrice has a solid experience in
Asian especially Chinese- investments.
Fabrice has been the manager of LFP JKC China Value and
LFP JKC Asia Value since inception.
JK Capital Management Ltd. The management team
Terence Tsui, CFA
Born in Singapore. Bachelor in
Engineering, Chinese University of HK
Bank, insurance and shipping
China, Indonesia, Singapore, Thaland and
the Philippines
Joined JK Capital in
2010
Patrick Tang
Bachelor of Science in Engineering Physics, HK
Polytechnic University
Technology and healthcare
Korea, Taiwan and China Joined JK Capital in
2011
6
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This presentation is intended for professional and qualified investors only
JK Capital Management Ltd
Management philosophy and investment process
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This presentation is intended for professional and qualified investors only
Investment Philosophy A value approach
JK Capital targets a superior long-term absolute return taking advantage of the extensive experience of its team, its knowledge of Asian dynamics and economics and its detailed analysis of company fundamentals and risk factors.
LFP JKC China Value and LFP JKC Asia Value target value companies, i.e. companies that are not on the radar screens of most sell side analysts, rarely represented in the indices and therefore trading with lower multiples than the indices. Value companies generally have positive cash flows, strong dividend payout policies, low debt levels and cheap valuations.
The country weighting of the Asian fund is based on the macro outlook and currency dynamics with divergence from indices.
For the China exposure of the Asian fund, the fund takes advantage of the detailed knowledge the management team has of the Chinese market and the best picks of LFP JKC China Value.
LFP JKC China Value and LFP JKC Asia Value are Value funds as opposed to a Growth funds.
8
Source: Factset, CLSA Asia-Pacific Markets January 2013
Note: Backtest based on MSCI Asia ex-Japan with three or more analyst coverage. Performance is MSCI
weighted US-dollar price return and factor quintiles are rebalanced on monthly basis.
Breakdown of MSCI Asia ex-
between Value stocks and Growth stocks
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This presentation is intended for professional and qualified investors only
Investment process A Bottom-Up approach in 4 steps
Quantitative
analysis
Stock selection
Government
policies and
incentives
Corporate
governance
Management
Macro Overlay Financial approach Private Equity approach
Portfolio
Construction 40-50 stocks
Top-down
Analysis
Country allocation
Sector allocation
Face-to-face
meetings Market timing
Correlation with
stocks in the
portfolio
Ratio filtering *
Indicators analysis
Qualitative
analysis
* Launched every 2 days by analysts and once a week by the portfolio manager
Hong Kong/
China
Taiwan
Korea
Singapore
Philippines
Thailand
Indonesia
Malaysia
shares
Investment
Universe
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This presentation is intended for professional and qualified investors only
Investment process Step 1: Investment universe
Sourcing of
investment ideas:
Definition of a universe
Contacts with analysts and PMs within the industry through
events such as roadshows and conferences
Automatic filtering of the universe (deletion of ghost
Companies under scrutiny are mostly listed in Hong Kong,
Taiwan, Korea, Singapore, Philippines, Thailand, Indonesia
and Malaysia. The bulk of their activities is in Asia.
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This presentation is intended for professional and qualified investors only
Investment process Step 2: Macro Overlay
Defining the countries with
the most attractive profiles
and their sector specific
growth drivers
Political risk
Economic analysis, risk/return profile
Currency expectations
Country specific sectorial analysis
Country/sector correlation analysis
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This presentation is intended for professional and qualified investors only
Investment process Step 3: Quantitative analysis
Quantitative analysis
EV/EBITDA < 8x *
P/E < 12x *
PEG < 1x
P/Book
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This presentation is intended for professional and qualified investors only
Investment process Step 4: Qualitative analysis
Qualitative analysis
Connected transactions
Cash flow
Financial investments
Receivables and inventory
Debt profile
Share issues
Salaries and stock option plans
Family relationships between directors and management
Changes in management
Identity of Independent Non-Executive Directors
Acquisition of assets outside the core business
Once these aspects are studied, the team proceeds with a due diligence of the company and its management
through discussions with sell-side analysts, local press reports and the analysis of the IPO prospectus when the
company was first listed.
13
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This presentation is intended for professional and qualified investors only
Investment process
Meeting with the management of the company under review: The analysts or the Portfolio Manager systematically
contact the management of the company under review. The purpose is to identify catalysts that may have an impact on
the company valuation going forward.
Whenever possible on-site visits are organised, assuming the conclusions reached through the prior steps are positive. A
member of the team (analyst or Portfolio Manager) will visit the company on-site to inspect its facilities. These site
visits allow the team to double-check information gathered previously and to see how the company operates (through
meetings with factory managers, analysis of the production cycle, of the inventory of raw materials and finished goods, of
employees shifts...). This is systematic for mainland China investments where corporate governance can be an issue.
In total, more than 700 meetings and site visits are organized
throughout Asia by members of the team every year
14
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This presentation is intended for professional and qualified investors only
Investment process Step 5: Investment decision and portfolio construction
Investment decision The team gathers daily to discuss all work in progress. Investment
decisions are made collectively during investment committees. In case
of disagreement, the Portfolio Manager has the final word.
Technical analysis This analysis is performed by two team members who have to
determine the best point of entry for each new position.
Portfolio construction Prior to adding a new stock to the portfolio, the team verifies its impact
on the correlation matrix and the portfolio beta.
Concentrated portfolio : 40 to 50 stocks
under normal market conditions
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This presentation is intended for professional investors and financial advisors only
JK Capital Management Ltd
Risk management
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This presentation is intended for professional and qualified investors only
Risk management A rigorous process
Liquidity
Portfolio hedging
Corporate governance
Bankruptcy risk
Portfolio construction
Portfolio diversification
75% of the portfolio can be sold in one day
Active cash management
Transparency is fundamental
Rigorous corporate governance due diligence
Use of correlation matrices
UCITS IV regulations + specific guidelines
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This presentation is intended for professional and qualified investors only
The Risk Manager produces every week a Risk Management Report that highlights certain quantitative risk
parameters, allowing the Portfolio Manager to assess the overall portfolio risk:
VaR Monte Carlo 95% and 99%
Sector VaR
Stress tests
Portfolio concentration, largest price and volume drops, liquidity risk analysis
The Risk Manager also checks that regulatory limitations attached to the UCITS IV format as well as internal
limitations are all met:
10% maximum exposure to any single stock
40% maximum exposure to stocks that individually represent more than 5% of the portfolio
75% of the portfolio must be able to be liquidated in one trading day
10% maximum exposure per sector
Risk management Risk control
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This presentation is intended for professional and qualified investors only
Systematic sale of a stock in case of:
Unjustified connected transaction between the company and its controlling shareholder
Sudden diversification
Negative rumours in the market
Partial sale of a stock in case of:
PEG >1
Exposure reaching 6% of the portfolio
Strong correlation with a new stock
20% drop from the recent peak
Partial sale of the portfolio in the event of an uncertain macro context and strong market volatility.
Risk management Stop-loss policy
19
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This presentation is intended for professional and qualified investors only
Risk Management EUR/USD Hedging
EUR shares are systematically hedged against USD shares.
Euro-denominated shares in the fund are hedged against fluctuations in the Euro/USD exchange rate to give the
opportunity to Euro-based investors to limit currency risk exposure. As a result, performances of Euro and USD classes of
shares are very similar (however not identical due to the cost of hedging and to tracking errors) whatever the volatility of
the Euro/USD exchange rate.
Hedging is implemented by Banque Degroof Luxembourg, the administrator of the fund, using monthly futures contracts,
daily checks and adjustments and using a tracking error objective, calculated over a period of 52 weeks, of 0.8%.
The cost of hedging is 1bp per month applied to the bearer of the Euro denominated shares.
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This presentation is intended for professional and qualified investors only
LFP JKC China Value
China macro picture: The challenges to nurture growth
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This presentation is intended for professional and qualified investors only
GDP growth recovery
After having slowed down through 2011 and 2012, the long awaited rebound has appeared and is expected to
carry on through 2013, although it should be a mild rebound
22
Full year GDP in 2012 rose 7.8%, above the expectations of 7.7%; the forecast for 2013 is 8.1%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
China real GDP growth YoY (quarterly figures annualised)
Source: Bloomberg, CICC Research January 2013
CICC
Forecast
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This presentation is intended for professional and qualified investors only
Rebounding industrial activity
The Chinese industrial sector rebound is gaining momentum with SMEs catching up on SOEs
23
New order less inventory: official vs HSBC/Markit
Source: Capital Economics, CFLP, NBS, HSBC/Markit, Bloomberg - December 2012
Source: National Bureau of Statistics December 2012 Source: Capital Economics December 2012
35
40
45
50
55
60
Official and HSBC/Markit PMIs
Offical PMI HSBC/Markit Flash PMI
Source: CEIC, HSBC/Markit, Bloomberg - January 2013
-10
-5
0
5
10
15
20
25
30
(% Y
oY
)
Industrial value-added and electricity output growth
Indutrial value-added
Electricity output
40
45
50
55
60
Official Manufacturing PMI by Company Size (2012)
Headline PMI Large firm PMI
Medium-sized firm PMI Small firm PMI
-10
-5
0
5
10
15
New Order - Inventory (Official)
New Order - Inventory (HSBC/Markit)
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This presentation is intended for professional and qualified investors only
Investment and real estate still strong
Though not of the same scale as in 2008, investments have been the primary tool so far, both through
State-Owned Enterprises (SOE) and infrastructure projects
24
Source: CEIC Data, National Bureau of Statistics, Capital Economics - December 2012
0
20
40
60
Fixed Investment (real, 3m % y/y)
Investment by state-owned and state-held firmsTotal urban fixed investment
Source: Capital Economics - September 2012
Property on the other hand is kept on a short leach but is still seeing strong flows
0
100
200
300
400
500
600
700
800
(mil
lio
n s
qm
)
Sales by Gross Floor Areas (GFA) breakdown by different tier cities
Tier 1 Tier 2 Tier 3
Source: CLSA Asia-Pacific Markets - September 2012
-10
0
10
20
30
40
50
(% YoY) Fixed Asset Investment (nominal, 3m % y/y)
FAI in infrastructure Residential real estate investment
Average daily sales volume in 42 Chinese cities (30
day moving average)
Source: Wind, CEIC, China Confidential December 2012
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This presentation is intended for professional and qualified investors only
Consumption growth is intact
The consumption story in China is still alive pushed by a stable employment environment and income growth
25
0
5
10
15
20
Real Per Capita Urban Income (% y/y)
Urban Disposable Income Real GDP
Source: Capital Economics December 2012
0.8
0.9
1.0
1.1
Ratio of Job Openings to Job Seekers at Local Employment Bureaus
More jobs than job seekers
More job seekers than jobs
Q4 2008
Source: Capital Economics December 2012
40
45
50
55
60
65
70
40
45
50
55
60
65
70
2004 2005 2006 2007 2008 2009 2010 2011 2012
Households - Current & Future Income
Future income confidence Current income sentiment
Source: Capital Economics December 2012
Still strong wage income growth support retail sales
Source: HSBC Global Research, Bloomberg December 2012
-10
-5
0
5
10
15
20
25
30(%yr)
Retail Sales Total Wages
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This presentation is intended for professional and qualified investors only
The New Leaders Agenda Challenges ahead
Although growth is rebounding China will need to address fundamental challenges to nurture it.
26
Burundi Niger
North Korea
Botswana Brazil China
Oman Malaysia
Taiwan Switzerland
U.S. Hong Kong Singapore
Japan
Saudi Arabia
Mexico
Peru Indonesia
Philippines
Thailand
0
1
2
3
4
5
0 1 2 3 4 5
20
08
pe
r c
ap
ita
in
co
me
rela
tive
to
Un
ite
d S
tate
s (
log
of
%)
1960 per capita income relative to United States (log of %)
Middle Income Trap
Low-income
"trap"
Middle-income
"trap"
Becoming poor
From low-
income to
middle-income
Middle-
income to
high-
income
Staying rich
Source: World Bank, Maddison Database
0
20
40
60
80
100Corruption Perception Index
CPI 2007 Score CPI 2012 Score
0
20
40
60
80
(%) Consumption & Investment (% of Nominal GDP)
Household & Government Consumption
Investment & Inventory Building
Source: National Bureau of Statistics, Capital Economics , CICC Research Dec 2012
Source: Transparency International December 2012
Year 2008 0.491
Year 2012 0.474
0.47
0.48
0.49
0.50
China Official Gini Coefficient
Source: National Bureau of Statistics - January 2013; United Nations (2011)
International Comparison (2011)
China Official 0.474
Belgium 0.330
Germany 0.283
Finland 0.269
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This presentation is intended for professional and qualified investors only
The New Leaders Agenda Urbanisation
Urbanisation was highlighted in most speeches delivered by future government members, it is key to the
development of China and it covers three main themes:
The pursuit of the migration from rural areas to cities
The modernisation of rural China into a modern and integrated agricultural area
The reform of the Hukou system to leave fewer people living outside the education and welfare system
27
Beyond urbanisation this reform paves the way to a fiscal reform to deal with the funding of local governments
and to the development of welfare system
0
10
20
30
40
50
60
(%)
The rise and rise of urbanisation
China urban population as % of total
0
10,000
20,000
RMB
Urban Income Exceeding Rural Income in China
(Per Capita Annual Income)
Urban Household
Rural Household
0
20
40
60
80
100
Urbanisation: Following in the footsteps of the US
US China (upper scale)
Rural population as % of total
Source: Bloomberg December 2012 Source: Bloomberg December 2012 Source: US Census Bureau, World Bank, HSBC December 2012
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This presentation is intended for professional and qualified investors only
The New Leaders Agenda Funding reform
Until now the burden of fundraising was for the State and banks to bear which gave limited options to private
companies and put too much weight on State finances. With the increasing costs of urbanisation, including
welfare, new funding sources had to be developed.
Beijing wants to lift the share of direct and promote the development of the
bond Xi Jinping, 17th November 2012
28
This reform is particularly important as it leads the way for a stronger private sector that can occupy the space
that until now was reserved to SOEs.
The Meng Xi Hua railway line: for the first time an infrastructure project saw 15.7% of its equity sold to private
investors.
0
50
100
150
200
250
300
350
The surge of corporate bond issuance
Corporate Bond Issuances (RMB bn)
0
100
200
300
400
500
Local Government Financing Vehicle bond issuance
LGFV Bonds (RMB bn)
Source: HSBC December 2012 Source: CIA, HSBC December 2012 Source: Bloomberg, PBOC, HSBC December 2012
0
50
100
150
200
250
China's bond market lags Asian peers (% of GDP)
Government Debt (%) Corporate Debt (%)
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This presentation is intended for professional and qualified investors only
The New Leaders Agenda Liberalisation of the RMB and internationalisation of equity markets
Long criticised for being under valued the RMB appears to be now close to its fair value (trade balance almost
neutral) leaving the door open to liberalisation.
29
Pushing through this reform is essential if China wants to keep growing and become the second top global player
in terms of influence the same way it currently is the second largest economy in the world
0%
2%
4%
6%
8%
10%
12%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
China current account and foreign reserves
China FX Reserves (USD bn, L.H.S.)
Current acc. / GDP (%, R.H.S.)
0
5
10
15
20
25
30
35
-
1,000
2,000
3,000
4,000
5,000
6,000
RMB trade settlement taking off
Trade settlement in RMB (bn)
RMB trade settlement as % of China's total trade (%)
QFII Investors Expanding
Source: CEIC, HSBC December 2012 Source: Bloomberg, National Bureau of Statistics Dec 2012 Source: Bloomberg, HSBC December 2012
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This presentation is intended for professional and qualified investors only
The New Leaders Agenda Fight corruption
recent change of government was stained very publicly by many scandals. It led to a strong outrage of the
Chinese population expressed publicly through modern media and it pushed the fight against corruption to the
top of the new agenda.
Already a few symbolic actions took place:
Very public high officials arrests
The announced reform of labour camps
A meal policy for all officials
The long banned for movie was aired on CCTV4 on
14th December 2012 during prime time, uncut
Activism for cleaner Chinese politics through blogs is now accepted
30
Such measures are still very symbolic but social activism is pushing for
more which gives us confidence that the new government will carry on in
this direction
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This presentation is intended for professional and qualified investors only
The New Leaders Agenda
What we expect:
Our GDP forecast : 8.1% - 8.5%
Inflation : ~3%
Overcapacities management
1 or 2 RRR cuts
Loan growth: 15%
An extended but mild rebound of the
economy
Reforms to be gradually introduced in no
hurry
31
What we do not expect:
A strong stimulus
A strong rebound of the economy
Interest rates cuts
Reforms to be swiftly implemented
Drastic changes in economic policies
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This presentation is intended for professional and qualified investors only
0
10
20
30
40
50
60
Historical A/H - Shares Price/ Earnings
Shanghai Composite Heng Seng Index
-20
0
20
40
60
80
100
A-Shares Premium/ Discount over H-Shares width band
Premium/ Discount width band (%)
Investing in Chinese Growth
32
Source: Bloomberg December 2012 Source: Bloomberg, National Bureau of Statistics Dec 2012 Source: Bloomberg December 2012
The question of the Hong Kong stock exchange vs the Shanghai and Shenzhen stock exchanges is more and
more relevant as the topic of the opening of Chinese markets is at the top of the new agenda.
While the domestic market tends to open through QFIIs and both market trade at similar levels we favour the H
share market for:
The quality of the regulator SFC vs CSRC
The quality of the companies: the best Chinese companies favour the Hong Kong market to gain access to foreign
investors
The involvement of foreign and institutional investors
The reporting standards imposed on listed companies
The stringency of the HK regulator towards new listings at a time when the A share market is at risk of over-flooding
0.1 % 1.6 %
share market based on QFII quotas
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This presentation is intended for professional and qualified investors only
-
50
100
150
200
250
Average daily turnover of China and Hong Kong stock markets
Shanghai + Shenzhen (RMB bn) Hong Kong (HKD bn)
Investing in Chinese Growth
33
Source: Bloomberg January 2013 Source: Bloomberg January 2013
17,629
3,727 3,501 3,462 3,141 2,085 1,742 1,615 1,400 1,320
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Bloomberg World Market Capitalisation (Billion USD)
Source: Bloomberg - January 18th 2013
-
1,000
2,000
3,000
4,000
5,000
Market capitalization for China and Hong Kong
Shanghai + Shenzhen (USD bn) Hong Kong (USD bn)
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This presentation is intended for professional and qualified investors only
China has the highest GDP growth in the world (7.8% in 2012) and the second cheapest valuation in the region
China trades at a 18% discount to Asia Pacific ex Japan, 29% to Indonesia and 44% to the Philippines
Markets are still pricing a downbeat scenario following a year-long negative news flow
Investing in Chinese Growth Why invest in China today?
34
0
2
4
6
8
10
12
14
16
18
CLSA Asia Pacific ex-Japan universe 12M-fwd PE (x)
Source: CLSA January 2013
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This presentation is intended for professional and qualified investors only
How to benefit from the current context?
35
Macro
Understand the central government policy, never stand against it
Stay aware of all macro data published to understand if and how policies are implemented
Beware of the press. Situation is complex and most journalists superficial.
Sectors
Identify the sectors that drive the growth, avoid others
Avoid benchmarking indices that are all market cap weighted
Companies
Carry detailed and thorough due diligence with a team aware of local practices
Understand every connected transaction to identify bad apples
Stay close to the investment and meet the management often. In a high growth environment, conditions often change very fast
In the current context, it all comes down to sector and stock picking
With an experienced local team, a deep understanding of Chinese macro and a proven Value stock picking methodology, LFP JKC China Value has all the keys to
add value in this tough environment
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This presentation is intended for professional and qualified investors only
LFP JKC China Value
Performances and portfolio
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This presentation is intended for professional and qualified investors only
LFP JKC China Value Performances as at February 28th, 2013
37
Past performances do not guarantee future results
Portfolio turnover: 252% in 2011 (Source: Long Form Report 2011 KPMG)
LFP JKC China Value MSCI China Free
YTD 2013 10.0% 0.0%
2012 28.2% 18.7%
2011 -31.0% -20.2%
2010 23.4% 2.2%
2009 108.6% 58.1%
Performance 3Y 26.9% 3.6%
Performance 5Y 35.5% -15.3%
Since inception (February 1998) 206.4% 17.1%
Source: Bloomberg / JKC- February 28th 2013
0
50
100
150
200
250
300
350
LFP JKC China Value: Performance since inception
LFP JKC China Value
MSCI China Free
Source: Bloomberg / JKC; 28/02/2013.
80
100
120
140
160
180
200
220
240
260
LFP JKC China Value: Performance since 2009
LFP JKC China Value
MSCI China Free
Source: Bloomberg / JKC; 31/01/2013
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This presentation is intended for professional and qualified investors only
0
20
40
60
80
100
120
140
160
180
200(USD m)
AuM as at 05/03/13: USD 177m 2013 Morningstar Research Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be
accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any
damages or losses arising from any use of this information. Past performance is no guarantee of
future results
LFP JKC China Value AuM and fund statistics
38
AuM since March 2009
(transfer of the fund to Luxembourg)
Indicators as at
February 28th, 2013 1 Y 3 Y 5 Y
Fund volatility 14.6% 21.3% 23.3%
Index volatility 18.6% 21.7% 23.7%
Tracking error 10.0% 11.3% 12.2%
Information ratio 2.10 0.63 1.15
Sharpe ratio 1.48 0.38 1.05
Bloomberg Ranking as at 06/03/13
Source: Bloomberg/JKC-March 6th ,2013.
Past performances do not guarantee future results
Source: Bloomberg/JKC- March 6th 2013. Past performances do not guarantee future results
Source: Bloomberg/JKC- February 28th 2013. Past performances do not guarantee future results
Morningstar RatingTM as at 28/02/13:
(I share in USD)
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This presentation is intended for professional and qualified investors only
LFP JKC China Value Portfolio as at February 28th, 2013
39
Past performances do not guarantee future results
PE 2013 (e) 12.5 x
PEG 0.64 x
Price/Book 2.6 x
EV/EBITDA 2013 (e) 13.8 x
Dividend yield 2.3%
ROE 18.3%
Net Debt/Equity 18%
MSCI China Free 0.85
Hang Seng Index 0.92
Hang Seng China Enterprise Index 0.70
Shanghai A-Share Index 0.58
Key ratios as at February 28th, 2013 Beta over 4 years
Only 14.7 % of the fund overlaps with the MSCI China Free
A confirmed Value approach
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This presentation is intended for professional and qualified investors only
Using a top-down macro approach, the fund targets sectors that offer the most attractive risk/return profiles at any
point in time.
Such sectors are not necessarily well represented in the indices like sectors that are already developed, with large market
caps.
This approach leads to significant overweighting and underweighting of certain sectors compared to indices that
are traditionally overweighted in financials, energy and telecoms.
LFP JKC China Value Specificities of the fund: the Sector approach
40
These elements are not contractual and can be changed at any time without prior information
1% 6%
8%
23%
5% 9%
17%
12%
4% 7% 8%
17%
4% 6% 5% 5% 1%
40%
7% 11%
3% 0%
Industry breakdown comparison as at 28th February 2013
LFP JKC China Value MSCI China Free
Source: Bloomberg / JKC; 28/02/13 - using iShare MSCI China ETF as a proxy for MSCI China Free Index
-
This presentation is intended for professional and qualified investors only
LFP JKC China Value Specificities of the fund: the Mid-Cap bias
41
JK bottom-up stock picking process leads to a portfolio that, under normal market conditions, is overweighted in
small and mid caps (defined as being under USD 5bn market cap).
Small and Mid-Caps are more volatile than large caps on the up-side as well as on the down-side. This is where
outperformance often originates.
Small and mid-caps also tend not to be part of indices which makes the comparison between the Fund and indices more
difficult.
31%
61%
8%
90%
10%
0%
Large cap Smid cap Cash
Large and Smid caps breakdown Comparison as at 28th February 2013
LFP JKC China Value MSCI China Free
Source: Bloomberg / JKC; 28/02/13 - using iShare MSCI China ETF as a proxy for MSCI China Free Index
-
This presentation is intended for professional and qualified investors only
LFP JKC China Value Specificities of the fund: the cash management
42
To mitigate the downside volatility due to the mid-cap bias, the fund manager has the possibility to withdraw partially
from the market by keeping up to 50% of the fund in cash, skewing the volatility
The cash is kept in USD, the reference currency of the fund
Past performances do not guarantee future results
0
50
100
150
200
250
300
0%
10%
20%
30%
40%
50%
60%
LFP JKC China Value: Performance and cash level from 2005 to 28th February 2013
Cash (RHS) LFP JKC China ValueSource: Bloomberg / JKC; 28/02/2013
-
This presentation is intended for professional and qualified investors only
LFP JKC China Value Performance attribution by sector FY2012
43
Source: Bloomberg/JKC-December 31st , 2012. Past performances do not guarantee future results
-
This presentation is intended for professional and qualified investors only
LFP JKC China Value Performance attribution by market cap FY2012
44
Source: Bloomberg/JKC-December 31st , 2012. Past performances do not guarantee future results
-
This presentation is intended for professional and qualified investors only
Portfolio is positioned for a mild but steady rebound of the Chinese economy. It is less defensive than it has been
throughout 2012.
Most consumer staples companies were swapped for consumer discretionary companies (Goodbaby, Sunny
Optical, Brilliance, Zhongsheng, Great Wall Motors, Ju Teng, Minth).
Exposure to high beta cyclical stocks was increased in January and then reduced in March. It involves property
developers and building materials (COGO, CR Land, Sunac, Xinyi Glass, Anhui Conch, CNBM).
Exposure to defensive utilities was reduced (Datang Power, Huaneng Power, CR Gas), while exposure to Real
Estate Investment Trusts (Fortune REIT, Prosperity REIT, Hui Xian REIT) was maintained.
Increased exposure to the banking sector that offers compelling value and will be among the first sectors to benefit
from the economic rebound (BoC, BoCom)
Overweight the infrastructure and social housing sectors (CCCC, CSCI, CCS, Zhuzhou CSR)
Overweight logistics companies (Lenovo, Haier)
Cash level 5-8%
LFP JKC China Value Portfolio profile as at February 28th, 2013
45
Current portfolio positioning
These elements are not contractual and can be changed at any time without prior information
-
This presentation is intended for professional and qualified investors only
LFP JKC China Value Associated risks
Investing in equity securities may offer a higher rate of return than those in short-term and long-term debt securities. However, the
risks associated with investments in equity securities may also be higher, because the investment performance of equity securities
depends upon factors which are difficult to predict.
Risk of loss of capital: investors are warned that their capital is not guaranteed, and it is therefore possible that it will not be
returned to them.
Investment in the designated countries to the extent described in the investment objective and policy described here before offers
new growth opportunities. However, certain target markets may be affected by risks inherent to emerging markets, basically such
as social and political modifications encountered in such countries.
Certain economic or financial factors such as inflation rates, regulations and restrictions on foreign exchange, restrictions on
investments, limited liquidity of the markets, higher volatility in prices, rates and currencies, delayed settlements and transaction
costs, counterparty risks linked to payments made prior to delivery of securities, differences in auditing and information on the
issuers of securities, entail a degree of risk greater than the degree of risk associated with investments in more sophisticated
markets such as Hong Kong.
The fundamental risk associated with any equity portfolio is the risk that the value of the investments it holds might decrease in
value and hence decrease the net asset value of the fund. Equity security values may fluctuate in response to the activities of an
individual company or in response to general market and/or economic conditions.
46
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This presentation is intended for professional and qualified investors only
LFP JKC China Value Main characteristics (I class)
47
Legal structure SICAV, UCITS IV
Domicile Luxembourg
Isin codes I class Euro: LU0547182096
I class USD: LU0438073230
Reference index MSCI China Free
Exchange rate exposure for class EUR shares are systematically hedged against USD shares
Suggested holding period 5 years
NAV computation Daily
Minimum subscription Class I- EUR 150,000/USD 200,000
Subscription fees 5% max
Current fees* 2.21%
Including running and management fees 1.5%
Performance fees** 15% of the NAV appreciation with High Water Mark
Investment Advisor JK Capital Management Limited
Management Company La Franaise AM International
Custodian Banque Degroof Luxembourg
Fund administration Banque Degroof Luxembourg
Auditor KPMG
*The given fees can be different from one accounting year to another. Current fees include running and management fees, transaction fees and fees related to
investments in other funds
6.48%. The given performance fees correspond to the last accounting year and can change from one year
to another. La Franaise Finance Services receives a commission for the distribution of this product in conformance with a distribution agreement signed between La
Franaise Finance Services and La Franaise AM International
-
This presentation is intended for professional and qualified investors only
LFP JKC China Value Our keys to success
48
Exceptional Track Record
In-depth understanding of Asian economics
Quantitative methods to identify high potential
companies
Value Approach
Local team in constant contact with portfolio
companies
Cash management to mitigate downside
volatility
Rigorous risk management and
compliance
Currency Hedging of the Euro shares
UCITS IV structure to maximize transparency
LFP JKC
China Value
-
This presentation is intended for professional and qualified investors only
LFP JKC China Value
Investment example
-
This presentation is intended for professional and qualified investors only
Goodbaby International
Investment rational
Taking market share from peers in the manufacturing business
Favorable regulatory policy regarding baby car seats
Robust demand ( > + 30%) for its own brand business as the company built an in-depth distribution
channel
Goodbaby is an original product manufacturer of durable juvenile products. It supplies more than 30% of all
baby strollers sold in the world. It also sells its products under its own brands (Goodbaby and Happy Dino)
in China, Southeast Asia, Middle East and Russia.
Market Cap USD 543m
PE 2013 15.7x
PEG 0.5
Net debt to equity -27.0%
Date of investment Oct 2012
Weight in the portfolio 2.2%
LFP JKC China Value Investment example
Source: Bloomberg- 7th March2013
50
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This presentation is intended for professional and qualified investors only
Ju Teng
Investment rational
Industry leader with strong margin expansion story
Faster than expected recovery draws more market attention and re-ratings.
Cheap valuation: EV/EBITDA: 6.3x, 2012 EPS growth: +96%
Ju Teng International is a world leading plastic casing manufacturer for notebook (NB) computers. It has
more than 30% global market share. It has long-term relationships with the top NB ODM makers and its
products are extensively used in the world leading NB brands such as HP, Dell, Lenovo, Asus and Acer.
Market Cap USD 623m
PE 2013 7.2x
PEG 0.3
Net debt to equity 41%
Date of investment Mar 2012
Weight in the portfolio 3.0%
LFP JKC China Value Investment example
51
Source: Bloomberg- 7th March2013
-
This presentation is intended for professional and qualified investors only
Sunny Optical
Investment rational
Strong growth in a niche industry with excellent management and the right customers
Still relatively unknown to the investment community, under-covered by analysts
Cheap valuation: EV/EBITDA: 8.5x, 2012 EPS growth: +52%
Sunny Optical is a fast growing camera lens and module manufacturer based in Ningbo. Its main market are
Chinese mobile phone manufacturers who are quickly upgrading their product offering from cheap handsets
to smartphones.
Market Cap USD 923m
PE 2013 12.9x
PEG 2013 0.40
Net debt to equity -14.0%
Date of investment Sep 2010
Weight in the portfolio 3.1%
LFP JKC China Value Investment example
52
Source: Bloomberg- 7th March2013
-
This presentation is intended for professional and qualified investors only
China Overseas Grand Oceans
Investment rational
Shares excellent management with its parent China Overseas Land Investment who is arguably the
best residential developer in China
High Growth of low base
Low gearing ratio
COGO is a 38% subsidiary of China Overseas Land and Investments, one of the largest and most reputable
state-owned property developers in China. Its projects are mainly located in Tier 3 cities (Hohhot, Jilin, Hefei,
Guilin etc.) as well as Beijing and Guangzhou. Land bank is 7.8m m2.
Market Cap USD 3.2bn
PE 2013 / PEG 8.6x / 0.3
Discount to NAV -15%
Net debt to equity 12%
Date of investment Feb 2012
Weight in the portfolio 3.1%
LFP JKC China Value Investment example
53
Source: Bloomberg- 7th March2013
-
This presentation is intended for professional and qualified investors only
LFP JKC Asia Value
Asia rising: One continent several growth rates
-
This presentation is intended for professional and qualified investors only
China
Population: 1,350m
2012 GDP Growth: 7.8%
GDP 2011: USD 7,300 bn
Stock Exchange (HK):
- USD 1,907 bn total market
cap
Asia rising: One continent several growth rates Asia fundamentals
Thailand
Population: 64m
2012 GDP Growth: 6.4%
GDP 2011: USD 340 bn
Stock Exchange:
- USD 266 bn total market
cap
Malaysia
Population: 29m
2012 GDP Growth: 5.6%
GDP 2011: USD 279 bn
Stock Exchange:
- USD 394 bn total market
cap
Singapore
Population: 5m
2012(e) GDP Growth*: 2.0%
GDP 2011: USD 261 bn
Stock Exchange:
- USD 464 bn total market
cap
Korea
Population: 49m
2012 GDP Growth : 2.0%
GDP 2011: USD 1,134 bn
Stock Exchange:
- USD 979 bn total market
cap
Taiwan
Population: 23
2012 GDP Growth : 1.25%
GDP 2011: USD 466 bn
Stock Exchange:
- USD 697 bn total market
cap
Philippines
Population: 95m
2012 GDP Growth: 6.6%
GDP 2011: USD 225 bn
Stock Exchange:
- USD 154 bn total market
cap
Indonesia
Population: 240m
2012 GDP Growth: 6.2%
GDP 2011: USD 844 bn
Stock Exchange:
- USD 382 bn total market
cap
* UBS estimate December 2012
55
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This presentation is intended for professional and qualified investors only
Asia rising: One continent several growth rates A growing region
33.5%
29.1%
6.8%
31.7% 30.9%
10.1%
28.2% 28.1%
16.2%
21.02%
23.81%
29.73%
EU US Asia ex Japan
1990 2000 2010 2030
0% 10% 20% 30% 40% 50% 60%
Malaysia
China
Thailand
Asia ex-Japan
Indonesia
Philippines
India
Middle class population
2015
2010
2,719
4,763
6,875
10,971
552 1,440
3,294
8,283
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
1980 1990 2000 2010
GDP per capita (Purchasing Power Parity) 1980-2010
World
Asia Ex Japan
Source: World Bank - 2012
Source: CLSA - 2012 Source: World economic database - 2012
56
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This presentation is intended for professional and qualified investors only
Asia rising: One continent several growth rates An outperforming region
Index Performance between Jan
2000 and Feb 2013
MSCI Asia Ex Japan +60%
Dow Jones Industrials +22%
Euro Stoxx 50 -46%
Comparison of main regional indices from 2000 to 28th February 2013
Source: Bloomberg- January 15th, 2013. Past performances do not guarantee future results
Source: Bloomberg- February 28th, 2013. The ratio calculates the excess return against the risk free rate per unit of volatility over a 5-year period. Higher Sharpe
ratio indicates better historical risk-adjusted performance.
57
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
Sharpe ratio over the past 5 years
0
50
100
150
200Dow Jones Indus. Euro Stoxx 50 MSCI AC Far East Ex Japan
-
This presentation is intended for professional and qualified investors only
Asia rising: One continent several growth rates Different growth drivers
Within emerging markets, Asia is often presented as a single monolithic bloc, yet nothing could be further from the truth !
Understanding the differences between each country and their specific growth drivers, beyond what indices present, is the key to invest throughout the region and benefit from its outstanding growth.
GDP per
capita
Weight in Asian
indices Growth drivers
China $5,400 + + Investments in infrastructure
and household consumption
Korea $23,100 + + Consumer goods exports throughout the world
Taiwan $20,260 + + IT goods exports throughout the world
Singapore $52,200 + + Banks, properties, shipping companies
and oil rigs servicing companies
Indonesia $3,500 - Household consumption, coal exports to China
Malaysia $9,600 - - Crude palm oil exports to Asia
Philippines $2,350 - -
Household consumption, call centres and
services outsourcing, foreign overseas
workers
Thailand
$5,300 - - Household consumption, tourism
Source: World Bank - 2012
58
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This presentation is intended for professional and qualified investors only
Asia rising: One continent several growth rates Healthy fundamentals
Consequence of the 1998 Asian crisis: Asian countries have kept a healthy economic profile throughout the following decade which provides them today with a solid foundation to preserve their growth in the global slowdown.
2012(e)
GDP growth (%) Trade balance
(US$ bn)
2011 Budget
surplus/(deficit)
(% of GDP)
FX reserves
(US$ bn)
Sovereign
debt
(% of GDP)
China 7.8 254.2 (1.6)% 3,220 42.1%
Indonesia 6.0 30.6 (2.1)% 113 24.0%
Korea 2.2 41.9 0.0% 304 35.6%
Malaysia 5.0 40.3 (5.3)% 131 55.8%
Philippines 5.8 -10.4 (3.5)% 60 52.3%
Singapore 2.0 3.5 0.7% 238 0 %
Taiwan 1.2 26.9 0.1% 382 52.1%
Thailand 5.5 32.3 (2.1)% 179 42.3%
Source: World Bank 2012 ; GDP growth forecasts UBS December 2012
59
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This presentation is intended for professional and qualified investors only
Asia rising: One continent several growth rates The Value approach
Asia is a complex region and it is often more correct to speak of several Asia(s) to highlight the differences between Asian developed and often exporting countries (Korea, Taiwan, Hong Kong and Singapore), Asian high growth developing countries for which domestic consumption is the main driver (Indonesia, Malaysia, Thailand and the Philippines), and the country that stands in between, China.
Each of the above categories, each country, has its own specificities and growth drivers. A deep understanding of them is essential to benefit from the extraordinary development of the region beyond indices that are usually representative of the largest sectors which seldom are the most attractive ones.
For that purpose, the approach which focuses on the growth potential of companies and their relative valuations to identify the real actors of a growth is the most adequate.
LFP JKC Asia Value is an ad hoc product that benefits from the experience and success of the JK Capital Value approach to tap into Asian growth opportunities
60
-
This presentation is intended for professional investors and financial advisors only
LFP JKC Asia Value
Genesis of the Fund
-
This presentation is intended for professional and qualified investors only
LFP JKC CHINA VALUE JK ASIAN INVEST LP.
Legal Structure: SICAV UCITS IV
Inception: 1998
Strategy: Absolute return
Style Value
Focus: China/Hong Kong
Valuation: Daily
Liquidity: Daily
AUM: USD 175m
Genesis of the Fund Two funds with extended track records
Legal Structure: US Limited Partnership
Inception: 1994
Strategy: Absolute return
Style GARP
Focus: Asia ex-Japan ex-India
Valuation: Monthly
Liquidity: Quarterly
AUM: USD 58m
Two outperforming strategies with different structures and investor bases
As at 28/02/13 Fund MSCI Asia ex-Japan
YTD 2013 6.4% 1.8%
2012 17.6% 19.0%
2011 -19.3% -16.8%
2010 13.4% 16.7%
2009 69.6% 65.0%
3 years 23.3% 25.1%
5 years 33.7% 1.4%
Since inception 237.7% 30.9%
As at 28/02/13 Fund MSCI China
YTD 2013 10.0% 0.0%
2012 28.2% 18.7%
2011 -31.0% -20.2%
2010 23.4% 2.2%
2009 108.6% 58.1%
3 years 26.9% 3.6%
5 years 35.5% -15.3%
Since inception 206.4% 17.1%
62
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This presentation is intended for professional and qualified investors only
Genesis of the Fund A new fund capitalising on their combined strengths
LFP JKC Asia Value was launched in July 2011 for European investors
Legal structure: UCITS IV Sicav
Liquidity: Daily
A fast growing market: Asia
Euro denominated class of shares hedged against changes in the EUR/USD exchange rate to avoid unwanted currency risk
Advantages
A Value strategy to capture the growth of the region
An absolute return strategy that overweights countries and sectors with higher potential than those heavily weighted by indices
An efficient bottom-up stock picking methodology that has proven itself
Strengths
63
-
This presentation is intended for professional and qualified investors only
Genesis of the Fund An extension of JK Asian Invest LP
LFP JKC Asia Value was designed to be the UCITS-compliant version of JK investment approach in Asia
which significantly outperformed the market over the past 18 years.
The correlation between the two funds since July 2011 is 0.96
February 28th, 2013
Source: JKC/Bloomberg, - February 28th, 2013. Past performances do not guarantee future results
64
0
50
100
150
200
250
300
350
400
JK Asian Invest LP. LFP JKC Asia Value MSCI AC Far East Ex Japan
70
80
90
100
110
-
This presentation is intended for professional and qualified investors only
Genesis of the Fund A portfolio positioning away from benchmarks to invest in each
MSCI AC Far
East ex Japan
LFP JKC
Asia Value
Heavily weighted sectors in
local indices Value sectors Sectors to avoid
China/Hong
Kong 40.3% 45.0%
Banks, telecommunication
services, petrol, property in
Hong Kong
Infrastructure, staple goods,
property in China, utilities
(electricity)
Property in Hong Kong,
shipping materials,
specialised retail
Indonesia 4.4% 5.7% Banks, telecommunication
services, mines
Banks, property,
consumption, infrastructure Mines
Korea 22.4% 3.5% Information technology, car
sector, steel, banks
Information technology, car
sector
Banks, property,
consumption, shipyards,
steel
Malaysia 4.7% 1.7% Banks, crude palm oil, petrol Infrastructure, consumption Crude palm oil
Philippines 1.4% 18.3% Telecommunication services,
utilities (electricity), property
Property, banks,
consumption Mines
Singapore 7.5% 6.3% Banks, telecommunication
services, property -
Banks, property, crude
palm oil
Taiwan 15.6% 7.0%
Information technology,
telecommunication services,
banks
Information technology
(Apple suppliers)
Banks, property,
consumption
Thailand 3.7% 12.3% Petrol, banks Banks, property,
consumption
-
65
Source: Bloomberg / JKC; 28/02/13 - using iShare MSCI AC Far East ex Japan ETF (IFFF) as a proxy for MSCI AC Far East ex Japan Index
-
This presentation is intended for professional investors and financial advisors only
LFP JKC Asia Value
Performances and portfolio
-
This presentation is intended for professional and qualified investors only
LFP JKC Asia
Value
MSCI AC Far East
ex Japan
YTD 2013 7.1% 1.8%
2012 26.0% 19.0%
Since inception
(July 2011) 3.9% -2.5%
LFP JKC Asia Value Performances as at February 28th 2013
Source : Bloomberg/JKC February 28th 2013. Past performances do not guarantee future results
PE 2013 (e) 12.8 x
PE/Growth 0.67 x
Price/Book 2.0 x
EV/EBITDA 2013 (e) 10.9 x
Dividend yield 2.5 %
ROE 17.3%
Net debt/equity 29 %
Standard deviation (weekly) 1.7 %
Key ratios as at February 28th, 2013
Performance and cash level since inception
(04/07/2011-28/02/13) AUM since Inception
(04/07/2011-28/02/2013)
67
0
5
10
15
20
25
30
35
(USD m)
0
0.1
0.2
0.3
0.4
0.5
0.6
0
20
40
60
80
100
120
Cash (RHS)
LFP JKC Asia Value
MSCI AC Far East ex Japan
-
This presentation is intended for professional and qualified investors only
2 4
5 7 8 9 11 12 14 15 16 18 19 20 21 23
26 27
1
28 29
32
37
39
3
6
10 13 17 22 24 25
30 31 33
34 35 36
38
40
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
0 5 10 15 20 25 30
1 Y
ear
To
tal R
etu
rn %
Standard Deviation 1 Year
Competitive landscape analysis of the main Europe distributed Asian funds
Genesis of the Fund Competitor analysis
LFP JKC Asia Value stands out from its competitive landscape through its un-benchmarked Value approach which
allowed it to rank well in the universe of Asian funds.
Source : Bloomberg 14 September 2012
Bloomberg page extract:06/03/13
Source : Bloomberg March 5th , 2013. Past performances do not guarantee future results
68
1 LFP JKC Asia Value 15 Aviva Investors Sicav - Asia Equity Income Fund 29 BlackRock Global Funds - Asian Dragon Fund
2 Pictet - Asian Equities Ex-Japan 16 Nordea Invest FjernOsten 30 Comgest Panda SICAV
3 Nordea Far East Fund 17 Investec Global Strategy Fund Ltd - Asian Equity Fund 31 Amundi Funds - Equity Asia Ex Japan
4 SW Fidelity South East Asia - Pension 18 GAM Star Asia Pacific Equity 32 Fidelity Funds - South East Asia Fund
5 BSI-Multinvest - Asian Stocks 19 Comgest CG Nouvelle Asie 33 Morgan Stanley Investment Funds - Asian Equity Fund
6 Invesco Funds SICAV - Asia Consumer Demand Fund 20 DWS Emerging Asia 34 SEB Asienfond exkl Japan
7 Julius Baer Multistock - Asia Stock Fund 21 Dexia Equities L - Asia Premier 35 MSCI Far East ex Japan
8 Edmond de Rothschild Asia Leader 22 Fidelity Investment Funds ICVC - South East Asia Fund 36 Baring International Umbrella - Baring Asia Growth Fund
9 UBS CH Equity Fund-Asia 23 INVESCO Asian Equity Fund 37 HSBC Global Investment Funds - Asia ex Japan Equity
10 Eastspring Investments - Asian Equity Fund 24 Value Partners Classic Fund 38 UBS Lux Key Selection Sicav - Asian Equities
11 Skandia Far East 25 HSBC Global Investment Funds - Asia ex Japan Equity 39 Russell Investment Company PLC - The Pacific Basin Equity Fund
12 Goldman Sachs Asia Portfolio 26 BNP Paribas L1 - Equity Best Selection Asia ex-Japan 40 T Rowe Price Funds SICAV - Asian ex-Japan Equity Fund
13 Investec Funds Series ii - Asia Ex Japan Fund 27 ING L Invest - New Asia
14 Asia Pacific Performance 28 APS Far East Alpha Fund
-
This presentation is intended for professional and qualified investors only
LFP JKC Asia Value Specificities of the fund: the Geographical approach
Using a top-down macro approach, the fund targets countries that offer the most attractive risk/return profiles at any
point in time
Such countries are not necessarily well represented in the indices which traditionally focus on the more established
companies in the most developed markets with large market caps
This approach leads to significant overweighting and underweighting of certain countries as compared to indices
69
5.5%
17.7%
11.9%
43.5%
1.7%
6.8% 6.1% 3.4% 3.4% 4.4% 1.4%
3.7%
40.3%
4.7%
15.6%
7.5%
22.4%
0.0%
Geographical breakdown comparison as at 28th February 2013
LFP JKC Asia Value MSCI AC Far East ex Japan
Source: Bloomberg / JKC; 28/02/13 - using iShare MSCI AC Far East ex Japan ETF (IFFF) as a proxy for MSCI AC Far East ex Japan Index
-
This presentation is intended for professional and qualified investors only
LFP JKC Asia Value Specificities of the fund: the Sectorial approach
Using a top-down macro approach, the fund targets sectors that offer the most attractive risk/return profiles at any
point in time
Such sectors are not necessarily the most heavily-weighted in the indices
This approach leads to significant overweighting and underweighting of certain sectors as compared to indices
70
0.0% 2.0%
10.4% 15.5%
3.5% 2.4%
45.0%
14.3%
0.6% 2.8% 3.4%
6.5% 6.3% 10.0% 9.2%
4.8% 0.4%
33.5%
18.8%
6.7% 3.7%
0.0%
Industry breakdown comparison as at 28th February 2013
LFP JKC Asia Value MSCI AC Far East ex Japan
Source: Bloomberg / JKC; 28/02/13 - using iShare MSCI AC Far East ex Japan ETF (IFFF) as a proxy for MSCI AC Far East ex Japan Index
-
This presentation is intended for professional and qualified investors only
LFP JKC Asia Value Specificities of the fund: the Mid-Cap bias
JK bottom-up stock picking process leads to a portfolio that, under normal market conditions, is overweighted in
small and mid caps (defined as being under USD 5bn market cap).
Small and Mid-Caps are more volatile than large caps on the up side as well as on the down side. This is where
outperformance often originates.
LFP JKC Asia Value is an absolute-return fund that does not benchmark any index.
These elements are not contractual and can be changed at any time without prior notice
71
36.0%
60.7%
3.4%
88.3%
11.8%
0%
Large and Smid caps breakdown comparison as at 28th February 2013
LFP JKC Asia Value MSCI AC Far East ex Japan
Source: Bloomberg / JKC; 28/02/13 - using iShare MSCI AC Far East ex Japan ETF (IFFF) as a proxy for MSCI AC Far East ex Japan Index
-
This presentation is intended for professional and qualified investors only
LFP JKC Asia Value Performance attribution by country FY2012
72
Source : Bloomberg/JKC December 31st, 2012. Past performances do not guarantee future results
-
This presentation is intended for professional and qualified investors only
LFP JKC Asia Value Performance attribution by sector FY2012
73
Source : Bloomberg/JKC December 31st, 2012. Past performances do not guarantee future results
-
This presentation is intended for professional and qualified investors only
LFP JKC Asia Value Performance attribution by market cap FY2012
74
Source : Bloomberg/JKC December 31st, 2012. Past performances do not guarantee future results
-
This presentation is intended for professional and qualified investors only
Growth is not achieved the same way across Asia. Sector and country weighting need to take into account
specific dynamics to extract value :
LFP JKC Asia Value Country and sector selection
Sector / Country HK/China Taiwan Singapore Korea Indonesia Malaysia Thailand Philippines
Country exposure + - = - - + - + + + +
Energy - - - - -
Materials
Mining - - -
Industrial - - - - -
Consumer discretionary - =
Consumer staple = - = -
Health - -
Finance - - - -
Information technology
Telecommunication services
Utilities
75
-
This presentation is intended for professional and qualified investors only
Current portfolio positioning Companies on our radar screen
Property developers in South East Asia
Infrastructure plays in China
Banks in South East Asia and China
Consumer plays in the Philippines, Thailand,
Indonesia and China
Car industry in Korea and Indonesia
Samsung Electronics in Korea (Galaxy phones)
Rubber gloves in Malaysia
Strong overweight of South East Asia vs North Asia
Strong overweight of the Philippines and Thailand
Slight overweight of China
Overweight Indonesia
Underweight Korea and Malaysia
Equal weighting on Singapore and Taiwan
Overweight financials and consumer related stocks
Underweight energy and commodities
51 positions
3.4% cash
LFP JKC Asia Value Portfolio profile as at February 28th, 2013
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These elements are not contractual and can be changed at any time without prior information
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This presentation is intended for professional and qualified investors only
LFP JKC Asia Value Associated risks
Investing in equity securities may offer a higher rate of return than those in short-term and long-term debt securities. However, the
risks associated with investments in equity securities may also be higher, because the investment performance of equity securities
depends upon factors which are difficult to predict.
Risk of loss of capital: investors are warned that their capital is not guaranteed, and it is therefore possible that it will not be
returned to them.
Investment in the designated countries to the extent described in the investment objective and policy described here before offers
new growth opportunities. However, certain target markets may be affected by risks inherent to emerging markets, basically such
as social and political modifications encountered in such countries.
Certain economic or financial factors such as inflation rates, regulations and restrictions on foreign exchange, restrictions on
investments, limited liquidity of the markets, higher volatility in prices, rates and currencies, delayed settlements and transaction
costs, counterparty risks linked to payments made prior to delivery of securities, differences in auditing and information on the
issuers of securities, entail a degree of risk greater than the degree of risk associated with investments in more sophisticated
markets such as Hong Kong.
The fundamental risk associated with any equity portfolio is the risk that the value of the investments it holds might decrease in
value and hence decrease the net asset value of the fund. Equity security values may fluctuate in response to the activities of an
individual company or in response to general market and/or economic conditions.
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This presentation is intended for professional and qualified investors only
LFP JKC Asia Value
Main characteristics (I Class and $)
Legal structure SICAV, UCITS IV
Domicile Luxembourg
Isin codes I class Euro: LU0611874057
I class USD: LU0611874131
Reference index MSCI AC Far East ex Japan
Exchange rate exposure for class EUR shares are systematically hedged against USD shares
Suggested holding period 5 years
NAV computation Daily
Minimum subscription I class : 150,000, I class $: $200,000
Subscription fees 5% max
Current fees* 3.48%
Including running and management fees 1.5%
Performance fees 15% of the NAV appreciation with High Water Mark
Investment Advisor JK Capital Management Limited
Management Company La Franaise AM International
Custodian Banque Degroof Luxembourg
Fund administration Banque Degroof Luxembourg
Auditor KPMG
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*The given fees can be different from one accounting year to another. Current fees include running and management fees, transaction fees and fees related to
investments in other funds
financial year the performance fee was 0.00%.The given performance fees correspond to the last accounting year and can change from one year
to another. La Franaise Finance Services receives a commission for the distribution of this product in conformance with a distribution agreement signed between La
Franaise Finance Services and La Franaise AM International
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This presentation is intended for professional and qualified investors only
LFP JKC Asia Value Our keys to success
Exceptional Track Record in Asia
In-depth understanding of Asian economics
Quantitative methods to identify high potential
companies
Value Approach
Local team in constant contact with portfolio
companies
Cash management to mitigate downside
volatility
Rigorous risk management and
compliance
Currency Hedging of the Euro shares
UCITS IV structure to maximize transparency
LFP JKC
Asia Value
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This presentation is intended for professional investors and financial advisors only
LFP JKC Asia Value
Investment examples
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This presentation is intended for professional and qualified investors only
Tat Hong Holdings
Investment rational
Large fleet and wide range of products that allow the company to bid for diversified procurement
contracts
Turnaround situation with fast growing utilisation rate of the fleet
High GP margin of 30%+ and cash cow business with a 10 year amortisation policy applied to
equipment that lasts up to 40 years
Listed in Singapore, Tat Hong is the largest distributor and rental company of cranes in Asia, and the 7th
largest in the world. It operates throughout the region and has the second largest market share within the
construction crane segment in China. Growth is also strong within the oil and gas industry.
Market Cap USD 745m
PE 2013 12.7x
PEG 0.2
Net debt to equity 60%
Date of investment Jan 2013
Weight in the portfolio 1.9%
LFP JKC Asia Value Investment examples
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Source: Bloomberg- 7th March2013
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This presentation is intended for professional and qualified investors only
LFP JKC Asia Value Investment examples
Investment rationale:
One of the most attractive developers in the Philippines with a discount to net assets close to 35%.
The residential sector benefits from the strong and steady growth of overseas workers remittance
(+5% to 6% per annum) and from a healthy supply and demand dynamic
The BPO sector is growing very rapidly, with estimates of +19% per annum over the 2012-2016 time
frame
Filinvest
Filinvest is a Filipino property developer. The main business revolves around three sectors:
residential, Business Process Outsourcing and shopping centres.
Market cap (USD) USD 1.2bn
PER 2013/PEG 12.3x/ 0.7
Discount to Net Assets -25%
Net debt/Equity 51%
Date of investment July 2011
Portfolio weighting 3.8%
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Source: Bloomberg- 7th March2013
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This presentation is intended for professional and qualified investors only
Appendices
False Ideas about China
The JK Capital Management Team
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This presentation is intended for professional and qualified investors only
False ideas about China
A few examples
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This presentation is intended for professional and qualified investors only
False Ideas about China
Net Exports contribution to GDP
Gross Exports as a
share of GDP 2011
China 26%
India 18%
South Korea 50%
Taiwan 66%
Thailand 66%
Malaysia 81%
Source: Bloomberg data - April 2012
Comparison with other regional countries
Within GDP, net exports is now less than half of what it was four years ago. Any drop in exports today has a minimal impact on GDP
China is now focusing on the exports of higher value-added products. T shirts and sneakers can no longer be systematically associated with China
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2006 2007 2008 2009 2010 2011
China GDP Breakdown (2005 - 2011)
Net exports Capital Formation
Government Consumption Private Consumption
Source: National Bureau of Statistics, Capital Economics - April 2012
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This presentation is intended for professional and qualified investors only
False ideas about China
Exports to developed countries are becoming less strategic
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Since the 2007 Lehman crisis, growth of exports is led by sales to emerging markets
The gap has even widened with the European sovereign debt crisis
0
20,000
40,000
60,000
80,000
100,000
(US
D b
n)
Exports by destination ($bn, seas. adj.)
US & Europe Emerging economies
Source: Capital Economics - September 2012
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This presentation is intended for professional and qualified investors only
False Ideas about China
US Treasuries outstanding: US$15 trillion
China total FX reserves: US$ 3.3 trillion
reserves invested in US Treasuries: US$ 1.1 trillion
US Treasury Ownership
US Institutions and Individuals 42.3%
Social Security Trust 15.8%
US Civil Service Retirement
Fund 7.1%
Other Public Funds 2.2%
Foreign Ownership 32.6%
of which China 7.6%
67.4%
Source: US Federal Reserve Bank as at December 2011
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China is an important creditor for the US, but not that important
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This presentation is intended for professional and qualified investors only
False Ideas about China
Given the size and complexity of China, numbers cannot be accurate. However they are good indicators of trends.
Upcoming Premier Li Keqiang was once asked the same question about GDP growth. He bluntly said that he
only trusts his own index: A mix of new bank loans, cargo traffic and electricity consumption.
In June 2012, the New York Times published an article entitled Chinese Data Mask Depth of
commenting on a mismatch between electricity production and consumption numbers published and stating that
it could only be explained by a tampering of the numbers by the government to mask the depth of the Chinese
slowdown.
As it turned out, a mismatch between the figures is not an unusual thing and some difference can be explained
by the absence in power generation data of private electricity generation and inefficient measuring systems,
particularly with hydro power generation.
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There is a tremendous amount of macro data published every week, analysed by economists worldwide. A lack of coherence between numbers would suggest tampering, something that no
economist has recently suggested.
Numbers include a margin of errors, however trends should be seen as reliable
May 12 June 12 July 12
Electricity Consumption (tWh) 406.1 413.6 455.6
Electricity Generation (tWh) 389.8 393.4 435.1
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This presentation is intended for professional and qualified investors only
False Ideas about China
After a small drop in the middle of 2012 the RMB has resumed its appreciation against the USD, be it at a
slower pace than before.
RMB has appreciated by 34% between July 2005 and December 2012
In Q2 2012 China has been a net seller of FX and a net buyer of RMB to prevent the RMB from dropping
further, the daily closing rate hitting systematically the bottom of its authorized and expanded daily fluctuation
range
Trade balance only shows a small surplus of 3% of GDP
Under the present circumstances, the RMB seems to be close to its fair value
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6
6.3
6.6
6.9
7.2
7.5
7.8
8.1
8.4
Renminbi/dollar exchange rate
Reference rate (set by the PBoC) Closing spot rate
Source: Bloomberg - January 2013
6.1
6.2
6.3
6.4
Focus on the past 12 months
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This presentation is intended for professional and qualified investors only
government debt remains reasonable, even taking into account the provincial debt and the Local
Government Financing Vehicles
False Ideas about China
213
129 107 97 97 89
77 72 65 64 53 46 44 42 35 26
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0
50
100
150
200
250Government Debt as a % of GDP
Note: China number includes debt at provincial level
Whichever way you look at numbers, sovereign debt in China remains low
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False Ideas about China
Price levels in Tier 1 cities are often interpreted as the tell-tale of a bubble on the verge of bursting, this is the tree
that masks the forest
Property prices have risen in China, but salaries have risen even faster with the emergence of a large
middle class
References to the high prices in Tier 1 cities are misleading
0
25
50
75
100
125
Property Price to Wages ratio (affordability ratio)
Source: Capital Economics - September 2012 Source: Capital Economics - September 2012
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Tier 1 Tier 2 Tier 3
Number of cities 6 20 114
Price (RMB / sqm) 19,347 9,677 6,249
Property Ownership (%) 53.8% 48.9% 24.0%
0
100
200
300
400
500
600
700
800
(millio
n s
qm
)
Sales by Gross Floor Areas (GFA) breakdown by different tier cities
Tier 1 Tier 2 Tier 3
Source: CLSA Asia-Pacific Markets - September 2012
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This presentation is intended for professional and qualified investors only
False Ideas about China
The number of flats built every year in China often leads to the assertion that no matter how big the population is,
such demand has to be speculation.
The demand for properties in China is a unique combination of 3 items:
Property ownership only exists since 1993
In most cities and because of the gender imbalance, a young man will find it very difficult to get married if he own
a flat
Confucianism: A cornerstone of Chinese culture is piety" (xiao [ ] in Mandarin Chinese), the attitude of obedience,
devotion and care toward parents.
An urban couple with one child and two sets of parents has an ultimate objective to own 3, if not 4 flats.
The real issue is they are often not allowed to
A recent Capital Economics report estimates China will need to build an average of 10 million new flats
per year until 2020 to meet the increase in urban population. It built 6m/yr over the past 15 years
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59%
54%
33% 37%
8% 9%
0%
20%
40%
60%
80%
100%
First Time Buyers Upgraders Investors
Source: CRR, CLSA - September 2012
Months to clear inventory 21 city average
Source: Deutsche Bank September 2012
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This presentation is intended for professional and qualified investors only
False Ideas about China
Cheep labor has often been considered as main competitive advantage. With wages and consumption
increasing and the RMB getting more expensive many think China has lost its edge over other countries, this is
forgetting the productivity gains.
China has been pushing out the low margin factories it was well known for to retain the higher margin industries building up a
more qualified workforce the cost of which remains low in most finished products value.
In the last three years during which wages have increased by 56%, prices of US imports from China have increased by
only 4% in total.
Productivity gains have well maintained the competitive edge of China and whilst those cannot possibly
go on forever, the recent performance of China in that area makes it too early to discount them.
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90
95
100
105
110
115
120
Price of Manufactured Goods Imports into US ($) (2003 = 100)
Imports from emerging economiesImports from China
Source: Capital Economics, November 2012
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This presentation is intended for professional and qualified investors only
The JK Capital Management Team
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This presentation is intended for professional and qualified investors only
Fabrice Jacob CV
Co-founder and CEO of JK Capital Management Ltd.
Registered as an Investment Adviser with the Securities and Futures Commission of Hong Kong
Career
Since1997 JK Capital Management Ltd., Hong Kong CEO
1995-1997 Banque Worms Hong Kong Senior Vice President, Head
of Investment Banking
1989-1995 Banque Worms Paris Vice President Investment Banking
1987-1989 Banque Paribas Capital Markets, London, Mergers and Acquisitions
1985-1987 Banque Paribas New York, Leveraged Capital Group
Portfolios managed Since 2013 Danske Capital managed account Portfolio Manager
Since 2012 Russell Investments managed account Portfolio Manager
Since 2011 LFP JKC Asia Value Portfolio Manager
Since 1998 LFP JKC China Value Portfolio Manager
2002-2009 MYM High Yield Bond Trust Portfolio Manager
1995-2004 Yu Ming Investments Ltd Director, Portfolio Manager High Yield investments
1995-2005 Matignon Investissements FCPR, Portfolio Manager - Asia
1995-1998 SHK Convertibles Ltd Director, co-Portfolio Manager
1995-1997 Chine Investissement 2000, co-Portfolio Manager
Diplomas MBA, Finance and Investments, City University of New York, Baruch College Maitrise de Sciences de Gestion, Universit de Paris Dauphine
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Randy Kwei CV
Co-founder and Chairman of JK Capital Management Ltd.
Registered as Investment Adviser with the Securities and Futures Commission of Hong Kong
Career
Since 2007 Chairman of JK Capital Management Ltd.
1992 -2007 Pacific Capital Management Ltd., Hong Kong Founder and CEO
Before 1992 Asian Oceanic Group Managing Director
Asian Special Situation Equity Trust, a private equity fund (IRR of
16.8% over 7 years) Manager
Citibank, Head of consumer banking for Canada, Country Head for the
United Arab Emirates
American Express Bank Regional Head for North Asia
ORIX Investment in Japan Advisor
CIGNA in the United States Advisor
Diplomas MBA Columbia University
B.E. Yale University
Randy Kwei is Trustee of the New Asia College University of Hong Kong, director of the Rotary Club of
Hong Kong and was chairman of the Yale Club of Hong Kong.
He published his memoirs East to West to East in 2009.
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The team CV
Mr. Alex Leung CFA, CFO et Risk Manager
Over 11 years of experience in managing Chinese equities.
Prior to joining JK Capital Management, Alex Leung worked at
Yu Ming Investment Management on private equity
investments, corporate finance and mergers and acquisitions
for listed and unlisted companies.
He graduated from Melbourne University (Bachelor degree in
Commerce)
Mr. Joel Chow CFA, Analyst
Over 7 years of experience analysing listed Chinese
companies.
Prior to joining JK Capital Management, Joel Chow was working
in the credit risk management of a Hong Kong commercial
bank.
He is a graduate of Hong Kong University (Bachelor degree in
science)
Mr. Terence Tsui CFA, Analyst