QUARTERLY NEWSLETTER – April 2015

Major Indices

Currency (AUD)

Interest Rate (%)

Share Index *PE ratio (historical earnings)

Min daily wage (USD)

GDP Forecast (2015) IMF

Population (million)

Public Debt as a % GDP

Australia 1.00 2.25 All Ords –5,861

16.11 (All Ords)

136 2.9 23.8 27

USA (Dollar)

0.76 0.25 S&P 500–2,086

19.31 58 3.6 321 89

Japan (Yen)

91 0.1 Nikkei 225 – 19,207

17.74 85 0.6 127 (stagnant)

251

China (Yuan)

4.73 5.35 CSI 300 -4,041 Hang Seng 24,922

China-17.21 Hong Kong- 10.06

9.60 6.8 1,369 17

India (Rupee)

48 7.5 BSE 200– 3,555

31.78 3.40 6.3 1,269 53

Europe (Euro)

0.71 0.05 DJ Stoxx 50 3,727

18.23 56 1.3 (Germany)

742 (stagnant)

85

UK (pound)

0.52 0.50 FTSE 100 – 6,891

16.98 80 2.7 64 (stagnant)

100

Global N/A 22.67 4.0 7,234 *PE ratios (based on historical earnings), China and India delayed by 1 month (as of Feb 28) 10 Yr Bond Rate – 1.95% US 30 Yr Bond Rate – 2.55% Source: Bloomberg NB: Fastest growing population is by far Africa. Commodities

U.S. Retail Sales

Oil –Nymex (WTI) (USD/barrel)

47 Iron Ore ($/tonne) spot price

53

Natural Gas ($per million mbtu)

2.63 Copper (USD/pound)

2.75

Coal-coking ($/tonne)

58 Nickel (USD/pound)

5.74

Uranium (USD/pound)

39 Zinc (USD/pound)

0.94

Gold (USD/ounce)

1,179 Aluminum (USD/pound)

0.79

Wheat (cents/bushel)

530 Corn (cents/bushel)

379

Baltic Dry Index(BDI)

562 (decline)

US retail sales forecasts (% gain on last year)

January(f)

February(f)

437,006

March(f)

437,400

Chinese PMI manufacturing

Jan (HSBC) 49.8

Feb (HSBC) 50.1

Mar (HSBC) 49.2

Commentary – Past 3 months The past 3 months for share markets was mostly good…..led by Japan (up 7.7%) and Europe (up 12.8%) due to their money printing and currency devaluation. Asia, China, India and Australia (up 8.7%) did well with the China CSI 300 doing the best returning 16.9% for the quarter. The US moved sideways. Global share market Prices to Earnings (PE) ratios are still well above fair value and their average is 22.67. Asia is on a PE of 19.05 (as of Feb 28), so no longer cheap but still ok due to strong growth. Hong Kong is looking very cheap at a PR of 10.06. US employment is down again by 0.3% currently at 5.5%, and Australia steady at 6.3% unemployed. The US trend is down and Australia is up. USA economy is still a bit patchy with fourth quarter 2014 GDP growth at just 2.2% annualized. The IMF increased its forecasts for 2015 US growth to 3.6% .The strong US dollar is hurting corporate profits. Europe is improving thanks to the weakened Euro making them more competitive. Chinese manufacturing has been weak again (HSBC March PMI 49.2), however official PMI for March was 50.1 so some hope there. The Government has been reducing interest rates and reserve requirement ratios as well as tax relief on property. Therefore Chinese property may soon start to stabilize despite it’s over supply. Also China is launching the Asian Infrastructure Bank and a Silk Road railway from China to Europe. This is helping Chinese infrastructure construction companies share prices such as China Railway Construction Corporation up 25% this last month.. India recently had their budget and announced a boost to railway spending. Meanwhile the low Oil price is allowing the Gov to reduce debt and the India GDP is improving. South Asia (and ASEAN), South America and South Africa and the Frontier countries are in most part still doing well, except the commodity and Oil producing nations. Global GDP is forecast by the IMF for 2015 at 4.0%. The Advanced Economies at 2.3%, and the Developing Economies at 5.2%. It also states;”falling oil prices will boost global GDP between 0.3 and 0.7 percent in 2015”. Interest Rates have fallen in many countries this quarter. India decreased by 0.5% to 7.5%. China decreased by 0.25% to 5.35%. Australia decreased again by 0.25% to 2.25%. US long term bonds rates fell again slightly over the quarter. This is conflicting with views that US interest rates will be going up soon. The Bond market is telling us rate rises in the US will be delayed. Inflation has still been mild in most countries (except Russia) and currently not a great concern. Currencies over the quarter were summarized by yet another significant weakening (6%) in the Australian dollar, from 0.81 down to 0.76 to the US dollar, and down against all major currencies except the Euro (thanks to Europe announcing a QE program). That marks a fall in the past 12 months of 26% to the US dollar, and in line with my forecasts. Commodities Oil dropped a bit further during the quarter from USD 53 to USD 47 on oversupply concerns, weak Global demand, and a strong USD; and Natural Gas also fell a lot further to USD 2.63. This has sent severe shudders through the Oil producing nations and companies, but is also a win for consumers especially in importing nations (China, India, Philippines). Copper was weak dropping again to $2.75 per pound. The other base metals were slightly down. Iron Ore prices continued their shocking past year falling again this quarter ending at $53 a tonne, due to the China housing and construction slowdown, and oversupply. This is now really hurting the Iron Ore miners and Australia (especially WA). Coking Coal dropped again over the quarter at $58 per tonne. Uranium has passed its shocking mid 2014 low of $28, now rising up to USD 39 per pound. Gold moved slightly down to $1,179 per ounce. Soft commodities mostly fell over the quarter especially wheat. Australian Resources Price Earnings Ratio is still very cheap at 12.68; however it may be a “value trap” with most mining profits falling due to falling commodity prices. In summary, it has been a shocking year for commodities (see table below).

Massive Commodity price falls led by Oil the past year

Major miners last year Share price performance

You can see from the above table and the graph below why it has been wise to be reduce (recommended over a year ago) and 100% out (recommended 3 months ago) of Global Resources. Given in the past year WTI Oil has dropped 52% , and Iron Ore 52% (from $110 to $53) in USD terms, yet most miners have fallen less than 50% (BP only 7.1%, BHP 16.3% for example) it would seem likely mining share prices have further to fall. Noting BP and BHP have done better due to their home currencies weakening to the USD. US corporate earnings guidance has the Energy sector marked for an estimated 62% fall in earnings from a year ago. Also the BDI has turned significantly lower, and the US has the largest inventory of stored Oil in 80 years. I think it is likely we are entering into a prolonged period of cheap Oil thanks to US shale Oil and new fracking technologies. Conclusion – No rush to get back into Global Resources just yet.

Commentary – Forecast next 6 months Leading indicators are neutral for global growth except the BDI which is sharply negative. The Baltic Dry Shipping Index (BDI) – (the cost to ship raw materials such as coal & iron ore) has dropped significantly down to 562, a bad sign for commodities. US Retail sales are forecasted to rise be steady after the Christmas peak. The HSBC Chinese Manufacturing PMI index – March 49.2 is indicating the Chinese manufacturing sector is stalling still. A figure below 50 suggests contraction, and above 50 suggests expansion. Note the new Government is trying to shift the economic growth from manufacturing industries to service industries, and consumer consumption. A summary of the above leading indicators is to expect “no immediate resources recovery and no China manufacturing recovery”. Commodities used in construction such as Oil and Iron Ore have been smashed the past year, and may fall further. Western (developed countries) share markets are likely to move down, or sideways….. Expect Australia to continue to struggle and 2015 may well see a recession in Australia. In particular the US is due for a correction being overvalued (PE of around 19.31) and at risk of corporate profits turning to negative growth due to the high USD. Chinese equities should continue to do well in 2015 as new money flows there due to the HK-China Stock connect and this year’s likely inclusion of mainland Chinese equities into the MSCI will boost mainland Chinese shares. Hong Kong (PE 10.06) offers better value now than mainland China, but I expect both to do well. The Emerging markets of Brazil and Russia and Global Resources should start to recover at some point in late 2015 or 2016 but for now better to wait and see. The ASEAN and Next 11 countries– led by Indonesia, Philippines, Vietnam, Cambodia, Turkey Pakistan, etc… That is, the cheap labour countries that are getting all the jobs…will show the best returns. US, Europe and Japan all have large Government debts. It seems likely is that their Governments will have to raise taxes and reduce benefits. Hopefully this does not cause share markets to collapse. The USD, Euro, Yen, and AUD should be avoided, as should any currency where the country has excessive debt levels or high labour costs, as at last the world has begun to realize the huge problems it faces with many countries heavily in debt and no real solution to fix their trade deficits. Long Term View The West (developed economies) may likely move sideways for another decade or two while they sort out their debt problems (personal and Government debts), meanwhile the emerging economies that participate successfully in Globalization will become increasingly wealthy. Western Youth unemployment to be high as the call centre, data entry and manufacturing jobs transfer to lower wage countries. In effect a massive transfer from West to East or a steady equalization of the World over the next two decades. I see salaries and asset (house) prices being equal between West and East by 2030. NB: Western companies whose main client markets are in the emerging markets can still do well. Ideas

• Aggressive and Growth investors should already be invested in Asian, Emerging or Frontier markets.

• Moderate and Conservative investors should keep some Cash or safe fixed interest. Around 50% for Moderate clients and 75% for Conservative clients. Interest rates are very low so consider overseas investments while the AUD is still a bit high.

• Avoid Share markets with a PE near or above 20 – eg: USA, Japan, Europe • Term Deposits are still ok in safe countries. • Avoid US and Euro/UK/Japanese currency AUD likely to fall further despite falling about

20% last year. • Sell Australian residential property unless it’s your home.

• Invest in countries with good demographics, jobs growth, low debt and positive GDP • Slowly increase exposure to Emerging Markets (EM) or Frontier Markets (FM) shares or

direct property in those regions. The main focus for your risk side of your portfolio should be Asia.

• Buy direct property in countries that are benefitting from Globalization and where property is still cheap. Eg: Philippines, Thailand, Indonesia, Malaysia, Vietnam, Mexico, Myanmar, Cambodia, Laos……

• Buy Chinese Yuan currency, or other Emerging Markets currency (Eg: Philippines Pesos) • Consider buying into Russia in 2015 as the Ruble and the share market are very oversold

and undervalued. The oil bottom will be the time to buy. Is that USD 40 per barrel?

Australia Update Oil, Natural Gas Iron Ore and Coal prices have all collapsed in the past year and Australia is now facing the consequences of this. This may be the case for some years until Australian wages are globally competitive again. The only bright light has been the residential property market propelled by ever lower interest rates. However this light will soon also go out. USA Update US jobs are growing and unemployment is falling. The problem is that wages are also mostly stagnant and a lot of the online jobs (call centre, data entry, programming etc) are still transferring to places like India and the Philippines. The strong USD is starting to cause lower US earnings for US multinationals earning money overseas and the US share markets gains stalling. US corporates earnings are going negative (negative growth) which is a worry and may indicate a US recession may follow…..More likely a US share market correction is coming, so investors will need to be vigilant (see graph below).The strong USD and falling US share market may soon see US investors starting to buy overseas (Asia and Emerging markets). If US rates rise as expected in 2015, that will only make matters worse for US shares. Note that the energy sector in US is expecting a 62.5% fall in earnings….due to the Oil collapse. So if Oil rebounds significantly then US earnings forecasts may turn positive again.

Europe Update Europe has embarked on QE (money printing). This is weakening the Euro and should eventually make Europe competitive again if the Euro continues to weaken as expected. German five year bonds are near zero. And Germany’s supply of bonds is actually about to shrink because the government actually managed to balance its budget for the first time since 1969. In Switzerland Bonds are negative – meaning you pay the Government to own their Bonds .A bizarre concept indeed. In the UK inflation is at a fifteen year low. The UK government can borrow money for five years at less than 1%.... Meanwhile Greece is still in massive debt and likely to leave the Euro. Portugal, Italy and others may later follow. Youth unemployment in Italy is now at 40% and Greece at 50% - a recipe for disaster.

Asia Update China is still growing above 7% pa (actually 7.3%) despite all the hype of a China slowdown. Their economy is attempting to move away from a largely manufacturing and construction economy to one that is more consumer services and less reliant on exporting. This shows up in lower PMI figures, however the underlying economy is still strong despite a weaker housing segment for now. India recently started using a new method to calculate their GDP, causing GDP to be revised upwards to 7.5% making it higher than China. Modi’s “Make in India” seems to be working, but time will tell. Indonesia is doing well, despite some political battles and corruption issues. A rapidly rising middle class and a reformist leader are helping. Philippines is also doing very well and growing above 6% pa. The building boom in Manila continues and ever grander projects such as “Bay City” the Las Vegas” casino area of the Philippines is rapidly being developed next to Manila Bay. Every week a new call centre opens and companies are employing 100-500 employees at a time. World GDP comparisons by region 2015 (f)

Oil Update I will address the two main factors causing the Oil price decline. Oversupply of Oil In recent years US shale Oil and deep sea oil has caused a significant increase in global Oil production. Whilst deep sea oil is expensive to get it has become economic due to higher Oil prices in the past 5 years. As prices have now dropped deep sea oil will no longer be viable so supply will decrease over the next year, but there is a lag and inventory build-up and Oil storage is at record levels. Lack of Oil Demand There are various reasons for this.

1) Slower Global Growth 2) Hybrid vehicles 3) All Electric vehicles

As of September 2014, over 600,000 plug-in electric passenger cars and utility vans have been sold in the world, led by the United States with a stock of about 260,000 highway-capable plug-in electric cars, followed by Japan with more than 95,000 units and China with over 77,000. The growth in electric cars is explosive and expected to grow exponentially in the next decade. See later in this newsletter the story on Chinese Electric Cars. The main beneficiaries of cheap Oil are the airlines as Jet fuel costs are typically close to half their total costs. So buying airlines right now can be a good strategy. Airlines in Asia are growing their passenger numbers so can do the best. Examples are Air China, China Eastern, China Southern,

Cebu Pacific and many others. The Chinese carriers don’t hedge Oil, so will do better for now.The two major aircraft manufacturers Airbus and Boeing also are doing well. However if you are a believer in an Oil price recovery then many Russian Oil companies are going cheap right now. Rosneft discovered, in Sept 2014, 1 billion barrels of oil in the Kara Sea region of the Arctic Ocean plus there is likely more oil nearby, showing the region has the potential to become one of the world’s most important crude-producing areas. They trade on a low PE of just 8.3 due to being affected by the low Oil price and Russian sanctions. Iron Ore Update With Iron Ore at around USD 50 per tonne the ramifications for Australia are getting nasty. Off course US 50 per tonne is about $65 AUD per tonne, so not as bad as first thoughts. Expect Government to have to increase taxes (probably on Super in retirement stage is my guess), and the Aussie dollar could drop as low as 0.60 to the USD. Fortescue is talking asset sales, which tells you they are in serious trouble at these prices. With Gina Reinhart’s Roy Hill planned to add even more Iron Ore to the existing surplus don’t expect the Iron Ore minors (BHP, Rio, Fortescue, Vale) to recover any time soon.

GLOBAL TRENDS 1) Smart phones For the full year, the worldwide smartphone market shipped a total of 1.3 billion units. This is a 27.7% growth from the 1.0 billion units of shipments in 2013. This will likely double to 2 billion units by 2020. (see blue bar chart below) if not sooner. The top 2 Global sellers are Samsung (20%) and Apple (20%) then with a large gap comes Lenovo (7%), Huawei (6%) and newcomer Xiaomi (4%) (unlisted). Of note 43% of all sales are by other smaller competitors of which there are many.

Global China India

2) Electric Vehicles In 2015 it is forecast that Global New Energy Vehicles (NEV) cumulative sales will reach one million. By 2021 the electric car market alone could hit $70 billion, and still be only 2 percent of total cars, according to a Barclays estimate. For now most NEV sales are hybrid (electric and motor engines) and all electric vehicles. Norway and Sweden are leading the “charge” both with around 6% of all new cars sales being NEVs. The top New Energy Vehicle sellers are Nissan Leaf all electric (USD 21,500, range 135km), Chevy Volt hybrid (USD 26,845, range 61km), and the Toyota Prius hybrid (range 17.6km). After that comes the much hyped Tesla. The Nissan Leaf was a clear winner showing consumer preferences for a cheaper all electric vehicle with a longer range. You can see in the 2014 US sales chart below how the growth is accelerating. Nissan Leaf – The World’s highest selling Tesla Model 3 (2017) – USD 35,000 EV in 2014 - USD 21,500, range 135km Speed 150kmph -, Range –320km

Apple is now talking about making electric cars and has hired several hundred staff and allocated $1b to possibly set up to produce Electric Vehicles (EVs) by 2020. But for now that is not confirmed by Apple. Google are working on their driverless electric vehicle, while Tencent and Virgin Group will likely also enter the electric vehicle market. This, along with battery costs falling and technology improving, will likely assure “mass adoption” of EVs globally and a new multi-billion dollar industry.

Tesla will soon introduce an economy vehicle - the Model 3 which will be affordably priced at around $35,000 – Elon Musk (CEO, founder) expects his company to be producing as many as half a million electric vehicles annually by 2020 . The Model 3 at around $35,000 a vehicle could very easily multiply Tesla sales by five fold, which would well justify the stock’s lofty valuations. Add to that a lithium ion battery giga factory and Tesla may well become a dominant global player in the EV industry. Most of the growth in EV sales is expected to come from China. So below we take a look at the Chinese NEV market.

If you have doubts about Electric Vehicles becoming mainstream then consider the following 36 companies have all spent millions getting ready for the EV boom;

TESLA ECOMOVE MITSUBISHI TOYOTA LOTUS EXAGON BMW TAZZARI PORSCHE GEELY PEUGEOT KARABAG OPEL NISSAN FISKER AUDI LOREMO HONDA MIA VOLVO IMPERIA BYD VENTURI FORD EWOLF MERCEDES LIGHTNING RENAULT ZAP CHERY ELCAT LEXUS FIAT

LUXGEN RIMAC SMART For more info go to  http://www.ev-­‐info.com/  

Chinese Electric Motorbike and Vehicle Companies Booming FYI - http://seekingalpha.com/article/2995126-chinese-electric-vehicle-companies-about-to-boom Bikes In 2008 only, Chinese bought 21 million electric bikes, compared with 9.4 million regular bikes. This is being pushed by local Governments banning petrol fuelled motorbikes in over ninety major Chinese cities so as to reduce pollution. Cars China has a long stated goal of reducing its dependency on imported oil by promoting new energy vehicles, including passenger cars and buses. China's major focus now is on getting rid of the pollution. China wants half a million new energy vehicles on the road by 2015 and 5 million by 2020, while also producing one million such vehicles annually by 2020. In 2014, 23 million regular cars were sold in China, so 1m Electric Vehicles (EVs) pa should be an achievable goal. To reach the 2020 million EV target, the existing EV companies sales will explode or go up over 13 times (1million/ 74,763) by 2020. Five reasons for the current surge in Chinese EV sales are: 1) The Chinese Government gives electric vehicle manufacturers large subsidies typically around

60,000 yuan (USD $9,750) per electric vehicle, or around USD 80,000 per bus. 2) Electric vehicles also qualify for an exemption from a 10 percent purchase tax until end 2017,

(recently extended to 2020). 3) Free license plates issued in cities including Shanghai, where plates for a conventional gasoline-

powered auto can cost about USD 12,000. 4) Last year the PRC placed a mandate that 30% of all Government vehicle purchase be EVs no

later than the end of 2016. Local Governments will need to start buying more to reach their quotas. The ratio will likely be raised beyond 2016.

5) China is considering providing as much as 100 billion yuan ($16.25 billion) in government funding to build electric vehicle charging facilities. By 2015, China plans to deploy 2,351 charging and replacement stations and 220,000 charge spots. By 2020, China has a 5-year plan for 10 million electric charging stations.

Year Number of EVs in China Increase per year 2013 17,642 2014 74,763 424 % 2015 (forecast/Gov plan) 500,000 669% 2020 (forecast/Gov plan) 5,000,000 ~200% In 2013, China only sold 17,642 New Energy Vehicles (NEVs) or Plug in Vehicles (PEV), being hybrids and all electric cars. In 2014, they sold 74,763. That’s an increase in just one year of about 4.2 times. Charging Stations Local authorities in China are planning to speed up the construction of charging stations for electric cars in urban regions. Beijing said it would add 1,000 electric chargers by year-end. In Shanghai, the city’s government plans to build 6,000 charging points by 2015. The route from Shanghai to Beijing already has been completed with EV charging stations every 25 km. Put simply, electric cars in China are about to boom…… Top 5 selling Chinese NEVs in 2014 Ranking Brand/Model 2014 sales Price (Yuan) Engine Share

Code Number 1 BYD Qin 14,747 370,000 Hybrid BYD Number 2 Kandi (Geely)EV 14,398 100,000 All electric KNDI Number 3 Chery EQ3 EV 2,016 60,000 All electric Private Co

Number 3 Zotye (Zhindou) E20

7,341 110,000 All electric Not listed

Number 4 BAIC E150 EV 5,234 250,000 All electric Not listed Number 5 BYD e6 3,560 367,000 All electric BYD NB: BAIC is the Beijing Automotive Industry Company NB: Chery QQ3 sales are for Jan-March 2015 only. NB: The Nissan Leaf sells globally and it is the World’s highest selling electric vehicle for now. BYD e6 – 370K Yuan (USD 51,000) Kandi EK 2 Model 3 (2017) – USD 15,000 Speed -140kmph, Range –300km Speed 80kmph -, Range –120km

Companies benefitting from China’s move to electric vehicles include; BYD Company (BYD) is the EV pioneer in China. They started as a battery company and specialize in rechargeable batteries using a new technology in the BYD Qin (Iron-Phosphate battery with no Lithium) that, according to the company, makes them safer than other lithium-ion models. In 2005, it became the world’s leading small battery company and are one of the world’s largest manufacturers of rechargeable batteries. BYD is emerging as a leader in the technology sector. The new Qin, is a hybrid with maximum electric-power output of 223 kilowatts, just short of the Tesla S model. After 10,000 charge-discharge cycles, Fe batteries still retain 70 percent of their capacity, say company tests. That’s 27 years of daily recharging. Their battery has an impressive range of 185 miles (300km). The new Byd e6 is all electric with a Lithium LiFePo4 battery. BYD is ranked third in Global EV sales for 2015 behind Nissan and Mitsubishi. Warren Buffett knew a good thing when he saw it. He bought 10% in the company back in 2008. Their current BYD Qin is a hybrid, but cheaper pure EVs will follow… They have targeted taxis and buses for now to help build their market. In 2015 they plan to sell into the USA. BYD said its electric vehicle sales will triple this year (2015) to 60,000 units, on the back of four new models, released each quarter. Goldman Sachs has a buy recommendation on BYD. Goldman expects BYD's electronic car sales to grow at an annualized 57% all the way to 2020. Kandi Technologies (NASDAQ:KNDI) are a very close second to BYD on 2014 sales and another standout. They operate through a joint venture with Geely Automobile Holdings Limited (OTCPK:GELYY), so it is important to remember the issues with that. It gives them an advantage of a very strong sales distribution network in China and abroad (via Geely owned Volvo), but a disadvantage of splitting the profits 50/50 with Geely (note the actual split ends up about 70% for Kandi as Kandi supply most of the parts and make additional earnings there). The JV also each have a 9.5% share in another JV with ZZY who owns 81% and operates the Kandi CarShare programme. The car share is quite interesting as it involves parking stations soi you pick up and drop off your hire car at different locations. The rental price is US$3.25 per hour, and leasing is available from US$130 to US$160 per month. The CarShare is being established now in 10 cities but expected to expand to 88 cities in the near future. Kandi are acutely aware of the issues in China – pollution, traffic jams, and lack of parking.

http://seekingalpha.com/article/2694755-kandi-technologies-boots-on-the-ground-at-kandi Additionally to electric taxis and buses, Kandi CEO Mr Hu sees a place for electric micro-bus. On batteries, Tianneng Battery, Jinhua, has announced a new graphene manganese lithium-ion battery which purportedly reduces cost of EV batteries by half and increases range to 300km. It is currently not in mass production but indications are that Kandi will introduce this battery sometime in 2015. Kandi has three car making facilities with current capacity of 230,000 pa, growing to five, for a total capacity of 430,000pa… So they are certainly getting prepared for an EV sales boom. Other key factors supporting Kandi are; • EV sales figures list them in the top 4 worldwide in pure EV. • China State Grid partnered with them for QBEX. • Alibaba chose Kandi as a vendor for Alipay. • The Chinese Minister of Industry and Technology has known CEO Hu for almost 30 years

when they worked together to make electric car transportation a reality in China. • Kandi has 2014 EPS of 29 cents. With the stock at $12.85 that's a P/E ratio of 44.3 Core Power New Energy Automobile will build an electric and alternative fuel vehicle manufacturing base capable of producing 300,000 new energy cars per year is being planned for north China's Hebei Province with an investment of 3 billion yuan (490 million U.S. dollars). The project aims for a production and sale of no less than 10,000 cars in the first year. State Grid Corporation of China (SGCC) is the largest state-owned electric utilities company in the world.[2] It transmits and distributes power in China. The company is the seventh largest in the world according to the 2011 Fortune Global 500 ranking. It will be a net beneficiary as China turns to electric powered cars and it is building many of the charging stations. Electric Vehicle companies in India

In India, Mahindra Reva e2o electric car was introduced on March 2013 and the premium version in August 2014. It operates on lithium ion battery with 100 km range for 4 hours of charging. The company expects Delhi to become the biggest market for the e2o because the city offers a 29% subsidy for the purchase of electric cars. The company has already set up over 250 charging stations in various cities, with 95 in Delhi and over 100 in Bangalore. It is likely the national Government will soon offer a subsidy for EVs similar to China. The company is also planning to sell into Europe this year. Mahindra Reva e2o premium all electric (2014) price range USD 11,900 -15,670 Speed -90kmph, Range –120km A sample Drone (see later in newsletter)

Tata Motors is the market leader in conventional cars and no doubt will soon be entering the EV market.

In addition to this, there are several other companies involved in making electric bikes like Hero and Ampere. The Indian government admitted that it has not implemented schemes/policy initiatives to encourage the adoption of electric vehicles. Lithium Ion Battery Production In 2013 alone, some 5 billion lithium-ion batteries were sold to consumer across this wide spectrum of products, and their demand will only grow as the consumption of the products they power continually increases worldwide. In fact, the demand for the lithium metal itself will grow at a much faster rate than the demand for its batteries, thanks in large part to the continued increase in electric vehicle production. Where your typical handheld electronic device’s battery requires on average just a single ounce of lithium, a hybrid-electric vehicle needs 20 pounds of the metal in its battery, while a fully-electric model needs as much as 50 pounds. That’s the same amount of lithium as in 800 electronic devices per fully-electric auto. Lithium demand could double over the next 3-5 years for lithium ion batteries. Tesla (along with it battery supplier Panasonic) is planning a new $5b Giga factory in Nevada US, to produce 200,000 of it’s LiFePo4 EV batteries pa by 2017. Once at full capacity it is expected to produce 500,000 battery packs a year—doubling the world’s lithium-ion battery output. The current Telsa battery is supposedly superior to it’s competitors giving the Tesla EV greater “range” before charging. Tesla’s Model S boasts an impressive 270-mile all-electric range, compared to the Nissan Leaf, which can only travel roughly 75 miles on a single charge, or the Chevy Volt, which can go roughly 40 miles on all-electric. EnerSys (NYSE: ENS) is planning to build a battery manufacturing plant in China’s Gaoyou City. Last year they formed a joint product development and marketing agreement with Ioxus Inc who specialize in ultracapacitors. The key here is they want to improve battery energy storage and solve the problem of “range” for EVs. Electric Vehicle Power System Technology Co., Ltd (EVPST) (unlisted) is a unique company specializing in Li-ion battery (LiFePo4 battery) research, development and manufacture. Covering an area of 50,000 square meters, EVPST is one of the best Lithium-ion battery manufacture companies with the large capital investment and most-advance technology in China. Sony and Samsung SDI are currently the global leading producers of traditional Lithium Ion batteries, but it seems their technology is more focused on phone and pc batteries rather than EVs for now. Lithium-vanadium-phosphate (LVP) batteries The vanadium flow batteries (VFBs) hold enormous promise in battery storage technology and have been touted as the next big thing. When applied to EVs the higher voltage in this type of battery results in higher speed and acceleration. The energy density of this battery will result in more light weight EVs.LVP batteries charge faster and also have a higher life expectancy than current lithium-ion batteries.

Lithium-­‐Sulfur  Battery    The all-solid lithium-sulfur battery holds a charge lasting four times longer than the conventional lithium-ion battery of today, therefore giving better range. However, Lithium-Sulphur batteries have a shorter lifespan than current lithium-ion batteries, and can’t be charged as many times. Their charge cycle is about 500 times compared to the 2,000-3,500 charge cycles based on commonly quoted European standards. Therefore makers of electric utility vehicles, scooters, e-bikes, and even a small city car are planning to use its products. OXIS technologies (UK) has teamed up with GP Batteries (Singapore). GP has several facilities in Asia, and is the largest consumer battery manufacturer in China. Lithium Air IBM started investigating lithium-air battery technology in 2009 with the Battery 500 Project. There are certainly challenges to develop air breathing batteries but the prize is a battery with the energy density of gasoline. This would extend the range of EVs approximately tenfold. IBM says they will have Lithium Air batteries for EVs by 2020.

LG Chem, the giant Korean company that supplies the battery packs for both the Chevy Volt and the Ford Focus, reports that its upgraded lithium-ion design will allow these cars a range of 200 miles by 2016. POSCO has developed a technology to extract lithium from seawater.

Conclusion I think consumers will move more to electric or hybrid (small engine) vehicles with longer range, fast charge ability and cheaper prices. No point to pay for a heavy engine you no longer need. Currently the best prospects are in my opinion - Nissan leaf, BYd Qin and e6, Kandi, Mahindra e2o and soon the Tesla model 3 or maybe even an Apple I Car one day. I would favor the pure play electric car companies such as BYD, Kandi and Tesla over the traditional plays as they won’t be losing market share as customers switch from conventional cars to EVs. Also they have better battery and technology backgrounds. 3) Catalytic Converters now compulsory in China Catalytic converters are used on petrol cars to reduce emissions and are now booming as they are now compulsory in China and many other countries wanting to correct air pollution problems. The key resource to make catalytic converters is either Platinum or Palladium. Automakers don't maintain production of catalytic converters from both sources though. They tend to chase whichever offers the most attractive price. In 2014, 16.5 million cars were sold in the U.S.A and 20 million in China. The Chinese government has proposed air quality standards over five years that would quintuple the loadings of palladium in gasoline engines in China. This is and will likely cause both Platinum and Palladium to have a shortage of supply thereby forcing up their prices. Demand for catalytic converters is projected to DOUBLE, growing at 11.3% a year from $6.7 billion in 2012 to $14.22 billion by 2019, reports consulting firm Frost & Sullivan So there is a good opportunity here to make money either buying the metal or companies such as Russia’s Norilsk Nickel which produces about 40% of the global supply of Palladium. 4) 3D Printing Canalys predicts the global 3D printing market will grow from $2.5B in 2013 to $16.2B by 2018, attaining a CAGR of 45.7% in the forecast period. IDC predicts that worldwide 3D printer unit sales and installed base will grow at a combined compound annual growth rate of 59% through 2017. Wells Fargo estimates that 3D printers will grow from a $288M market in 2012 to $5.7B in 2017.

Some key companies in the 3D printer manufacturing business are; In USA 3D Systems (DDD), Stratasys (NASDAQ:SSYS), Voxeljet (NYSE:VJET), The ExOne Company (NASDAQ:XONE) and Formlabs. In China Beijing TierTime Technology Co Ltd (unlisted)– Is the single largest manufacturer of 3D printers in China, and is also the biggest player in Asia – and the third-largest worldwide. Ultimaker is also a popular brand. 3D Printing of houses and cities of the future WinSun Decoration Design Engineering Co (Wisun) – builds houses in 24 hours using 3D printer technology. On March 29, 2014, ten 3D printed houses, each measuring 200 square meters, appeared in Shanghai, China. The buildings were created entirely out of concrete using a gigantic 3D printer, and each costs only 30,000 RMB ($4,800). http://www.theguardian.com/cities/2015/feb/26/3d-printed-cities-future-housing-architecture http://www.australiandesignreview.com/architecture/51668-chinese-firm-builds-tallest-3d-printed-building 5) Chinese Companies becoming the next Global Multinationals Chinese companies going Global include: Tencent is already a giant in China and the fifth largest internet company in the World. They provide mass media, entertainment, Internet and mobile phone value added services, operate online advertising services "smart interactive television service, and gaming. Lenovo are the number one global pc seller as well as being the number 3 global seller of Smartphones in 2014 after taking over Motorola. Huawei was the number 4 in global Smartphone sales in 2014 and is also big in cloud computing. Xiaomi (unlisted) was the number 5 in global Smartphone sales in 2014 and they sold $2 billion in mobile phones last year (and is aiming to double sales this year). Not bad considering it only sells it’s products from online. It is unlisted for now, IPO coming soon. ZTE Corporation is a Chinese multinational telecommunications equipment and systems company headquartered in Shenzhen, China. They have expanded their global reach in recent years and are now in the top five sellers for Smartphones in China and the top ten globally. Alibaba Group (BABA) is the “Amazon” of China with a huge following. They focus on online selling and e commerce. Their New York listing in 2014 raised US$25 billion making it the largest IPO in history. Alibaba is planning to enter India soon and is likely to extend it’s reach globally. Baidu is like the “Google” of China. They have a very popular search engine and their own BaiduTV. They have expanded recently into Brazil launching a Brazilian version of the search engine, Baidu Busca. Dalian Wanda is expanding it’s shopping centre network globally out from China. China National Offshore Oil Corporation (CNOOC) focuses on the exploitation, exploration and development of crude oil and natural gas in offshore China. They have been steadily buying up overseas Oil and Gas assets in recent years and are now one of the largest Global Oil and Gas companies. China Railway Construction Corp and Sany Heavy Industry – see below.

6) Chinese infrastructure throughout the world

China Railway Construction Corp (CRCC) –is currently in talks with 28 countries on high speed train networks. CRCC just won a $12b bid to build a high speed railway in Nigeria. Currently negotiating a $20 billion railway deal in India. From CNBC, “China announced it will spend over $100bn per year (actually 810 billion yuan ($131 billion) in 2015) to DOUBLE the size of its high-speed rail network. The Chinese government is accelerating 300 infrastructure projects valued at a combined 7 trillion yuan this year as policy makers seek to shore up economic growth that’s in danger of slipping below 7 percent. It will be the largest and fastest rail expansion the world has ever seen. High-speed rail networks are being planned in Indonesia, Laos, Malaysia, Pakistan, Thailand,

Vietnam, Argentina, Oman ($200b) and more...one that’s going to drive not just China’s rail ambitions for the next 25 years...But those of almost every single country across the Frontier”. The establishment of a Silk Road Fund, the Asian Infrastructure Investment Bank and the BRICS Bank will provide financial support to the development of infrastructure throughout the world. Sany Heavy Industry - Builds a new piece of machinery every 10 mins to support China’s 37 million construction workers. They are about 10-20% cheaper and outselling Caterpillar. Sany has 200,000 machines in China today and also sells globally. Currently the market is oversupplied due to the China construction slowdown. However China still has around 300 million people to urbanise between now and 20130 so plenty of construction still needed. By 2030 China will reach close to max urbanization of 70% urbanized, and 1 billion living in cities. Now there are 700 million in the cities so at least 300 million more by 2030. So at least 20 million to urbanize per year.

7) Nuclear Fusion

Nuclear Fusion is the holy grail of energy production and used by the Sun to create energy when two Hydrogen atoms “fuse” together.

Lockheed Martin (LMT) has developed a promising design for a compact nuclear “fusion” reactor. Nuclear fusion could produce far more energy, far more cleanly, than the fission reactions at the heart of today’s nuclear power plants. http://www.businessinsider.com/labs-working-on-nuclear-fusion-power-2014-10. Lockheed also make most US military and space equipment such as missiles, planes, drones and satellites.Other companies in the race to develop fusion are General Fusion, Tri-Alpha and Helion Energy.

Drones

Drones or Unmanned aerial systems (UAS) have revolutionized warfare, allowing airstrikes from an undetected position and removing soldiers from danger. The U.S. has rapidly deployed drones in its wars in Iraq, Afghanistan, and beyond. Consumers are still waiting for regulation to let drones go main stream. Major businesses – Amazon, most notably – have pushed for the use of drones for commercial activity and have just got limited approval US Government to allow drones for commercial use in rural areas, and limited to be operated in the “visual line-of-sight” for now. Lockheed Martin (LMT) and General Dynamics (GD) are two of the biggest manufacturers of drones. These two military equipment titans will see brisk business for their drones in the war theater. But they will also find a hungry market in the oil and gas industry. Boeing, ZANO, Parrot, Qualcomm and Nixie also make drones. The devices are still evolving, but consumers are expected to spend an estimated $103 million on drones in 2015, up from $69 million in 2014 according to the Consumer Electronics Association, which runs the tech convention. At that pace the revenue for the global drone industry could exceed $1 billion within five years, the trade group predicted.

8) Personal Robots

2015 may be a breakout year for Personal Robots to head to mass adoption especially with the Japanese US launch (mid year) of Softbank’s “Pepper” personal Robot. It is said that Japan is the World leader in Robotics technology. There are some trendy new personal robots in the market now and some coming soon in 2015:

1) FURo – by Future Robot (Korea) – out now for $1,200 2) Pepper – by Softbank (Japan) – out now for $1,900 3) iRobot – Roomba vacuum/mop $699 4) Jibo – by Jibo – coming soon 5) Jimmy – by Intel (USA) – coming soon 6) “Artificial Intelligence Personal Robot” by Robotbase

FURo “Pepper” the personal Robot iRobot Roomba 880

Jibo Jimmy Robotbase

The above Robots can talk to you, help you around the house with housework, give you information on many topics like “foods to eat that are healthy”, and help your kids learn etc. “You can verbally instruct it to take control of internet-controlled smart devices - telling it to turn lights, music and heating on or off - use it as a teaching aid for your children, or take advantage of its health check software to help care for elderly relations.

According to the consumer robotics survey of 2014, when asked "Do you believe the robot revolution is here now and growing?", 47% came back with a definite yes; 43% said maybe, only 10% said no. Consumers were willing to spend on average $4,425 on a personal robot and $10,677 for a home healthcare robot.

According to projections by the Japanese Robotics Association, household robots might well account for a staggering $33 billion a year by 2025, with ABI Research claiming nearly half of that total will land squarely on personal robots.

Softbank and Aldebaran Robotics (78.5 percent owned by Softbank), designed and built "Pepper". It is a cooing, gesturing humanoid on wheels that can decipher emotions. Pepper is a fully programmable and interactive humanoid robot equipped with state of the art motion, vision, tactile

and audio capabilities. Pepper can walk on different surfaces, track and recognize faces and objects, express and understand emotions, and react to touch and interact by voice. Pepper has integrated Nuance's (NUAN) voice technology to accurately hear and respond in 19 different languages. Pepper stands at just 4 feet (120cm) tall, and has a 14 hour battery life. Investing in Softbank stocks will give you some small exposure only, as the robot business revenues will be small compared to their total company revenues. So, best to invest in Softbank if you like the companies’ mobile business. Also Softbank have started talks with Micromax (unlisted). They are planning to buy a 20% stake into India's number 2 smartphone seller, so that can be a positive.

iRobot Corp (IRBT) is an older and established Robot company. They have sold over 10 million robots so far. They specialize in Robots for the home (91%) (mostly cleaning), business (1%) and the military (8%) (reconnaissance and bomb disposal missions). They seem a more practical orientated Robotics company rather than building Robot like people as the new comers above. The iRobot Roomba 880 sells for $699. www.iRobot.com. It is believed they will soon launch a personal robot.

Robotbase is a new entrant which looks amazing. The company purposely gave the robot a rather bland name - the “Artificial Intelligence Personal Robot” - because it wants people to name the robot themselves in orders to personalize the experience. It can read to kids, host video chats, take pictures, recognize faces and objects, connect to smart home devices, and secure the home by roaming around and videotaping everything. It's also a emotionally responsive personal assistant, who can remind you of your appointments and calls. Early buyers can get the device for $995 for delivery in late 2015. If it is as good as it looks in the video then it should be a best seller.

For investors I think this company has huge potential. Their product is first class, as is their marketing (see the video link above). They are New York based which is a plus. I have recently spoken with the company and their funder Kickstarter, and I am waiting to hear back, but I am hopeful they are still open to venture capital style investors. The Kickstarter site states, Robotbase currently have "274 backers pledged $161,537".

My preferences are for Robotbase (hopefully available through kickstater), and iRobot as both are pure play robotics companies - the later with strong revenue from it's Roomba vacuum and likely to have humanoids soon. Another way is to play the whole sector via Robo-Stox Global Robotics & Automation Index ETF (ROBO). Note this would also include industrial robotic companies not just personal.

9) Baby Boomers investing globally

Blackrock Inc – They own the very popular Exchange Traded Funds iShares. This area is experiencing rapid growth amongst professional and retail investors. They are a cheaper way to access regional, country and sector funds globally.

Hong Kong Stock Exchange & Clearing – One of the busiest Stock Exchanges globally but more importantly the most common way foreigners access Chinese stocks.

Growing Global Trends Table Global Trend Top Sellers Stock Exchange PE 2015 Comments Cheap Oil - profit boost to airlines

Air China HKSE 9 Short term boost from cheap oil to profits.

Plane manufacturers

Airbus CAC 17 Strong book of plane orders

Smartphones Samsung NYSE 8 Equal No 1 global seller Apple NYSE 15 Equal No 1 global seller Lenovo NYSE 19 No 3, + No 1 in PCs

Electric Vehicles BYD HKSE 24 No 1 EV seller in China, est.to grow profits 57% pa til 2020

Mahindra NYSE 23 No 1 EV seller in India Tesla NYSE 34 (PE

2016 ) No 1 pure EV seller in USA.

Catalytic Converters

Norilsk Nickel

NYSE 7 Produces about 40% of the global supply of Palladium used to make catalytic converters

3D Printers Stratasys NYSE 24 No 1 seller in USA and inventor of 3D printers

China going Global -High Speed Rail

China Railway Construction Group (CRCC)

HKSE 9 In discussions with 28 countries. China to double their high speed rail network.

Rising Asian middle class

Unilever (UNLV) or Asian share fund

NYSE 10 A beneficiary of rising spending power globally via their suite of over 400 consumer brands.

Nuclear Fusion/Drones

Lockheed Martin (LMT)

NYSE 18 Mostly sell military hardware so reliant on US spending (at risk).

Robots Softbank (SFTBK)

NYSE 12 $1,900. Pepper is the first personal robot to respond to emotions. Should sell very well, initially to businesses, and Japanese.

Robots iRobot (IRBT)

NYSE 24 Listed and pure robot play with revenue for the Roomba vacuum already.

Robots Robo-Stox Global Robotics & Automation Index ETF (ROBO)

NYSE 21 Broad based play on the robotics sector covering around 100 stocks. Safer way to invest if bigger money than a single stock

Baby boomers investing

Blackrock (BLK)

NYSE 18 iShares very popular and growing rapidly

Baby boomers investing

Hong Kong Stock Exchange & Clearing

HKSE 33 Beneficiary of share trading and IPO activity in Hong Kong and many mainland China listed shares.

World Savings Rate at a historic high The World saving rate is at a historic high: 26% of global GDP. There is a huge amount of global capital looking for a home. All this combines to drive yields down, even into negative territory, depending on the time to maturity. Currency De-Pegging – Swiss franc In January the Swiss Government announced it will no longer peg it’s currency to the Euro. This lead the Swiss currency to rise 20% in just one day. The Swiss obviously don’t’ want to be dragged down by the Euro fall as the ECB embarks on money printing (Quantative Easing (QE). It made all Swiss assets worthy 20% more in a single day relative to the Euro. The question is who will be next?

The Chinese Yuan perhaps…..What if the Chinese decide to De-peg to the US dollar and stop buying US Government bonds? I expect we would see two main effects;

1) Chinese Yuan would increase dramatically. 2) US interest rates to rise (as less people buying their Bonds and funding their debt)

Off course this would make Chinese exports less competitive and would lessen the value of their US dollar reserves…..but it would make Chinese Yuan assets more valuable globally whilst it is unlikely to happen anytime soon, the beneficiaries will be those that hold Chinese Yuan assets such as Chinese shares, property, bonds and cash.

KBW Bank Index – an early warning of US and Global credit stress

When stress appears in a credit based system, it pays to watch the banking sector. In 2007, the signs of what lay in wait started to show in the US banking sector (KBW Bank Index) about six months prior to the overall share market peak. Between May 2007 and November 2007, the KBW Bank Index fell 20%...while the rest of the market continued to rise. The smart money knew there was credit stress in the system.The KBW Bank Index is again in decline. All the gains of 2014 have been wiped out with a 12% slump since the start of 2015. The contracting forces in the global economy are again putting credit stress into the system.

SaxoTrader Platform I am very excited to announce to clients the following. I have in the past year been experimenting myself with the SaxoTrader platform of SaxoBank . Currently it does not suit Super or Allocated Pension accounts (except SMSF) as they don’t offer the required administration, however for more aggressive investors with non Super money (or SMSF investors) wanting more choice it is excellent and market leading. The Platform offers access to 39 different Global Stock Exchanges and 22,000 direct shares globally. It also accesses many Exchange Traded Funds (ETFs) whereby you can access a country, sector or commodity at a cheaper price than a managed fund. An example is you could buy a Chinese share listed on the Hong Kong Stock Exchange HKSE, the Shanghai Stock Exchange (SSE) or the New York Stock Exchange or any of 39 stock exchanges. Some shares I like on there include; An Exchange Traded Funds I like is iShares MSCI Frontier 100 Index Fund - to access Frontier Markets inaccessible until now for most investors. I believe with greater choice of investment then it is possible to achieve greater returns. SaxoTrader only charges brokerage fees and no admin fees similar to an online broker. My adviser fee will be 1% of the client portfolio value which is higher than before due to the extra work involved in research. Clients overall fees will be less as not using fund managers. Minimum investment to the platform is $100,000. If you are interested please let me know. Finally below are some links to 3 articles I wrote this quarter published by Seeking Alpha USA. http://seekingalpha.com/article/3016946-investment-trends-to-grow-your-wealth-demographics-and-urbanization http://seekingalpha.com/article/3020306-global-investment-trends-to-grow-your-wealth-the-rising-asian-middle-class http://seekingalpha.com/article/2995126-chinese-electric-vehicle-companies-about-to-boom To find out more please contact an adviser at contactus@hnwfinancialadvising.com.au. NB: High Net Worth Financial Advising attempts to enhance overall return for clients by investing in undervalued regions of the world and undervalued asset classes, that have positive growth stories. NB: The contents of this newsletter does not constitute personal advice and is general in nature, please see your adviser for personal advice suitable to your own needs and objectives.