KraneShares MSCI All China Health Care Index ETF · AMEX:KURE
KraneShares MSCI All China Health Care Index ETF — KraneShares — Conference Presentation (November 2019)
53 slides from KraneShares MSCI All China Health Care Index ETF's conference presentation, Nov 20, 2019
Slide 1: Kevin Liu and Brendan Ahern webinar
Kevin Liu Brendan Ahern Executive Director 1 Chief Investment Officer
Slide 2: Introduction to KraneShares
Introduction Introduction to KraneShares About KraneShares Krane Funds Advisors, LLC is the investment manager for KraneShares ETFs. Our suite of China focused ETFs provides investors with solutions to capture China’s importance as an essential element of a well-designed investment portfolio. We str
Slide 3: About the Speakers
Introduction About the Speakers Kevin Liu joined China International Capital Brendan Ahern joined KraneShares in June 2012 to Corporation (CICC) in 2011 and holds the title of head the firm’s efforts in becoming the leading Executive Director as a Strategist in the Research provider of China-focused
Slide 4: Part I: Current market and macro condition
Part I: Current market and macro condition 4
Slide 5: How China performed YTD? Ranking the top globally
How China performed YTD? Ranking the top globally Global Equity Index Performance YTD 30% 25% % Total Return YTD 20% 15% 10% 5% 0% Kospi Hang Seng STI MSCI EM CSI Overseas Nikkei 225 S&P 500 MSCI China A China Internet Source: Bloomberg, as of November, 2019 5
Slide 6: Overall growth: largely stable despite high volatility
Overall growth: largely stable despite high volatility for monthly path % Real GDP growth Growth of industrial value added % 16 30 Real GDP growth (YoY) VAI growth (YoY) Real GDP growth (QoQ annualized) VAI growth (QoQ annualized) 25 14 20 12 15 10 10 8 5 6.1 6 0 6.0 GDP growth target for 2019: 6%-6
Slide 7: Retail sales: discretionary consumption stayed resilient
Retail sales: non-housing related discretionary consumption stayed relatively resilient YTD Total retail sales growth Retail sales growth of above-designated-size YoY (%) enterprises, by commodity 15 YoY (%) 20 Retail sales growth of staples*, 3MMA** 14 Nominal retail sales growth (excluding auto) R
Slide 8: Monetary: behind the curve; room for policy supports
Monetary: “behind the curve“; with more room and necessity for further policy supports Short-term policy rate % Corporate investment returns and risk-free rate % 6 China: 7-day reverse repo rate 10 US: Fed funds rate 10Y T-bond rate South Korea: 7-day reverse repo rate ROIC of listed non-financial c
Slide 9: Monetary: surging CPI due to high pork price
Monetary: surging CPI due to abnormally high pork price might cause policy hesitation Consumer Price Index Inventory growth of YoY (%) YoY (%) YoY (%) 10 25 20 hogs and reproductive sows CPI Inventory of hogs CPI: Non-food Inventory of reproductive sows 8 20 10 CPI: Food (RHS) 6 15 0 4 10 -10 2 5 -2
Slide 10: Fiscal: deficit and local government bond issuance expanded
Fiscal: deficit and local gov’t bond issuance expanded, to lend supports for moderate recovery in infrastructure inv’t Government revenue less expenditure Rmb bn Jan-Sept 500 General public budget Government fund 0 -500 -1,000 -1,500 -2,000 Deficit widened or surplus -2,500 narrowed -3,000 2015 2016
Slide 11: RMB: Renminbi stabilizes after August depreciation
RMB: Renminbi stabilizes after August depreciation CNY exchange rate Overseas flows to HK is tightly correlated with RMB Dec 31, 2014=100 CNY/USD 100 6.1 Overseas flows to HK Equities CFETS basket CNY index (US$m) USD/CNY (Inverted, RHS) Spot CNY exchange rate (RHS) 1,500 15-day mavg 6.0 99 6.2 6.3
Slide 12: Growth forecast: China's real GDP
Growth forecast: China’s real GDP is expected to grow 6.1% YoY in 2019 and 5.9% YoY in 2020 % Real GDP YoY Nominal GDP YoY (RHS) % 9 11.7 12 11.411.3 11.2 10.1 10.3 9.6 10 8 9.1 8.3 7.8 7.8 8 8.1 7.6 7.8 8 7.2 7.1 7.3 7 6.7 7.0 6.2 6 6.0 6.1 6 4 7.0 7.0 6.9 6.8 6.7 6.7 6.7 6.8 6.9 6.9 6.8 6.8 6.8 6.
Slide 13: Earnings forecast: 2020 earnings expected to grow ~6%
Earnings forecast: 2020 earnings is expected to grow ~6% for both A and H-shares A-share Offshore China Financials Non-Financials Overall Financials Non-Financials Overall Year Earnings Revenue Earnings Earnings Earnings Revenue Earnings Earnings Net margin % Net margin % growth % growth % growth %
Slide 14: Competitive advantage: low valuations globally
low globally valuations advantage: Competitive Source: Factset, Bloomberg, CICC Research (x) (x) 10 15 20 25 30 5 0 1 2 3 4 7 Korea Pakistan 1.0 A-shares 10 Pakistan 1.0 MSCI China 13 A-shares 1.2 EM 14 Hong Kong 1.2 Korea 14 Japan 1.3 A-shares (non- 14 Asia Pacific 1.5 fin.) Japan 15 AP ex Japan 1.
Slide 15: Part II: Challenges and policy responses
Part II: Challenges and policy responses 15
Slide 16: External: trade frictions might pose external demand shocks
External: trade frictions might still pose external demand shocks in the near term % U.S. imports from China $34bn list $16bn list $200bn list $300bn list 60 40 20 3.5 0 (15.0) -20 (33.6) -40 (50.7) -60 Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16 Dec-16 May-17 Oct-17 Mar-18 Aug-18 Jan-19 Jun-19
Slide 17: Sectors more affected by tariffs initially
Sectors more affected by tariffs initially are mostly labor intensive Source: USTR, Wind, CICC Research 17
Slide 18: A-shares' earnings growth could be 4.2ppt lower due to tariffs
A-shares’ earnings growth could thereby be 4.2ppt lower due to the tariffs in base case Impa ct on Impa ct on non ea rni ngs Impa ct on net fi na nci a l growth of non Scenario analysis on US-China Impa ct on Impa ct on GDP ma rgi n of non l i s tcos fi na nci a l trade friction export growth growth
Slide 19: Further escalation could also hurt the US
Further escalation could also hurt the US by passing through higher cost and domestic inflation Breakdown of US tariffs on Chinese goods by products Toys 18 82 Footwear 7 45 47 Textiles 10 77 13 Electronics 41 17 41 Stone & glass 50 30 20 Machinery 51 13 36 Vegetable products 56 41 3 Plastics & rubb
Slide 20: Policy responses: boost domestic demand; open service accounts
Policy responses: 1) boost domestic demands (e.g. VAT & fee cut, auto, infrastructure inv’t); 2) to open service accounts Total tax and contribution rate (% of profit) US$bn US total trade deficit to China Brazil 65.1 China 64.9 100 France 60.4 US service surplus to China Belgium 57.7 Italy 53.1 50
Slide 21: Internal: the mystery of China's high leverage
Internal: the mystery of China’s “high leverage”: high savings + the inefficient financial system China: debt/GDP Deposits/GDP % 260 240 220 200 180 160 140 120 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 21
Slide 22: Global household and non-financial debt to GDP
40 60 20 80 50 0 0 120 100 140 100 200 250 350 400 150 300 (%) (%) Australia Japan 378 119 Canada HK 358 100 92 Korea France 316 87 UK Canada 304 US Greece 292 75 73 HK UK 275 Thailand Spain 263 69 68 Malaysia China 259 France Italy 254 Spain US 249 60 58 58 Japan Korea 228 Germany Australia 235 Chi
Slide 23: Structural changes: growth model transition over the past decade
Structural changes: China has witnessed visible growth model transition over the past decade At the first glance, China’s overall growth continued to slow down since 2008… …but a deeper look shows that the tertiary sector (services and consumption) already exceeded 50% (%) China real GDP growth 16 P
Slide 24: Part III: Structural changes and secular trends
Part III: Structural changes and secular trends 24
Slide 25: Stock market: ~60% consumption and technology in MSCI China
Stock market: ~60% are consumption and technology related companies in the MSCI China index “New economy” is gaining share in China’s listed space in MSCI China index now consists of ~60% of terms of market value consumption/technology related companies China listcos (A+offshore) Market Value "New M
Slide 26: The divergence: new economy outperforming old economy
The divergence: “new economy” has been outperforming “old economy” by very large margins ”New economy” sectors …stock price of MNCs with large outperformed “old economy” …and in offshore China equities China exposure also as well… sectors in A-share in recent years… outperformed A-Share market : old
Slide 27: Urbanization and hukou system reform
Urbanization and hukou system reform: the main driver of aggregate demands in China China’s urban residence population vs. urban De Jure (Hukou) population (mn) Urban De Jure Population (LHS) Urban Hukou Population (LHS) 900 Urbanization Rate of De Jure Population Urbanization Rate of Hukou Populati
Slide 28: Two super networks: the high-speed railway
Two “super networks”: the high-speed railway The eight vertical and eight horizontal system 28
Slide 29: Two super networks: mobile internet and 5G
Two “super networks”: the mobile internet & 5G; China has become a so-called cash-free society (mn) China mobile network users and penetration rate Mn Average monthly active users (past 6 months) Size of mobile netizens (LHS) 1,000 925 Mobile internet penetration rate (RHS,%) 900 900 70 ……and has re
Slide 30: Secular Trend 1: Consumption upgrades
Secular Trend 1: Consumption upgrades • Home-grown brands that benefit from urbanization in tier-3, 4 and 5 cities Clothing ANTA SPORTS CHOW TAI FIYTA LAO FEN XIANG NANJI E-COMMERCE LUTAI TEXTILE SEMIR SHENZHOU INTL FOOK Food KWEICHOU JIANGSU YANGHE SNOW BREWERIES MENGNIU YILI ANGEL YEAST HAITIAN SH
Slide 31: Advantages of Chinese industries: large domestic consumer market
Advantages of Chinese industries: large population and domestic consumer market China vs. US annual retail sales (US$ trn) US annual retail sales China annual retail sales 7 6.0 6 5.8 5.8 5.5 5.4 5.3 5.2 5.0 5.0 5 4.8 4.8 4.6 4.4 4.4 4.4 4.3 4.3 4.1 4.1 3.8 4.0 4 3.6 3.5 3.4 3.3 3.4 3.1 3 2.9 2.9 2.
Slide 32: Secular trend 2: Manufacturing upgrade
Secular trend 2: Manufacturing upgrade – the rise of “Made in China” Consumer products mfg. LUXSHARE PRECISION SUNNY OPTICAL GOERTEK HIKIVISION DAHUA TECH YUTO PACKAGING LEXY SHENZHOU INTL AAC TECH Automobile SAIC HUAYU AUTOMOBILE GREAT WALL GEELY AUTOMOBILE MINTH GROUP YUTONG BUS SAILUN JINYU FUYAO
Slide 33: Competitiveness of China's manufacturing: service robots
The competitiveness of China’s manufacturing industry: service robots Ninebot is a leader in the market of electric self-balancing personal transporters. Founded in 2014, the firm acquired Segway in April 2015 and gained some patents on self-balancing personal transporters. 33
Slide 34: China has the world's largest manufacturing sector
China has the world’s the largest manufacturing sector: industrial production reached $4.4trillion in 2018 Source: WSJ, CICC Research 34
Slide 35: How have Chinese assets performed? Smart beta, CICC select portfolios
How have Chinese assets performed? The smart beta, CICC select portfolios In long-term horizons, CICC Select 300 and CICC Select 100 booked returns of 21.04% and 18.15% from 2005 to 24th April, 2019, which are significant higher than CSI300 TR’s 12.42% CICC Select 300 CICC Select 100 CSI 300 TR 16 1
Slide 36: China is still the world's best place to search for growth
China is still the world’s best place to search for growth China accounts for 43% of the world’s consumer, technology and China accounts for 39% of the world’s consumer, technology and pharmaceutical companies for companies with a market cap pharmaceutical companies for companies with market cap bet
Slide 37: MSCI A-Share Inclusion Update
MSCI A-Share Inclusion Update 37
Slide 38: 2019 performance differential for Chinese companies by listing location
2019 performance differential for Chinese companies listed in Mainland China, Hong Kong and the US No. of Listed 3M Average Daily Free Float Market Market Free-float Cap Proxy Index YTD Performance Companies Volume Cap% China A-share 3,578 47,327 2,676,829 56% MSCI China A 27.37% Shanghai 1,451 20,5
Slide 39: Chinese companies listed in different locations offer different exposures
Chinese companies listed in different locations offer different exposures Hong Kong is Financials heavy, US offers more new economy and China A shares is unique for Consumer Staples and Health Care 60 China Index Sector Exposures 50 40 % 30 20 10 0 Financials Consumer Communication Industrials Consu
Slide 40: China is the largest country in MSCI EM Index
China is the largest country in the MSCI Emerging Markets (EM) Index by weight and by number of securities. Pro-forma Weights of MSCI EM post November 26th SAIR. % of MSCI EM Index % of MSCI EM Index by Market Capitalization Weight by Number of Securities China, Other, 27% 33.6% Other, 25.9 China, 5
Slide 41: Continuous foreign inflows via stock and bond connect
There have been continuous foreign inflows via stock and bond connect into Chinese domestic assets. RMB bn Foreign Holdings of domestic Chinese assets: Equity Foreign Holdings: Bond 2,200 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 Mar-16 Mar-18 Jun-15 Jun-17 Jun-14 Jun-16 Jun-18 Jun-19 Mar-
Slide 42: The Index Matters
The Index Matters MSCI is a trusted index provider for the largest global investment managers 1 As of June 30, 2018, as reported on September 30, 2018 by eVestment, Morningstar and Bloomberg, retrieved 6/30/2019. 2 Based on latest P&I AUM data and MSCI clients as of March 2018, retrieved 6/30/2019.
Slide 43: The China A-Share market is too big to ignore
The China A-Share market is too big to ignore Even though China is the world’s second largest economy and stock market, China A-Shares are still underrepresented in global capital markets. Top 5 Country Weights in MSCI All Country World Top 5 Country Weights in the MSCI All Country Index (Market cap
Slide 44: MSCI's Global Standard definition of China is a small portion
MSCI’s current Global Standard definition of China only represents a small portion of China’s total market The MSCI China Index was historically limited to Chinese companies listed on the Hong Kong Stock Exchange. Recently, MSCI expanded this definition to include US-listed Chinese companies. This d
Slide 45: MSCI China A-Share inclusion announcement, February 2019
On February 28, 2019, MSCI made a larger than expected China A-Share inclusion announcement. MSCI will increase the inclusion factor of China A-Shares in their Global Standard Indexes from 5% to 20% in 2019. Currently, $1.8 trillion track the MSCI EM Index. Up to $300b are expected to be reallocated
Slide 46: MSCI China A Index advantages over CSI 300 Index
Index Matters: We believe that the MSCI China A Index has distinct advantages over the CSI 300 Index • MSCI is a trusted index provider for the largest global investment managers with over $14.8 trillion in equity assets estimated to be benchmarked to MSCI Indexes4 • The CSI 300 Index, originally bu
Slide 47: Conclusion: Perception Is Not China's Reality
Conclusion: Perception Is Not China’s Reality • KraneShares Offers a Balanced Perspective on China’s Economy and Capital Markets • On June 1, 2018, MSCI commenced the multi-year process of including China Others China A-Shares into their Global Standard Indexes. 26.3 29.6 • This rebalance has trigge
Slide 48: Investment Strategies to Capture China's Growing Importance
Investment Strategies to Capture China’s Growing Importance In Global Portfolios China Thematic China Core EM Thematic MSCI Emerging Markets ex China Internet MSCI China A China Emerging Markets Consumer China Health Care Technology MSCI All China Emerging Markets Healthcare China Environment China
Slide 49: Important legal disclosures
Important legal disclosures General Disclosures This document has been produced by China International Capital Corporation Hong Kong Securities Limited (CICCHKS). This document is based on information available to the public that we consider reliable, but CICCHKS and its associated company(ies)(coll
Slide 50: Important legal disclosures
Important legal disclosures General Disclosures This document has been produced by China International Capital Corporation Hong Kong Securities Limited (CICCHKS). This document is based on information available to the public that we consider reliable, but CICCHKS and its associated company(ies)(coll
Slide 51: Index Definitions
Index Definitions: MSCI China Index: captures large and mid cap representation across China H shares, B shares, Red chips and P chips. MSCI All China Investable Market Index (IMI): captures large, mid and small cap representation across all China securities that are listed in China and Hong Kong, th
Slide 52: Important Notes
Important Notes Carefully consider the Funds’ investment objectives, risk factors, charges and expenses before investing. This and additional information can be found in the Funds' full and summary prospectus, which may be obtained by visiting www.kraneshares.com. Read the prospectus carefully befor
Slide 53: Questions for Brendan & Kevin?
Questions for Brendan & Kevin? Email info@kraneshares.com Subscribe to our email roundup on China’s markets: www.ChinaLastNight.com 53
KraneShares — Conference Presentation (November 2019) on 6ix