Semi Annual

Investment
Forum
Programme

5.30pm – Registration
6.00pm – Market Outlook & Stock Picks
(Calvin Tan, NUS Invest Research Director))
6.30pm – Economic Overview
(Liang Shibin, Investment Analyst at Phillips
Securities) Wednesday
7.15pm – Asian Growth Story, Strategies & Insights August 25, 6pm
(Ow Tai Zhi, NUS Invest President)
Lecture Theatre 16
7.45pm – Value Investing & Portfolio Management
(Jason Low, Portfolio Manager)
8.45pm – Refreshments and End of Event Supported By:
 EVENT SYNOPSIS
The Semi-Annual Investment Forum (SIF) is an ongoing initiative by NUS Invest to promote
financial literacy and provide a platform to share investment knowledge in the NUS community.
The inaugural SIF held in March 2009 features the Research Team from DMG & Partners
Securities speaking on the Market Outlook as well as the Real Estate and Oil & Gas Sector.

The 4th SIF held on 24 August 2010 features the Research Team from Phillips Securities
providing an economic overview and listing out asset classes which are attractive to investors in
the current economic climate. Members were also exposed to the new Asia Pacific Ex Japan
Absolute Return portfolio and several conviction stock picks by NUS Invest Exco Research Team.
For the very first time, Mr. Jason Low, an experienced portfolio manager who has managed
funds in excess of US$500 million for the last 5 years, shared his value investing tips and how
retail investors should construct their portfolio.
 DISCLOSURES & DISCLAIMERS
This research material has been prepared by NUS Invest.

NUS Invest specifically prohibits the redistribution of this material in whole or in part without the
written permission of NUS Invest.

The research officer(s) primarily responsible for the content of this research material, in whole or
in part, certifies that their views are accurately expressed and they will not receive direct or
indirect compensation in exchange for expressing specific recommendations or views in this
research material.
 DISCLOSURES & DISCLAIMERS
Nothing in this research material constitutes a representation that any investment strategy or
recommendation contained herein is suitable or appropriate to a recipient’s individual
circumstances or otherwise constitutes a personal recommendation. It is published solely for
information purposes, it does not constitute an advertisement and is not to be construed as a
solicitation or an offer to buy or sell any securities or related financial instruments.

No representation or warranty, either expressed or implied, is provided in relation to the

accuracy, completeness or reliability of the information contained herein. The research material
should not be regarded by recipients as a substitute for the exercise of their own judgement. Any
opinions expressed in this research material are subject to change without notice.
Speaker Profile – Ow Tai Zhi [President, NUS Invest]

National Service Compliance

Macro Investment
Equity Research & Portfolio
Research at Hedge Fund
Administration

Stock-brokering & Wealth Studies

Management
Asian Growth Story – Strategies & Insights
[25 August 2010]
 Encouraging Global Economic Outlook
IMF World Growth Figures

1Q 2010 5.00%

IMF World Growth Projection

2010 4.50%
2011 4.25%

• Modest but steady recovery in most advanced economies

• Strong growth in many emerging and developing economies
• Recent turbulence in financial markets caused by fiscal positions in Euro-zone

Diverging Shift in Asian Quantitative

Investment
Growth Global Asset Central Bank Easing by Risk
Strategies
Trajectory Allocation Rate Hikes the U.S.
 Divergence in Growth Outlook
2010 2011
United States 3.3% 2.9%
Japan 2.4% 1.8%
United Kingdom 1.2% 2.1%

Euro Area 1.0% 1.3%

Germany 1.4% 1.6%
France 1.4% 1.6%
Italy 0.9% 1.1% Strong rebound in
exports and resilient
domestic demand
Developing Asia 9.2% 8.5%
China 10.5% 9.6%
India 9.4% 8.4% Robust corporate
profits and FDI
Singapore 9.9% 4.9%
ASEAN 5 6.4% 5.5%
Source: IMF World Economic Outlook
 Divergence in Growth Outlook
2010 2011
World Trade Volume (goods & services) 9.0% 6.3%

Imports
Advanced Economies 7.2% 4.6%
Emerging & Developing Economies 12.5% 9.3%

Exports
Advanced Economies 8.2% 5.0%
Emerging & Developing Economies 10.5% 9.0%

Tendency for Central

Consumer Prices
Bank policy rate hike
Advanced Economies 1.4% 1.3% to contain inflation
Emerging & Developing Economies 6.3% 5.0%

Advanced Economies (U.S., Europe) vs Emerging & Developing Economies (Asia)

Divergence in Growth Outlook

In 2011, when inventory cycle

runs its full course and stimulus
is withdrawn in several
countries, Asia’s GDP will settle
to a more moderate but
sustainable rate (est. 6.75%)
Downside Scenario – Additional Worsening in Eurozone

Downside Risks
1. Poor fiscal consolidation stifles
weak domestic demand (eg.
austerity measures)
2. Management of fiscal deficits
over medium to long-term
3. Renewed weakness in U.S.
property market

GPM World Simulations

World growth will reduce from
4.50% to 3.00%
 Shift in Global Assets Allocation

Financial markets and capital

flows are already facilitating
global demand rebalancing via
currency pressures, although
many economies have been
resisting them by building up
reserves

Monetary policy remains an

important policy lever

Diverging Shift in Asian Quantitative

Investment
Growth Global Asset Central Bank Easing by Risk
Strategies
Trajectory Allocation Rate Hikes the U.S.
 Shift in Global Funds Allocation
• China more than doubled (up 111%) South Korean debt holdings to US$3.4 billion
in 2010 (0.1% of its US$2.45 trillion reserves) as global trend of policy makers is to
gradually shift foreign reserves out of USD

• Foreign holdings of South Korea’s outstanding govt debt (accounts for 6.3%)
increased 20% from US$9.6 billion to US$57.5 billion in 1H 2010

• China purchase US$20.1 billion of Japanese Govt Bonds in 1H 2010

“The number of long-term investors who view Korean bonds as a new safe haven has
increased“ – Director of the Ministry of Strategy & Finance's govt bond policy division
 Central Banks’ Tendency for Rate Hikes
Petroleum price projection
US$75.3/bbl for 2010
US$77.5/bbl for 2011

2 Key Influencing Factors

• Broad inflation targeting between 2% to 4%
• Asset price pressures

Base Case
• Advanced Economies unlikely to tighten
before 2011, in fear of undermining the
recovery
• Emerging & Developing Economies have
started to tighten (eg. Korea, India, Taiwan,
Malaysia)
Diverging Shift in Asian Central Quantitative
Investment
Growth Global Asset Bank Rate Easing by the Risk
Strategies
Trajectory Allocation Hikes U.S.
Explanation Notes on Central Bank Rate Hike

Assume the entire economy consist only Jack and 10 apples.

Jack has $10 and decides to use all his money to buy the 10 apples,
because the 0.75% interest rate on deposits simply sucks.

Then…
 Explanation Notes on Central Bank Rate Hike

U.S. Federal Reserve Bank raises benchmark rates and Citibank raises the
interest rate on deposits to 2.99% accordingly.
Jack is now enticed by the attractive interest rate, and decides to put some
money in the bank and consequently spend less on apples.
 Quantitative Easing by the U.S.

27 Aug – Nobel Prize-winning economist Paul

Krugman suggest the Federal Reserve and
President Barack Obama’s administration
should launch further stimulus programs.

Krugman, a Princeton University professor,

wrote in his New York Times column – “policy
makers should be doing everything they can
to change that fact.”

Impact Ben Bernanke is likely to spell out options for

Quantitative Easing will put restarting large-scale purchases of securities,
downside pressure on the USD a strategy known as quantitative easing.
against major currencies.

Diverging Shift in Asian Central Quantitative

Investment
Growth Global Asset Bank Rate Easing by the Risk
Strategies
Trajectory Allocation Hikes U.S.
 Investment Strategies – Long Asian Currencies
1. Future growth likely to decelerate but continue
Recent economic indicators points to slowdown in 2H 2010. However, growth likely
to continue, although at a slower pace.
2. Relative strategy as opposed to Absolute strategy to limit downside risk
Investment in equities pose downside risk as expectations of growth are priced in,
but slowdown in growth may not. Commodities largely depends on industrial
demand and pose downside risk as well.
3. Need to cherry-pick the top few Asian currencies as fundamentals differ
Different growth trajectory within Asia, different drivers of economic growth,
different inflation levels and central bank policy stance.

Diverging Shift in Asian Quantitative

Investment
Growth Global Asset Central Bank Easing by Risk
Strategies
Trajectory Allocation Rate Hikes the U.S.
 Chinese Renminbi (CNY)

Key Statistics
Central bank’s Policy Stance
GDP 2010F 10.5% Large fluctuations not desired, need to
GDP 2011F 9.6% support “relatively fast” growth while
managing inflation expectations
Central Bank Rate 5.31% -> 5.85% by end 2010
Latest Rate Hike 12.5bps in June 2010 FX Impact on Exports
Net Exports US$250 billion
Spot Rate 6.7988
GDP US$4,814 billion
Consensus Est Appreciate 4.7% to 6.48
Implied Based on NDF Depreciate 1.6% to 6.69 Industry accounts for 47% of GDP
Exports to U.S. 20% and Germany 4%

Herein lies the arbitrage opportunity!

 Risk
Aversion

+/- 0.5% from Euro Debt

daily fixing Crisis
1st Reforms in yuan
exchange rate

10.2% appreciation over last 3 years 2nd Reforms in yuan

exchange rate
 Risk Aversion

+/- 0.5% band Euro Debt Crisis

from daily fixing
2nd Reforms in yuan
exchange rate
 Malaysian Ringgit (MYR)

Key Statistics Central bank’s Policy Stance

GDP 2010F 6.7% Expects domestic economy to
remain strong with continued
GDP 2011F 5.3% improvements in private
Central Bank Rate 2.75% -> 2.75% consumption and investment
Latest Rate Hike 25bps each in May and July 2010
FX Impact on Exports
Spot Rate 3.14 Net Exports US$38 billion
GDP US$209 billion
Consensus Est Appreciate 1.6% to 3.09
Implied Based on NDF Depreciate 1.6% to 3.19 Industry accounts for 41% of GDP
Exports to U.S. 12%
Herein lies the arbitrage opportunity!
 Risk Aversion

Euro Debt Crisis

Rate Hike

10.0% appreciation over last 3 years

Euro Debt
Crisis

Risk
Aversion

Rate Hike

Rate Hike
 Singapore Dollar (SGD)

Key Statistics Central bank’s Policy Stance

GDP 2010F 9.9% -> 13% Policy band re-centered upwards in
April 2010 and switch from 0%
GDP 2011F 4.9%
appreciation to “modest and gradual
Central Bank Rate 0.67% borrowing rate; 0% appreciation”
deposit
Latest Rate Hike - FX Impact on Exports
Net Exports US$34 billion
Spot Rate 1.3584 GDP US$177 billion
Consensus Est Appreciate 1.4% to 1.34
Industry accounts for 28% of GDP
Implied Based on NDF Stay flat Exports to U.S. only 6.6% in 2009

Herein lies the arbitrage opportunity!

 Risk
Aversion

Euro Debt
Crisis

S$NEER Re-centered
downwards

11.0% appreciation over last 3 years

Re-centering of
S$NEER band

Risk
Aversion

Euro Debt
Crisis
 Potential Returns

• Leverage Characteristics – Currencies typically has more than 4x leverage

Past 3 Years’ Returns (incl Great Financial Crisis and Euro Debt Crisis)
CNY 10.2% x 4 = 40.8% 14.0% p.a.
MYR 10.0% x 4 = 40.0% 13.6% p.a.
SGD 11.0% x 4 = 44.0% 15.2% p.a.

Diverging Shift in Asian Quantitative

Investment
Growth Global Asset Central Bank Easing by Risk
Strategies
Trajectory Allocation Rate Hikes the U.S.
 Possibility of Monetary Intervention

Trade Data
6,000 • All except India have healthy trade
5,000 surplus
4,000
• Exchange rates appreciation is needed if
3,000
excess demand pressures build
2,000

1,000 (ie. excessive trade surplus or asset price

0 pressures)
China India Indonesia Japan Korea Malaysia Taiwan
-1,000

Trade Surplus GDP

Diverging Shift in Asian Quantitative

Investment
Growth Global Asset Central Bank Easing by Risk
Strategies
Trajectory Allocation Rate Hikes the U.S.
 Possibility of Monetary Intervention

Exports to U.S. • Concerns about exchange rate

China 20.0% overshooting could be addressed via
India 12.6%
1) fiscal tightening
Indonesia 10.8%
Japan 16.4% (spend less)
Korea 22.8% 2) some buildup of reserves
Malaysia 12.4%
(buy foreign Treasuries)
Singapore 6.6%
3) stricter controls on capital flows
Taiwan 11.6%

Diverging Shift in Asian Quantitative

Investment
Growth Global Asset Central Bank Easing by Risk
Strategies
Trajectory Allocation Rate Hikes the U.S.
Low downside risk, upside on yuan reform High upside on high growth trajectory

SO WHICH CURRENCIES?
Modest and gradual appreciation
Q&A
 Japanese Yen (JPY)

Key Statistics Central bank’s Policy Stance

Extremely accommodative monetary
GDP 2010F 2.4% -> 2.6% policy, uptrend in exports expected to
GDP 2011F 1.8% continue, although pace to moderate
gradually, domestic demand and private
Central Bank Rate 0.10%
consumption generally picking up
Latest Rate Hike -
FX Impact on Exports
Spot Rate 84.55
Net Exports US$43 billion
Consensus Est Depreciate 12.4% to 95.00 GDP US$4,150 billion
Implied Based on NDF Appreciate 0.6% to 84.07
Industry accounts for 22% of GDP
Exports to U.S. 16%
 Risk Aversion

Euro Debt
Crisis

Euro Debt
Crisis
 Risk
Aversion

Euro Debt
Crisis
 Korean Won (KRW)

Key Statistics
GDP 2010F 5.7% Central bank’s Policy Stance
Accommodative monetary policy to
GDP 2011F 5.0%
target price stability and sustained
Central Bank Rate 2.25% -> 2.75% by end 2010 growth
Inflation targeting of 2% to 4% from
Latest Rate Hike 25bps in July 2010
2010 to 2012
Spot Rate 1,184 CPI will accelerate and interest rate
Consensus Est Appreciate 7.6% to 1,100 is still “not appropriate” as inflation
expectations climb
Implied Based on NDF Depreciate 1.3% to 1,199

Net Exports US$56 billion compared to US$809 billion GDP

Industry accounts for 39% of GDP
Euro Debt Crisis

Rate Hike
 Taiwanese Dollars (TWD)

Key Statistics
Central bank’s Policy Stance
GDP 2010F 7.7% continue gradually adjusting interest
GDP 2011F 4.3% rate upwards in response to strong
domestic economic activity
Central Bank Rate 1.375% -> 1.75% by end 2010

Latest Rate Hike 12.5bps in June 2010

Euro Debt Crisis
 Indonesia Rupiah (IDR)

Key Statistics
Central bank’s Policy Stance
GDP 2010F 6.0% Inflation targeting of 4% to 6% (Jul
GDP 2011F 6.2% 2010: 6.2%) for 2010 and 2011, no
immediate intent of rate hike
Central Bank Rate 6.50%

Latest Rate Hike -

Spot Rate 6.79

Consensus Est Appreciate 2.2% to 8,800

Implied Based on NDF Depreciate 4.5% to 9,397

Euro Debt Crisis