Die besten Greater China Aktienfonds

Die Fondsmanager der besten Greater China Aktienfonds haben exklusiv fünf Fragen zu den fundamentalen Faktoren und wichtigsten Elementen, sowie den Gewichtungen, Performances und ihren generellen Marktausblicken beantwortet. Funds | 27.06.2011 04:30 Uhr
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e-fundresearch: "Which fundamental factors are currently the most important ones when you assess China stocks?"

Bin Shi, Portfolio Manager, "UBS (Lux) Eq Fd Greater China (USD) P acc" (17.06.2011): "We look for companies who have good structural growth drivers and are attractively valued from a mid-long term perspective. We tend to focus on companies with the ability to manage economic cycles well or with the ability to power through cycles. Adjustments are made to the portfolio based on stock valuations and changing economic backdrop. We also tend to avoid sectors which are not favored by current government policies and prefer those which are beneficiaries."

Mike Shiao, Fondsmanager, "Invesco Greater China Equity A" (21.06.2011): "Within the Greater China markets, we look for companies with:
- sustainable industry leadership and competitive advantages, trading at below fair value 
1. Management capability / track record 
2. Technology, operational scale, sales network, brand value 
3. Financial strength – ability to finance franchise expansion and pay dividend through internal resources (without unnecessary fund raising) 
- fairly predictable earnings visibility 
- ability to sustain earnings multiple over longer term or enjoy potential multiple expansion."

Agnes Deng, Fondsmanagerin, "Baring Hong Kong China A USD" (21.06.2011): "We analyse stocks in China using a common research framework based around our assessment of Growth, Liquidity, Currency, Management and Valuation criteria. We score each of these factors from 1 (buy) to 5 (sell) on the basis of research and company visits then, judgmentally, assign a score of 1-5 to the stock as a whole together with buy and sell price targets. No one of these factors is more important than the others; experience tells us that it is important to assess each of these areas to form a comprehensive assessment of the likely prospects for the shares relative to the underlying market."

Jun He, Fondsmanager, "Comgest Growth Greater China EUR" (22.06.2011): "In general, our research efforts are far more concentrated on the long-term aspects of industries and companies, than short-term cyclical or temporary factors, which might be dominating the newspaper headlines currently. Fundamentally, our investment approach focuses on two key aspects -- quality and growth. We look for high-quality companies with capable and proven management, strong competitive edge, leading market position, and visible sustainable long-term growth outlook. We adhere to a set of strict criteria in selecting companies for our portfolios, including:

• A sound balance sheet
• Strong and visible earnings’ growth
• High return on equity
• Strong self-financing capability
• Above-average profit margins."

Yip Emerson, Fondsmanager, "JF Greater China A Dis USD" (21.06.2011):
"• Macro economic view
• Government policy
• Industry structure and dynamics
• Growth at a reasonable price
• Corporate governance."

Lan Wang Simond, Fondsmanagerin, "Pictet-Greater China-P USD" (22.06.2011): "In a market which is still fragmented and of which many sectors still have lots of new entrants, we aim at finding tomorrow´s giants. Indeed, some companies that are small today will become the Nestlé or Microsoft of tomorrow. The challenge is to identify these long-term winners, as most of these companies will have disappeared or have been absorbed by their most successful competitors. Basically, we look for dominant companies with strong financials and sustainable pricing power.

Our focus is therefore on fundamentals and long-term prospects. In order to identify good companies we look at:

Industry dynamics: in China, policy is all-important so we try to assess impact of various policies, favouring sector which would benefit from specific regulations and/or incentives. Moreover, China still being an emerging market, we are also monitoring closely changing patterns of the economy as different sectors will perform differently at different stages of development.

long term creation of value: we look for companies that create value i.e. whose return on capital is higher than their cost of capital. Over the long run, this condition is necessary for a company to prosper and will differentiate between a future success or failure.

strong market share and pricing power: Chinese economy is experiencing or will experience consolidation in many sectors, hence competition is harsh, barriers to entry are generally low and prices are under pressure. We avoid sector with low or no barriers to entry and companies that will suffer from a price war (price takers) or which are solely dependant of government regulations (price controls). We aim at finding companies which can raise price and will benefit from sector’s consolidation in the future.

strong cash-flow generation: lots of companies in China have cash-flow issues, weird accounting that blurs financial returns and don´t create any real value. Cash is therefore the best indicator that a company is really making money.

strong secular growth: China is an economy which is growing fast, hence there are plenty of companies which are growing as fast or faster. We tend to avoid slow growth companies because the return we can earn on a fast-growing companies will be higher and it will benefit our clients most.

Credible management: corporate governance in China is still weak so trustworthy management is of paramount importance. We try to assess possible conflict of interest or lousy political support and we avoid complex ownership structures.

credible independent auditor: corporate governance being an issue, we also always check the identity of the auditor. We are suspicious of local names, unknown entities and possible conflict of interest. In general, we prefer foreign auditors and we will never invest if we have a doubt about the credibility of an auditor.

A great company can be a bad stock. We therefore try to identify good stocks based on :

Low implied growth, low expectations: we aim at assessing whether future growth premiums are already factored in the price or whether earnings that are already priced in are consistent with our own estimates. Obviously, we like stocks of which expectations are lower than our own estimates as they would have more upside.

Rising earnings forecast and low valuations: Multiple expansion happens more often with positive earnings revisions so we pay special attention to EPS forecast over the next quarter. As upward surprises are often the trigger of a re-rating, we compare consensus EPS with our own estimates in order to estimate potential upside.

Valuation: we have a strong value component so we will wait for an opportunity to buy at a good price. We will look at various metrics (PE, PEG, ROE-PB, EV/EBIT) or models (DCF, SOP) depending on the industry."

Question 2

e-fundresearch: "Which are the most important elements in your investment process?"

Bin Shi, Portfolio Manager, "UBS (Lux) Eq Fd Greater China (USD) P acc" (17.06.2011): "Stock picking is a key element in our investment process. Though we utilize both external and internal resources, we are very focused on our internal research to maintain a competitive edge. We conduct intensive bottom-up research to look for companies that are positioned to ride out or even strengthen their positioning against an uncertain macro backdrop. We try to take advantage of valuation anomalies created by the volatile swings in market sentiment by focusing on long-term discounted cash flows. As such, the majority of added value (70%- 80%) is expected to come from bottom up stock selection."

Mike Shiao, Fondsmanager, "Invesco Greater China Equity A" (21.06.2011): "We take advantage of market inefficiencies through active management:
Be Selective: We focus on companies with sustainable industry leadership and competitive advantages, and avoid stocks with potential for de-rating
Be Early: We aim to act before consensus is formed and add value by researching companies under-covered by sell-side
Be Disciplined: We use fundamental analysis with a strong valuation discipline, so we can take advantage of market volatility and use it to implement a contrarian approach where we have strong conviction
Be Patient: We take a long-term view and are prepared to ride through short term earnings cycle to capture long-term dividend income and capital appreciation."

Agnes Deng, Fondsmanagerin, "Baring Hong Kong China A USD" (21.06.2011): "The combination of on-the-ground research in China by local language speakers with the global perspective which comes from our well regarded asset allocation team and other investment teams around the company. The first provides a fruitful source of potentially rewarding candidates for the portfolio; the second valuable insight into conditions across the markets and any potential headwinds to help the China equity team position portfolios most effectively."

Jun He, Fondsmanager, "Comgest Growth Greater China EUR" (22.06.2011): "Bottom up research supported by face-to-face meetings with management and on-site visits are probably the most important element of our investment research. It is not only limited to meetings with and visits to companies that we invested in. Meetings with their peers, competitors, suppliers and customers can also provide great insights in the industries and companies we are focusing on, and quite often lead to new investment ideas."

Yip Emerson, Fondsmanager, "JF Greater China A Dis USD" (21.06.2011): "• Inefficient, immature Greater China markets coupled with local issues and domestic market sentiment reward active investment management
• We believe Greater China is a market where top-down analysis is a priority, whether on the macro level or industry level
– We express those views with industry leaders and consolidators with an aim to identify long-term winners achieving high and/or rising return on equity
• Our solid local knowledge and strong local contacts via our large and well-resourced teams in 3 offices give us an edge
– We average 100 company visits/meetings per fund manager per year."

Lan Wang Simond, Fondsmanagerin, "Pictet-Greater China-P USD" (22.06.2011): "We follow a four-step process in our investments in the Greater China markets:
• A) A top-down country allocation to determine whether a country should be overweighed or underweighted within the portfolio;
• B.1)  A screening process of the investment universe to build a short list of investable stocks;
• B.2) fundamental analysis based on qualitative and quantitative research;
• B.3) A portfolio implementation phase to determine stocks with an optimal mix of risk and return;

The bottom-up process, from step B.1 to step B.3, consists of the screening process, the fundamental analysis and the portfolio implementation.

A) Top down country allocation
Although the investment process of the Pictet - Greater China is mainly bottom-up, it starts with a top-down country allocation. The fund managers use inputs from in-house economists and from external strategists to find the most attractive market.

Lan and Eric monitor economic trends, policy developments, regulatory reforms and main political events.

They would also take into account long-term emerging trends such as potential closer ties between China and Taiwan or rising income amongst the middle class in China. The latter would induce them to examine more closely the attractiveness of the domestic demand stories.

B.1) Bottom-up process: Screening Process of the Investment Universe
Our bottom-up analysis starts with an investment universe of around 3000 stocks which we define as companies with substantially large percentage revenue generated from China, Hong Kong and Taiwan.

These companies are predominately listed in Hong Kong – both so-called “H”-shares and the traditional blue chips – and Taiwan. Some of these companies also have ADRs and GDRs listed on other exchanges, particularly in the United States. “B”-shares in Shanghai and Shenzhen, which are denominated in USD and HKD and are accessible to foreign investors, also represent potential opportunities. There may be a handful of companies that operate actively in the Greater China region but are listed on other stock exchanges (e.g. Singapore).

B.2) Bottom-up process: Fundamental Analysis
The reduced investable universe of about 200 companies is subject to fundamental analysis, where both qualitative and quantitative factors are considered.

As no companies can operate in a vacuum, the dynamics of an industry are particularly important factors to be considered. Within an industry, we try to find the best candidates. Consequently, we pay attention to which companies have a strong strategy and which managements have the track record to deliver and the ability to execute future vision.

We then analyse the qualitative elements as well as studying the financial statements. Thus, we look for companies with steady or rising margins, strong balance sheets and steady cash flows.

In addition, we also consider companies with positive earnings revisions to act as a catalyst and/or companies with steady dividend payments, which form an important part of the total return.

Contacts with companies form an integral part of our secondary research process. In addition to visiting management on the ground in the region where we conduct about 100 meetings per annum, we also regularly take part in conference calls to update our investment views.

We also continue to build relationships with leading analysts in the region to deepen our understanding of the markets, industries, and companies in Greater China.

In order to achieve this depth of understanding, we believe it is crucial that the fund manager has a strong understanding of Chinese culture and that he/she can speak Chinese fluently. Lan Wang Simond’s and Eric Kwan’s first-hand experience of working in the Greater China region is extremely helpful in extracting added value from company meetings as well as in forming a strategic assessment of local market behaviour. Because the true economic picture of China is not captured by the published statistics, ground research and thus anecdotal evidence say more than the official numbers. A transitional economy, such as China’s, has a lot of conflicting signals which only an experienced manager with a solid Chinese background can unravel.

B.3) Bottom-up process: Portfolio Implementation
Our rigorous fundamental analysis enables us to typically select between 60 and 100 stocks from the investable universe. The ideal stocks offer quality growth whilst the potential is not fully reflected in their share price. The weight of an individual holding in the final portfolio is dependent on the conviction of our investment case, and the potential downside risk.

Given that the fund’s performance is relative return against the MSCI Golden Dragon index, we also pay attention to the weights of sectors and industries within the benchmark. That said, with the exception of a handful of very large index constituents, relative positioning to the benchmark is not of crucial importance. Our principle of portfolio construction is, therefore, benchmark-aware, but not benchmark-driven.

We strive to construct a well diversified and risk-controlled portfolio that offers, in our opinion, an optimal balance between return and risk.

We review the portfolio regularly and ensure a robust sell discipline is in place."

Question 3

e-fundresearch: "Which over- and underweight positions are currently implemented in China or Greater China funds?"

Bin Shi, Portfolio Manager, "UBS (Lux) Eq Fd Greater China (USD) P acc" (17.06.2011): "Overall, the fund is overweight China as we see more structural opportunities at attractive valuations. Fund is neutral on Hong Kong but we are focused on selective names that can benefit from domestic China market. The fund has an underweight position in Taiwan but will focus on domestics sectors which will benefit from improved cross-straits relationship.

On a sector level, we prefer domestic demand driven stocks and remain positive on Consumers and Health Care sectors as mid to long term growth outlook remains intact. The consumption theme is predicated on the government’s persistent efforts in promoting domestic consumption as well as the presence of strong structural drivers such as favorable demographics, urbanization trend, and under-leveraged population with rising disposable incomes. Great upside potential exists given low penetration ratio and better affordability. In the near term, the Consumer sector is less impacted by the government’s tightening policies as underlying consumption demand is resilient. Healthcare and social security spending is also a key area for Chinese government to stimulate domestic consumption given its low level in the global context amid an aging population.

On the other hand, we are underweight in defensive sectors such as Utilities and Telecoms, whose growth is expected to be relatively low compared to other sectors which can benefit directly from the country´s economic growth. We remain selective in the Financials, Property and Cyclicals sectors but will focus on growth-oriented companies with reasonable valuation."

Mike Shiao, Fondsmanager, "Invesco Greater China Equity A" (21.06.2011): "On country level, we are currently overweight in China, underweight in Hong Kong, and roughly neutral in Taiwan. Having positioned this way, note that the country / sector allocation is largely a by-product of our bottom-up security selection. On sector level, we are currently heavily overweight in consumer discretionary, at the expense of significantly underweighting financials. Within consumer discretionary, we are positioned in three sub-sectors: 1) auto parts companies where market expectation is low following expiration of subsidy, 2) selected sports apparels where valuation has become worty to revisit, 3) electronics retailers / distributors where domestic spending remain strong. Within financials, we are more exposed towards first-tier Chinese banks, which may lack catalyst in the near term but trades at compelling valuation. In contrast, we find little opportunities from insurance (due to slower organic growth from insurance premium) and properties (still highly policy driven, vulnerable to interest rate hike, and limited earnings visibility). We also held above benchmark exposure in consumer staples, where valuation may be relatively rich but investors are often willing to pay a premium for its stable earnings stream, and proved to be more resilient during market turbulence."

Agnes Deng, Fondsmanagerin, "Baring Hong Kong China A USD" (21.06.2011): "Going forward, we believe that China’s economy will be less driven by exports to the slower growing “developed” world, and benefit from rising consumer spending, augmented by a growing middle class and continued wealth creation, as the authorities encourage balanced and sustainable growth.
We are also positive on the long-term growth potential of the Healthcare sector and believe there are a number of attractive investment opportunities in internet and telecoms equipment vendors, where selected mobile operators are well placed to benefit from increasing telecom data usage following the launch of 3G initiatives across China. The fundamentals of the Information Technology sector are also robust in our view given the growth potential of the ever-popular smartphone market. We are relatively cautious on more defensive areas of the market such as Telecoms, Utilities and Energy, largely due to the prospect of increasing competition and capped tariffs."

Jun He, Fondsmanager, "Comgest Growth Greater China EUR" (22.06.2011): "Given our emphasis on quality, visible growth, there are a number of sectors that we generally do not invest in, most notably large commercial banks, energy, mining and industrial commodities and other highly cyclical industry (like shipping and airlines). Given the absence of these sectors, some of which have quite large index weightings, we are naturally overweight most of the other sectors, particularly consumer, technology, property and industrials at the moment."

Yip Emerson, Fondsmanager, "JF Greater China A Dis USD" (21.06.2011): "As shown below, we are OW China at the expense of Taiwan and HK as of the end of May 2011. We believe that Chinese equities look attractively valued compared to HK equities and we find more stock specific names to overweight in China. In China, we are overweight selected cyclical stocks linked towards construction demand in China, such as China national Building Material based on supply discipline and demand pick-up due to 10mn units of social housing being constructed this year. We are also overweight Chinese retailers such as Intime Dept Store given strong retail sales growth. We also have an overweight in selected energy stocks such as China Oilfield Services, CNOOC and Yanzhou Coal, given strong demand/prices of coal/oil. We also like Taiwanese petrochemicals stocks such as Formosa Chemical and Fibre given strong spreads due to tight supply.

Our largest UW are in the Chinese telecoms sector, where we do not own China Mobile and China Unicom given their high valuations and muted growth prospects. We are also UW selected financials such as China Life Insurance, HK Exchanges and Hang Seng Bank, which look expensively valued for their growth prospects. We also have an underweight in Li and Fung of HK, given our concerns over their growth prospects (they are the sourcing agent for many large US consumer companies)."

Lan Wang Simond, Fondsmanagerin, "Pictet-Greater China-P USD" (22.06.2011):

Question 4

e-fundresearch: "What is you general outlook for China and Greater China stocks over the coming 12-18 months? Where do you see opportunities and where are the risks?"

Bin Shi, Portfolio Manager, "UBS (Lux) Eq Fd Greater China (USD) P acc" (17.06.2011): "We are turning very positive on the outlook for Chinese equities for the next 12 months and longer term. The market valuation is low (close to single digit) while we see CPI peaking soon. We believe the Chinese economy will not suffer from a hard landing and we believe we might see great buying opportunities in the next two months if the market overshoots on the downside. The slowdown of the Chinese economy is very different from what we are seeing in the developed countries. China’s current economic slowdown is self-induced. The government’s objective to cool down the economy is to prevent some of the side effects of high growth, such as asset bubble and inflation, from becoming bigger issues down the road. The short-term slowdown is necessary for long-term sustainable growth. In the long run, Chinese economy will be healthier and more structurally sound, therefore Chinese equities risk premium should go down. 

Another risk, not internal to Chinese economy but might make investors become more risk averse in the short term is the sovereign debt issue with Greece and other EU countries."

Mike Shiao, Fondsmanager, "Invesco Greater China Equity A" (21.06.2011): "We hold our view that the Chinese equity markets may continue to remain volatile in the short term due to headwinds on further monetary tightening and implementation on property measures.  We expect the monetary policy normalization process and other measures will continue, unless this could pose a severe threat in jeopardizing growth.  That said, we believe the Chinese government will engineer a soft landing, rather than a hard one. 
On the inflation front, CPI is likely to hit to a new high in 2011 in May, due to the low base factor. Food prices rebounded again in May, partly as a result of the drought in many regions of China. It may have only a modest impact on grain output this year, as the summer harvest accounts for a relatively small share of full year’s output, but inflation expectations are more sensitive and hoarding activities could drive prices higher. Overall, we maintained a medium-term positive view on Chinese equities, given the region´s healthy fundamentals as a positive backdrop. MSCI China is trading at compelling valutions, with EPS growth of 15.9% and PE of 11.7x for FY 2011. In terms of opportunities, China has undeperformed its regional peers for the second consecutive year, and equity market should resume uptrend once inflation fear fades.  Valuation also remains supportive. Risk would be the possibility of a hard landing where GDP growth slowed significantly (to say, 5-6%), however we believe that this scenario is unlikely. Despite near term tightening concern resulting in investors staying on the sideline temporarily, downside risk is relatively limited, cushioned by its accommodative and discounted valuation metrics compared to history."

Agnes Deng, Fondsmanagerin, "Baring Hong Kong China A USD" (21.06.2011): "After two years of strong global growth, recent data suggest that most economic indicators are starting to peak out in the West from the trough levels of early 2009. Europe is a case in point, with growth across northern countries starting to move lower while in southern Europe the fiscal squeeze is just about to bite. Although the industrial recovery is still strong in the US, the consumer sector remains subdued and housing looks as if it could be due another downswing.
Compare and contrast this picture with the situation across many of the world’s emerging markets, led by China. The Chinese domestic economy has continued to experience significant growth in recent months, surpassing Japan to become the world’s second-largest economy and staying on track to overtake the United States as the world’s largest producer of manufactured goods. While Chinese equities have outperformed the wider Asia-Pacific region so far in 2011, we maintain that the economic prospects for China are still stronger than currently priced into the market, as share price valuations remain at the lower end of the historical range.
We are encouraged that retail sales and manufacturing output remain strong and we expect economic growth to continue at a relatively high level over the course of 2011, driven by infrastructure development and an increasing contribution from domestic consumption. As such, we believe the recent weakness in the market represents a compelling opportunity for investors to participate in a multi-year growth story at an attractive entry level.
As inflationary pressures gradually ease and markets become less fixated with policy moves, we believe that earnings growth will once again become the principal driver of Chinese equities. In this environment, we expect our commitment to companies with good growth prospects and strong balance sheets, well positioned to benefit from rising consumer and infrastructure spending, to reward investors over 2011. We have a high level of conviction that this will prove to be well rewarded in the context of China’s dynamic economy, with its enormous potential for transformation."

Jun He, Fondsmanager, "Comgest Growth Greater China EUR" (22.06.2011): "China is trying to slow down the speed of its economic growth and improve the quality of its growth, in other words to improve the sustainability of its growth. This is clearly stated in the government long term policies. The process of slowing down and squeezing out some of the excesses will have negative impact on earnings of some industries, but it is good for the long-term economic outlook for China. There are lots anxieties in the market at the moment, concerning whether the policy is too tight and the economy might cool down too fast or too severe. Our view is rather relaxed. We see the current slowdown is very much a government managed process. We see the chance of the government lose control and let the economy slip into a tailspin is extremely low. We believe the biggest risk for the Chinese economy is external, i.e. the negative impact from a potentially weaker global economy. We also believe the longer the government hold the current tightening policy; the better it is for China to switch to a more sustainable, consumer-driven, less investment-reliant economic growth model.
Valuation of Chinese stocks is below its own long-term historical average and below the averages of other Asian Pacific markets. The slower growth has already been discounted into the market, in our view. Therefore, we are positive on the 12-18 month outlook for the Chinese equity market."

Yip Emerson, Fondsmanager, "JF Greater China A Dis USD" (21.06.2011): "Please see our paper attached. We maintain a generally positive view on stocks in the Greater China region over the next 12-18 months. Our preference remains for stocks listed in China, followed by Taiwan and Hong Kong.
After underperforming in 2010 and early in the first quarter of 2011, the MSCI China ended the first quarter as the second cheapest market in the region with a 2011
price-to-earnings ratio of 12x, versus the MSCI Asia Ex Japan average of 13x and versus India’s 15.4x.  After seeing earnings downgrades throughout 2010, the earnings of Chinese equities started to be upgraded in February and in March 2011. This was led firstly by the benchmark heavy energy sector given rising oil prices. More importantly, late in the first quarter of 2011, Chinese banks released their 2010 earnings and guided to strong earnings in 2011, both of which surpassed consensus analyst expectations. In particular, given the rising interest rate environment, Chinese banks’ net-interest-margins started to expand, highlighting the pricing power of banks in a credit constrained environment. In 2010, the banking sector faced earnings downgrades given concerns over asset quality and non-performing loans, and was weighed down further by large capital raising across the sector. In hindsight, we believe that the regulators were prudent by proactively ensuring that the sector had high levels of capital adequacy and that banks’ provisioning levels would be sufficient to absorb any potential bad loans.

Risks: Inflation remaining higher than expected throughout 2H11, earnings downgrades (driven by either lower revenue growth or falling margins due to increased cost pressure), global risk appetite (driven by withdrawal of QE2, EU debt situation etc), corporate governance."

Lan Wang Simond, Fondsmanagerin, "Pictet-Greater China-P USD" (22.06.2011): "Chinese stocks have been struggling of late, especially in the domestic market. Until recently, markets were overly concerned about inflation and we were of the opinion that the Chinese market would not find its upward trend until inflation fears dissipate. Now, economic growth is decelerating, implying that inflationary pressures will likely diminished. Therefore, even though it is too early to expect a loosening of policy, we are of the view that China’s current economic environment is probably as tight as it gets and we expect a pause in the tightening measures over the second half of the year.

Regarding markets, in the past years China’s policy tightening cycles largely explained Chinese stocks’ performance and, similarly, the ongoing policy tightening (especially the slowdown in money and credit growth) appears to be the strongest force behind the underperformance of Chinese stocks since the end of 2009. Moreover, Chinese stocks’ performance has been more tightly correlated with credit growth than with changes in the level of interest rates. We think that policymakers will soon no longer advocate further tightening as the economy is already slowing down, monetary aggregates are slowly normalizing and housing price pressures are moderating. Given that the market is above all reacting to policy, we think that mere signs of a shift on the part of authorities from "fighting inflation at all costs" to "sustain the growth" would be enough to reassure investors, especially the local A-Shares market. We think such a move is likely as Chinese policymakers don´t want to repeat mistakes from the past by tightening to much for too long.

If we look again at the previous tightening cycle, as soon as policymakers lifted their feet off the brakes Chinese stocks shot up dramatically (H shares surged by 300% from the end of 2005 to October 2007). Obviously, we don´t foresee such a strong move nowadays but we do think the market should also rebound strongly, all the more since Chinese stock market valuations are not demanding at the moment : P/E ratios for domestic A-Shares and H-Shares are currently 11x and 10x, below their respective historical means, suggesting that the market has already priced in a lot of bad news. Therefore we are optimistic for 2H 2011.

China recently issued its new five-year plan, which presents the guidelines for the economy as a whole over the next five years. In order to reach these five-year aims most reforms and projects will have to be launched in the next 12 to 18 months. Based on these objectives and on our own opinions, we see great opportunities in services (internet, healthcare, personal services, education...) as the tertiary sector will represent a rising part of GDP, consumer sector (as China is in the process of reorienting its economy towards domestic consumption) with both mass consumption (white goods) and luxury goods, clean energy (pollution is seen as a serious issue by policymakers and highly polluting industries are getting out of favour), capital equipment (as many Chinese producers are moving up the value chain, production will become more and more capital-intensive rather than merely labour-intensive), financials notably banks (consumer finance is very promising in China as it is still burgeoning) and insurance (particularly life insurance).

Regarding risks, China has to walk a tight rope between over-heating and over-cooling and between inflation and growth while changing its growth model from exports to consumption. China is clearly at a turning point and challenges are therefore huge implying that authorities have not much margin of error. Therefore, the main risks is still policy, especially credit : too few credit would derail the economy and kill the market but too much credit would create bubbles that would be very hard to pop in real estate, assets, or even stocks. Property bubbles are particularly important to monitor as construction still represents roughly 60% of the activity in China. Too much credit would also revive fears related to bank’s balance sheet given that lots of loans are granted to local government sponsored plans (sometimes by mean of off-balance sheet vehicles that are very difficult to monitor) and some of these loans might well be based more on political ties than on economic rationale, causing concern regarding repayment. The way China will be able to effectively control credit is therefore probably the most important risk."

Question 5

e-fundresearch: "Please comment on the performance and risk parameters of your fund in the current year as well as over the past 3 and 5 years."

Bin Shi, Portfolio Manager, "UBS (Lux) Eq Fd Greater China (USD) P acc" (17.06.2011): "YTD to May 2011

Our fund underperformed the index slightly year to date, mainly due to stock selections in Hong Kong. On a sector level, stock selections in Energy and Financials contributed negatively. Large cap stocks have generally outperformed mid to small cap stocks during the recent volatile market, which also contributed to our underperformance. However, our stock selections in China, mainly in Consumer Staples and Information Technology contributed positively to our performance.

3Y and 5Y to Feb 2011

The China economy and market rebounded quickly after the 2008 financial crisis on the back of the government´s stimulus package and loose monetary policy. Our fund outperformed in this period mainly due to our China-focused strategy while underweighting Hong Kong and Taiwan. In terms of sector allocation in China, overweighting consumer staples and consumer discretionary, while underweighting telecoms and financials contributed the most to our strong performance.

Active risk has been around 5-7% over the past five years."

Mike Shiao, Fondsmanager, "Invesco Greater China Equity A" (21.06.2011): "As at end May 2011, the Invesco Greater China Fund is ranked 1st quartile in the Morningstar - Offshore and International Greater China Funds across 3 months, 6 months, 1 year and 5 years (also 2nd quartile for 3 years). The fund returned +13.1% and +104.5% over 3 and 5 years respectively (cumulative), comfortably beating the universe mean (+8.7% and +81.8%) and benchmark MSCI AC Golden Dragon (+8.1% and +72.0%)."

Agnes Deng, Fondsmanagerin, "Baring Hong Kong China A USD" (21.06.2011): "Year to date, to end May, the China Select Fund has outperformed the benchmark MSCI China Index in Euro terms, delivering -1.1% versus -2.1% for the index. Over three years to the same date, the Fund has delivered an annualised return of 6.7% compared with 4.3% for the index, also in Euro terms. Since the Fund was launched in April 2008, we don’t have a five year record for the Fund.
This performance leaves the Fund ranked in the first quartile of the peer group year to date, and in the top half of competitor funds over three years (Source for performance data: Morningstar, basis: bid to bid, net of fees).
In terms of risk, the standard deviation of the Fund over the last three years is very close to that of the index, coming in at 30.6 versus 30.1 respectively. The Fund’s information ratio, a measure of value added over the index relative to risk taken, is positive, at 0.37 for the same period."

Jun He, Fondsmanager, "Comgest Growth Greater China EUR" (22.06.2011): "Our portfolio is relatively concentrated with typically between 30 to 40 stocks. In addition, a few large sectors are absent from our portfolio as discussed earlier. Therefore, the tracking errors of our funds can be large, i.e. the very short-term performances of our fund can deviate from the index quite significantly. However, because we focus only on high quality companies with long proven track record and industry leadership, our funds have demonstrated consistently with a lower risk profile. This is illustrated by the consistently lower volatility of our fund compared with the index over the past 10 years. Delivering higher return with lower risk is the ultimate goal of our investment strategy (see table below)."

Yip Emerson, Fondsmanager, "JF Greater China A Dis USD" (21.06.2011): "Please see the file attached .

The fund has shown strong outperformance till end May of 1.69%/2.9%/2.99% for YTD/3Y/5Y respectively (3Y/5Y annualized).
Tracking error is 2.65 over 1 year, 3.66 and 4.25 for 3/5Y (annualized)."

Lan Wang Simond, Fondsmanagerin, "Pictet-Greater China-P USD" (22.06.2011): "Q1 2008:
The fund trailed slightly behind the index, posting a 64bps underperformance comingmainly from our strategy, as we decided to run a defensive fund in this time of highvolatility. Overall, the fund’s absolute performance was -14.98% over the quarter,reflecting the hard times Asian markets went through. Nevertheless, regional marketshave recovered somewhat during the second half of march.

Q2 2008:
In this highly volatile market, the fund regained some 16bps against the benchmarkduring the quarter. Our large overweight in consumer discretionary plays like Huabaohelped the performance as this sector managed to resist the slump in the market.Elsewhere, our cautious stance towards the financial sector has proved to beappropriate so far, as this sector has been this quarter´s worst performer.

Q3 2008:
The fund managed to outperform during this difficult quarter. Cash levels stayed ataround 3-5% during the quarter. Since all three sub-indices did poorly, ranging from -26% to -23%, country allocation was not the biggest contributor to performance.Selection at the stock level was able to make a difference apart from cash.

Q4 2008:
The fund underperformed the index by 143bps during the quarter mainly due to ourdefensive stance which hampered performance during year-end recovery as we laggedthe market when it started to react positively to each of the stimulus measures.Elsewhere, our overweight in Taiwanese telecoms and Chinese materials was alsodetrimental to our performance.

Q1 2009:
The fund underperformed the index over the quarter. Our bet on China early this year proved to be too much too soon as the market was not convinced of a quick recovery in China. Therefore, our large overweight played against us for most of the quarter even if market sentiment seems to have changed recently and the performance of the Chinese portion of our portfolio has improved. Our strong position in Dongfang motors has been positive with the stock up 68% year-to-date thanks to steady car sales. On the other hand, our underweight in Taiwan played against us in March as Taiwan had a stellar month mostly due to the performance of the IT sector (+17% YTD), which is largely the result of a massive restocking in semiconductors.

Q2 2009:
The fund outperformed the index over the quarter. Our consumer discretionary bets were major contributors, in particular Dongfeng Motors (car manufacturer), Dongxiang (retailer) and Li Ning (sportswear and apparel) three stocks in which we maintained a constant overweight. On a regional allocation basis, our decision to overweight China at the expense of Taiwan proved to be judicious on a relative basis, but this positive effect was mitigated by our underweight in Hong Kong, last quarter´s top regional performer. Elsewhere, our underweight in telecoms and utilities proved to be appropriate as these two sectors were the quarter laggards.

Q3 2009:
While still posting a strong absolute performance, the fund underperformed the index over the quarter. Our underweight in Taiwan during most of the quarter played against us as Taiwan was the previous quarter´s top performer. Specifically, our underweight in Taiwanese IT influenced the performance negatively as we did not fully profit from the strong movement of restocking. We also took a hit from our plays in cyclical sectors in China as these sectors were among the worst performers during the last month of the quarter. Elsewhere, consumer discretionary plays continue to behave well, notably in Hong Kong, where stocks like SJM Holding (a casino operator) and Geely Automobile had an excellent quarter.

Q4 2009:
Our allocation played against us as Taiwan was the strongest market over the quarter. Fortunately, stock selection more than compensated allocation, thanks mainly to our consumer plays which helped performance greatly. Shenguan (food processing), Tsingtao (beverages) and Gree Electric (home appliances) were last quarter´s top performers. Moreover, despite their sharp increase since the beginning of the year, car manufacturers continued to perform strongly with both Dongfeng Motors and Geely Automobiles remaining amid our top performers. Elsewhere, our strong underweight in China Mobile proved to be an appropriate bet as it strongly underperformed the index over the quarter. In Taiwan, IT stocks like Tripod, Compal and Hon Hai were major contributors to overall performance.

Q1 2010:
The fund underperformed the index over the quarter. On an allocation side, our strong overweight in China played against us as performance there was negative. Moreover, the domestic market was weak and our A-Shares were detrimental to performance. Nevertheless, China was our main source of stock-picking performance, mostly consumer plays like Shenguan (food processor), Dongfeng Motor (automobile maker), Yurun food or China Southern Airlines. In Taiwan, some of our IT plays like Richtek Technology, Largan and Chicony Electronics (parts and devices for computers) posted strong performances. Elsewhere, the online gaming sector, one of our favourite sectors, experienced a poor quarter as new game delays and regulatory uncertainties weighed down the sector, even though it is now one of the cheapest sectors (single digit PE) especially within the space of long-term sound Chinese consumption plays.

Q2 2010:
The fund underperformed the index over the quarter. Continuous weakness in the Chinese domestic market was detrimental to us as the decline of A-Shares was a drag on our fund´s performance vs the index. Moreover, consumer space in China (still our biggest bet) took a hit. Consumer Staples, Discretionary and Financials were the worst-performing sectors over the quarter. Growing uncertainties over economic growth and the government´s stance have weighed on investors´ sentiment about consumption, even though profits and outlook have remained strong. Our best-performing stocks have been cyclical plays, thanks to very strong performance during the two first months of the quarter. Zhaojin Mining (a gold producer), Evergreen Marine (shipping) and Nan Ya Plastics were our top three performers.

Q3 2010:
The MSCI Golden Dragon rose strongly during the quarter, up some 15%, in line with the regional markets. September was particularly strong on massive fund inflows into emerging markets due to US dollar weakness on the back of renewed hope of a second round of quantitative easing in the US. Asset plays in the region performed strongly, a mirror image of the weakening currencies. The Chinese yuan rose more than 2% against the dollar, and there were renewed hot money inflows into China and Hong Kong. The fund outperformed the index on the back of A shares playing catch-up. The fund owns 6% of A shares following strong stock selection in Hong Kong and China.

Q4 2010:
The fund outperformed the index over the quarter as our stocks benefitted from earnings revisions and good prospects for 2011 towards the end of 2010. On the other hand, December was a difficult month as year end book-closing activities were detrimental to China as investors cashed in their gains, squeezing some popular shorts, while selling down some fundamentally sound longs, including 2010 winners such as Dongxiang, a sportswear retailer, and Dongfeng Motors. Materials performed well over the quarter, most notably Formosa Plastics, China Resources Cement and Zhaojin Mining. IT also performed strongly, with Taiwanese names such as HTC, TSMC or Quanta Computers doing well.

Q1 2011:
At the industry level, our best performing sectors over the quarter were Financials, Energy and Materials. Mega-caps in these sectors like ICBC, Cnooc, China Construction Bank or China Resources Cement were heavy contributors to performance. At a regional level, China and Hong Kong posted good performances, especially China with names like China Unicom and one of our recent IPOs, Far East Horizon (a financial leasing company), while Taiwan has been less successful despite the strong performance of some of our IT names like Htc, Chunghwa Telecom and Formosa Chemicals."

All data per 14.06.2011:

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