The annual Milltrust Emerging Markets Symposium took place on the 23rd of September to a jam packed audience of investors, featuring a range of leading asset managers from the developing world including:

China?- Keywise Capital/Milltrust Keywise China Fund
India?– UTI International/Milltrust India Fund
ASEAN?- Lion Global Investors/Milltrust ASEAN Fund
Latin America?- Itau Asset Management – Milltrust Latin America Fund
MENA?– SEDCO Capital
Russia?- VTB Capital Investment Management
South Korea?- Truston Asset Management
Vietnam?- PXP Vietnam Asset Management

By Keywise Capital – Milltrust Keywise China Fund

China Slowdown
The slowdown in China is undeniable and can observed across a number of metrics such as retail sales, industrial production, total fixed asset investment, manufacturing investment, and infrastructure investment. Fang Zheng believes GDP growth can slow to as little as 3-4% in spite of the government?s 6% target. Shopping mall activity is down and high end restaurant closures have occurred. Despite this recent slowdown, consumption levels have remained steady, he argues. China?s unemployment rate remains low as the economy transforms to a more service driven economy (services now account for over 50% of the GDP).?

Monetary Policy
The government retains a steady course of focusing on shifting the economy to a domestic-led/consumption-driven economy rather than repeating past mistakes of stimulating the economy through investments. However, China?s interest rates and bond yields are among the highest in the world and the country therefore for has room for monetary easing and stimulus if needed.?

Currency Devaluation
China?s devaluation of the yuan has been carried out in a managed and controlled way. There may be further devaluations to come, most likely in conjunction with US interest rate hikes. If the yuan devalues enough from here, China will become a strong buying opportunity as perception on the outlook for the country will be changed.?

Valuations in China are cheap at 8.8x P/E and 1.1x P/B, cheaper than most other markets in the emerging markets.?

A Share Market
The A Share market has corrected fast because of significant leverage in the system, which initially led to such a strong outperformance. Keywise see a further 20% further downside risk because of the velocity of the deleveraging, after which the market will present very compelling buying opportunities. Already, the Milltrust Keywise China Fund is holding 16% in cash and ready to selectively redeploy into good quality securities at attractive valuations.

Market Developments
MSCI to add ADRs into MSCI index in November 2015 and May 2016, which will change the composition and quality of the index with the important addition of ?new economy? names like Alibaba, Baidu,, VIPShop etc., a selection of which are already held within the Milltrust Keywise China Fund and stand to benefit from index inclusion.?

Milltrust Keywise China Fund Positioning as at 30 September 2015
Exchange Listings: 64% Hong Kong, 15% NYSE, 3% Taiwan, 2% NASDAQ

Sectors: 23% Comms, 19% Consumer Cyclicals, 18% Financials, 8% Technology, 7% Consumer Non-Cyclicals, 4% Industrials, 3% Energy, 3% Utilities, 16% Cash.?

By UTI?International – Milltrust India Fund

Strong Recovery in GDP growth
We have seen a strong recovery in GDP growth from <5% to 7.5% with the biggest contributing factor being the tackling of inflation to 5-5.5% from 10%+ historically, largely on the back of lower commodity prices which the country is a net importer of, and from tackling the food part of the CPI.?

Diversification of Savings Boosting Indian Equity Market Potential
On the savings front, the average savings rate has traditionally been at around 33%. Previously, a large part of savings went to gold investments because Indians traditionally believe in buying gold as an attractive investment opportunity. Over the last 2 years, we have seen a structural shift of gold investments towards equities as the population realises the equity market is a more productive investment destination. As gold is the second largest import after crude oil, we have seen a stark improvement of the current account deficit to GDP which has narrowed from 5.2% in 2013 to 1.3% in 2015, as a consequence.?

General Improvements in Indian Macro
The Indian macro story has improved in the last few quarters with the sharp fall in the oil prices leading to a fall in the fiscal deficit and lower inflation which has been one of the biggest problems over the last few years. India?s external position is very stable with a vastly improved current account deficit, while the expected growth rate has not materialized. UTI believe that India has bottomed out in terms of growth and it can only improve from here on.?

Indian Corporate Earnings Improving
Corporate earnings have lagged expectations in the last few years on account of poor demand, high interest rates and high input costs. UTI see earnings improving over the medium term led by demand revival and full benefits of the fall in the commodity prices.?

The recent market fall has made valuations very attractive and markets are trading at sub 15x P/E, which is very attractive from a long term perspective.?

Given the strong strengths of India, which is reflected in its resilience amongst the emerging markets in this current turmoil, UTI expect the Indian markets to be relatively stable and for the next catalyst for a rise in the market to be the expected earnings surge in the second half of the year, as well as actions on the reforms front which would lend a lot of confidence to the investors. UTI expect the markets to be sideways until there is a change in the global scenario, however, Srivatsa expects India to be a very big beneficiary in case there is change from the risk-off to risk-on trade. Thus, UTI believe that it is an opportune time to increase exposure to equities.

Leading Sector Themes
UTI is very positive on the automobiles sector as this is a very big beneficiary of the domestic growth and across the sub segments such as 2W, Passenger cars and Commercial vehicles. This sector has very large entry barriers with only top three players controlling more than 70% market. This is one of the very few consumer-oriented sectors, which is trading at reasonable valuations and has huge leverage to the growth.?

UTI also likes Information Technology as a contra bet as they see growth rebounding in the coming quarters. This sector is a hedge for the near term weakness of the rupee and valuations are very attractive given the strong cash flows of the sector.?

They are also positive on cement as a proxy play on Infrastructure as the sector can be a big beneficiary of the infrastructure push, has high entry barriers and the team expects a strong improvement in the demand supply scenario in the coming years.?

UTI are bearish on metals as it sees huge threat from China in terms of lower prices across global commodities and huge leverage in the sector is also a huge negative.?

Milltrust India Fund Positioning as at 30 September 2015

Sectors: 24% Financials, 18% Technology, 17% Consumer Cyclicals, 10% Consumer Non Cyclicals, 6% Materials, 6% Materials, 5% Industrials, 5% Energy, 3% Utilities, 3% Diversifieds, 1% Comms, 8% Cash.

UTI’s investment in financials is led by their belief of long term attractiveness of the sector and this sector being a proxy for the recovery of the Indian economy. While there are short term challenges, UTI believe that the banking industry is strong enough to tide over the short term challenges. UTI’s positions in financials comprises of large cap private sector financials who have demonstrated their ability to grow above market rates and not compromising on quality and make consistent high return on equity. It also comprises of four mid cap banks with strong management, processes and well spread and have the potential to consistently outgrow the industry. UTI’s position in Information Technology is led by the team’s belief of strong earnings growth ahead of market expectations and valuations being much lower than long term averages. We are likely to see sharp revival in the IT spending which is likely to boost the revenues of the sector.

UTI weight in consumer discretionary comprises of four-wheel passenger cars company, diversified automotive with leaderships in automotives and agricultural vehicles & Textiles companies. UTI believe that the automotive industry is poised to outgrow the economy in the medium to long run and our focus in on companies with strong leadership positions who have managed competition well and earning high return ratios.?

The fund made fresh additions of stocks in utilities, metals and consumer sector taking advantage of the sharp fall which led to the valuations being attractive. The fund booked profits in banking and consumer discretionary to fund the purchases. Given the sharp fall in the utilities and material sectors, the fund sees scope to accumulate good quality stocks at very attractive valuations and would focus on both the sectors in the coming months.

By Lion Global Investors – Milltrust ASEAN Fund

ASEAN Macro Picture
External debt is now under control. In Thailand and Indonesia, external debt to GDP is at 30% or below. Only Malaysia has been running at a fiscal deficit for the last 15 years which explains in part why the currency is weakening. In Malaysia, almost half the debt was borrowed in local currency.?

Contrary to the times of the Asian crisis, most of the problems now lies in government balance sheets, not in corporate debt. Corporate debt in Thailand and Malaysia has decreased significantly as many of the owners of these companies have been around during the crisis and remember how bad it was when they borrowed in USD.?

All members of ASEAN, with the exception of Indonesia, are now running a current account surplus, and looking at foreign reserves, the region is also now running a healthy surplus, with the exception of Malaysia.?

ASEAN Concerns
The real concern in ASEAN, which has led to devaluing currencies, is due to the high investor expectations that weren?t met. We have seen EPS downgrades because GDP growth has been slowing on the back of China?s slowdown which has affected the region?s exports (China is the largest export destination for Singapore and the entire region).?

Long term Structural Trends Still Remain
The region benefits from a young and rising labour force (especially in Indonesia, Philippines and Malaysia) which contrasts to a peaking labour force in China. Income is also rising, especially in the middle and aspirational class vs China. Because of this, FDI continues to be strong in the region.?

In ASEAN, investors are still there, and it remains a good place to invest. After the recent retracement, valuations now are around mean PE valuation.?

Milltrust ASEAN Fund Positioning as at 30 September 2015
Country: 26% Singapore, 21% Indonesia, 19% Malaysia, 10% Thailand, 2% Philippines, 22% Cash

Sectors: 22% Financials, 20% Communications, 14% Consumer Non Cyclicals, 10% Industrials, 7% Consumer Cyclicals, 4% Utilities, 1% Energy, 22% Cash

Latin America
By Itau Asset Management – Milltrust Latin America Fund

The outlook for the rest of this year and next year is bleak with positive growth resuming in 2017; however, in Brazil, it?s all about the politics, and the key trigger to help drive up equity markets will be if the country is able to overcome the current political crisis.

Outside of Brazil, Mexico?s structural reforms have been very positive, particularly the energy reforms, which should lead to an accelerating growth trajectory for the country in the medium term.

Colombia and Peru have put forward major infrastructure programs which should have a positive spill-over into a number of local industries and help offset the reduction in commodity revenue.?


Chile?s significant structural de-rating over the last few years, partly triggered by the new ?market unfriendly? tax reform, has reached ?bottoming out? territory with very few sellers left.?

Milltrust Latin America Fund Positioning as at 30 September 2015
Countries: 43% Brazil, 31% Mexico, 11% Chile, 4% Peru, 3% Colombia, 1% Spain, 1% Panama, 0.4% Argentina

Sectors: 39% Financials, 21% Consumer Non-Cyclicals, 11% Industrials, 7% Utilities, 5% Consumer Cyclicals, 4% Comms, 4% Materials, 3% Energy, 2% Diversifieds, 6% Cash

Looking ahead, Itau are inclined to keep our relatively high exposure to Mexico and Chile and to continue underweight in Brazil. The current low price outlook for commodities, which is being reinforced by the deflationary adjustment that China is going through, will continue to be an overhang for Latin American equity markets, and Itau see Mexico and Chile better prepared to weather this adverse period, despite having their own economic challenges. Brazil simply faces too many difficulties on too many fronts ? political, fiscal and economic. It is hard to see any improvement in the fiscal situation coming about without a meaningful improvement in the political situation, and that does not seem likely. With no improvement in the fiscal situation, Itau see no room for improvements in credibility and/or confidence, and such improvements are pre-requisites for growth.?
On the positive side, the sluggish growth outlook points toward a likely continuance of loose monetary policy in the U.S. and elsewhere in the developed world, which in turn guarantees the capital supply and risk appetite that can support equity markets ? especially after the August sell-off, which made valuations more attractive.

By SEDCO Capital

Regional Investment Profile
The Middle East offers investors investors emerging markets growth in USD terms. The region benefits from low correlations, healthy country balance sheets, and a strong demographic dividend should provide plenty of upside for investors in the region.?

Saudi Arabia
Saudi Arabia is probably the best positioned country with a low debt to GDP ratio (1.6%) and large fiscal reserves making it technically unlevered.?

Oil Price Concerns for the Region
Abu Dhabi can rebuild itself 8 times without oil revenues and Saudi Arabia, 3 times. Saudi Arabia can also maintain existing spending for 3 years without oil revenues, and 7 years with oil at USD 30. Whether there is a political agenda or an economic reform agenda, there are no expectations for OPEC to change its policy anytime soon and a low oil price environment will likely persist for the foreseeable future.?

Dubai, whose economy is driven by services, transport and logistics with only 3% of GDP driven by oil, is likely to benefit the most with the lifting of the sanctions on Iran.

By VTB Capital Investment Management

Russian equity markets provide 30 to 40% upside over the next 12 months assuming oil prices maintain a minimum average price of USD 50 to 60 and there is an improvement in the geo-political situation.?

The most likely scenario for the next 12 months is a mild recession with real GDP contracting 2-3%, inflation and policy rates declining to less than 10%, and the rouble dropping to a 55-60/USD level. This would suggest an improving situation in Russia which should help lift the equity valuations off 10 year lows.?

Lifting of Sanctions?
If the EU sanctions are lifted at the end of the year when they expire, then the markets are probably looking at a significant decline in the equity market risk premium with a likely 30-35% immediate re-rating. The EU has had a very pragmatic approach with Russia which is likely to help with the quick removal of the EU sanctions once the geopolitical risks subside.

South Korea
By Truston Asset Management

Structural Opportunities in Korea
South Korea is transforming from an investment-driven economy to a consumption-driven economy. Although the demographics picture for the country is deteriorating, and there have been challenges with regards to the economy, these have been mostly offset by the overseas demand for Korean products and services, triggered by the wide popularity of the Korean Wave (Hallyu). In addition, technology enhancements have nurtured Korea into one of the most advanced digital societies. The country is also a global manufacturing powerhouse gradually evolving into a value-added service-oriented economy.?

Higher Dividends Should Resolve the Korean Discount
Investors are hopeful that higher dividends in the future will help resolve the Korean discount. Indeed, Korea?s average dividend payout ratio has been at 17% vs. global 40%, and the average dividend yield is currently 1.7% vs. global 2.5%. A market re-evaluation is expected due to an improved shareholder return policy including:?

1. – Tax packages to boost dividend income and to strengthen the link between corporate earnings and household income

2. – SOEs to increase their dividend payout ratios from the current level of 21% up to 40%

Rising Asian Consumption
Amid concerns over China?s hard-landing, the Chinese government has shifted their policy from an investment-driven to a consumption-led economy. This transition to a consumption-led growth is secular while a probable hard-landing is cyclical. With Korea being one of the most preferred destination for shopping, over 8 million Chinese tourists have visited Korea in 2014. China has also reduced its import tariffs for popular consumer goods in June 2015 to boost domestic spending, which has been benefitting Korean goods such as cosmetics, diapers, shoes, and fashion resulting in a sharp export increase.?

Urban centers in emerging regions, especially 35% in Asia, have also been leading global GDP growth through continued urbanization, rising income levels and young population in Asian countries all contributing to the region?s consumption growth, and from the Korean wave ?Hallyu? which has triggered demand towards Korean culture and products such as Tourism (Hotels, Airlines, DFSs, Entertainment), Goods (Cosmetics, Fashion, Handsets, F&Bs) and Healthcare (Plastic Surgery, Pharmaceuticals).?

Attractive Valuations
Similar to the world economy, Korea?s industry structure is well-diversified, while other Asian countries are heavily biased towards a few dominant industries. Korea?s top global brands include 15 companies in 9 industries. Today, Korea?s share price valuation makes it one of the most attractive markets in the world with markets trading at 9.4x P/E and 0.9x P/B. Additionally, Korea has been one of the most resilient markets during the global financial crisis supported by sound economic fundamentals and a healthy fiscal situation.?

Sound Fundamentals
South Korea?s economic fundamentals are stable with healthier financial systems, greater transparency, stronger banks, sober balance sheets, and reasonable current-account deficits.

While South Korea is growing at a rate of 2.2 percent with a 3.7 percent jobless rate, its high household debt of $458 billion is the primary concern for the country.

By PXP Vietnam Asset Management

Vietnam Profile
Vietnam counts a population of around 90 million people, of which 60% are below 35 years old. Literacy rate is high at over 95% and urban population is 35%. Key growth drivers for the country include (1) Primary Exports: Garments & footwear; crude oil; electronics; rice (global #1); coffee (global #2); natural rubber (global #3), and (2) Economic drivers: foreign direct investment, exports, domestic demand.?

Structural Opportunities
Going forward, the country will be boosted from higher value-add manufacturing activities, a burgeoning middle-class and ongoing urbanization. Vietnam has experienced GDP growth of 6.0% in 2014 which is expected to increase to 6.5% in 2015.

New Policy and Key Reforms
Vietnam is in a new era of monetary policy with key reforms driving a structural bull market:?

?Monetary Policy:?Change in focus promoting the pursuit of long-term economic stability is proving timely and effective.

?Improving Foreign Access: Foreign ownership limits are currently 30% for banks, and 49% for all other listed stocks. Limits are scheduled to be removed across most of the market (except banks & a small number of ?conditional? sectors) from 1 September 2015.?

Structural Reforms:?Rationalisation and reorganisation of inefficient state-owned enterprises, Resumption of privatisation programme of SOEs, Vietnam Asset Management Company launched in 2013 to lead the recapitalisation of banking sector, a US$ 1.5bn social housing stimulus package & foreigners permitted to own residential property from July 2015.?

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