"MAY YOU LIVE IN INTERESTING TIMES“- CHINA IN THE 2020S -

James MortonWednesday 15thSeptember 2021

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Confucius or Not Confucius

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President Xi’s China

• Overall Objectives1. Communist Party Control2. A Moderately Prosperous

Society (and more equal)3. A Cleaner Country

• Key Policy Priorities

1. SOE Reform CPM on Board of all SOEs

2. Levelling up3. A comprehensive menu of

environmental initiatives and regulations

• Signature Initiatives

1. One Belt, One Road/ Regional Comprehensive Economic Partnership

2. Greater Bay Area

3. Made in China 2025

A 100 years since the founding of the Chinese Communist Party

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China has Changed, is Changing and will Continue to Change

• Poverty is disappearing/more rich people

• Declining population/workforce

• Slowing money supply growth

• The Li Keqiang Index stabilizing (ex-COVID)

• Investment balance is shifting

• Shift in Foreign Investor concerns

– Currency

– Inflation

– Regulation

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China’s Poverty Rate (1980 – 2015)

4

՛80 ՛85 ՛90 ՛95 ՛00 ՛05 ՛10 ՛15

Source: World Bank

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Ultra High Net Worth Individuals (2020)

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Sources: James Davies, Rodrigo Lluberas and Anthony Shorrocks, Credit Suisse Global Wealth Databook 2021

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Changes in China’s Population

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Growth in Chinese Money Supply(1998-2021)

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RRR Cuts Boost Credit Cycle

Source: Alpine Macro

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Global monetary easing in the Year of COVID

Cumulative cuts in central bank policy rates in 2020

Sources: Gavekal Dragonomics/Macrobond

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Li KeQiang Index(2005-2021)

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China’s Investment Flow(1980-2019)

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Renminbi/US$: (1980 – 2021)

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Chinese Inflation : CPI(1985 to 2021)

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%

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Investing in Chinese Financial Assets in 2021

THE THREE CONNECTS

Bonds Equities

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Foreign Investment in Chinese Bonds

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Five-year Government Bond Yield: The US vs China(2002-2021)

%

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Hong Kong Stock Connect Northbound(2014-2021)

Sources: Bloomberg, HKEx

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Hong Kong Stock Connect Southbound(2014-2021)

Sources: Bloomberg, HKEx

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Chinese Investor Preferences

19

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18 Jan 19 Jan 20 Jan 21 Jun 21

Other/Don’t know

Insurance

Bank savings

Forex

Foreign stock market

WMPs issued by banks

Bonds

Gold

Property

Domestic stock market

Source: China Reality Research

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Relative Earnings Multiples : Chinese Equities vs ROW(2001 - 2020)

Source: Bloomberg

20

P/E

0

5

10

15

20

25

30

35

40

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

S&P 500

SHCOMP

Nikkei 225

MSCI Europe

x

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Relative Yield : Chinese Equities vs ROW(2001 - 2020)

Source: Bloomberg

21

Dividend(Net)

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

S&P 500

SHCOMP

Nikkei 225

MSCI Europe

CIM Dividend

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Policy Priorities Drive Portfolio Positions

Past

• Construction/Infrastructure

• Exporters

• Basic Products

• “P” Chips

• Growth companies

• Foreign Listings/Technologies

Present (and near-term future)

• Project Management/Services

• Domestic Consumption

• Mass Luxury

• Reforming SOEs

• Consolidators

• Heading Home/Approved

Technologies22