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JPMorgan Chinese Investment Trust plc
Annual General Meeting
26 January 2015
1
Agenda
Company objectives, performance and market performance
Portfolio update
Market outlook
2
JPMorgan Chinese Investment Trust plc
* As at 31 December 2014
Source: J.P. Morgan Asset Management
Investment objectives
– To provide long term capital growth by investment in 'Greater China' companies i.e. companies which are quoted on the stock
exchanges of China, Hong Kong and Taiwan or which derive a substantial part of their revenues or profits from these territories
Features
– Includes Hong Kong and Taiwan to broaden investment opportunity
– The Company uses J.P. Morgan’s "on the ground" expertise and local presence to find the best companies in the "Greater China"
region (China, Taiwan, Hong Kong)
– Strong focus on first-hand company visits and research to discover attractively-valued stocks
– +/- 25% active positions against the benchmark in China, Hong Kong and Taiwan
Benchmark
– MSCI Golden Dragon Index in sterling terms
Gearing
– To use gearing up to 15% when appropriate. Currently 7.5%
Total Assets of £167.7m*
3
Results Highlights – 12 months to 30 September 2014
* MSCI Golden Dragon Index (NDR) (in sterling terms)
Source: J.P. Morgan Asset Management, Morningstar, Thomson Reuters Datastream. As at 30 September 2014.
Return to ordinary shareholders: 12.0%
Return on net assets: 7.8%
Benchmark return*: 6.8%
Proposed dividend: 1.6p
4
NAV and Benchmark Performance
As at 31 December 2014
* Undiluted returns
** MSCI Golden Dragon Index (NDR) (in sterling terms)
Source: J.P. Morgan Asset Management, Fundamental Data, Thomson Reuters Datastream
NAV Performance* % Benchmark** %
4Q 2013 4.9% 1.5%
1Q 2014 -4.9% -3.9%
2Q 2014 4.4% 4.9%
3Q 2014 3.8% 4.3%
4Q 2014 10.1% 8.8%
1 Year to 31 December 2014 13.1% 14.4%
After a strong 2013, we underperformed in the growth sell-down in early 2014
5
Despite underperforming in 2014, our mid-long term track record remains strong
13.1
55.8 44.6
261.7
11.4
54.8
26.2
231.7
14.4
40.2 34.2
182.1
0
50
100
150
200
250
300
1 Year 3 Years 5 Years 10 Years
Net Asset Value
Share Price
Benchmark*
Share Price, NAV and Benchmark Performance
Performance to 31 December 2014
* Undiluted return on net assets
** MSCI Golden Dragon Index (NDR) (in sterling terms)
Source: J.P. Morgan Asset Management / Fundamental data / Thomson Reuters Datastream / Bloomberg / MSCI
Price Index
GBP
6
US Equities continued to be the top performing market
Performance of the world vs Greater China stock markets
Source: Thomson Reuters Datastream
12 months to 31 December 2014
%
20.0
16.2
14.7
14.4
11.6
11.3
1.2
0 5 10 15 20 25
S&P 500
MSCI Taiwan
MSCI China
MSCI Golden Dragon
MSCI Hong Kong
MSCI AC Asia ex Japan
FTSE All Share
Total Return (GBP)
7
Agenda
Company objectives, performance and market performance
Portfolio update
Market outlook
8
JPMorgan Chinese Investment Trust plc
As at 31 December 2014
%
58.7
24.4
16.9
48.9
28.3
22.8
0
10
20
30
40
50
60
70
China Taiwan Hong Kong
Portfolio
Benchmark*
We retain our large overweight in China given valuations and significant stock level opportunities
Asset Allocation vs. the Benchmark*
* MSCI Golden Dragon Index (NDR) (in sterling terms)
Source: J.P. Morgan Asset Management, MSCI
The Fund is an actively managed portfolio. Holdings, sector weights, allocations and leverage, as applicable are subject to change at the discretion of the
Investment Manager without notice.
9
JPMorgan Chinese Investment Trust plc
As at 31 December 2014
%
17.2
11.5 9.6
6.4
16.6
10.0 9.5
3.5
Banks Insurance Real Estate Diversified Financials
44.7
27.9
7.4 6.6 6.3 4.3 4.1 3.2 2.6
0.5
-7.5
39.6
22.5
6.3
1.1
6.3 6.9 4.9 5.4
3.0 3.9
0.0
Financials Information Technology
Industrials Health Care Consumer Discretionary
Telecom Services
Utilities Energy Consumer Staples
Materials Cash
Portfolio
Benchmark*
Financials
13.4
8.7 5.8
10.5
4.5 7.6
Semiconductors &
Semiconductor Equipment
Software & Services
Technology Hardware & Equipment
Information Technology
Key Positions:
•Secular growth – health care, internet, consumption, environment
•Exposure to monetary easing/domestic liquidity – mid-sized banks, insurance
•Niche technology stocks
* MSCI Golden Dragon Index (NDR) (in sterling terms)
Source: J.P. Morgan Asset Management, MSCI
The Fund is an actively managed portfolio. Holdings, sector weights, allocations and leverage, as applicable are subject to change at the discretion of the
Investment Manager without notice.
Sector Allocation vs. the Benchmark*
10
JPMorgan Chinese Investment Trust plc Top 10 Holdings
Total number of holdings: 67
Concentration Percent of Total Market Cap (USD) Portfolio Benchmark*
Top 10 Holdings 43.2 > 100 bn 21.2 18.5
Top 20 Holdings 63.1 50 bn <> 100 bn 5.8 8.5
Top 30 Holdings 77.5 10 bn <> 50 bn 36.1 40.6
5 bn <> 10 bn 20.0 15.9
3 bn <> 5 bn 12.0 8.7
1 bn <> 3 bn 9.9 7.6
< 1 bn 2.5 0.2
Portfolio Benchmark*
Holdings# Country / (Classification) % %
Taiwan Semiconductor Manufacturing Taiwan 8.2 6.6
Tencent Holdings China (Hong Kong P Chip) 6.9 4.8
AIA Group Hong Kong 5.0 4.1
China Construction Bank China (Hong Kong H Shares) 4.8 3.2
Cheung Kong (Holdings) Hong Kong 3.5 1.5
China Telecom China (Hong Kong H Shares) 2.9 0.5
China Minsheng Banking China (Hong Kong H Shares) 2.4 0.4
Agricultural Bank of China China (Hong Kong H Shares) 2.2 0.6
BOC Hong Kong (Holdings) Hong Kong 2.2 0.8
Fubon Financial Holding Taiwan 2.1 0.6
40.2 23.1
# As at 28 Nov 2014.
* MSCI Golden Dragon Index (NDR)
Source: J.P. Morgan Asset Management, as at 31 Dec 2014.
The companies/securities above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell.
The holdings represent the current holdings of the fund. However, it cannot be assumed that these types of investments will be available to or will be selected by the fund in the future.
11
JPMorgan Chinese Investment Trust plc
* MSCI Golden Dragon Index (NDR)
Source: J.P. Morgan Asset Management, as at 31 Dec 2014
The Fund is an actively managed portfolio, holdings, sector weights, allocations and leverage, as applicable are subject to change at the discretion of the Investment Manager without notice.
MSCI Breakdown (%)
H Shares 30.9 27.1
Taiwan 26.2 28.3
Hong Kong 18.2 22.8
P Chip 13.5 9.6
Red Chip 8.1 11.8
China Others 7.0 0.1
A Shares 2.5 -
B Shares 1.1 0.2
Cash -7.5 -
100.0 100.0
Portfolio Benchmark*
12
Agenda
Company objectives, performance and market performance
Portfolio update
Market outlook
13
What will the year of the sheep bring?
Source: J. P. Morgan Asset Management. As at 31 Dec 2014.
The targets and aims provided are the Investment Manager’s targets and aims only. There is no guarantee that these targets and aims will be achieved.
The opinions and views expressed here are as at the date of this document, which are subject to change and are not to be taken as or construed as investment advice.
China is entering a ‘new normal’ phase where debt/GDP is being stabilized and incremental reforms are being
rolled out using the anti-corruption campaign as the stick (and survival as the carrot)
GDP growth is likely to continue a deceleration path towards a theoretical sustainable rate of 6.5% in the next 5
years
There will be growth areas: organic (e-Commerce, SUV auto sales), policy-driven (environmental) or both
(healthcare)
We also see opportunities in the financials sector given expected monetary easing
14
0%
10%
20%
30%
40%
1/11 5/11 9/11 1/12 5/12 9/12 1/13 5/13
0%
5%
10%
15%
1,000
1,100
1,200
1,300
1,400
1,500
1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14
National power generation (M MWh)
y/y%
Industrial economy has been constrained by credit growth
Source: Ministry of transport in China. As at end Oct 2014
Global trade is no longer a key driver for China growth
Source: CCTD, Bloomberg, Digital Cement, Mysteel. As at end Oct 2014.
Commodity price was affected by demand slowdown
Weak power generation signals deceleration in industrials
Source: China Electricity Council. As at end Oct 2014
-40%
-20%
0%
20%
40%
1/11 7/11 1/12 7/12 1/13 7/13 1/14 7/14
Coal (5500Kcal/kg QHD) Steel (Avg HRC) Copper (SHFE )
Source: Credit Suisse. As at 30 April 2014.
0
5
10
15
20
25
30
1996 1998 2000 2002 2004 2006 2008 2010 2012
SOEs Others
% Pre-tax ROE: Industrial SOEs & Others
15
China’s loosening initiatives
2
3
4
5
6
7
8
08 09 10 11 12 13 14
China 1 Year Benchmark Deposit Rate
China Lending Rate
Percentage
The PBoC surprised the market with an interest rate cut…
… followed by an announcement to broaden the
definition of deposits
PBoC will expand the base for calculating loan-to-deposit ratios by
including savings geld by banks for non-deposit taking financial
institutions into bank deposits
Under current rules, banks in China are allowed to lend up to 75% of
their deposits held
The new definition should make an additional 5 – 5.5 trillion Yuan
available, which is expected to ease liquidity conditions and lower
financing costs for domestic companies
Source: FactSet. As at 31 Dec 2014. Source: Bloomberg, China Daily. As at 31 Dec 2014. PBoC = People’s Bank of China
16
Credit costs are normalizing as we enter a post 2009 stimulus era NPL digestion phase
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14
Big-four banks Top-four mid-sized banks Total listed banks
Banks’ NPL ratio is still on an upward trend
Source: Chinese banks’ financial report, DB Research, end Oct 2014
- 20 40 60 80
100 120 140
1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14
bps
Big-four banks Top-four mid-sized banks Total listed banks
Banks’ credit cost: mid-sized banks are provisioning more than big banks
Source: Chinese banks’ financial report, DB Research, end Oct 2014
17
Who will benefit? Property market is inflecting, reducing economic tail-risk
Source: Soufun, Goldman Sachs Research, end Oct 2014
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
2,500
7,500
12,500
17,500
22,500
27,500
1/11 7/11 1/12 7/12 1/13 7/13 1/14 7/14
Tier 1 vol (LHS) Tier 2 vol (LHS)
Tier 3 vol (LHS) Tier 1 cities ASP yoy%
Tier 2 cities ASP yoy% Tier 3 cities ASP yoy%
Property volume has rebounded alongside policy
loosening and healthy price cuts in oversupply markets
20%
40%
60%
80%
100%
120%
9/08 3/09 9/09 3/10 9/10 3/11 9/11 3/12 9/12 3/13 9/13 3/14
Tier 1 Tier 2 Tier 3
Affordability (mortgage payment to household income):
T1 cities are rising but T2/T3 cities are relatively stable
Inventory months (3 months rolling): with sales volume
picking up, inventory level should gradually trend down
Source: NBS, PBOC, Goldman Sachs Research, end Oct 2014
Source: Soufun, Goldman Sachs Research, end Oct 2014
0
10
20
30
1/09 7/09 1/10 7/10 1/11 7/11 1/12 7/12 1/13 7/13 1/14 7/14
Mth Tier 1 average inventory months Tier 2 average inventory months Tier 3 average inventory months
18
70
90
110
130
150
170
190
Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14
MSCI China Consumer Discretionary Energy
Financials Health Care Information Technology
Telecommunication Services
China - wide divergence in earnings forecasts
MSCI China 12-Mth Forward EPS Trend (Rebased Dec 2012 = 100)
Source: IBES, 31 Dec 2014
Energy:
- Above market PE
- Earnings downgrades
- Poor execution
Telecoms:
- Double market PE
- <2% yield
- Negative earnings
growth seeing
downgrades
Internet:
- Visible earnings
growing above market
- Constant upgrades
19
Investment themes in the ‘new normal’
Source: Company Information, Morgan Stanley Research, Bloomberg, 19 June 2014
CAGR = Compound Annual Growth Rate; E = Bloomberg Estimates
Smartphone and tablet market growth = annual %change in units of devices shipped worldwide Portfolio stock
growth = annual %change in aggregated revenue of mentioned portfolio stocks
Market share gain story in the hardware industry
Source: Company Information, Bloomberg. As at Oct 2014.
Leading internet traffic gateways show strong growth
momentum
China healthcare industry is in a secular bull market
0%
10%
20%
30%
40%
50%
60%
2012 2013 2014E 2015E
Smartphone and Tablet Market
AAC, Largan and Mediatek Aggregated Revenue
Annualized Growth Rate
CAGR (2012 – 2015E)
0%
10%
20%
30%
40%
0
1,000
2,000
3,000
4,000
1978 1982 1986 1990 1994 1998 2002 2006 2010
Healthcare Spending (Rmb Bn) y/y growth
142.2 132.1 208.1
307.2
0
200
400
WWT (mt/d) WTE (kt/d)
2012 2015E CAGR 14% (2012 – 2015E)
CAGR 32% (2012 – 2015E)
Source: Ministry of Environmental Protection, Ministry of Housing and Urban-Rural Development.
As at Oct 2014. WWT = Waste Water Treatment WTE = Waste to Energy
47% 41%
28%
71%
27% 31%
0%
20%
40%
60%
80%
Alibaba Baidu Tencent
Revenue CAGR ( FY12-FY17E)
Non-GAAP Net Profits CAGR ( FY12-FY17E)
Source: National Health and Family Planning Commission of PRC, end Oct 2014
Still a lot of work to be done to upgrade the
environmental standard
Forecasts, projections and other forward looking statements are based upon current beliefs and expectations. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and
risks associated with forecasts, projections and other forward statements, actual events, results or performance may differ materially from those reflected or contemplated. The companies/securities above are shown for illustrative
purpose only. Their inclusion should not be interpreted as a recommendation to buy or sell. J.P. Morgan Asset Management may or may not hold positions on behalf of its clients in any or all of the aforementioned securities.
20
China Healthcare spend to rise
National Healthcare Spending target 20/20 Market Cap of Healthcare Companies
Source: Bloomberg, 5 May 2014 Source: National Health and Family Planning Commission, 5 May 2014
247
1,158
33
666
35
464
5
245
10 382
China US
Pharmaceuticals
Biotech / Biologics
Medical Devices
Distributors / Retailers
Healthcare Services
$330Bn $2,915Bn
% of sector mkt cap
10%
12%
14%
16%
18%
20%
22%
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9.5% 10.0%
Low-end: 13%
High-end: 20.4%
2020E Health Spending as % of GDP 2020E
Healt
h S
pe
nd
ing
(R
Mb
Bn
)
Healt
h S
pe
nd
ing
2012-2
020E
CA
GR
Rmb7,384bn
2.4x 2013E
Rmb8,614bn
2.8x 2013E
21
Internet services – Social media a new form of communications
Tencent Earnings and Share Price – Growing
Exponentially
Source: Bloomberg. As at 31 Dec 2014.
China’s e-Commerce share (as % of total retail sales) has
already exceeded that of the US
Singles day and Cyber Monday: Sales compared
Source: Alibaba, Bloomberg, ComScore, 9 Jan 2015
Source: iResearch, 9 Jan 2015
0
20
40
60
80
100
120
140
160
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
04 05 06 07 08 09 10 11 12 13 14
Net Profits
Share Price (RHS)
RMB Million HKD
The inclusion of the securities mentioned above is not to be interpreted as recommendations to buy or sell. Opinions, estimates, forecasts, and statements of financial market trends that are based
on current market conditions constitute our judgment and are subject to change without notice.
7.9%
5.2%
0%
2%
4%
6%
8%
10%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
China
US
0
5
10
2009 2010 2011 2012 2013 2014
Singles Day
Cyber Monday
Revenue (USD bn)
22
Niche technology exposure in Taiwan
Source: Cinet.com, Whathifi.com 9 Jan 2015
23
Greater China valuations near trough levels
MSCI Golden Dragon 12-Month Forward PE MSCI Golden Dragon Trailing PB
x x
Source: Thomson Reuters Datastream, 31 Dec 2014 Source: Thomson Reuters Datastream, 31 Dec 2014
PE = Price to Earnings Ratio
PB = Price to Book Ratio
Indices do not include fees or operating expenses and are not available for actual investment. Past performance is not indicative of future performance.
11.0
Avg 12.8
+1sd 14.8
-1sd 10.9
6
8
10
12
14
16
18
20
04 05 06 07 08 09 10 11 12 13 14
1.3
Avg 1.7
+1sd 2.0
-1sd 1.3
0.5
1.0
1.5
2.0
2.5
3.0
04 05 06 07 08 09 10 11 12 13 14
24
J.P. Morgan Asset Management
This is a promotional document and as such the views contained herein are not to be taken as an advice or recommendation to buy or sell any investment or
interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have
been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do
not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment
techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be
reliable at the time of writing, may not necessarily be all-inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or
notification to you.
It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and
investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of the product(s) or
underlying overseas investments. Both past performance and yield may not be a reliable guide to future performance. There is no guarantee that any forecast
made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment product(s), there can be no assurance that
those objectives will be met.
J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co and its affiliates worldwide. You should note that
if you contact J.P. Morgan Asset Management by telephone those lines may be recorded and monitored for legal, security and training purposes. You should also
take note that information and data from communications with you will be collected, stored and processed by J.P. Morgan Asset Management in accordance with
the EMEA Privacy Policy which can be accessed through the following website http://www.jpmorgan.com/pages/privacy.
Investment is subject to documentation which is comprised of the Investment Trust Profiles and Key Features and Terms and Conditions, copies of which can be
obtained free of charge from JPMorgan Asset Management Marketing Limited. Issued by JPMorgan Asset Management Marketing Limited which is authorised and
regulated in the UK by the Financial Conduct Authority. Registered in England No: 288553. Registered address: 25 Bank St, Canary Wharf, London E14 5JP.
