October 2018 Global Emerging Markets Equity Income Standard... · 2019-12-18 · Sources: Factset, CLSA Asia-Pacific Markets, CLSA Asia Specific Markets, October 2018 MSCI regions

October 2018

Finding the sweet spot in Emerging Market Equity income investing

Global Emerging Markets Equity Income

This communication is intended for investment professionals only and must not be relied on by anyone else.

Matthew Williams, Investment Director

Aberdeen Standard Investments is a brand of the investment businesses of Aberdeen Asset Management and Standard Life Investments.

Macro matters but microeconomics will define the asset class

Source: MSCI, Bloomberg, Aberdeen Standard Investments, October 2018

Microeconomic developments Impact

China’s rise to high income status HIGH

Reform in India, upcoming housing & infrastructure cycle HIGH

The emergence of Intra-Asia trade HIGH

Leisure & entertainment industry proliferation HIGH

Supply side discipline HIGH

Local brand expansion HIGH

IOT / AI / Big Data HIGH

Rising value-add & leap frogging technologies HIGH

-50-40-30-20-10

0102030

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

EM/DM P/E discount P/E discount average EM/DM P/B discount P/B discount average

• The proportion of GEM companies paying dividends now exceeds that of developed markets

• Dividend typically accounts for 1/2 of GEM total returns

• Since 2000 dividend delivery in GEM has been best-in-class

• Over 1/3rd of MSCI EM listed companies pay a dividend >3%

Isn’t GEM about growth, not income?

A compelling income opportunity

1 Using MSCI universe as it existed in the past. Based on local currency performance. Gross reinvested dividends without considering the impact of taxes. As at December 2017

Source: Factset, CLSA Asia-Pacific Markets, CLSA Asia Specific Markets, October 2018

More companies paying dividends in Emerging Markets1 EM dividend return - Highest since 2000

40

50

60

70

80

90

100

98

A

99

A

00

A

01

A

02

A

03

A

04

A

05

A

06

A

07

A

08

A

09

A

10

A

11

A

12

A

13

A

14

A

15

A

16

A

17

A

MSCI EM MSCI DM

(% of stocks paying dividends)

0

100

200

300

400

500

EM AsiaxJ Australia USA AC World DM Europe Japan

Price return Dividend return(%)

EM, Asia ex-Japan and Australia have

highest dividend contribution to their

total return since Dec-2000

The dividend growth story

Growing income is the most valuable income of all

1 Bottom-up aggregated with free float adjustment in a YoY like-to-like basis for the current MSCI universe Sources: Factset, CLSA Asia-Pacific Markets, CLSA Asia Specific Markets, October 2018

MSCI regions and markets - Dividend index1 over the past 15 years

0

100

200

300

400

500

600

700

800

900

1,000

02A

03A

04A

05A

06A

07A

08A

09A

10A

11A

12A

13A

14A

15A

16A

17A

18F

19F

AxJ Europe EM DM USA Japan

Dividend index rebased to 100 (local currency, current universe) Estimate

Dividend CAGR (02A-17A):

DM: 8.5% EM: 14.8%

USA: 9.0% Japan: 11.4%

Europe: 7.5% AxJ: 14.3%

Dividends are 50% of GEM total return…

Source: UBS, January 2017

Emerging market return composition

Source: MSCI, Thomson Reuters DataStream, UBS, September 2018

Cap

ital R

etur

ns

Div

iden

d R

etur

ns

Tota

l Ret

urns

Div

retu

rn a

s %

tota

l ret

urn

Ave

rage

US

10Y

bond

yie

lds

30 yrs 684% 905% 1589% 57% 4.8%

20 yrs 311% 283% 594% 48% 3.6%

10 yrs 33% 42% 75% 56% 2.5%

5 yrs 6.1% 15% 22% 72% 2.3%

55%

45%

-1%

-10%

0%

10%

20%

30%

40%

50%

60%

Dividends Earnings P/Econtribution to AxJ total return since 1986

Asia ex Japan return composition

High dividends

• Cash flow sustainability / focus on payout

• Positive selection bias

Dividend growth

• Exposure to exciting demographic and industry trends

• Value of growing income streams

A powerful combination

• Perform in rising and falling markets

• Avoid dividend value-traps

Focusing on yield and growth to drive total return

The best of both worldsSource: Merrill Lynch GEM Quantitative Strategy (bottom chart), Aberdeen Standard Investments

MSCI EM: Outperformance for dividend yield ranges

Source: Factset, IBES, MSCI, Morgan Stanley

Factor analysis (2000-2018)

4.9%

-3.9%

0.0%-3.5%

11.0%

3.8% 3.4%

-5.6%-10%

-5%

0%

5%

10%

15%

High Div Yield + HighDiv Growth

High Div Yield + LowDiv Growth

Low Div Yield + HighDiv Growth

Low Div Yield + LowDiv Growth

Annu

alis

ed M

edia

n 1-

Mon

th R

etur

n

Rising MarketsFalling Markets

(4)

(2)

0

2

4

6

<22-33-44-5>5

MSCI EM 12-month forward dividend yield ranges (%)

Since 2003 Since 2010

Annualized outperformance (eq-wtd US$ TR,%)

• Deliver a premium, sustainable and growing income stream

• Utilising a style agnostic portfolio construction and total return mindset

• Target yield greater than 115% of MSCI Emerging Markets index yield

• Quarterly payout policy

• Estimated portfolio yield c.4.2%*; with a growing income stream

• Outperform MSCI GEM on a total return basis across the cycle

GEM Equity Income proposition Delivering a premium, sustainable and growing level of income stream

Attractive yield with both income and capital growth to drive total return* 12m forward gross yield, September 2018

Our approach

Global Emerging Markets Income

Right stocks, right framework

Source: Aberdeen Standard Investments

e.g…Balance sheet Dividend policy Earnings volatility Cash cover Dividend history Dividend analysis

Dividend Growth

~50%

Dividend growth at a premium to the market

1 to 5%

~10 to 30%

Dividend characteristics

Dividend yield range

Portfolio allocation

Dividend Growth

High Dividend

~35%

Sustainable Dividend

3 to 8%

~0 to 15%

Special Situation

~15%

0 to 12%

n/a

Global Emerging Markets Team

¹ Sao Paulo traders are based in Philadelphia. Source: Aberdeen Standard Investments, 30 September 2018

Devan KalooHead of Global Emerging Market Equities

São PauloPeter Taylor

LondonJoanne Irvine

SingaporeFlavia Cheong

Hong KongNicholas Yeo

BangkokAdithep Vanabriksha

Kuala LumpurGerald Ambrose

JakartaBharat Joshi

Brunella IsperEduardo Figueiredo

Ivan Kleimann Tiago Rodrigues

Central Dealers¹: Brian Higgins

Bruce Marcolina

Adam MontanaroBhupinder Sachdev

Catriona MacnairFiona ManningGabriel SacksGuy Norman

Mark Gordon-JamesMatthew Williams

Mubashira BukhariNick Robinson

Osamu YamagataStephen Parr

William Scholes

Investment support (4)

Central Dealers: Ewen StevenIain Harvard

Derek MccoleLee DobinsonMatthew Drake

Russell ClementsRussell Hall

Adrian LimChristina Woon

Christopher WongDavid SmithGan Ai MeeHugh YoungJames Thom

Jerry GohKristy Fong

Louis LuPruksa Iamthongthong

Yoojeong OhDaniel Ng


Central Dealers: Abel Koh

Ambrose Tan*Benny Chuen

Linda MangsudRebecca AngRichard Ang

Elizabeth KwikNicholas Chui

Jim JiangBush Chu


Orsen KarnburisudthiThanya

MahawattanaungkoonSutatip Premruthai*

Investment support(1)

Evan CheahFadzrul Salman Nadjlaa ZubriKenric TaylorZafir Shukor

Felicia BudimanKemal Razindyaswara

Liliana Theling

Central Dealers: Sisca

Syarif Hidayatullah

Joanne IrvineDeputy Head of Global Emerging Market Equities

Equity Income investing requires a through cycle approachCompany life cycle

Capturing dividend opportunities across the cycleSource: Aberdeen Standard Investments

Company description

• Holding company with controlling ownership in Bajaj Auto & Finserv; a leading motorbike & 3 wheeler manufacturer and non-bank financial & insurance business

Market view

• Motorbike success would be India centric

• Finance & insurance operations would remain niche operations

Our non consensus view

• Credible strategy to expand motorbike exports into Africa. Limited competitive threat from Chinese leading to enhanced profit margins.

• Insurance operations had a strong brand but regulatory headwinds. New products resolved key issues. Very under penetrated market. Non-bank finance arm had exceptional credit risk pricing and scope to take share from SOE banks

• Holding company trading at 65% discount to listed subsidiaries

• Dividend Yield at purchase: 2.6% with dividend growth >20%

Dividend Growth: Bajaj Holdings

Source: Thomson Reuters DataStream, 18 March 2014 to 30 September 2018

Share price performance

Company description

• Leading Russian rail freight forwarder

Market view

• Market overly concerned with industry overcapacity

• Expected to return cost of capital

• Omitted dividend payments

Our non consensus view

• The industry excluding Globaltrans was operating below maintenance costs. Expect a meaningful supply adjustment

• We anticipated 20% Free Cash Flow yield at trough of cycle. Competitiveness expected to improve further

• Forecast dividend reinstatement & high pay-out ratio in light of robust balance sheet health

• Dividend on purchase: 0%, dividend reinstated April 2016, current yield 12.5%

Special situation: Globaltrans

Source: Thomson Reuters DataStream, 02 December 2015 to 30 September 2018

Share price performance

Superior dividend delivery

Source: 1Aberdeen Standard Investments (based on quarterly distributions of the institutional income share class). 2Thomson Reuters DataStream (based on month-end data). CAGR calculated from 01 January 2013 to 31 December 2017, Dividend distributions to 31 August 2018

2013 2014 2015 2016 2017 20180

20

40

60

80

100

120

140

Dis

tribu

tions

(reb

ased

to 1

00 a

s at

Jan

201

3)

Feb May Aug Nov MSCI EM

SLI GEM Income

CAGR 5.39%1

MSCI EM CAGR -2.14%2

Downside resilience

* Geometric Relative ReturnSource: Aberdeen Standard Investments, gross performance, 30 September 2018

Largest positive quarters for MSCI EM

* Geometric Relative ReturnSource: Aberdeen Standard Investments, gross performance, 30 September 2018

Largest drawdown for EM Equities

Income driven total driven mindset

-16-14-12-10-8-6-4-20246

Q3 2015 Q2 2013 Q2 2015

MSCI Emerging Markets GEM Income Relative Return*

-2

0

2

4

6

8

10

12

14

Q3 2016 Q1 2017 Q1 2016

MSCI Emerging Markets GEM Income Relative Return*

PerformanceAttractive long-term risk adjusted returns

High active share, low tracking error, high dividend, attractive dividend growth and strong total returns

* Since Inception: 01 January 2013 (fund launched 13 December 2012). ** To 30 September 2018. The largest passive fund in the IA Emerging Markets Sector: Vanguard Emerging Markets Stock Index Acc GBP in GB (AMC 0.27%). Source: Aberdeen Standard Investments, gross performance with geometric returns to 30 September 2018 (GBP), Financial Express (chart) from 14 December 2012 to 30 September 2018. Standard Life Investments claims compliance with the Global Investment Performance Standards (GIPS®). The fund specific data presented above is supplementary information to the Mutual Funds Global Emerging Markets Equity Income GIPS® composite report, which is enclosed in the Appendix for your reference

Since Inception % p.a.*

Global Emerging Market Equity Income 9.35

MSCI Emerging Market 6.73

Relative return 2.45

Information ratio 0.71

Upside capture** 100.80

Downside capture** 86.67

12m FWD gross yield** 4.2

• Macro matters but microeconomics will define the asset class

• Emerging markets are not just about growth

• Income is an important driver of total returns

• Proven ability to deliver a premium, sustainable and growing income stream with a total return mindset

• Disciplined, stock specific approach supported by a well resourced and locally based team

• Delivered strong risk adjusted returns with attractive downside resilience

Summary

Appendices

Global Emerging Markets Income

Title

Investment DirectorProfessional Qualifications

BA (Hons) in Economics, Durham UniversityCFA Charterholder

Brief Job Description

• Investment Director, Global Emerging Markets (GEM) desk, responsible for research and managing GEM portfolios• Responsible for researching Industrials and Telecommunications sectors, with additional experience researching GEM AutosAfter graduating from Durham University, Matt began his career in 1998 with Standard Life Investments as an Investment Analyst with the Japanese Equities team before being appointed Global Sector Co-ordinator (Telecoms) in 2000. He went on to become Investment Director and was responsible for managing the Standard Life Investments’ Japanese Equities Sicav from 2001 until 2013. He also managed the Standard Life Asia International Trust and was responsible for co-founding the Enhanced Diversification GEM strategy. Since 2014 Matt has managed the GEM Equity Unconstrained SICAV and had research responsibilities for the Telecommunications, Autos and Industrials sectors. Today, Matt is responsible for managing a number of GEM Equity mandates including the GEM Equity Income Strategy, with research responsibilities for the Industrials and Telecommunications sectors.

Matthew Williams

* Since inception: 01 November 2012. Source: Aberdeen Standard Investments, 30 September 2018. Standard Life Investments claims compliance with the Global Investment Performance Standards (GIPS®). The fund specific data presented above is supplementary information to the Mutual Funds Global Emerging Markets Equity Unconstrained GIPS® composite report, which is enclosed in the Appendix for your reference

Global Emerging Markets Equity Unconstrained Fund – Performance

September 2018 %Q3

2018 %

YTD to

30 September 2018 %

1 year to

30 September 2018 %

2 yrs to 30 September

2018 % p.a.

3 yrs to

30 September 2018 %

p.a.

Since inception % p.a.*

Global Emerging Markets Equity Unconstrained Fund 0.00 -4.39 -11.35 -5.23 10.97 14.48 6.92

MSCI EMF (Emerging Markets) -0.50 -0.95 -7.39 -0.44 10.62 12.77 3.70

Relative Return 0.50 -3.47 -4.27 -4.81 0.32 1.51 3.11

Tracking error p.a. - - - 4.88 4.83 5.30 6.29

Information Ratio p.a. - - - -0.98 0.07 0.29 0.49

GEM assets under management

Source: Aberdeen Standard Investments, 30 June 2018

AuM Total: US$38,407m

Global Emerging Markets, $32,725.5m

Global Emerging Markets Small Cap, $1,611.2m

Latin America, 3,250.2m

Frontier Markets, $388.1m

Infrastructure, $173.6m Emerging Europe,

$258.7m

Portfolio construction

* MSCI industry classificationsSource: Aberdeen Standard Investments

Portfolio construction frameworkFocus portfolio risk budget on bottom-up, company specific risks with a non-consensus Focus on Change insight

Identify and control exposures to risk factors, ensure suitable portfolio diversificationPortfolio construction anchored around “Winners List” stock ideas

Strategy Limits:GEM Equity Income

Fund

Benchmark MSCI Emerging Markets

Tracking error ex-ante guideline 2 - 8%

Number of holdings 60-110

Winners List stocks Held if consistent with income objective

Winners List exposure >10%

Stock exposure limits +/- 5%

Industry exposure limits* +/- 15%

Country exposure limits +/- 10%

Cash 0-5% range

Valuations still attractiveROEs and Price/Books trending down

Source: RIMES, MSCI, Morgan Stanley Research, 14 September 2018

Trailing ROE World Europe USA EM

Current 12.7% 10.8% 15.3% 12.2%

5 year average 11.4% 9.7% 13.8% 11.4%

10 year average 11.3% 10.7% 13.5% 12.7%

Max since Jan 98 16.1% 18.0% 19.2% 17.0%

Min since Jan 98 6.4% 7.6% 7.7% 4.7%

Date of high since Jan 98 Oct 07 Sep 06 May 00 Nov 08

Date of low since Jan 98 Jan 10 Oct 16 Dec 09 Jun 99

Current Premium/Discount to:

5Y average 11.3% 11.1% 11.0% 6.8%

10Y average 12.7% 1.1% 13.6% -4.5%

Trailing P/Book World Europe USA EM

Current 2.5x 1.8x 3.5x 1.6x

5 year average 2.2x 1.8x 2.9x 1.6x

10 year average 2.0x 1.7x 2.5x 1.7x

Max since Jan 98 4.2x 4.3x 5.8x 3.0x

Min since Jan 98 1.2x 1.1x 1.5x 0.9x

Date of high since Jan 98 Dec 99 Mar 00 Dec 99 Oct 07

Date of low since Jan 98 Feb 09 Feb 09 Feb 09 Aug 98

Current Premium/Discount to:

5Y average 10.2% -1.3% 19.0% 4.3%

10Y average 24.0% 7.4% 37.7% -0.9%

GEM Equity Income

Global Emerging Markets Income Fund stock positions

Top 10 positions - Absolute

HoldingPortfolio weight

%

Samsung Electronic 6.58

Taiwan Semicon Manufacturing 6.01

Tencent 4.69

Alibaba 3.78

Ping An Insurance 3.25

China Construction Bank 2.96

SK Hynix 2.02

KB Financial 1.94

Oil Co Lukoil 1.89

China Merchants Bank 1.70

Top 10 positions - Active

OverweightPortfolio

%

Relativeposition

%Underweight

Portfolio %

Relativeposition

%

Ping An Insurance 3.25 +2.18 Baidu -- -1.24

Samsung Electronic 6.58 +2.06 Ind & Com Bank China -- -1.01

Taiwan Semiconductor Manufacturing 6.01 +1.86 Reliance Inds -- -0.97

Vale 1.65 +1.65 Housing Devel Fin -- -0.76

KB Financial 1.94 +1.56 Bank of China -- -0.70

Advanced Info Serv 1.64 +1.51 Itau Unibanco -- -0.70

Globaltrans 1.50 +1.50 Cnooc -- -0.69

China Merchants Bank 1.70 +1.36 Infosys -- -0.69

Anta Sports Products 1.42 +1.32 Tata Consultancy -- -0.54

China ConstructionBank 2.96 +1.31 America Movil -- -0.53

Source: Aberdeen Standard Investments, 30 September 2018

Purchases

• Vale S.A.

• Siam Cement Co

• Advanced Info Services

• Taiwan Semiconductor Manufacturing

• Samsung Electronic

Sales

• Baidu

• Huaneng Power Intl

• Red Star Macalline

• Macronix International

• Firstand Ltd

GEM Equity Income – recent activity

Source: Aberdeen Standard Investments, 31 August 2018

Global Emerging Markets Income Fund performance attribution12 months to 30 September 2018

Top stock contributorsRelative position

%Contribution

%

Ping An Insurance 1.5 +0.5

Firstrand 1.3 +0.4

Globaltrans 1.4 +0.3

Oil Co Lukoil 0.7 +0.3

Taiwan Semicon Manufacturing 1.1 +0.3

Steinhoff -0.1 +0.3

President Chain 0.5 +0.2

China Merchants Bank 1.3 +0.2

Severstal 0.7 +0.2

PTT Public 0.5 +0.2

Bottom stock contributorsRelative position

%Contribution

%

Smiles Fidelidade 0.7 -0.5

AKR Corporindo 0.6 -0.5

Banco Macro 0.4 -0.4

Reliance -0.8 -0.3

CNOOC -0.5 -0.3

Tupras 0.8 -0.3

Yes Bank 0.6 -0.3

Haitian Intl 1.1 -0.2

Infosys -0.6 -0.2

Cielo 0.3 -0.2

Top sector level contributors

Real Estate -0.3 +0.6

Consumer Discretionary 0.4 +0.5

Consumer Staples -2.3 +0.3

Telecommunication Services -1.1 +0.2

Bottom sector level contributors

Energy -0.7 -0.9

Industrials 2.9 -0.6

Information Technology -0.5 -0.5

Financials 2.5 -0.3

Health Care -2.7 -0.2

Source: Aberdeen Standard Investments, 30 September 2018 (£)

1

2

3

4

5

6

7

8

9

1 0

Global Emerging Markets Income Fund country allocation


Overweight / Underweight positions


Country weights

32%

14%10%

9%

7%

6%

5%5%

5%

1%

China / Hong Kong South Korea Taiwan Brazil

Russia Thailand India South Africa

Mexico Peru Indonesia Georgia

Kenya Chile Panama Turkey

Malaysia Nigeria Hungary Australia

Argentina

IndiaTaiwan

MalaysiaSouth KoreaSouth Africa

PolandPhilippines

QatarUAE

IndonesiaColombia

GreeceChile

CzechEgypt

RomaniaPakistan

United KingdomLuxembourg

SingaporeTurkey

United StatesHungaryArgentinaAustralia

China / Hong KongNigeria

PanamaKenyaGeorgiaPeru

MexicoThailandBrazil

Russia

-6.0 -4.0 -2.0 0.0 2.0 4.0 6.0

Global Emerging Markets Income Fund sector allocation


Overweight / Underweight positions


Sector weights

24%

19%

13%12%

8%

7%

6%5%4%2%

Financials Information Technology

Communication Services Consumer Discretionary

Industrials Energy

Materials Consumer Staples

Real Estate Utilit ies

Health Care

Consumer Staples

Communication Services

Energy

Materials

Utilities

Financials

Real Estate

Consumer Discretionary

Industrials

Information Technology

-6.0 -4.0 -2.0 0.0 2.0 4.0 6.0

Global Emerging Markets Income Fund portfolio characteristics

Portfolio Benchmark

Market capitalisation $100bn $88bn

Price / earnings 10.9x 12.4x

Price / book 1.9x 1.6x

Historic 3yr EPS growth 22.1% 17.0%

Return on equity 22.4% 17.6%

Long term debt / capital 20.6% 20.5%

Predicted beta 0.99 -

Predicted volatility 14.6% 14.4%

Predicted tracking error 2.78% -

% stock specific risk 70.2% -

% factor risk 29.8% -

• Benchmark MSCI Emerging Markets

• Number of holdings 99

• Active share 66.65%Holdings by Market Cap (USD) Portfolio (%) Benchmark (%)

Market Cap (>$10bn) 70.9 72.7

Market Cap ($2bn - $10bn) 16.1 25.7

Market Cap ($0bn - $2bn) 13.0 1.6


Proactive company engagement Seeking to ensure our holdings remain or become better companies

Limit risk by maintaining standards

Frequent dialogue • Senior executives

• Board members

• Site visits

On-going due-diligence • Business performance

• Company’s financials

• Corporate governance

• Company’s key risks and opportunities

Exercise rights• Always vote

• Explain voting decisions

• Attend AGM/EGMs as required

Consider all options • Buy, Sell or Fight

• Seek to collaborate

• Legal action, if necessary

Source: Aberdeen Standard Investments

• State Owned Enterprises (SOEs)

• Greater Dispersion of returns

• Undiscovered and off-index opportunities

Why active?

Source: UBS, HSBC, March 2017

50100150200250300350400450500550

Jan-09Jan-10

Jan-11Jan-12

Jan-13Jan-14

Jan-15Jan-16

Jan-17

POE POE (ex Tencent) SOE

8%

10%

12%

14%

16%

18%

20%

05 06 07 08 09 10 11 12 13 14 15 16 17

RoE: SOEs RoE: non-SOEs

SOEs vs non-SOEs: Return on Equity

0%20%40%60%80%

100%120%

UAE

Qat

ar

Pola

nd

Russ

ia

Chin

a

Thai

land

Mal

aysi

a

Indo

nesia

Czec

h Re

publ

ic

Braz

il

GEM

s

Colo

mbi

a

Chile

Turk

ey

Taiw

an

Indi

a

Kore

a

Sout

h Af

rica

Egyp

t

Gree

ce

Hung

ary

Mex

ico

Peru

Phili

ppin

es

Private sector vs state sector performance differs widely in Chinese Equities

Appendices

Outlook

US dollar strength

Source: US Bureau of Economic Analysis, October 2018Source: US Bureau of Economic Analysis, October 2018

Faster growth and falling unemployment for the US economy

0

1

2

3

4

5

6

Mar-1

6

Jun-

16

Sep

-16

Dec

-16

Mar-1

7

Jun-

17

Sep

-17

Dec

-17

Mar-1

8

Jun-

18

%

GDP growth (%yoy) Unemployment (%yoy)

47

48

49

50

51

52

53

54

55

56

57

Jan-

16

Apr

-16

Jul-1

6

Oct-1

6

Jan-

17

Apr

-17

Jul-1

7

Oct-1

7

Jan-

18

Apr

-18

Jul-1

8

Manufacturing PMI

US economy stays in good health

…signals higher funding costs ahead

Source: Bloomberg, October 2018

One final hike expected at year end


Treasury yields surged

Higher yields supporting stronger dollar, but dot plot not seen much change

0

0.5

1

1.5

2

2.5

3

3.5

4

Jan-1

5Ju

l-15

Jan-1

6Ju

l-16

Jan-1

7Ju

l-17

Jan-1

8Ju

l-18

%

Treasury 10-year Treasury 30-year

0

0.5

1

1.5

2

2.5

3

3.5

4

2018 2019 2020 Longer Term

%

Median Fed dot (Sep 18) Median Fed dot (Jun 18)

Median Fed dot (Mar 18)

Monetary conditions elsewhere are also tightening

Source: IMF, October 2018

Central bank policy projections

….as clearly seen in Emerging Markets

EM central bankers respond accordingly

Source: Haver, Aberdeen Standard Investments (as of 2018)

0

2

4

6

8

10

12

14

Jan-

12Ju

n-12

Nov

-12

Apr

-13

Sep

-13

Feb-

14Ju

l-14

Dec

-14

May

-15

Oct

-15

Mar

-16

Aug

-16

Jan-

17Ju

n-17

Nov

-17

Apr

-18

Sep

-18

%

Emerging Europe Latin AmericaChina Emerging Asia ex China

-1

0

1

2

3

4

5

6

7

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

%

Euro area deposit rate

Japan discount rate (policy-rate balance rate post-2015)

UK Bank Rate

Projections

…but this time it’s different

Source: Emerging Advisors Group, September 2018Source: IMF, October 2018

Most EM economies are better-insulated from quantitative tightening

-4%

-2%

0%

2%

4%

6%

8%

05 06 07 08 09 10 11 12 13 14 15 16 17 18

EMEM ex-CHina

Change in gross external debt (% GDP annualised) Current account balance by regionCurrent balance (12m cum, % GDP)15%

10%

5%

0%

-5%

-10%2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Asia CEE Latam ME/Afr

Global growth is beginning to stutter

GDP forecasts (%)

Source: Aberdeen Standard Investments, Haver, August 2018

Manufacturing sector comes off the boil

Source: Brookings Institution, October 2018

Chinese investment moderates

Source: National Bureau of Statistics, October 2018Source: Bloomberg, Markit, October 2018

Global expansion slows, while China pulls some levers

40

50

60

Oct-15

Jan-1

6

Apr-16

Jul-1

6

Oct-16

Jan-1

7

Apr-17

Jul-1

7

Oct-17

Jan-1

8

Apr-18

Jul-1

8

Emerging markets Eurozone US

-50%

0%

50%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Y-o-y% Industrial production Retail sales (values)

Waning business confidence

-505

10

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Global Forecast June forecast EM DM

-10.0000

-5.00000.00005.0000

Jan

-05

Oct

-05

Jul-

06

Ap

r-0

7

Jan

-08

Oct

-08

Jul-

09

Ap

r-1

0

Jan

-11

Oct

-11

Jul-

12

Ap

r-1

3

Jan

-14

Oct

-14

Jul-

15

Ap

r-1

6

Jan

-17

Oct

-17

Jul-

18

Developed markets Emerging markets

…but a hard-landing is not expected

Investment remains robust

Source: Haver, UBS, September 2018

Credit to private sector stays supportive


…while consumers appear upbeat

Source: IMF, October 2018Source: Haver, UBS

…driving EM growth

0%

2%

4%

03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

ASIA CEE ME LATAMNet foreign direct investment (12m, share of GDP, %)

0

5

10

15

20

25

30

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

%y/y EM ex china EM

020406080

100120140

Jan-

12

Apr-1

2

Jul-1

2

Oct-

12

Jan-

13

Apr-1

3

Jul-1

3

Oct-

13

Jan-

14

Apr-1

4

Jul-1

4

Oct-

14

Jan-

15

Apr-1

5

Jul-1

5

Oct-

15

Jan-

16

Apr-1

6

Jul-1

6

Oct-

16

Jan-

17

Apr-1

7

Jul-1

7

Oct-

17

Jan-

18

Apr-1

8

Jul-1

8

Advanced economies Emerging market economies World

-5

0

5

10

2015 2016 2017 2018 2019 2020 2021 2022 2023

%

Contribution to GDP growth in emerging markets

Fixed investment

Private consumption

Public consumption

Net foreign balance

Rising protectionism


How much does a trade war cost?

Scenario 1: 25% tariffs on China (US$267 billion) with retaliation Scenario 2: Adding tariffs on cars, trucks, and parts with retaliation

-1.4

-1.2

-1

-0.8

-0.6

-0.4

-0.2

0

2018 2019 2020 Long term

Impact on real GDP (%)

US

China

Global

-1.2

-1

-0.8

-0.6

-0.4

-0.2

0

2018 2019 2020 Long term

Impact on Real GDP

(%)

US

China

Global

China remains resilient

Source: CLSA, Sep 18

Contribution to real GDP growth

Exports are not the key growth driver

-8

-6

-4

-2

0

2

4

6

8

10

12

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

1H18

Final consumption Capital formation Net exports

China - mixed fixed asset investment data

Source: National Bureau of Statistics, Bloomberg, October 2018

Scope to improve from here

Private sector capex appears to have bottomed

Source: National Bureau of Statistics, Bloomberg, October 2018

0

5

10

15

20

25

30

Apr

-14

Jul-1

4O

ct-1

4Ja

n-15

Apr

-15

Jul-1

5O

ct-1

5Ja

n-16

Apr

-16

Jul-1

6O

ct-1

6Ja

n-17

Apr

-17

Jul-1

7O

ct-1

7Ja

n-18

Apr

-18

Jul-1

8

%YoY

Infrastructure FAI (% YoY)Residential real estate investment (% YoY)

Divergent fixed-asset investment trend

0

5

10

15

20

25

30

35

Mar

-12

Jul-1

2N

ov-1

2M

ar-1

3Ju

l-13

Nov

-13

Mar

-14

Jul-1

4N

ov-1

4M

ar-1

5Ju

l-15

Nov

-15

Mar

-16

Jul-1

6N

ov-1

6M

ar-1

7Ju

l-17

Nov

-17

Mar

-18

Jul-1

8

%YoY

Manufacturing sector FAI Private sector FAI

Easing in China is expected to continue

Source: National Interbank Funding Center, Bloomberg, October 2018

Liquidity being put back into the system

Shanghai Interbank Offered Rates Depository corporations’ claims on other financial institutions


0

1

2

3

4

5

6

Jan-16

Mar-16

May-16

Jul-1

6

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-1

7

Sep-17

Nov-17

Jan-18

Mar-18

May-18

Jul-1

8

Sep-18

%

1-month Shibor 3-month Shibor

-20

0

20

40

60

80

100

0

5000

10000

15000

20000

25000

30000

35000

Sep-

09M

ar-1

0Se

p-10

Mar

-11

Sep-

11M

ar-1

2Se

p-12

Mar

-13

Sep-

13M

ar-1

4Se

p-14

Mar

-15

Sep-

15M

ar-1

6Se

p-16

Mar

-17

Sep-

17M

ar-1

8

% YoYRBM (billion)

Depository corporations' claims on other financial institutions

YoY % (RHS)

SICAV Global Emerging Markets Equity Unconstrained

Composite Name SICAV Global Emerging Markets Equity Unconstrained

Inception Date 01-11-2012

Firm Standard Life Investments

Currency USD

Report End Date 31-12-2016

Benchmark Morningstar Offshore Global Emerging Markets

Anlzd Return (Composite) Anlzd Return (Benchmark) 3 Year Anzld StdDev (Composite)

3 Year Anzld StdDev (Benchmark) Dispersion Market Value Total Firm Assets % of Firm Assets Number of Portfolios

Dec 2007 -- -- -- -- -- -- -- -- --

Dec 2008 -- -- -- -- -- -- -- -- --

Dec 2009 -- -- -- -- -- -- -- -- --

Dec 2010 -- -- -- -- -- -- -- -- --

Dec 2011 -- -- -- -- -- -- -- -- --

Dec 2012 3.14 5.77 -- -- -- 8,185,975 217,691,673,950 0.00 1

Dec 2013 20.10 -1.15 -- -- -- 106,330,282 248,389,468,750 0.04 1

Dec 2014 -2.08 -3.03 -- -- -- 153,588,156 345,453,084,900 0.04 1

Dec 2015 -13.58 -14.02 15.70 13.46 -- 110,301,319 335,244,612,729 0.03 1

Dec 2016 8.10 8.42 16.58 14.84 -- 110,006,947 296,725,036,221 0.04 1

Firm DisclosuresA complete list and description of all of the firm's composites are available from Standard Life Investments. There are no minimum asset levels set below which portfolios are not included in a composite. All performance calculations and returns have been calculated gross of management fees. All

returns are presented on an all-inclusive basis and as such all capital gains interest income and withholding taxes have been taken into account in market valuations and returns. All indices are on a gross of tax basis apart from FTSE UK indices which are net of Withholding Tax. There are no Non-

Fee-Paying portfolios included in any composite. The Daily True Time Weighted Rate of Return methodology has been used from 2001 apart from unitised Cash Property GARS and MyFolio products where NAV performance is used. Prior to this NAV performance was used for all products.

Additional information regarding policies for calculating and reporting returns is available upon request. Dispersion is calculated using high/low difference. Where there are less than 36 months of returns, the Composite and Benchmark Standard Deviations have not been calculated. Standard Life

Investments 'The Firm' consists of all fee-paying funds managed by Standard Life Investments and its Subsidiaries which include Standard Life Investments (Mutual Funds) Limited SLTM Limited Standard Life Investments (Corporate Funds) Limited Standard Life Investments (USA) Limited and

Standard Life Investments (Asia) Limited. Past performance results from Standard Life Investments Limited UK Firm and Standard Life Investments Limited Irish Firm have been linked to form the performance record of the new firm Standard Life Investments. The new firm was created on

01/01/2008. Standard Life Investments claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Standard Life Investments has been independently verified by PricewaterhouseCoopers LLP for

the periods 1996 to 2015. The verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm's policies and procedures are designed to calculate and

present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation

Composite DisclosuresDerivatives may be used for efficient portfolio management purposes. Includes part period return for 2012 from 01 November. The composite includes funds that invest primarily in global emerging equity markets and is unconstrained in it's stock selection, with no upper or lower limits on index weight

or size. The fund is benchmarked against Morningstar Offshore Global Emerging Markets. The standard annual fee applicable to this composite is 0.9%, but individual fees can be negotiated on an account basis.

Mutual Funds Global Emerging Markets Equity Income

Composite Name Mutual Funds Global Emerging Markets Equity Income

Inception Date 01-01-2013

Firm Standard Life Investments

Currency GBP

Report End Date 31-12-2017

Benchmark IA Global Emerging Markets

Firm DisclosuresA complete list and description of all of the firm's composites are available from Aberdeen Standard Investments. There are no minimum asset levels set below which portfolios are not included in a composite. All performance calculations and returns have been calculated gross of management fees. All returns are presented on an all-inclusive basis and as such all capital gains interest income and withholding taxes have been taken into account in market valuations and returns. All indices are on a gross of tax basis apart from FTSE UK indices which are net of Withholding Tax. There are no Non-Fee-Paying portfolios included in any composite. The Daily True Time Weighted Rate of Return methodology has been used from

2001 apart from unitised Cash, Property, GARS and Myfolio products where NAV performance is used. Prior to this NAV performance was used for all products. Additional information regarding policies for calculating and reporting returns is available upon request. Dispersion is calculated using high/low difference. Where there are less than 36 months of returns, the Composite and Benchmark Standard Deviations have not been calculated. Aberdeen Standard Investments 'The Firm' consists of all fee-paying funds managed by Aberdeen Standard Investments and its Subsidiaries which include Aberdeen Standard Investments (Mutual Funds) Limited SLTM Limited Aberdeen Standard Investments (Corporate Funds) Limited Aberdeen Standard Investments (USA) Limited and Aberdeen Standard Investments (Hong Kong) Limited. Past performance results from Aberdeen Standard Investments Limited UK Firm and Aberdeen Standard Investments Limited Irish Firm have been linked to form the performance record of the new firm Aberdeen Standard Investments. The new firm was created on 01 Jan 2008. Standard Life Investments claims compliance with the Global Investment Performance Standards

(GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Aberdeen Standard Investments has been independently verified by PricewaterhouseCoopers LLP for the periods 1996 to 2016. The verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation.

Composite DisclosuresThe composite includes funds that invest in mainly higher yielding equities and equity type investments of companies on an emerging market stock exchange or which, in the opinion of the ACD, carry on a substantial part of their operations in emerging market countries. A proportion of the Fund may also be invested in fixed interest securities to supplement the income of the fund and is benchmarked against IA Global Emerging Markets.Derivatives may be used for efficient portfolio management purposesThe standard annual fee applicable to this composite is 0.75% but individual fees are negotiated on an account basis

Anlzd Return (Composite) Anlzd Return (Benchmark) 3 Year Anzld StdDev (Composite) 3 Year Anzld StdDev (Benchmark) Dispersion Market Value Total Firm Assets % of Firm Assets Number of Portfolios

Dec 2008 -- -- -- -- -- -- -- -- --

Dec 2009 -- -- -- -- -- -- -- -- --

Dec 2010 -- -- -- -- -- -- -- -- --

Dec 2011 -- -- -- -- -- -- -- -- --

Dec 2012 -- -- -- -- -- -- -- -- --

Dec 2013 5.94 -3.71 -- -- -- 296,402,611 149,971,000,000 0.20 1

Dec 2014 4.04 3.32 -- -- -- 330,131,164 221,550,800,000 0.15 1

Dec 2015 -7.94 -9.46 12.41 -- -- 321,623,131 227,454,110,000 0.14 1

Dec 2016 31.80 31.56 14.89 15.31 -- 461,836,565 240,136,780,000 0.19 1

Dec 2017 31.14 24.59 14.90 14.79 -- 757,253,144 229,686,080,000 0.33 1

Please note that the information shown below relates to the Institutional Accumulation share class. More information on share classes can be found on the website, www.standardlifeinvestments.com

The following risk factors apply specifically to this Fund. These are in addition to the generic risks of investing. A full list of the risks applicable to this Fund can be found in the Prospectus which is available on the website or upon request.

(a) The fund invests in securities which are subject to the risk that the issuer may default on interest or

capital payments

(b) The fund price can go up or down daily for a variety of reasons including changes in interest rates,

inflation expectations or the perceived credit quality of individual countries or securities

(c) The fund invests in equities and equity related securities. These are sensitive to variations in the stock markets which can be volatile and change substantially in short periods of time

(d) The fund invests in emerging market equities and / or bonds. Investing in emerging markets involves a greater risk of loss than investing in more developed markets due to, among other factors, greater political,

tax, economic, foreign exchange, liquidity and regulatory risks

(e) The shares of smaller companies may be less liquid and more volatile than those of larger companies

(f) The use of derivatives carries the risk of reduced liquidity, substantial loss and increased volatility in

adverse market conditions, such as a failure amongst market participants. The use of derivatives may result in the fund being leveraged (where market exposure and thus the potential for loss by the fund

exceeds the amount it has invested) and in these market conditions the effect of leverage will be to magnify losses. The fund does not make extensive use of derivatives

The information shown relates to the past. Past performance is not a guide to the future. The value of an investment can go down as well as up.

For full details of the fund's objective, policy, investment and borrowing powers and details of the risks investors need to be aware of please refer to the full prospectus which can be found on www.standardlifeinvestments.com

Aberdeen Standard Investments is a brand of the investment businesses of Aberdeen Asset Management and Standard Life Investments

Any data contained herein which is attributed to a third party ("Third Party Data") is the property of (a) third party supplier(s) (the “Owner”) and is licensed for use by Standard Life Aberdeen**. Third Party Data may

not be copied or distributed. Third Party Data is provided “as is” and is not warranted to be accurate, complete or timely. To the extent permitted by applicable law, none of the Owner, Standard Life

Aberdeen** or any other third party (including any third party involved in providing and/or compiling Third Party Data) shall have any liability for Third Party Data or for any use made of Third Party Data. Neither the Owner nor any other third party sponsors, endorses or promotes the fund or product to which Third

Party Data relates.

**Standard Life Aberdeen means the relevant member of Standard Life Aberdeen group, being Standard

Life Aberdeen plc together with its subsidiaries, subsidiary undertakings and associated companies (whether direct or indirect) from time to time.

Standard Life Investments Limited is registered in Scotland (SC123321) at 1 George Street, Edinburgh

EH2 2LL.

Standard Life Investments Limited is authorised and regulated by the Financial Conduct Authority.

Calls may be monitored and/or recorded to protect both you and us and help with our training.

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Documents

October 2018 Global Emerging Markets Equity Income Standard... · 2019-12-18 · Sources: Factset, CLSA Asia-Pacific Markets, CLSA Asia Specific Markets, October 2018 MSCI regions