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Vontobel Asset Management, Inc.
Vontobel
Asset Management
& Investment Funds
Emerging Markets: Good Buy or
Goodbye?
Referent:
Rajiv Jain, Portfolio Manager International
Managing Director, Vontobel Asset Management, Inc., New York
1
Vontobel Asset Management, Inc.
Emerging Markets
So far on passing lane
Source: HANDELSBLATT, 11/11/2005, p. 39
2
Vontobel Asset Management, Inc.
Solid macro data as safeguard against
volatility?
Excerpted from: “The Continuing Case for Emerging Markets, Revisited” Everest Capital,
February 2005
3
Vontobel Asset Management, Inc.
Leading productivity
Emerging Markets offer some of the most productive
corporations on the basis of RoE
Source: Bernstein Research and Everest Capital, February
2005
4
Vontobel Asset Management, Inc.
Asia
More and more independent of global
economy
5
Vontobel Asset Management, Inc.
Low Correlation
Good Diversification
Source: Bloomberg, Monthly Data for MSCI and IFC Indices, Gross Total Returns in USD 12/31/98 - 12/31/2004
6
Vontobel Asset Management, Inc.
China
Real GDP Growth vs. Total Return of the
Market
350
300
The real GDP
growth
compounded 9%
in China relative
to a stock
market return of
-2%!!
250
200
150
100
50
0
1992
1993
1994
1995
1996
1997
1998
Total Return Indexed from 1992 (USD)
1999
2000
2001
2002
2003
2004
Real GDP Indexed from 1992
Sources: Real GDP Growth from IMF: Directions of
Trade, years before 1999 and World Bank Data, years
2000-2004. Total Return Index (USD) from FactSet
Aggregates.
7
Vontobel Asset Management, Inc.
India
Real GDP Growth vs. Total Return of the
Market
300
250
The real GDP
growth
compounded 6%
relative to a
USD return of
8%.
200
150
100
50
0
1989
1990
1991
1992
1993
1994
1995
1996
1997
Total Return Indexed from 1989 (USD)
1998
1999
2000
2001
2002
2003
2004
Real GDP Indexed from 1989
Sources: Real GDP Growth from IMF: Directions
of Trade, years before 1999 and World Bank Data,
years 2000-2004. Total Return Index (USD) from
FactSet Aggregates.
8
Vontobel Asset Management, Inc.
350
South Korea
Real GDP Growth vs. Total Return of the
Market
300
The real
GDP
growth
compounde
d 7%
relative to a
USD return
of 3%.
250
200
150
100
50
0
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Total Return Indexed from 1986 (USD)
Real GDP Indexed from 1986
Sources: Real GDP Growth from IMF: Directions of
Trade, years before 1999 and World Bank Data, years
2000-2004. Total Return Index (USD) from FactSet
Aggregates.
9
Vontobel Asset Management, Inc.
China
Valuations and Earnings growth matter
Total Return Indexed from 1992 (USD)
Real GDP Indexed from 1992
Valuation (P/E)
350
45
300
40
25
150
20
15
100
10
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
0
1994
0
1993
5
1992
50
140
120
100
80
60
40
20
EPS (in USD) growth indexed from 1993
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
0
1993
Index
30
200
Valuation (P/E)
35
250
Total Return Indexed from 1993 in USD
Sources: Real GDP
Growth from IMF:
Directions of Trade,
years before 1999 and
World Bank Data, years
2000-2004. Total Return
Index (USD) and
valuation from FactSet
10
Aggregates.
Vontobel Asset Management, Inc.
India
Valuations and Earnings growth matter
Total Return Indexed from 1989 (USD)
Real GDP Indexed from 1989
Valuation (P/E)
350
45
300
40
25
150
20
15
100
10
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0
1990
5
0
1989
50
250
200
150
100
50
EPS (in USD) growth indexed from 1991
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0
1991
Index
30
200
Valuation (P/E)
35
250
Sources: Real GDP
Growth from IMF:
Directions of Trade,
years before 1999 and
World Bank Data,
years 2000-2004. Total
Return Index (USD)
and valuation from
FactSet Aggregates.
Total Return Indexed from 1991 in USD
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Vontobel Asset Management, Inc.
South Korea
Valuations and Earnings growth matter
Total Return Indexed from 1986 (USD)
Real GDP Indexed from 1986
Valuation (P/E)
400
50
350
45
40
30
200
25
150
20
15
100
10
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
0
1988
0
1987
5
1986
50
500
450
400
350
300
250
200
150
100
50
EPS (in USD) growth indexed from 1987
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
0
1987
Index
35
250
Valuation (P/E)
300
Sources: Real GDP
Growth from IMF:
Directions of Trade,
years before 1999 and
World Bank Data, years
2000-2004. Total Return
Index (USD) and
valuation from FactSet
Aggregates.
Total Return Indexed from 1987 in USD
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Vontobel Asset Management, Inc.
Market Valuations
Dividend Yields Over Last 20 Years
5.00
World
Asia/Pacific ex Japan
Japan
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
Source: FactSet Aggregates
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Vontobel Asset Management, Inc.
Selected stocks
Examples
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Vontobel Asset Management, Inc.
Unilever Indonesia
EPS Growth Positively Correlates with Price
Performance
Total Return Index (USD)
Share Price (Indexed)
Indexed GDP
700
600
500
400
300
200
100
45
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0
250
200
35
30
150
25
20
100
15
10
50
5
Share Price (per 100 shares in USD)
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0
1990
0
EPS (USD)
Share Price (USD)
40
Sources: Real GDP
Growth from IMF:
Directions of Trade,
years before 1999 and
World Bank Data, years
2000-2004. Total Return
Index (USD) and
valuation from FactSet
Aggregates.
EPS (per 100 shares in USD)
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Vontobel Asset Management, Inc.
Lotte Confectionary
EPS Growth Positively Correlates with Price
Performance
Total Return Index (USD)
Share Price (Indexed)
Indexed GDP
1800
1600
1400
1200
1000
800
600
400
200
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
$1,800
$1,800
$1,600
$1,600
$1,400
$1,400
$1,200
$1,200
$1,000
$1,000
$800
$800
$600
$600
$400
$400
$200
$200
Share Price (Indexed)
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
$0
1992
$0
EPS (USD)
Share Price (USD)
1992
0
Sources: Real GDP
Growth from IMF:
Directions of Trade,
years before 1999 and
World Bank Data, years
2000-2004. Total Return
Index (USD) and
valuation from FactSet
Aggregates.
EPS Indexed (USD)
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Vontobel Asset Management, Inc.
Hero Honda Motors
EPS Growth Positively Correlates with Price
Performance
Hero Honda Motors Ltd.
EPS excl Extraordinary Items
40
35
30
25
PRICE CHART OVER LAST 10 YEARS - Hero Honda Motors Ltd.
29-Dec-1995 to 30-Nov-2005 (Monthly)
Indian Rupee
20
High: 832.050
Low: 22.800
Last: 832.050
15
1000
900
800
700
600
500
400
10
300
5
200
100
3/ 95
0
3/ 96
3/ 97
3/ 98
3/ 99
3/ 00
3/ 01
3/ 02
3/ 03
3/ 04
3/ 05
Vo lume in Mi ll i ons ( max/ avg)
11
3
96
97
98
99
00
01
02
03
04
05
Data Source: Exshare
Source: FactSet; as of Nov. 30, 2005.
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Vontobel Asset Management, Inc.
Grupo Modelo
Mexico
• Founded in 1925, Grupo Modelo is the leader in the
production, distribution, and sale of beer in Mexico (over 60%
market share).
• Brands: Corona, Negra Modelo, Pacifico and more.
• Exclusive Mexican importer and distributor of Anheuser-Busch
beers (Budweiser, Bud Light).
• Anheuser-Busch owns about 50% of Grupo Modelo.
• Sales growth of 8% annually over last 10 years.
• Operating margin >20%, ROE >10%; No long term debt.
• Dividend yield of 3%.
• Forward P/E of 16x.
• Market Cap: $US 10.5 bn.
As of 9/26/05
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Vontobel Asset Management, Inc.
Grupo Modelo
Grupo Model o S.A. de C.V.
Basic Earnings Per Share
1. 8
1. 6
Grupo Modelo S.A. de C.V. Price Chart Over Last 10 Years
1. 4
1. 0
0. 8
In Local Currency
1. 2
Hi gh: 34.990
Low: 7.500
Last : 33 .1 10
30 -No v-1 995 t o 31- Oct - 2005 ( Mont hl y)
Mexican Peso
40
35
0. 6
30
0. 4
25
0. 2
20
0. 0
12/ 1995
12/ 1996
12/ 1997
12/ 1998
12/ 1999
12/ 2000
12/ 2001
12/ 2002
12/ 2003
12/ 2004
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Grupo Model o S.A. de C.V.
10
Return on Equity
15.5%
15.0%
Vo lume in Mi ll i ons ( max/ avg)
14.5%
115
14.0%
13.5%
13.0%
29
96
97
98
99
00
01
02
03
04
05
Data Source: Exshare
12.5%
12.0%
11.5%
12/ 1995
12/ 1996
12/ 1997
12/ 1998
12/ 1999
12/ 2000
12/ 2001
12/ 2002
12/ 2003
12/ 2004
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Vontobel Asset Management, Inc.
Growth vs. Value
Our Definition
Classical Growth =
High Prices,
High Earning Growth
"Looser"
High Prices,
Low Earnings Growth
"Stars"
High Earnings
Growth, Low Prices
Classical Value =
Low Prices,
Low Earnings Growth
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Vontobel Asset Management, Inc.
Attractive Growth and Undervaluation
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Vontobel Asset Management, Inc.
Investment Process
Investment Universe: 20.000 companies
Rentability Check
Developed Countries: At least US-$ 50 mio. Net earnings / 500 mio. Sales
Emerging Markets: US-$ 25 mio. / 250 mio. Sales
Result: Qualified Investment Universe of 1.300 profitable companies
Earnings Quality Check
Result: Investment Universe of 450 companies
Check of the 450 companies with regard
to Sustainability and Price
Valuation: With an actual equity price far below intrinsic value the
company is a buy candidate
Buy: Selection of excellent equities ( 20 - 30 USA, 30 - 70 other region)
Composition of Vontobel Value Funds
22
Vontobel Asset Management, Inc.
Vontobel Fund - Emerging Markets Equity
Performance as of 12/31/2005
Rating as of 12/31/2005
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Vontobel Asset Management, Inc.
Emerging Markets Equity
Up/Down Market Analysis, ending December
2005
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Vontobel Asset Management, Inc.
Equity Funds Emerging Markets global
Return-Risk-Spread sheet last 3 years
25
Vontobel Asset Management, Inc.
Vontobel Fund - Far East Equity
Performance as of 12/30/2005
Rating as of 12/31/2005
26
Vontobel Asset Management, Inc.
Far East Equity
Up/Down Market Analysis, ending December
2005
27
Vontobel Asset Management, Inc.
Equity Funds Far East ex Japan
Return-Risk-Spread sheet last 3 years
28
Vontobel Asset Management, Inc.
Outlook
Don’t expect to see a break in flows until bad things
happen
29
Vontobel Asset Management, Inc.
Sector Winners: Energy, Materials and
Technology
Trend going on?
30
Vontobel Asset Management, Inc.
ROE of Energy and Materials stocks
Peaking?
31
Vontobel Asset Management, Inc.
Conclusions
Positive:
•
•
•
•
•
Still attractive valuations absolutely, historically and relatively
High productivity
Solid macro data
Asia: More and more independent of US economy
Low Correlation - Good Diversification
Negative:
•
•
•
•
•
Negative growth surprise
Exogenous shock (bird flu, terrorism)
Optimism relative to Emerging Markets is probably peaking
Earnings and productivity at record levels
High oil price and rising interest rates
 EM are an essential element of a Global Equity
Portfolio
 Outperformance by Buying Quality in Emerging
Markets!
32
Vontobel Asset Management, Inc.
Thank you for your attention!
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