Crossing into Asia PRESENTED BY Jacob Mitchell & Sunny Bangia, Co-Lead Portfolio Managers Antipodes Asia Fund, Antipodes Partners ClickTeam to structure edit Master title style Jacob Mitchell – CIO and Lead Portfolio Manager Andrew Findlay - Managing Director and CEO Alison Savas – Client Portfolio Manager Kieran Rabbitt - Investment Specialist Tyson Appadoo – Trader, North America and Europe Camilla Brookes Coffey - Corporate Affairs Manager Steve Sevier – Trader, Asia Graham Hay - Portfolio Manager Hardware, Chris Connolly - Portfolio Manager Pinnacle Investment Management Industrials Andy Gibson - Senior Investment Analyst • Minority equity partner (23.5%) in Antipodes & Commodities Owen Scarrott - Investment/ESG Analyst Wesley Wise - Investment Analyst • ASX listed multi-affiliate investment services group Global Nick Cameron - Sector Head • >US$35 bn AUM across 16 specialist managers Healthcare Alex Diab - Investment Analyst3 • ~70 employees Andrew Baud - Portfolio Manager • Offices in Sydney, Melbourne, Brisbane, London, James Rodda - Sector Head NYC Cleo Somers - Senior Investment Analyst Europe/North Simon Birrell - Senior Investment Analyst America • Institutional-grade infrastructure and support Vinayak Muralidharan - Investment Analyst CDS & SIM1 Leo Wang - Investment Analyst Michael Li - Investment Analyst3 Stuart Lucy - Investment Analyst3 Finance, HR & Distribution & Middle office Infrastructure2 Max Shramchenko - Sector Head IT Marketing services Domestic Notes: Sunny Bangia - Portfolio Manager 1. CDS = Consumer, Christine Ong - Senior Investment Analyst Asia/EM Domestic Services; CDS & SIM1 John Stavliotis - Senior Investment Analyst SIM = Software, Internet, Ray Bisht - Investment Analyst Media Alice Wang - Investment Analyst3 Legal & Pooled fund 2. Infrastructure, Utilities, Compliance services Property and Quantitative Systems, Rameez Sadikot - Sector Head Telecommunications Macroeconomics Ryan Kennedy - Investment Analyst 3. Graduate Investment & Currency Shashank Bhatia - Investment Analyst Analyst Crossing Into Asia | 2 ClickOur philosophy to edit Master title style A Pragmatic Approach Manage Starting Business Portfolio portfolio valuation resilience returns risk Margin of Safety Multiple ways of Limit Absolute returns in (Short, no MoS) Winning excess of the benchmark (Short, Losing) correlated alpha clusters Seek minimum to ~15% of portfolio over the investment cycle • Competitive dynamics 15% absolute return (typically 3-5 years) at • Product cycle AND below market levels of risk • Regulatory at least 10% better • Management/financial than relevant region/sector • Macro/Style Crossing Into Asia | 3 ClickGeopolitical to edit Master risk driving title style domestic focus Investment stimulus required for sustainable recovery Stages of lockdown/recovery 1. Income stimulus, e-commerce, food delivery, DIY, WFH enablers, etc. 2. Reopening: local and domestic retail, entertainment and travel 3. Medium term • Infrastructure stimulus (e.g. EV/5G/Cloud, Europe embracing radical decarbonisation) • Strategic supply chain relocalisation (e.g. China close to global sole supplier in active pharma ingredients, rare earths) • China will pursue semiconductor independence at all costs Crossing Into Asia | 4 ClickGeopolitical to edit Master risk driving title style domestic focus Investment stimulus required for sustainable recovery Life won’t automatically revert to pre COVID-19 status quo • Cost cutting leading to slower than expected recovery in employment/business travel/office demand • Travel/retail industry shakeout, look for omnichannel survivors that emerge stronger • House prices key, deflation would be painful • Zombification leading to lower returns, equity risk premium likely to stay high Crossing Into Asia | 5 ClickGeopolitical to edit Master risk driving title style domestic focus Investment stimulus required for sustainable recovery Risks to recovery • US withdraws income stimulus prematurely (currently expires end of July) • Social discontent/populism continues to intensify/second wave -> swing to more socialist policies • Open-ended fiscal deficits/government debt in US, Southern Europe, Canada • China-US technology rivalry re-escalating -> stress test companies with large profit pools in both countries Crossing Into Asia | 6 ClickDeglobalisation to edit Master means title style greater need for domestic investment Cost pressures may follow 3 • US inflation has been mostly seen in Tuition, school 2.75 services, housing and food fees, childcare 2.5 • Deglobalisation adds cost pressure to 2.25 Medical care 2 goods sector, which has seen constant 1.75 ~2% relative deflation since 1984 1.5 Price Food and beverages, housing, personal care • 20% of consumption spend today is at relative 1.25 to CPI services direct risk of these cost pressures (1984 = 1) 1 0.75 Vehicles, personal care • Governments will incentivise investment in 0.5 products, apparel, household furnishings onshore production capacity, but 0.25 producers or consumers will bear the cost Source: BLS of foregone global labour arbitrage Crossing Into Asia | 7 ClickTrade to war edit is Master a fight title for style technology independence/supremacy Escalation from here is binary for asset markets • China will pursue semiconductor independence at all • But, 6% of S&P market cap weighted revenue is derived costs, but catching-up is difficult from HK/China but much larger for some US multinationals (Apple 16%, Mastercard 15%, Intel 27%) • China is ~100% dependent on the West for critical semiconductor equipment (~50% from US), access is • Both sides appreciate “Mutually Assured Destruction”, essential to reduce reliance on imported chips but Trump’s next move if polls deteriorate further? 40% Chinese exports / GDP 250 Estimated Chinese 5.0% 35% semiconductor trade deficit 4.5% 30% 200 4.0% 25% 3.5% 20% 150 3.0% To rest of world 15% 2.5% 10% 100 2.0% 5% To US 1.5% 0% 50 1.0% Source: OECD, US Census Bureau Source: Bloomberg USD $Bn (LHS) % GDP (RHS) Risk assess multinationals with large profit pools in both US and China Crossing Into Asia | 8 ClickEconomies to edit Masterable to title kick-start style investment will emerge stronger Ballooning fiscal deficits • Rapid deterioration in US/Southern European fiscal • Europe slowly progressing toward investment-led position stimulus and China spent just ~3%/GDP to stabilise; industrial activity near pre-COVID levels, property/auto • Sufficient goodwill for infrastructure stimulus in the sales stabilised due to pent-up demand US? Dems favour state bailouts, Reps tax cuts. 200% 2020E Government Debt/GDP (RHS) 150% 100% 50% 0% -5% -10% -15% 2020E Fiscal Deficit (LHS) -20% -25% Source: UBS When does the bond market and USD react to open-ended fiscal deficits/govt debt? Crossing Into Asia | 9 ClickChina: to Loweredit Master growth, title butstyle higher quality Growth increasingly consumer led Contribution to GDP growth in China 100% Stock examples in this cluster 80% • Alibaba, Ping An, Yum China 60% 40% Irrational extrapolation 20% • “China Discount” led by concerns around governance, misallocation of credit and 0% reliance on fixed asset investment to drive growth -20% -40% • Opaqueness of Chinese policy fuels “un-investable, black-box” narrative Consumption Investment Net exports Multiple ways of winning Source: Citi • Greater focus on health of the financial system. Prior excesses in shadow China’s share of global unicorn formation banking have been reigned in. A more conservative approach to stimulus in 40% 35% 2019/2020 places less pressure on govt balance sheet preserving future firepower. 35% 32% 29% 30% 28% • Consumer is taking up the baton leading to a higher quality growth 25% • Digital Leader with China starting to selectively lead in high technology 20% innovation/capital formation 15% 12% 10% • Modern housing stock ~250m units versus U.S. (~130m) despite 5x population. For 5% 0% China to reach 75% urbanisation (currently 55%) housing stock will rise by 50 per 0% cent. Source: Citi Crossing Into Asia | 10 ClickCorporate to edit leverage Master title remains style high, though stable Households taking on more debt to support consumption growth Debt to GDP (%) 300 250 Government 200 Household 150 100 Non-financial corporate 50 0 Source: Bank of International Settlements Crossing Into Asia | 11 ClickBarbell to editapproach Master to title consumption style in China Opportunities at low AND high income brackets GDP capita/$5,500 (8% CAGR) GDP capita/$16,000 (15% CAGR) Population pool = 1b Population pool = 340m Second in size to India, but more The same size as the US! than 2x the income! Opportunities: Opportunities: Ping An Insurance JD.com JD.com Alibaba Alibaba Yum China Wuliangye Source: China Statistical Yearbook Crossing Into Asia | 12 ClickeCommerce to edit Master backdrop: title style China versus US China: more consolidated with online leaders dominating ALL players China US Private consumption CAGR (09-19) 14% 4% Total Retail Sales (2019) US$5.8tn US$3.6tn 5 Year Fwd CAGR 7% 3% Online Retail Sales (2019) US$1.4tn US$586bn 5 Year Fwd CAGR 12% 12% eCommerce penetration (2019) 24% 15% Online market share (#1-#3) 62% / 20% / 9% 42% / 7% / 6% Offline market share (#1-#3) 1.2% / 0.4% / 0.4% 14% / 5% / 4% Scale of largest online/largest offline 14x 0.5x Delivery cost per package ~US$1 ~US$7 Delivery cost trajectory 15% deflation 5% inflation Source: Company data, Euromonitor, Goldman Sachs, eMarketer, Antipodes Partners Forecasts Crossing Into Asia | 13 ClickMarket to structureedit Master supportive