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The Lonsec Rating (assigned October 2018) presented in this document is published by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445. The Rating is limited to “General Advice” (as defined in the Corporations Act 2001 (Cth)) and based solely on consideration of the investment merits of the financial product. Past performance information is for illustrative purposes only and is not indicative of future performance. It is not a recommendation to purchase, sell or hold Auscap Asset Management Limited’s product, and you should seek independent financial advice before investing in this product. The Rating is subject to change without notice and Lonsec assumes no obligation to update the relevant document following publication. Lonsec receives a fee from the Fund Manager for researching the product using comprehensive and objective criteria.

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The Lonsec Rating (assigned October 2018) presented in this document is published by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445. The Rating is limited to “General Advice” (as defined in the Corporations Act 2001 (Cth)) and based solely on consideration of the investment merits of the financial product. Past performance information is for illustrative purposes only and is not indicative of future performance. It is not a recommendation to purchase, sell or hold Auscap Asset Management Limited’s product, and you should seek independent financial advice before investing in this product. The Rating is subject to change without notice and Lonsec assumes no obligation to update the relevant document following publication. Lonsec receives a fee from the Fund Manager for researching the product using comprehensive and objective criteria.

For further information regarding Lonsec’s Ratings methodology, please refer to Lonsec’s website at: http://www.beyond.lonsec.com.au/intelligence/lonsec-ratings

Auscap Asset Management Limited, its directors and employees do not accept any liability for the results of any actions taken or not taken on the basis of information contained in the Lonsec Rating, or for any errors or omissions.

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Does China’s Property Market Present Grand Risks?

October 19, 2021

October 2021 Newsletter | CPD NOW AVAILABLE | In this newsletter we analyse two topics. First, we consider the potential implications for the Australian and global economies associated with the possible collapse of Evergrande, China’s second largest property developer. Secondly, we discuss our views on Eagers, Australia’s largest automotive dealership group and a core holding in the Auscap portfolio.

Auscap Newsletter - October 2021

Click here to listen to the audio version of the newsletter

Multiple Choice Test - Does China’s Property Market Present Grand Risks?

This activity meets the guidelines for qualifying CPD, and has been accredited for continuing professional development by the Financial Planning Association of Australia but does not constitute FPA's endorsement of the activity. Accreditation number 25411 for 0.75 hours. * Pass rate of 80% required *

1. A significant driver of Chinese economic growth over the last two decades has been:

The residential real estate market

China has had no economic growth over the last two decades

It is too hard to determine any drivers of China's economic growth over the last two decades

2. In August 2020, the Chinese Government adopted a policy that is used to assess the allowable growth in debt for property developers. The measures in this policy include:

A liability to asset ratio of less than 70%

A net gearing ratio of less than 100%

A cash to short term debt ratio of more than 100%

All of the above

3. Evergrande is at risk of default due to:

Not meeting 1 out of 3 measures in the ‘3 red lines’ policy

Failing all 3 of the measures in the ‘3 red lines’ policy

The buildings it has developed having building faults and defects

None of the above

4. Barclays recently estimated that if Evergrande’s development activity fell 50% it would:

Have very little impact on the Chinese property market

Reduce development by 4% across the country and potentially cause a 10% contraction in the property market

Cause a 50% fall in development across China

Cause no change to the prices in Chinese property market

5. China produces what percentage (%) of the world's steel:

20%

5%

56%

Less than 45%

6. India is the second largest producer of steel followed by Japan:

True

False

India and Japan produce the same amount of steel

Iran produces more steel than India and Japan

7. Australian vehicle sales have been depressed since 2018, which has been driven by:

Large credit contraction, falling property prices from 2017 to 2019 and COVID-19

Australian vehicle sales have not been depressed since 2018

The average Australian vehicle is only 2-years old, so it is not expected that there would be a high number of vehicle sales

None of the above

8. Australian vehicle sales are only annualsing:

2.1 million units – the same level as 2008

0.5 million units – the same level as 2008

1.1 million units – the same level as 2008

3.5 million units – the same level as 2008

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The Auscap Long Short Australian Equities Fund received a ‘Recommended’ rating from Zenith Investment Partners (June 2023)¹

The Auscap Long Short Australian Equities Fund received a ‘Recommended’ rating from Lonsec Research (October 2023)²

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Zenith Disclaimer

The Zenith Investment Partners (ABN 27 103 132 672, AFS Licence 226872) (“Zenith”) rating (ASX0001AU assigned June 2023; ASX6179AU assigned February 2024) referred to in this piece is limited to “General Advice” (s766B Corporations Act 2001) for Wholesale clients only. This advice has been prepared without taking into account the objectives, financial situation or needs of any individual, including target markets of financial products, where applicable, and is subject to change at any time without prior notice. It is not a specific recommendation to purchase, sell or hold the relevant product(s). Investors should seek independent financial advice before making an investment decision and should consider the appropriateness of this advice in light of their own objectives, financial situation and needs. Investors should obtain a copy of, and consider the PDS or offer document before making any decision and refer to the full Zenith Product Assessment available on the Zenith website. Past performance is not an indication of future performance. Zenith usually charges the product issuer, fund manager or related party to conduct Product Assessments. Full details regarding Zenith’s methodology, ratings definitions and regulatory compliance are available on our Product Assessments and at Fund Research Regulatory Guidelines.

Auscap Asset Management Limited, its directors and employees do not accept any liability for the results of any actions taken or not taken on the basis of information contained in the Zenith Product Assessment, or for any errors or omissions.

This report for the Auscap Long Short Australian Equities Fund is intended for wholesale clients, AFSL holders or their authorised representatives, by accessing this report you are confirming that you are a wholesale client or you either hold an AFSL or are an authorised representative.

Disclaimer

* Important: This information is noted for general information purposes only. Auscap Asset Management Limited ACN 158 929 143, AFSL 428014 (Auscap) is the responsible entity of the Auscap Long Short Australian Equities Fund (ARSN 615 542 213) (the Fund). Before deciding whether to acquire units in the Fund, a prospective investor should fully review the information, the disclosures and the disclaimers contained in all relevant Fund documents, including in particular the Fund’s disclosure document – the Product Disclosure Statement (PDS) – or any supplement to that document, and consider obtaining investment, legal, tax and accounting advice appropriate to their circumstances. A copy of the Fund’s PDS is available on request or at www.auscapam.com/auscap-fund/pds/. A copy of the Target Market Determination for the Fund, prepared in connection with the Design and Distribution Obligations, can be obtained on request or at www.auscapam.com/ddo/.