Data, Digital, Banking and US-China Trade Tariff From A Banking - - PowerPoint PPT Presentation

Disclaimer: This material that follows is a presentation of general background information about the Bank’s activities current at the date of the presentation. It is information given in summary form and does not purport to be complete. It is not to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation

• r needs of any particular investor. This material should be considered with professional advice when deciding if an investment is appropriate. UOB Bank accepts no liability whatsoever with

respect to the use of this document or its content.

Data, Digital, Banking and US-China Trade Tariff

– From A Banking Perspective

Sector Solutions Group January 2019

8 Megatrends for 2019 & Beyond

Digital data/ Engagement

10 years after iPhone was launched Internet of Things (IoT)

Empowerment of East

Rise of China and ASEAN Rise of the middle-income consumer One Belt, One Road Made in China 2025

Anti-Globalisation

Disruption of trade flows ( U.S.-China tariffs) Nationalism vs Globalisation

Human disengagement

Evolution of ways in which we communicate- Hi-Tech, Hi-Touch and Hi-Trust

Agile

Learn, re-learn, unlearn Discomfort is new norm; even some rebel spirit

Banking

10 years after Lehman Regulation to digitalisation

Blurring Boundaries

The emergence of business and digital ecosystem collaboration

Inflation & Dis-inflation

Inflation of asset prices & dis-inflation of goods & services

1

Banking

10 years after Lehman Regulation to Digitalisation

3

10 years after Lehman crisis

What has changed? Are we safer now?

then, it pays to remember that the roots of the word “credit” comes from the Latin “ ”, meaning “to believe”: finance does not work without faith. The irony, China’s new consumption

The Lost Decade of the World 2008 - 2018

Basel I Capital Basel II Capital Basel III Capital Liquidity Leverage “Basel IV” Capital Liquidity Leverage RWA

Strengthens all 3 components (capital, risk- weighted assets & ratios) Focus on short- and long-term resiliency against liquidity shocks Regulate leverage for banks (model- free fashion) Focus on reducing excessive variability in RWA calculations

Basel III Expanding its Prudency

5

Traditional Banking Balance Sheet

Equity & Liabilities Assets Liabilities On balance-sheet assets Tier 2 Tier 1 Common Equity Off-balance sheet items Risk weighted assets

6

Equity & Liabilities Assets Covered bonds Retail loans Retail funds Wholesale funds Wholesale loans Tier 1, Tier 2 & senior Bail in language Liquid assets Common Equity Off-balance sheet items

More capital & loss- absorbing More stable funds Proper ALM & liquidity management

Risk weighted assets

Review of internal models & other risk exposures, supplemented with a “simple” leverage ratio

Impact:  Numerous stress-testing  Known unknowns vs unknown unknowns  Focal point of banking growth has shifted from the West to the East

Basel III & “IV” Affects All Parts of Banks’ Balance Sheet

7

Banks have larger capital buffers to absorb financial shocks

2018: Big banks have reduced reliance on short-term funding, replacing it with deposits

Source: Bloomberg

8

Sector

Solutions Sector Insights

Industrials Construction/ Infrastructure Consumer Goods Oil & Gas TMT Real Estate & Hospitality

Focused on 6 Prioritised Sectors

Data

Analytics

Static Data Flow Data Behavioural Data Industry specialisation Thought Leadership

Bringing UOB and ASEAN closer to you

Value Chain Analysis Holistic Banking Solutions Regional Expansion Support

Footprint in 6 Major Markets

Data Intelligence China Indonesia Singapore Malaysia Thailand Hong Kong

Introducing Sector-driven Strategies

9

Data and digital

10 years since iPhone was launched Internet of Things (IoT)

10

In 10 years, we have seen the rise of Technology companies – data and digitalisation of global system

2006 2018 2007 2010 2014 2011

Launch of iPhones Launch of iPads Launch of Ant Financial Launch of WeChat and the year that the China smartphone market saw its highest YoY growth rates ever Top 5 companies by market in cap in 2006

2015

Year that the term “sharing economy” was introduced to Oxford Dictionary Fronted by Grab, Uber, Airbnb, Go Jek The top 5 companies by market cap today is made up of technology companies

11

Digital companies have been disrupting traditional businesses and will continue to do so

Digital companies have been disrupting traditional businesses and will continue to do so Financial institutions need to innovate and recognise growing relevance of these players In travel…. In transportation… In retail… Rapid digital disruption will displace 40% of incumbent companies across 12 industries in 5 years1 Since 2000, 52% of companies in the Fortune 500 have either gone bankrupt, been acquired, or ceased to exist 2 Lifetime expectancy of companies on the Fortune 500 list has fallen from 23 years in 1965 to 15 years in 20143

• 1. Digital Vortex: How Digital Disruption is Redefining Industries (Global Center for Digital Business Transformation); AT Kearney: Winning in Digital Innovation: Turning Scale

& Legacy into Strengths 2. Darwinian Digital Disruption; Survival of the Fittest, 2015 3. AT Kearney analysis of Fortune 500 data

12

Broadcast (Push)

PRESENT FUTURE PAST

Interactive (Dynamic) Engagement (Live)

Narrowing the Distance between Organisation and Customers

13

Time Taken to Download Content Greatly Reduced

Source: CNBC

1G – Analog voice 2G – Digital voice 3G – Mobile Data 4G LTE – Mobile Internet With 5G (2020 onwards) able to support up to data volumes up to 1,000 times higher, consumers will download content more often and in greater quantities.

14

The Evolution of Data Analytics

Prescriptive Analytics Predictive Analytics Descriptive Analytics Diagnostic Analytics

Value Difficulty

What happened? Why did it happen? What will happen? How can we make it happen? Machine Learning

Static Data Flow Data Behavioural Data

Market Data Company’s P&L Transaction Data Utilities Transport Telco Payment Companies Social Media Company’s Balance Sheet

Source: Gartner; Source: UOB

Data is the new currency

15

How Go-Jek is changing Indonesians

Go-Jek has created new jobs to address 15% of the

country’s employment,

• r about 1 million people. And

that’s just 3 years since the app was launched. After partnering with GO-FOOD, micro-entrepreneurs have added

80% more customers and

nearly doubled their overall

• rders.

Number of Indonesians with

bank accounts has grown to 49% of the adult population in 2017, from

just 20% in 2011

72% of Indonesian banks feel threatened by

Go-Jek’s e-payment service. 62% polled also perceive Alipay and WeChat as competition

Go-Pay processes half

• f Go-Jek's 100 million

monthly transactions for

its 20-25 million monthly users

16

As of December 2017, more than

1,000 merchants were using GrabPay in Singapore. GrabPay Credits, which is a

cashless top-up payments option, has grown more than 80%

month-on-month

Grab has assisted in opening

bank accounts for more than two-thirds of its driver-

partners (640,000 people), introducing them to banking and

• ther financial services for the

very first time in their lives. On average, Grab commuters reach their destinations in less than half the time (52%

reduction in travel time

• n average) compared to

public transport options in their cities.

Source: Grab

How Grab is disrupting the ride-hailing industry

17

Capturing the bulk of our expenditures

Food and transportation expenses are key

CLOTHING FOOD ACCOMMODATION TRANSPORT

4% 25% 16% 18% Source: SingStat

18

Demographic vs Psychographic

Sex/ Age Country Profession Income Values Attitudes Behaviour Interests

Demographic

Broadcast Marketing

Psychographic

Micro-Segment Marketing

vs

19

Our World Today

Changing the way we go to market

20

From transaction to interaction

Traditional in-store experiences

• Platform for marketing and sale of products
• Limited customers’ engagement

Customer Engagement & Experience

• Gather and engage consumers
• Lululemon Athletica – Host yoga classes
• Urban Outfitters – Store with bar &

restaurant Showrooming

• Platform to showcase product, reviews and

manufacturers’ notes

• Samsung Experience Store – Showcase full

range of smartphones, tablets, laptops, wearables, TVs and audio products Distribution Centre

• Leverage the outreach of numerous store

locations as beginning of distribution chain

• IKEA – Store acts as warehouse

Data Analytics

• Use purchase and viewing information of

customers to recommend subsequent purchases

• C&A – Displays facebook likes on hangers
• f clothes

The Future of Stores

21

The Future of Stores

Going beyond traditional in-store experiences

• 50% of customers walk into stores for

experience

• Lululemon Athletica – host yoga classes
• Rebecca Minkoff & Ralph Lauren – interactive

fitting rooms

• Urban Outfitters – store with bar, restaurant

and rotating pop-ups Empowering store associates with knowledge

• 78% of millennials’ do research online
• Showcase product special features
• C&A – displays Facebook likes on hangers of
• clothes. Allow customers to leave feedback

even after they leave

Clicks and Bricks

22

Key Success Drivers

2 1 3 4

HYPERCONNECTIVITY URBANISATION GROWTH OF SMALLER HOUSEHOLDS AGEING POPULATION

Convenience Stores

Increasing product and service range to fend off competition Evolution to a One-Stop Solution Entrance of Large Format Players Services Products

Ticket reservation Traditional products Medicine & healthcare products Fresh grocery ATM Free Wi-Fi Bill payment Delivery Send & receive shopping/parcels Dine-in food services Printing services Self-service checkout

23

Case Study: 7-Eleven Singapore

Past

• Emphasis on

providing convenience to consumers

• Mainly dried and

packaged products

• First store
• pened in 1983

at Upper Changi Road

• 560 outlets

around Singapore in 2017

Present Increasing spectrum of product range and service coverage

• Increased product range and service

coverage

• One stop store to fulfill consumers’ every

need

Products Services

• Inclusion of fresh

grocery in repertoire

• Expanded ready-to-eat
• ptions to include local

delights

• Home brands to

provide cheaper substitute for international products

• Bill payments
• Top-up services
• Cash withdrawal
• Courier services
• Online shopping

payment & collection

• Collection of medicine

for chronic disease patients

Case Study: Gogoro

Gogoro Battery Swap Stations Gogoro’s Application

517

battery swap stations

30,000

battery exchanges / day

Keyless Control lock and unlock with your device Instant Diagnostics auto-detect maintenance issues Personalised Rides

dynamic dashboard colors, light patterns and custom sound effects

Source: Gogoro

Our World Today

Agility

How it all started: Many failed projects based on traditional waterfall approach

Iterative delivery: How does it really work?

​Traditional Project management ​Agile Project management

28

10 jobs that didn’t exist 10 years ago

App developer Social media manager Uber driver Driverless car engineer Cloud computing specialist Data scientist Sustainability manager Youtube content creators Drone

• perators

Millennial generational expert

29

Future of jobs

Top 10 skills important in the workforce

Source: The Future of Jobs (2016), World Economic Forum

30

Difference in the way we communicate

Traditionalist Boomer Gen X Millennial

Write ME Call ME Email ME Text ME

31

Learn, Re-Learn, Un-Learn

32

Resilience

Disclaimer: This material that follows is a presentation of general background information about the Bank’s activities current at the date of the presentation. It is information given in summary form and does not purport to be

• complete. It is not to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. This material should be considered

with professional advice when deciding if an investment is appropriate. UOB Bank accepts no liability whatsoever with respect to the use of this document or its content.

US-China Tariff Dispute

Timeline of events

19 22 28 34 41 55 65 71 70 92 104 111 122 124 116 116 130 102 134 163 211 260 306 340 356 310 383 417 444 459 486 504 487 526

• 83
• 111
• 135
• 176
• 219
• 251
• 275
• 285
• 240
• 291
• 313
• 334
• 337
• 363
• 388
• 372
• 396
• 400
• 300
• 200
• 100

100 200 300 400 500 600 700 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 US$, billion Exports to China Imports from China Balance

Stripping out the value of foreign-made components, China’s imports is a lower US$375bn.

Source: TradeMap

Trade Balance

US-China Trade Balance

34

Trade Balance China Buys More US Buy More

US-China Trade Balance by Categories

35

36

Since withdrawing from the TPP, U.S. has only 21 free trading partners left

Source: Newsire

Canada Mexico Singapore Australia South Korea Jordan Israel Morocco Oman Chile Peru Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Panama Colombia Bahrain

US

Chile FTA 2014 Peru TPA 2009

FTA : Free Trade Agreement TPA: Trade Promotion Agreement BTA: Bilateral Trade Agreement

US- Colombia TPA 2012 CAFTA-DR (Dominican Republic-Central America FTA) North American FTA 1989 Morocco FTA 2006 Jordan FTA 2010 Israel FTA 2010 Bahrain FTA 2006 Oman FTA 2009 KORUS FTA 2012 Singapore FTA 2004 Australian FTA 2005

Vietnam

Vietnam BTA 2001

Disclaimer: This material that follows is a presentation of general background information about the Bank’s activities current at the date of the presentation. It is information given in summary form and does not purport to be

• complete. It is not to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. This material should be considered

with professional advice when deciding if an investment is appropriate. UOB Bank accepts no liability whatsoever with respect to the use of this document or its content.

Risks and Opportunities in SSG Sectors

Industrials, TMT and Consumers

38

2018 China – U.S. trade dispute Relocation of manufacturing facilities

• Labour-intensive
• Capital-intensive

Trade diversion for ASEAN companies

• Tires and textile products
• Agriculture products

Acceleration of “Made-In-China 2025”

• Industrial machinery
• Technological components

Trends in Risks and Opportunities

Substitution of Chinese-made products Upstream suppliers from ASEAN Potential dumping of Chinese-made goods into the ASEAN region

Risks Opportunities

Electrical Motors, Transformers and Parts U$ 32bn Industrial Turbines and Machinery U$ 31bn Electrical Lighting Products U$ 18.5bn

Optical Equipment and Lens U$ 5.3bn

Motor Vehicles, 4WDs and Tractors U$ 14.7bn

Iron and Steel Products U$ 8.5bn

Total Value

~$137bn Overview: Industrial Goods Exports from China to US

39

Waste Paper U$ 2.7bn Copper Tube and Pipes U$ 1.4bn Total Value

~$8.2bn Overview: Industrial Goods Exports from US to China

40

• Toshiba Machine Co says it

plans to shift production

• f

US-bound plastic moulding machines from China to Thailand in October.

• South

Korean medical equipment manufacturer IM Healthcare, which makes products including air purifiers, is studying a move to Vietnam or South Korea if the trade conflict intensifies.

• Hasbro,

Inc.- an American multinational toy company which sources 70% of its products from China plans to move production to low wage countries like Vietnam and Cambodia.

• The Taiwanese contract manufacturer makes

products including calculators, printers and

• hairdryers. It plans to move its China plants to

the Philippines.

Potential Opportunities: Relocation of Manufacturing Facilities to ASEAN

41 Source: Newsire

Increased material costs up to $200 million Aims to raise prices on equipment by 1% - 1.5%, issued profit warning Bolstering the Changzhou facility at a total investment of $100 million Anticipates 30% higher steel prices and would absorb costs Only 30% are international sales, not heavily hit by U.S. export tariffs BRI opportunities and competitive prices of equipment may spark more demand Tapping facilities in the U.S., Japan and Mexico to produce excavator parts now being produced in China. Cost of change is US$36 million a year Foresee a slowdown in China demand and China sales are minor, shifting focus to North America

Source: Nikkei Asia, Bloomberg, Financial Times, China Daily

Potential Opportunities: Chinese Heavy Machinery Manufacturers to Ride on BRI

42

14.2% 13.5% 11.2% 17.7% 43.4% USA 2017 tyre imports

China Thailand Canada South Korea and Japan Others

U.S. Tyre Imports by Country

• Local tyre manufacturers in Thailand

and Indonesia can step up to meet the demand gap left by China

• Taking

precedence from Obama administration’s 35% tariff on Chinese tyres from 2009 to 2012 - tyre imports from South Korea, Thailand and Indonesia more than doubled in 3 years

• An acceleration of this trend is expected

U.S. tyre manufacturers raised prices by 3.2% China tyre imports decreased by 30% A Replay of Obama’s Tariff? Obama enacted a 35% tariff on Chinese tyres from 2009 to 2012

Potential Opportunities: Further redirection of U.S. tyre demand to Thailand, Indonesia, South Korea

Sources: Newswire

43

Disclaimer: This material that follows is a presentation of general background information about the Bank’s activities current at the date of the presentation. It is information given in summary form and does not purport to be

• complete. It is not to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. This material should be considered

with professional advice when deciding if an investment is appropriate. UOB Bank accepts no liability whatsoever with respect to the use of this document or its content.

Consumer Goods

Trade Diversion In Discretionary and Agricultural Products

Cereal $1.5bn Seafood $1.3bn Meat and offal $1.2bn

Agribusiness

F, V, N

Fruits, Vegetables and Nuts $0.8 bn

Soybean $13.9bn

F&B

Dairy $ 0.4 bn

Agribusiness Fruit, Vegetables and Nuts F&B

Total Value

~$17.9bn

Overview: Consumer Goods Exports from US to China

45

Total Value

~$27.6bn

Overview: Consumer Goods Exports from China to US

46

Leather Good $7.4 bn

Vegetable, Fruit, Nut $0.4bn

Consumer Discretionary Agribusiness HPC Consumer Discretionary

Furniture $13.3 bn

Agribusiness

Seafood $2.5 bn

HPC

HPC $1.4bn Apparel Footwear $1.4 bn

47

Relocating The Furniture / Leather Goods Production

Opportunities abound for Southeast Asian manufacturers

13.3 3.9 1.4 1.1 0.8 0.7 0.6 0.3 0.3 0.3 2 4 6 8 10 12 14 China Vietnam Canada Mexico Italy Malaysia Indonesia Taiwan India Poland Import value in USD bn (2017)

Southeast Asian nations such as Vietnam, Malaysia and Indonesia may see surge in furniture export value.

US$13.3 bn

China is the biggest exporter to US

~20% of Michael Kors finished products comes from China through its largest contract manufacturer, in terms of unit volume (FY2018)

Source: Trademap, Company disclosures, Asian Nikkei Weekly, Statista

Classic Brands, a specialty mattress producer, turns to its redundant capacity in U.S. facilities in Maryland and California, as well as in other countries

US$7.4 bn

China is the largest exporter to US by volume

More than US$3 bn worth of luggage and travel bags imported from China will be affected by the

• tariff. Due to rising cost, Samsonite

is sourcing more from contract manufacturers based in Indonesia, Bangladesh and Vietnam

48

Soybean By-Products

Sources: The Straits Times

49

Pork companies measures

1st

in world for pork consumption

5th

largest exporter of U.S. pork including pig parts that only the Chinese consume

25%

tax on China pork imports Before After

18%

drop in U.S. pork imports to China from Jan to May compared to a year ago

10%

increase in cost of pork in China since May

• Biggest exporter of U.S.

pork to China

• Plans to boost U.S.

pork exports to Japan, South Korea and Mexico to reduce the impact

• Domestic pig breeders

stand to win from trade war due to local demand for domestically-produced pork

• These companies

include Hunan New Wellful, Muyuan, Wen’s Foodstuff

Source: Straits Times, Reuters, Nikkei Asia

Disclaimer: This material that follows is a presentation of general background information about the Bank’s activities current at the date of the presentation. It is information given in summary form and does not purport to be

• complete. It is not to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. This material should be considered

with professional advice when deciding if an investment is appropriate. UOB Bank accepts no liability whatsoever with respect to the use of this document or its content.

TMT

Electronic components Consumer Electronics

Direct Implications

~$6.27bn ~$7.26bn

2nd Order Effect

Value at Stake: $16.8bn TMT Products Exports from China to US

51

Network Equipment

~$3.3bn

Include refrigerators, washing machines, vacuum cleaners etc. Include switches, routers, other networking gear, auto data processing (ADP) machines, panels, PCBs and LEDs etc.

Value

• Companies that export to US

from China will have to pay additional tariffs

• This will be 25% (if it falls into

Phase 1 of the US$50 billion items) or 10% till the end of 2018 (if it falls into Phase 2 of the US$200 billion items) before being uniformly raised to 25% in January 2019

• Affects American, European as

well as Chinese companies that

• wn factories in China
• Depreciation of RMB will lead to

more expensive imports into China

• Both consumers and businesses

will bear the impact of higher tariffs

• Smaller suppliers could be

pushed into the red leading to consolidation in the sector

One man’s poison is another man’s meat

ASEAN perspectives on Trade War

TMT – POST-TARIFF

• Apple, Samsung and LG electronics may

relocate assembly / manufacturing of phones to

• ther factories in ASEAN before shipping back to

the US market

• Manufacturers and logistic firms are moving their

production lines to ASEAN to avoid rising wages and land costs

From Just-In-Time To Just-In-Case:

Building up inventory to avoid shortages

Source: Phnom Penh Post

Change in global supply chains – case study

Source: Nikkei Asia, Straits Times, South China Morning Post, Global Times, Financial Times

Electronics’ relocation to Asia

Thailand

• Delta Inc, Apple’s supplier, will

acquire Delta Electronics (Thailand) to expand production in Thailand

• Merry Electronics Co, which makes

headphones for the likes of Bose, may also move its production from Southern China to Thailand to counter potential tariffs on headphones Malaysia

• Kayamatics Limited, is

exploring setting up production lines in Kuala Lumpur and Penang Taiwan

• Wistron will be moving motherboard

production from China back to Taiwan

• Quanta Computer is considering moving

some production back to Taiwan as some of its production is in Shanghai

Source: Nikkei Asia, Straits Times, South China Morning Post, Global Times, Financial Times

Vietnam

• Camera maker Olympus closed its

factory in Shenzhen, South China's Guangdong Province, due to low productivity and a weakened competitive market position, choosing to concentrate production at the Olympus Vietnam Co factory Korea and Japan

• Korean and Japanese companies are

moving some production back to their home countries

55

Display Panel Optoelectronics and Sensors Precision Plastic Printed Circuit Board (PCB) Memory Application-Specific Standard Product (ASSP) Micro components

Breakdown of key components in a smartphone:

56

Distributor EMS

Complexity of the global supply chain:

Thank You

Disclaimer: This analysis is based on information available to the public. Although the information contained herein is believed to be reliable, UOB Group makes no representation as to the accuracy or completeness. Also,

• pinions and predictions contained herein reflect our opinion as of date of the analysis and are subject to

change without notice. UOB Group may have positions in, and may effect transactions in, currencies and financial products mentioned herein. Prior to entering into any proposed transaction, without reliance upon UOB Group or its affiliates, the reader should determine, the economic risks and merits, as well as the legal, tax and accounting characterizations and consequences, of the transaction and that the reader is able to assume these

• risks. This document and its contents are proprietary information and products of UOB Group and may not be

reproduced or otherwise.