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Emerging Asia: The Next Frontier

Matthews Asia | September 2015

For institutional use only. Do not give, show or quote to any other person. Not to be used with retail investors. Do not duplicate or reproduce ©2015 Matthews International Capital Management, LLC PT472

The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews International Capital Management, LLC (Matthews Asia) does not accept any liability for losses either direct or consequential caused by the use of this information.

The information contained in this presentation is for informational purposes only and does not, in any way, constitute investment advice or an offer to sell or a solicitation of an offer to buy any security or product mentioned herein. No representation is given that shares, products or services mentioned herein are suitable for any investor.

Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Fixed income investments are subject to additional risks, including, but not limited to, interest rate, credit and inflation risks. In addition, single-country and sector strategies may be subject to a higher degree of market risk than diversified strategies because of concentration in a specific industry, sector or geographic location. Investing in small companies is more risky and more volatile than investing in large companies.

2 For institutional use only. Do not give, show or quote to any other person. Not to be used with retail investors. Do not duplicate or reproduce.

© 2015 Matthews International Capital Management, LLC PT472

There are more people living inside this circle than outside of it

Source: Washington Post, May 7, 2013

Asia’s Global Relevance



Things to Consider Not all emerging markets are created equal—Emerging Asia is growing faster

*Note: G7 countries includes Canada, France, Germany, Italy, Japan, U.K. and U.S. Source: World Bank, 2014

• Asia is currently ~ 69% • Up from 55% 1/29/2010

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Emerging Asia Global Emerging Emerging Europe Emerging Latin America G7*

EMERGING GDP GROWTH %

10 Year Average 5 Year Forecast



Asian Economies Can be on a Path Towards Greater Prosperity

0.0

0.2

0.4

0.6

0.8

1.0

1.2

0.0 0.2 0.4 0.6 0.8 1.0 1.2

Europe

U.S. and Canada

Latin America

Asia

Middle East/Africa

TAIWAN SOUTH KOREA

HONG KONG

SINGAPORE

CHINA

INDIA

MALAYSIA THAILAND

JAPAN

U.S.

Asia is the only region that has achieved “Economic Take Off”

GDP per capita relative to the U.S. (1980)

GDP per capita relative to the U.S. (2010)

Source: Angus Maddison, MICM



Asia’s Consumption Still Has a Long Way To Go… Asia per capita GDP in historical context to the U.S.

Sources: Maddison Historic GDP, IMF, MICM calculations; Data as of 2012

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1 1600 1806 1818 1830 1842 1854 1866 1878 1890 1902 1914 1926 1938 1950 1962 1974 1986 1998 2010

U.S. Asia Countries

Hong Kong

Singapore

Taiwan

Laos Bangladesh

South Korea

Malaysia Thailand

China

Sri Lanka

Indonesia

Burma Pakistan, Cambodia

Mongolia, North Korea, Nepal

India, Vietnam, Philippines

GDP per capita (US$)



Pillars of Sustainable Growth

Manufacturing capacity migration to Frontier Asia

Remittances

Foreign Direct Investment (FDI)

Urbanization/Demographics

Rising Wealth

Technology/ Pace of Change

India

Vietnam Myanmar

Malaysia

Cambodia

Bangladesh

Thailand

Indonesia

CHINA



EM Consumption is an Asia Story Global middle class consumption (2000 – 2050)*

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Sub-Saharan Africa

Asia Pacific

Central and South America

North America

Europe

*Data represented beyond November 2011 are estimates only. Notes: Global middle class consumption is defined here as household consumption between USD 10 and USD 100 Purchasing Power Parity (PPP)/day. Projections hold most recent distribution constant (from PovcalNet database) and assume consumption equals income growth (projected by a Cobb-Douglas production function, a model of Real Exchange Rate (RER) convergence based on the Balassa-Samuelson model, and UN population projections). Source: Organisation for Economic Co-operation and Development (OECD) 2011, Perspectives on Global Development 2012: Social Cohesion in a Shifting World; Data as of November 2011

Middle East and Northern Africa



0

500

1,000

1,500

2,000

2,500

3,000

Evolution on Consumption

Source: BEA Credit Suisse Research, MICM estimates, 2013

Rising per Capita Income

Unit volume consumed per capita

Recreation

Health Care

Food and Beverage

Real household consumption vs. GDP per capita



Speed of Change in Frontier Markets

CAMBODIA 2015 CAMBODIA 2011



How You Invest in Growth Matters

Argentina

Nigeria

MSCI EM INDEX

MSCI Frontier Index is over 50% Kuwait, Argentina and Nigeria Over 45% of the countries within the MSCI Frontier Index are forecasted to grow at less than 3% per annum The MSCI Frontier Index is over 50% Financials and only 8.1% Consumer Staples and Health Care The MSCI EM Index is now 69% Asia calling for increased specialization

Asia ex Japan Latin AmericaMiddle East and Africa Europe

Note: The MSCI Frontier Index is represented by the iShare MSCI Frontier ETF (FM), and the MSCI EM Index is represented by the iShare MSCI EM Equity Index (EEM). All country and sector weights are shown as of 9/9/15.

Source: IMF World Economic Outlook 2015, Bloomberg, BlackRock Inc., MSCI, CLSA

MSCI FRONTIER INDEX Kuwait 26% Argentina 13% Nigeria 13% Pakistan 11% Kenya 6% Oman 5% Morocco 5% Romania 5% Bangladesh 3% Vietnam 3% Kazakhstan 3% Sri Lanka 2% Mauritius 1% Jordan 1% Other 1%

Kuwait

Argentina

Nigeria 0%10%20%30%40%50%60%70%80%90%

100%

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14



CONTACT THE MATTHEWS ASIA CLIENT SERVICES TEAM

Phone 888.289.7988

Email [email protected]

Web matthewsasia.com

Matthews Asia Resources Emerging Asia: The Next Frontier

Frontier Asia: Their Path to Prosperity Matthews Asia believes that Asia's frontier markets are poised to follow on the well-worn path to prosperity that many of their neighbors in the region have taken. In our special Frontier issue of our AsiaNow Report we explore why we are optimistic about frontier economies. Visit matthewsasia.com to access AsiaNow and other special reports for insights and analysis into recent market events, broad economic developments and topics relevant to Asia’s markets.

Opportunities in Frontier Asia

Matthews Emerging Asia Fund Managers Taizo Ishida and Robert Harvey, CFA, discuss the opportunities they see for investors in the growing frontier markets of Asia.

Reflections on Frontier Markets

Matthews Emerging Asia Fund Manager Robert Harvey, CFA, reflects on the growth he's seen in frontier markets such as Vietnam and Myanmar, and what that means for investment opportunities in these developing economies.

http://matthewsasia.com/asianow/




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