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Research Note - JPM Emerging Markets

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  • Emerging Markets Equity Research 11 September 2014

    Emerging Markets Strategy Dashboards

    See page 24 for analyst certification and important disclosures, including non-US analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

    Emerging Markets Equity Strategy Team RecommendationsAdrian MowatAC Emerging Markets [email protected] (852) 2800 - 8599 J.P. Morgan Securities (Asia Pacific) Limited OW: Taiwan, India, Brazil, Mexico, Thailand, Indonesia, Greece,

    UAE and Qatar UW: Korea, Chile, Peru, Poland, South Africa, Malaysia and

    Russia

    KEY TRADES: EM joins the equity bull market, Broadening global growth (Taiwan IT, Mexico, Greece)

    Lower CAD risk and better policy (India, Indonesia, Thailand)

    Pedro Martins Junior LatAm [email protected] (55-11) 4950-4121 Banco J.P. Morgan S.A. David Aserkoff CEEMEA [email protected] (44-20) 7134-5887 J.P. Morgan Securities plc Rajiv Batra Emerging Markets [email protected] (91-22) 6157-3568 J.P. Morgan India Private Limited Sanaya Tavaria Emerging Markets [email protected] (1-212) 622-5469 J.P. Morgan Securities LLC Global Emerging Markets Research

    Luis Oganes Global Emerging Markets [email protected] (1-212) 834-4326 J.P. Morgan Securities LLC

    For full list of J.P. Morgan equity strategists please see the directory on the back page

    Key Changes Market performance to 10 September, 2014

    Year to date: MSCI Emerging Markets 9.8% outperforming MSCI World by 3.9%

    Year to date: MSCI EM Latin America 15.7% outperforming MSCI Emerging Markets by 5.9%

    Top three markets YTD in US$: UAE, Egypt and Indonesia

    Bottom three markets YTD in US$: Russia, Chile and Poland

    Liquidity Monitor Top three markets by increase in ADTV (1 wk Avg. vs 3MMA): Philippines (US$0.5bn, up 150%), Colombia (US$2.1bn, up 62%) and South Africa (US$1.3bn, up 0%)

    Top three markets by increase in Daily Velocity Ratio (1 wk Avg. vs 3MMA): Philippines, Colombia, and South Africa

    Sector performance Year to date: MSCI EM Healthcare 21% outperforming MSCI Emerging Markets by 11.2%

    Year to date: MSCI EM Materials -0.2% underperforming MSCI Emerging Markets by 10%

    Top three key market sectors YTD in US$: Brazil Financials, Brazil Energy and India Financials

    Bottom three key market sectors YTD in US$: Russia Energy, Korea Materials and Korea Information Technology

    Demand classification sector performance YTD: Domestic Demand 11.5%, Global Capex 9.4%, Global Consumer 7.6% and Global Price Takers 4.1%

    Headline inflation data published since the last publication:

    China: CPI 2.0%oya (J.P Morgan 2.3%, Consensus 2.2%) Philippines: CPI 4.9%oya (Consensus 5.0%) Taiwan: CPI 2.1%oya (J.P Morgan 1.8%, Consensus 1.8%) Brazil: CPI 6.5%oya (J.P Morgan 6.57%, Consensus 6.52%) Colombia: CPI 3.0%oya (J.P Morgan 2.93%, Consensus 2.94%) Mexico: CPI 4.2%oya (J.P Morgan 4.16%, Consensus 4.10%) Chile: CPI 4.5%oya (J.P Morgan 4.3%, Consensus 4.3%) Czech Republic: CPI 0.6%oya (Consensus 0.5 %) Russia: CPI 7.6%oya (J.P Morgan 7.6%, Consensus 7.6%) Greece: CPI -0.3%oya (Consensus -0.5 %) Turkey: CPI 9.5%oya (Consensus 9.4%)

    J.P. Morgan's revisions to 2014 GDP forecasts

    Negative: Korea 3.6% [3.7%]

    J.P. Morgan's revisions to 2015 GDP forecasts

    Negative: Chile 3.1% [3.2%]

    J.P. Morgan's revisions to central bank policy rate forecasts Philippines: Current 4.00% [3.75%], Last change 11 Sep 14 +25bp [31 Jul 14 +25bp], Forecast next change # [11 Sep 14 +25bp], Sep 14 4.00%, Dec 14 4.00%, Mar 15 4.00%

    Table of Contents Page #

    Regional Summary 2 Market Performance 3 Liquidity Monitor 4 Monitoring Inflation 5 Market Drivers 6 Cross-section Earnings Growth 7 Earnings Revisions 8,9,10 Sector-Country PE Matrix 11 Valuation Distribution 12 Demand Classification 13 Equities relative to Bonds 14 Economic Momentum 15 Policy Rates Forecast 16 Currency Forecasts 17,18 Credit Risk 19 Emerging Market Balance Sheets 20

    Emerging Market in Perspective 21 Emerging Capital Market 22 Index Weightings 23

    Please see Key Trades and Risks: Emerging Markets Equity Strategy, Mowat et al, 27 August 2014, for our non-consensus bullish call and new target of 1200 for the EM index. For more on the case for emerging market equities please see The

    Underdog is Back: The case for an Emerging Equities Bull Market, Mowat, et al., 25 July 2014.

  • 2Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599,[email protected]

    Summary: Regional and Country Valuations

    10-Sep-14 Hist.^ P/ EPS Current 12m Prospective Hist.^ Current Prospective Hist.^ Current ProspectiveMSCI Index Trough (Trend) Trailing Fwd 2013 2014E 2015E Peak Trailing 2014E 2015E Trough Trailing 2014E 2015E 2012 2013 2014E 2015E 2013 2014E 2015E

    Global* 468 9.4 15.6 16.0 14.5 16.8 15.7 14.1 4.1 2.6 2.6 2.8 1.3 1.9 1.9 1.8 0.1 8.0 7.1 11.3 12.5 12.4 13.0USA 1,910 11.6 17.7 17.6 16.0 18.4 17.3 15.5 4.0 2.0 2.1 2.2 0.9 2.5 2.4 2.2 5.3 8.0 6.6 11.7 14.7 14.4 15.0Europe* 1,406 9.8 12.5 15.5 14.0 16.2 15.3 13.5 6.1 3.5 3.6 3.9 1.1 1.7 1.7 1.6 -3.8 -5.9 6.1 12.8 11.0 11.2 12.2Japan* 800 11.5 26.8 15.1 14.0 27.3 15.6 14.6 3.0 1.7 2.1 2.3 0.9 1.4 1.2 1.1 -14.0 10.9 75.7 6.3 5.1 7.8 7.8Emerging Markets* 50,705 7.9 10.4 12.1 11.0 12.7 11.9 10.6 3.6 2.7 2.8 3.1 1.0 1.5 1.5 1.3 -2.7 20.2 7.3 11.8 12.7 12.7 13.3EMF Asia 737 8.5 13.6 12.7 11.4 13.8 12.3 11.1 3.4 2.4 2.5 2.7 1.0 1.6 1.6 1.5 5.6 7.5 12.7 11.2 12.7 13.3 13.7EMF LatAm* 7,556,719 8.6 10.0 14.9 13.1 15.5 14.6 12.5 5.1 3.0 3.0 3.3 0.6 1.8 1.8 1.6 -18.6 5.5 5.8 16.5 11.7 12.0 13.4EMF EMEA* 501 8.7 6.7 9.6 9.1 9.5 9.6 8.9 4.9 3.4 3.7 4.3 1.1 1.2 1.2 1.0 -10.4 96.6 -1.3 8.8 13.1 12.3 12.4China 67 7.2 8.3 10.4 9.3 11.1 10.1 9.0 5.7 3.2 3.2 3.5 0.5 1.5 1.5 1.3 1.4 10.9 9.6 11.7 14.7 15.2 15.4Brazil* 219,657 9.6 9.2 12.3 11.0 12.8 12.1 10.6 7.6 3.8 4.0 4.2 0.4 1.5 1.5 1.3 -30.7 13.8 5.3 14.9 11.5 12.3 13.4Korea 580 7.7 9.3 11.5 9.9 12.7 11.0 9.4 2.9 1.2 1.3 1.4 0.5 1.1 1.1 1.0 7.7 -5.9 15.2 17.0 9.4 10.1 10.9Taiwan 341 12.1 16.6 15.2 13.7 17.4 14.4 13.4 7.8 2.9 2.9 3.3 1.2 1.9 1.9 1.7 3.9 36.9 21.0 7.7 12.0 13.5 13.3South Africa* 1,284 9.1 14.7 15.5 13.8 16.9 14.9 13.4 4.7 3.1 3.2 3.6 1.4 2.6 2.5 2.3 8.2 4.9 13.3 11.6 16.8 17.4 17.8India 1,016 9.6 18.8 19.4 16.6 21.3 18.7 15.9 2.6 1.4 1.5 1.6 1.4 3.0 2.9 2.6 10.0 7.1 13.9 17.6 16.5 16.5 17.1Russia* 749 3.2 2.6 4.6 4.7 4.6 4.7 4.7 5.3 4.9 5.3 6.3 0.2 0.5 0.5 0.5 -11.1 -4.2 -2.7 0.0 13.0 11.7 11.0Mexico* 43,934 9.0 13.1 22.3 19.6 22.2 22.4 18.6 4.1 1.5 1.4 1.6 0.7 2.8 2.8 2.6 37.3 -1.8 -0.8 20.1 13.4 12.5 14.6Malaysia 660 10.3 17.1 16.5 15.3 17.3 16.2 14.9 5.1 3.2 3.2 3.4 0.6 2.1 2.1 1.9 15.6 0.3 7.1 8.8 12.8 13.2 13.3Chile* 4,439 11.4 15.2 19.3 15.7 21.5 18.4 14.7 8.9 2.5 2.6 2.8 0.9 1.6 1.6 1.5 -19.3 -7.6 16.5 24.9 8.3 8.9 10.7Indonesia 6,074 4.8 15.6 16.3 14.6 17.7 15.8 14.1 5.9 2.4 2.5 2.7 0.9 3.4 3.3 2.9 13.7 3.6 12.2 11.4 22.1 22.2 21.7Turkey* 1,137,256 5.1 7.8 11.2 10.0 11.1 11.3 9.5 9.4 2.6 3.0 3.3 1.0 1.5 1.5 1.4 17.1 9.9 -1.9 18.4 15.8 13.8 14.8Thailand 550 7.7 10.6 14.9 13.1 16.2 14.4 12.6 5.9 3.0 3.0 3.3 0.6 2.2 2.1 1.9 16.3 7.4 12.5 14.0 15.3 15.6 15.9Poland* 1,823 6.8 11.0 14.6 13.9 14.3 14.7 13.6 7.1 3.7 3.9 4.2 1.0 1.4 1.4 1.3 -5.6 -22.1 -2.7 8.1 10.0 9.5 9.8Czech Republic* 302 7.3 7.0 12.8 14.2 11.6 13.4 14.5 10.0 5.4 5.4 5.2 0.5 1.5 1.5 1.2 -3.2 -10.9 -13.6 -7.2 13.4 11.4 9.1Egypt* 1,869 5.5 9.1 22.6 10.7 20.9 23.5 8.6 8.4 1.5 2.1 3.4 1.0 2.0 1.8 1.6 4.6 -28.2 -10.9 171.8 7.8 9.0 19.6Philippines 1,227 8.8 29.3 21.4 19.2 22.2 21.1 18.4 4.9 2.1 2.1 2.4 0.9 3.1 3.0 2.8 9.1 8.8 5.6 14.3 15.6 15.0 15.6Hungary* 862 4.3 5.0 10.7 10.0 8.4 12.1 9.3 5.3 3.4 3.2 4.0 0.6 0.9 0.8 0.8 -12.3 0.1 -30.3 30.2 10.9 7.3 8.8Greece 236 - - - - 13.9 - 16.1 8.5 0.8 1.0 1.4 - 1.1 1.1 1.1 -8.0 3.0 - - 11.5 - 6.7UAE 563 - - 18.6 17.3 19.7 18.2 17.0 - 2.2 2.3 2.7 - 2.1 2.1 1.9 - 13.2 8.1 7.3 11.3 11.5 11.8Qatar 1,169 - - 17.6 15.7 18.6 17.1 15.2 - 3.7 3.7 4.1 - 2.6 2.6 2.4 - 6.3 8.9 12.9 14.4 15.2 16.4

    Source: I/B/E/S, MSCI, J.P. Morgan estimates. Updated as of 10 September 2014* Market forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using I/B/E/S estimates. IBES Estimates are not available for Morocco, Jordan, Peru and Colombia.For all other markets, forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using JPM estimates for covered stocks and I/B/E/S estimates for the rest.Hist.^ refers to the historically lowest valuation of the MSCI indices since Jan 1991. Trough PE represents the lowest 12 month trailing PE. For dividend yield the highest values are taken to represent the best multiple.USA, Europe and Japan PE are I/B/E/S aggregate estimates. Japan Valuation estimates are for the financial year ending MarchP / EPS (Trend) uses the trend EPS for the indices calculated by the linear regression on the natural log of trailing EPS. For more, please refer to 'Mayday call for the shorts - Perspectives and Portfolios', 5 May 2009, Mowat et al.P / EPS (Trend)' is NM for indices where the modeled relationship is weak with a less than 0.50 R-square. The start dates China and Singapore models are modified to make them more relevant. Sector indices inputs have not been altered.

    11 September 2014

    P/E (x) Div. Yield (%) P/BV (x) Earnings growth (%) ROE (%)

  • 3Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]

    Market Performance: MSCI AC Performance by Region, Country and Sector

    YTD 2014

    Glo

    bal

    Nor

    th

    Am

    eric

    a

    Euro

    pe

    Jap a

    n

    EMF

    EM

    F A

    sia

    EMF

    Latin

    A

    mer

    ica

    EM

    EA

    EM

    F A

    sia

    Kor

    ea

    Taiw

    an

    Chi

    na

    Indi

    a

    Mal

    aysi

    a

    Thai

    land

    Indo

    nesi

    a

    Phili

    ppin

    es

    Consumer Discretionary 0.9% 3.3% -4.7% -3.4% 11.2% 7.4% 19.5% 17.4% 7.4% 1.3% -4.3% 3.5% 35.9% -1.0% 25.6% 17.9% 11.4%Consumer Staples 4.0% 5.3% 0.9% 7.6% 5.4% 8.8% 4.1% -2.7% 8.8% 26.6% 6.1% -12.0% 14.2% -2.6% 7.4% 17.4% 53.1%Energy 8.9% 10.9% 1.6% 4.2% 8.3% 10.9% 32.3% -5.3% 10.9% -34.7% -7.1% 15.4% 23.2% -20.2% 5.8% 20.8%Financials 4.7% 6.9% -1.7% -10.9% 11.6% 9.4% 33.0% 0.4% 9.4% 8.8% 7.5% -0.3% 33.0% -2.8% 34.9% 33.1% 26.3%Healthcare 13.5% 15.3% 9.3% 8.7% 21.0% 26.9% 0.0% 12.2% 26.9% 0.0% -28.5% 10.2% 36.1% 25.6% 71.6% 0.0%Industrials 1.2% 2.7% -5.4% 3.9% 6.8% 5.1% 14.9% 6.5% 5.1% -4.0% 0.7% -0.9% 43.6% 2.0% 36.2% 22.2% 16.1%Information Technology 11.4% 12.9% -3.3% 5.0% 14.1% 13.8% 30.0% 13.8% -7.2% 25.3% 29.0% 13.2%Materials 3.4% 9.5% 0.0% 1.1% -0.2% 1.6% -4.4% 4.0% 1.6% -7.6% -3.0% 2.7% 28.5% -5.0% 0.6% 18.9%Telecoms 1.8% 2.7% -5.0% -6.4% 10.7% 18.0% 5.0% 1.0% 18.0% 15.4% -1.8% 24.1% 9.3% 3.8% 17.2% 27.6% 23.8%Utilities 11.2% 12.4% 11.3% -6.0% 14.4% 14.6% 15.6% 12.0% 14.6% 17.9% 11.6% 17.9% 1.9% 30.5% 32.4% 21.9%Region / Country Benchmark

    5.9% 8.6% 0.0% -1.2% 9.8% 10.5% 15.7% 1.5% 10.5% -1.5% 14.2% 7.8% 24.9% -1.4% 19.7% 25.6% 23.2%

    Change vs dollar 4.9% 0.4% 3.0% -0.5% -1.4% 2.2% 3.0% 2.1% 3.5% 1.8%

    YTD 2014

    EMF

    Latin

    A

    mer

    ica

    Bra

    zil

    Mex

    ico

    Chi

    le

    Arg

    entin

    a

    Peru

    Col

    ombi

    a

    EM E

    urop

    e &

    M

    E

    Sou

    th A

    fric

    a

    Rus

    sia

    Turk

    ey

    Pola

    nd

    Hun

    gary

    Cze

    ch

    Rep

    ublic

    Egyp

    t

    Gre

    ece

    UA

    E

    Qat

    ar

    Consumer Discretionary 19.5% 24.8% 21.2% -3.9% 17.2% 19.8% 10.8% 39.2% 21.3%Consumer Staples 4.1% 3.0% 0.7% -3.8% 8.7% -3.8% 1.3% 1.6% 12.6% -29.6%Energy 32.3% 34.7% 6.9% 42.1% -8.6% -10.2% 20.9% 0.2% 18.2% -1.1% -15.9%Financials 33.0% 38.6% 6.2% 8.9% 87.8% 22.3% 25.4% -7.1% 15.0% -21.5% 25.3% 3.3% 6.0% 10.2% 52.1% -9.8%Healthcare 0.0% -1.1% -18.1% 19.6% -9.3%Industrials 14.9% 15.1% 16.8% -7.2% 9.0% 8.9% 16.8%Information Technology 30.0% 23.1%Materials -4.4% -21.4% 11.1% 10.6% 19.3% 22.8% 3.9% 6.5% 12.3% 52.8% 6.8%Telecoms 5.0% -6.8% 8.9% -2.0% 49.0% -10.1% 13.5% -8.5% 12.2% 11.6% 0.1% 8.8% 12.7%Utilities 15.6% 14.8% 24.6% -0.9% 12.0% 29.6% 21.9% 3.6%Region / CountryBenchmark

    15.7% 16.1% 8.2% 7.6% 58.4% 20.9% 13.1% -6.3% 14.9% -3.7% 21.0% 6.0% -5.0% 13.7% 37.6% 0.1% 44.2% 23.9%

    Change vs dollar 5.6% 0.0% -10.7% -22.5% -2.0% 0.4% -1.6% -10.8% -0.3% -5.6% -9.7% -5.8% -2.8% 4.9% 0.0% 0.0%

    Notes Updated as of 10 September 2014Source: Bloomberg, MSCI.Regional headings first sorted by regional weights in the MSCI EMF and then country headings from left to right by relative weights within the MSCI EMFIndices: Regions in US$ and countries in local currency. Local currency movements against the dollar : appreciation / (depreciation)Country and sector cross sections in italic blue have outperformed their indices by more than 2%. Shaded areas have underperformed their indices by more than 2%.

    11 September 2014

  • Emerging Markets Equity Strategy Research

    J.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]

    Equity Markets Liquidity MonitorCountry Stock FF Mkt Cap

    Exchange (US$ Bn) 1 Wk Avg 3 MMA 13 Avg 1 Wk Avg 3M Avg 13 Avg

    Developed Markets

    US NYSE + NASDAQ + AMEX 22,665 37 42 38 0.16 0.19 0.20

    UK London Stk Exchange 3,757 7.3 7.2 6.5 0.19 0.19 0.19

    Japan Tokyo Stk Exchange 3,558 17 18 25 0.48 0.50 0.75

    Australia ASX 1,453 4.9 4.1 4.3 0.34 0.29 0.32

    HK HKSE 2,488 7.7 5.9 5.9 0.32 0.26 0.28

    Singapore SSE 365 0.8 0.8 1.1 0.23 0.21 0.32

    EM Asia

    China Shanghai & Shenzhen A 2,003 31 24 21 1.57 1.33 1.27

    India BSE & NSE 476 3.6 3.5 2.3 0.77 0.77 0.68

    Indonesia JSE 183 0.6 0.5 0.6 0.34 0.30 0.33

    Korea KSE 849 4.0 3.8 3.6 0.47 0.46 0.49

    Malaysia Bursa Malaysia 235 0.8 0.7 0.6 0.34 0.28 0.29

    Philippines PSE 72 0.5 0.2 0.3 0.64 0.32 0.39

    11 September 2014

    Daily Trading Value (US$ bn) Daily Velocity Ratio (%) BRIC Trading value (US$ bn, 3MMA)

    Korea, Taiwan, HK & Singapore Trading Value (US$ bn, 3MMA)

    0

    1

    2

    3

    4

    5

    6

    7

    8

    0

    5

    10

    15

    20

    25

    30

    35

    40

    00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

    China (LHS) India Brazil Russia

    8

    10

    13 Korea Taiwan HK Singapore

    Philippines PSE 72 0.5 0.2 0.3 0.64 0.32 0.39

    Taiwan TWSE & OTC 745 3.6 4.3 3.2 0.48 0.58 0.52

    Thailand TSE 145 1.5 1.4 1.6 1.04 1.04 1.17

    EMEA

    Russia RTS + MICEX + DR 283 1.3 1.3 1.5 0.48 0.42 0.46

    South Africa Johannesburg Stk Exchange 283 1.3 1.3 1.5 0.48 0.42 0.46

    Turkey Istanbul Stk Exchange 99 1.5 1.5 1.7 1.49 1.54 1.55

    Poland Warsaw Stk Exchange 101 0.7 0.7 0.7 0.70 0.69 0.76

    Greece Athens Stock Exchange 41 0.1 0.2 0.1 0.27 0.39 0.39

    UAE Abu Dhabi Securities Market 25 0.09 0.09 0.09 0.36 0.38 0.51

    Qatar Qatar Stock Exchange 26 0.21 0.14 0.07 0.84 0.61 0.38

    LatAm

    Brazil Bovespa + DR 607 6.8 4.7 4.8 1.11 0.83 0.84

    Mexico Mexico Stk Exchange + DR 311 2.1 1.3 1.7 0.69 0.44 0.55

    Chile Santiago Stk Exchange 101 0.14 0.10 0.18 0.13 0.10 0.14

    Colombia Bogota Stk Exchange 63 0.08 0.08 0.09 0.13 0.13 0.13

    Peru Lima Stk Exchange 38 0.02 0.02 0.02 0.06 0.06 0.06

    Source: Bloomberg, J.P. Morgan. Notes: Market cap uses all exchanges covered by Bloomberg for a specific country and primary security of company only. Updated as of 5 September 2014

    The latest one week average is red (grey box in B&W, dark blue in blue scale) if less than 90% of the three month average or blue (solid black box in B&W, light blue in blue scale) if greater than 110% of the three month average.

    To calculate the free float we use the MSCI free float factor for all markets except for Hong Kong, Russia and South Africa where we calculate the free float for the Hong Kong Composite Index, MICEX, and JSE.

    Trading value calculation for Russia, Mexico and Brazil, includes value of depository receipts traded (DR) along with local stock exchange turnover. South Africa and Australia market capitalisation and trading value includes only local listed portion of dual listed stocks.

    Emerging ASEAN Trading Value (US$ bn, 3MMA)

    0

    3

    5

    8

    04 05 06 07 08 09 10 11 12 13 14

    0.0

    0.5

    1.0

    1.5

    2.0

    2.5

    04 05 06 07 08 09 10 11 12 13 14

    Malaysia Indonesia Thailand Philippines

    Trading value calculation for Russia, Mexico and Brazil, includes value of depository receipts traded (DR) along with local stock exchange turnover. South Africa and Australia market capitalisation and trading value includes only local listed portion of dual listed stocks.

    Velocity Ratio = (Trading Value / Free float market cap) * 100

    4

  • 5Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]

    11 September 2014

    Monitoring Inflation: The real threat to EM equitiesInflation CB Inflation JPM f'cast CPI (YoY) Policy Rate Policy Rate Policy Rate

    Country Rate Target (%) CY2014 Date Previous Latest MoM 3M ann Previous Latest YoY 3M ann Current Last Change Next ChangeDeveloped Markets

    United States Chained CPI na 1.9 Jul-14 2.1 2.0 0.1 2.8 2.2 2.4 1.9 2.0 0.13 16 Dec 08 (-87.5bp) 3Q 15 (+25bp)

    US core PPI Core PPI SA na na Jul-14 1.9 1.8 0.1 1.5 - - - - - - -

    US Unit Labor Cost LC Nonfarm na na Jun-14 2.5 1.7 NA (0.1) - - - - - - -

    Euro Area CPI under 2% 0.6 Aug-14 0.4 0.3 0.1 (1.8) (1.1) (1.0) 0.9 (1.7) 0.05 4 Sep 14 (-10bp) 3Q 18 (+20bp)

    Japan CPI na 2.9 Jul-14 3.6 3.4 0.0 1.2 5.2 4.5 2.3 0.0 0.05 5 Oct 10 (-5bp) On hold

    Australia CPI 2 - 3 2.6 Jun-14 2.9 3.0 NA 1.9 2.2 2.5 na na 2.50 6 Aug 13 (-25bp) 3Q 15 (+25bp)

    Hong Kong CPI na 4.0 Jul-14 3.6 4.0 1.0 4.1 4.2 4.1 3.1 5.4 0.50 17 Dec 08 (-100bp) 3Q 15 (+25bp)

    Singapore CPI na 1.5 Jul-14 1.8 1.2 (0.3) (1.7) 3.1 3.0 0.7 (3.2) - - -

    EM Asia

    China CPI 4% 2.2 Aug-14 2.3 2.0 (0.5) (2.4) 3.6 3.0 1.7 1.4 6.00 7 Jul 12 (-31bp) On hold

    Korea CPI 3.0 (1) 1.5 Aug-14 1.6 1.4 0.2 0.8 1.1 (0.4) 2.3 1.5 2.25 14 Aug 14 (-25bp) On hold

    Indonesia CPI 4.5 (1) 5.7 Aug-14 4.5 4.0 (0.2) 7.6 9.1 2.3 5.5 4.8 7.50 12 Nov 13 (+25bp) On hold

    India WPI na na Jul-14 5.4 5.2 1.1 8.7 8.1 8.4 3.4 5.2 8.00 28 Jan 14 (+25bp) 4Q 14 (+25bp)

    India CPI 6% 8.5 Jul-14 8.6 8.0 1.1 8.7 8.1 8.4 3.4 5.2 8.00 28 Jan 14 (+25bp) 4Q 14 (+25bp)

    Malaysia CPI na 2.7 Jul-14 3.3 3.2 0.1 1.5 3.5 3.1 2.6 1.1 3.25 10 Jul 14 (+25bp) 18 Sep 14 (+25bp)

    Philippines CPI 4.0 (1) 4.2 Aug-14 4.9 4.9 0.3 5.3 4.6 4.0 2.5 1.2 4.00 11 Sep 14 (+25bp) -

    Thailand CPI 0.5 - 3.0 2.6 Aug-14 2.2 2.1 (0.1) (1.1) 0.2 (0.6) 0.4 1.0 2.00 12 Mar 14 (-25bp) 1Q 15 (+25bp)

    Taiwan CPI na 1.4 Aug-14 1.8 2.1 0.4 3.7 4.2 5.6 1.1 3.1 1.88 30 Jun 11 (+12.5bp) 1Q 15 (+12.5bp)

    Latin America

    Brazil CPI IPCA 4.5 (2) 6.3 Aug-14 6.5 6.5 0.3 2.7 7.7 7.5 6.7 7.2 11.00 2 Apr 14 (+25bp) On hold

    Colombia CPI 3.0 (1) 2.8 Aug-14 2.9 3.0 0.2 1.8 3.3 3.5 na na 4.50 29 Aug 14 (+25bp) 4Q 14 (+25bp)

    Mexico CPI 3.0 (1) 4.1 Aug-14 4.1 4.2 0.4 3.3 5.4 5.7 3.4 2.5 3.00 6 Jun 14 (-50bp) 4Q 15 (+25bp)

    Peru CPI 2.0 (1) 3.0 Aug-14 3.3 2.7 (0.1) 2.1 4.0 3.6 2.6 1.5 3.75 10 Jul 14 (-25bp) 1Q 15 (+25bp)Chile CPI NSA 3.0 (1) 4.0 Aug-14 4.7 4.5 0.3 2.4 6.3 6.7 4.4 4.1 3.50 14 Aug 14 (-25bp) 11 Sep 14 (-25bp)

    Europe, Middle East and Africa

    Czech Republic CPI 2.0 (1) 0.9 Aug-14 0.5 0.6 0.7 2.7 0.6 1.1 0.7 1.8 0.05 1 Nov 12 (-20bp) On hold

    Hungary CPI 3% 0.1 Jul-14 (0.1) 0.2 (2.4) (10.2) (1.1) (0.3) 2.7 2.7 2.10 22 Jul 14 (-20bp) 4Q 15 (+20bp)

    Poland CPI 1.5 - 3.5% 0.2 Jul-14 0.3 (0.2) 0.6 2.0 0.3 (0.4) 0.3 0.5 2.50 3 Jul 13 (-25bp) 4Q 14 (-50bp)

    Russia CPI 5-6% 7.2 Aug-14 7.5 7.6 2.2 11.8 9.9 10.3 6.6 12.5 8.00 25 Jul 14 (+50bp) 1Q 15 (-25bp)

    South Africa CPI 3-6% 6.1 Jul-14 6.6 6.3 0.8 5.2 9.2 9.0 5.7 5.0 5.75 17 Jul 14 (+25bp) 18 Sep 14 (+25bp)

    Greece CPI 2% - Aug-14 (0.7) (0.3) (1.2) (7.1) (2.6) (2.4) (1.1) (5.2) 0.25 - -

    Turkey CPI 5.0 (2) 9.0 Aug-14 9.3 9.5 0.1 3.5 12.6 14.4 9.7 2.1 8.25 17 Jul 14 (-50bp) On hold

    Source: J.P. Morgan Economics, Bloomberg. Note: Current inflation data for countries which outside/above target range is highlighted. MoM and 3 month annualised data is calculated from inflation indices. * under review# Countries where central banks target is not available. We have given J.P. Morgan Economic estimates. RBI forecasts inflation not target.In case of Taiwan, Estimate by DGBAS,CB targets M2 growth Updated as of 10 September 2014

    CPI (YoY) CPI (%) Food CPI (YoY) Core CPI (%)

  • 6Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]

    Outlook: Market DriversGlobal and developed market driversCountry Positive NegativeGlobal Acceleration in DM growth Bond yields grinding higherUS Recovering housing market, fiscal drag easing Higher bond yields. higher mortgage rates, declining NIMsEurope Improving financing conditions, , Lower fiscal drag, falling EUR/USD, potentially more aggressive ECB Weak economy, deflation risk, weak credit backdrop

    UK Strong domestic recovery, unemployment rate going down Political headwinds, potential earlier than expected start of monetary tightening cycle

    Japan New PM's pro-growth policy of fiscal boost and inflation targeting, more competitive Yen, QQE Rising energy costs and fiscal sustainability worriesAustralia Low sovereign debt, monetary policy flexibility, high dividend yield market attracting local and global flows. Risk to growth from capex/terms of trade downturn, potential currency fragility, high household debt levels, and exposure to growth

    risks in China.Hong Kong Stabilizing property price, slower land sales. DM economic recovery drives HK exports. Closer integration to Pearl River Delta is

    positive in the long run.Vulnerable to the Feds policy normalization. Economic fundamentals remain weak with slowly recovering GDP. Credit risk from trade financing for banks.

    Singapore We expect a modest rebound in 2014 GDP growth expectations with general economic conditions starting to rebound against 2Q13 lows. General economic growth for 2014 is expected to benefit from low-base effects in 2013 (note that street has lowered GDP forecasts seven times since January 2013).

    Ongoing foreign labor tightening is expected to structurally impact corporate earnings and GDP growth, with long-term GDP growth to moderate from a 10-year historical CAGR of 6.2% to 4.1% on our estimates. We also estimate Singapore to transition up to 172,000 jobs away from Manufacturing into Services while progressing into a productivity-led growth model, which would create long-term structural drag.

    Source: J.P. Morgan.

    Emerging Market DriversCountry Positive NegativeChina Stabilizing growth prospects; valuations partly discounting fundamental weakness Less policy flexibility, growth sectors expensive, excessive leverageBrazil Large and liquid market offering many bottom up options, large infrastructure investment program, labor market still sturdy Large share of commodity stocks in the index, government interventionism, high inflation/domestic monetary tightening, consensus

    earnings are too high, risk of sovereign debt downgrade, local currency weakness.Korea Recovery in domestic demand, benefitting from DM economic growth Weakening of the JPYTaiwan Global economy is expected to see solid upturn in 2H14. Taiwan's export and industrial sectors should benefit from the solid

    demand in DM and China. China-related sectors, Cement, Automation and Industrials, benefits from the improving macro. Easing concerns over China's asset quality also imposes less downside risks on Taiwan financial sector. Mayoral elections in year-end are likely to stimulate potential election rally in 2H14. Among technology sector, we forecast stronger growth profile for LED/Foundry/Display but muted for OSAT/mobile/PC.

    Taiwan is vulnerable to the external environment. A series of civil disobedience started from end-March and the upcoming election at year end add up political risks. Cross-strait development is now delayed due to people's opposition to the content and legislative procedure of the Trade in Service Agreement.

    South Africa Pick-up in commodity prices. Strikers return to work. Locals keep selling bonds to buy stocks. Eskom issues highlight policy paralysis. Growth remains sluggish. Valuations expensive v own history.

    India Improved corporate and consumer confidence, Expectations on growth revival, Easy global liquidity helping lower cost of capital Sticky core CPI inflation, slower-than-expected progress on key policy reforms, Weak investment cycle

    Russia Rebound from trough valuations. High dividend yield with upside. Exporters should benefit from record-lows on RUB. More sanctions likely. Deteriorating economy and higher rates diminish upside if politics improve

    Mexico High correlation to US manufacturing recovery, undervalued FX, underpenetrated credit sector, internal economy picking up from government spending, reform agenda to boost growth, no inflation concerns.

    High valuations, earnings disappointment, no room for disappointment on economic growth, market depth.

    Malaysia Government fiscal consolidation gaining traction with subsidy cuts and GST implementation next year. Oil and gas/railway-related capex fueling domestic growth, CPO price rise on supply tightness/bio fuel blending requirements; recovering exports.

    Diminishing current account surplus on imported capital equipment, property demand slowdown on cooling measures, moderating consumption growth on the back of subsidy cuts, 3-year peak in foreign ownership.

    Indonesia Healthy transmission of nominal GDP growth to EPS growth, Policy credibility improved with fuel price increases and recent BI actions, underweight investor positioning.

    Financing persistent CA deficit, decelerating economic growth, Infrastructure bottlenecks, transmission of weaker Rupiah impact through the economy.

    Turkey ECB QE will help finance the high CAD. Keeps pace with firm EM rally. Best revisions in the region. High beta in EM bull mkt. Export markets at risk in MENA (ISIS). Do rates need to rise further given 9+% CPI?

    Thailand Flexible monetary condition, healthy corporate balance sheet, strong FDI, better exports Political uncertainties, low public spending, high household debt, negative EPS revision

    Qatar & UAE Strong GDP growth, stable FX, high payout ratios, few problems. Saudi opening helps. Strong momentum. Valuations high and EPS growth limited. Poland Strong pension fund uptake. Bond yields at new lows while 2014-5 GDP still likely to avg 3% More rate cuts will hurt bank NIMs. Tusk move to EU presidency introduces political risksGreece Growth returning. Banks still look cheap v peers and 2Q earnings indicate no new capital needed. High volatility from bond market and hedge fund-heavy investor base. AQR process.

    Czech Republic Eurozone recovery. High payout ratios. Small not very liquid stock market with limited choices

    Philippines Rising investment spending, improving consumption driven by steady remittances flow, fast-growing non-electronics exports, positive CA position, ample domestic liquidity

    Sharp increase in interest rates, upward inflation pressures, disruption to government infrastructure spending momentum, sharp currency weakness

    Hungary Eurozone recovery. Current account now in surplus. PM Orbans long and consistent track record of high effective taxation. Low growth hurts.Source: J.P. Morgan. Updated as of 10 September 2014

  • 7Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]

    Profit Outlook: Earnings Forecast Matrices for Countries and SectorsWeight EPS Growth Weight EPS Growth Weight EPS Growth

    EM (%) J.P. Morgan Consensus China (%) J.P. Morgan Consensus India (%) J.P. Morgan ConsensusMedian 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015

    Total Market 100.0 - - - 11.5 6.9 11.7 Total Market 100.0 12.0 9.6 11.7 10.5 8.7 10.5 Total Market 100 13.8 13.9 17.6 17.3 15.7 16.1Consumer Discretionary 9.0 - - - 11.3 8.5 14.9 Consumer Discretionary 5.3 18.1 20.8 19.7 20.4 23.7 17.5 Consumer Discretionary 6.7 13.1 13.4 12.4 17.9 18.5 15.7Consumer Staples 8.0 - - - 11.6 10.9 17.4 Consumer Staples 4.8 9.2 6.8 19.8 6.0 3.5 21.6 Consumer Staples 11.0 15.1 16.6 17.0 17.4 19.9 16.9Energy 10.6 - - - 6.9 0.1 2.8 Energy 14.5 -3.8 1.3 12.2 2.5 3.9 7.2 Energy 12.6 8.3 5.8 12.2 11.0 9.0 15.3Financials 27.9 - - - 11.9 7.3 12.3 Financials 35.6 11.4 9.8 10.0 12.0 8.4 8.8 Financials 18.8 11.6 13.4 21.0 17.2 18.7 18.0Health Care 2.0 - - - 17.7 20.5 20.6 Health Care 1.9 16.1 10.3 15.0 22.0 22.0 19.4 Health Care 8.9 18.5 20.5 23.2 18.5 17.5 20.8Industrials 6.5 - - - 10.4 35.4 30.1 Industrials 6.2 10.5 17.5 15.3 6.4 5.6 18.2 Industrials 5.7 21.9 9.5 17.4 28.9 23.8 17.3Information Technology 16.4 - - - 18.9 7.6 9.3 Information Technology 13.2 53.8 53.8 29.7 21.0 47.4 30.1 Information Technology 21.8 16.6 17.4 12.7 12.4 12.9 12.9Materials 8.4 - - - 8.7 6.5 19.2 Materials 2.8 8.5 23.5 19.8 4.6 12.2 20.2 Materials 7.5 4.7 22.2 31.5 20.0 19.4 16.3Telecommunication Services 7.7 - - - 4.8 -7.6 11.7 Telecommunication Services 11.9 12.8 -11.2 -1.2 8.4 -6.3 1.8 Telecommunication Services 2.9 46.4 49.2 34.9 21.3 26.9 19.0Utilities 3.5 - - - 9.0 35.8 6.3 Utilities 3.9 32.1 17.7 15.2 18.8 20.5 12.2 Utilities 4.0 6.7 4.3 7.4 12.0 12.4 10.3

    Weight EPS Growth Weight EPS Growth Weight EPS GrowthIndonesia (%) J.P. Morgan Consensus Korea (%) J.P. Morgan Consensus Malaysia (%) J.P. Morgan Consensus

    Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015Total Market 100.0 13.0 12.2 11.4 13.8 9.7 12.9 Total Market 100.0 16.3 15.2 17.0 19.6 11.5 14.0 Total Market 100.0 7.6 7.1 8.8 7.4 2.8 9.2Consumer Discretionary 17.7 35.5 11.5 14.9 23.2 11.3 15.8 Consumer Discretionary 18.4 11.8 12.2 14.0 10.3 9.2 9.9 Consumer Discretionary 9.3 6.4 11.8 8.5 6.4 2.6 13.1Consumer Staples 12.3 19.1 17.1 11.2 21.2 31.3 15.9 Consumer Staples 6.1 24.1 21.1 12.5 28.3 21.9 16.6 Consumer Staples 9.5 13.7 10.3 5.6 11.0 8.3 8.5Energy 3.3 -1.9 NA 2.0 4.5 NA 1.4 Energy 1.5 -3.7 -3.9 31.3 -14.4 -15.1 64.6 Energy 4.5 10.4 30.2 17.5 10.2 12.4 11.4Financials 35.2 6.1 15.7 10.1 9.5 9.6 13.3 Financials 15.4 23.6 39.6 8.7 34.2 50.2 8.8 Financials 34.4 8.1 3.9 8.8 6.6 0.6 8.3Health Care 2.7 14.1 14.1 19.7 14.1 14.1 19.7 Health Care 0.6 69.5 73.4 33.3 69.5 73.4 33.3 Health Care 2.3 19.3 19.3 28.3 17.5 17.5 24.5Industrials 3.8 18.9 17.8 18.0 20.6 20.6 8.7 Industrials 11.4 12.5 NM 77.8 17.1 NM 63.8 Industrials 13.4 14.5 8.8 14.5 7.0 2.8 11.5Information Technology 0.0 NA NA NA NA NA NA Information Technology 35.0 61.9 -5.4 8.4 35.9 -11.3 4.3 Information Technology 0.0 NA NA NA NA NA NAMaterials 6.5 10.2 10.2 13.0 9.1 9.2 10.7 Materials 8.5 6.0 36.9 32.6 6.6 38.2 35.4 Materials 4.3 6.6 11.0 4.6 4.6 7.7 9.2Telecommunication Services 13.4 6.1 4.1 8.8 5.7 3.8 13.9 Telecommunication Services 1.2 7.9 NM 201.7 -4.8 NM 220.0 Telecommunication Services 10.6 -5.3 -1.1 3.8 1.0 4.0 8.2Utilities 5.0 4.3 4.3 14.0 -17.5 -17.5 6.1 Utilities 2.0 486.2 NM NM 3960.6 NM NM Utilities 11.7 0.5 8.3 5.2 -6.8 0.9 6.0

    Weight EPS Growth Weight EPS Growth Weight EPS GrowthPhilippines (%) J.P. Morgan Consensus Taiwan (%) J.P. Morgan Consensus Thailand (%) J.P. Morgan Consensus

    Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015Total Market 100.0 5.3 5.6 14.3 8.0 6.5 13.8 Total Market 100.0 13.6 21.0 7.7 15.2 20.3 8.0 Total Market 100.0 9.4 12.5 14.0 10.0 9.5 13.6Consumer Discretionary 3.8 20.1 20.1 20.5 17.9 17.9 16.5 Consumer Discretionary 4.0 10.8 -40.4 13.3 10.7 -42.5 12.2 Consumer Discretionary 4.3 7.8 8.1 14.6 7.8 -1.9 13.3Consumer Staples 7.0 18.0 18.0 22.5 17.3 17.3 17.8 Consumer Staples 2.7 14.4 12.2 7.6 14.4 12.2 7.6 Consumer Staples 9.2 18.3 106.8 36.4 17.0 109.5 35.4Energy 0.0 NA NA NA NA NA NA Energy 0.6 NA NA 3.8 NA NA 6.6 Energy 19.9 7.7 9.3 14.3 10.9 6.4 8.1Financials 39.7 10.4 4.5 15.5 5.3 7.5 15.4 Financials 17.9 18.2 14.0 1.3 15.2 11.9 -2.6 Financials 36.4 12.7 10.3 10.7 8.2 7.8 12.2Health Care 0.0 NA NA NA NA NA NA Health Care 0.1 -23.8 -23.8 24.9 -23.8 -23.8 24.9 Health Care 3.5 21.5 21.4 19.7 21.5 21.4 19.7Industrials 25.2 4.4 6.4 16.3 4.4 3.9 15.0 Industrials 2.9 14.2 52.0 12.5 28.6 30.2 59.2 Industrials 5.1 -0.9 -11.4 18.3 -2.4 -11.2 17.8Information Technology 0.0 NA NA NA NA NA NA Information Technology 57.7 18.1 34.3 10.2 18.7 35.1 11.2 Information Technology 0.0 NA NA NA NA NA NAMaterials 0.0 NA NA NA NA NA NA Materials 10.0 17.9 13.2 7.4 16.5 12.5 6.2 Materials 10.3 1.3 4.3 12.1 -4.0 -2.1 16.4Telecommunication Services 18.6 4.9 5.0 6.0 8.0 3.8 4.5 Telecommunication Services 4.2 -2.4 -3.1 -4.9 -2.8 -3.4 -2.2 Telecommunication Services 9.7 -1.0 38.0 20.6 3.4 44.7 27.4Utilities 5.8 0.2 0.1 15.1 10.4 9.5 23.8 Utilities 0.0 NA NA NA NA NA NA Utilities 1.5 0.4 0.4 3.4 11.5 11.5 1.0

    Weight EPS Growth Weight EPS Growth Weight EPS GrowthSouth Africa (%) J.P. Morgan Consensus Brazil (%) J.P. Morgan Consensus Mexico (%) J.P. Morgan Consensus

    Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015Total Market 100.0 - - - 11.7 12.0 12.7 Total Market 100.0 - - - 7.4 3.5 14.6 Total Market 100.0 - - - 5.8 -1.8 19.1Consumer Discretionary 24.3 - - - 16.8 24.4 22.3 Consumer Discretionary 5.5 - - - 14.2 26.3 30.9 Consumer Discretionary 9.2 - - - 7.5 8.8 16.9Consumer Staples 4.8 - - - 10.2 10.3 15.2 Consumer Staples 15.1 - - - 15.2 14.3 19.3 Consumer Staples 24.5 - - - 10.0 8.4 13.0Energy 10.8 - - - 2.6 2.9 1.5 Energy 16.3 - - - 7.4 8.0 26.4 Energy 0.0 - - - NA NA NAFinancials 27.5 - - - 11.9 10.2 11.7 Financials 34.3 - - - 3.5 10.0 13.5 Financials 17.9 - - - -14.9 -19.4 21.0Health Care 6.2 - - - 18.0 23.0 17.4 Health Care 0.7 - - - 11.2 10.9 45.1 Health Care 1.0 - - - 14.6 14.6 21.8Industrials 3.3 - - - 6.1 9.0 9.6 Industrials 4.8 - - - 10.2 -6.2 20.2 Industrials 10.5 - - - 1.4 -3.3 12.2Information Technology 0.0 - - - NA NA NA Information Technology 3.2 - - - 27.0 24.7 15.0 Information Technology 0.0 - - - NA NA NAMaterials 9.2 - - - 9.4 12.6 23.2 Materials 12.5 - - - -13.4 -16.1 6.5 Materials 17.1 - - - 19.1 -21.6 118.8Telecommunication Services 13.9 - - - 9.2 11.1 8.2 Telecommunication Services 2.8 - - - 0.6 -71.9 42.6 Telecommunication Services 19.7 - - - 12.3 12.3 2.8Utilities 0.0 - - - NA NA NA Utilities 4.9 - - - 5.8 98.2 -7.6 Utilities 0.0 - - - NA NA NA

    Weight EPS Growth Weight EPS Growth Weight EPS GrowthRussia (%) J.P. Morgan Consensus Poland (%) J.P. Morgan Consensus Turkey (%) J.P. Morgan Consensus

    Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015 Median 2014 2015Total Market 100.0 - - - 8.6 -2.9 -0.1 Total Market 100.0 - - - 4.8 -1.3 6.5 Total Market 100.0 - - - 3.7 -1.6 18.0Consumer Discretionary 0.0 - - - NA NA NA Consumer Discretionary 6.1 - - - -8.1 -13.0 43.3 Consumer Discretionary 4.6 - - - 15.7 13.6 17.6Consumer Staples 7.7 - - - 10.4 10.4 22.7 Consumer Staples 1.3 - - - 2.5 2.5 16.6 Consumer Staples 15.2 - - - 5.0 -47.1 27.5Energy 56.3 - - - -2.6 -4.4 -7.4 Energy 10.5 - - - 72.1 61.8 5.0 Energy 4.4 - - - 1.0 1.0 14.5Financials 16.1 - - - -5.8 -9.3 25.5 Financials 53.4 - - - 6.9 2.4 10.7 Financials 48.8 - - - -1.7 -0.5 19.2Health Care 0.0 - - - NA NA NA Health Care 0.0 - - - NA NA NA Health Care 0.0 - - - NA NA NAIndustrials 0.0 - - - NA NA NA Industrials 0.0 - - - NA NA NA Industrials 12.4 - - - 13.2 8.8 22.0Information Technology 0.0 - - - NA NA NA Information Technology 0.0 - - - NA NA NA Information Technology 0.0 - - - NA NA NAMaterials 9.9 - - - 155.6 120.2 23.7 Materials 11.5 - - - -22.1 -34.9 17.6 Materials 4.7 - - - 16.1 29.5 0.4Telecommunication Services 8.9 - - - -7.9 -16.0 5.9 Telecommunication Services 3.2 - - - 42.3 42.3 -11.5 Telecommunication Services 9.9 - - - 34.6 14.4 11.0Utilities 1.1 - - - 62.5 NA -5.8 Utilities 14.0 - - - -7.2 -6.4 -13.3 Utilities 0.0 - - - NA NA NA

    Source: I/B/E/S, MSCI, J.P. Morgan estimates. Updated as of 10 September 2014Note: Average earnings growth calculated based on earnings aggregate of MSCI constituents. Consensus numbers are used for stocks not covered by JPMorgan under J.P. Morgan forecasts calculation. Median numbers are for the year 2014.

    11 September 2014

  • Emerging Markets Equity Strategy

    J.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]

    Monitoring the Trend in Country EPS Forecasts (2014 and 2015)

    11 September 2014

    World EM Asia EM Europe

    Korea

    Emerging Markets (EM)

    ChinaEM Latin America Brazil

    90

    95

    100

    105

    110

    115

    Feb-13 Jul-13 Dec-13 May-14 Sep-14

    2015

    2014

    80

    85

    90

    95

    100

    105

    110

    115

    Feb-13 Jul-13 Dec-13 May-14 Sep-14

    2

    2014

    2015

    85

    90

    95

    100

    105

    110

    115

    Feb-13 Jul-13 Dec-13 May-14 Sep-14

    2014

    2

    2015

    75

    80

    85

    90

    95

    100

    105

    110

    Feb-13 Jul-13 Dec-13 May-14 Sep-14

    2014

    2015

    2

    105

    110

    115

    2014

    2015

    95

    100

    105

    110

    2015

    100

    110

    120

    2015

    90

    100

    110

    2015

    8

    Source: I/B/E/S Updated as of 3 September 2014Notes: The dashboard aims to show changes in earnings expectations. All year ends are for December. EPS figures are normalized, starting at 100 on base date Feb 2013 for ease of comparison. These numbers are directly from IBES aggregate and may differ from those in the growth expectations pages where adjustments are made for exceptional items.

    Taiwan South Africa India Russia

    22 2222 220

    85

    90

    95

    100

    105

    110

    Feb-13 Jul-13 Dec-13 May-14 Sep-14

    2

    2014

    2015

    95

    100

    105

    110

    115

    120

    Feb-13 Jul-13 Dec-13 May-14 Sep-14

    2014

    2015

    90

    95

    100

    105

    Feb-13 Jul-13 Dec-13 May-14 Sep-14

    2014

    80

    85

    90

    95

    Feb-13 Jul-13 Dec-13 May-14 Sep-14

    2014

    70

    80

    90

    100

    Feb-13 Jul-13 Dec-13 May-14 Sep-14

    2014

    70

    80

    90

    Feb-13 Jul-13 Dec-13 May-14 Sep-14

    2014

    2015

    90

    95

    100

    105

    110

    Feb-13 Jul-13 Dec-13 May-14 Sep-14

    2015

    2014

    85

    95

    105

    115

    125

    135

    Feb-13 Jul-13 Dec-13 May-14 Sep-14

    2014

    2015

    8

  • 9Emerging Markets Equity StrategyJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]

    Monitoring the Trend in Country EPS Forecasts (2014 and 2015)

    Updated as of 3 September 2014

    Source: I/B/E/SNotes: The dashboard aims to show changes in earnings expectations. All year ends are for December. EPS figures are normalized, starting at 100 on base date Feb 2013 for ease of comparison. These numbers are directly from IBES aggregate and may differ from those in the growth expectations pages where adjustments are made for exceptional items. Countries earnings revisions are in local currencies term whereas APxJ regions earnings revisions is in US $ terms

    11 September 2014

    Mexico Malaysia

    Poland

    Czech. Republic

    Turkey

    Indonesia

    C C

    Thailand

    Philippines

    85

    90

    95

    100

    105

    110

    Feb-13 Jul-13 Dec-13 May-14 Sep-14

    2014

    2

    2015

    75

    80

    85

    90

    95

    100

    105

    110

    115

    Feb-13 Jul-13 Dec-13 May-14 Sep-14

    2014

    2015

    85

    90

    95

    100

    105

    110

    115

    120

    Feb-13 Jul-13 Dec-13 May-14 Sep-14

    2014

    2015

    80

    85

    90

    95

    100

    105

    110

    115

    Feb-13 Jul-13 Dec-13 May-14 Sep-14

    2015

    2014

    75

    80

    85

    90

    95

    100

    Feb-13 Jul-13 Dec-13 May-14 Sep-14

    2015

    2014

    95

    100

    105

    110

    115

    Feb-13 Jul-13 Dec-13 May-14 Sep-14

    2014

    2015

    70 75 80 85 90 95

    100 105 110 115

    Feb-13 Jul-13 Dec-13 May-14 Sep-14

    2

    2015

    2014

    22

    Hungary

    40

    50

    60

    70

    80

    90

    100

    110

    120

    Feb-13 Jul-13 Dec-13 May-14 Sep-14

    2014

    2

    2015

    80

    85

    90

    95

    100

    105

    110

    Feb-13 Jul-13 Dec-13 May-14 Sep-14

    2

    2014

    2015

    Chile

    70 75 80 85 90 95

    100 105 110 115 120

    Feb-13 Jul-13 Dec-13 May-14 Sep-14

    2014

    2

    2015

    Greece

    5

    25

    45

    65

    85

    105

    125

    145

    Feb-13 Jul-13 Dec-13 May-14 Sep-14

    2014

    2

    2015

  • 10

    Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]

    Monitoring the Trend in Sector EPS Forecasts (2014 and 2015)

    Source: I/B/E/S Updated as of 3 September 2014

    Notes: The dashboard aims to show changes in earnings expectations. All year ends are for December. EPS figures are normalized, starting at 100 on base date Feb 2013 for ease of comparison. These numbers are directly from IBES aggregate and may differ from those in the growth expectations pages where adjustments are made for exceptional items. Sector earnings revisions are in US$

    11 September 2014

    Financials

    Energy

    Information Technology Industrials

    Telecom Materials Utilities

    Consumer Staples Consumer Discretionary

    Health Care

    Emerging Markets

    80 85 90 95

    100 105 110 115

    Feb 13 Jul 13 Dec 13 May 14 Sep 14

    2014

    2015

    85

    90

    95

    100

    105

    Feb 13 Jul 13 Dec 13 May 14 Sep 14

    2014

    2015

    90

    95

    100

    105

    110

    115

    120

    Feb 13 Jul 13 Dec 13 May 14 Sep 14

    2015

    2014

    60

    70

    80

    90

    100

    110

    Feb 13 Jul 13 Dec 13 May 14 Sep 14

    2015

    2014

    80

    90

    100

    110

    120

    Feb 13 Jul 13 Dec 13 May 14 Sep 14

    2014

    2015

    55

    65

    75

    85

    95

    105

    115

    Feb 13 Jul 13 Dec 13 May 14 Sep 14

    2014

    2015

    80 85 90 95

    100 105 110 115

    Feb 13 Jul 13 Dec 13 May 14 Sep 14

    2015

    2014

    75

    85

    95

    105

    115

    Feb 13 Jul 13 Dec 13 May 14 Sep 14

    2015

    2014

    70

    80

    90

    100

    110

    Feb 13 Jul 13 Dec 13 May 14 Sep 14

    2014

    2015

    85

    90

    95

    100

    105

    110

    115

    120

    Feb 13 Jul 13 Dec 13 May 14 Sep 14

    2015

    2014

    90

    95

    100

    105

    110

    115

    120

    Feb 13 Jul 13 Dec 13 May 14 Sep 14

    2014

    2015

  • 11

    Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599,[email protected]

    Value: PE Matrices for Countries and Sectors

    12-month forward PE

    US

    A*

    Emer

    ging

    M

    arke

    ts*

    EM

    F E

    ME

    A*

    EM

    F LA

    TAM

    *

    EM

    F A

    sia*

    Kor

    ea

    Taiw

    an

    Chi

    na

    Indi

    a

    Mal

    aysi

    a

    Indo

    nesi

    a

    Thai

    land

    Phili

    ppin

    es

    Consumer Discretionary 16.9 12.3 17.9 20.8 10.2 7.6 15.6 11.2 14.6 15.7 15.7 21.8 32.9Consumer Staples 16.4 20.9 19.5 20.1 22.2 20.5 21.2 22.5 32.9 21.0 21.4 23.0 27.1Energy 14.4 7.4 4.8 10.3 10.4 10.4 25.3 10.3 11.6 16.7 15.0 9.5 NAFinancials 13.3 9.4 10.5 12.0 8.4 NA 11.8 5.9 16.3 12.6 11.8 11.1 19.8Health Care 15.9 21.5 19.9 19.1 22.2 16.2 37.6 21.7 26.2 44.3 31.8 35.7 NAIndustrials 15.2 15.4 13.1 21.5 14.6 16.1 24.4 10.8 21.0 15.2 14.5 28.8 17.2Information Technology 14.7 12.2 NA 18.3 12.1 8.1 12.8 24.6 18.2 NA NA NA NAMaterials 16.5 12.6 11.9 11.9 13.3 14.1 18.9 8.7 11.8 15.0 14.9 11.2 NATelecommunication Services 14.0 15.3 12.9 15.5 16.6 24.1 18.6 16.3 19.5 22.9 18.2 23.6 19.4Utilities 15.6 11.9 10.9 11.3 12.5 NA NA 13.2 12.0 14.2 12.6 16.2 14.6Market Aggregate 16.0 11.0 9.1 13.1 11.4 9.9 13.7 9.3 16.6 15.3 14.6 13.1 19.2Sector Neutral** 14.7 11.0 10.7 14.3 11.3 10.6 15.4 10.0 16.2 14.8 14.0 13.7 15.3

    12-month forward PE

    EM

    F E

    ME

    A*

    Rus

    sia*

    Sou

    th A

    fric

    a*

    Pol

    and*

    Turk

    ey*

    Gre

    ece*

    UA

    E*

    Qat

    ar*

    EM

    F LA

    TAM

    *

    Bra

    zil*

    Mex

    ico*

    Chi

    le*

    Consumer Discretionary 17.9 NA 18.2 25.1 11.7 15.8 NM NA 20.8 17.5 28.0 19.9Consumer Staples 19.5 20.2 16.6 19.9 24.9 NA NA NA 20.1 18.5 22.6 17.3Energy 4.8 4.0 10.1 11.7 9.7 NA NA NA 10.3 10.0 NA 17.3Financials 10.5 4.7 12.1 14.7 8.6 NA 16.8 15.5 12.0 11.0 16.1 12.1Health Care 19.9 NA 20.6 NA NA NA NA NA 19.1 21.4 16.4 NAIndustrials 13.1 NA 13.1 NA 10.0 NA 25.8 13.9 21.5 22.7 21.7 20.3Information Technology NA NA NA NA NA NA NA NA 18.3 18.3 NA NAMaterials 11.9 9.7 13.3 13.6 10.3 30.1 NA NA 11.9 7.6 36.0 20.1Telecommunication Services 12.9 8.7 15.4 39.0 10.5 15.9 NA 20.4 15.5 21.1 14.6 12.6Utilities 10.9 7.1 NA 11.3 NA 10.6 NA 13.7 11.3 9.2 NA 15.7Market Aggregate 9.1 4.7 13.8 13.9 10.0 - 17.3 15.7 13.1 11.0 19.6 15.7Sector Neutral** 10.7 7.2 13.0 15.2 10.7 12.0 13.6 13.2 14.3 13.0 15.0 14.6

    Source: IBES, MSCI, J.P. Morgan estimates. Note: PEs are derived from bottom-up calculations of each individual MSCI constituents using JPM estimates for covered stocks and IBES estimates for the rest.* Market forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using I/B/E/S estimates. IBES Estimates are not available for Morocco, Jordan, Peru and Colombia. Updated as of 10 September 2014**Sector neutral PE are calculated by using sector weights of MSCI EM and sector PE of respective markets (MSCI EM sector PE used where country sector does not exist)

    11 September 2014

  • 12

    Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599,[email protected]

    Value: Distribution Tables for PE, PBR, DY and RoE

    2014E: Price to Earnings Ratio (x) 2014E: Price to Book Value Ratio (x)Weighted Quartiles Weighted QuartilesAverage Min Lower Median Higher Max Average Min Lower Median Higher Max

    Global* 15.7 2.8 12.7 16.1 21.0 518.9 Global* 1.9 0.1 1.2 1.9 3.2 50.5USA* 17.3 7.1 14.3 17.1 21.8 518.9 USA* 2.4 0.3 1.6 2.7 4.3 50.5Europe* 15.3 6.0 12.9 16.0 19.9 99.7 Europe* 1.7 0.1 1.2 2.0 3.2 29.8Japan* 15.6 5.5 12.4 15.7 21.1 80.9 Japan* 1.2 0.5 0.9 1.3 1.7 11.6Emerging Markets* 11.9 2.8 11.4 15.5 22.2 398.2 Emerging Markets* 1.5 0.2 1.1 1.8 3.2 48.6China 10.1 3.9 8.8 12.3 18.4 86.5 China 1.5 0.3 1.0 1.3 2.4 11.4Brazil* 12.1 4.4 11.1 16.8 22.0 48.9 Brazil* 1.5 0.2 1.1 1.7 4.1 16.3Korea 11.0 6.4 11.6 15.6 24.0 143.9 Korea 1.1 0.4 0.9 1.1 1.7 11.1Taiwan 14.4 5.0 13.1 15.6 21.0 171.7 Taiwan 1.9 0.7 1.2 1.6 2.6 10.1South Africa* 14.9 7.8 11.3 14.4 17.7 92.2 South Africa* 2.5 0.4 1.6 2.5 4.2 17.7India 18.7 4.5 13.8 18.6 29.4 110.0 India 2.9 0.6 1.4 2.9 5.3 43.1Russia* 4.7 2.8 4.4 6.7 11.0 23.2 Russia* 0.5 0.2 0.5 0.8 1.7 6.2Mexico* 22.4 9.9 19.1 24.2 27.0 48.1 Mexico* 2.8 1.3 2.4 3.1 3.6 15.7Malaysia 16.2 9.5 12.9 17.1 22.4 52.3 Malaysia 2.1 0.7 1.5 2.0 2.7 40.2Greece - 14.2 14.6 17.6 22.3 48.9 Greece 1.1 0.5 1.0 1.1 1.8 3.1UAE 18.2 12.3 13.9 15.5 27.0 40.0 UAE 2.1 1.8 2.0 2.1 2.8 3.5Qatar 17.1 11.5 13.4 14.5 19.8 398.2 Qatar 2.6 1.4 1.7 2.5 3.2 3.9Chile* 18.4 11.6 13.6 18.7 22.8 39.0 Chile* 1.6 0.7 1.4 1.8 2.6 3.3Indonesia 15.8 8.3 13.9 16.2 24.0 60.2 Indonesia 3.3 1.1 2.4 3.5 4.5 48.6Turkey* 11.3 7.6 10.2 11.0 12.3 31.6 Turkey* 1.5 0.8 1.2 1.5 2.9 12.1Thailand 14.4 9.2 11.6 16.9 31.9 67.3 Thailand 2.1 0.9 1.4 2.2 5.0 20.1Poland* 14.7 8.8 11.2 15.9 17.9 35.8 Poland* 1.4 0.4 0.9 1.6 2.1 10.2Czech Republic* 13.4 11.5 13.3 15.0 17.0 19.0 Czech Republic* 1.5 1.3 1.5 1.7 1.8 1.9Egypt* 23.5 9.8 11.1 12.4 19.3 26.3 Egypt* 1.8 0.8 0.9 0.9 2.0 3.0Philippines 21.1 14.1 16.1 20.6 26.5 37.3 Philippines 3.0 1.3 2.1 2.9 4.0 8.4Hungary* 12.1 10.7 11.0 11.2 14.5 17.8 Hungary* 0.8 0.7 0.7 0.8 1.1 1.3

    2014E: Dividend Yield (%) 2014E: Return on Equity (%)Weighted Quartiles Weighted QuartilesAverage Min Lower Median Higher Max Average Min Lower Median Higher Max

    Global* 2.6 0.0 1.2 2.2 3.6 11.7 Global* 12.4 -10.9 7.9 12.3 18.5 354.0USA* 2.1 0.0 0.6 1.7 2.8 11.5 USA* 14.4 0.6 9.6 15.4 21.9 261.7Europe* 3.6 0.0 2.1 3.1 4.3 11.5 Europe* 11.2 1.5 8.2 12.7 18.3 151.4Japan* 2.1 0.0 1.2 1.7 2.4 4.3 Japan* 7.8 1.3 6.2 8.4 10.8 47.2Emerging Markets* 2.8 0.0 1.2 2.3 3.7 11.7 Emerging Markets* 12.7 -10.9 8.1 12.6 18.5 354.0China 3.2 0.0 1.3 2.5 3.9 9.2 China 15.2 2.4 8.9 12.7 17.1 34.2Brazil* 4.0 0.0 1.6 3.3 4.9 11.7 Brazil* 12.3 -4.4 7.6 13.0 22.4 82.3Korea 1.3 0.0 0.4 1.1 1.7 6.9 Korea 10.1 0.8 4.8 7.6 11.9 27.6Taiwan 2.9 0.0 2.1 3.4 4.5 8.6 Taiwan 13.5 0.6 7.3 10.6 16.9 42.5South Africa* 3.2 0.0 2.2 3.6 4.5 10.1 South Africa* 17.4 0.4 12.9 18.3 23.4 101.0India 1.5 0.0 0.6 1.2 1.9 5.0 India 16.5 1.4 10.7 15.7 21.7 105.8Russia* 5.3 0.9 3.1 4.5 5.8 8.3 Russia* 11.7 5.3 10.3 12.8 21.8 38.3Mexico* 1.4 0.0 0.3 1.0 1.9 4.1 Mexico* 12.5 -4.6 9.3 12.6 15.6 65.2Malaysia 3.2 0.6 2.1 2.7 3.7 7.5 Malaysia 13.2 3.3 9.4 12.6 14.5 179.3Greece 1.0 0.0 0.0 1.0 2.1 3.5 Greece - -10.9 -1.3 3.8 12.7 14.6UAE 2.3 0.7 1.3 2.3 3.6 4.7 UAE 11.5 7.0 8.6 11.7 16.6 20.0Qatar 3.7 2.0 2.9 3.5 3.9 6.7 Qatar 15.2 0.8 11.8 14.3 18.2 24.3Chile* 2.6 0.0 1.7 3.0 3.8 6.0 Chile* 8.9 2.6 7.9 10.6 13.2 21.7Indonesia 2.5 0.0 1.4 2.0 2.8 6.6 Indonesia 22.2 5.8 16.4 21.8 24.5 110.7Turkey* 3.0 0.7 1.5 2.1 4.4 10.1 Turkey* 13.8 4.7 11.6 14.7 19.6 38.3Thailand 3.0 0.0 1.4 2.8 3.8 6.2 Thailand 15.6 1.4 11.5 15.2 19.3 116.3Poland* 3.9 0.0 1.5 2.8 4.6 7.1 Poland* 9.5 -6.7 5.7 10.6 12.4 30.8Czech Republic* 5.4 4.8 5.2 5.6 6.2 6.8 Czech Republic* 11.4 9.2 10.1 11.0 11.8 12.6Egypt* 2.1 0.0 0.0 1.3 4.1 8.2 Egypt* 9.0 3.2 6.2 9.2 16.9 24.6Philippines 2.1 0.5 0.9 1.6 1.9 5.0 Philippines 15.0 7.3 11.3 14.3 18.7 25.0Hungary* 3.2 1.5 2.5 3.5 3.8 4.1 Hungary* 7.3 6.2 6.8 7.4 7.4 7.4

    Source: Datastream, IBES, MSCI, J.P. Morgan estimates. Updated as of 10 September 2014Note: Weighted average numbers based on aggregate of MSCI constituents. Consensus numbers are used for stocks not covered by J.P. Morgan. * only consensus numbers are used

    11 September 2014

  • 13

    Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]

    Value: Demand Classification: MSCI Emerging Markets Index Composition by Countries

    MSCI Emerging Markets Free Index

    Dom

    estic

    De

    man

    d

    Glob

    al Ca

    pex

    G lob

    al Co

    nsum

    er

    Glob

    al Pr

    ice

    Take

    rs

    Tota

    l

    China 15.7 0.4 0.4 2.9 19.4India 3.5 1.5 0.1 1.8 6.8Indonesia 2.4 0.0 0.1 0.1 2.6Korea 6.0 2.7 4.6 1.6 14.9Malaysia 2.9 0.1 0.1 0.6 3.8Philippines 1.1 0.0 0.0 0.1 1.2Taiwan 4.1 3.4 3.4 1.1 11.9Thailand 1.8 0.0 0.0 0.5 2.3

    Asia 37.6 8.1 8.6 8.5 62.9Czech Republic 0.2 0.0 0.0 0.0 0.2

    Egypt 0.2 0.0 0.0 0.0 0.2

    Hungary 0.1 0.0 0.0 0.1 0.2

    Greece 0.6 0.0 0.0 0.0 0.7

    Poland 1.3 0.0 0.0 0.3 1.6

    Russia 1.6 0.0 0.0 3.2 4.8

    South Africa 5.8 0.0 0.0 1.5 7.4

    Turkey 1.5 0.0 0.0 0.1 1.6

    UAE 0.5 0.1 0.6Qatar 0.5 0.1 0.6

    EMEA 12.5 0.0 0.1 5.4 17.9

    Brazil 7.9 0.1 0.1 3.0 11.1

    Chile 1.4 0.0 0.0 0.0 1.4

    Colombia 0.7 0.1 0.0 0.2 1.0

    Mexico 4.4 0.4 0.1 0.4 5.3

    Peru 0.2 0.0 0.0 0.2 0.4

    LatAm 14.6 0.6 0.2 3.9 19.2

    Total 64.7 8.7 8.9 17.7 100.0

    Source: Datastream, MSCI. J.P. Morgan. MSCI emerging markets companies have been classified in five categories. Updated as of 10 September 2014Of the five categories, Global Consumer/Capex (Tech-Hardware) weighting equally divided between Global consumer and Global Capex.

    11 September 2014

    40

    50

    60

    70

    80

    90

    100

    0 50

    100 150 200 250 300 350 400

    Jan 90 Oct 96 Jul 03 Apr 10

    Relative to EM (rhs)

    Absolute (lhs)

    0

    50

    100

    150

    200

    250

    300

    0 120 240 360 480 600 720 840 960

    Jan-90 Oct-96 Jul-03 Apr-10

    Relative to EM (rhs)

    Absolute (lhs)

    10

    25

    40

    55

    70

    85

    100

    115

    -40

    30

    100

    170

    240

    310

    380

    450

    Jan-90 Oct-96 Jul-03 Apr-10

    Relative to EM (rhs)

    Absolute (lhs)

    EM Domestic Demand Sector Absolute and relative (vs EMF) Index

    EM Global Consumer Sector Absolute and relative (vs EMF) Index

    EM Global Price Taker Sector Absolute and relative (vs EMF) Index

    -60

    20

    100

    180

    260

    340

    420

    500

    0

    200

    400

    600

    800

    1000

    1200

    1400

    Jan-90 Oct-96 Jul-03 Apr-10

    Relative to EM (rhs)

    Absolute (lhs)

    EM Global Capex Sector Absolute and relative (vs EMF) Index

  • 14

    Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]

    Value: Equities relative to Bonds

    Country 1-month 3-month 6-month 12-month 36-month 36-month annualisedBrazil 0.3 3.4 16.2 -4.7 20.5 6.4Chile 2.3 -1.0 5.8 -3.0 -7.4 -2.5China 2.2 9.9 14.1 7.2 25.2 7.8Colombia 0.8 1.8 7.9 -5.8 17.5 5.5Czech 7.3 7.0 12.8 21.3 12.5 4.0Hungary 9.7 -5.1 5.4 -22.1 -9.3 -3.2India 5.5 4.5 15.9 22.6 53.9 15.5Indonesia 0.4 2.7 8.4 10.3 28.2 8.6Malaysia 1.5 -1.3 0.5 3.3 31.5 9.6Mexico 2.8 4.6 12.9 1.0 37.8 11.3Peru -0.4 -0.5 3.8 2.7 -14.2 -5.0Poland 8.0 0.1 2.7 3.3 29.6 9.0Russia 7.0 2.3 12.2 0.8 4.1 1.3South Africa -0.6 -1.4 3.8 13.7 69.2 19.2Thailand 4.2 7.6 17.2 5.2 41.5 12.3Turkey -0.5 -5.0 19.7 -0.1 45.6 13.3Taiwan 4.1 5.4 13.0 19.9 35.3 10.6Philippines 5.6 5.4 3.5 17.7 75.9 20.7Korea -0.7 -4.2 -2.5 -5.4 14.2 4.5Romania 0.4 -0.9 11.1 17.5 NA NA

    Country Generic 10 years Bond Maturity (years)Bond Yield To

    Maturity Earnings Yield Dividend YieldDDM Implied

    GrowthBrazil 11.5 8.7 9.1 9.1 4.1 12.3Chile 4.8 4.4 3.9 6.4 2.7 6.9China 4.3 6.2 4.2 10.7 3.4 6.3Colombia 7.0 6.7 5.8 5.0 2.7 8.3Czech 1.2 6.7 1.1 7.1 5.2 -1.5Hungary 4.6 5.0 3.7 10.0 3.7 4.8India 8.5 11.4 8.7 6.0 1.6 11.7Indonesia 8.2 11.8 8.3 6.8 2.6 11.1Malaysia 4.0 6.1 3.9 6.6 3.3 6.1Mexico 5.9 9.6 5.8 5.1 1.5 8.6Peru 5.2 11.5 5.5 4.3 1.1 8.1Poland 3.0 4.3 2.6 7.2 4.1 2.6Russia 9.6 5.8 9.3 21.3 6.0 12.9South Africa 8.2 12.5 8.1 7.2 3.5 10.4Thailand 3.7 6.2 3.3 7.6 3.2 5.9Turkey 9.0 5.1 8.9 10.0 3.2 10.7Taiwan 1.6 7.2 1.6 7.3 3.2 1.9Philippines 4.4 13.2 4.9 5.2 2.3 6.9Korea 3.1 8.0 3.0 10.1 1.3 6.2Romania 4.2 3.9 3.5 NA NA NA

    Source: Bloomberg, J.P. Morgan, DataStream, MSCI, IBES Note: GBI-EM Bond Maturity and Yield to Maturity are used for each country. Updated as of 10 September 2014

    11 September 2014

    Relative outperformance of equities versus bonds by country (%)

    J.P. Morgan's GBI - EM bond indices track local currency government bonds issued by emerging economies.

    The indices are easily replicable and represent the local bond portfolio that can be accessed by an international investor.

    For more information on these indices please visit www.morganmarkets.com or contact Gloria Kim at [email protected]

    The table shows the difference between the MSCI equity benchmark returns in local currency and the GBI - EM benchmark returns for each country.

    Positive numbers indicate outperformance by equities.

    Relative value of equities versus bonds by country

    For 'DDM Implied Growth', we use a dividend discount model based on expected payout ratios for 2008 (except Colombia and Peru where we use current trailing payout ratio)

    Perpetual Implied Growth Rates are calculated based on the Gordon Growth Model:

    G= R - D/V

    G= Implied Growth RateR= Required Growth Rate (Risk free rate + Equity Risk Premium)D= Index DividendV= Index Value

    Note: Equity risk premium of 4%. Risk free rates are 10-year benchmark or nearest equivalent.

  • 15

    Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]

    Economic Forecasts: Changes in Real GDP Forecasts

    Real GDP Growth (% Y/Y) Change in Forecasts Past 3 months (%) Economic Momentum Inflation

    2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E 3Q14E 4Q14E 1Q15E 2Q15E 2014E 2015EUS 2.1 3.0 2.1 3.0 0.1 0.1 -0.4 -0.1 1.0 3.0 3.0 3.0 1.5 1.9Euro 0.8 1.8 1.0 1.5 -0.4 -0.2 -0.1 0.0 1.0 na na na 1.3 0.6Japan 0.9 1.4 1.1 1.2 -0.4 0.0 -0.3 -0.1 2.0 2.5 1.1 2.2 0.4 2.9China 7.3 7.3 7.4 7.2 0.1 0.1 0.1 0.0 7.6 7.4 7.1 7.2 2.6 2.2Brazil 0.2 1.5 0.8 1.6 -1.1 -0.3 -1.0 -0.4 0.1 2.6 1.1 na 6.2 6.3S Korea 3.6 4.0 3.6 3.8 -0.3 0.1 0.0 0.0 4.7 4.0 4.0 4.0 1.3 1.5Taiwan 3.8 3.7 3.5 3.6 0.3 -0.1 0.3 0.1 na 4.2 3.8 3.6 0.8 1.4South Africa 1.4 3.0 1.7 2.7 -0.4 -0.2 -0.7 -0.3 2.3 3.3 2.9 3.3 5.8 6.1India 5.3 6.5 4.7 5.4 0.0 0.0 0.0 0.0 4.0 4.7 5.9 7.5 10.1 8.5Russia 0.5 1.0 0.3 1.2 0.0 -0.8 -0.6 -0.7 0.8 1.0 0.5 0.8 6.8 7.2Mexico 2.7 3.8 2.6 3.8 -0.2 0.0 -0.4 0.0 3.9 3.7 3.6 4.0 3.8 4.1Malaysia 5.8 4.7 5.7 5.3 0.3 -0.4 0.5 0.3 4.0 5.5 5.0 4.0 2.1 2.7Chile 1.9 3.1 2.9 3.8 -1.0 -1.1 -0.5 -0.5 0.4 4.5 2.9 3.9 1.8 4.0Indonesia 4.9 5.3 5.2 5.6 0.0 -0.4 -0.1 -0.2 5.0 4.5 5.2 5.5 7.0 5.7Turkey 3.0 4.0 3.3 3.7 1.1 0.0 1.0 0.2 1.2 0.8 4.1 6.1 7.5 9.0Thailand 1.1 4.2 1.5 4.1 0.0 0.0 -0.2 0.0 na 4.0 4.2 4.2 2.2 2.6Poland 3.0 3.2 3.2 3.4 -0.1 0.0 0.0 -0.1 2.0 2.8 3.5 3.5 0.9 0.2Czech Republic 2.8 2.8 2.5 2.6 0.0 0.0 0.4 0.0 3.1 3.0 4.3 2.4 1.4 0.9Peru 3.3 5.5 4.5 5.5 -1.7 0.0 -0.8 -0.1 6.5 9.5 5.5 5.0 2.8 3.0Colombia 5.0 4.5 5.0 4.8 0.3 0.0 0.5 0.2 4.0 4.0 5.0 5.5 2.0 2.8Philippines 6.0 6.4 6.3 6.5 0.0 0.0 -0.1 0.0 5.7 5.7 6.6 6.6 2.9 4.2Hungary 3.3 2.6 2.9 2.5 0.3 0.1 0.7 0.3 2.0 2.5 3.0 2.5 1.7 0.1Qatar 1.8 2.4 5.9 6.3 -0.4 -0.1 0.4 0.2 - - - - 3.8 4.4UAE 2.0 2.7 4.1 4.2 0.0 0.0 0.1 0.1 - - - - 2.3 2.6Greece - - 0.3 1.7 - - 0.1 0.1 - - - - - -

    Updated as of 10 September 2014Source: J.P. Morgan estimates, BloombergNote: Consensus estimates for Jordan, Egypt, Pakistan and Israel sourced from WES and Morocco from EIU

    11 September 2014

    J.P. Morgan Consensus J.P. Morgan Consensus GDP SAAR (% Y/Y)

    2014E GDP Growth in EM: J.P. Morgan and Consensus Forecasts Consensus Forecasts for 2014E GDP growth in EM and DM

    4.0

    4.3

    4.6

    4.9

    5.2

    5.5

    5.8

    Jan-13 Apr-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 1.50

    1.60

    1.70

    1.80

    1.90

    2.00

    2.10

    4.0 4.2 4.4 4.6 4.8 5.0 5.2 5.4 5.6 5.8

    Jan-13 Apr-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14

    DM consensus growth forecast (RHS)

    EM consensus growth forecast (LHS) Consensus EM growth forecast

    J.P. Morgan EM growth forecast

  • 16

    Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]

    11 September 2014

    Economic Forecasts: Policy Rate Trends and ForecastsPolicy Rate

    Country Official interest rate 3Q'13 4Q'13 1Q'14 2Q'14 Current 3Q'14F 4Q'14F 1Q'15F 2Q'15F Last Change Next ChangeDeveloped MarketsUnited States Federal funds rate 0.125 0.125 0.125 0.125 0.125 0.125 0.125 0.125 0.125 16 Dec 08 (-87.5bp) 3Q 15 (+25bp)Euro Area Refi Rate 0.50 0.25 0.25 0.15 0.05 0.05 0.05 0.05 0.05 4 Sep 14 (-10bp) 3Q 18 (+20bp)Japan Overnight Call Rate 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 5 Oct 10 (-5bp) On holdLatin AmericaBrazil SELIC overnight rate 9.00 10.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 2 Apr 14 (+25bp) On holdMexico Repo rate 3.50 3.50 3.50 3.00 3.00 3.00 3.00 3.00 3.00 6 Jun 14 (-50bp) 4Q 15 (+25bp)Chile Discount rate 5.00 4.50 4.00 4.00 3.50 3.25 3.00 3.00 2.75 14 Aug 14 (-25bp) 11 Sep 14 (-25bp)Europe, Middle East and AfricaCzech Republic 2-week repo rate 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 1 Nov 12 (-20bp) On holdHungary 2-week deposit rate 3.60 3.00 2.50 2.30 2.10 2.10 2.10 2.10 2.10 22 Jul 14 (-20bp) 4Q 15 (+20bp)Poland 7-day intervention rate 2.50 2.50 2.50 2.50 2.50 2.50 2.00 2.00 2.00 3 Jul 13 (-25bp) 4Q 14 (-50bp)Russia Rep Rate 5.50 5.50 7.00 7.50 8.00 8.00 8.00 7.75 7.50 25 Jul 14 (+50bp) 1Q 15 (-25bp)South Africa Repo rate 5.00 5.00 5.75 5.50 5.75 6.00 6.00 6.25 6.50 17 Jul 14 (+25bp) 18 Sep 14 (+25bp)Turkey Intbnk O/N 6.50 7.75 10.00 8.75 8.25 8.25 8.25 8.25 8.25 17 Jul 14 (-50bp) On holdEM Asia 5.51 5.55 5.61 5.59 5.58 5.59 5.63 5.64 5.64China 1-year working capital 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 7 Jul 12 (-31bp) On holdKorea Overnight call rate 2.50 2.50 2.50 2.50 2.25 2.25 2.25 2.25 2.25 14 Aug 14 (-25bp) On holdIndonesia BI rate 7.25 7.50 7.75 7.50 7.50 7.50 7.50 7.50 7.50 12 Nov 13 (+25bp) On holdIndia Repo rate 7.50 7.75 8.00 8.00 8.00 8.00 8.25 8.25 8.25 28 Jan 14 (+25bp) 4Q 14 (+25bp)Malaysia Overnight policy rate 3.00 3.00 3.00 3.00 3.25 3.50 3.50 3.50 3.50 10 Jul 14 (+25bp) 18 Sep 14 (+25bp)Philippines Reverse repo rate 3.50 3.50 3.50 3.50 4.00 4.00 4.00 4.00 4.00 11 Sep 14 (+25bp) -Thailand 1-day repo rate 2.50 2.25 2.00 2.00 2.00 2.00 2.00 2.25 2.50 12 Mar 14 (-25bp) 1Q 15 (+25bp)Taiwan Official discount rate 1.88 1.88 1.88 1.88 1.88 1.88 1.88 2.00 2.00 30 Jun 11 (+12.5bp) 1Q 15 (+12.5bp)

    Source: J.P. Morgan Economics, Bloomberg. Bold figures on next column indicate tightening. Updated as of 10 September 2014

    Change in policy rates Emerging Markets Policy rates

    -550 -450 -350 -250 -150 -50 50 150

    India Malaysia

    China Japan

    Taiwan Chile

    Thailand Indonesia

    Korea Poland Czech

    S Africa EU

    Philippines Brazil USA

    Mexico Hungary

    Change from 05 - 07 avg Forecast Change for now to 4Q 14

    -4

    0

    4

    8

    12

    16

    00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

    Nominal Policy Rates

    Real Rates

  • 17

    Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]

    Economic Forecasts: Currency Movements and Forecasts

    Source: Datastream, J.P. Morgan estimates, Bloomberg. Updated as of 10 September 2014

    11 September 2014

    Euro (EUR) Japansese Yen (JPY)

    1.12

    1.32

    1.52

    1.72

    Jan 05 Aug 07 Apr 10 Nov 12 Jun 15

    J.P. Morgan

    Consensus

    J.P. Morgan forecast: end Sep 14: 1.34 end Dec 14: 1.30 end Mar 15: 1.28

    60

    70

    80

    90

    100

    110

    120

    Jan 05 Aug 07 Mar 10 Nov 12 Jun 15

    J.P. Morgan

    Consensus

    J.P. Morgan forecast: end Sep 14: 102 end Dec 14: 106 end Mar 15: 107

    South Korean Won (KRW)

    800

    900

    1,000

    1,100

    1,200

    1,300

    1,400

    1,500

    1,600

    Jan 05 Aug 07 Mar 10 Nov 12 Jun 15

    Consensus

    J.P. Morgan

    J.P. Morgan forecast: end Sep 14: 1000 end Dec 14: 1000 end Mar 15: 995

    Taiwan Dollar (TWD)

    27 28 29 30 31 32 33 34 35 36 37

    Jan 05 Aug 07 Mar 10 Nov 12 Jun 15

    Consensus

    J.P. Morgan

    J.P. Morgan forecast: end Sep 14: 30.70 end Dec 14: 30.80 end Mar 15: 30.80

    1.4

    1.6

    1.8

    2.0

    2.2

    2.4

    2.6

    2.8

    Jan 05 Aug 07 Mar 10 Nov 12 Jun 15

    Consensus

    J.P. Morgan

    J.P. Morgan forecast: end Sep 14: 2.30 end Dec 14: 2.35 end Mar 15: 2.45

    Brazilian Real (BRL) Russian Ruble (RUB)

    5.8

    6.2

    6.6

    7.0

    7.4

    7.8

    8.2

    8.6

    Jan 05 Aug 07 Mar 10 Nov 12 Jun 15

    Consensus

    J.P. Morgan

    J.P. Morgan forecast: end Sep 14: 6.20 end Dec 14: 6.15 end Mar 15: 6.15

    South African Rand (ZAR)

    38.0

    42.0

    46.0

    50.0

    54.0

    58.0

    62.0

    66.0

    Jan 05 Aug 07 Mar 10 Nov 12 Jun 15

    Consensus

    J.P. Morgan J.P. Morgan forecast: end Sep 14: 60.00 end Dec 14: 60.00 end Mar 15: 60.50

    Mexican Peso (MXN)

    20

    24

    28

    32

    36

    40

    Jan 05 Aug 07 Mar 10 Nov 12 Jun 15

    J.P. Morgan

    Consensus

    J.P. Morgan forecast: end Sep 14: 36.43 end Dec 14: 36.78 end Mar 15: 36.86

    Indian Rupee (INR)

    2.6

    2.8

    3.0

    3.2

    3.4

    3.6

    3.8

    4.0

    Jan 05 Aug 07 Mar 10 Nov 12 Jun 15

    J.P. Morgan

    Consensus

    J.P. Morgan forecast: end Sep 14: 3.17 end Dec 14: 3.20 end Mar 15: 3.23

    Malaysian Ringgit (MYR)

    Polish Zloty (PLN)

    Thai Baht (THB)

    ( ) C (C )

    ( )

    S ( ) ( )

    Chinese Yuan Renminbi (CNY)

    9.5 10.1 10.7 11.3 11.9 12.5 13.1 13.7 14.3 14.9 15.5

    Jan 05 Aug 07 Mar 10 Nov 12 Jun 15

    J.P. Morgan

    Consensus

    J.P. Morgan forecast: end Sep 14: 13.00 end Dec 14: 12.90 end Mar 15: 13.10

    5.0 6.0 7.0 8.0 9.0

    10.0 11.0 12.0 13.0 14.0

    Jan 05 Aug 07 Mar 10 Nov 12 Jun 15

    Consensus

    J.P. Morgan

    J.P. Morgan forecast: end Sep 14: 11.00 end Dec 14: 10.75 end Mar 15: 11.00

    26 28 30 32 34 36 38 40 42 44

    Jan 05 Aug 07 Mar 10 Nov 12 Jun 15

    Consensus

    J.P. Morgan

    J.P. Morgan forecast: end Sep 14: 32.50 end Dec 14: 33.00 end Mar 15: 33.00

    1.9 2.1 2.3 2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9 4.1

    Jan 05 Aug 07 Mar 10 Nov 12 Jun 15

    J.P. Morgan

    Consensus

    J.P. Morgan forecast: end Sep 14: 3.10 end Dec 14: 3.19 end Mar 15: 3.20

    Turkish Lira (TRY)

    1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2.0 2.1 2.2 2.3 2.4 2.5

    Jan 05 Aug 07 Mar 10 Nov 12 Jun 15

    Consensus

    J.P. Morgan

    J.P. Morgan forecast: end Sep 14: 2.20 end Dec 14: 2.20 end Mar 15: 2.15

  • 18

    Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]

    Economic Forecasts: Currency Movements and Forecasts

    Source: Datastream, J.P. Morgan estimates, Bloomberg. The expected % Gain vs USD for ARS is -28% Updated as of 10 September 2014

    11 September 2014

    Indonesian Rupiah (IDR) Hungarian Forint (HUF)

    130 143 156 169 182 195 208 221 234 247 260

    Jan 05 Aug 07 Mar 10 Nov 12 Jun 15

    J.P. Morgan

    Consensus

    J.P. Morgan forecast: end Sep 14: 235 end Dec 14: 238 end Mar 15: 238

    13

    15

    17

    19

    21

    23

    25

    Jan 05 Aug 07 Mar 10 Nov 12 Jun 15

    Consensus

    J.P. Morgan

    J.P. Morgan forecast: end Sep 14: 20.67 end Dec 14: 21.15 end Mar 15: 21.33

    Czech Koruna (CZK) Peruvian Nuevo Sol (PEN)

    Philippine Peso (PHP) Colombian Peso(COP)

    2.4

    2.7

    2.9

    3.2

    3.4

    3.7

    Jan 05 Aug 07 Mar 10 Nov 12 Jun 15

    J.P. Morgan

    Consensus

    J.P. Morgan forecast: end Sep 14: 2.81 end Dec 14: 2.83 end Mar 15: 2.84

    Expected % Gain vs USD till Dec 2014 (J.P. Morgan)

    -12

    -9

    -6

    -3

    0

    3

    6

    COP

    HUF

    KRW

    ILS

    PLN

    ZAR

    INR

    CZK

    RUB

    JPY

    MYR

    PHP

    TRL

    CNY

    EUR

    IDR

    THB

    BRL

    TWD

    MXN

    ARS 1,500

    1,700

    1,900

    2,100

    2,300

    2,500

    2,700

    Jan 05 Aug 07 Mar 10 Nov 12 Jun 15

    J.P. Morgan

    Consensus

    J.P. Morgan forecast: end Sep 14: 1850 end Dec 14: 1875 end Mar 15: 1900

    7,500

    8,500

    9,500

    10,500

    11,500

    12,500

    Jan 05 Aug 07 Mar 10 Nov 12 Jun 15

    Consensus

    J.P. Morgan

    J.P. Morgan forecast: end Sep 14: 11900 end Dec 14: 11900 end Mar 15: 12000

    36

    40

    44

    48

    52

    56

    60

    Jan 05 Aug 07 Mar 10 Nov 12 Jun 15

    J.P. Morgan

    Consensus

    J.P. Morgan forecast: end Sep 14: 43.50 end Dec 14: 44.00 end Mar 15: 44.25

  • Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]

    11 September 2014

    Economic Forecasts: Credit RiskExternal (2013E) Fiscal Position Sovereign Ratings (Long Term Foreign Debt)

    ForeignReserves 2013 2014F** 2014E 2014E 2013 2014F** 2013 2014F** Moody's S & P

    (US$bil) %GDP %GDP (US$bil) %GDP % GDP % GDP % GDP % GDP Rating Action Date Rating Action DateChina 3993 2.1 1.8 809 8 -2.1 -2.1 23 21 Aa3 O/L changed to stable, Affirmed Apr-16-13 AA- Affirmed, O/L stable Nov-29-13Brazil 378 -3.6 -3.6 492 22 -3.3 -3.7 68 69 Baa2 O/L changed to stable, Affirmed Oct-02-13 BBB- Downgrade, O/L stable Mar-24-14Korea 368 6.1 5.8 418 29 0.9 1.0 36 35 Aa3 Upgrade, O/L changed to stable Aug-27-12 A+ Affirmed, O/L stable Sep-24-13Taiwan 423 11.3 11.0 146 28 -1.8 -2.0 41 41 Aa3 Affirmed, O/L stable Oct-09-13 AA- Affirmed, O/L stable May-26-14South Africa 42 -5.8 -5.1 148 41 -4.0 -4.0 43 45 Baa1 (-) Downgrade, O/L (-) Nov-25-13 BBB (-) Affirmed, O/L (-) Dec-20-13India 291 -1.7 -2.3 476 36 -4.6 -4.1 67 68 Baa3 Affirmed, O/L stable Nov-26-12 BBB- (-) Affirmed, O/L (-) Nov-08-13Russia 466 1.6 3.4 720 36 -0.3 0.6 14 15 Baa1 - Affirmed, O/L stable May-16-12 BBB- (-) Downgrade, O/L (-) Apr-25-14Mexico 191 -1.8 -2.3 226 17 -2.3 -3.5 44 46 A3 Upgrade, O/L stable Feb-05-14 BBB+ Upgrade, O/L stable Dec-19-13Malaysia 127 3.8 4.7 60 18 -4.0 -3.5 57 57 A3 Affirmed, O/L stable Jun-07-12 A- Affirmed, O/L stable Nov-20-13Chile 40 -3.8 -1.7 104 41 -0.7 -2.0 13 13 Aa3 Affirmed, O/L stable Oct-29-13 AA- Affirmed, O/L stable Dec-16-13Indonesia 111 -3.6 -3.0 363 31 -2.4 -2.5 26 27 Baa3 Affirmed, O/L stable Jul-16-12 BB+ O/L changed to stable, Affirmed May-02-13Poland 76 -1.8 -2.1 363 66 -4.3 -3.5 58 50 A2 Affirmed, O/L stable Oct-04-11 A- Affirmed, O/L stable Feb-07-14Turkey 113 -7.9 -5.8 376 45 -1.2 -2.1 36 35 Baa3 (-) Downgrade, O/L (-) Apr-04-14 BB+ (-) Affirmed, O/L (-) May-23-14Thailand 159 -0.7 1.5 86 23 -3.4 -2.8 47 48 Baa1 Affirmed, O/L stable Jun-02-14 BBB+ Affirmed, O/L stable May-22-14Czech Republic 57 -1.1 0.2 105 54 -2.9 -2.9 48 49 A1 Affirmed, O/L stable Jul-19-13 AA- Affirmed, O/L stable Jan-24-14Peru 65 -4.5 -5.0 52 25 0.8 -0.2 19 17 Baa2 (+) Upgrade, O/L (+) Aug-16-12 BBB+ Upgrade, O/L stable Aug-19-13Egypt* 17 na na na na na na na na Caa1 (-) Affirmed, O/L (-) Jul-25-13 B- Affirmed, O/L stable May-16-14Colombia 1 -3.3 -3.8 73 18 -1.2 -1.2 32 32 Baa3 (+) O/L changed to (+), Affirmed Jul-08-13 BBB Affirmed, O/L stable Apr-29-14Philippines 81 4.5 2.7 61 22 -1.4 -2.0 41 39 Baa3 (+) Upgrade, O/L changed to (+) Oct-03-13 BBB Upgrade, O/L stable May-08-14Hungary 32 3.7 2.5 152 111 -2.2 -3.0 80 80 Ba1 (-) Affirmed, O/L stable Aug-15-13 BB O/L changed to stable, Affirmed Mar-28-14Greece 0.8 na na na na na na na na - - - - - -Emerging Asia 5553 2.2 2.1 2275 15 -2.0 -1.5 27 27 - - - - - -Emerging Europe 803 -0.9 0.3 1903 48 -2.0 -1.7 29 28 - - - - - -Latin America 724 -2.4 -2.6 1199 22 -2.9 -2.9 42 43 - - - - - -

    Source: Bloomberg, J.P. Morgan. Source: Bloomberg, J.P. Morgan. Source: Bloomberg, J.P. Morgan. Source: Bloomberg, J.P. Morgan.Source: CEIC, J.P. Morgan estimates, Moody's, Standard & Poor's, Bloomberg * Data from World Economic Outlook for April 2010 for Current Account data, ** F denotes forecast. Note: Forex reserves as of August 2014 or latest available data. Updated as of 10 September 2014

    19

    Current Account External Debt Fiscal Deficit Public Sector Debt

    EMBI Global Spreads and Yields EMBI Asia Spreads and Yields EMBI Europe Spreads and Yields EMBI Latin America Spreads and Yields

    4.0

    5.0

    6.0

    7.0

    8.0

    9.0

    0

    100

    200

    300

    400

    500

    Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Spread (L) Yield

    3.2

    3.7

    4.2

    4.7

    5.2

    5.7

    6.2

    100

    150

    200

    250

    300

    350

    400

    Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Spread (L) Yield

    3.0

    4.0

    5.0

    6.0

    7.0

    8.0

    100 150 200 250 300 350 400 450 500 550

    Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Spread (L) Yield

    5.0

    5.5

    6.0

    6.5

    7.0

    7.5

    200 250 300 350 400 450 500 550 600

    Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Spread (L) Yield

  • 20

    Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]

    11 September 2014

    Perspective: Emerging Markets' Balance Sheets

    No. of Companies Debt/Equity Debt/Assets Debt/Mkt. Cap Asset Turnover Current Ratio Interest Coverage Altman Z ScoreChina 118 0.67 0.28 0.96 0.84 1.04 7.5 2.9Brazil 63 0.61 0.29 1.03 0.45 1.57 3.9 3.8Korea 85 0.28 0.17 0.29 0.87 1.37 10.8 4.7Taiwan 89 0.41 0.21 0.20 1.06 1.21 13.6 5.0South Africa 37 0.41 0.21 0.17 0.84 1.47 6.0 5.3India 58 1.02 0.37 0.40 0.75 1.23 4.7 5.7Russia 18 0.38 0.24 0.81 0.48 1.38 12.1 3.4Mexico 25 0.77 0.33 0.38 0.74 1.25 4.6 5.1Malaysia 36 0.63 0.31 0.32 0.47 2.08 6.3 4.7Chile 17 0.69 0.32 0.26 0.63 1.14 5.6 2.7Indonesia 24 0.39 0.22 0.13 0.84 1.88 14.5 7.6Turkey 18 0.67 0.30 0.45 1.20 1.43 6.4 4.4Thailand 21 0.78 0.35 0.40 1.20 1.43 5.7 4.7Poland 14 0.25 0.15 0.29 1.17 1.37 9.7 3.4Czech Republic 2 0.60 0.27 0.52 0.38 1.16 9.8 3.1Peru 2 0.25 0.18 0.14 0.45 3.37 24.6 4.2Egypt 3 0.71 0.29 0.67 0.26 1.57 2.8 2.5Colombia 8 0.38 0.23 0.41 0.37 1.07 4.7 3.4Philippines 14 0.72 0.32 0.25 0.40 1.40 5.1 3.7Hungary 2 0.38 0.20 0.40 1.02 1.46 6.3 4.2Greece 7 0.88 0.34 0.68 0.65 0.94 2.9 3.8

    Source: Datastream, Bloomberg, J.P. Morgan. Updated as of January-14

    2. For the debt to equity distribution chart, each box indicates quartile levels and markets with values exceeding the scale are indicated by the open-ended top box. The diamond indicates weighted average for each market.

    Note: 1. All ratios are calculated from latest financial reports available ex Banks, Insurance and Diversified financials sector and calculations are based on weighted average of companies in the MSCI EMF universe. For Altman z-score, its application on company level is such that a score of less than 1.8 indicates bankruptcy likely, between 1.8-2.7 bankruptcy likely within 2 years and more than 3 most likely safe from bankruptcy. For market as a whole, the ratio is a weighted average of companies' z-score, thereby giving a general quality of companies in the market.

    3. Quartile Distribution Charts: each quartile is separated by a line, with the exception of the top quartile which is subdivided in order to show the top decile of companies, shaded in blue. Markets with values exceeding the scale are indicated by the open-ended top box. The diamond indicates the weighted mean for each market.

    Debt to Equity Ratios Quartile Distribution Chart (x)

    0.0

    0.5

    1.0

    1.5

    2.0

    2.5

    3.0

    3.5

    4.0

    Kore

    a

    South

    Afric

    a

    Taiw

    an

    Braz

    il

    China

    Mexic

    o

    Russ

    ia

    India

    Malay

    sia

    Thail

    and

    Chile

    Turke

    y

    Indon

    esia

    Polan

    d

    Hung

    ary

    Czec

    h Re

    publi

    c

    Peru

    Philip

    pines

    Egyp

    t

    Colom

    bia

    Gree

    ce

  • 21

    Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]

    Perspective: Demographics and Key Economic Statistics

    Age Gross 2013 Growth Dependency Ratio* Enrollment Ratio US$ Per capita Total Per capita Total Per capita

    million %YoY Young Old Secondary** billion (US$) (%) (%) (%) (%)

    USA 318 1.0 na na 98 16,801 52,883 4.2 3.3 1.7 0.8

    China 1361 0.5 0.3 0.1 81 9252 6801 18.8 18.2 10.2 9.6Brazil 200 0.8 0.4 0.1 106 2195 10983 14.8 13.7 3.7 2.7Russia 141 -0.3 0.2 0.2 89 2094 14804 17.1 17.4 4.0 4.3India 1267 1.4 0.5 0.1 63 1823 1440 11.8 10.1 7.7 6.2Mexico 118 1.0 0.5 0.1 91 1265 10700 6.1 4.5 2.6 1.1Korea 49 0.1 0.3 0.1 97 1207 24614 6.5 6.2 3.6 3.4Indonesia 248 1.2 0.4 0.1 81 842 3393 13.6 12.4 5.8 4.6Turkey 76 2.1 0.4 0.1 82 832 10875 10.6 9.1 4.8 3.4Poland 39 0.0 0.2 0.2 97 521 13509 9.2 9.1 4.0 3.9Taiwan 23 0.3 0.3 0.1 na 491 20987 4.7 4.3 3.9 3.5Colombia 47 1.2 0.5 0.1 97 391 8293 15.6 14.2 4.7 3.5Thailand 70 0.6 0.3 0.1 78 390 5543 10.6 9.8 3.8 3.0South Africa 52 1.2 0.5 0.1 94 355 6865 7.7 6.5 3.4 2.2Greece 11 -0.3 0.2 0.3 109 327 29013 5.4 5.1 -1.1 -1.4Malaysia 30 2.0 0.5 0.1 69 310 10337 11.6 9.6 5.0 3.1Egypt 84 2.0 0.5 0.1 72 298 3539 13.9 11.3 4.5 2.2Philippines 98 1.8 0.6 0.1 85 290 2951 13.8 11.8 5.3 3.5Chile 18 0.9 0.4 0.1 90 275 15663 14.0 12.9 4.8 3.7Peru 31 1.5 0.5 0.1 91 215 6949 13.4 11.6 6.6 4.9Czech Rep. 11 0.2 0.2 0.2 91 196 18652 7.9 7.6 2.5 2.2Hungary 10 -0.2 0.2 0.2 101 131 13229 4.6 4.8 0.8 1.0MSCI EM 3,984 26,835 5,949 12.8 13.2

    Source: CEIC, Datastream, Bloomberg, US Census Bureau, World Bank, IMF, UNESCO, J.P. Morgan estimates Updated as of January 2014* Age dependency ratio defined as dependents to working-age population.** Gross Enrollment Ratio is defined as pupils enrolled in a secondary level, regardless of age expressed as a percentage of the population in the relevant official age group *** 10-year CAGR for period 2003-2013, in local currency. Data for Gross enrollment is for 2011 or as of latest data available

    September 11, 2014

    Population and Demographics Nominal GDP Real GDPPopulation 2013 10 year CAGR*** 10 year CAGR***

  • 22

    Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]

    Perspective: Global Emerging Capital Markets

    MSCI EMF Index Markets Concentration J.P. Morgan EMBI Global

    Total Market Cap Estimated Free Float CompaniesAverage Daily

    Turnover

    % of Emerging Market Trading

    Volume

    Weighting in MSCI EMF

    Stocks constituting 75% of Country Market Cap

    Stocks constituting 75% of Country Market Cap

    Market Capitalisation Issues

    US$ Bn (%) Number US $ Mn % (%) Number (%) US$ Bn NumberChina 1637 50 141 3370 19.3 19.4 37 26 26.5 29Korea 976 64 103 2670 15.3 14.9 31 30 na naTaiwan 689 73 101 1943 11.1 11.9 32 32 na naBrazil 872 54 73 2393 13.7 11.0 21 29 43.6 25South Africa 431 73 50 830 4.8 7.4 18 36 14.8 naIndia 951 30 68 1471 8.4 6.8 24 35 2.3 naMexico 379 59 30 458 2.6 5.3 11 37 76.4 34Russia 499 40 22 948 5.4 4.8 9 41 56.8 9Malaysia 367 44 43 311 1.8 3.8 18 42 7.1 5Indonesia 258 42 30 221 1.3 2.6 12 40 46.4 31Thailand 295 33 29 573 3.3 2.3 14 48 na naPoland 140 50 24 207 1.2 1.7 9 39 14.8 6Turkey 182 37 25 1128 6.5 1.6 12 48 na naChile 149 41 20 78 0.4 1.4 10 50 14.7 19Philippines 153 32 20 118 0.7 1.2 12 60 28.7 16Colombia 136 30 14 61 0.3 1.0 8 57 19.3 10Greece 63 46 10 123 0.7 0.7 6 60 na naQatar 127 20 10 100 0.6 0.6 6 60 na naUAE 119 20 9 284 1.6 0.6 6 67 na naPeru 42 43 3 114 0.7 0.4 2 67 12.5 8Egypt 17 60 4 16 0.1 0.2 2 50 1.5 2Czech Republic 29 32 3 20 0.1 0.2 3 0 na naHungary 13 63 3 26 0.1 0.2 2 100 1.4 1Total 8525 50 835 17462 100 100 366 192

    Source: MSCI, J.P. Morgan. Updated as of 10 September 2014

    11 September 2014

    Korea 15%

    Taiwan 12%

    South Africa 7%

    Brazil 11%

    China 19%

    Mexico 5%

    India 7%

    Russia 5% Rest of EM

    19%

    AC World Index Market Capitalisation MSCI Regional Market Capitalisation Top 8 versus Rest of Emerging Markets

    EM Latin America

    19%

    EM Europe and Middle East

    18% EM Asia 63%

    North America 54%

    Developed Europe

    23%

    Developed Asia 5%

    Japan 7%

    Emerging Markets

    11%

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    Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]

    Perspective: MSCI Emerging Market Index Composition by Country and SectorNumber of Companies: 835 Total Market Capitalization (in billion US$): 8525 Estimated Free float : 50%

    MSCI Emerging Markets Free Index

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    China 1.0 0.9 2.8 6.9 0.4 1.2 2.5 0.5 2.3 0.8 19.4Korea 2.7 0.9 0.2 2.3 0.1 1.7 5.2 1.3 0.2 0.3 14.9Taiwan 0.5 0.3 0.1 2.1 0.0 0.3 6.9 1.2 0.5 11.9India 0.5 0.8 0.9 1.3 0.6 0.4 1.5 0.5 0.2 0.3 6.8Malaysia 0.4 0.4 0.2 1.3 0.1 0.5 0.2 0.4 0.4 3.8Indonesia 0.4 0.3 0.1 0.9 0.1 0.1 0.2 0.4 0.1 2.6Thailand 0.1 0.2 0.5 0.8 0.1 0.1 0.2 0.2 0.0 2.3Philippines 0.0 0.1 0.5 0.3 0.2 0.1 1.2Asia 5.6 3.9 4.6 16.1 1.3 4.7 16.1 4.1 4.4 2.0 62.8South Africa 1.8 0.4 0.8 2.1 0.5 0.2 0.7 1.0 7.4Russia 0.4 2.7 0.8 0.5 0.4 0.1 4.8Turkey 0.1 0.2 0.1 0.8 0.2 0.1 0.2 1.6Poland 0.1 0.0 0.2 0.9 0.2 0.1 0.2 1.7Egypt 0.2 0.1 0.2Czech Republic 0.1 0.0 0.1 0.2Hungary 0.0 0.1 0.1 0.2Greece 0.1 0.4 0.0 0.1 0.0 0.7UAE 0.4 0.1 0.6Qatar 0.4 0.1 0.1 0.0 0.6EMEA 2.1 1.0 3.8 6.1 0.5 0.7 1.4 2.0 0.5 18.0Brazil 0.6 1.7 1.8 3.8 0.1 0.5 0.4 1.4 0.3 0.6 11.0Mexico 0.5 1.3 0.9 0.1 0.6 0.9 1.0 5.3Chile 0.2 0.2 0.1 0.2 0.1 0.2 0.0 0.4 1.4Colombia 0.1 0.2 0.4 0.2 0.1 1.0Peru 0.2 0.2 0.4LatAm 1.3 3.2 2.1 5.6 0.1 1.2 0.4 2.8 1.4 1.0 19.2Total 9.0 8.1 10.5 27.8 2.0 6.5 16.4 8.4 7.7 3.5 100.0

    Source: MSCI, J.P. Morgan. Updated as of 10 September 2014

    11 September 2014

  • 24

    Emerging Markets Equity Strategy ResearchJ.P. Morgan Securities (Asia Pacific) Limited: Adrian Mowat (852) 2800-8599 , [email protected]

    Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision Important Disclosures MSCI: The MSCI sourced information is the exclusive property of MSCI. Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, redisseminated or used to create any financial products, including any indices. This information is provided on an 'as is' basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI and the MSCI indexes are services marks of MSCI and its affiliates. Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgancovered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406, or e-mailing [email protected] with your request. J.P. Morgans Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail [email protected]. Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return is compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans research website, www.jpmorganmarkets.com. J.P. Morgan Equity Research Ratings Distribution, as of June 30, 2014 Overweight Neutral Underweight (buy) (hold) (sell) J.P. Morgan Global Equity Research Coverage 45% 43% 11% IB clients*