nomura china

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3 September 2009 Nomura ANCHOR REPORT Any authors named on this report are strategists unless otherwise indicated. See the important disclosures and analyst certifications on pages 85 to 88. Multi-Strategy | ASIA ASIAN BANK REFLECTIONS: VOLUME 4 Paul Schulte +852 2252 1409 [email protected] Nomura Asia Financials Research Team Enter the ‘S’ curve: Savers become consumers The few banks in the West that can lend do not want to lend in the West because of unsafe collateral values. So they are diverting their balance sheets to under-leveraged emerging markets with defensive collateral values, specifically in Asia. At the same time, China is going through a phase of development (the $6,000 GDP/capita S-curve) whose hallmarks are powerful surges of credit and stock market capitalisation. (Indonesia and India are right behind.) It enters this growth phase with the largest absolute pool of household savings ($3tn) and the largest savings/GDP (55%) ever recorded in the post-War period. The global credit crisis is providing a backdrop of non-inflationary price trends. This removes a core problem for countries during this period: high inflation. In this phase, China has a loan/deposit ratio of 67% and a leverage ratio of 17x – both of which are among the lowest in the world. Sectors which are likely to thrive during this period are banks, broker-dealers, hotels, retail, protein producers, health care and clothing. Laggards are phones, oils and coal. The risk is neither inflation nor excess lending. Leverage levels are near all-time lows. The real risk is a lack of renewal and preservation of air, soil, river and sea resources from overuse. Massive investment is urgently needed to deal with contamination from toxic nitrogen, sulfur and carbon compounds. On August 10, we advised investors to take profit on A shares, in particular the banks. This report offers a fresh perspective on the market as it finishes its consolidation. NEW THEME Bank picks Name Ticker Rating Price Stan Chart STAN LN BUY £13.96 CCB 939 HK BUY HK$5.85 BoC 3988 HK BUY HK$3.77 ICBC 1398 HK BUY HK$5.29 UOB UOB SP BUY S$16.7 PNB PNB IN BUY INR682.5 BoC HK 2388 HK BUY HK$15.5 Note: Pricing as of 31 Aug 09 Strategist Paul Schulte +852 2252 1409 [email protected] Analysts Mixo Das +852 2252 1424 [email protected] Sayan Datta (Associate) +852 2252 1412 [email protected] And the Regional Financials Team NOMURA INTERNATIONAL (HK) LIMITED

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Page 1: Nomura China

3 September 2009 Nomura

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Any authors named on this report are strategists unless otherwise indicated. See the important disclosures and analyst certifications on pages 85 to 88.

Multi-Strategy | A S I A

ASIAN BANK REFLECTIONS: VOLUME 4 Paul Schulte +852 2252 1409 [email protected] Nomura Asia Financials Research Team

Enter the ‘S’ curve: Savers become consumers The few banks in the West that can lend do not want to lend in the West because of unsafe collateral values. So they are diverting their balance sheets to under-leveraged emerging markets with defensive collateral values, specifically in Asia.

At the same time, China is going through a phase of development (the $6,000 GDP/capita S-curve) whose hallmarks are powerful surges of credit and stock market capitalisation. (Indonesia and India are right behind.)

It enters this growth phase with the largest absolute pool of household savings ($3tn) and the largest savings/GDP (55%) ever recorded in the post-War period.

The global credit crisis is providing a backdrop of non-inflationary price trends. This removes a core problem for countries during this period: high inflation.

In this phase, China has a loan/deposit ratio of 67% and a leverage ratio of 17x – both of which are among the lowest in the world.

Sectors which are likely to thrive during this period are banks, broker-dealers, hotels, retail, protein producers, health care and clothing. Laggards are phones, oils and coal.

The risk is neither inflation nor excess lending. Leverage levels are near all-time lows. The real risk is a lack of renewal and preservation of air, soil, river and sea resources from overuse. Massive investment is urgently needed to deal with contamination from toxic nitrogen, sulfur and carbon compounds.

On August 10, we advised investors to take profit on A shares, in particular the banks. This report offers a fresh perspective on the market as it finishes its consolidation.

NEW THEME

Bank picks Name Ticker Rating PriceStan Chart STAN LN BUY £13.96 CCB 939 HK BUY HK$5.85 BoC 3988 HK BUY HK$3.77 ICBC 1398 HK BUY HK$5.29 UOB UOB SP BUY S$16.7 PNB PNB IN BUY INR682.5 BoC HK 2388 HK BUY HK$15.5

Note: Pricing as of 31 Aug 09

Strategist Paul Schulte +852 2252 1409 [email protected]

Analysts Mixo Das +852 2252 1424 [email protected] Sayan Datta (Associate) +852 2252 1412 [email protected] And the Regional Financials Team

N O M U R A I N T E R N A T I O N A L ( H K ) L I M I T E D

Page 2: Nomura China

3 September 2009 Nomura 1

Multi-Strategy | A S I A

ASIAN BANK REFLECTIONS: VOLUME 4

Paul Schulte +852 2252 1409 [email protected] Nomura Asia Financials Research Team

Our View Every country was or is an emerging market. We went back to see how these

countries behaved and conclude that they have similar patterns. China is at $6,000 GDP/capita and is entering a high growth phase. The biggest difference is its mammoth savings, which are double other GEMS savings at the same point of time.

Anchor themes

For China to achieve the same level of per-capita GDP as Thailand, we should expect an average of US$3bn per day in new credit for the next five years. Protein demand will result in an increase of 19mn pounds of meat consumption per day.

Health and environmental damage present a drag of more 10% of GDP per year. A very substantial commitment of tens of billions of US dollars should reduce the damaging effects of high growth.

Enter the ‘S’ curve: Savers become consumers We put China alongside 23 countries which already have or are currently going through the $6,000 GDP per capita phase of development. On average, China’s current high growth levels are mostly ‘normal’, despite very high absolute numbers.

If China grows anything like past and present emerging markets in this $6,000-$9,000 GDP/capita corridor, we believe we should see average increases of consumption PER DAY of the following: 1) $3bn in credit, 2) $1.4bn in market cap., 3) $116mn in hotel spending, 4) $65mn in health care, 5) $105mn in retail spending, 6) 19mn lbs of meat, 7) 62bn gallons of water for meat production alone, 8) 188mn lbs of plants for cattle, 9) 90,000 tonnes of steel and 10) 30,000 tonnes of cereal.

We believe that underleveraged Hong Kong will be a major beneficiary of this high growth in services. The fastest-growing sectors going forward are likely to be all in services, including financials, hotels, clothing retail and health care. Despite these large increases, China only gets to per-capita levels of consumption seen in Colombia or Thailand.

China’s service sector will likely grow at the expense of trade. Consumption will grow as net exports fall. (The flip-side is that the US will do the opposite). Investment/GDP should taper off. The make-up of the stock market will change a lot.

All this growth is, indeed, possible. But it comes with an ever-rising price tag – unsustainable demands on land, water and air resources, as well as high emissions of carbon, sulfur and nitrogen compounds. In our view, China should create a multi-billion dollar environmental super-fund, couching it in terms of national security. Otherwise, it will jeopardize its much-desired wealth trajectory.

If nothing is done to preserve and renew air, water, land and public health resources, however, the long-term consequences are very dangerous. The pressure on commodities will be enormous. Let’s not forget: India and Indonesia are right behind. Also inside:

Our banks universe in Appendix I, Global Signals for Equities in Appendix IV.

G3 Sovereign Bullish GEMS Sovereign Bullish TED spread Bullish US HY credits Bullish Asia ex-Japan IG Bullish VIX Neutral US IG credits Bullish GEMS Currencies Bullish TIPS Alert-falling

N O M U R A I N T E R N A T I O N A L ( H K ) L I M I T E D

Bank picks Name Ticker Rating PriceStan Chart STAN LN BUY £13.96 CCB 939 HK BUY HK$5.85 BoC 3988 HK BUY HK$3.77 ICBC 1398 HK BUY HK$5.29 UOB UOB SP BUY S$16.7 PNB PNB IN BUY INR682.5BoC HK 2388 HK BUY HK$15.5

Note: Pricing as of 31 Aug 09

We add BoC HK to our bank picks.

NEW THEME

Strategist Paul Schulte +852 2252 1409 [email protected]

Analysts Mixo Das +852 2252 1424 [email protected] Sayan Datta (Associate) +852 2252 1412 [email protected] Mahrukh Adajania +91 22 6785 5704 [email protected] Anand Pathmakanthan, CFA +65 6433 6986 [email protected] Srikanth Vadlamaniu +65 6433 6957 [email protected] Grace Wu +852 2252 1565 [email protected] May Yan +852 2252 6190 [email protected]

Page 3: Nomura China

Multi-Strategy | Asia Paul Schulte

3 September 2009 Nomura 2

The Good News "[There is] a rarely discussed consequence of the aspirations of China's people, and other developing countries to a First World lifestyle. This might mean acquiring a house, appliances, utensils, clothes, consumer products. And it also means access to doctors and dentists educated at much expense; eating abundant food grown at high production rates with synthetic fertilizers; eating industrially processed food; and travelling by car instead of bike or on foot. And, China will not tolerate being told not to aspire to First World levels.

China has the largest population in the world and its economy is growing the fastest. If China's per capita consumption rates rise to First World levels, and even if nothing else about the world changes, (then) China's achievement of First World standards will approximately double the world's human resource use and environmental impact. But it is doubtful whether even the world's current human resource use and impact can be sustained. “

The Bad News “Marring the superlative achievements of China are the environmental problems, among the most severe of any major country. The long list ranges from air pollution, biodiversity losses, cropland losses, desertification, disappearing wetlands, grassland degradation, invasive species, overgrazing, river flow cessation, salinization, soil erosion, trash accumulation, and water pollution and shortages.

Like the rest of the world, China is lurching between accelerating environmental damage and accelerating environmental protection. These lurches involve more momentum than those of any other country … China may conclude that its interests require environmental policies as bold, and as effectively carried out, as its family planning policies.“

“Something has to give."

Jared Diamond, Collapse: How Societies Choose to Fail or Survive, PP 359-377. (Pulitzer Prize winner)

Page 4: Nomura China

Multi-Strategy | Asia Paul Schulte

3 September 2009 Nomura 3

Contents

‘S’ Curve Portfolio 4

Looking Ahead 5

I. How much can China grow? 8

II. Defining the ‘S’ curve 11

III. Comparing China with other countries 12

IV: Comparing the Chinese Financial Sector to the Rest of the World 15

V. China and the Rest of the World 21

VI. The birth of the services sector 23

VII. Power 25

Appendix I: Valuation comparisons 29

Appendix II: Time frame for data 31

Appendix III: Data by Category 32

Appendix IV: Global signals for equities 79

Appendix V: Portfolios 82

Page 5: Nomura China

Multi-Strategy | Asia Paul Schulte

3 September 2009 Nomura 4

Portfolio

‘S’ Curve Portfolio

Exhibit 1. ‘S’ Curve Portfolio CCB 939 HK BOC HK 2388 HK China Construction Bank Corporation provides a complete range of banking services and other financial services to individual and corporate customers. The bank's services include retail banking, international settlement, project finance, and credit card services.

BOC Hong Kong (Holdings) Limited provides a comprehensive range of financial products and services to retail and corporate customers. Its products include retail banking, corporate banking, and treasury services. The Company operates its branches in Hong Kong and China.

CCB

0

1

2

3

4

5

6

7

Oct-08 Jan-09 Apr-09 Jul-09

BoC HK

0

2

4

6

8

10

12

14

16

18

Oct-08 Jan-09 Apr-09 Jul-09

HK & Shanghai Hotels 45 HK Jin Jiang 2006 HK

The Hong Kong and Shanghai Hotels, Limited, through its subsidiaries, operates and manages hotels, food, beverage outlets, and clubs. The Company also invests in properties.

Shanghai Jin Jiang International Hotels (Group) Company Ltd. owns and operates hotels.

HK&Shanghai Hotels

0

1

2

3

4

5

6

7

8

9

10

Oct-08 Jan-09 Apr-09 Jul-09

Jin Jiang

0

0.5

1

1.5

2

2.5

3

Oct-08 Jan-09 Apr-09 Jul-09

Hang Lung 101 HK Li Ning 2331 HK Hang Lung Properties Limited, through its subsidiaries, invests in, develops and manages properties. The company also manages parking lots.

Li Ning Company Limited researches, designs, manufactures, distributes, and retails sports footwear, apparel and accessories for sport and leisure use.

Hang Lung

0

5

10

15

20

25

30

Oct-08 Jan-09 Apr-09 Jul-09

Li Ning

0

5

10

15

20

25

30

Oct-08 Jan-09 Apr-09 Jul-09

Mindray MR US Beijing Ent. Water 371 HK Mindray Medical International Limited develops, manufactures, and markets medical devices. The company offers patient monitoring devices, diagnostic laboratory instruments, and ultrasound imaging systems.

Beijing Enterprises Water Group Limited, through its subsidiaries, trades computer-related products. The company also trades mobile phones and in-door telephones. The company is targeting investment in and development of water treatment and environment business.

M indray

0

5

10

15

20

25

30

35

40

Oct-08 Jan-09 Apr-09 Jul-09

Beijing Ent. Water

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

Oct-08 Jan-09 Apr-09 Jul-09

China Everbright 257 HK Shun Tak 242 HK China Everbright International Limited provides environmental protection project management and consultancy services. The company's operations are broken into environmental energy, water, construction and technology.

Shun Tak Holdings Limited, through its subsidiaries, develops, invests and manages properties. The company also provides shipping and related services. In addition, Shun Tak operates hotels and invests in securities.

China Everbright Int .

0

0.5

1

1.5

2

2.5

3

3.5

Oct-08 Jan-09 Apr-09 Jul-09

Shun Tak

0

1

2

3

4

5

6

7

Oct-08 Jan-09 Apr-09 Jul-09

Netease NTES US China Agri 606 HK NetEase.com Inc. provides an Internet community for Chinese users. The company's Web site offers email, online auctions, online chat rooms, personalized Web sites, instant messaging, Web hosting, and e-commerce services.

China Agri-Industries Holdings Ltd. produces biofuel and biochemical. The company also processes oilseed and wheat, and produces malt used for beer brewage.

Netease

0

5

10

15

20

25

30

35

40

45

50

Oct-08 Jan-09 Apr-09 Jul-09

China Agri

0

1

2

3

4

5

6

7

Oct-08 Jan-09 Apr-09 Jul-09

Source: Bloomberg, Nomura research

Page 6: Nomura China

Multi-Strategy | Asia Paul Schulte

3 September 2009 Nomura 5

Executive Summary

Looking Ahead China is behaving like an ‘average’ emerging market at $6,000 per capita GDP. (However, it is about 20 times larger than any other emerging market previously known)

S-curves measure change or growth over time. Science uses it for research in embryos, viruses, productivity and economics. The development of emerging markets to mature markets typically goes like clockwork and is a classic ‘S’ curve. They really are not that different. The major phenomenon is a surge of growth at around the $6,000 to $9,000 GDP per-capita range (a sideways ‘S’) followed by a tailing off of growth in the $10,000 and above per capita level. There is a period of catch-up and then another surge. The period of growth from $6,000 to $9,000 per-capita GDP is arguably the fastest growing period in a country’s development. China entered this phase in the past 12 months.

To help quantify what happens during this phase, we went back and examined 23 countries (ones that are now developed but were emerging markets in 1960s, 1970s and 1980s and ones that are currently emerging). We examined several thousand national data points from the late 1960s to now. We did the same for 20 sectors in the same time period. These economies faced many perils as they moved from emerging to developed status: inflation, deflation, export slowdowns, stagflation, recession and boom times. They are large and small – domestic and export-oriented. The uncanny conclusion is that there is a clear and undeniable pattern to development. If we place these developments next to those of China, we can ‘triangulate’ to see if China is growing too fast – or too slow?

The conclusion we draw is that China is actually growing at a ‘normal’ rate – the issue is that this is a country which is growing at a ‘normal’ rate for a young emerging market. It is just that it is about 20 times larger that the ‘normal’ emerging market. If the past is anything to go on, we should expect this growth rate to stay high – and very likely accelerate.

We say accelerate because while China is very similar to other countries in terms of the pace of growth, it is very different in a few areas. The most stark and profound difference is its savings rate. Young countries are savers – there is uncertainty, limited wealth, no social security net and little credit. In other words, there is no ‘nouveau riche’ who spend like crazy. At a certain point, however, many things coalesce to produce a consumer boom – something which is happening in China right now. This consumer boom happens after a long boom in infrastructure (this arguably happened in the past 12-14 years in China).

The sheer size of China’s savings, however, is astonishing. While the average savings rate of emerging markets globally at the $6,000 per capital level is very high at 25%, China’s is at 55%. Average deposits for emerging market countries at that level are $2,800 per capita, while China’s is at $4,700 per capita. China currently has one of the lowest loan/deposit ratios in the world – even after the recent boom in credit.

Given this large pool of savings, we believe that China can endure a multi-year surge of credit (we think it will be in excess of $4tn) in what is currently a non-inflationary environment and still end up with among the lowest loan/deposit ratios in the world. (We remind investors of our major theme – as Western leverage falls, Asian leverage rises). As Western leverage falls, this puts more pressure on the healthy banks that are still on their feet to lend to places such as China without any leverage (and, therefore, secure collateral values).

Exhibit 2 shows the difference when it comes to savings and leverage; as the West consumes less and saves more, China will (and must) spend more and save less.

S curves measure change or growth over time; our 23 countries ranged from $6,000 GDP/capita to $35,000 GDP/capita; the fastest growth period is $6,000-9,000 per capita; China is there now

We also performed the same exercise for 20 sectors

China shows mostly normal ‘symptoms’ of an emerging market at the $6,000 GDP/capita range

Economies seem to ‘come together’ at the $6,000 GDP/capita level; it is a consumer and services take-off

Young emerging markets all have high savings rates, but China’s is the highest on record times two

With exceptionally high savings, the loan/deposit ratio can stay under 1 for a multi-year period as credit grows

Page 7: Nomura China

Multi-Strategy | Asia Paul Schulte

3 September 2009 Nomura 6

The quick summary table in Exhibit 2 highlights the only real differences between China and other emerging countries before it. We want to illustrate that China’s level of savings is the highest seen in the post-war era and could produce an unprecedented consumer boom – IF IT WANTS THIS. Our conclusion is that it clearly wants to and, therefore, will.

Exhibit 2. China is similar to emerging countries before it, except that it saves more and invests more

Savings Deposits Investment Consumption Services

% of GDP per capita % of GDP % of GDP % of GDP

China at $6000 54% $4,700 40% 35% 40%

World at $6000 25% $2,800 28% 58% 55%

China current trend FALLS FALLS FALLS TAKES OFF TAKES OFF

West current trend RISES RISES RISES FALLS FALLS

Source: Nomura research

On the sectoral front, China’s development, on average, is quite in line with other emerging markets at this $6,000 take-off stage. (Of course, we are mindful of the adage that, on average, you do not need a raincoat in Buffalo, New York). So, we want to highlight the few industries which showed the greatest expansion in our study.

There are five industries which consistently show the greatest amount of growth during this take-off stage. These are hotels, credit, health care, clothing and retail. In Exhibit 1, we highlight a portfolio of our favourite stocks in these sectors (and others discussed further into this report).

The fastest growing parts of the economy going forward should be services, in our view. And China is coming from a very low contribution of services to overall GDP. We would include leisure activities, such as vacations, gambling, second homes, golf and recreation. This just happens. As one famous economist put it: “Economies go because they are ‘a-goin’. They gather momentum as success builds on success.” This is China. Western companies that can provide China with leisure activities, medical and dental services and fashionable retail will also be winners, in our view.

There are other industries, however, which look as if they might be saturated in China if we look at the per-capita ownership of goods. These include telephones, motorcycles and TVs. Bringing more TVs, motorcycles or phones to China is ‘bringing coal to Newcastle’. Speaking of coal, China is also using much higher per-capita levels of coal than other emerging markets in this same stage of development.

The trends discussed above are all on the upside (which increase during this phase). There are also some definite trends which are to the downside:

1) Savings rates go down during this period of time, typically by 3%, as people discover credit, mortgages, lay-away plans and the consumer-led joys of new money.

2) Investment as a percent of GDP goes down, typically by about three percentage points. The infrastructure build-out is finishing up (roads, highways, airports, sewerage, etc).

3) Inflation has a tendency to go down after a rise during the initial $4,000 to $7,000 per capita surge. It tends to fall by about 25% into the $9,000 per capita level.

The big surprises of our study were the fast growth of health care, hotels and clothing

The service sector will be the fastest growing part of the Chinese economy for the next 5 years

Phones, TVs, motorcycles exhibiting signs of saturation

Trends of past and current GEMS show a rise in consumption and a fall in investment at this $6,000 to $9,000 GDP/capita stage

Page 8: Nomura China

Multi-Strategy | Asia Paul Schulte

3 September 2009 Nomura 7

There is one vital caveat. We start and end this research with the all-important issue of environmental sustainability. China is going through an emerging markets growth phase similar to Japan in the late 1970s. The problem is that China’s absolute starting level of output is equal to Japan NOW. This means that it is entirely conceivable for China to produce the equivalent of yet another Japan by 2014. This has profound implications for environmental sustainability. We highlight a litany of well-flagged problems which confront China. Jared Diamond has written compellingly on this in his Pulitzer Prize-winning book called Collapse: How Countries Choose to Fail or Survive. The business of environment will be the number-one way in which the West can help China develop. This is really the exciting industry for investors and Western countries – making China’s growth sustainable. We also include Asian counters that are prominent in this business in our portfolio.

Exhibit 3. Executive summary: If the PRC is anything like 23 other emerging market during the $6,000 to $9,000 per capita phase, below shows how much change we should see by industry (2009-13)

Category Increase Comment

Financials

Credit(US$) 5.5 tn CAGR of 14%;among the highest CAGR for any item

Deposits(US$) 5.2 tn 11% CAGR

Market cap(US$) 2.6 tn Market cap (%GDP) should reach 100%

Consumer

TVs .2 bn Surprisingly unexciting;TV/capita already high

Spending on hotels(US$) 211.0 bn Highest CAGR

Spending on clothing(US$) 99.6 bn Very high CAGR

Spending on retail(US$) 192.0 bn CAGR of 7.5%

Spending on health(US$) 123.0 bn CAGR of 13%;among the highest CAGR for any item

Utilities

Electricity(KWH) .8 tn CAGR of about 4%

Natural gas(tonnes oil equivalent) 38.0 mn CAGR of about 8%

Telephones 146.0 mn 5.8% CAGR;surprisingly unexciting category

Transport

Cars 16.0 mn Around 5.5% CAGR same as Singapore

Motorcycles 32.6 mn 3.5% CAGR;lower than expected

Food and water

Meat(kg) 15.7 bn Increase of 35 bn lbs of meat

Cereals(tonnes) 63.3 mn Probably conservative estimate

Water for meat (gallons)* 114.0 tn Demand for protein creates huge strain on water

Plants for meat (lbs)* .4 tn 400 bn lbs of plants to be consumed by cattle is a lot of manure

Industrials

Oil(barrels) .7 bn Increase of about 150 mn barrels of oil per year

Steel(tonnes) 161.0 mn More than 150 mn tons increase after 5 years

Coal(tonnes oil equivalent) .2 bn Increase of 40 mn tons a year

Source: CEIC, World Bank, Earthtrends, UN data, Eurostat, Food and Agriculture Organization (FAO), British Petroleum website (BP), World Steel Association (WSA), International Monetary Fund (IMF), Nomura research

The one main risk to an otherwise inevitable trend of powerful growth is an inability or unwillingness of the government to tackle air, river, sea and land contamination

Page 9: Nomura China

Multi-Strategy | Asia Paul Schulte

3 September 2009 Nomura 8

China on the S-Curve

I. How much can China grow? We measure China against 23 other previous and current emerging markets in the same phase of growth Trying to understand just how big China is – and just how much it has grown and can still grow – can seem incomprehensible and futile. We liken it to reading a book on astronomy. We read about distant galaxies where stars blow up and leave black holes which are the same size as our solar system. We read about other stars which, when they finally “burn out", create an explosion which lasts 10,000 years and leaves gaseous nebulae which are, literally, trillions of miles long.

So, we thought it would be a good idea to do what the astronomers do when they try to figure out just how big things are and how where in the life cycle they are. They measure how big a thing is by triangulating. They know how big a star is by measuring it against something else. Then they measure how much energy comes from a star and compare that to ones which are smaller and/or closer. That is what we do here with China.

We have placed China's growth trajectory next to the growth trajectory of 23 other countries which have been exactly where China is now. In other words, all countries in the OECD were once emerging markets with $6,000 per capita GDP on a purchasing power parity (PPP)-adjusted basis. And emerging markets have very similar characteristics – just as stars near and far have similar characteristics. In that way, we can see how big China is (or actually how small it is AND how young it is) relative to the experience of other advanced and emerging markets.

The interesting thing is that countries – like stars or people – have life cycles. We use the ‘S’ curve to describe a life cycle. The ‘S’ curve is a nice way to explain the early part of the life cycle. It measures performance or development over time. In the economic sense, it shows that the early part of a country’s development will tend to have a very steep slope (a big surge of consumption relative to shifts in income) if we look at per capita income (from $6,000 to $9,000) and measure consumption. This will subsequently level off. This is the classic reason why investors love emerging markets.

This is the point in a country's life cycle when it is growing the fastest and when consumption is also growing the fastest. It is, incidentally, the point where market capitalization as a percentage of GDP grows the quickest and tends to reach an average peak of 100% before levelling off. This is the secular bull market phase. This is intuitively easy to understand. When a young economy reaches a certain size, more people have better jobs and begin to save more but without any credit.

At some point, however, the stars align enough and wealth accumulates. Good policies, good products and low wages are usually the cause. And people get credit cards, mortgages, lay-away plans. Men buy new Levi’s at the same time as they buy a motorcycle. Women buy new furniture at the same time they buy new and more expensive dresses, make-up or shoes. At this time, people get fillings filled and can visit a doctor regularly for the first time. And so on. Durables rise, and so do retail and services.

So, we took a look at China's development now and placed it against the development of other countries in a similar point in their histories. When we place China's per capita consumption of various items, we can draw one important conclusion. The per capita GDP of China as calculated by the World Bank, IMF and CIA is about $6,000 per capita on a PPP-adjusted basis. We placed where China is now against other countries in similar phases of their development and, in most cases, China is behaving exactly like a country with per-capita GDP of about $6,000.

We try to estimate China’s growth path from here by comparing it to 23 other countries that have gone through this same phase

This $6,000 to $9,000 per capita GDP phase is the period of the highest growth; China is there now

Good policies and stable prices are the simple ingredients for a take-off phase

China really does walk and talk like a $6,000 GDP/capita country

Page 10: Nomura China

Multi-Strategy | Asia Paul Schulte

3 September 2009 Nomura 9

Exhibit 4. China summary: How much will China grow if it is like the 23 other emerging markets?

Population(mn)GDP/capita(US$)

Per capita (2008) Total (2008)

Per capita (2013) Total (2013) Increase Increase / day

Financials Credit(US$) 3860 5.1 tn 7600 10.6 tn 5.5 tn 3.0 bn

Deposits(US$) 5045 6.7 tn 8500 11.9 tn 5.2 tn 2.8 bnMarket cap(US$) 74(%GDP) 85(%GDP) 2.6 tn 1.4 bn

Currency (CNY/US$) 6.9 6.6 4%Inflation(%) 6.0 4.5 -25%

ConsumerTV s per 100 41 0.5 bn 51 0.7 bn 0.2 bn 90000

Spending on hotels(US$) 122 162 bn 268 373 bn 211 bn 116 mnSpending on clothing(US$) 91 121 bn 158 220 bn 99.6 bn 54 mn

Spending on retail(US$) 290 385 bn 414 578 bn 192 bn 105 mnSpending on health(US$) 96 124 bn 177 247bn 123 bn 65 mn

UtilitiesElectricity(KWH) 2405 3.2 tn 2888 4.0 tn .8 tn 457 mn

Natural gas per 100(tonnes oil equivalent) 5.5 73 mn 8.0 111 mn 38 mn 21000Telephones per 100 29.0 384 mn 38.0 530 mn 146 mn 80000

TransportCars per 100 3.0 39.8 mn 4.0 55.8 mn 16.0 mn 10000

Motorcycles per 100 7.0 92.9 mn 9 126 mn 32.6 mn 20000

Food and waterMeat(kg) 67.0 89 bn 75.0 105 bn 15.7 bn 8.6 mn

Cereals(tonnes) 0.3 425 mn 0.4 488 mn 63.3 mn 30000Water for meat (gallons)* 486420 646 tn 544500 760 tn 114 tn 62 bn

Plants for meat (lbs)* 1474 1.9 tn 1650 2.3 tn .4 tn 188 mn

IndustrialsOil(barrels)* 2.1 2.8 bn 2.6 3.5 bn .7 bn 40000

Steel(tonnes) 0.3 438 mn 0.4 599 mn 161 mn 90000Coal(tonnes oil equivalent) 1.1 1.4 bn 1.2 1.6 bn .2 bn 130000

Evolution of Consumption by Category

6012 9088

2008 20131328 1395

Note: Assumptions for Exhibit 2: 1% annual growth for China population, 9% CAGR for China GDP/capita (Source: IMF), 1 kg = 2.2 lb, 3300 gallons of water = 1 lb of meat (Source: UCLA), 10 lb of plant =1 lb of meat (Source: Jared Diamond, Collapse: How Societies Choose to Fail or Survive), 7.5 barrels = 1tonne of oil

Growth rate in per capita figures for all categories (China) is based on a study of 23 countries moving from GDP/capita 6K US$ to 10K US$. Data has been collected for these countries over a time period of last 40 years. Details are provided in page xxx.

Source: CEIC, World Bank, Earthtrends, UN data, Eurostat, FAO, BP, WSA, IMF, Nomura research

Exhibit 4 is the result of months of picking around to find the most reliable data we could muster. It meant looking through dozens of central bank data series, national accounts, Internet surfing and lots of questions. We asked ourselves where we are with regard to China’s latest full-year data. Next, we aggregated the data for all of the 23 countries in our study and looked at the development in consumption of 20 items over the time period when these countries were in the same take-off phase as China.

Then we aggregated these data and got an average of, say, trends in oil consumption for all 23 countries during the time when these 23 countries were going through their $6,000 to $9,000 per capita phase of development, i.e. what China should experience over the next few years. After we got the CAGR of oil consumption for each country, we then arrived at an average CAGR which we think is a fair representation of the behaviour of an emerging market prior to reaching the $9,000 per capita GDP level.

Exhibit 4 shows our findings. A similar growth path would see China expand the services sector significantly

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Then we used the CAGR for each of these groups and applied it to China between now and 2013. Incidentally, we feel quite confident that these numbers are, if anything, on the lower side. THE AVERAGE CAGR FOR ALL COUNTRIES FOR ALL PRODUCTS DURING THIS PERIOD OF TIME IS ABOUT 7%. We have a starting point and we have an end point. We use the growth rate of historical emerging market experience of both (now) developed and (current) emerging markets. In fact, we think the numbers are quite robust because they represent countries which have gone through good times and bad times, i.e. boom times in the 1990s, inflation in the 1970s, market crashes in the late 1990s, and the stable 1980s.

Exhibit 5. Top five fastest growing industries for GEMS in the US$6K-9K GDP/capita corridor and how much per day China will likely spend

Industry CAGR US$/day

Hotels 17% 116 mlnCredit 14% 3 blnHealth 13% 65 mlnClothing 12% 54 mlnRetail 8% 105 mln

Source: Nomura research

The end product shows just how much change should occur if China is anything like the many emerging markets which have gone before it. The changes are all stark. We want to add, however, that the net changes by industry will only get China to a level of wealth (about $9,500 per capita GDP) equivalent to Colombia, Thailand or Romania. This still leaves China squarely in the GEMS camp. We see, for instance, that we should expect the following between now and about 2013:

1) Credit in China should increase by more than $5tn. This should still leave the country with a loan/deposit ratio under 100%. This is equivalent to about $3bn in loans per day for the next several years.

2) Deposits should also grow by $5tn, i.e. at a CAGR of 11%.

3) The biggest surprise of our study was the consistent phenomenon of very high increases in health care and hotel spending. This is followed by retail. The CAGR of hotel spending was 17% – the highest of any industry we examined. The second highest was credit. Health care was third.

4) We were surprised to see that when phones per capita were placed next to the average phones per capita of countries in the same growth phase, China was way above. This would suggest some degree of phone saturation. The same is true for motorcycles.

5) The staggering numbers come in food. China is right on the average line for the other 23 markets we examined. We all know the drill when it comes to creating one pound of meat. This has been catalogued exhaustively. One pound of meat requires 15,000 litres of water and 10 pounds of plant life for cattle to be brought to maturity and slaughtered. Here is where the numbers become frightening and where the warnings of Jared Diamond need to be heard. If China’s per capita meat consumption grows anything like other emerging markets, daily meat consumption will be 8.6mn kilograms. The daily water requirement from this will be 62bn gallons. And the amount of plant life will be 188mn pounds. That leads to a lot of manure – another issue which has consequences for water runoff to streams, rivers and oceans. We are very certain these numbers are on the conservative side.

Let’s explore further and quantify where China is and how far it can go by using a virtual tour of charts.

The five most explosive sectors are hotels, credit, health, clothing and retail

Our favourite stock picks for the ‘S’ curve portfolio come from these sectors

Staggering but true: one pound of beef requires 15,000 litres of water and at least 10 pounds of plants

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II. Defining the ‘S’ curve Very large increases in consumption as per capita GDP moves from $6,000 to $9,000

Exhibit 6. A Typical ‘S’ curve: NICs average credit (y-axis) vs GDP per capita (x-axis) (US$ 1979-1993) (HK, Korea, Singapore, Taiwan)

1800

3800

5800

7800

9800

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: UN data, Nomura research

We have incorporated several thousand data points for 23 countries and for 20 categories. These countries range from Singapore to Brazil – from the US as an emerging market in the 1960s to Thailand today. The categories we chose range from clothing and bank loans to health care and hotel rooms. The ‘S’ curve for all of these groups has a very strong tendency to show a sharp acceleration between $6,000 and $9,000 per capita GDP.

We never use statistics which show up results that defy logic or common sense. But this trend clearly reflects common sense: $4,000 to $6,000 per capita GDP and a savings rate of 25% for a population of 40mn people (GDP of $200bn) will create a critical mass of funds to bring about the creation of a banking system capable of funding an infrastructure build out. If savings are an average of 25%, then the savings pool would be $50bn. Investment/GDP will be very high at about 35%, or $70bn. These are the numbers one needs to create meaningful infrastructure. (A metropolitan mass transit system, for instance, is about $5bn alone, on our estimates).

After that period of fulfilling basic infrastructure needs, life gets more expansive. People can get to work quickly on public transit. They have savings which is about 25% of income (too much!). So, they begin to buy luxury items, Levi’s, make-up kits, TVs and durables. They buy new fillings and get small medical problems looked after. They get credit cards and take small vacations in hotel rooms.

So, Exhibit 6 for the newly industrialized countries (NICs) (when they were baby emerging economies) is very much like what China is going through now. We must not forget that these countries had very high credit growth during this period. The average increase in credit creation was 150% from the $6,000 to the $9,000 level. Most of the NICs got through this period in three to four years. In the case of Korea, it had an annual growth rate of more than 30% during its take-off phase in 1987-1989. Incidentally, the take-off for Korea in 1988 and China today both revolved around hosting the Olympics.

Our point is simple: China is there right now! Let’s go through various countries, industries and then triangulate China’s position by comparing it to other ‘stars’ and see which industries are likely to be super-charged at this point in time and which ones actually may be surprisingly lacklustre. We want to make money for investors. The way to make money is to be first to spot the trends and position for the future.

The ‘S’ curve defines the growth path for consumption of just about anything as GDP per capita increases

This $6,000 to $9,000 phase sees an evolution from an investment-driven economy to a consumption-driven economy as more wealth security enables spending

It is clear, therefore, that China’s credit growth is quite in sync with its current phase of growth; there is nothing unnatural about it!

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III. Comparing China with other countries For details on categories, markets and time periods please refer to Appendix II.

Exhibit 7 shows the average evolution of consumption for all the categories in our study across all 23 countries put together. So, this is our ‘S’ curve line – the change in consumption relative to the change in GDP. Put simply, this slope is very steep during this period and then tapers off after about $10,000 per capita. Starting from a small number, the growth rate is enormous. Subsequently, however, another sofa will not fit. And there are no more cavities left to fill. And one already has enough shoes.

When we place China on the chart (the blue dot) we see that as a country with a $6,000 per-capita income, its current consumption fits nicely. People no longer focus on buying make-up and Levi’s. They focus on their stock investments. Or they buy an expensive pair of glasses or an expensive iPod.

If we look at Exhibit 8, we can see where China is now relative to where the US was when the US was an emerging market in the 1960s and early 1970s. China is actually a bit ahead in terms of consumption relative to where Americans were when they had per-capita GDP of $6,000. So, we need to be careful about the Confucian savings ethic stereotype. (We will see later that despite being a little ahead on consumption, China’s savings are in a different league compared to any other country during its take-off phase in the post-War world.)

Exhibit 7. Average consumption/capita across all 17 consumption categories (1972 – now)

Exhibit 8. Comparison between where China is now and where the US was in consumption/capita

Average change in consumption across 17 categories in 23 markets betw een 1972 and 2008 (GDP/capita 5K US$ ==100)

China

90

110

130

150

170

190

5000 6000 7000 8000 9000 10000 11000GDP per capita

USA average change in consumption across 17 categories from 1972 to 1978.(GDP/capita 5K US$

==100)

China

90

110

130

150

170

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: CEIC, World Bank, Earthtrends, UN data, Eurostat, FAO, BP, WSA, IMF, Nomura research Source: CEIC, World Bank, Earthtrends, UN data, Eurostat, FAO, BP, WSA,

IMF, Nomura research

Again, we want to place China near something else in order to see how large or small it really is. This is the triangulation that astronomers do when they are trying to see how big a star is. Exhibits 9 and 10 show the EU and the UK. Exhibit 9 more explicitly shows the steepening slope of the ‘S’ curve. We can see that from about $5,500 to $9,000, there was a sharply steepening slope. After that, it tends to have a pause. The same is true for the UK in Exhibit 10.

China’s growth is not unnatural; it is very much in line with other economies in their past

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Exhibit 9. Comparison between where China is now and where the EU was in consumption/capita

Exhibit 10. Comparison between where China is now and where the UK was in consumption/capita

EU average change in consumption across 16 categories from 1974 to 2004(GDP 5K/capita US$

==100)

China

90

110

130

150

170

190

5000 6000 7000 8000 9000 10000 11000

GDP per capita

UK average change in consumption across 16 categories from 1976 to 1982(GDP 5K US$/capita

== 100)

China

90

110

130

150

170

190

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: CEIC, World Bank, Earthtrends, UN data, Eurostat, FAO, BP, WSA, IMF, Nomura research Source: CEIC, World Bank, Earthtrends, UN data, Eurostat, FAO, BP, WSA,

IMF, Nomura research

Exhibit 11 shows the current crop of emerging markets. These include Brazil, Malaysia, Thailand, Mexico and Chile. The recent history of emerging markets is very interesting. These emerging markets which were in their take-off stage over the past 15 years (from the late 1980s to 2007) show a wild ‘S’ curve. Between per-capita income levels of $6,000 and $10,000, there is a change of more than 100% in consumption. We will explore the many categories which go to making up this aggregated line later.

Exhibit 11. Comparison between where China is now and where the EM were in consumption/capita

Exhibit 12. Comparison between where China is now and where the NICs were in consumption/capita

EM average change in consumption across 16 categories from 1986 to 2008 (GDP/capita 5K US$

==100)

China90

130

170

210

250

290

330

5000 6000 7000 8000 9000 10000GDP per capita

NICS average change in consumption across 17 categories from 1980 to 1993 (GDP/capita 5K US$

==100)

China

90

110

130

150

170

5000 6000 7000 8000 9000 10000GDP per capita

Source: CEIC, World Bank, Earthtrends, UN data, Eurostat, FAO, BP, WSA, IMF, Nomura research Source: CEIC, World Bank, Earthtrends, UN data, Eurostat, FAO, BP, WSA,

IMF, Nomura research

Exhibit 12 shows the NICs when they were in their emerging market phase. The results are similar. These markets are Singapore, Korea, Taiwan and Hong Kong. Their period of tremendous growth ($6,000 to $9,000) was in the Ronald Reagan years. Each of these economies has some eerily similar qualities to it. We say eerie because the focus of industries, the population density and the export intensity among and between them is very different. Yet they have grown in similar ways to that of the Euro-zone and the US. This is remarkably similar to recent discoveries by astronomers that stars in the galaxy (and other galaxies) are actually not very different from each others in terms of size and life span – and that there are only about three or four different types of stars.

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Exhibit 13. Comparison between where China is now and where the Japan was in consumption/ capita

Exhibit 14. China average consumption/capita forecast based on the experience of past and present GEMS

Japan average change in consumption across 16 categories from 1976 to 1982 (GDP/capita 5K US$ ==100)

China

80

100

120

140

160

180

5000 6000 7000 8000 9000 10000 11000GDP per capita

China average change in consumption across 17 categories (GDP/capita 5K US$ ==100)

Current

80

110

140

170

200

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: CEIC, World Bank, Earthtrends, UN data, Eurostat, FAO, BP, WSA, IMF, Nomura research Source: CEIC, World Bank, Earthtrends, UN data, Eurostat, FAO, BP, WSA,

IMF, Nomura research

Lastly, we can look at Exhibit 13 and see Japan’s trajectory during its take-off period in the period of 1976-77 to 1982. The economy was in a state of powerful growth. The total growth in consumption during this phase was in the neighborhood of 70%.

The conclusion we draw from this section is that countries are actually pretty plain vanilla. Their life cycles are remarkably similar whether they have large or small populations or whether they are export-oriented or domestically oriented. We also wish to point out these similar trends have occurred irrespective of global slowdowns, long bull markets, periods of high or low inflation.

Countries have a powerful start at $6,000 to 9,000 per capita GDP. Prior to this is a very powerful surge in investment, high savings, low services, heavy manufacturing and below-average government spending. At the $6,000 per capita GDP level, there is a tremendous surge in credit, services, tourism, leisure and durables. They then slow down for a bit.

Life cycles of countries are very similar; this consumption growth phase always occurs at this time

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IV: Comparing the Chinese Financial Sector to the Rest of the World

Exhibit 15. Average market cap (%GDP) Exhibit 16. Average investments (% GDP)

Average market cap(%gdp)

China

40

60

80

100

120

5000 6000 7000 8000 9000 10000 11000GDP per capita

Total average investments(%GDP)

China

20%

30%

40%

50%

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank, Nomura research Source: economicwebinstitute.org, pwt.econ.upenn.edu, Nomura research

Here is where it gets interesting. As with other economic and industry phenomenon, the development of the financial sector has an uncanny pattern as well. Exhibit 15 shows the trend in stock market capitalization over time as per capita GDP grows. The period of $6,000 GDP/capita to $9,000 GDP/capita has a strong tendency to see rising stock market capitalization relative to GDP. China’s current stock market cap/GDP is almost exactly where we would expect it to be given its current GDP/capita of $6,000. We should expect China’s market cap to rise to about 90% of GDP if it behaves like any other emerging market. We caution investors that our numbers are very much on the conservative side. We have never seen a savings pool like China has today. And we also need to mention that China’s savings pool (like all savings pools) is constantly seeking returns. And young savings pools are more inclined to seek out risk compared to older savings pools (Japan). Young savings pools are more tolerant of inflation and risk. Older savings pools are intolerant of inflation and risk. So, policies will tend to reflect this.

Our conclusion here is twofold:

1) There is a bottled up savings pool of about $3tn in household savings deposits looking for returns in a country which has a closed capital account – a de facto non-convertible currency. The world has never before seen a savings pool this large – this pool of savings is over 50% of GDP. China needs to let the currency open up and it needs to let the private sector create opportunities for returns on these savings. It is entirely possible – we should expect given the facts – that China’s stock market cap/ GDP could easily exceed 100% of GDP in short order.

2) All this is happening during a time when inflation is currently NEGATIVE. So we would make the case that real interest rates are artificially high and need to come down. So, China is deploying credit and public debt in an environment of non-inflationary growth. This is a global phenomenon – not a Chinese deflationary phenomenon. So, this global disinflationary credit crisis is a ‘gift from the gods’. Other emerging markets during this phase had one major problem: inflation. Inflation during this period of growth has always been very high at about 10-12%. China should expect higher inflation next year. It can put on the brakes then – not now.

China’s current stock market cap as a percentage of GDP is right in line with past and present GEMS – a move to 100% would be normal

We make no apologies for our optimism. This is what the current facts allow us to conclude

Low global inflation is a powerful tailwind for China to ride the high growth momentum that is normal and expected

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Exhibit 16 also reinforces our optimism. China’s investment is about 40% of GDP. The global average during this phase of development is also very high at about 30%. If we take the NICs, though, the average investment/GDP at their $6,000 pre capita mark is very high at 34%. So, this number should clearly come down. China’s infrastructure build-out can bring about non-inflationary growth (increases in output not to be slowed down by bad roads, ports, highways and shipping).

Exhibit 17. Average consumption (% GDP) Exhibit 18. Average services (% GDP)

Total average consumption(% GDP)

China

30%

40%

50%

60%

70%

5000 6000 7000 8000 9000 10000

GDP per capita

Average services(%GDP)

China

35

40

45

50

55

60

65

70

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: economicwebinstitute.org, pwt.econ.upenn.edu, Nomura research Source: World Bank, Nomura research

We have written much on the topic of shifts in consumption in China relative to the rest of the world. China’s consumption is currently about 35% of GDP. Of all the 23 countries we look at in this study, we did not come across one country in the past 50 years which had as low a level of consumption as China. The same is true of services. While sectoral trends between China and other GEMS in a similar trajectory of growth are similar, the trends in consumption and savings are, shall we say, out of whack. China’s services as a percentage of GDP are also unusually low. This is so low that when we put China’s current level against other GEMS in a similar period of time, the changes in the service sector (and they are BIG) are barely perceptible. During the $6,000 to $9,000 per capita take-off phase, we have recorded changes in the service sector’s contribution to GDP of 7-10 percentage points.

Exhibit 19. Average credit/capita (US$) Exhibit 20. Average deposit/capita (US$)

Total average credit per capita

China

2000

4000

6000

8000

10000

5000 6000 7000 8000 9000 10000 11000GDP per capita

Average deposit per capita

China

500

2500

4500

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data, Nomura research Source: UN data, Nomura research

With deposits above average and credit below average, trends suggest $4tn in credit with L/D <1

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Exhibit 21. Average savings (% GNI) Exhibit 22. Average annual inflation (%)

Total average savings (%GNI)

China

15%

25%

35%

45%

55%

65%

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Total average inf lation %

China

4%

6%

8%

10%

12%

14%

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank, Nomura research Source: World Bank, Nomura research

Exhibit 17 also shows a classic change in the ‘S’ curve. We have been very vocal about this throughout 2009. Growth rates in credit for China as it goes through this per-capita corridor are absolutely normal. In fact, many countries have had growth rates in credit that exceed those of China during this similar phase of growth.

Furthermore, we want to increase the volume of the microphone here and reiterate that China is entering a high-credit-growth phase of economic growth at a time when five very important developments are occurring -

1) Banks in the West that can lend (and there are very few) do not want to lend in the West because of unsafe collateral values. So they are diverting their balance sheets to emerging markets that are under-leveraged and have more secure collateral values;

2) China is going through a phase of development which is traditionally one of the strongest periods in a country’s growth for credit and for stock market growth.

3) China is entering this period of growth with one of the largest absolute pools of household savings ever recorded (double the levels of the 23 countries we examined, which is most of the world’s GDP) in the post-War period as well as the largest savings/GDP ever recorded in the post-War period. (Exhibit 21)

4) The global credit crisis is providing a backdrop of non-inflationary price trends. This is a vital link because the number-one problem traditionally for countries during this period is high and sticky inflation which has tended to be 10-12%. (Exhibit 22)

5) Lastly, we want to reiterate the starting point of this new growth phase. China has a loan/deposit ratio which is one of the lowest in the world (Exhibit 23) – and it has a leverage ratio which is also one of the lowest in the world.

The five points above are the core for our bull case for China. We also strongly feel that ALL FIVE OF THESE CRITERIA apply to Hong Kong as well. To add to that, Hong Kong has a currency board which forces it to receive US interest rates (which we believe will remain lower for longer than many other observers believe). So, Hong Kong is potentially similar to China, only with more liquidity!

Key point: China entering a hot point of growth with super high savings rate and low leverage.

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Exhibit 23. China’s Loan/Deposit Ratio is the lowest in the world

Loan/Deposit 2H09

67 7181 82 84

107116

123

140 143

0

20

40

60

80

100

120

140

160C

hina

Indo

nesi

a

Japa

n

Indi

a

Braz

il

US

Kore

a

UK

Euro

pe

Aust

ralia

Source: UN data, Nomura research

Exhibit 24. Avg. credit/capita for 23 nations(US$) Exhibit 25. USA credit per capita (US$)

Total average credit per capita

China

2000

4000

6000

8000

10000

5000 6000 7000 8000 9000 10000 11000GDP per capita

USA credit per capita

China

2000

4000

6000

8000

10000

5000 6000 7000 8000 9000 10000 110GDP per capita

Source: UN data, Nomura research Source: UN data, Nomura research

To sum it up, we take a look at China’s current level of credit (on a PPP-adjusted basis) and conclude that these levels should easily double over the next five years (Exhibit 24). We would add that China’s loan/deposit ratio should still remain below 1 by the end of this phase.

Exhibit 26 our best attempt to show how the world will change – it is all about leverage

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Exhibit 26. It is all connected – as the US spends less, China will spend more

Net Exports vs Consumption % GDP (1951-now )

-5%

-3%

-1%

1%

3%

5%

7%

9%

35% 45% 55% 65% 75% 85%

Consumption

Net

E

xpor

ts

ChinaAsia exJPUS

Source: CEIC, Nomura research

To square the circle, we can see that as consumption rises in China, exports as a percent of GDP should fall. And the trade surplus should also fall. Inside the US, we see a banking system with: 1) insufficient capital and 2) insufficient savings. Therefore, the banking system is constrained in terms of offering new loans for credit cards, mortgages, cars and durable goods financing. So, the US will consume less and export more. And, the US banking system, because it is capital-constrained, will be forced to put more riskless bonds (government debt) on its balance sheet.

We wish to reiterate that all this is related. And Exhibit 26 shows this. The only reasons why the US was able to do what it did was because China did what it did. Now, that is changing. As China consumes more, its trade surplus will fall and it will be able to buy less US debt. As the US consumes less, its trade deficit will fall and it will be able to buy more US debt. Exhibit 26 also shows that as savings rates in the US rise, consumption falls, banks can replenish their savings pools and lend again (much later) and the system can function again. But this healing process means that China’s domestic economy will growth at a much faster pace than its export sector. And the Chinese banking system (and Asia’s banks) will seek out defensive forms of collateral as there are mostly unsafe collateral levels in the West (given oversupply in both residential and commercial property). We strongly believe that Western banks that can lend will seek out defensive collateral values in Latin America and Asia.

To round off this section, in Exhibits 28-30, we thought it would be fun to look at where China is now relative to where the US, EU and NICs were during the same phase of their development. We do this because we want to show that levels of credit in China are actually very normal. So enjoy the virtual tour of credit for a few moments. The first one shows were China is now and where we should expect it to be given the experience of past and present emerging markets. China is actually below the level of credit per capita for Europe at the same stage. It is right on par with the NICs. And it is below where the US was at the same time it was going through its emerging-market phase.

Western banks held back by too little capital and too little savings; Asia has the opposite problem – equilibrium WILL be restored

With safe collateral and low leverage, China banks will grow unusually fast as the world re-balances

China is bang in line with other markets which were in the $6,000 GDP/capita corridor and slightly below the US and EU in the same period

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Exhibit 27. China credit per capita (US$) Exhibit 28. EU average credit per capita (US$)

China credit per capita

China current

2500

4500

6500

8500

10500

5000 6000 7000 8000 9000 10000

GDP per capita

EU credit per capita

China

2000

5000

8000

11000

14000

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data, Nomura research Source: UN data, Nomura research

Exhibit 29. NICs average credit per capita (US$) Exhibit 30. US credit per capita (US$)

NICS credit per capita

China

1800

3800

5800

7800

9800

5000 6000 7000 8000 9000 10000 11000GDP per capita

USA credit per capita

China

2000

4000

6000

8000

10000

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data, Nomura research Source: UN data, Nomura research

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V. China and the Rest of the World We often forget that all developed countries were once emerging markets with huge poverty, disturbing differences in wealth and few rich cities

Retail is way behind Welcome back from your virtual tour of global credit. We briefly examine where China is relative to the aggregate level of per capita consumption of several items of other emerging markets. This will give us a good idea of two things. 1) ABSOLUTE. It will show us where China stands NOW relative to other countries when they were at the $6,000 per capita income level. 2) RELATIVE. It will also give us an idea of which industries tend to have the greatest change over this high growth phase, i.e. from $6,000 to $9,000 GDP/capita.

Exhibit 31. Average retail/capita (US$)

Average retail value per capita

China

100

300

500

700

900

1100

1300

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data, Nomura research

Exhibit 31 shows two important things. First, it shows that China is very far behind other emerging markets during their start-up phase. Second, it shows that the retail sector tends to have rates of growth which are among the highest of any of the categories we examined. We want to add a cautionary note. Many people pooh-pooh this phenomenon of increases in per capita income for China by saying “Most of China is poor and always will be poor”. We want to offer two anecdotes.

The first is the presidential race of Robert Kennedy in 1968. He was a favourite to win the presidential race before his assassination in July 1968. He wrote and spoke often about the appalling levels of poverty he encountered during his countrywide campaigns. The level of poverty in the Appalachians at that time was atrocious. The Appalachian Mountains cover ten states along the eastern seaboard. Many of the people in these states had no indoor plumbing, no access to medical care, no education, no dentists. They were dirt poor – the American equivalent of peasants at the time.

The second is the book called The Glory and the Dream by Pulitzer Prize winning author William Manchester. (It is an excellent book.) One of the main themes of his book is just how poor most of America was in the 1950s and 1960s. We forget, but much of the US was a relatively poor country after World War II. There were six or seven big cities, but most of the country in the 1950s did not even have indoor plumbing. Indeed, the rich-poor gap in the US right now, while on a very different scale, is arguably more acute than that of China.

We forget that in the 1960s, the US was six rich cities and 100 poor ones; pockets of poverty everywhere

William Manchester catalogued the mass poverty within the US into the 1960s

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So, the large differentiation between the rich and poor in China is quite ‘normal’. Again, the difference is that China is just so big. The number of people below the $1,000 GDP/capita level in China is equivalent to the population of TWO Japans. But the problems of income distribution in China are really not that different from many other countries in their early ‘emerging market’ experiment.

Exhibit 32. Average TVs/1,000 of population Exhibit 33. Average telephones/1,000 of population

Average TV per 1000 China

250

280

310

340

370

400

430

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Average telephones per 1000China

170

210

250

290

330

370

410

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank, Earthtrends, Nomura research Source: World Bank, Earthtrends, Nomura research

Exhibit 32 and 33 show us that China may well have too much of two things: phones and TVs. Per-capita phone ownership is now almost two times the average of other countries in their early take-off phase. And TV ownership is about 25% higher than other countries in the similar phase of development. We would almost want to call these two industries ex-growth in an emerging markets context. We should still see large increases in TV and phone ownership, but the rate of change (in the emerging market context) lies in other industries like hotels, retail and medical services.

Indeed, we can see from Exhibit 32 and 33 that the expected increase for phones and TVs is relatively small – both in absolute amounts and in the rate of change. The expected daily increase in phones is about 80,000 units. We imagine installed capacity for phone production is much larger than this. Our assumed growth rate is about 6% p.a. and we calculate this by taking the aggregate growth rate of phones of countries during their $6,000 GDP/capita take-off experience.

We did the same for TVs and came up with an expected daily increase of TV sets of about 90,000 over the next five years. This is a high number, of course. But the rate of growth is slow and falling.

China’s problems are very similar to the US and other NICs in their own emerging stage, except that it is much larger

Phones and TV show a degree of saturation relative to past and current emerging markets

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VI. The birth of the services sector In an earlier section we saw that China’s service sector was currently about 40% of GDP, while the emerging market average was north of 55%. We should expect that the services sector not only grows to catch up with the average of the emerging markets, but it should continue to grow relative to other parts of the economy for a sustained period. In fact, the biggest surprise of this study was that the services sector is what tends to drive growth for these emerging markets as they reach that $6,000 GDP/capita level. This is because the move from $3,000 to $6,000 is dominated by investment in infrastructure, heavy machinery, low-price exports, and the building blocks of the economy. At the $6,000 level, people can begin to focus less on just working and accumulating savings and more on actually spending those savings on leisure activity.

Exhibit 34. Average spending on hotels /capita (scaled)

Exhibit 35. Average spending on clothing /capita (scaled)

Average personal spending on hotels

China

80

120

160

200

240

280

320

360

400

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Average personal spending on clothing

China

70

120

170

220

270

320

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data, Nomura research Source: UN data, Nomura research

So, Exhibit 34 and 35 show that China is very much in sync with many other countries when they were emerging markets (or current emerging markets) at the $6,000 per-capita level. In the case of hotels, we see the classic ‘S’ curve at work. The slope of the line is moving up sharply when it passes the $6,000 level and continues to move up until it doubles at the $9,000 level. In retrospect, we should not be surprised. Most countries go from having few people traveling for vacation to very many traveling for vacation in a short period of time, precisely as a function of the rapid accumulation of savings which accompanies the early growth of an emerging market. We are keen on Hong Kong & Shanghai Hotels and Jin Jiang. We include these in our portfolio.

Exhibit 35 shows the trends in clothing in emerging markets (past and present) relative to China. Again, China’s growth is right in line with the emerging markets. If China grows anything like the 23 other markets we examined, we should see a doubling in clothing sales over the next few years. Our retail analyst Candy Huang likes Li Ning. We include this in our portfolio.

The fastest rate of change should come in the service sector – starting now

A great surprise of this study was the pre-eminence of the growth rate of hotels and clothing

Spending on health care was also intriguing as it has one of the highest growth rates for current and past GEMS at this stage

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Exhibit 36. Average spending on health care/capita (scaled)

Average personal healthcare spending

China

70

170

270

370

470

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: UN data, Nomura research

We save the best of this section for last. This was a big surprise to us as well. At the $6,000 per capita level for emerging markets (past and present) we see in Exhibit 36 a very nice ‘S’ curve. This shows a big jump in spending on healthcare. The average goes from about $100 per capita to more than $200 in a short time. That number accelerates sharply until $10,000 per capita GDP.

China is there right now. The remarkable thing is that these numbers show 100% growth in just a few years, but it is still $170 per capita. This represents a mere 2% of GDP for health care. This compares to about 5% for Thailand. The highest in the world is in the US, where it is 16%.

Yankun Hou is a big fan of Mindray, so we want to watch that one. We include this in our portfolio. This is a very different phenomenon from the medical tourism movement in South-East Asia. China is developing powerful momentum for the satisfaction of domestic medical and dental services. We have been to many seminars and conferences on the monumental problems and difficulties in developing a medical industry. Welcome to the real world! China is facing the same daunting problem of any other emerging market, only the problem is 30-40 times larger. The government has entered the fray here with a commitment in excess of $60bn for the funding of local clinics and hospitals.

In the late 1980s, this writer was working with the Indonesian government and watched the country build a clinic in every single village throughout the country in a few years. If the government wants to do this, it can. Millions of pages have been written on early medical services for adolescents and the way in which this helps produce healthier, smarter and more productive adults. Nothing but good can come from significant investment in medical services.

Tremendous growth has already occurred, but it is only at $170/capita

Every developed country has gone through the same issue of universal health care – China is no different, except in its scale

Indonesia’s success with Puskesmas (village clinics) is classic example of national healthcare; a clinic in every village within 15 years – and Indonesia has 16,000 islands

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VII. Power Protein for humans and electricity for industry & transportation are the heart of the environmental threat Lastly, we discuss per-capita consumption of energy. This includes energy for industry and transportation and energy for people.

A. Energy for Industry First, we discuss energy for industry and transportation. Our utilities team under Ivan Lee has catalogued China’s development over the past many years. China has one new coal-fired power plant coming on line about every two weeks somewhere in the country. And about 70% of the country’s power is fired with coal. China is now confronting another environmental and human problem with coal and that is coal mining. More than 6,000 coal mines are expected to be closed over the next two years due to unsafe conditions which put human life in peril, according to The Guardian ( 19 November 2008 ). So, China is increasingly importing more coal from Indonesia and Australia. Despite this, Exhibit 37 shows that it is remarkable that China’s per-capita installed capacity of electricity is still half that of current and past emerging markets. In addition, the dependence of China on coal is reflected in the fact that per-capita reliance on coal is almost double that of past and current emerging markets (Exhibit 38).

Exhibit 37. Average electricity/capita (KWH) Exhibit 38. Average coal/capita (tonnes oil eq.)

Average electricity per capita (KWH)

China2000

3200

4400

5600

6800

5000 6000 7000 8000 9000 10000 11000GDP per capita

Average coal per capitaChina

0.50

0.60

0.70

0.80

0.90

1.00

1.10

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: World Bank, Earthtrends, Nomura research Source: BP, Nomura research

Exhibits 39 and 40 show that China’s per-capita usage of oil and natural gas is way below that of other past and current emerging markets. We were surprised by this outcome, so we dug deep into the numbers and found that a significant number of countries (mostly in Europe) went through their ‘emerging market’ phase before the oil shock when oil consumption plummeted as governments forced energy conservation and fuel efficiency upon its populations. Another important reason why China is below the rest of the world is that its auto per-capita figures are way below the rest of the world.

We have written many trees worth of research on this – coal way over-used on a per-capita basis; Oil per-capita use may surprisingly go sideways or even fall

China is way ahead of the curve in natural gas usage

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Exhibit 39. Average natural gas (tonnes oil equivalent) /capita

Exhibit 40. Average oil/capita (tonnes)

Average natural gas per 100

China0

20

40

60

80

5000 6000 7000 8000 9000 10000 11000GDP per capita

Average oil per capita

China0.2

0.7

1.2

1.7

2.2

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: BP, Nomura research Source: BP, Nomura research

In Exhibit 41 we see that per-capita ownership of cars is only about three per 100 people for China. The average growth rate here is not as high as we would have expected, but we would assume that due to the low starting point, growth in China’s per-capita ownership of cars should be higher. (Motorcycles, on the other hand, show the opposite trend; in fact the current numbers suggest a saturation effect in motorcycles, as China’s per capita ownership is double that of past and current emerging markets.)

We have a somewhat controversial take on the future of cars. China’s car industry is very tiny compared to the US car industry. It has no pension problems. It is highly competitive and, therefore, highly flexible. It has one of the lowest HHI ratios (Herfindahl-Hirschman Index) in the world, indicating extreme competitive pressures. On a recent trip to Korea, we came across the CEO of a major conglomerate who told us that a delegation from China recently made a trip to Korea and indicated that it wanted to have full production of an electric vehicle (EV) by the end of 2010. This is exciting news and makes us think that China may be the birthplace of the mass production of the electric car within a few years. It makes us think that the era of the combustion engine may be over within the next ten years. It is our strong hunch that Japan, Korea and China may join forces and produce the technology for a mass-produced electric car very soon.

Why? Jared Diamond explores this in his book Collapse: How Societies Choose to Fail or Survive. Air pollution in many cities in China is the worst in the world. Pollutant levels are several times higher than levels considered safe. Nitrogen oxides and carbon dioxide are rising due to cars and coal-fired power plants. Acid rain has spread over much of the country. Average levels of lead in blood in China are more than double what other cities around the world would consider dangerous. There are two major considerations. The first is that these very high levels of pollution cause mental and intellectual problems in the development of children. Second, about 300,000 deaths per year in China are attributed to air pollution (Source: Jared Diamond Collapse: How Societies Choose to Fail or Survive.) Jared Diamond estimates this to be about $54bn in health costs, or about 8% of GDP.

Hence, the urgent need to address the issue of the electric vehicle and clean coal technologies. In accordance with this, we would include BYD in our portfolio, but at a later date. Why? In our view, investors should place BYD, Wonder Auto (WATG US), and Tianneng (819 HK) on a watch list. We think they are very attractive from a fundamental point of view, but are technically vulnerable so we do not include them.

The end of the combustion engine is nigh – you heard it here first

Japan, Korea and China may just be the innovators and mass producers of the electric car – by 2011?

Necessity is the mother of invention; lead and carbon monoxide poisoning cost China $54bn/year

Put BYD, Wonder Auto and Tianning on a buy list, just not yet

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Exhibit 41. Average cars/100 of population Exhibit 42. Average motorcycles/100 of population

Average cars per 100

China0

5

10

15

20

25

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Average motorcycles/100

China

2.20

3.20

4.20

5.20

6.20

7.20

5000 6000 7000 8000 9000

GDP per capita

Source: CEIC, World Bank, Earthtrends, UN data, Eurostat, Nomura research Source: CEIC, World Bank, Earthtrends, UN data, Eurostat, Nomura research

B. Energy for People

As people get richer, they will eat out more and eat more protein Now, we discuss energy for people. There are two forms of energy – carbohydrates and protein. Our work proves that protein intake increases dramatically starting at about $5,000 per capita GDP and accelerates through the $10,000 GDP/capita range. Simply put, people who get richer want to go out to dinner more often and want to eat more beef, pork or chicken. And they want better quality meat or chicken which requires larger and better fed pigs, cattle and chicken.

The net effect of this is overgrazing. Pork used to be the overwhelming meat in China. But affluence created demand for lamb, beef, chicken and eggs. This puts pressure on grasslands and the solid waste of livestock creates methane (contributing to greenhouse gases) and the animal droppings volumes are three times those of industrial solid waste. When we add to this the fish droppings and fertilizers for aquaculture, we can see that the demand for protein has consequences which reverberate through the ecosystem. The demand for protein from fish and shrimp has caused over-fishing in both rivers and oceans.

The really astonishing thing is that the amount of water to create one pound of meat is staggering. It requires about 15,000 litres of water to produce one pound of meat. This is very well catalogued. And the use of water for agriculture is highly wasteful, both in China and India. This is largely because water has no price, so no one conserves it. Water shortages are completely preventable, but plant closures due to water shortages are costing billions to the economy. The quantity of fresh water per capita in China is 75% less than the average for the world. And the south gets most of it.

The issue of cereals is also significant. We expect growth in cereals to continue to remain high but not as high as one might expect. The increasing amounts of protein in diets means the growth rate of cereals could actually stagnate. Nonetheless, the rate of change is still positive. If China’s rate of growth in cereals is anything like that seen in past and present emerging markets, we should see a daily increase of about 30,000 tonnes. We will not go into detail here, but we should mention that increasing numbers of scientific studies are showing concern about the excessive use of fertilizers and pesticides in China. For instance, China uses about 14% of the world’s pesticides, according to the USDA.

Problems that arise with increased protein demand are over-grazing, aquaculture pollution, over-fishing, and eutrophication

Water for the creation of protein is a very serious problem; this reinforces Sean Darby’s Water portfolio

Growth rate of cereals will be low, but protein growth is far higher than carbohydrates at this point

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Exhibit 43. Average meat/capita (kg) Exhibit 44. Average cereals/capita (tons)

Average meat per capita

China

50

54

58

62

66

70

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Average cereals per capita

China0.30

0.50

0.70

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: World Bank, Earthtrends, FAO, Nomura research Source: World Bank, Earthtrends, FAO, Nomura research

All of these problems need solutions. We understand through Ivan Lee’s team that revolutionary and creative moves are afoot to treat ground water. Centralized intervention is increasingly common in China to settle contentious issues of land contamination, soil erosion from invasive pollution sources, excessive use of pesticides and fertilizers. Motivated by this, we include China Everbright and Beijing Enterprise Water in our portfolio.

This writer has been conducting research on China for 20 years. It is clear that the authorities absolutely ‘get it’. When they do get their hands around a thorny and politically difficult problem, there is usually a solution. The most important and most vital problem in China – and the world – is the environmental erosion from growing industry, greater prosperity and better standards of living. Jared Diamond’s conclusion is that China will lurch in the direction of environmental protection. We are beginning to see this right now.

China gets it! Expect the government to lurch in the direction of environmental protection in the near future

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Appendices

Appendix I: Valuation comparisons

Exhibit 45. Valuation comparison – Asian Banks under coverage Nomura Price P/E (x) P/BV (x) Yield (%) ROE (%) EPS growth (%) Ticker Company Rating (local) FY09F FY10F FY09F FY10F FY09F FY10F FY09F FY10F FY09F FY10F CHINA China (H-share) 1398 HK ICBC-H Buy 5.4 13.1 10.9 2.3 2.0 3.4% 4.1% 19% 19% 7% 15% 939 HK CCB-H Buy 6.0 12.6 10.5 2.2 1.9 3.6% 4.3% 19% 19% 3% 15% 3988 HK BOC-H Buy 3.6 11.6 10.0 1.6 1.4 3.9% 4.5% 14% 14% 5% 10% 3328 HK BOCOM-H Neutral 8.1 13.6 11.2 2.1 1.8 2.8% 3.5% 16% 17% -12% 16% 3968 HK CMB-H Neutral 16.7 15.9 13.2 2.9 2.3 0.9% 1.1% 20% 19% -37% 15% 998 HK CITIC Bank-H Buy 4.8 11.6 9.4 1.5 1.3 2.6% 3.2% 14% 15% 4% 18% Average 13.1 10.9 2.1 1.8 2.9% 3.5% 16.9% 17.2% -5.0% 15.0% China (A-share) 600000 CH SPDB Neutral 21.2 13.3 13.6 2.4 2.1 1.6% 1.6% 20% 17% -25% -3% 600016 CH Minsheng Reduce 7.7 22.2 22.6 2.4 2.2 0.5% 0.5% 11% 10% -14% -2% 000001 CH SZDB Buy 22.2 16.9 13.7 3.2 2.6 0.3% 0.4% 21% 21% 531% 24% 002142 CH Bank of Ningbo Neutral 11.4 24.5 21.8 3.1 2.8 1.4% 1.6% 13% 13% -13% 12% 601009 CH Bank of Nanjing Buy 15.5 20.4 18.4 2.7 2.4 2.0% 2.2% 14% 14% 1% 11% Average 19.5 18.0 2.8 2.4 1.2% 1.2% 16% 15% 96% 9% China Average 16.0 14.1 2.4 2.1 2.1% 2.4% 16% 16% 41% 12% HONG KONG 11 HK HSB Neutral 110.10 16.3 14.8 3.7 3.5 5.7% 5.7% 24% 24% -16% 11% 2388 HK BOCHK Buy 15.54 13.1 10.4 1.8 1.7 4.6% 5.8% 14% 16% -16% 22% 23 HK BEA Neutral 25.00 17.9 13.7 1.4 1.3 2.8% 3.6% 8% 10% 944% 34% 302 HK WHB Buy 70.80 20.3 12.1 1.8 1.7 1.2% 4.1% 9% 15% -32% 72% 349 HK ICBC (Asia) Buy 15.62 10.9 9.8 1.3 1.2 5.5% 6.1% 12% 13% -10% 11% 440 HK DSF Buy 41.60 13.9 9.6 1.0 0.9 1.8% 3.1% 7% 10% -37% 114% 636 HK FBHK Neutral 3.17 36.5 9.4 0.8 0.7 1.9% 4.7% 2% 8% -72% 626% 1111 HK CHB Reduce 13.48 16.1 13.1 1.0 0.9 3.4% 4.2% 6% 7% 85% 23% Average 18.1 11.6 1.6 1.5 3.4% 4.7% 10% 13% 106% 114% KOREA 105560 KS KB Financial BUY 51,500 19.8 11.0 1.1 1.0 0.0% 0.0% 6% 10% -61% 80% 055550 KS Shinhan BUY 41,000 19.3 11.2 1.0 0.9 0.0% 0.0% 5% 9% -56% 73% 086790 KS Hana Financial NEUTRAL 32,750 1,167.0 1,167.0 0.8 0.7 0.3% 0.3% 0% 6% -99% 0% 053000 KS Woori REDUCE 14,050 26.9 11.8 0.9 0.8 0.0% 0.0% 3% 7% -7% 128% 024110 KS IBK REDUCE 13,500 42.6 15.1 0.9 0.8 0.0% 0.7% 2% 6% -79% 183% 004940 KS KEB NEUTRAL 11,150 57.8 12.4 1.0 1.0 0.0% 0.9% 2% 8% -84% 368% 005280 KS Busan Bank NEUTRAL 11,250 16.3 12.9 1.1 1.0 0.9% 0.9% 7% 8% -63% 27% 005270 KS Daegu Bank NEUTRAL 14,550 15.8 11.5 1.2 1.1 1.0% 1.4% 7% 10% -53% 38% Average 170.7 156.6 1.0 0.9 0.3% 0.5% 4% 8% -63% 112% SINGAPORE DBS SP DBS Neutral 12.64 16.0 13.9 1.2 1.1 4.4% 4.4% 8% 8% -41% 15% OCBC SP OCBC Buy 7.74 14.9 13.3 1.4 1.3 3.6% 3.6% 10% 10% 8% 12% UOB SP UOB Buy 16.70 13.5 11.3 1.4 1.3 3.6% 4.2% 11% 12% -4% 19% Average 14.8 12.8 1.3 1.3 3.9% 4.1% 10% 10% -12% 15% MALAYSIA AMM MK AMMB Holdings Buy 4.11 12.8 12.5 1.4 1.3 1.5% 2.2% 12% 11% 28% 3% BCHB MK Bumi-Commerce Neutral 9.95 16.3 14.4 1.9 1.8 1.9% 1.9% 12% 12% 11% 13% MAY MK Malayan Banking Reduce 6.51 17.6 17.1 1.7 1.6 1.5% 2.0% 11% 8% -47% 3% PBKF MK Public Bank Buy 9.95 14.4 12.8 3.2 3.0 5.2% 5.9% 24% 25% 3% 13% Average 15.3 14.2 2.1 1.9 2.5% 3.0% 15% 14% -1% 8% THAILAND SCB TB Siam Commercial Neutral 77.00 13.5 11.9 1.9 1.7 2.6% 3.2% 15% 15% -9% 13% BBL TB Bangkok Bank Neutral 110.00 12.9 10.5 1.1 1.0 2.7% 2.7% 9% 10% -19% 22% KBANK TB Kasikorn Bank Buy 72.50 12.9 11.3 1.4 1.3 2.8% 2.8% 11% 12% -12% 14% BAY TB Bank of Ayudhya Reduce 17.80 19.3 15.6 1.3 1.2 0.8% 1.4% 7% 8% 14% 24% Average 14.7 12.3 1.4 1.3 2.2% 2.5% 10% 11% -7% 18% INDIA AXSB IN Axis Bank Buy 923 18.2 15.1 3.2 2.7 1.1% 1.1% 19% 21% 69% 30% ICICIBC IN ICICI Bank Neutral 751 22.2 19.1 1.7 1.6 1.4% 1.2% 8% 9% -10% 16% HDFCB IN HDFC Bank Neutral 1457 27.6 22.8 4.1 3.1 0.7% 0.9% 17% 16% 18% 21% SBIN IN SBI Reduce 1754 13.5 11.9 1.7 1.6 1.0% 1.0% 14% 14% -11% 13% PNB IN PNB Buy 662 9.4 8.1 1.4 1.2 1.4% 1.4% 16% 16% -9% 16% Average 18.2 15.4 2.4 2.1 1.1% 1.1% 15% 15% 11% 20% Asia Average 45.1 40.1 1.8 1.6 2.1% 2.5% 12% 13% 18% 51%

Source: Bloomberg, Nomura Estimates; Note: Pricing as of 31 Aug 09

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Exhibit 46. Key ratio comparison– Asian Banks under coverage Nomura Chg in NIM (bps) Credit cost Impaired loan Cost-to-income Total CAR Ticker Company Rating FY09F FY10F FY09F FY10F FY09F FY10F FY09F FY10F FY09F FY10F CHINA China (H-share) 1398 HK ICBC-H Buy (71) 1 0.6% 0.7% 2.0% 2.1% 36% 36% 12% 12% 939 HK CCB-H Buy (77) 2 0.8% 0.8% 2.1% 2.2% 38% 38% 12% 12% 3988 HK BOC-H Buy (57) 1 0.5% 0.9% 2.4% 2.5% 43% 43% 12% 12% 3328 HK BOCOM-H Neutral (93) 10 0.8% 1.0% 1.7% 1.9% 40% 40% 12% 12% 3968 HK CMB-H Neutral (115) 9 0.4% 0.7% 1.2% 1.6% 45% 45% 13% 13% 998 HK CITIC Bank-H Buy (94) 15 0.6% 0.8% 1.3% 1.4% 41% 41% 11% 10% Average (85) 6 0.6% 0.8% 1.8% 2.0% 41% 41% 12% 12% China (A-share) 600000 CH SPDB Neutral (58) (3) 0.7% 1.0% 1.5% 2.3% 48% 47% 10% 9% 600016 CH Minsheng Reduce (74) 14 0.6% 0.6% 0.9% 1.0% 49% 47% 7% 6% 000001 CH SZDB Buy (52) 12 0.6% 0.5% 0.6% 0.6% 45% 45% 8% 8% 002142 CH Bank of Ningbo Neutral (46) 13 0.6% 0.7% 0.9% 0.9% 43% 42% 12% 11% 601009 CH Bank of Nanjing Buy (48) 8 1.0% 0.9% 1.4% 1.3% 31% 31% 14% 13% Average (78) (3) 1.1% 1.3% 1.6% 2.6% 43% 42% 12% 11% China Average (71) 7 0.7% 0.8% 1.4% 1.6% 42% 41% 11% 11% HONG KONG 11 HK HSB Neutral (22) (4) 0.4% 0.4% 1.3% 1.4% 31% 30% 15% 14% 2388 HK BOCHK Buy (33) 4 0.1% 0.1% 0.4% 0.4% 40% 31% 15% 15% 23 HK BEA Neutral (29) 18 0.5% 0.4% 1.2% 1.4% 58% 57% 13% 14% 302 HK WHB Buy (2) 6 0.4% 0.3% 1.0% 1.1% 56% 41% 15% 16% 349 HK ICBC (Asia) Buy (1) (0) 0.3% 0.2% 1.0% 1.3% 35% 35% 14% 14% 440 HK DSF Buy (10) (3) 0.8% 0.6% 1.6% 1.6% 59% 45% 16% 16% 636 HK FBHK Neutral 19 (1) 1.0% 0.8% 1.9% 2.2% 70% 54% 14% 14% 1111 HK CHB Reduce (1) (3) 0.3% 0.3% 0.4% 0.4% 58% 54% 16% 16% Average (10) 2 0.5% 0.4% 1.1% 1.2% 51% 43% 15% 15% KOREA 105560 KS KB Financial Buy (26) (3) 1.3% 1.1% 1.9% 1.6% 48% 43% 14% 13% 055550 KS Shinhan Buy (25) (3) 1.2% 0.8% 2.3% 1.9% 42% 45% 12% 12% 086790 KS Hana Financial Neutral (37) 0 1.5% 1.4% 2.3% 1.9% 46% 40% 14% 13% 053000 KS Woori Reduce (30) (1) 1.3% 1.1% 2.8% 2.4% 47% 44% 10% 10% 024110 KS IBK Reduce (7) (2) 2.0% 1.8% 3.4% 2.9% 36% 34% 11% 11% 004940 KS KEB Neutral (59) (13) 2.3% 1.6% 2.2% 1.8% 44% 44% 11% 11% 005280 KS Busan Bank Neutral (30) 2 1.7% 1.6% 2.8% 2.3% 44% 43% 14% 14% 005270 KS Daegu Bank Neutral (28) (1) 1.8% 1.7% 2.6% 2.4% 46% 45% 12% 11% Average (30) (3) 1.6% 1.4% 2.5% 2.1% 44% 42% 12% 12% SINGAPORE DBS SP DBS Neutral 6 3 1.2% 1.0% 4.5% 4.1% 42% 43% 17% 15% OCBC SP OCBC Buy 10 (2) 1.0% 0.8% 3.5% 3.3% 37% 39% 15% 14% UOB SP UOB Buy 8 (1) 1.2% 0.8% 3.6% 3.4% 38% 38% 17% 17% Average 8 0 1.1% 0.9% 3.9% 3.6% 39% 40% 16% 15% MALAYSIA AMM MK AMMB Holdings Buy (23) (12) 0.6% 0.8% 5.1% 5.4% 51% 49% 14% 15% BCHB MK Bumi-Commerce Neutral (14) 19 1.0% 0.6% 5.4% 5.9% 51% 51% 14% 13% MAY MK Malayan Banking Reduce (2) (1) 0.7% 0.8% 4.0% 4.4% 52% 53% 14% 14% PBKF MK Public Bank Buy (1) (16) 0.6% 0.5% 1.3% 1.8% 31% 32% 13% 13% Average (10) (3) 0.7% 0.7% 4.0% 4.4% 46% 46% 14% 14% THAILAND SCB TB Siam Commercial Neutral (37) 7 0.9% 0.9% 6.5% 6.7% 48% 47% 12% 13% BBL TB Bangkok Bank Neutral (37) 9 0.9% 0.7% 6.7% 7.3% 54% 53% 14% 14% KBANK TB Kasikorn Bank Buy (38) 18 1.1% 0.9% 5.8% 6.5% 57% 59% 16% 15% BAY TB Bank of Ayudhya Reduce (24) 12 1.3% 1.2% 12.1% 12.6% 60% 59% 16% 16% Average (34) 12 1.1% 0.9% 7.8% 8.3% 55% 55% 15% 15% INDIA AXSB IN Axis Bank Buy 4 (2) 1.0% 1.1% 0.4% 0.8% 43% 42% 14% 12% ICICIBC IN ICICI Bank Neutral 28 34 1.8% 1.9% 1.9% 0.6% 44% 41% 16% 15% HDFCB IN HDFC Bank Neutral 2 (24) 1.7% 2.0% 0.6% 0.7% 61% 54% 15% 16% SBIN IN SBI Reduce (10) (16) 0.8% 0.7% 2.6% 2.8% 47% 46% 13% 13% PNB IN PNB Buy (11) (5) 0.7% 0.8% 0.4% 0.4% 47% 47% 12% 12% Average 3 (3) 1.2% 1.3% 1.2% 1.1% 48% 46% 14% 14% Asia Average (29) 2 0.9% 0.9% 2.5% 2.6% 46% 44% 13% 13%

Source: Bloomberg, Nomura Estimates; Note: Pricing as of 31 Aug 09

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Appendix II: Time frame for data

Exhibit 47 lists the time frame for the data we have used. Each entry denotes the starting year for the data set.

Exhibit 47. Time frame for data series for all categories U

S

Can

ada

Mex

ico

Braz

il

Ger

man

y

Net

herla

nds

UK

Hon

g K

ong

Japa

n

Mal

aysi

a

Sing

apor

e

Sout

h Ko

rea

Taiw

an

Thai

land

Nor

way

Aust

ralia

Swed

en

Fran

ce

Italy

Spai

n

Turk

ey

Sout

h Af

rica

Chi

le

Chi

na

Meat 1972 1973 1986 1993 1975 1974 1976 - 1979 1992 1979 1987 - 2003 1974 - 1973 1975 1976 1979 1991 1996 1992 2007

Cereals 1972 1973 1986 1993 1975 1974 1976 - 1979 1992 - 1987 - 2003 1974 1974 1973 1975 1976 1979 1991 1996 1992 2007

TV 1972 1973 1986 1993 1975 1974 1976 1979 1979 1992 1979 1987 1985 - 1974 1974 1973 1975 1976 1979 1991 1996 1992 2007

Cars 1972 1973 - - 1975 1974 1976 1979 1979 1992 1979 1987 1985 2003 - - - 1975 1976 1979 1991 - 1992 2007

Motorcycles 1972 - - - - - 1976 1979 1979 1992 1979 1987 1985 2003 - - - 1975 1976 1979 1991 - - 2007

Oil 1972 1973 1986 1993 1975 1974 1976 1979 1979 1992 1979 1987 1985 2003 1974 1974 1973 1975 1976 1979 1991 1996 1992 2007

Steel - - 1986 1993 - - - 1979 1979 1992 1979 1987 1985 2003 - 1974 - - - - - 1996 1992 2007

Coal 1972 1973 1986 1993 1975 1974 1976 1979 1979 1992 - 1987 1985 2003 1974 1974 1973 1975 1976 1979 1991 1996 1992 2007

Electricity 1972 1973 1986 1993 1975 1974 1976 1979 1979 1992 1979 1987 - 2003 1974 1974 1973 1975 1976 1979 1991 1996 1992 2007

Natural Gas 1972 1973 1986 1993 1975 1974 1976 - 1979 1992 - 1987 1985 2003 1974 1974 1973 1975 1976 1979 1991 - 1992 2007

Phones 1972 1973 1986 1993 1975 1974 1976 1979 1979 1992 1979 1987 1985 2003 1974 1974 1973 1975 1976 1979 1991 1996 1992 2007

Spending on Retail 1972 1973 1986 1993 1975 1974 1976 1979 1979 1992 1979 1987 - 2003 1974 1974 1973 1975 1976 1979 1991 1996 1992 2007

Spending on Hotels 1972 1973 1986 - - 1974 1976 - - - 1979 1987 - 2003 1974 1974 1973 1975 1976 1979 - 1996 - 2007

Spending on Clothing 1972 1973 1986 - 1975 1974 1976 1979 1979 - 1979 1987 - 2003 1974 1974 1973 1975 1976 1979 - 1996 - 2007

Spending on Healthcare 1972 1973 - - 1975 1974 1976 1979 1979 - 1979 1987 - 2003 1974 1974 1973 1975 1976 1979 - 1996 - 2007

Deposits 1972 1973 - - 1975 - - 1979 - - - 1987 1985 2003 - - - - - 1979 - - - 2007

Credit 1972 1973 1986 1993 1975 1974 1976 1979 - 1992 1979 1987 - 2003 - 1974 1973 1975 1976 - 1991 1996 1992 2007

Savings (%GNI) 1972 1973 1986 1993 1975 1974 1976 1979 1979 1992 1979 1987 - 2003 1974 1974 1973 1975 1976 1979 1991 1996 1992 2007

Services (%GDP) 1972 1973 1986 1993 1975 1974 1976 1979 1979 1992 1979 1987 - 2003 - 1974 1973 1975 1976 1979 1991 1996 1992 2007

Consumption (%GDP) 1972 1973 1986 1993 1975 1974 1976 1979 1979 1992 1979 1987 1985 2003 1974 1974 1973 1975 1976 1979 1991 1996 1992 2007

Investments (%GDP) 1972 1973 1986 1993 1975 1974 1976 1979 1979 1992 1979 1987 1985 2003 1974 1974 1973 1975 1976 1979 1991 1996 1992 2007

Inflation (%) 1972 1973 - - 1975 1974 1976 1979 1979 1992 1979 1987 - 2003 1974 1974 1973 1975 1976 1979 1991 1996 1992 2007

Market Cap (%GDP) - - 1986 1993 - - - - - 1992 - 1987 - 2003 - - - - - - 1991 1996 1992 2007

Source: Nomura research

Definitions of groupings

EU: UK, Germany, Netherlands, Norway, Sweden, France, Italy, Spain & Turkey

EM: Mexico, Brazil, Malaysia, Thailand & Chile

NICs: HK, Korea, Singapore & Taiwan

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3 September 2009 Nomura 32

Appendix III: Data by Category

Exhibit 48. Order of Categories in Appendix # Exhibit Category # Exhibit Category # Exhibit Category 1 49 Meat 8 56 Coal 15 63 Credit 2 50 Cereals 9 57 Electricity 16 64 Deposit 3 51 TV 10 58 Gas 17 65 Hotel 4 52 Cars 11 59 Phones 18 66 Clothing 5 53 Motorcycles 12 60 Services 19 67 Healthcare 6 54 Oil 13 61 Savings 7 55 Steel 14 62 Retail Source: Nomura research

Exhibit 49. Meat per capita (kgs)

USA meat per capita (kgs)

94

98

102

106

110

5000 6000 7000 8000 9000 10000 11000GDP per capita

Canada meat per capita (kgs)

92

96

100

104

108

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: Earthtrends, FAO Source: Earthtrends, FAO

UK meat per capita (kgs)

60

64

68

72

76

5000 6000 7000 8000 9000 10000 11000GDP per capita

Germany meat per capita (kgs)

84

88

92

96

100

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: Earthtrends, FAO Source: Earthtrends, FAO

Brazil meat per capita (kgs)

50

60

70

80

90

5000 5500 6000 6500 7000 7500GDP per capita

Japan meat per capita (kgs)

20

24

28

32

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: Earthtrends, FAO Source: Earthtrends, FAO

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Korea meat per capita (kgs)

0

10

20

30

40

5000 6000 7000 8000 9000 10000 11000GDP per capita

Malaysia meat per capita (kgs)

38

44

50

56

5000 6000 7000 8000 9000 10000

GDP per capita

Source: Earthtrends, FAO Source: Earthtrends, FAO

Singapore meat per capita (kgs)

68

72

76

80

5000 6000 7000 8000 9000 10000GDP per capita

Thailand meat per capita (kgs)

25

27

29

31

5000 5500 6000 6500 7000 7500 8000

GDP per capita

Source: Earthtrends, FAO Source: Earthtrends, FAO

Australia meat per capita (kgs)

40

50

60

70

5000 6000 7000 8000 9000 10000 11000

GDP per capita

France meat per capita (kgs)

88

92

96

100

104

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: Earthtrends, FAO Source: Earthtrends, FAO

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Spain meat per capita (kgs)

50

60

70

80

90

5000 6000 7000 8000 9000 10000 11000GDP per capita

Italy meat per capita (kgs)

60

64

68

72

76

80

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: Earthtrends, FAO Source: Earthtrends, FAO

China meat per capita (kgs)

60

68

76

84

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: Earthtrends, FAO, Nomura Research

Exhibit 50. Cereal per capita (tons)

USA cereals per capita (tons)

0.5

0.7

0.9

1.1

5000 6000 7000 8000 9000 10000 11000GDP per capita

Canada cereals per capita (tons)

0.4

0.8

1.2

1.6

2

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: Earthtrends, FAO Source: Earthtrends, FAO

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3 September 2009 Nomura 35

UK cereals per capita (tons)

0.3

0.4

0.5

0.6

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Germany cereals per capita (tons)

0.3

0.4

0.5

0.6

0.7

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: Earthtrends, FAO Source: Earthtrends, FAO

Brazil cereals per capita (tons)

0.25

0.29

0.33

0.37

0.41

5000 5500 6000 6500 7000 7500 8000GDP per capita

Japan cereals per capita (tons)

0.25

0.3

0.35

0.4

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: Earthtrends, FAO Source: Earthtrends, FAO

Korea cereals per capita (tons)

0.38

0.42

0.46

0.5

5000 6000 7000 8000 9000 10000 11000GDP per capita

malaysia cereals per capita (tons)

0.23

0.26

0.29

0.32

5000 6000 7000 8000 9000GDP per capita

Source: Earthtrends, FAO Source: Earthtrends, FAO

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France cereals per capita (tons)

0.27

0.47

0.67

0.87

5000 6000 7000 8000 9000 10000GDP per capita

Australia cereals per capita (tons)

0.40

0.80

1.20

1.60

5000 6000 7000 8000 9000 10000GDP per capita

Source: Earthtrends, FAO Source: Earthtrends, FAO

Italy cereals per capita (tons)

0.35

0.4

0.45

0.5

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Spain cereals per capita (tons)

0.27

0.47

0.67

0.87

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: Earthtrends, FAO Source: Earthtrends, FAO

Thailand cereals per capita (tons)

0.37

0.38

0.39

0.4

0.41

0.42

5000 5500 6000 6500 7000 7500GDP per capita

China cereals per capita(tons)

0.29

0.31

0.33

0.35

0.37

5000 6000 7000 8000 9000 10000GDP per capita

Source: Earthtrends, FAO Source: Earthtrends, FAO, Nomura research

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Exhibit 51. TV s per 1,000 of population

USA tv per 1000

400

440

480

520

560

5000 6000 7000 8000 9000 10000 11000GDP per capita

Canada tv per 1000

380

400

420

440

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: Earthtrends Source: Earthtrends

UK tv per 1000

360

380

400

420

5000 6000 7000 8000 9000 10000 11000GDP per capita

Germany tv per 1000

380

400

420

440

460

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: Earthtrends Source: Earthtrends

Brazil tv per 1000

120

170

220

270

320

370

5000 5500 6000 6500 7000 7500 8000GDP per capita

HK tv per 1000

205

210

215

220

225

230

235

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: Earthtrends Source: Earthtrends

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Japan tv per 1000

250

350

450

550

650

5000 6000 7000 8000 9000 10000 11000GDP per capita

Malaysia tv per 1000

100

130

160

190

220

5000 6000 7000 8000 9000

GDP per capita

Source: Earthtrends Source: Earthtrends

Singapore tv per 1000

290

300

310

320

5000 6000 7000 8000 9000 10000GDP per capita

Korea tv per 1000

180

200

220

240

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: Earthtrends Source: Earthtrends

Taiw an tv per 1000

304

306

308

310

312

314

316

5000 6000 7000 8000 9000 10000 11000GDP per capita

Australia tv per 1000

250

290

330

370

410

450

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: Earthtrends Source: Earthtrends

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France tv per 1000

250

290

330

370

410

5000 6000 7000 8000 9000 10000 11000GDP per capita

Italy tv per 1000

350

360

370

380

390

400

410

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: Earthtrends Source: Earthtrends

Spain tv per 1000

240

260

280

300

320

340

5000 6000 7000 8000 9000 10000

GDP per capita

China TV per 1000

370

410

450

490

530

570

5000 6000 7000 8000 9000 10000

GDP per capita

Source: Earthtrends Source: Earthtrends, Nomura research

Exhibit 52. Cars per 100 of population

USA cars per 100

44

46

48

50

52

54

5000 6000 7000 8000 9000 10000 11000GDP per capita

Canada cars per 100

33

36

39

42

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank, CEIC, Eurostat Source: World Bank, CEIC, Eurostat

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UK cars per 100

22

23

24

25

26

27

28

5000 6000 7000 8000 9000 10000 11000GDP per capita

Germany cars per 100

20

24

28

32

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank, CEIC, Eurostat Source: World Bank, CEIC, Eurostat

Malaysia cars per 100

5

9

13

17

21

25

5000 6000 7000 8000 9000 10000

GDP per capita

HK cars per 100

6

7

8

9

10

11

5000 6000 7000 8000 9000 10000GDP per capita

Source: World Bank, CEIC, Eurostat Source: World Bank, CEIC, Eurostat

Japan cars per 100

14

16

18

20

22

5000 6000 7000 8000 9000 10000 11000GDP per capita

Singapore cars per 100

5

6

7

8

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank, CEIC, Eurostat Source: World Bank, CEIC, Eurostat

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Korea cars per 100

0

2

4

6

8

10

5000 6000 7000 8000 9000 10000 11000GDP per capita

Taiw an cars per 100

2

6

10

14

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank, CEIC, Eurostat Source: World Bank, CEIC, Eurostat

Thailand cars per 100

3

4

5

6

5000 6000 7000 8000GDP per capita

France cars per 100

25

27

29

31

33

35

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank, CEIC, Eurostat Source: World Bank, CEIC, Eurostat

Italy cars per 100

26

29

32

35

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Spain cars per 100

15

19

23

27

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank, CEIC, Eurostat Source: World Bank, CEIC, Eurostat

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China cars per 100

1

2

3

4

5

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: World Bank, CEIC, Eurostat, Nomura research

Exhibit 53. Motorcycles per 100 of population

USA motorcycles per 100

1.4

1.6

1.8

2

2.2

2.4

5000 6000 7000 8000 9000 10000 11000

GDP per capita

UK motorcycles per 100

2

2.1

2.2

2.3

2.4

2.5

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank, CEIC, Eurostat Source: World Bank, CEIC, Eurostat

HK motorcycles per 100

0.23

0.25

0.27

0.29

0.31

0.33

5000 6000 7000 8000 9000 10000GDP per capita

Japan motorcycles per 100

0.5

0.7

0.9

1.1

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank, CEIC, Eurostat Source: World Bank, CEIC, Eurostat

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3 September 2009 Nomura 43

Korea motorcycles per 100

1.5

2.5

3.5

4.5

5000 6000 7000 8000 9000 10000 11000GDP per capita

Taiw an motorcycles per 100

1

2

3

4

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank, CEIC, Eurostat Source: World Bank, CEIC, Eurostat

Singapore motorcycles per 100

4

4.5

5

5.5

5000 6000 7000 8000 9000 10000GDP per capita

Malaysia motorcycles per 100

14

18

22

26

5000 6000 7000 8000 9000 10000GDP per capita

Source: World Bank, CEIC, Eurostat Source: World Bank, CEIC, Eurostat

Thailand motorcycles per 100

21

23

25

27

5000 6000 7000 8000 9000GDP per capita

France motorcycles per 100

0.4

0.7

1

1.3

5000 6000 7000 8000 9000 10000

GDP per capita

Source: World Bank, CEIC, Eurostat Source: World Bank, CEIC, Eurostat

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Spain motorcycles per 100

1

2

3

4

5000 7000 9000 11000 13000

GDP per capita

Italy motorcycles per 100

1.4

1.5

1.6

1.7

5000 6000 7000 8000 9000 10000

GDP per capita

Source: World Bank, CEIC, Eurostat Source: World Bank, CEIC, Eurostat

China motorcycles per 100

6

6.6

7.2

7.8

8.4

9

5000 6000 7000 8000 9000 10000GDP per capita

Source: World Bank, CEIC, Eurostat, Nomura research

Exhibit 54. Oil per capita (tons)

USA oil per capita (tons)

3.3

3.5

3.7

3.9

4.1

5000 6000 7000 8000 9000 10000 11000GDP per capita

Canada oil per capita (tons)

3.4

3.5

3.6

3.7

3.8

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: BP, IMF Source: BP, IMF

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UK oil per capita (tons)

1

1.2

1.4

1.6

1.8

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Germany oil per capita (tons)

1.6

1.8

2

2.2

5000 6000 7000 8000 9000 10000GDP per capita

Source: BP, IMF Source: BP, IMF

Brazil oil per capita (tons)

0.36

0.41

0.46

0.51

0.56

5000 6000 7000 8000 9000 10000GDP per capita

Japan oil per capita (tons)

1.6

1.8

2

2.2

2.4

5000 6000 7000 8000 9000 10000 11000 12000GDP per capita

Source: BP, IMF Source: BP, IMF

Korea oil per capita (tons)

0.4

0.8

1.2

1.6

2

5000 6000 7000 8000 9000 10000 11000GDP per capita

Singapore oil per capita (tons)

3.8

4

4.2

4.4

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: BP, IMF Source: BP, IMF

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Malaysia oil per capita (tons)

0.5

0.7

0.9

1.1

5000 6000 7000 8000 9000 10000 11000GDP per capita

HK oil per capita (tons)

0.8

1

1.2

1.4

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: BP, IMF Source: BP, IMF

Taiw an oil per capita (tons)

0.6

0.8

1

1.2

1.4

1.6

5000 6000 7000 8000 9000 10000 11000GDP per capita

Thailand oil per capita (tons)

0.2

0.4

0.6

0.8

5000 6000 7000 8000 9000GDP per capita

Source: BP, IMF Source: BP, IMF

France oil per capita (tons)

1.6

2

2.4

5000 6000 7000 8000 9000 10000 11000GDP per capita

Australia oil per capita (tons)

2

2.1

2.2

2.3

2.4

5000 6000 7000 8000 9000 10000 11000 12000

GDP per capita

Source: BP, IMF Source: BP, IMF

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Italy oil per capita (tons)

1.4

1.6

1.8

2

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Spain oil per capita (tons)

1

1.2

1.4

1.6

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: BP, IMF Source: BP, IMF

China oil per capita (tons)

0.24

0.28

0.32

0.36

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: BP, IMF, Nomura research

Exhibit 55. Steel per capita (tons)

Brazil steel per capita (tons)

0.04

0.06

0.08

0.1

0.12

0.14

5000 6000 7000 8000 9000 10000GDP per capita

Thailand steel per capita (tons)

0.02

0.07

0.12

0.17

0.22

0.27

5000 6000 7000 8000 9000GDP per capita

Source: WSA Source: WSA

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3 September 2009 Nomura 48

Korea steel per capita (tons)

0.2

0.4

0.6

5000 6000 7000 8000 9000 10000 11000GDP per capita

Japan steel per capita (tons)

0.4

0.5

0.6

0.7

5000 6000 7000 8000 9000 10000GDP per capita

Source: WSA Source: WSA

Malaysia steel per capita (tons)

0.1

0.2

0.3

0.4

5000 6000 7000 8000 9000 10000GDP per capita

Singapore steel per capita (tons)

0.3

0.5

0.7

0.9

1.1

5000 6000 7000 8000 9000 10000GDP per capita

Source: WSA Source: WSA

Taiw an steel per capita (tons)

0.15

0.35

0.55

0.75

0.95

5000 6000 7000 8000 9000 10000 11000

GDP per capita

HK steel per capita (tons)

0.26

0.3

0.34

0.38

5000 6000 7000 8000 9000 10000GDP per capita

Source: WSA Source: WSA

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3 September 2009 Nomura 49

Australia steel per capita (tons)

0

0.2

0.4

0.6

0.8

5000 6000 7000 8000 9000 10000 11000GDP per capita

China steel per capita (tons)

0.27

0.31

0.35

0.39

0.43

0.47

0.51

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: WSA Source: WSA, Nomura research

Exhibit 56. Coal per capita (mn tons oil equivalent)

USA coal per capita

1.4

1.5

1.6

1.7

5000 6000 7000 8000 9000 10000 11000GDP per capita

Canada coal per capita

0.55

0.65

0.75

0.85

0.95

1.05

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: BP, IMF Source: BP, IMF

UK coal per capita

1.1

1.15

1.2

1.25

1.3

1.35

1.4

5000 6000 7000 8000 9000 10000 11000GDP per capita

Germany coal per capita

1.6

1.68

1.76

1.84

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: BP, IMF Source: BP, IMF

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3 September 2009 Nomura 50

Brazil coal per capita

0.06

0.07

0.08

5000 6000 7000 8000 9000 10000 11000GDP per capita

Japan coal per capita

0.2

0.3

0.4

0.5

0.6

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: BP, IMF Source: BP, IMF

Korea coal per capita

0.5

0.54

0.58

0.62

5000 6000 7000 8000 9000 10000 11000GDP per capita

Malaysia coal per capita

0.04

0.08

0.12

0.16

0.2

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: BP, IMF Source: BP, IMF

HK coal per capita

0

0.2

0.4

0.6

0.8

5000 6000 7000 8000 9000 10000 11000GDP per capita

Taiw an coal per capita

0.2

0.4

0.6

0.8

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: BP, IMF Source: BP, IMF

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3 September 2009 Nomura 51

Thailand coal per capita

0.1

0.14

0.18

0.22

0.26

5000 6000 7000 8000GDP per capita

Australia coal per capita

1.6

1.7

1.8

1.9

2

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: BP, IMF Source: BP, IMF

France coal per capita

0.3

0.5

0.7

5000 6000 7000 8000 9000 10000 11000GDP per capita

Italy coal per capita

0.15

0.19

0.23

0.27

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: BP, IMF Source: BP, IMF

Spain coal per capita

0

0.1

0.2

0.3

0.4

0.5

0.6

5000 6000 7000 8000 9000 10000 11000

GDP per capita

China coal per capita

0.85

1.05

1.25

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: BP, IMF Source: BP, IMF, Nomura research

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3 September 2009 Nomura 52

Exhibit 57. Electricity per capita (KWH)

USA electricity per capita

7500

8500

9500

10500

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Canada electricity per capita

9000

11000

13000

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: World Bank Source: World Bank

UK electricity per capita

4300

4500

4700

4900

5100

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Germany electricity per capita

4000

4500

5000

5500

6000

5000 6000 7000 8000 9000 10000

GDP per capita

Source: World Bank Source: World Bank

Brazil electricity per capita

1300

1500

1700

1900

2100

5000 6000 7000 8000 9000 10000

GDP per capita

Japan electricity per capita

4000

4200

4400

4600

4800

5000

5000 6000 7000 8000 9000 10000 11000 12000

GDP per capita

Source: World Bank Source: World Bank

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3 September 2009 Nomura 53

Korea electricity per capita

1200

2200

3200

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Malaysia electricity per capita

900

1900

2900

3900

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: World Bank Source: World Bank

HK electricity per capita

1500

1900

2300

2700

3100

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Thailand electricity per capita

1500

1700

1900

2100

2300

5000 6000 7000 8000GDP per capita

Source: World Bank Source: World Bank

Singapore electricity per capita

2000

3000

4000

5000 6000 7000 8000 9000 10000 11000GDP per capita

Australia electricity per capita

3000

4000

5000

6000

7000

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: World Bank Source: World Bank

Page 55: Nomura China

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3 September 2009 Nomura 54

France electricity per capita

2000

3000

4000

5000

5000 6000 7000 8000 9000 10000 11000GDP per capita

Italy electricity per capita

2600

2700

2800

2900

3000

3100

3200

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank Source: World Bank

Spain electricity per capita

2300

2500

2700

2900

3100

5000 6000 7000 8000 9000 10000 11000GDP per capita

China electricity per capita

2000

2400

2800

3200

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank Source: World Bank, Nomura research

Exhibit 58. Natural gas per 100 (tons)

USA gas per 100

150

190

230

270

310

5000 6000 7000 8000 9000 10000 11000GDP per capita

Canada gas per 100

184

188

192

196

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: BP, IMF Source: BP, IMF

Page 56: Nomura China

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3 September 2009 Nomura 55

UK gas per 100

55

59

63

67

71

75

5000 6000 7000 8000 9000 10000 11000GDP per capita

Germany gas per 100

40

60

80

5000 6000 7000 8000 9000 10000

GDP per capita

Source: BP, IMF Source: BP, IMF

Brazil gas per 100

0

2

4

6

8

10

12

14

5000 5500 6000 6500 7000 7500 8000 8500GDP per capita

Japan gas per 100

0

4

8

12

16

20

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: BP, IMF Source: BP, IMF

Korea gas per 100

2

6

10

14

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Malaysia gas per 100

40

60

80

100

120

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: BP, IMF Source: BP, IMF

Page 57: Nomura China

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3 September 2009 Nomura 56

Taiw an gas per 100

0

4

8

12

16

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Thailand gas per 100

35

45

55

5000 6000 7000 8000 9000GDP per capita

Source: BP, IMF Source: BP, IMF

France gas per 100

25

30

35

40

45

50

5000 6000 7000 8000 9000 10000 11000GDP per capita

Australia gas per 100

20

40

60

80

100

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: BP, IMF Source: BP, IMF

Italy gas per 100

39

39.5

40

40.5

41

41.5

42

5000 6000 7000 8000 9000 10000GDP per capita

Spain gas per 100

0

1

2

3

4

5

6

7

8

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: BP, IMF Source: BP, IMF

Page 58: Nomura China

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3 September 2009 Nomura 57

China gas per 100

4

5

6

7

8

9

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: BP, IMF, Nomura research

Exhibit 59. Phones per 1,000 of population

USA phones per 1000

330

340

350

360

370

380

390

400

410

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Canada phones per 1000

320

340

360

380

400

420

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: World Bank Source: World Bank

UK phones per 1000

200

240

280

320

360

5000 6000 7000 8000 9000 10000 11000GDP per capita

Germany phones per 1000

150

200

250

300

350

400

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank Source: World Bank

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3 September 2009 Nomura 58

Brazil phones per 1000

50

90

130

170

210

250

5000 6000 7000 8000 9000GDP per capita

HK phones per 1000

190

230

270

310

350

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank Source: World Bank

Japan phones per 1000

280

300

320

340

360

5000 6000 7000 8000 9000 10000 11000GDP per capita

Singapore phones per 1000

150

190

230

270

310

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank Source: World Bank

Malaysia phones per 1000

50

90

130

170

210

250

5000 6000 7000 8000 9000 10000 11000 12000

GDP per capita

Korea phones per 1000

150

200

250

300

350

400

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank Source: World Bank

Page 60: Nomura China

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3 September 2009 Nomura 59

Taiw an phones per 1000

180

220

260

300

340

380

5000 6000 7000 8000 9000 10000 11000GDP per capita

Thailand phones per 1000

96

100

104

108

112

116

120

5000 5500 6000 6500 7000 7500 8000GDP per capita

Source: World Bank Source: World Bank

Australia phones per 1000

150

190

230

270

310

350

5000 6000 7000 8000 9000 10000 11000

GDP per capita

France phones per 1000

50

100

150

200

250

300

350

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: World Bank Source: World Bank

Italy phones per 1000

160

200

240

280

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Spain phones per 1000

50

100

150

200

250

300

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank Source: World Bank

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3 September 2009 Nomura 60

China phones per 1000

230

270

310

350

390

430

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: World Bank, Nomura research

Exhibit 60. Services (% of GDP)

USA services (%GDP)

61

62

62

62

63

63

5000 6000 7000 8000 9000 10000 11000GDP per capita

Canada services(%GDP)

54

56

58

60

62

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: World Bank Source: World Bank

UK services (%GDP)

55

56

57

58

59

5000 6000 7000 8000 9000 10000 11000GDP per capita

Germany services (%GDP)

54

56

58

60

5000 6000 7000 8000 9000 10000GDP per capita

Source: World Bank Source: World Bank

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3 September 2009 Nomura 61

Brazil services (%GDP)

30

40

50

60

70

80

5000 6000 7000 8000 9000GDP per capita

HK services (%GDP)

64

66

68

70

72

5000 6000 7000 8000 9000 10000GDP per capita

Source: World Bank Source: World Bank

Japan services (%GDP)

50

52

54

56

58

5000 6000 7000 8000 9000 10000 11000GDP per capita

Singapore services (%GDP)

59

60

61

62

63

64

5000 6000 7000 8000 9000 10000GDP per capita

Source: World Bank Source: World Bank

Malaysia services (%GDP)

30

35

40

45

50

55

60

5000 6000 7000 8000 9000 10000

GDP per capita

Korea services (%GDP)

46

48

50

52

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank Source: World Bank

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3 September 2009 Nomura 62

Thailand services (%GDP)

44

45

46

47

5000 6000 7000 8000 9000GDP per capita

Spain services (%GDP)

50

52

54

56

58

60

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank Source: World Bank

Australia services (%GDP)

50

52

54

56

58

5000 6000 7000 8000 9000 10000 11000GDP per capita

France services (%GDP)

58

60

62

64

66

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank Source: World Bank

Italy services (%GDP)

52

54

56

58

60

5000 6000 7000 8000 9000 10000 11000GDP per capita

China services (%GDP)

36

38

40

42

44

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank Source: World Bank, Nomura research

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3 September 2009 Nomura 63

Exhibit 61. Gross savings (% GNI)

USA savings (%GNI)

16%

17%

18%

19%

20%

21%

22%

5000 6000 7000 8000 9000 10000 11000GDP per capita

Canada savings (%GNI)

20%

21%

22%

23%

24%

25%

5000 6000 7000 8000 9000 10000

GDP per capita

Source: World Bank Source: World Bank

UK savings (%GNI)

15%

17%

19%

21%

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Germany savings (%GNI)

16%

18%

20%

22%

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank Source: World Bank

Brazil savings (%GNI)

10%

14%

18%

22%

26%

30%

5000 6000 7000 8000 9000 10000GDP per capita

HK savings (%GNI)

25%

28%

31%

34%

37%

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank Source: World Bank

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3 September 2009 Nomura 64

Japan savings (%GNI)

28%

31%

34%

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Singapore savings (%GNI)

25%

35%

45%

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank Source: World Bank

Malaysia savings (%GNI)

30%

35%

40%

45%

5000 6000 7000 8000 9000 10000

GDP per capita

Korea savings (%GNI)

35%

37%

39%

41%

5000 7000 9000 11000GDP per capita

Source: World Bank Source: World Bank

Thailand savings (%GNI)

29%

31%

33%

5000 5500 6000 6500 7000 7500 8000GDP per capita

Australia savings (%GNI)

20%

24%

28%

32%

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank Source: World Bank

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3 September 2009 Nomura 65

France savings (%GNI)

19%

20%

21%

22%

23%

24%

25%

5000 6000 7000 8000 9000 10000 11000GDP per capita

Italy savings (%GNI)

20%

23%

26%

29%

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank Source: World Bank

Spain savings (%GNI)

16%

20%

24%

28%

32%

5000 6000 7000 8000 9000 10000

GDP per capita

China savings (%GNI)

52%

53%

54%

55%

56%

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: World Bank Source: World Bank, Nomura research

Exhibit 62. Retail per capita (US$)

USA retail per capita

500

900

1300

1700

2100

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Canada retail per capita

400

800

1200

1600

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data Source: UN data

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3 September 2009 Nomura 66

UK retail per capita

300

700

1100

1500

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Germany retail per capita

400

800

1200

1600

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data Source: UN data

Brazil retail per capita

150

550

950

1350

5000 6000 7000 8000 9000 10000

GDP per capita

HK retail per capita

600

900

1200

1500

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data Source: UN data

Japan retail per capita

300

600

900

1200

1500

1800

5000 6000 7000 8000 9000 10000 11000GDP per capita

Singapore retail per capita

800

900

1000

1100

1200

1300

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: UN data Source: UN data

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3 September 2009 Nomura 67

Malaysia retail per capita

300

500

700

900

5000 6000 7000 8000 9000 10000GDP per capita

Korea retail per capita

200

500

800

1100

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data Source: UN data

Thailand retail per capita

200

400

600

800

5000 6000 7000 8000

GDP per capita

Australia retail per capita

1200

1500

1800

2100

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data Source: UN data

France retail per capita

400

800

1200

1600

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Italy retail per capita

400

800

1200

1600

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data Source: UN data

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3 September 2009 Nomura 68

Spain retail per capita

600

800

1000

1200

5000 6000 7000 8000 9000 10000 11000

GDP per capita

China retail per capita

150

250

350

450

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data Source: UN data, Nomura research

Exhibit 63. Credit per capita (US$)

USA credit per capita

2000

4000

6000

8000

10000

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Canada credit per capita

2000

4000

6000

8000

10000

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: CEIC, World Bank, Eurostat, Bundesbank, UN data Source: CEIC, World Bank, Eurostat, Bundesbank, UN data

UK credit per capita

1200

2200

3200

4200

5200

5000 6000 7000 8000 9000 10000GDP per capita

Germany credit per capita

6000

10000

14000

18000

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Source: CEIC, World Bank, Eurostat, Bundesbank, UN data Source: CEIC, World Bank, Eurostat, Bundesbank, UN data

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3 September 2009 Nomura 69

Brazil credit per capita

0

2000

4000

6000

8000

5000 6000 7000 8000 9000 10000GDP per capita

HK credit per capita

0

2000

4000

6000

8000

10000

12000

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: CEIC, World Bank, Eurostat, Bundesbank, UN data Source: CEIC, World Bank, Eurostat, Bundesbank, UN data

Singapore credit per capita

0

5000

10000

15000

20000

25000

5000 6000 7000 8000 9000 10000 11000GDP per capita

Malaysia credit per capita

1500

2500

3500

4500

5500

6500

7500

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: CEIC, World Bank, Eurostat, Bundesbank, UN data Source: CEIC, World Bank, Eurostat, Bundesbank, UN data

Korea credit per capita

500

1500

2500

3500

5000 6000 7000 8000 9000 10000 11000GDP per capita

Thailand credit per capita

3400

3600

3800

4000

4200

5000 5500 6000 6500 7000 7500 8000

GDP per capita

Source: CEIC, World Bank, Eurostat, Bundesbank, UN data Source: CEIC, World Bank, Eurostat, Bundesbank, UN data

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3 September 2009 Nomura 70

Australia credit per capita

800

1800

2800

3800

4800

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Italy credit per capita

2000

3000

4000

5000

6000

7000

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: CEIC, World Bank, Eurostat, Bundesbank, UN data Source: CEIC, World Bank, Eurostat, Bundesbank, UN data

France credit per capita

0

2000

4000

6000

8000

10000

12000

5000 6000 7000 8000 9000 10000 11000GDP per capita

China credit per capita

2000

4000

6000

8000

10000

5000 6000 7000 8000 9000 10000

GDP per capita

Source: CEIC, World Bank, Eurostat, Bundesbank, UN data Source: CEIC, World Bank, Eurostat, Bundesbank, UN data, Nomura Research

Exhibit 64. Deposits per capita (US$)

USA deposits per capita

2400

2900

3400

3900

4400

4900

5000 6000 7000 8000 9000 10000 11000GDP per capita

Canada deposits per capita

1800

2300

2800

3300

3800

4300

4800

5000 6000 7000 8000 9000 10000

GDP per capita

Source: CEIC, World Bank, Eurostat, Bundesbank, UN data Source: CEIC, World Bank, Eurostat, Bundesbank, UN data

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3 September 2009 Nomura 71

Germany deposit per capita

2000

2500

3000

3500

4000

4500

5000 6000 7000 8000 9000 10000 11000GDP per capita

Korea deposit per capita

800

1300

1800

2300

2800

3300

3800

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: CEIC, World Bank, Eurostat, Bundesbank, UN data Source: CEIC, World Bank, Eurostat, Bundesbank, UN data

HK deposit per capita

3500

5500

7500

9500

11500

5000 6000 7000 8000 9000 10000 11000GDP per capita

Taiw an deposit per capita

1000

3000

5000

7000

9000

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: CEIC, World Bank, Eurostat, Bundesbank, UN data Source: CEIC, World Bank, Eurostat, Bundesbank, UN data

Thailand deposit per capita

1200

1700

2200

2700

3200

5000 5500 6000 6500 7000 7500 8000GDP per capita

Spain deposit per capita

2000

4000

6000

8000

10000

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: CEIC, World Bank, Eurostat, Bundesbank, UN data Source: CEIC, World Bank, Eurostat, Bundesbank, UN data

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3 September 2009 Nomura 72

China deposit per capita

3000

5000

7000

9000

11000

5000 6000 7000 8000 9000 10000GDP per capita

Source: CEIC, World Bank, Eurostat, Bundesbank, UN data, Nomura research

Exhibit 65. Personal spending on hotels per capita (GDP/capita 5K US$ = 100)

USA hotel spending per capita (GDP/capita 5K US$ = 100)

50

100

150

200

250

300

5000 6000 7000 8000 9000 10000 11000GDP per capita

Canada hotel spending per capita (GDP/capita 5K US$ = 100)

50

100

150

200

250

300

350

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data Source: UN data

UK hotel spending per capita (GDP/capita 5K US$ = 100)

50

100

150

200

250

300

5000 6000 7000 8000 9000 10000 11000GDP per capita

Korea hotel spending per capita (GDP/capita 5K US$ = 100)

50

100

150

200

250

300

350

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data Source: UN data

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Singapore hotel spending per capita (GDP/capita 5K US$ = 100)

50

70

90

110

130

150

5000 6000 7000 8000 9000 10000 11000GDP per capita

Thailand hotel spending per capita (GDP/capita 5K US$ = 100)

50

70

90

110

130

150

5000 6000 7000 8000GDP per capita

Source: UN data Source: UN data

France hotel spending per capita (GDP/capita 5K US$ = 100)

50

100

150

200

250

300

5000 6000 7000 8000 9000 10000 11000GDP per capita

Australia hotel spending per capita (GDP/capita 5K US$ = 100)

50

100

150

200

250

300

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data Source: UN data

Italy hotel spending per capita (GDP/capita 5K US$ = 100)

50

100

150

200

250

300

350

400

5000 6000 7000 8000 9000 10000 11000GDP per capita

Spain hotel spending per capita (GDP/capita 5K US$ = 100)

50

450

850

1250

1650

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data Source: UN data

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China hotel spending per capita (GDP/capita 5K US$ =100)

50

100

150

200

250

300

350

5000 6000 7000 8000 9000 10000

GDP per capita

Source: UN data, Nomura research

Exhibit 66. Personal spending on clothing per capita (GDP/capita 5K US$ = 100)

USA spending on clothing per capita (US$ 5K GDP/capita = 100)

50

70

90

110

130

150

170

190

5000 6000 7000 8000 9000 10000 11000GDP per capita

Canada spending on clothing per capita (US$ 5K GDP/capita = 100)

50

90

130

170

210

250

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data Source: UN data

UK spending on clothing per capita (US$ 5K GDP/capita = 100)

50

100

150

200

250

300

350

400

450

5000 6000 7000 8000 9000 10000 11000GDP per capita

Germany spending on clothing per capita (US$ 5K GDP/capita = 100)

50

70

90

110

130

150

170

190

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data Source: UN data

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Korea spending on clothing per capita (US$ 5K GDP/capita = 100)

50

110

170

230

290

350

5000 6000 7000 8000 9000 10000 11000GDP per capita

Japan spending on clothing per capita (US$ 5K GDP/capita = 100)

50

70

90

110

130

150

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data Source: UN data

Singapore spending on clothing per capita (US$ 5K GDP/capita = 100)

50

70

90

110

130

150

5000 6000 7000 8000 9000 10000 11000GDP per capita

HK spending on clothing per capita (US$ 5K GDP/capita = 100)

50

90

130

170

210

250

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data Source: UN data

Thailand spending on clothing per capita (US$ 5K GDP/capita = 100)

80

85

90

95

100

105

5000 5500 6000 6500 7000 7500 8000GDP per capita

Australia spending on clothing per capita (US$ 5K

GDP/capita = 100)

50

70

90

110

130

150

170

190

210

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data Source: UN data

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France spending on clothing per capita (US$ 5K GDP/capita = 100)

50

70

90

110

130

150

170

190

210

5000 6000 7000 8000 9000 10000 11000GDP per capita

Italy spending on clothing per capita (US$ 5K GDP/capita = 100)

50

150

250

350

450

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data Source: UN data

Spain spending on clothing per capita (US$ 5K GDP/capita = 100)

50

100

150

200

250

300

350

5000 6000 7000 8000 9000 10000 11000GDP per capita

China spending on clothing per capita (GDP/capita 5K

US$ = 100)

50

100

150

200

250

300

5000 6000 7000 8000 9000 10000GDP per capita

Source: UN data Source: UN data, Nomura research

Exhibit 67. Personal spending on health care per capita (GDP/capita 5K US$ = 100)

USA spending on healthcare per capita (GDP/capita 5K US$ = 100)

50

100

150

200

250

300

5000 6000 7000 8000 9000 10000 11000GDP per capita

Canada spending on healthcare per capita (GDP/capita 5K US$ = 100)

50

100

150

200

250

300

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data Source: UN data

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UK spending on healthcare per capita (GDP/capita 5K US$ = 100)

50

100

150

200

250

300

350

400

5000 6000 7000 8000 9000 10000 11000GDP per capita

Germany spending on healthcare per capita (GDP/capita 5K US$ = 100)

50

90

130

170

210

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data Source: UN data Spain spending on healthcare per capita (GDP/capita 5K

US$ = 100)

50

90

130

170

210

5000 6000 7000 8000 9000 10000 11000

GDP per capita

Korea spending on healthcare per capita (GDP/capita 5K US$ = 100)

50

100

150

200

250

300

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data Source: UN data

Japan spending on healthcare per capita (GDP/capita 5K US$ = 100)

50

100

150

200

5000 6000 7000 8000 9000 10000 11000GDP per capita

Singapore spending on healthcare per capita (GDP/capita 5K US$ = 100)

50

90

130

170

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data Source: UN data

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HK spending on healthcare per capita (GDP/capita 5K US$ = 100)

50

100

150

200

250

300

5000 6000 7000 8000 9000 10000 11000GDP per capita

Thailand spending on healthcare per capita (GDP/capita 5K US$ = 100)

50

70

90

110

130

150

170

5000 5500 6000 6500 7000 7500 8000GDP per capita

Source: UN data Source: UN data

France spending on healthcare per capita (GDP/capita

5K US$ = 100)

50

100

150

200

250

300

5000 6000 7000 8000 9000 10000 11000GDP per capita

Australia spending on healthcare per capita (GDP/capita 5K US$ = 100)

50

100

150

200

250

300

5000 6000 7000 8000 9000 10000 11000GDP per capita

Source: UN data Source: UN data

Italy spending on healthcare per capita (GDP/capita 5K US$ = 100)

50

150

250

350

450

550

5000 6000 7000 8000 9000 10000 11000

GDP per capita

China spending on healthcare per capita (GDP/capita

5K US$ =100)

50

100

150

200

250

300

350

400

5000 6000 7000 8000 9000 10000GDP per capita

Source: UN data Source: UN data, Nomura research

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Appendix IV: Global signals for equities

Exhibit 68. Sovereign CDS

0

20

40

60

80

100

1-Jan 1-Mar 1-May 1-Jul

US Sovereign CDS

0

20

40

60

80

100

120

140

1-Jan 1-Mar 1-May 1-Jul

Japan Sovereign CDS

0

100

200

300

400

500

600

1-Jan 1-Mar 1-May 1-Jul

Eastern Europe Sovereign CDS

0

50

100

150

200

250

300

1-Jan 1-Mar 1-May 1-Jul

China Sovereign CDS

Exhibit 69. Corporate CDS

100

120

140

160

180

200

220

240

260

280

1-Jan 1-Mar 1-May 1-Jul

US IG CDX (125 IG corps.)

500

700

900

1100

1300

1500

1700

1900

2100

1-Jan 1-Mar 1-May 1-Jul

US HY CDX (100 junk US corps.)

0

100

200

300

400

500

600

1-Jan 1-Mar 1-May 1-Jul

ITRAXX Europe (Top 125 IG corps.)ITRAXX Japan (Top 50 IG corps.)

100

150

200

250

300

350

400

450

500

1-Jan 1-Mar 1-May 1-Jul

ITRAXX Asia ex-Japan IG (Top 50 IG corps.)

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Exhibit 70. Emerging markets indicators

200

300

400

500

600

700

800

900

1-Jan 1-Mar 1-May 1-Jul

EM CDX (15 countries)

300

350

400

450

500

550

600

650

700

750

1-Jan 1-Mar 1-May 1-Jul

EM Spread (USD GEMS bonds - Treasury)

6.0

6.5

7.0

7.5

8.0

1-Jan 1-Mar 1-May 1-Jul 1-Sep

CNY/INR

2.4

2.6

2.8

3.0

3.2

3.4

3.6

3.8

4.0

1-Jan 5-Feb 12-Mar 16-Apr 21-May 25-Jun 30-Jul1,000

1,100

1,200

1,300

1,400

1,500

1,600USD/PLN

USD/KRW

Exhibit 71. Liquidity, volatility, and recovery

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1-Jan 1-Mar 1-May 1-Jul 1-Sep

Ted Spread

100120

140160

180200220

240260

280300

1-Jan 1-Mar 1-May 1-Jul

Equity Risk (VIX)

FX Risk (EUR/JPY Vol)

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

1-Jan 1-Mar 1-May 1-Jul 1-Sep

US Baa Spread over Treasury

4

5

6

7

8

9

10

11

12

13

1-Jan 1-Mar 1-May 1-Jul 1-Sep

US HY spread over IG

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Exhibit 72. Global breakeven inflation

US 1 year breakeven inflation (%)-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

29-May 12-Jun 26-Jun 10-Jul 24-Jul 7-Aug 21-Aug

US Breakeven Inflation Curve (%)

-1

0

1

2

3

4

2009-10 2010-11 2011-12 2012-13 2013-14

Current

- 1 month

- 2 months

UK 2 year breakeven inflation (%)

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

1-Jun 15-Jun 29-Jun 13-Jul 27-Jul 10-Aug 24-Aug

UK Breakeven Inflation Curve (%)

0.5

1.0

1.5

2.0

2.5

3.0

2009-10 2010-11 2011-12 2012-13 2013-14

Current

- 1 month

- 3 months

Japan 7 year breakeven inflation (%)

-3.3

-3.1

-2.9

-2.7

-2.5

-2.3

-2.1

-1.9

-1.7

-1.5

2-Mar 2-Apr 2-May 2-Jun 2-Jul 2-Aug

Sweden 5 year breakeven inflation (%)

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2-Mar 2-Apr 2-May 2-Jun 2-Jul 2-Aug

Note: Breakeven inflation is the difference between the nominal bond yield and the real bond yield of closest maturity. Real bond yields based on CPI in the US, Japan and Sweden; Retail Price Index in the UK; CPI ex-Tobacco in France; EU HICP ex-Tobacco in Germany and Italy; Weighted Average of Eight Capital Cities: All-Groups Index in Australia.

Breakeven Curves based on extrapolation of best available maturities for each market.

Source for all charts: Bloomberg, Nomura research

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Appendix V: Portfolios

Exhibit 73. ‘S’ Curve Portfolio Mkt Cap Liquidity Altman P/B Div Yield P/E

Company Ticker Sector US$mn (US$mn) Z-Score FY09E FY09E FY 09E

CCB 939 HK Banks 176,383 348.4 n/a 2.3 4.1 n/aBoC HK 2388 HK Banks 21,198 44.0 n/a 1.8 3.9 17.3HK&Shanghai Hotels 45 HK Hotels 1,637 1.0 1.8 0.6 0.9 37.6Jin Jiang 2006 HK Hotels 1,154 3.1 1.9 1.2 1.1 58.5Hang Lung 101 HK Real Estate 12,917 26.9 4.0 1.5 NA 18.4Li Ning 2331 HK Retail 2,904 12.5 8.0 8.0 2.1 n/aMindray MR US Health Care 3,346 24.1 6.3 6.0 0.8 23.2Beijing Ent. Water 371 HK Water Treatment 651 4.5 2.2 2.3 0.0 33.4China Everbright Int. 257 HK Environment Control 1,150 3.4 2.0 2.8 0.7 22.7Shun Tak 242 HK Macau Property 1,350 7.2 1.6 0.9 2.7 n/aChina Agri 606 HK Food 2,708 5.4 3.4 1.3 2.3 9.9Netease NTES US eServices 5,407 88.2 20.7 5.0 0.0 16.4

Average 52.0 3.8 2.9 2.0 30.2 Note: Priced as of 1 September 2009 Source: Factset, I/B/E/S, Worldscope, Nomura research

Exhibit 74. Solvency Portfolio Mkt Cap Liquidity Altman P/B Div Yield Return since

Company Ticker Sector US$mn (US$mn) Z-Score FY09E FY09E Inclusion

Santos STO AU Energy 11,051 57.4 3.2 1.8 2.7 22%Sinofert 297 HK Materials 3,177 16.3 3.0 1.7 0.4 0%Petrochina 857 HK Energy 202,133 141.7 4.1 1.6 3.2 -9%ONGC ONGC IN Energy 51,920 8.9 4.4 2.5 2.9 69%SK Energy 096770 KS Energy 7,441 61.6 2.8 1.1 2.1 1%POSCO 005490 KS Steel 32,218 114.1 4.2 1.4 2.1 7%Ayala Corp AC PM Property 3,126 2.6 2.1 1.5 1.4 59%China Agri 606 HK Food 2,708 5.4 3.4 1.3 2.3 32%Parkway PWAY SP Health Care 1,561 4.8 1.4 1.7 1.9 50%

Average 45.9 3.2 1.6 2.1 29%* Note: Priced as of 1 September 2009. Transaction costs not included in returns. Past performance should not and cannot be viewed as an indicator of future performance. Complete record upon request.

Source: Factset, I/B/E/S, Worldscope, Nomura research

Exhibit 75. Reflation Portfolio Mkt Cap Liquidity Altman P/B Div Yield Return since

Company Ticker Industry Group US$mn (US$mn) Z-Score FY09E FY09E Inclusion

Standard Chartered STAN LN Bank 43,833 124 n/a 1.9 2.8 61%BoC 3988 HK Bank 120,505 211 n/a 1.7 4.1 58%ICBC 1398 HK Bank 227,082 277 n/a 2.3 4.0 53%UOB UOB SP Bank 16,952 43 n/a 1.5 3.3 12%PNB PNB IN Bank 4,277 3 n/a 1.3 2.9 31%CCB 939 HK Bank 176,383 348 n/a 2.3 4.1 13%BoC HK 2388 HK Bank 21,198 44 n/a 1.8 3.9 0%Average 168 n/a 1.8 3.5 38%

China Coal 1898 HK Coal 16,745 45 4.2 1.8 2.1 30%Yanzhou Coal 1171 HK Coal 7,220 43 7.4 1.7 2.6 42%Average 44 5.8 1.8 2.3 36%

Great Eagle 41 HK Property 1,311 3 2.3 0.5 3.4 60%Agile 3383 HK Property 4,304 31 2.7 2.1 1.8 105%Ayala AC PM Property 3,043 3 2.1 1.4 1.4 47%UOL Group UOL SP Property 1,832 4 1.7 0.7 2.6 77%China Resources Land 1109 HK Property 11,081 53 n/a 2.1 0.8 39%Soho China 410 HK Property 2,945 13 2.2 1.3 2.9 25%Average 18 2.2 1.3 2.2 59%

Average 86 3.2 1.6 2.8 47%* Note: Priced as of 1 September 2009. Transaction costs not included in returns. Past performance should not and cannot be viewed as an indicator of future performance. Complete record upon request.

Source: Factset, I/B/E/S, Worldscope, Nomura research

Please see Under the Hood, August 24, 2009, for details of the last change to our Model portfolios here

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ANALYST CERTIFICATIONS Each research analyst identified on page 1 hereof certifies that all of the views expressed in this report by such analyst accurately reflect his or her personal views about the subject securities and issuers. In addition, each research analyst identified on page 1 hereof hereby certifies that no part of his or her compensation was, is, or will be, directly or indirectly related to the specific recommendations or views that he or she has expressed in this research report, nor is it tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.

ISSUER SPECIFIC REGULATORY DISCLOSURES Conflict-of-interest disclosures Important disclosures may be accessed through the following website: http://www.nomura.com/research/Disclosures/public/main.asp. If you have difficulty with this site or you do not have a password, please contact your Nomura Securities International, Inc. salesperson (1-877-865-5752) or email [email protected] for assistance. DISCLAIMER: PLEASE NOTE THAT THE TRADING IDEAS PRESENTED IN THIS REPORT IN NO WAY RELATE TO THE FUNDAMENTAL RATINGS APPLIED TO STOCKS BY NOMURA EQUITY RESEARCH ANALYSTS. Online availability of research and additional conflict-of-interest disclosures: Nomura Japanese Equity Research is available electronically for clients in the US on NOMURA.COM, REUTERS, BLOOMBERG and THOMSON ONE ANALYTICS. For clients in Europe, Japan and elsewhere in Asia it is available on NOMURA.COM, REUTERS and BLOOMBERG.

Important disclosures may be accessed through the left hand side of the Nomura Disclosure web page http://www.nomura.com/research or requested from Nomura Securities International, Inc., on 1-877-865-5752. If you have any difficulties with the website, please email [email protected] for technical assistance.

The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by Investment Banking activities.

Distribution of Ratings: Nomura Global Equity Research has 1613 companies under coverage. 36% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 33% of companies with this rating are investment banking clients of the Nomura Group*. 41% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 61% of companies with this rating are investment banking clients of the Nomura Group*. 21% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 6% of companies with this rating are investment banking clients of the Nomura Group*. As at 30 June 2009. *The Nomura Group as defined in the Disclaimer section at the end of this report.

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Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America for ratings published from 27 October 2008: The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Analysts may also indicate absolute upside to price target defined as (fair value - current price)/current price, subject to limited management discretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple analysis, etc.

Stocks:

• A rating of "1", or "Buy", indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. • A rating of "2", or "Neutral", indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. • A rating of "3", or "Reduce", indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. • A rating of "RS-Rating Suspended", ” indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company. Benchmarks are as follows: United States: S&P 500, MSCI World Technology Hardware & Equipment; Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks (accessible through the left hand side of the Nomura Disclosure web page: http://www.nomura.com/research); Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia.

Sectors:

A "Bullish" stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A "Neutral" stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A "Bearish" stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX® 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia.

Explanation of Nomura’s equity research rating system for Asian companies under coverage ex Japan published from 30 October 2008 and in Japan from 6 January 2009: Stocks:

Stock recommendations are based on absolute valuation upside (downside), which is defined as (Price Target – Current Price) / Current Price, subject to limited management discretion. In most cases, the Price Target will equal the analyst’s 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. • A "Buy" recommendation indicates that potential upside is 15% or more. • A "Neutral" recommendation indicates that potential upside is less than 15% or downside is less than 5%. • A "Reduce" recommendation indicates that potential downside is 5% or more. • A rating of "RS" or "Rating Suspended" indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company. • Stocks labelled as "Not rated" or shown as "No rating" are not in Nomura's regular research coverage. Sectors:

A "Bullish" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A "Neutral" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A "Bearish" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.

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Explanation of Nomura's equity research rating system in Japan published prior to 6 January 2009 (and ratings in Europe, Middle East and Africa, US and Latin America published prior to 27 October 2008): Stocks:

• A rating of "1", or "Strong buy", indicates that the analyst expects the stock to outperform the Benchmark by 15% or more over the next six months. • A rating of "2", or "Buy", indicates that the analyst expects the stock to outperform the Benchmark by 5% or more but less than 15% over the next six months. • A rating of "3", or "Neutral", indicates that the analyst expects the stock to either outperform or underperform the Benchmark by less than 5% over the next six months. • A rating of "4", or "Reduce", indicates that the analyst expects the stock to underperform the Benchmark by 5% or more but less than 15% over the next six months. • A rating of "5", or "Sell", indicates that the analyst expects the stock to underperform the Benchmark by 15% or more over the next six months. • Stocks labeled "Not rated" or shown as "No rating" are not in Nomura's regular research coverage. Nomura might not publish additional research reports concerning this company, and it undertakes no obligation to update the analysis, estimates, projections, conclusions or other information contained herein. Sectors:

A "Bullish" stance, indicates that the analyst expects the sector to outperform the Benchmark during the next six months. A "Neutral" stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next six months. A "Bearish" stance, indicates that the analyst expects the sector to underperform the Benchmark during the next six months. Benchmarks are as follows: Japan: TOPIX; United States: S&P 500, MSCI World Technology Hardware & Equipment; Europe, by sector — Hardware/Semiconductors: FTSE W Europe IT Hardware; Telecoms: FTSE W Europe Business Services; Business Services: FTSE W Europe; Auto & Components: FTSE W Europe Auto & Parts; Communications equipment: FTSE W Europe IT Hardware; Ecology Focus: Bloomberg World Energy Alternate Sources; Global Emerging Markets: MSCI Emerging Markets ex-Asia. Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published prior to 30 October 2008: Stocks:

Stock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price)/Current Price, subject to limited management discretion. In most cases, the Fair Value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, if the analyst doesn't think the market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ from the intrinsic fair value. In most cases, therefore, our recommendation is an assessment of the difference between current market price and our estimate of current intrinsic fair value. Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly, within this horizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or downside implied by the recommendation. • A "Strong buy" recommendation indicates that upside is more than 20%. • A "Buy" recommendation indicates that upside is between 10% and 20%. • A "Neutral" recommendation indicates that upside or downside is less than 10%. • A "Reduce" recommendation indicates that downside is between 10% and 20%. • A "Sell" recommendation indicates that downside is more than 20%. Sectors:

A "Bullish" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A "Neutral" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A "Bearish" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation. Price targets Price targets, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement of any price target may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.

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Multi-Strategy | Asia Paul Schulte

3 September 2009 Nomura 88

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