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  • For distributors/institutional/professional investors use only. The content of the presentation should not be reproduced /distributed to the public without prior approval of Franklin Templeton Investments.For Financial Professional Use Only / Not for Distribution to the PublicFor distributors/institutional/professional investors use only. The content of the presentation should not be reproduced /distributed to the public without prior approval of Franklin Templeton Investments.

    EMERGING MARKETS:NEW ECONOMY OPPORTUNITIESFeng DingDirector, Emerging Markets EquityGlobal Product Management

    CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

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    Emerging Markets:Why Now?

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    Politics and Populismacross Developed Markets

    Source: Boris Johnson: http://snappa.static.pressassociation.io/assets/2015/06/17124034/1434541231-dcf7a33bc96928df154a7685e03afadb-600x800.jpgDonald Trump: https://www.donaldjtrump.com/about

    http://snappa.static.pressassociation.io/assets/2015/06/17124034/1434541231-dcf7a33bc96928df154a7685e03afadb-600x800.jpg

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    EM Earnings Power And Cash Flows Continue To ImproveCommodity Prices and Exports Supportive of Earnings Turnaround

    EM Exports, EM Corporate Earnings and Commodity Prices

    Source : ©FactSet Research Systems,MSCI, Bloombergrs. Note: Exports are based on the value of goods exported by developing countries and do not include services. Earnings are based on 12-month fCommodity prices are based on the Bloomberg Commodity Index. Last Updated: Exports numbers are the latest as of 09/29/2017, The rest are updated as of 12/29/2017

    '08 '09 '10 '11 '12 '13 '14 '15 '16 '17-60

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    Commodity

    Exports

    EarningsGrowth

    12/31/2007 - 12/29/2017

    Exports, World, USD - Emerging EconomiesMSCI EM (Emerging Markets) - 12 Month Forward Earnings GrowthBloomberg Commodity Index - Price

    3

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    EM Earnings Power And Cash Flows Continue To ImproveFree Cash Flow Growth, EPS Growth

    For illustrative and discussion purposes only. Past performance is not an indicator or a guarantee of future results. Source: FactSet, BoA Merrill Lynch Global Research, MSCI, IBES estimates. 12 months forward EPS Growth.

    Asia ex-Japan Free Cash Flow2007 – 2018E

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    2007 2009 2011 2013 2015 2017E

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    EM Earnings Expectations RisingJanuary 2012 – December 2017

    0%

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    20%

    2012 2013 2014 2015 2016 2017MSCI EM MSCI World

    4

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    EM ValuationsCheap Relative to DM But Not Historically

    5

    Source : ©FactSet Research Systems,MSCI, Developed Markets as represented by the MSCI World ; EM as represented by MSCI EM;Last Updated:12/29/2017

    '08 '09 '10 '11 '12 '13 '14 '15 '16 '176

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    EmergingMarkets:12.50

    DevelopedMarkets:17.04

    12/31/2007 - 12/29/2017MSCI EM (Emerging Markets) - Price to Earnings - Next 12 Months - Monthly (Index)MSCI The World Index - Price to Earnings - Next 12 Months - Monthly (Index)

    Source : ©FactSet Research Systems, MSCI, Last Updated: 12/29/2017

    '08 '09 '10 '11 '12 '13 '14 '15 '16 '17-5

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    DM EPSGrowth:10.02

    EM EPSGrowth:13.05

    12/31/2007 - 12/29/2017

    MSCI EM (Emerging Markets) - IBES Aggregates - EPS Growth 12 MonthMSCI World Index - IBES Aggregates - EPS Growth 12 Month

    P/E NTM 12 Months EPS Growth

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    EM Fund Flow Cycles2003 – 2017

    EM Equity Fund Flows2013 – 2017

    Emerging Markets: FlowsFlows Accelerating but Remain Muted Relative to History

    -50

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    2013 2014 2015 2016 2017

    USD

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    0 12 24 36 48 60 72

    % o

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    No. of weeks

    4/9/200311/3/20043/11/200912/21/20117/13/2016

    For illustrative and discussion purposes only. Past performance is not an indicator or a guarantee of future performance.Source: Morgan Stanley Research, Citi Research, EPFR Global. As of December 2017.

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    MSCI EM Currency IndexJanuary 2015 – December 2017

    80

    85

    90

    95

    100

    105

    110

    0.0%

    0.5%

    1.0%

    1.5%

    2.0%

    Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17U.S. Fed Funds Rate (LHS)MSCI EM Currency Index (RHS)JPM EM Currency Index (RHS)

    Emerging Markets: Fed ImpactImpact on Emerging Markets Currencies Historically Limited

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    Jun-03 Jun-04 Jun-05 Jun-06U.S. Fed Funds Rate (LHS)MSCI EM Currency Index (RHS)JPM EM Currency Index (RHS)

    MSCI EM Currency IndexJune 2003 – June 2007

    Jun-07

    Fed announces unwinding of QE

    For illustrative and discussion purposes only. Past performance is not an indicator or a guarantee of future performance.Source: FactSet, as of December 2017. See www.franklintempletondatasources.com for additional data provider information.

    http://www.franklintempletondatasources.com/

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    Emerging Markets May Offer Promising OpportunitiesRising Wealth Expected to Fuel Strong Growth Prospects

    Consumption by the Middle Class1 (USD Trillions)

    For illustrative and discussion purposes only. 1. Source: Brookings Development Indicators, as of June 2016. There is no assurance that any projection, estimate or forecast will be realised.

    Past performance is not an indicator or a guarantee of future performance.

    Emerging Markets Emerging Asia Developed Markets

    193%Growth Rate

    9.513.9

    20.1

    27.9

    2015 2020 2025 2030

    343%Growth Rate

    4.68.0

    13.4

    20.4

    2015 2020 2025 2030

    10%Growth Rate

    13.6 14.1 14.6 14.9

    2015 2020 2025 2030

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    Emerging Markets:New Economy Rising

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    Technology: Secular Long Term GrowthEmerging Markets Most Tech Dominated Index

    MSCI EM Index Sector EvolutionJanuary 2007 – December 2017

    For illustrative and discussion purposes only. Past performance is not an indicator or a guarantee of future results.Source: FactSet, MSCI, as of December 2016. MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI.

    IT Sector Weighting: MSCI IndicesDecember 2011 vs. December 2017

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    2007 2009 2011 2013 2015 2017

    Energy/Materials Technology Consumer

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    EM USA Japan Europe

    IT S

    ecto

    r Weig

    htin

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    )

    Dec-17 Dec-11

  • For distributors/institutional/professional investors use only. The content of the presentation should not be reproduced /distributed to the public without prior approval of Franklin Templeton Investments.Source: WIPO

    11

    Technology Remains DominantEmerging Vs Developed Markets: Patent Applications

    % of Total Applications

    78.3

    21.7

    2006

    Developed Markets Emerging Markets

    49.650.4

    2016

    Developed Markets Emerging Markets

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    Technology Remains DominantTechnology: Rising InnovationNo Longer Simply Low Cost Component Manufacturing

    MSCI EM Index: IT Sub-Sector EvolutionDecember 2007 – December 2017

    For illustrative and discussion purposes only. Past performance is not an indicator or a guarantee of future results.Source: FactSet, MSCI, as of June 2017. MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI.

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    2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

    Sub-

    Sect

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    (%)

    Technology Hardware & EquipmentSoftware & ServicesSemiconductors & Semiconductor Equipment

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    USA Top 7 Retailers by Revenue*2015

    China Top 7 Retailers by Revenue*2015

    Consumer: eCommerce DominanceTransformative Impact on Chinese Retail

    For illustrative and discussion purposes only. Past performance is not an indicator or a guarantee of future performance.Source: KPCB; Euromonitor, 2015. Note: *Revenue defined as retail value of goods excluding tax, and excluding certain transaction categories such as consumer-to-consumer, motor vehicles & auto parts, tickets, travel bookings, delivery foodservice, returns, and others, hence may differ from company disclosed total revenue or gross merchandise value figures.

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    Key Emerging Markets Investment Themes

    14

    These statements reflect the analysis and opinions of the speaker as of December 2017, and may differ from the opinions of other portfolio managers, investment teams or platforms at Franklin Templeton Investments. Because market and economic conditions are subject to rapid change, the analysis and opinions provided may change without notice. The statements do not provide a complete analysis of every material fact regarding any country, market, industry or security. An assessment of a particular country, market, security, investment or strategy is not intended as an investment recommendation nor does it constitute investment advice. Statements of fact are from sources considered reliable, but no representation or warranty is made as to their completeness or accuracy.

    Top Themes Investment Ideas

    Technology Is Reshaping the Global Economy

    E-Commerce Continues to AccelerateE-commerce is still very much a penetration growth story, resonating in several markets including Russia (Yandex) and South Korea (NAVER).

    New Mobility Is Disrupting Industries

    Many EM companies have stepped up to play a dominant role in producing automobile solutions not only in terms of software (Baidu), but also in terms of components including batteries (Samsung Electronics) and tires (Hanook Tire).

    Fintech Is Driving Financial Institutions Inclusion Banks are increasing investments into their fintech arms (Itau Unibanco, Ping An Insurance).

    Consumerism, a Play on Demographics

    PenetrationFavorable demographics of young and growing middle class populations bring opportunities to untapped consumer spending potential.

    Premiumization

    Looking beyond the penetration story, premiumization is the next natural transition as income rises. Examples include higher-end automobiles (Brilliance China) and leisure (entertainment, resorts, movie theatres, gaming and travel).

    Shifting Health Care Landscape

    Demographic shifts and societal changes are intensifying pressures on health care systems, and more hospitals and pharmaceuticals are taking steps to cater to this market (Biocon, Glenmark Pharma).

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    Emerging Markets Small Cap

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    A Wealth of Investment OpportunitiesEM Small Cap Companies Offer a Broad Set of Options

    1. As of 31 December 2017. Emerging Markets Small Cap companies includes emerging markets and frontier markets within MSCI Emerging Markets and FrontierMarkets Index. Small cap companies are defined as those with market cap below US$2 billion.2. 30-day daily average.Sources: Bloomberg LP; MSCI. Please see Important Disclosures in the back of this presentation for additional information.

    US$39bnstocks of small cap companies are traded daily1,2

    23%of emerging markets’ market cap is comprised of small cap companies1

    18,251more small cap companies are listed than larger cap companies1

    Sizable Investment Universe

    Broad Opportunity Set

    Ample Liquidity

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    16.6 16.614.4

    12.1

    8.8 8.8 8.76.9

    4.02.2

    0.9

    10.2

    27.7

    5.27.4

    2.7 2.8

    23.5

    6.6

    2.4

    6.84.8

    ConsumerDiscretionary

    InformationTechnology

    Industrials Materials Health Care Real Estate Financials ConsumerStaples

    Utilities Energy TelecommServices

    MSCI Emerging Markets Small Cap Index MSCI Emerging Markets Index

    17

    Complementary to Existing Large Cap AssetsSmall Cap Companies Offer Different Exposures

    Source: FactSet.

    Sector ExposuresAs of 31 December 2017

    Market Capitalization ExposuresAs of 31 December 2017

    Market Cap Above $2bn

    Market Cap Below $2bn

    MSCI Emerging Markets Index 99% 1%MSCI Emerging Markets Small Cap Index 22% 78%

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    Templeton EM Smaller Companies FundHigher Exposure to Consumer Sectors

    Source: FactSet.

    Sector ExposuresAs of 31 December 2017

    20% 17% 10% 12% 9% 3% 7%9% 7%

    Templeton Emerging Markets Smaller Companies Fund MSCI Emerging Markets Small Cap Index MSCI Emerging Markets Index

    Consumer Discretionary

    Health Care

    Consumer Staples

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    Idiosyncratic ReturnsEM Small Cap: Stock Inefficiencies

    Medy Tox: Korean Botox Producer

    19

    As of December 2017. This is an example of an investment purchased pursuant to investment advice of Templeton Emerging Markets Group; the investment may or may not be currently held by a fund or any investment vehicle advised by Templeton Emerging Markets Group. This is not a complete analysis of every material fact regarding any industry, security or investment and should not be viewed as an investment recommendation. This is intended to provide insight into the advisor’s portfolio selection process. The actions taken with respect to this investment and its performance may not be representative of other advice of the advisor or investments of the fund. Factual statements are taken from sources considered reliable, but have not been independently verified for completeness or accuracy by the fund’s manager or its affiliates. These opinions may not be relied upon as investment advice or as an offer for a particular security or as an indication of trading intent for any Franklin Templeton fund. All portfolio holdings are subject to change. In addition, it should not be assumed that any securities transactions discussed were or will prove to be profitable.

    0

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    2009 2010 2011 2012 2013 2014 2015 2016 2017

    KRW

    Off benchmark, under-researched, under-owned and undervalued company trading at 13x PE with market cap of $106m at purchase. 90 day ADV of $1.5m. Only 5 local research firms cover stock.

    Added exposure on weakness during 2016. Dec-2017: Stock now covered by 18 sell side analysts, including international firms. 37x forward PE, 90 day ADV of $18m, market cap of $2.4bn.

    Stock added to MSCI EM Small Cap Index in June 2012, trading at 19x forward PE with 90 day ADV of $5m.

    Trimmed exposure during 2015. Dec-2015: Re-rated to 63x forward PE, with market cap of $2.3bn.

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    Medy Tox: Korean Botox Producer

    Local Innovation• One of only seven companies

    globally with the expertise to produce botox products, both for medical and cosmetic purposes

    • Medy Tox sales have grown to over 30% of Korean market share but only c.3% globally

    • Global botox market exhibiting rapid growth

    • Next generation of product currently undergoing clinical trials

    International Licensing• Licensing agreement with the

    largest botox product maker, U.S company Allegan, with c.75% global market share

    • Allergan to distribute next generation of Medy Tox products in developed countries once commercialised, expected 2018 / 2019

    • Company is expanding capacity with third factory to be completed in 2019

    • Delay in Allergan clinical trials and Hugel lawsuit

    Recent Weakness• Exceptional growth and profitability:

    – Strong quarterly profit growth– 45% return on equity, 44% net

    profit margin• Halved shareholdings during 2015 on

    strength; resumed purchases on cheaper valuations in 2016:

    – Stock de-rated in 2016 from 63x forward PE to 34x by year end

    – 2017/18: Rebound in share price

    Initial Analysis and Thesis Sources of Potential Upside / RisksFinancials/ValuationAs of December 2017

    Idiosyncratic ReturnsEM Small Cap: Stock Inefficiencies

    20

    As of December 2017. This is an example of an investment purchased pursuant to investment advice of Templeton Emerging Markets Group; the investment may or may not be currently held by a fund or any investment vehicle advised by Templeton Emerging Markets Group. This is not a complete analysis of every material fact regarding any industry, security or investment and should not be viewed as an investment recommendation. This is intended to provide insight into the advisor’s portfolio selection process. The actions taken with respect to this investment and its performance may not be representative of other advice of the advisor or investments of the fund. Factual statements are taken from sources considered reliable, but have not been independently verified for completeness or accuracy by the fund’s manager or its affiliates. These opinions may not be relied upon as investment advice or as an offer for a particular security or as an indication of trading intent for any Franklin Templeton fund. All portfolio holdings are subject to change. In addition, it should not be assumed that any securities transactions discussed were or will prove to be profitable.

  • For distributors/institutional/professional investors use only. The content of the presentation should not be reproduced /distributed to the public without prior approval of Franklin Templeton Investments.

    Why Emerging Markets?1. Trump and Fed: Fear and uncertainty passing2. Fundamentals improving yet valuations still cheap; asset class under-owned3. EM asset class has transformed: Tech, consumer, healthcare – not commodities

    Why EM Small Cap Asset Class?1. Vast investment universe, $39bn daily turnover, $6.0tn market cap2. Under-researched stocks provide opportunities3. Market inefficiencies, corporate governance risks – ideal for active management

    Why Templeton?1. Unparalleled on the ground research; 30 years of active EM investing2. Enhanced team structure and research process3. Alpha opportunities from inefficient markets and corporate governance focus

    Templeton EM Conclusion

    21

    These statements reflect the analysis and opinions of the speaker as of December 2017, and may differ from the opinions of other portfolio managers, investment teams or platforms at Franklin Templeton Investments.Because market and economic conditions are subject to rapid change, the analysis and opinions provided may change without notice. The statements do not provide a complete analysis of every material fact regarding any country, market, industry or security. An assessment of a particular country, market, security, investment or strategy is not intended as an investment recommendation nor does it constitute investment advice. Statements of fact are from sources considered reliable, but no representation or warranty is made as to their completeness or accuracy.

  • For distributors/institutional/professional investors use only. The content of the presentation should not be reproduced /distributed to the public without prior approval of Franklin Templeton Investments.

    Appendix: Management Profile

  • For distributors/institutional/professional investors use only. The content of the presentation should not be reproduced /distributed to the public without prior approval of Franklin Templeton Investments.

  • For distributors/institutional/professional investors use only. The content of the presentation should not be reproduced /distributed to the public without prior approval of Franklin Templeton Investments.

    Copyright © 2018. Franklin Templeton Investments. All rights reserved.

    Franklin Templeton Investments (Asia) Limited is the issuer of this document. This document is neither an offer nor solicitation to purchase shares of thefund; applications for shares may only be made on forms of application available with the Offering Documents. Investments are subject to investmentrisks, fund value may go up as well as down and past performance is not an indicator or a guarantee of future performance. The investment returns aredenominated in fund currency. Investors investing in funds denominated in non-local currency should be aware of the risk of exchange rate fluctuationsthat may cause a loss of principal. Investors should read carefully the Offering Documents (including the section "Risk Considerations") for the relevantrisks associated with the investment in the fund before investing.

    Distribution of this document may be restricted in certain jurisdictions. This document does not constitute the distribution of any information or the makingof any offer or solicitation by anyone in any jurisdiction in which such distribution or offer is not authorized or to any person to whom it is unlawful todistribute such a report or make such an offer or solicitation. This document has not been reviewed by the Securities and Futures Commission of HongKong.

    Slide Number 1Slide Number 2Slide Number 3Slide Number 4Slide Number 5EM Valuations�Cheap Relative to DM But Not HistoricallyEmerging Markets: Flows�Flows Accelerating but Remain Muted Relative to HistoryEmerging Markets: Fed Impact�Impact on Emerging Markets Currencies Historically Limited�Slide Number 9Slide Number 10Slide Number 11Technology Remains Dominant�Emerging Vs Developed Markets: Patent ApplicationsSlide Number 13Consumer: eCommerce Dominance�Transformative Impact on Chinese RetailKey Emerging Markets Investment Themes�Slide Number 16Slide Number 17Slide Number 18Slide Number 19Slide Number 20Slide Number 21Templeton EM �ConclusionSlide Number 23Slide Number 24Slide Number 25

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