MONTHLY MORNING MEETING APRIL 2015 · MARKET OUTLOOK ISM Manufacturing PMI came in at 52.9 in Feb...

MONTHLY MORNING MEETING APRIL 2015

PAGE 2 INDICES 3 MARKET INFORMATION 5 MARKETS REVIEW 14 BOND MARKET REVIEW 17 STAR RATING

PRESENTED BY IFAST FINANCIAL (HK) LTD

p5. USA

p11. Singapore p13. Malaysia p9. Indonesia p9. Thailand

p7. South Korea

p12. India

p8. China

p8. Taiwan

p8. Hong Kong

p10. Brazil

p10. Russia

p7. Japan

p6. Europe

DISCLAIMER: THIS REPORT IS NOT TO BE CONSTRUED AS AN OFFER OR SOLICITATION FOR THE SUBSCRIPTION, PURCHASE OR SALE OF ANY FUND . NO INVESTMENT SHOULD BE TAKEN WITHOUT FIRST VIEWING A FUND’ PROSPECTUS. ANY ADVICE HEREIN IS MADE ON A GENERAL. BASIS AND DOES NOT TAKE INTO ACCOUNT THE SPECIFIC INVESTMENT OBJECTIVES OF THE SPECIFIC PERSON OR GROUP OF PERSONS. PAST PERFORMANCE AND ANY FORCAST IS NOT NECESSARILY INDICATIVE OF LIKELY PERFORMANCE OF THE FUND.THE VALUE OF UNITS AND THE INCOME FROM THEM MAY FALL AS WEEL AS RISE. OPINIONS EXPRESSED HEREIN ARE SUBJECT TO CHANGE WITHOUT NOTICE. INVESTMENT INVOLVES RISK. THE MATERIAL IS ISSUED BY IFHK AND HAS NOT BEEN REVIEWED BY SFC.

MONTHLY MORNING MEETING APRIL 2015. PRESENTED BY iFAST FINANCIAL (HK) LTD ©

PAGE 2

INDICES

US Market & Market PE

SOURCE: BLOOMBERG & IFAST COMPILATIONS

(x) Index Europe Market & Market PE


(x) Index

Singapore Market & Market PE


(x) Index

India Market & PE Market PE


(x) Index

Technology & Market PE


(x) Index

China H-Share Market & Market PE


(x) Index

Asia ex-Japan Market & Market PE


(x) Index

Japan Market & Market PE


(x) Index



PAGE 3

MARKET INFORMATION (AS AT 31 MAR 2015)

INDEX AS AT 1 APR 2015

CHANGE SINCE 28 Feb 2015

2015 RETURN YTD (%)

2014 RETURN (%)

5 YEAR BOND YIELD (%)

USA (S&P 500) 2067.9 -1.74% 0.4% 11.4% 1.4%

Europe (Stoxx 600) 397.3 1.30% 16.0% 4.4% -0.1%

Japan (Nikkei 225) 19034.8 2.18% 9.1% 7.1% 0.1%

Emerging Markets (MSCI EM) 974.6 -1.59% 1.9% -4.6% 6.2%

Asia ex Japan (MSCI Asia ex Japan) 589.9 0.29% 4.6% 2.2% 2.5%

Singapore (STI) 3440.7 1.30% 2.2% 6.2% 1.8%

Hong Kong (HSI) 25061.3 0.31% 6.2% 1.3% 1.1%

Taiwan (Taiwan Weighted) 9507.7 -0.37% 2.2% 8.1% 1.0%

South Korea (KOSPI) 2028.5 2.78% 5.9% -4.8% 1.8%

China (HS Mainland 100) 7858.8 1.53% 8.3% 4.9% 3.5%

Malaysia (KLCI) 1826.5 0.53% 3.7% -5.7% 3.6%

Thailand (SET Index) 1514.1 -5.11% 1.1% 15.3% 2.2%

India (SENSEX) 27968.7 -4.78% 1.7% 29.9% 7.7%

Indonesia (JCI) 5464.1 1.25% 4.5% 22.3% 7.3%

Russia (RTSI$) 880.4 -1.81% 11.3% -45.2% 12.1%

Brazil (IBOV) 51150.2 -0.84% 2.3% -2.9% 13.4%

Australia (S&P/ASX 200) 5860.8 -0.63% 8.3% 1.1% 1.9%

Technology (NASDAQ 100) 4333.7 -2.41% 2.3% 17.9% -

P/E Yr 2015 P/E Yr 2016 P/E Yr 2017 Earnings

Growth 2015 (%) Earnings

Growth 2016 (%)

USA (S&P 500) 17.5 15.5 13.9 -1.2% 12.7%

Europe (Stoxx 600) 16.8 14.9 13.4 7.6% 12.8%

Japan (Nikkei 225)* 17.9 16.3 - 14.4% 9.9%

Emerging Markets (MSCI EM) 12.4 10.9 9.8 0.9% 13.3%

Asia ex Japan (MSCI Asia ex Japan) 12.8 11.5 10.5 6.1% 11.0%

Singapore (STI) 14.2 12.9 12.0 5.6% 10.0%

Hong Kong (HSI) 12.0 10.9 10.0 -1.6% 10.4%

Taiwan (Taiwan Weighted) 13.2 12.2 11.3 13.5% 8.0%

South Korea (KOSPI) 11.4 10.2 9.5 7.8% 11.3%

China (HS Mainland 100)+ 10.6 9.4 8.4 0.0% 12.4%

Malaysia (KLCI) 16.7 15.4 14.3 3.1% 8.1%

Thailand (SET Index) 14.9 13.0 11.7 9.3% 14.3%

India (SENSEX)* 15.6 13.2 13.2 17.6% 18.7%

Indonesia (JCI) 16.2 13.8 12.3 13.4% 17.7%

Russia (RTSI$) 6.0 5.2 4.4 -20.7% 17.0%

Brazil (IBOV) 12.2 10.0 8.2 27.5% 22.7%

Australia (S&P/ASX 200)^ 17.0 15.7 14.2 -3.8% 8.8%

Technology (NASDAQ 100) 18.8 16.6 14.6 6.0% 13.4%

SOURCE: IFAST COMPILATIONS, BLOOMBERG ESTIMATES ALL EARNINGS GROWTH FIGURES WERE UPDATED AS AT DATE SPECIFIED

RETURNS ARE IN THE RESPECTIVE LOCAL CURRENCY TERMS AND MSCI INDEX RETURNS ARE IN USD TERMS

MARKET INFORMATION



PAGE 4

EARNINGS YIELD

EARNINGS YIELD 2015 (%) 5 YEAR

BOND YIELD (%) EXCESS YIELD (%)

USA (S&P 500) 5.7% 1.4% 4.3%

Europe (Stoxx 600) 6.0% -0.1% 6.1%

Japan (Nikkei 225)* 5.6% 0.1% 5.4%

Emerging Markets (MSCI EM) 8.1% 6.2% 1.9%

Asia ex Japan (MSCI Asia ex Japan) 7.8% 2.5% 5.3%

Singapore (STI) 7.0% 1.8% 5.2%

Hong Kong (HSI) 8.3% 1.1% 7.3%

Taiwan (Taiwan Weighted) 7.6% 1.0% 6.5%

South Korea (KOSPI) 8.8% 1.8% 7.0%

China (HS Mainland 100)+ 9.4% 3.5% 6.0%

Malaysia (KLCI) 6.0% 3.6% 2.4%

Thailand (SET Index) 6.7% 2.2% 4.5%

India (SENSEX)* 6.4% 7.7% -1.3%

Indonesia (JCI) 6.2% 7.3% -1.2%

Russia (RTSI$) 16.6% 12.1% 4.5%

Brazil (IBOV) 8.2% 13.4% -5.2%

Australia (S&P/ASX 200)^ 5.9% 1.9% 4.0%

MARKET STAR RATINGS OUR 3 YEAR VIEW

Asia ex-Japan 5.0 Very Attractive

Emerging Markets 5.0 Very Attractive

US 2.5 Neutral

Europe 2.5 Neutral

Japan 3.0 Attractive

MARKET STAR RATINGS OUR 3 YEAR VIEW

Singapore 4.0 Very Attractive

China 5.0 Very Attractive

Hong Kong 5.0 Very Attractive

Technology 3.0 Attractive

South Korea 4.5 Very Attractive

Indonesia 2.5 Neutral

India 3.5 Attractive

Thailand 2.0 Unattractive

Malaysia 3.0 Attractive

Taiwan 4.0 Very Attractive

Brazil 4.0 Very Attractive

Russia 4.5 (Up from 4.0) Very Attractive

Australia 2.5 Neutral

SOURCE: IFAST FINANCIAL COMPILATIONS, BLOOMBERG ESTIMATES. EARNINGS YIELD IS THE RECIPROCAL OF THE PRICE-EARNINGS RATIO. IT IS BASICALLY

THE AMOUNT OF EARNINGS YOU PURCHASE FOR EVERY DOLLAR WORTH OF THE STOCK (I.E. IF A MARKET HAS AN ESTIMATED PE OF 12X, THE EARNINGS YIELD IS 8.3%) *JAPAN AND INDIA PE FORECASTS ARE BASED ON FISCAL YEAR ENDED MARCH 2014 2015 AND 2016 RESPECTIVELY

^AUSTRALIA PE FORECASTS ARE BASED ON FISCAL YEAR ENDED JUNE 2013, 2014 AND 2015 AND ALL RETURNS ARE IN THEIR RESPECTIVE LOCAL CURRENCY TERMS.

+THE HANG SENG MAINLAND 100 INDEX (HSML100) COMPRISES BOTH H-SHARE COMPANIES AND RED-CHIP STOCKS AS WELL AS SHARES OF OTHER HONG KONG –LISTED MAINLAND COMPANIES.

HSML100 INDEX DERIVES A MAJORITY OF THEIR SALES REVENUE FROM MAINLAND CHINA. THIS SUMMARY IS NOT TO BE CONSTRUED AS AN OFFER OR SOLICITATION FOR THE SUBSCRIPTION, PURCHASE OR SALE OF ANY FUND. NO INVESTMENT DECISION SHOULD

BE TAKEN WITHOUT FIRST VIEWING A FUND'S PROSPECTUS. ANY ADVICE HEREIN IS MADE ON A GENERAL BASIS AND DOES NOT TAKE INTO ACCOUNT THE SPECIFIC INVESTMENT OBJECTIVES OF THE SPECIFIC PERSON OR GROUP OF PERSONS. PAST PERFORMANCE AND ANY FORECAST IS NOT NECESSARILY INDICATIVE OF THE FUTURE OR LIKELY PERFORMANCE OF THE FUND. THE VALUE OF UNITS AND THE INCOME FROM THEM MAY FALL AS WELL AS RISE. OPINIONS EXPRESSED HEREIN ARE SUBJECT TO

CHANGE WITHOUT NOTICE. PLEASE READ OUR DISCLAIMER

MARKET INFORMATION

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PAGE 5

MARKETS REVIEW

REGIONAL MARKETS UPDATE

US MARKET (2.5 STARS – NEUTRAL)

MARKET OUTLOOK

ISM Manufacturing PMI came in at 52.9 in Feb 15, down from a reading of 53.5 in Jan 15

ISM Non-Manufacturing composite came in at 56.9 in Feb 15, up from prior 56.7 in Jan 15

Nonfarm payrolls rose by 295,000 in Feb 15, after a downward-revised 239,000 increase in Jan 15

Private payrolls rose by 288,000 in Feb 15, after a downward-revised 237,000 increase in Jan 15

Unemployment rate declined to 5.5% in Feb15, down from 5.7% in Jan 15

Factory orders fell -0.2% m-o-m in Jan 15, after a downward-revised -3.5% decline in Dec 14

Seasonally adjusted Producer prices for Final Demand goods fell -0.5% m-o-m in Feb 15, up from a -0.8% decrease in Dec 14

Advance retail sales decreased -0.6% m-o-m in Feb 15, after a -0.8% m-o-m decline in Jan 15

Excluding autos and gas, retail sales decreased -0.2% m-o-m in Feb 15, after a downward-revised -0.1% growth rate in Jan 15

Industrial production increased 0.1% m-o-m in Feb 15, after a downward-revised -0.3% decrease in Jan 15

Leading index posted a 0.2% m-o-m increase in Feb 15, after a 0.2% gain in Jan 15

Housing starts increased to a 897,000 annual rate in Feb 15, after an upward-revised 1.081 million rate in Jan 15

Building permits increased to a 1.092 million annual rate in Feb 15, after an upward-revised 1.060 million rate in Jan 15

Existing home sales increased 1.2% m-o-m in Feb 15 to a 4.88 million annual rate, after a -4.9% m-o-m decrease in Jan 15

Consumer confidence at 96.4 in Feb 15, down from an upward-revised 103.8 reading in Jan 15

Based on the S&P/Case-Shiller Composite 20, US home prices gained 4.46% y-o-y in Dec 14, after a downward-revised 4.29% increase in Nov 14

Earnings estimates for corporate America (represented by the S&P 500 index) on aggregate did not see major changes over the course of March – earnings were revised slightly lower by -0.07%, -0.31% and -0.55% month-to-date for 2015, 2016 and 2017 respectively (earnings are lower -4.4%, -4.0% and -4.7% respectively year-to-date). On a sector basis, the pace of earnings downgrades for the energy sector in particular has slowed: estimated earnings are being revised lower -4.0%, -4.9% and -1.5% month-to-date for 2015, 2016 and 2017 respectively. The materials sector has also seen continued downgrades in estimated earnings, with the sector’s earnings lowered by -1.7%, -1.6% and -1.7% month-to-date respectively for 2015, 2016 and 2017 (-8.9%, -8.2% and -6.5% respectively on a year-to-date basis). Companies like Freeport-McMoRan (a copper and minerals miner) and Nucor (a steel manufacturer) saw their EPS revised downwards by -18.7% and -13.7% respectively month-to-date, weighing on the materials sector’s earnings forecasts. On the other hand, the industrials sector (comprising about 10.4% of the S&P 500 index) led the way in earnings upgrades, with 2015’s, 2016’s and 2017’s estimated earnings revised 4.0%, 2.6% and 2.8% respectively higher month-to-date. Year-to-date, the US health care sector has seen the least changes in earnings estimates, and is the top performing sector as well, posting a 7.7% price return in USD terms.

With regards to US economic data, February’s reading of the Institute for Supply Management's manufacturing index declined to 52.9, down from a prior reading of 53.5 recorded in January and slightly lower than consensus forecasts of a 53.0 reading. The ISM Prices Paid index recorded a reading of 35.0 in February, unchanged from a prior 38.5. February’s ISM Manufacturing PMI data remains in expansionary territory, and manufacturing in the US is expected to maintain accelerating momentum, contributing positively to US GDP going forward. Moving on to the labour market, job openings in the US, according to the Bureau of Labor Statistics, rose by 3.4% in January 2015 to 4.998 million, up from a downward-revised 4.877 million in December 2014, and marking a 14-year high that was last seen in January 2001. Job listings increased across manufacturing, retail businesses, leisure and hospitality services in January. Additionally, 2.799 million people quit their job in January, with the quit rate rising to 2.0% in January, matching the highest level seen since April 2008 (1.9%). The latest JOLTS data confirms the strength seen in US non-farm payroll data (non-farm payrolls have posted readings above 200,000 for twelve consecutive months), indicating the improving conditions of the US labour market, which alongside lower energy costs, would bolster consumer spending in the US going forward.

During the latest meeting of the Federal Open Market Committee (FOMC), the Federal Reserve stated that it will only consider raising the benchmark federal funds rate "when it has seen further improvement in the labour market and is reasonably confident that inflation will move back to its 2.0% objective in the medium term," but added that a rate hike in April is unlikely. The Fed also dropped the use of the word "patient" in its forward guidance for normalising monetary policy, but chairwoman Yellen reiterated during the press conference that the "modification of our guidance should not be interpreted to mean that we have decided on the timing of that increase. In other words, just because we removed the word "patient" from the statement doesn't mean we are going to be impatient." Instead, the Fed focused on further improvements in the labour market and the prospects of higher inflation for its guidance, emphasizing that the rate hike schedule remains data-dependent. Additionally, chairwoman Yellen described economic growth as "moderated somewhat" as compared to an earlier "expanding at a solid pace." The US central bank revised its 2015 GDP forecast for the US economy down from a prior 2.8% to 2.5% as well as its 2015 inflation forecast, from a prior 1.7% to 1.4%. Additionally, the Fed also observed a weakening of export growth, alluding to the strength of the USD affecting exports. In short, this latest update from the Fed suggests that it is anticipated that the Fed will err on the side of caution and keep rates lower for longer (with more muted assessments of inflation and growth) – any rate hike in the future is expected to be gradual and paced out.

As of 30 March 2015, the US equity market (represented by the benchmark S&P 500 index) trades at 17.6X, 15.6X and 14.0X 2015’s, 2016’s and 2017’s estimated earnings respectively. Economic growth in the US is expected to remain on positive trajectory, lending support to corporate earnings growth going forward. Valuations of the market have risen over the past 3 years on the back of strong market performance (which has outpaced earnings growth), and are now more than normalised at this current point of time, although we are cognisant that our 15.0X fair PE ratio may prove conservative as interest rates remain fairly low by historical standards. Forecasted total returns by end-2017 now stands at an average annualised 5.5% gain, with the contraction of the valuation multiple detracting from expected returns: we advise investors to lower their return expectations and underweight their exposure to US equities in their

portfolios. We maintain a 2.5 stars “Neutral” rating for the US equity market.



PAGE 6

MARKETS REVIEW


EUROPE (2.5 STARS – NEUTRAL)

MARKET OUTLOOK

EUROZONE AGGREGATE

Advance Eurozone PMI composite rose to 54.1 in Mar 15, up from an upward finalised 53.3 reading in Feb 15

Advance Consumer Confidence rose to -3.7 in Mar 15, up from a -6.7 level in Feb 15

Retail sales rose 3.7% y-o-y in Jan 15 after an upward revised 3.1% growth rate in Dec 14

ZEW Survey (economic sentiment) jumped to 62.4 in Mar 15, up from 52.7 in Feb 15

Sentix Investor Confidence rose to 18.6 in Mar 15, up from 12.4 in Feb 15

Final Core CPI rose 0.7% in Feb 15, up from 0.6% in Jan 15 GERMANY

Advance composite PMI rose to 55.3 in Mar 15, up from an upward finalised 53.8 level in Feb 15

Factory orders fell -0.1% y-o-y in Jan 15 from an upward finalised 3.9% growth rate in Dec 14

ZEW survey rose for both the current situation and expectations readings, fifth month of improving optimism

IFO surveys (business sentiment and expectations) displayed continued improvement in readings for the month of Mar 15 FRANCE

Preliminary PMI composite fell to 51.7 in Mar 15, down from a 52.2 level in Feb 15

Bank of France business sentiment fell to 96 in Feb 15, down from 98 in Jan 15

European earnings estimates are expected to post relatively strong levels of growth in 2015 and 2016, with consensus expecting earnings to rise by 8% and 11% for the two years respectively, which appears feasible given the extraordinary easy monetary policy and additional stimulus from the European Central Bank (ECB). In terms of the earnings for the various sectors, estimates currently project strong earnings growth for most of the sectors, with only commodity related sectors such as the oil & gas and the basic resources sectors continuing to see downward revisions to their expected earnings in 2015. The oil & gas sector has seen earnings revisions to the downside yet again, with the month of March bringing a downward revision of -1.82% that sees year-to-date earnings revision total -29.6% and earnings growth at -37.5%. The basic resources sector is expected to see earnings decline by -10.1% for the year following a hefty -4.0% downgrade in earnings in March to bring 2015’s earnings growth estimates to -4.4%. While consensus expects 2015 to be a poor year in terms of earnings for the two sectors, 2016 is expected to see them rebound as the oil & gas and basic resources sectors are estimated to post earnings growth of 40.9% and 21.7% respectively. In terms of sectors with the highest earnings growth estimates for 2015, the financial services and the technology sectors are leaders, with estimates of a 33% and 28.0% growth in earnings respectively. Given the cheap credit on offer from the ECB, and expectations of improving credit demand, European banks are also expected to be able to grow their loan books which should enable them to enjoy healthy earnings growth, with the sector expected to post earnings growth of 23% in 2015.

Leading indicators continued to post broad improvement in the month of March, with the Eurozone composite PMI advance reading rising

to 54.1 for the month after an upward finalised 53.3 level in February. Both the services and manufacturing PMI continued to post improvements in readings, with both measures of business activity indicating that activity continued to accelerate in March. On top of improving measures of business activity, sentiment readings and surveys also continued to lend support for optimism that the Eurozone is turning the corner, with improved figures continuing to be seen.

The Stoxx 600 index continued its upwards trajectory in the month of March, eeking out a 0.8% return (in local currency terms, as of 27

March 2015) for the month, bringing year-to-date gains to 15.5%. At current levels, the market trades at 16.6X and 15.0X based on 2015 and 2016 earnings, representing a premium based on 2015’s and 2016’s earnings against our estimated fair PE of 13.5X. We maintain our rating for Europe at

“2.5 stars – Neutral”, and are keeping a close watch on valuations which continue to rise.



PAGE 7

MARKETS REVIEW


NORTH ASIA

MARKET OUTLOOK

Bank of Japan (BOJ) held its target rate unchanged at a range between 0% to 0.1% in Mar 15

Eco Watcher’s Outlook Index rebounded to 53.2 in Feb 15 from 50 in Jan 15

Machine Orders was up 1.9% y-o-y in Jan 15 as compared to the market consensus of a 11.4% y-o-y increase

Merchandise Trade Export increased 2.4% y-o-y in Feb 15 as compared to the market consensus of a 0.3% y-o-y gain. Merchandise

Trade Import was down by -3.6% y-o-y in Feb 15

Consumer confidence rose from 39.1 in Jan 15 to 40.7 in Feb 15

Korean Won (KRW) depreciated against USD by -1.2% YTD as at 30 March 15

The Bank of Korea (BOK) lowered its benchmark 7-day repo rate by 25 basis points to 1.75% in Mar 15

As at 30 March 2015, both of the estimated earnings of Japanese equities for FY 2016 (ended March 2016) and FY 2017 (ended March 2017) have been revised upward 1.6% year-to-date. Earnings of the Japanese equities are expected to increase by 14.6% in FY 2016 and 10.0% in FY 2017. Estimated earnings in FY 2016 of consumer discretionary sector (dominated by auto manufacturers) and IT sector (dominated by electronics manufacturers) are expected to grow by 18.8% and 16.3% respectively. On the other hand, earnings of the South Korean equity market are expected to increase by 22.6% in 2015 and 11.4% in 2016 respectively. KOSPI’s estimated earnings for 2015 and 2016 have been downgraded by 0.8% and 1.6% year-to-date respectively. Banks’ and automakers’ earnings for 2015 have been revised downward by -1.1% and -4.0% month-to-date respectively. The 2015 estimated earnings for IT sector was downgraded by -1.5% over the past month.

During the month, represented by Nikkei 225 Index, the Japanese equities surpassed 19000-mark for the first time since 19 April 2000. Markets have speculated that the Bank of Japan will expand its asset purchase programme due to the climbing risk of deflation. The country’s core CPI (excluding food and last year’s sale tax hike) rose 0% year-on-year in February, the first time that inflation has hit zero since May 2013. The BOJ governor Haruhiko Kuroda admitted in this month that the 2-year target of a 2% inflation rate will not be achieved. The stock market has nevertheless hit 15-year highs, partly due to the climbing expectation on more easing to be offered by the central bank.

Bank of Korea (BOK) unexpectedly lowered its benchmark 7-day repo rate by 25 basis points to a record low of 1.75% on 11 March 2015. The surprise rate cut saw the bank cutting interest rate for the first time in five months. The BOK governor Lee Ju-yeol said it was a pre-emptive move to prevent the economy from falling into deflation and also to support economic growth. South Korea’s CPI grew 0.5% year-on-year in February 2015, the slowest pace in 18 months. In addition, the recovery in domestic consumption was considerably weak. The BOK governor said that the bank will take more actions to boost the momentum in the current recovery despite the rates were cut twice in last year.

As at 30 March 2015, estimated PE of Nikkei 225 Index is at 18.3X for FY 2016 and 16.6X for FY 2017. This is below to the mean level of 19X over the past 10 years; the estimated PE for the KOSPI index was at 11.3X and 10.2X for 2015 and 2016. The valuation remains attractive compared with other countries. Thus, we maintain our star rating of the Japan and the South Korean market at an attractive rating of 3 stars and at a very attractive rating of 4.5 stars respectively.

**Japan’s fiscal year ended in March (e.g FY 2015 ends in March 2015)



PAGE 8

MARKETS REVIEW

SOUTH EAST ASIA

GREATER CHINA – 3.5 STARS (ATTRACTIVE)

MARKET OUTLOOK

China: 5.0 Stars — Very Attractive

GDP in 4Q 14 increased by 7.3% y-o-y, compared with a 7.3% y-o-y increase in 3Q 14

China 1-Year Lending Rate in Mar 15 was 5.35%, compared with 5.60% in Feb 15

Manufacturing PMI was at 49.2 in Mar 15, compared with 50.7 in Feb 15

Exports increased by 48.3% y-o-y in Feb 15, compared with a -3.3% y-o-y decrease in Jan 15

New loans increased to RMB 1020 billion in Feb 15, compared with RMB 1470 billion in Jan 15

CPI rose 1.4% y-o-y in Feb 15, compared with the 0.8% y-o-y increase in Jan 15

Cumulative Retail sales gained 10.7% y-o-y in Feb 15

Taiwan: 4.0 Stars — Very Attractive

GDP in 4Q 14 increased by 3.4% y-o-y, compared with a 3.2% y-o-y increase in 3Q 14

CPI decreased by -0.2% y-o-y in Feb 15, compared with a -0.9% y-o-y decrease in Jan 15

Exports decreased by -6.7% y-o-y in Feb 15, compared with a 3.4% y-o-y increase in Jan 15

Export orders increased by 8.1% y-o-y in Jan 15, compared with a 4.5% y-o-y increase in Dec 14

Industrial production increased by 8.14% y-o-y in Jan 15, compared with a 7.33% increase in Dec 14

HSBC Taiwan Manufacturing PMI in Feb 15 was at 52.1, compared with 51.7 in Jan 15

Unemployment rate (seasonally adjusted) remained almost unchanged at 3.74% in Feb 15 compared to 3.84% in Jan 15

Hong Kong: 5.0 Stars—Very Attractive

CPI rose to 4.6% y-o-y in Feb 15 from 4.1% y-o-y in Jan 15

Retail sales decreased -14.6% y-o-y in Feb 15 following a -3.9% y-o-y decrease in Jan 15

Unemployment rate for Nov 14 to Feb 15 remained at 3.3%

Exports rose 7.2% y-o-y in Feb 15 as compared with a 2.8% y-o-y increase in Jan 15

Centa-City Leading Index, which tracks secondary residential property increased 1.58% to 138.8 m-o-m as of 20 Mar 15Cumulative Industrial production gained 6.8% y-

o-y in Feb 15

Greater China markets earnings forecast for 2015 in March improved in general shortly after the end of the Chinese People's Political Consultative Conference also known as the Chinese “Two meeting”. A shares represented by the CSI 300 enjoyed a new round of earnings upgrade and is expected to earn 16 .0% in 2015 as of 30 March 2015. With the proposal to strengthen the use of internet finance platforms as suggested by Primer Li, Chinese banks surged on the news. Moreover, the Chinese banks are now expanding their business to the stock brokerage services in mainland China. As such, earnings forecast for the financial sector was being revised upward amid this optimism. The sector is now expecting to earn 15.67% in 2015. Furthermore, the “internet plus concept” proposed by Primer Li had also caused the rally of the Chinese tech related stocks. Market is now expecting the info technology sectors to earn 29.8% in 2015. Looking forward, we remain optimistic on the internet and financial sector in mainland china. The upside benefit of monetary easing environment for Chinese banks are more than the drawbacks. Despite the decreasing interest margin, the banks have more liquidity from the loosening of RRR to develop other businesses other than traditional credit loans. The internet financing and expansion of stock brokerage service of mainland Chinese banks shall be the new growth driver for the sector.

In Taiwan, Taiwanese companies saw minor earnings upgrade in March for 2015, mainly boosted by the semi-conductors sector but was dragged down by the Taiwanese financial and insurance sector. As of 30 March 2015, TWSE Index forecasted earnings growth was 13.5% and 7.8% for 2015 and 2016 respectively. The heaviest-weighted sector - the semiconductor sector is expected to grow earnings by a stellar 15.0% in 2015. However, the estimated earnings of the second most heavily-weighted sector, the financial and insurance sector in 2015 is still at sub-zero level despite the sector receiving a slight earnings upgrade, it is still expected to earn -3.08% in 2015.

However, Hong Kong market continued to see hefty downgrade of 2015 forecast earnings estimates: the Hang Seng Index forecasted earnings growth as of 20 March 2015 dropped to sub-zero level to -1.1% in March. Joining the poor earnings result, Standard Chartered Bank reported earnings losses coming in far below market consensus. The bank’s earnings for commons stock holders decreased by -37% on a year-on-year basis. With the year-end reports of blue chip financial stocks coming in worse than estimated, the Hang Seng index’s largest sector’s earnings estimates (Financials) had been further downgraded to 3.0% and 3.26% earnings growth in 2015 and 2016 respectively which dragged the Hang Seng Index estimates earnings to drop as well. Furthermore, the poor full year earnings results of the Macau’s casino industry was also observed, the commerce and industry sector’s earnings in 2015 continued to be downgraded to -10.85% in 2015.

The economic data released for China generally improved. Inflation in February rebounded to 1.4% supported by the stronger food and retail demand during the “Chinese New Year”. Official manufacturing PMI rebounded slightly from 49.8 in January to 49.9 in February, reflecting the industry was still contracting. On the other hand, exports showed an abnormally high level of growth, increasing by 48.3% y-o-y in February compared with a -3.3% y-o-y decrease in January 15.

Shortly after the announcement of a RRR cut in February, the People's Bank of China (PBOC) lowered the 1 year lending rate by -25 basis points from 5.6% to 5.35% in this month as forecasted in the previous write up. With the poor economic data released in February, credit growth, interest rate liberalisation and lowering the Chinese Yuan’s movement have been the top priority of the PBOC in which lowering interest rates would be a suitable monetary policy to adopt. However, the stock market had well priced in the move by the central bank. The recent market rally was more riding on the “Chinese Two Meetings”. During his conference, Premier Li introduced the “Internet Plus” action plan and pinpoint this as one of the strategies the Chinese government will use to gradually realise the transformative potential of the Internet to improve the economy. The plan aims to integrate mobile internet, cloud computing, big data and the Internet of Things with modern manufacturing, to encourage the healthy development of e-commerce, industrial networks, and internet banking, and to help internet companies increase their international presence. Li also played down the impact of online shops against physical stores, citing his visit last year to a booming Chinese village amid development of e-commerce. Coupled with the better than estimated earnings result from Tencent, we saw strong earnings revision in information sector in HSML 100 index. Looking forward to 2015, China’s economy will still grow at a slower pace. The manufacturing sector is expected to contribute less to overall economic growth moving forward with the anti-corruption campaign still ongoing.

However, most of the large cap Hong Kong stock earnings remained sluggish. Coupled by the recent anti- parallel trading protests in major shopping malls in Hong Kong and the slowing economic growth of China, the number of Chinese mainlanders travelling to Hong Kong has decreased sharply which was reflected in the latest retails sales figure in February which decreased by -14.6% on a year-on-year basis. The potential restriction on multiple entry endorsements in the Individual Visit Scheme (IVS) has also given negative sentiment to the local consumer sector. The Hong Kong consumer sector received consistent earnings downgrades in 2015. Well-known retail distributors of cosmetics and jewellery suffered for example, earnings forecasts for SaSa international holdings and Chow Tai Fook Jewelry Group Ltd were -8.43% and -14.83% for 2015 respectively as of 30 March 2015.

With the improving market sentiment in the Greater China Region, valuation in these market increased but still trade at attractive levels. Despite the strong rally in China A share equities, we believe the PBOC may adopt more aggressive monetary policy to support and promote credit lending activities in order to maintain a desired economic growth momentum in 2015 that is likely to lead to better market sentiment in 1H 2015. Investors can keep an eye on the HSML100 Index which had been trading at a significant discount relative to A-shares. The estimated PE for the HSML100 Index is at 10.13X and 8.99X for 2015 and 2016 respectively and is still well below our fair PE of 13X. Therefore, we maintain the 5.0 Star—“Very Attractive”—rating for the Chinese equity market. Taiwan is trading at estimated PE ratios of 13.25X and 12.42X for 2015 and 2016 respectively which is also below our fair PE ratio of 15X. However, investors should take note that the Chinese economy’s slowdown would directly harm Taiwanese exporters; we maintain a 4.0 Stars—“Very Attractive”—rating for Taiwan. Lastly, the Hong Kong equity market is currently trading at 11.74X and 10.58X 2015’s and 2016’s estimated earnings, which is well below the fa ir PE ratio of 14.5X. We underweight Hong Kong local consumer sector & local property developers, but remain optimistic about Hong Kong equity market and benefit from the attractive valuation of the H shares market, we therefore maintain the 5.0 Star—“Very attractive”—rating for Hong Kong.



PAGE 9

REGIONAL MARKETS UPDATE ASEAN

MARKET OUTLOOK

MARKETS REVIEW

THAILAND: 2.0 Stars — Unattractive

Exports decreased by -6.0% y-o-y in Feb 15, after a prior -2.6% y-o-y decrease in Jan 15

Imports posted a 1.6% y-o-y increase in Feb 15, after a -14.8% y-o-y decrease in Jan 15

The trade balance recorded a surplus of USD 2568 million in Feb 15, compared to a surplus of USD 1392 million in Jan 15

Consumer Price Index decreased by -0.52% y-o-y in Feb 15, from a -0.41% y-o-y decrease in Jan 15

Core CPI rose 1.45% y-o-y in Feb 15, from 1.64% y-o-y in Jan 15

Consumer economic confidence dropped to 68.4 in Feb 15, from a 69.7 reading in Jan 15

Consumer confidence increased to 79.1 in Feb 15, from a 80.4 reading in Jan 15

BOT cut its benchmark interest rate level by 25 bps to 1.75% INDONESIA: 2.5 Stars — Neutral

Exports contracted by -16.0% y-o-y in Feb 14, after a contraction of -7.7% y-o-y in Jan 15

Imports contracted by -16.2% y-o-y in Feb 14, after a contraction of -15.5% y-o-y in Jan 15

Indonesia posted a trade surplus of USD 738 million in Feb 14, compared to an upward-revised surplus of USD 744 million in Jan 15

HSBC Indonesia Markit Manufacturing Purchasing Managers’ Index (PMI) fell to 47.5 in Feb 15 from 48.5 in Jan 15

Consumer Confidence Index was unchanged at 120.2 in Feb 15

Consumer Price Index rose 6.29% y-o-y in Feb 15, lower than the 6.96% y-o-y increase in Jan 14

Bank Indonesia kept the reference rate at 7.50%

Foreign reserves increased to USD 115.53 billion as of Feb 2015, from USD 114.25 billion as of Jan 2015

Throughout 2014, Thai companies have continuously underperformed consensus estimates in their sales and earnings results, highlighting the negative corporate earnings momentum that has materialised alongside sluggish macroeconomic conditions that still prevail in the kingdom. As we move into 2015, earnings forecasts Thai equities have continued to see further downgrades. Month-to-date, 2015 earnings estimates were -0.5% lower while 2016’s earnings -0.9% was lower (as of 27 March 2015). Consumer staples saw their earnings being downgraded by -4.2% and -3.8% respectively, as companies across the sector received earnings downgrades. In particular, Charoen Pokphand Foods PCL (13% weighting in sector) saw their 2015 and 2016 earnings lowered down by -14.5% and -11.6% respectively as analysts factored in expectations of weak 4Q14-1Q15 earnings (squeezed by low season, a slow shrimp recovery, heavier losses at the Russian unit and declining livestock prices). Earnings for the energy sector have stabilised after suffering from massive downgrades previously.

As at 27 March 2015, according to iFAST estimates, earnings of Indonesian equities are expected to increase by a downward revised 13.8% in 2015 and 17.5% in 2016. Compared to the start of the month, earnings estimates for 2015 and 2016 were downgraded by -0.6% and -0.4% respectively. During the month, materials sector saw heavy downgrades as 2015 and 2016 earnings were cut by -3.5% and -4.3% respectively. Meanwhile, utilities also suffered heavy downgrades as 2015 and 2016 earnings were cut by -7.2% and -6.5% respectively.

Thailand’s exports decreased by -6% year-on-year in February, down from a prior -2.6% year-on-year decrease. Imports grew 1.6% year-on-year, improving from a prior -14.8% year-on-year decrease. Consequently, the trade balance recorded a surplus of USD 2568 million, up from a prior USD 1392 million surplus. In particular, the year-on-year increase of exports in electronics, electrical equipment and construction material, was unable to offset the year-on-year decrease of exports of agriculture, plastic, rubber and other products.

For Indonesia, in February, exports contracted -16.02% year-on-year, below consensus estimate of a -10.4% year-on-year decrease. In the previous month, exports contracted by an upward revised -7.71% year-on-year. This is the 5th month in a row that exports have shrunk. Non-oil and gas exports, which account for the majority of Indonesian total exports, fell -12.68% year-on-year as compared to the -5.78% year-on-year contraction in the previous month. Imports also contracted by -16.24% year-on-year, worse than the -9.6% year-on-year contraction that consensus forecast. Consequently, the trade balance recorded a $738 million surplus in February, compared to the $744 million surplus in the previous month. In February, the manufacturing sector is still contracting, as the HSBC Indonesia Markit Manufacturing PMI was at 47.5, compared to the 48.5 figure in the previous month. In the month of February, Indonesia’s Consumer Price Index (CPI) posted a 6.29% year-on-year increase, coming in slightly below the consensus estimates of a 6.70% year-on-year rise. The latest reading was lower than the 6.96% year-on-year increase seen in the preceding month. Despite the end of the low-base effect due the removal of a portion of the fuel subsidies, inflation continued to linger higher. Main contributors to inflation were food and processed food prices which rose 6.28% and 8.06% year-on-year respectively. Bank Indonesia kept the reference rate at 7.50%

Based on consensus forecasts as of 27 March 2015, the SET Index is currently trading at estimated PE ratios of 12.9X and 11.6X for 2016 and 2017 respectively, as compared to its fair PE ratio of 12.5X. We estimate an annualised expected return of 6.4% by end-2017 (including dividends). We maintain our current rating of 2.0 stars “Unattractive” for the Southeast Asian kingdom. Overall, based on the economic data for the year-to-date, the situation in Indonesia appears to have deteriorated, with trade balance inconsistent, inflation increasing and manufacturing slowing. Nevertheless, year-to-date, the Jakarta Composite Index (JCI) inched up by 3.60%, after rallying 24.8% in 2014 (in local currency terms). Based on iFAST estimates, the JCI Index is trading at estimated PE ratios of 13.8X and 11.6X for 2016 and 2017 respectively, slightly lower than its fair PE ratio of 14.0X. We estimate an annualised expected return of 11.3% by end-2016 (including dividends). We maintain our ‘Neutral’ rating of 2.5 stars for Indonesia equities.



PAGE 10

EMERGING MARKETS

MARKET OUTLOOK

MARKETS REVIEW

BRAIL: 4.0 Stars – Very Attractive

Composite PMI at 51.3 reading in Feb 15, up from 49.2 in Jan 15

Retail sales rose 0.6% y-o-y in Jan 15 after a 0.3% y-o-y increase in Dec 15

Industrial production fell -5.2% y-o-y in Jan 15 after a downward-revised -2.9% fall in Dec 14

IPCA inflation was at 7.7% y-o-y in Feb 15, up from 7.1% y-o-y in Jan 15

Benchmark Selic rate hiked by 50 bps to 12.75% from a prior 12.25%

RUSSIA: 4.5 Stars - Very Attractive

Industrial production declined -1.6% y-o-y in Feb 15, down from a 0.9% increase in Jan 15

CPI increased by 16.7% y-o-y in Feb 15, up from a 15.0% increase in Jan 15

PPI increased by 9.5% y-o-y in Feb 15, up from a 7.1% increase in Jan 15

Key policy rate lowered by 100 basis points from 15.00% to 14.00%

In Latin America, earnings estimates for Brazilian corporates (represented by the Bovespa index) remained somewhat stable over the month of March (except for 2015’s estimated earnings). 2015’s estimated earnings were revised -3.75% lower month-to-date, whereas 2016’s and 2017’s earnings were revised by -0.26% lower and 0.08% higher month-to-date (earnings are -9.47%, -5.61% and -2.61% lower year-to-date for 2015, 2016 and 2017 respectively). The revisions were mainly seen in the Utilities, Industrials and Materials sectors. In particular, the Brazilian pulp and paper industry (categorised under the Materials sector) has seen hefty earnings downgrades, with companies like Fibria Celulose, Klabin, and Suzano Papel e Celulose seeing their EPS lowered by an average of -25.0% month-to-date. Over across the Atlantic in Russia, estimated earnings of Russian companies (as represented by RTSI$ index) on aggregate have continued to stabilise from February – estimated earnings for 2015, 2016 and 2017 have actually been revised upwards by 3.30%, 2.40% and 5.51% month-to-date respectively (they remain -13.46%, -9.78% and -9.26% lower year-to-date respectively). Notably, estimated earnings for the heavily weighted energy sector have been revised higher over the course of March, with companies like Transneft and Surgutneftegas seeing their EPS revised 16.4% and 3.8% higher month-to-date. However, Russian financials and banks continue to see earnings downgrades as sell-side analysts adjust their forecasts to price in a weak macroeconomic environment, with banks like Sberbank seeing its estimated EPS revised -13.4% lower month-to-date.

Despite a minor improvement in retail sales data (retail sales increased 0.8% month-on-month, 0.6% year-on-year) in January, macroeconomic conditions

continued to remain sluggish in Brazil, with inflationary pressures still climbing in the Latin American country. Brazil’s IPCA inflation increased by 7.7% year-on-year in February, up from a prior year-on-year increase of 7.1%. The Brazilian central bank has responded by continuing to tighten monetary policy, hiking the benchmark Selic rate by 50 basis points on 5 March, bringing the benchmark rate up to 12.75% from a prior 12.25%. Inflationary pressures have also climbed due to the continued weakening of the BRL (the BRL has weakened -11.6% month-to-date against the USD, -10.7% month-to-date against the SGD), weakening the purchasing power of consumers in the country. The tightening bias shown highlights policy-makers’ priority of stabilising the Real and reining in inflation over spurring economic growth in the country. Additionally, President Rousseff has pledged to roll out reforms and austerity measures to ensure that Brazil’s sovereign credit rating would not be downgraded to non-investment grade, but it remains to been if she and her finance minister, Joachim Levy, could garner enough leverage and political unity to enact and execute the necessary measures. According to consensus forecasts, Brazil’s economy is expected to shrink by -0.65% in 2015 – the economy would certainly take some time to readjust to the new reality before economic momentum could start to rebound and recover. Over in Russia, inflationary pressures have also climbed, with CPI increasing 16.7% year-on-year in February, up from a prior 15.0% year-on-year increase. However, unlike Brazil’s case, the Central Bank of Russia (CBR) continued to ease monetary policy, lowering the country’s benchmark interest rate by 100 basis points to 14.00% - suggesting that policy-makers are prioritising on stimulating economic growth in the country (they previously prioritised stabilising the RUB and curbing inflationary pressures). The RUB has stabilised over March and for much of 1Q 15, which could be a reason for the central bank to cut interest rates to stimulate a sluggish economy affected by the hefty decline in global energy prices. Industrial production remaisn weak and forward-looking indicators like PMI readings remain in contractionary territory – suggesting that the economy would also take more time before economic momentum starts to pickup and accelerate again.

As of 30 March 2015, the Bovespa index currently trades at estimated PE ratios of 12.2X, 9.9X and 8.2X for 2015, 2016 and 2017 respectively, as compared

to its fair PE ratio of 11.5X. Given that inflationary pressures are still strong and policy-makers are tightening monetary policy and implementing fiscal austerity, Brazil’s economic conditions may remain weak for some time. The pace of earnings downgrades has somewhat followed the decline in Brazilian equities over 1Q 15 (contributed as well by the decline in the BRL against the SGD), and hence, we retain our rating of 4.0 stars “Very Attractive” for Brazilian equities. However, with the stabilisation of earnings estimates for Russian companies, the RTSI$ index currently trades at estimated PE ratios of 5.9X, 5.1X and 4.3X for 2015, 2016 and 2017 respectively as compared to its fair PE ratio of 7.0X. While the situation in Russia still remains weak, expected returns are now higher than before, and hence, we are upgrading Russia’s star ratings to 4.5 stars “Very Attractive” – the Russian equity market is a buying opportunity for aggressive, patient, and long-term investors willing to stomach and ride out near-term volatility.



PAGE 11

Earnings season has concluded for Singapore, with the index posting a 7.55% rise in earnings despite sales contracting by -2.58%. Amongst the better performing sectors were the Financials as well as Industrials, with the former posting earnings growth of 13.8% and the latter 10.9%. Earnings estimates have held steady the components of the STI in the month of March, with no significant upgrades or downgrades to earnings. As a whole, the earnings outlook for the STI continues to be constructive, with consensus forecasting earnings growth of 6% and 9.9% for 2015 and 2016 respectively.

Non-oil domestic exports fell off a cliff in the month of February, declining by -9.7% on a year-on-year basis following a growth rate of 4.3% in January, marking its worst reading since February 2013. On a month-on-month basis, non-oil domestic exports fell by -9.4% after a 1.6% growth rate in January. Both the year-on-year and month-on-month measures missed consensus estimates, which were at -0.9% and -1.6% respectively. Amongst the major categories, the volatile pharmaceuticals sector fell -22.4% on a year-on-year basis while petrochemicals dropped -30.9% and the electronics segment fell -12.5%. On a geographical basis, the largest declines came from Japan (-24.6%), China (-22.7%), Taiwan (-22.3%) and Indonesia (-21.3%). While the Monetary Authority of Singapore has eased monetary policy slightly, it remains to be seen if Singapore's Non-oil domestic exports will get a boost from a lower currency.

Headline inflation contracted for the fourth month running in February, with the Consumer Price Index (CPI) posting a -0.3% year-on-year decline after a -0.4% decline in January. With housing and private transport costs continuing to decline year-on-year thanks to weaker rentals and a higher base of COE prices in the year-ago period, the former fell by -2.1% and the latter declined by -5.8% in February, after falling by -1.9% and -5.0% in January. Core inflation, which excludes private transportation and accommodation costs, measured 1.3% year-on-year for the month, rising moderately from the 1.0% rate seen in the past three months. While headline CPI figures are expected to be benign and potentially fall further in the near term, inflation is likely to rise in 2H 2015 if commodity prices recover (particularly oil prices) and as a low base effect from 4Q 2014 begins to feed into year-on-year readings.

The 3 Month SIBOR, a common benchmark used to price loans such as housing mortgages, has continued its ascent, with its latest reading measuring 1.01034% (as of 27 March 2015). The 3 month SIBOR has now risen by over 60 basis points since its lows in 2H 2014, with 55.3 basis points of the rise having taken place in 2015. While the 3 Month SIBOR has indeed risen off its lows, it’s still below its 1999-2007 average level of 1.99%. With US monetary policy likely to normalise over the course of the next few years, the 3 Month SIBOR is more than likely to rise. The rise in the 3 Month SIBOR is likely to boost the earnings of banks through fatter net interest margins, given that most of Singapore’s mortgages are tied to floating rates, with the 3 Month SIBOR a regular benchmark used in the pricing of loans.

The FTSE STI gained 1.4% in March (as of 27 March 2015), bringing year-to-date gains to 2.5%. Strength in Telecommunications, Property companies and Financials drove most of the gains in the index. On current forecasts (as of 27 March 2015), the Singapore equity market trades at PE ratios of 14.3X and 13.0X based on 2015 and 2016 earnings estimates respectively, representing a significant discount to our fair PE estimate of 16X for the Singapore market. With an upside potential of over 23% by end 2016, we think a 4.0 stars “Very Attractive” rating on the Singapore equity market continues to be warranted at this juncture.

SINGLE COUNTRIES

MARKETS REVIEW

SINGAPORE – 4.0 STARS (VERY ATTRACTIVE)

MARKET OUTLOOK

Purchasing Managers Index fell to 49.7 in Feb 15, down from a reading of 49.9 in Jan 15

Electronics sector PMI was at 49.8 in Feb 15, down from 50.5 in Jan 15

Retail sales fell by -5.0% y-o-y in Jan 15, down from an upward revised 4.6% rise in Dec 14

Retail sales ex-autos fell -8.7% y-o-y in Jan 15, after an upward revised 0.0% rate in Dec 14

Non-oil domestic exports slumped -9.7% y-o-y in Feb 15, after a 4.3% y-o-y increase in Jan 15

Electronic exports tumbled -12.5% y-o-y in Feb 15, after a 5.0% y-o-y gain in Jan 15

CPI for Feb 15 fell by -0.3% y-o-y, after a -0.4% y-o-y decline in Jan 15

Core CPI rose 1.3% y-o-y in Feb 15, after a 1.0% y-o-y gain in Jan 15

3 Month SIBOR rose 24 basis points in Mar 15 to 1.01034%



PAGE 12

On January 15, 2015, while reducing the repo rate by 25 basis points to 7.75%, the RBI Governor had indicated in his statement on Monetary Policy that “key to further easing are data that confirm continuing disinflationary pressures. Also critical would be sustained high quality fiscal consolidation…” In a statement on Monetary Policy released on March 04, 2015, the Governor has reduced the repo rate under the Liquidity Adjustment Facility (LAF) further by 25 basis points to 7.5%. Consequently, the reverse repo rate under the LAF stands adjusted to 6.5 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 8.5 per cent with immediate effect.

In the month of February 2015, exports stood at -15.02% year-on-year and were valued at USD 21.54 billion as against USD 25.35 billion in the month of February 2014. Meanwhile, imports reduced by -15.66% year-on-year and were valued at USD 28.39 billion in February 2015 as against USD 33.66 billion in February 2014. The trade deficit for the month of February 2015 stood at USD -6.84 billion as against USD -8.31 billion in February 2014. A detailed look into the data shows that oil imports were 55.49% lower in February 15 as compared to the corresponding period last year, which led to the improvement in trade numbers.

The Index of Industrial Production (IIP) for the month of January 2015 was at 2.60% when compared year-on-year, as against the Bloomberg estimate of 0.70%. The growth rates in Mining, Manufacturing and Electricity were at -2.8%, 3.3% and 2.7% respectively. On a Use-based classification, Basic Goods, Capital Goods and Intermediate Goods grew by 4.5%, 12.8% and -0.8% respectively.

For the fourth time in a row, the Wholesale Price Index (WPI) showed a negative year-on-year growth, standing at -2.06% in February 2015 as compared to -0.39% in the previous month. A detailed analysis of the components shows that Primary Articles rose by 1.43% in Feb 2015 as against 3.27% in the previous month. Within the Primary Articles component, Food Articles grew by 7.74% as against 8% in the previous month. One of the important contributors to the fall in WPI was the Fuel & Power inflation that declined further to -14.72% in Feb 2015 from -10.69% in the previous month. The inflation on Manufactured Products was at 0.33% as against 1.05% in the previous month. The benchmark Index (Sensex) stood at 27,457.58 as on March 26, 2015. The earnings estimate of HDFC Bank Ltd which has the highest weight in the index stood at 21.21%, 18.20% and 20.90% for FY15, FY16 and FY17. On the other hand, Infosys Ltd which is the next stock with the highest weightage in the index has an earnings estimate of 16.92%, 11.24% and 13.69% respectively. An analysis of the top and bottom stocks in the Index during the month of March 2015 shows that Sun Pharmaceutical Industries, Bharti Airtel and Dr Reddy’s Laboratories were the top performers which recorded an upside of 17%, 12% and 5% while ITC, Hindalco Industries and State Bank of India were the bottom performers which delivered -18%, -16% and -14% returns respectively.

According to consensus estimates as of 26 March 2015, the estimated PE ratio for India’s stock market (Sensex index) are 23.11X, 19.16X and 15.98X for FY2014-15, 2015-16 and 2016-17 respectively. Estimated earnings growth is 11.88% 20.61% and 19.92% for FY2014-15, FY2015-16 and 2016-17 respectively. We maintain an “Attractive” rating of 3.5 stars for the Indian market.

MARKET OUTLOOK

MARKETS REVIEW

INDIA – 3.5 STARS (ATTRACTIVE)

SINGLE COUNTRIES

In a statement released on 4 March 2015, the RBI Governor reduced the policy repo rate under the liquidity adjustment facility (LAF)

further by 25 basis points from 7.75 per cent to 7.5 per cent with immediate effect

India’s exports stood at -15.02% y-o-y to USD 21.54 billion in Feb 15 while imports were lower by 15.66% y-o-y to USD 28.39 billion

Production at factories, utilities and mines grew by 2.60% y-o-y in Jan 15 as against the consensus estimate of a 0.70% growth rate

WPI Inflation stood at -2.06% y-o-y for Feb 15 as against the consensus estimate of -0.80% y-o-y decline

Consensus estimated earnings growth for FY2014-15 and FY2015-2016 are 11.88% and 20.61% respectively



PAGE 13

SINGLE COUNTRIES

MARKET OUTLOOK

MARKETS REVIEW

MALAYSIA – 3.0 STARS (ATTRACTIVE)

Exports contracted by -0.6% y-o-y in Jan 15, lower than the 2.7% y-o-y growth in Dec 14

Imports contracted by -5.3% y-o-y in Jan 15, lower than the downward revised 4.1% y-o-y growth in Dec 14

Trade balance contracted to RM9.01 billion in Jan 15, lower than the upward revised surplus of RM 9.23 billion in Dec 14.

Industrial production grew 7.0% y-o-y in Jan 15, compared with the 7.4% y-o-y growth in Dec 14.

CPI grew at 0.1% y-o-y in Feb 15, lower than the 0.2% y-o-y in Jan 15.

Bank Negara Malaysia held the Overnight Policy Rate at 3.25%

As of 25 March 2015, KLCI companies are expected to post EPS of 109.76, 118.68 and 128.02 for 2015, 2016 and 2017 respectively, representing earnings growth of 1.4%, 8.1% and 7.9% for the three respective years. These translate to PE ratios of 16.6X, 15.3 and 14.2X for the three years. During the month, 2015 earnings have been revised downward by -0.7%, with most of the sectors’ earnings being downgraded except for Utilities (0.00%), Healthcare (0.86%) and Industrials (1.02%). Downward earnings revisions were mainly led by Energy, Consumer Discretionary and Materials. Energy and Materials continued to face headwinds amid low international oil prices and a bleak outlook for the oil and gas industry, with the former having its earnings being downgraded heftily by -10.86% while the latter saw a milder downward revision of -1.19% on its earnings. Within the Energy sector, Sapurakencana Petroleum Berhad saw a significant slash on its 2015’s earnings(-16.39%) mainly due to its 4Q earnings disappointment, which tumbled by 61.7%, owing to lower-than-expected earnings contribution from the upstream division, as a result of lower crude oil prices during the quarter. In addition, downward adjustment of the company’s earnings also incorporated analysts’ expectations of a lower crude oil price assumption for its upstream division as well as lower fabrication revenue arising from lower order replenishment. The Consumer Discretionary sector has also seen its earnings forecasts being revised downward by -1.24%, mainly due to the earnings downgrade on UMW Holdings Berhad. The company’s earnings for the year was being revised downward by -2.37% on a month-to-date basis on the back of lower auto sales forecasts, negative USD exposure as well as higher advertisement and promotion (A&P) expense. which are likely to weigh on its profit margin.

Malaysia’s exports fell in January, posting a -0.6% year-on-year decrease, significantly lower than the 2.7% year-on-year increase in the preceding month as well as the consensus estimates of a 2.5% year-on-year increase. Exports were dampened mainly due to the moderation in the exports growth for palm oil and refined petroleum products, with the latter posting a hefty –41.5% year-on-year decrease, following a -34.1% decline in December. In terms of major trading partners, exports to China have contracted by -22.7% in January, marking the seventh consecutive month of slowdown in the nation’s exports to China since June 2014. Despite expectations of a moderation in exports growth amid dampening global economic outlook and depressed oil prices, exports (particularly non-oil segments) are likely to strengthen in the near team with the recent weakening of ringgit.

In February, the inflation rate registered a 0.1% year-on-year increase, significantly lower than the 1.0% rate in the preceding month.

While the latest reading was slightly below the consensus forecast of a 0.2% year-on-year increase, it marks the slowest pace of price gains since 2009. The lower than expected inflation rate in February can be attributed to the significant decline in the expenditure class for fuel and lubricants for personal transport. Transport prices contracted by -11.8% on a year-on-year basis as compared to a -6.0% year-on-year decrease in preceding month. Low oil prices have continued to help curb inflationary pressures in February alongside the recent implementation of a “managed float” system for fuel prices. Nevertheless the inflation rate is likely to trend higher as a hike in inflation is expected with pressure stemming from the implementation of the goods and services tax (GST) on 1 April 2015. In the latest meeting, Bank Negara has maintained the benchmark interest rate (Overnight Policy Rate) at 3.25% and reiterated that “the stance of monetary policy remains accommodative and supportive of economic activity at the current level of the OPR rate”.

Investors’ sentiment dampened in the month of March, with the KLCI Index declining by -0.3%. Based on iFAST estimates as of 25

March 2015, the FBM KLCI is trading at 17.1X, 15.8X and 15.1X estimated PE ratio for 2015, 2016 and 2017, with the 2015 PE ratio being above its 16.0X fair PE. Going forward, the Malaysian economy could still expand at the range of the 4.5% to 5.5% growth target as outlined in the revised budget, underpinned by growth in non-oil exports and government infrastructure projects as well as a boost in consumer disposable income due to cheaper fuel expenses. In consideration of the resilient economic growth in the country moving forward, we maintained the star ratings for Malaysia at 3.0 stars “Attractive”.



PAGE 14

HKG BONDS BENCHMARK YEARS TO MATURITY

OFFER INDICATIVE YIELD (%) AS AT 31 MAR 2015

OFFER INDICATIVE YIELD (%) AS AT 28 FEB 2015

HKGB, Coupon 4.83%; Maturity 06/07/2016 2 year 1.19 0.149 0.207

HKGB, Coupon 2.64%, Maturity 06/10/2019 5 year 4.20 0.9 1.009

HKGB, Coupon 4.65%, Maturity 06/29//2022 7 year 7.42 1.257 1.387

HKGB, Coupon 2.60%, Maturity 08/20/2024 10 year 9.40 1.345 1.53

HKGB, Coupon 2.39%, Maturity 08/20/2025 15 year 10.40 1.389 1.515 OFFER YIELDS INCLUDE SALES CHARGE OF 0.1% AND COMMISSION CHARGE OF 0.3%

SOURCE: IFAST FINANCIAL

OVERNIGHT 1-WEEK 1-MONTH 2-MONTH 3-MONTH 6-MONTH 12-MONTH

31-Oct-14 0.04979 0.11357 0.23071 0.31714 0.37714 0.53786 0.83929

28-Nov-14 0.05929 0.12214 0.22929 0.30978 0.37357 0.53857 0.84143

30-Dec-14 0.05334 0.10929 0.23526 0.3129 0.38143 0.54 0.05334

30-Jan-15 0.07369 0.11181 0.23786 0.315 0.38643 0.54071 0.84143

28-Feb-15 0.06304 0.10786 0.23749 0.31214 0.38571 0.53929 0.83929

31-Mar-15 0.05942 0.12357 0.236 0.30714 0.385 0.54 0.83857

SOURCE: HKMA

COUNTRY / REGION PARAMETER CPI VALUE ON 31-JAN-15 (YOY)

CPI VALUE ON 28-FEB-15 (YOY)

BENCHMARK INTEREST RATES AS AT 30-MAR-15

US CPI -0.10% 0.00% 0.25%

Europe CPI -0.30% -0.10% 0.05%

Japan CPI 2.40% 2.20% 0.10%

Indonesia CPI 6.29% 6.38% 7.50%

Malaysia CPI 1.00% 0.10% 3.25%

South Korea CPI 0.50% 0.40% 1.75%

Hong Kong CPI 4.10% 4.60% 0.50%

Thailand CPI -0.52% -0.57% 1.75%

China CPI 0.80% 1.40% 5.35%

Taiwan CPI -0.94% -0.19% 1.88%

India WPI 7.17% 6.30% 6.50%

Singapore CPI -0.40% -0.30% 0.08%

*BENCHMARK INTEREST RATE HAS BEEN CHANGED SINCE LAST MONTH

BOND MARKET REVIEW

BONDS

HONG KONG INTERBANK RATES (HIBOR)



PAGE 15

BOND CHART OF THE MONTH

HKG Bond Yield Curve


Historical Yields of US Treasuries


Corporate Bond Spreads Against US 10-Yr Treasury


Historical Yields of HKG Bonds


BOND MARKET REVIEW

Many Asian central banks dominated the headlines in financial media worldwide as economists, analysts and investors start to realise that policy-makers across Asia have started to lean towards an easing bias. Whereas many have opted to maintain their benchmark policy rates for much of 2014, the current benign inflationary environment have allowed many Asian central banks to cut interest rates and ease monetary policy in order to fulfil their respective objectives and mandates. Just in the first quarter of 2015, the Reserve Bank of India (RBI) has unexpectedly lowered its benchmark rate twice as inflation data start to look favourable to policy-makers. In China, a combination of disinflationary trends in prices and recent weak economic data caused policy-makers to lower their 1-year lending rate (currently at 5.35%). Whereas over in South Korea and in Thailand, policy-makers are rolling out both fiscal and monetary stimulus to spur economic growth in their respective countries (which have been sluggish at best). With many Asian central banks adopting an easing bias in monetary policy, the current environment is a positive for Asian bonds, a segment of the global fixed income markets that we remain optimistic on.



PAGE 16

BOND MARKET REVIEW

KEY DEVELOPMENTS

Over the month of March, all eyes were on the US Federal Reserve, as the Federal Open Market Committee (FOMC) released its much-anticipated monetary policy statement for March 2015. The US central bank stated that it will only consider raising the benchmark federal funds rate "when it has seen further improvement in the labour market and is reasonably confident that inflation will move back to its 2.0% objective in the medium term," but added that a rate hike in April is unlikely. The Fed also dropped the use of the word "patient" in its forward guidance for normalising monetary policy, but chairwoman Yellen reiterated during the press conference that the "modification of our guidance should not be interpreted to mean that we have decided on the timing of that increase. In other words, just because we removed the word "patient" from the statement doesn't mean we are going to be impatient." Instead, the Fed focused on further improvements in the labour market and the prospects of higher inflation for its guidance, emphasizing that the rate hike schedule remains data-dependent. Additionally, chairwoman Yellen described economic growth as "moderated somewhat" as compared to an earlier "expanding at a solid pace." The US central bank revised its 2015 GDP forecast for the US economy down from a prior 2.8% to 2.5% as well as its 2015 inflation forecast, from a prior 1.7% to 1.4%. Additionally, the Fed also observed a weakening of export growth, alluding to the strength of the USD affecting exports.

In Hong Kong, the CPI rose 4.6% year-on-year in February 2015, higher than 4.1% year-on-year in a month earlier. Excluding the government’s one-off relief measures, the core inflation increased 2.8% in February compared to 2.3% in January. Utility costs jumped 21.8% in February from the previous year and housing prices grew 8.2%. The Consensus and Statistic Department said that inflation remained on an easing trend in early 2015. The mild imported inflation and moderate local cost pressures will continue to tame inflation in the near term.

For 2015, while uncertainty surrounds the actual timing of Fed rate hikes, we expect muted inflation to contribute to a more gradual rate hike cycle, which could contribute to more stability in bond yields. Yields on safer fixed income instruments like G7 sovereign bonds remain unattractive and are expected to be hurt more should the Fed hike rates quicker than anticipated. At this moment, we prefer high-yield bonds, which continue to sport a fairly attractive spread over treasuries with similar maturity. Asian and EM debts have had a decent run in 2014 but still sport rather decent spread levels over risk-free securities, while Asian high-yield bonds still offer some of the highest potential returns in fixed income today, albeit with higher credit risk.



PAGE 17

STAR RATINGS REVIEW & UPDATE FOR END 1ST QUARTER 2015

STAR RATINGS METHODOLOGY At the end of each quarter, we review our calls on the various regional and single-country equity markets under our coverage to assess each market’s

attractiveness as an investment proposition both on a standalone basis, as well as with respect to other markets. In our quarterly star rating exercise, we look at key valuation metrics like PE and PB ratios, expected earnings growth, as well as excess earnings yield to determine how attractive a particular market is. In addition, we consider the economic outlook utilising both consensus forecasts, as well as our own assessment of longer-term economic prospects. Our methodology not only incorporates both top-down and bottom-up forecasts, but also includes qualitative adjustments where necessary to achieve reasonable estimates of target upside for each market under our coverage over a 3-year horizon.

1Q 2015 REVIEW AND CHANGES TO STAR RATINGS 2015 started with the majority of the investment community remaining optimistic on the prospects for developed markets, buoyed by both the

expectation and subsequent announcement of an expanded asset purchase programme in Europe. Emerging markets, which ended 2014 at both spectrums of the performance table, continued to its diverse range of returns into 1Q 2015. While the Russian equity market was at the bottom of the performance table in 2014, in 1Q 2015, Russian equities rose 11.3% in local currency terms to end the quarter as the best performing market under our coverage as easing geopolitical tensions and stabilising crude oil prices (Brent ended the quarter down a mere -3.9% following a horrendous -49.0% plunge in 2H 2014) lent support.

Amongst the other top performing markets were the Japanese and Chinese equity markets, with the Nikkei 225 and HSML 100 delivering returns of 10.1% and 7.0% respectively. With the People’s Bank of China (PBOC) further easing monetary policy further in 1Q 2015 and the policy announcements following Chinese People's Political Consultative Conference (also known as the Chinese “Two meeting”), Chinese equities received a boost and have continued to perform well into 1Q 2015. Japan has likewise performed well over the quarter, driven by market speculation that the Bank of Japan (BOJ) will expand its asset purchase programme due to the climbing risk of deflation. In addition, the Japanese Government Pension Investment Fund (GPIF) decided to lift its domestic equity weighting to 25% from 12%; with many local pension funds using GPIF’s allocation as their reference and benchmark, three local public pension funds with a combined USD 250 billion assets said they will follow in shifting investments out of Japanese Government Bonds and into stocks in March 2015.

In the other developed markets, European and US equity markets delivered returns of 16.0% and 0.4% returns respectively. European equities were buoyed by improving economic data, an expanded asset purchase programme and rising optimism and investor sentiment. However, European equities only rose 2.8% in HKD terms, the continued depreciation of the Euro against the USD detracted from returns for local investors. The US equity market has continued to trudge higher for the quarter despite soft economic data releases and uncertainty regarding the timing of what is expected to be a mild hike in rates by the US Federal Reserve.

Other Asian equity markets were broadly supported in 1Q 2015 by the easing monetary policy of several central banks as the current benign inflationary environment has allowed many Asian central banks to cut interest rates and ease monetary policy in order to fulfil their respective objectives and mandates. The Monetary Authority of Singapore surprised markets by seeking a slower pace of appreciation of the SGD (change in the slope of the band) in an unscheduled change in policy on 28 January 2015 (its first since the September 11 attacks in the US back in 2001), while the Reserve Bank of India, the Bank of Korea, Bank of Thailand and the PBOC have all adopted easing biases as they seek to revive strong economic growth amidst a disinflationary trends in prices.

The sole market under our coverage to have posted negative returns in 1Q 2015 is the Brazil equity market, posting mere gain of 2.3% on the back of the corruption scandal afflicting index heavy weight Petrobras that has implicated several politicians, as well as a depreciating Brazilian Real which contributed the bulk of the losses for local investors as it lost –15.5% against the HKD in 1Q 2015.



PAGE 18

STAR RATINGS REVIEW & UPDATE FOR END 1ST QUARTER 2015

1Q 2015 REVIEW AND CHANGES TO STAR RATINGS

MARKETS STAR RATINGS OUR 3 YEAR VIEW

Emerging Markets 5.0 Very Attractive

Asia ex-Japan 5.0 Very Attractive

Europe 2.5 Neutral

US 2.5 Neutral

Japan 3.0 Attractive

Technology 3.0 Attractive

SINGLE COUNTRY MARKETS STAR RATINGS OUR 3 YEAR VIEW

China 5.0 Very Attractive

Hong Kong 5.0 Very Attractive

South Korea 4.5 Very Attractive

Taiwan 4.0 Very Attractive

Russia 4.5 (Up from 4.0) Very Attractive

Singapore 4.0 Very Attractive

Australia 2.5 Neutral

Brazil 4.0 Very Attractive

Malaysia 3.0 Attractive

Thailand 2.0 Unattractive

India 3.5 Attractive

Indonesia 2.5 Neutral

Source: iFAST Compilations

Upgrading Russia’s Rating, Watching US & Europe

We have upgraded the Russian equity market from a 4.0 Star “Very Attractive” Rating to 4.5 Stars. We believe that at current valuations, the Russian equity market offers investors some of the highest upside potential in the investment realm, with current pricing factoring in plenty of fears and troubles that the Russian market might face. We acknowledge the possibility of some corporate defaults (given the weakened Russian Rouble means higher repayments to cover USD-denominated debt) in the near future, but any scale of a massive default is highly unlikely at this current juncture. The Russian equity market now presents itself as an opportunity for patient long-term investors willing to stomach near-term volatility and uncertainty, and who believe that things would eventually recover as they wait things out. US and European equities have continued to trek higher in 1Q 2015, particularly European equities which have been bolstered by positive sentiment following the expansion of the European Central Bank’s asset purchase program. While equity prices for both markets have continued to trek higher, earnings estimates have not followed suit; earnings estimates have remained stagnant for European equities while US equities have actually seen downgrades to earnings estimates. The result has been further increases in the valuations for both markets, which at this juncture, has seen us turn wary towards both markets, particularly following their strong performance over the past 2-3 years. We will be keeping a close watch on the valuations for both markets, with potential downgrades to both markets a possibility.

Still more positive on Asia ex-Japan and the Emerging Markets

A continued disparity in valuations dictates that a more positive view on the Emerging Markets versus the developed markets is still warranted, and we are maintaining a 5.0 star rating on both Asia ex-Japan and the Emerging Markets (where we expect the market to deliver strong returns over the next three years), while keeping our 2.5 “neutral” rating on the US and Europe for now, on the very modest levels of upside we forecast from these developed markets.



PAGE 19

Why we like it

1. Economic growth accelerating, to continue to drive earnings growth

While recent economic data has softened in 1Q 15, economic momentum is still expected to accelerate, with lower energy prices and an improving labour market boosting consumption and adding to GDP (consensus economists’ forecasts for 2015’s GDP growth rate is 3.0%)

Under an environment of improving economic growth, earnings are forecasted to grow by a 11.5% annualised rate by end-2017 (as of 30 March 2015)

2. Strong brands, global reach and importance

Many US companies possess strong branding power; all 10 of the top global brands of 2014 (based on Millward Brown Optimor’s annual “BrandZ” study) were held by US companies

A large proportion of the largest US companies derive significant proportions of revenue from overseas, allowing such companies to benefit from global growth rather than being fully dependent on the domestic economy

Leading US companies still remain global leaders in various fields like technology (Apple, Microsoft, Google, IBM), finance (JP Morgan, Citigroup), energy (Exxon Mobil, Chevron), consumer staples (Walmart, P&G, Coca Cola) and even healthcare (Johnson & Johnson, Novartis) etc.

3. Domestic growth drivers/trends

Other than a normalisation of the residential housing market, the “shale gas revolution” should provide a new competitive advantage for US companies, via unparalleled access to cheaper energy

New investment in the field of shale gas alongside the rising competitiveness of US manufacturing should provide a long-term driver for the economy

What we don’t like

1. Valuations have risen, resulting in lower potential returns

Valuations have risen on the back of strong market performance over the past few years, which has outpaced earnings growth

Any contraction of valuation multiples would detract from potential expected returns – we forecast a 5.5% annualised total return for the market by end-2017

2. Selected areas of “excesses”

Signs of over-optimism have manifested in selected areas of the market – the recent IPOs of new-technology companies with no profits calls to mind the more “bubbly” period of the stock market in the late 1990s

High valuations for small caps and the healthcare sector (which is the top performing sector in 1Q 15) are also areas of concern

REGIONAL STAR RATINGS US (2.5 Stars - Neutral)



PAGE 20

Europe (2.5 Stars - Neutral)

REGIONAL STAR RATINGS

STAR RATINGS REVIEW

Why we like it

International Companies are sound

MNC giants such as BMW, Siemens, Adidas, Carrefour and other well known large caps are in good financial health and possess strong balance sheets.

MNCs have exposure to overseas markets such as Asia and the Emerging Markets which still retain their structural growth trends despite encountering some cyclical headwinds. Depreciation of the EUR will aid in making European products more competitive, boosting profits from exports.

Politicians have begun to move (slowly) towards further integration, focus on growth

Recent events have seen leaders in Europe begin to focus on growing the Eurozone out of recession and away from their high debt-to-GDP ratios, rather than a pure focus on austerity.

Focused austerity in the short term with growth policies being introduced to prevent austerity fatigue and right structural imbalances.

ECB’s Outright Monetary Transactions should provide applicants with sufficient shelter from financial market stresses should it be needed.

Domestic demand recovering, ECB Policy’s Attempt to Spur Lending

Domestic demand seems to be turning the corner, particularly with gross fixed capital formation (corporate investment) growing in recent quarters

ECB lending survey reveal that the percentage of banks tightening lending standards have been reducing while expected demand for credit from both corporations and households are increasing.

Outright purchases of ABS is targeted to incentivise banks to lend to SMEs to spur real economic growth, TLTROs to lower funding costs for banks.

Why we don’t like it

1. Existing and New Reforms need to be implemented

Not all countries have implemented all the reforms previously promised.

Some countries, e.g. Italy and France need to implement reforms to restructure their industries and work force and improve their efficiency and competitiveness. Markets will demand action from politicians, which is not going to take place over night.

2. Valuations Getting Stretched, Market Sentiment

Against an estimated fair PE of 13.5X earnings, markets have gotten ahead of themselves, with 2015’s estimated PE of 16.6X some way above estimated fair value, with downward revisions to earnings.

Current estimated PE of 15.0X (as of 27 March 2015) based on 2016’s estimated earnings shows the market has likely priced in 2016’s estimated earnings as well.

Market sentiment has been increasingly buoyant, reflected in the 15.5% rise in the Stoxx 600 as of 27 March 2015.



PAGE 21

NORTH ASIA - JAPAN (3.0 Stars – Attractive)

STAR RATINGS REVIEW

Why we like it:

1. Japan is officially out of recession

The economy expanded 0.6% q-o-q or an annualized rate of 2.2% in 4Q 14 after contracting for the two consecutive quarters.

The GDP growth figure, which was less than the market forecast for an annualized 3.7% expansion, was supported by a rebound in exports,

thanks to the yen’s depreciation.

Exports increased 2.7% q-o-q in 4Q after increasing 1.5% in the previous quarter

2. Stock market revival policies to magnify valuation

With the larger amount of the BOJ’s stock purchases via ETFs and J-REITs, we believe the BOJ’s move this time around will also improve

market sentiment and help lift valuations.

The GPIF decided to lift domestic equity weighting to 25% from 12%. Many local pension funds see GPIF’s allocation as their reference and

benchmark. Three local public pension funds with a combined USD 250 billion assets said they will follow in shifting investments out of JGBs

and into stocks in Mar 15.

3. Improvement in corporate governance attracts overseas investors A new stock market index—JPX-Nikkei Index 400, composed of 400 companies that meet certain criteria like ROE and operating profit

requirements, investor-focused management perspectives, etc., was launched in Jan 14. The GPIF plans to track this index as the benchmark to promote the standard of corporate governance. The sum of dividend payouts and share buybacks by companies listed on the 1st section of the Tokyo stock exchange is estimated to hit a

record high of 13.4 trillion yen in this fiscal year (ended Mar 15), surpassing the previous high in FY2007 (ended Mar 07).

Why we don’t like:

1. Weak economic momentum

Industrial production contracted for the first time in three months in Feb 15. The Ministry of Economy, Trade and Industry said a survey of

manufacturers suggested their output would fall further in Mar 15.

Manufacturing PMI fell to 50.4 in Mar 15, the lowest reading since Jun 14.

2. Mounting deflationary pressure

The country’s core CPI (excluding food and last year’s sale tax hike) rose 0% y-o-y in Feb 15, the first time that inflation has hit zero since

May 13.

The BOJ governor Haruhiko Kuroda admitted in this month that the 2-year target of a 2% inflation rate will not be achieved in anytime soon.

**Japan’s fiscal year ended in March (e.g FY 2014 ends in March 2014)



PAGE 22

Emerging Markets (5.0 stars – Very Attractive)

STAR RATINGS REVIEW

Why we like it: 1. Expected to have relatively stronger long-term economic growth trajectory

Healthier demographics, on-going trends of urbanisation and domestic consumption should drive long-term sustainable growth

Emerging markets will likely post stronger economic growth compared to their developed market counterparts, which should imply higher rates of earnings growth and stronger market returns

Previously extremely reliant on exports for economic growth, emerging countries have been refocusing their economies towards sustainable domestic consumption (e.g. China and India)

2. Attractive valuations & Huge Potential Upside

The Global Emerging Markets trade at an estimated PE ratio of 12.4X and 10.9X for 2015 and 2016 respectively (as of 31 March 2015); these are far below its fair PE of 13.5X

The estimated upside by end-2017 is 16.6% (annualised), representing significant upside potential, the second highest amongst regional markets after Asia ex-Japan

Significantly discounted compared to their developed market peers

3. Beneficiaries of a rebound in Global Trade

A rebound in global trade should see Emerging Markets pick up steam, with commodity producers such as Brazil and Russia amongst those who should benefit

Why we don’t like it:

1. While Emerging markets have displayed increased resilience and have become more insulated against negative developments in the developed markets, they are still not immune to developments in the West and are exposed to the weak global trade environment which has seen their earnings growth estimates revised downwards previously

2. Emerging Market governments have shown themselves to be unafraid of interfering with free market operations to curb inflation or to implement various policies; interference by governments have led to decreased profitability in various sectors such as utilities, telecommunications and financials, which has negatively impacted equity markets

3. The region still remains susceptible to geopolitical risk, as evidenced by events in eastern Ukraine; legacy issues such as those in Argentina also serve as a reminder that geopolitical risks for emerging markets tend to be higher than their developed market peers

Asia excluding Japan (5.0 stars – VERY Attractive) Why we like it:

1. Robust earnings growth; Attractive Valuations

Asia ex-Japan earnings are forecasted to continue to grow, with earnings growth of 6.0% and 11.0% forecasted for 2015 and 2016 respectively (as of 31 March 2015)

Earnings growth is expected to deliver a 9.9% annualised return for Asia ex-Japan equities (excluding dividends and valuation changes) by end-2017

MSCI Asia ex-Japan trades at an estimated PE ratio of 12.8X and 11.5X for 2015 and 2016 respectively, significantly below its fair PE of 14.5X

2. Global Economic Growth set to rise, Global Trade to Rebound

Rising global economic growth will see the developed markets’ economies improve, boosting global trade with positive spill-over effects for Asia

Asian exporters and export-oriented economies are poised to benefit from a rebound in global trade, particularly those from North Asia and other open-economies such as Singapore

3. Huge Potential Upside

The estimated upside by end-2017 is 15.6% (annualised), representing the second highest upside potential amongst the regional markets under our coverage

The high upside potential is a function of the region’s underlying markets such as China and Hong Kong, which continue to trade at extremely attractive valuations

Significantly discounted compared to their developed market peers Why we don’t like it:

1. While Asian markets have displayed increased resiliency and become more insulated against negative developments in the developed markets, they are still not immune to developments in the West and are exposed to the weak global trade environment which has seen their earnings growth estimates reduced

2. Highly susceptible to capital flows

The exodus of foreign capital in 2013 saw financial assets fall in value, and while the region’s capital flows have since stabilised, susceptibility to foreign capital outflows is a key source of asset price volatility for Asian assets

Asian countries that are driven by domestic consumption (which tends to be more resilient than exports) such as Indonesia have seen their valuations approach their fair values, reducing their attractiveness. On the other hand, Asian countries that are heavily exposed to global trade have seen their exports fall as a result of a sluggish

global environment, and should global trade fail to rebound, the export-reliant Asian countries could be set to remain cheap for quite some time



PAGE 23

ASIA COUNTRY STAR RATINGS NORTH ASIA – South Korea (4.5 Stars – Very Attractive)

STAR RATINGS REVIEW

Why we like it:

1. Policy support by the central bank

Bank of Korea (BOK) unexpectedly lowered its benchmark 7-day repo rate by -25 basis points to a record low of 1.75% in Mar 15, the first cut in five

months.

The BOK governor hinted that the bank will take more actions to boost the momentum in the current recovery despite the rates were cut twice in last

year.

2. Relatively cheap valuation

As at 30 Mar 15, the estimated PE for the market was at 11.4X and 10.2X for 2015 and 2016. The valuation remains attractive compared with other

countries.

3. Strong earnings growth

The worst of corporate earnings may have passed. We think the earnings downgrade may be overdone and earnings will be eventually revised

upward

As at 30 Mar 15, earnings of the South Korean equity market are expected to increase by 22.6% in 2015 and 11.4% in 2016 respectively.

Why we don’t like:

1. Negative effect of the external economic uncertainties

The export-oriented economy is reliant on the demand in the developed economy.

The yen’s persistent depreciation negatively affected the Korean exporters’ competitiveness. The country’s exports fell -3.4% y-o-y in Feb 15, the

most in 2 years.

2. Deflation risk

South Korea’s CPI grew 0.5% y-o-y in Feb 15, the slowest pace in 18 months.

The country’s finance minister warned that the deflationary risk is climbing and there are fears of deflation. The statement is interpreted as an attempt

for the bank to ease its monetary policy in the coming months.



PAGE 24

STAR RATINGS REVIEW

CHINA -5.0 STARS (Very Attractive)

GREATER CHINA STAR RATINGS

Why we like it 1. Possible fine-tuning policies from Chinese government to support economy in transition state

We think the Chinese economy is unlikely to meet its growth target of 7.5% this year. China’s PBOC unexpectedly announced an interest rate

cut for the first time since 2012 on 21 November 2014.The one-year lending rate was cut by 40 basis points to 5.6% while the one-year

deposit rate was reduced by 25 basis points to 2.75%. The asymmetric rate cut was implemented in order to stimulate credit growth and lower

refinancing cost of small and medium enterprises. However, the result was yet far from satisfactory. Smaller companies are still considered

high risk and banks do not want to increase their exposure to weaker borrowers which was reflected in the lower credit growth data and the

continuation of contraction in China PMI for small and medium enterprises

In 2015, we expect the Chinese government to introduce more “fine tuning” policies in aiding the economy as a whole and would further

stimulate the equity market

2. Reforms in the financial system and sector

A-H Connect is regarded as the first step of internationalisation of the A shares market. With the successful deployment of the AH Stock

connect, we expect the scheme may further expand to include the Shenzhen stock exchange and attract more institutional and professional

investors to the market. With more institutional and professional investors participating in the market, corporate governance, information

transparency and accounting standards will benefit the China A shares market as a whole.

Sector revaluation will be a hot theme in the 2015 for the Chinese equity market. Chinese insurers were the first group to be benefit from the

reforms as China's insurance regulator had created a new funding scheme that could funnel up to 200 billion yuan of insurance company

funds to support small companies and start-up firms, which resulted in significant sector earnings upgrades with a lower investment cost in a

lower interest rate environment. Other thematic story can also be seen in the State owned enterprise universe, Internets firms, railways

companies and Chinese banks. High conviction and stock picking would be the key of success in investing in China equity market for 2015

3. Attractive Valuations

Despite the market having rallied quite a bit recently, there is still room for upside as the equity market continues to be supported by easing

measures and reform measures. Valuations remain at attractive levels. According to market consensus, as of 30 March 2015, the estimated

PE for the HSML100 Index is at 10.13X and 8.99 for 2015 and 2016 respectively compared to its fair P/E of 13X for 2015. The estimated PE

for the SHSZ300 Index is at 14.49X and 12.6X for 2015 and 2016 respectively compared to its fair P/E of 15X for 2015.

Why we don’t like it 1. Reminbi depreciation

With major economies around the globe adopting monetary easing polices to further guide their currencies to lower levels, the People’s Bank of China’s rate cuts serves as the first step of guiding the Reminbi to a lower level to increase export competitiveness. With the economy slowing, increasing export competitiveness to promote economic growth would be in line with the authority’s interest

RMB currency trading band has increased from 1% to 2%, two-way volatility of the Renminbi is expected to increase; adding more room for the currency to depreciate

2. Pace of economic growth still fragile

Key economic indicators including retail sales and industrial production reached slower growth this year, highlighting that the risk of a

slowdown are still a threat in China



PAGE 25

STAR RATINGS REVIEW

Hong Kong (5.0 Stars – Very Attractive) 1. PBOC’s easing measures will benefit H-shares

China’s PBOC cut its benchmark interest rate for the second time since November last year

Interest rate cut is expected to benefit companies with high leverage and capital expenditures such as property developers, steel and resources companies

The PBOC cut the banks’ reserve requirement ratio (RRR) by 50 basis points to 19.5% in February. Banks and insurance companies will benefit from the improved liquidity environment

2. Cheap valuation

According to market consensus, as of 23 March 2015, the estimated PE for the Hang Seng Index is at 11.74X and 11.58X for 2015 and 2016 respectively, below its fair PE of 14.5X

3. Hong Kong-Shanghai cross-border shares trading scheme

The premium between A-share and H-shares will continue to be narrowed. The stocks with share prices trading at a discount than its A-share counterparts are expected to benefit

Why we don’t like

1. Political unrest negatively affects market sentiment

Occupy Central, a civil disobedience movement fighting for the selection of the chief executive by universal suffrage, came to an end in December. Shortly after occupy central, a series of anti-parallel trading protests in major shopping were seen in major Hong Kong shopping malls. Coupled by the recent anti-parallel trading protests in major shopping malls in Hong Kong and the slowing economic growth of China, the number of Chinese mainlanders travelling to Hong Kong had decreased sharply. The Hong Kong consumer sector received consistent earnings downgrades in 2015 with retail distributors of cosmetics and jewellery suffered the most.

2. Estimated earnings have been revised downward

As at 30 Mar 15, earnings estimates for the overall market were at sub- zero level and expected to earn by -1.62% and 10.9% for 2015 and 2016.

Taiwan (4.0 Stars – Very Attractive) Why we like it

1. Economic growth recovering

Taiwan’s economy in 4Q 2014 grew at 3.35% on a year-on-year basis. Export data continued to be supported by strong demand for electronic and telecommunication products as growing market capitalization of the smartphone market drives the demand for related electronic components in the western developed markets like the US and Europe.

2. Consumer sentiment is expected to improve as festive peak sales is fast approaching

As Easter is approaching, demand from the west will boost consumer demand in electronics and mobile sales.

Electronic demand globally is still growing at a strong pace. With the ongoing developments on various new electronic products such as “internet of things” and electronics wearable products such as smart watches – lending support to Taiwan’s export orders growth.

3. Valuations remain attractive

Valuations are attractive. As of 31 March 2015, the estimated PE ratio for Taiwan was at 13.25X for 2015 which still traded at a discount when compared to our fair PE of 15.0X.


4. Further contraction is shown in downstream businesses on electronics

Despite the upstream industry benefiting from the recovery in demand, intense competition has weighed on the downstream industry in the region causing export orders for final electronics products to shrink (i.e. smartphone, display monitors, etc.)

5. Corporate earnings sensitive to changes in external demand

Taiwan is an export-oriented economy and corporate earnings are highly correlated with other major economies like China, the US, Europe and Japan. Uncertainties surrounding the pace of the global economic recovery especially in Europe, Japan and China may weigh on Taiwan’s economy and corporate earnings outlooks

6. Uncertainty arise in the coming Taiwan presidential election

The elections resulted in a substantial defeat for the Kuomintang (KMT). The KMT encourages more trade partnerships with Mainland China to promote economic development. If DPP took KMT place in the presidential election in 2016, we believe that the economic policies will no longer be as “China friendly” thus affecting its China related exports.

7. Slowdown of China and Hong Kong’s economy would harm Taiwan exports

The biggest trade partners of Taiwan are China and Hong Kong. With the slowdown in Chinese demand and the weakening of consumption in Hong Kong that is resulted from a series of protests targeted to mainland tourists, Taiwan’s exports could be potentially affected by such effects.



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STAR RATINGS REVIEW

ASEAN STAR RATINGS Singapore (4.5 STARS – Very Attractive) Why we like it

1. Attractive valuations We think valuations should normalise at about 16X, considering the low domestic interest rate environment as well as the historical

average of the market; estimated 2015 and 2016 PE ratios are 13.5X and 12.3X (as of 27 March 2015)

On a price-to-book basis, Singapore equities trade at a PB ratio of just 1.4X, representing a discount to the long-term historical average of 1.76X

2. Fairly attractive dividend yields

Supported by strong corporate cashflows, the estimated dividend yield on the STI (for 2015, as of 27 March 2015) is about 3.3%, and is expected to rise to 3.5% and 3.7% in 2016 and 2017 respectively on rising earnings

3. Capturing Regional Growth

Even as the Singapore economy is not expected to grow as quickly as other Asian countries, Singapore companies have significant exposure to growth in other countries

We estimate that almost two-thirds of the revenues of STI component companies are derived from outside Singapore, most of which is from the fast-growth Asian region


1. Dependence on external demand for growth

With an absence of a large population base, economic growth is more susceptible to global economic conditions; economic growth tends to be leveraged on the external environment which can result in strong volatility for GDP growth rates

In particular, manufacturing (which makes up a quarter of Singapore’s economy) remains susceptible to weakness in the global economy, which could weigh significantly on overall economic growth

2. Central bank’s lack of control over domestic interest rates

Since the central bank utilises the SGD as a monetary policy tool, it lacks the ability to set domestic interest rates

The prolonged low interest rate environment in the US has resulted in a similar interest rate situation in Singapore, which has hurt net interest margins for banks, while also spurring capital flows into the country which may fuel asset prices like residential property

3. Fairly large exposure to property

While only approximately 13.5% of the benchmark index by market capitalisation is represented by property-related companies, we estimate that more than 60% of the index has some exposure to the property sector; this includes the three local banks, which have a fairly large domestic housing loan portfolio

Headwinds for the sector remain in the form of numerous “cooling” measures as well as market interest rates that have started to rise, which already has had some dampening effect on property demand as well as prices; homebuyers are generally on floating rate mortgages which are susceptible to interest rate increases further down the road



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STAR RATINGS REVIEW

MALAYSIA (3.0 STARS – Attractive) Why we like it

1. Growth trends to remain intact

The Malaysian economy could see resilient growth moving forward, underpinned by sustainable growth in exports and additional new infrastructure projects on top of the ongoing ones as outlined in Budget 2015. The spillover and multiplier effect from government spending (job creations, area developments, etc.) will remain supportive to the nation’s economic growth in 2015

Capital investment is set to continue its firm pace, supported by the accommodative credit financing environment and moderate pump priming by the public sector

2. Relatively attractive valuations

Recent declines in the Malaysia’s stock market provide an attractive entry point for investors, bringing 2014 PE valuation close to our fair PE estimate of 16X

As of 31th December 2014, the estimated PE for Malaysia was at 15.2X and 14.0X for 2015 and 2016 respectively; representing an expected return of 23.8% as of end-2016, which could be decent returns for investors, although it is not as exciting as the upside potential in North Asian countries.

3. Defensive Market Structure

Major correction in Malaysia equity market is likely to be mitigated by the deep-pocketed institutional funds which are believed to command close to one-third of the total market capitalization in the local bourse. With the constrain on their investment mandates, these institutional funds tend to keep a substantial portion of their assets in the local market, offering a cushion to the market performance should any selloff occurs


1. Earnings estimates have been revised downward

Earnings growth expectations have been gradually revised downward since end-June 2014 (by -4.3% as of end-December 2014), with the earnings growth expectations for 2014, 2015 and 2016 being -4.7%, 8.9% and 8.8% respectively. Malaysian companies could see more downward earnings revisions on prolonged low oil prices as well as the upcoming GST implementation, which could crimp consumer spending

2. High dependence of government revenue on Oil & Gas business

Oil related revenues remain to be a significant contribution to the nation’s income, approximately 32% of the national budget.

The persistent drop in oil prices has compounded the risk that Malaysia might not be able to achieve its 2015 fiscal deficit target of -3.0% as outlined in the Budget 2015; possibly leading once again to a downgrade of its sovereign credit rating outlook

3. Moderated inflation rate could be short-lived

With the proposed system, inflation rate will be more correlated with crude oil prices, which makes inflation rate susceptible to volatile oil prices

Malaysia is likely to experience a rising interest rate environment given the impending implementation of goods and services tax (GST) in April 2015, which might constitute a drag on domestic consumption as well as boost inflation



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STAR RATINGS REVIEW

INDONESIA (2.5 STARS – Neutral) Why we like it

4. Strong economic growth amid an improving global economic outlook

Indonesia is guided to record an enviable 5.8% to 6.2% economic growth in 2015 despite facing rising challenges

Being the world’s fourth populous country and the biggest economy in South East Asia, the economic growth story of Indonesia still looks attractive, driven by its resilient domestic consumption and investment

5. Investment in under-served infrastructure facilities – New Engine of Growth

Aging and inadequate infrastructure is the primary factor limiting Indonesian competitiveness, expect to see infrastructure projects take off

The Government has just lowered restrictions on foreign investment for new business areas such as transportation and power to attract foreign investment in the midst of slowing economy

6. Market with one of the the higher earnings growth

Earnings growth is one of the drivers of stock market returns, and Indonesian companies are some of the fastest growing

As at 27 March 2015, according to iFAST estimates, earnings of Indonesian equities are expected to increase by 13.8% in 2015 and 17.5% in 2016.


1. Inflation still lingers

CPI has surged higher despite moderating lower in the middle of the year due to the gradual wearing off of the low-base fuel subsidy cuts

However, Consumer Price Index (CPI) grew 6.29% year-on-year in the month of February, coming in below the consensus expectation of 6.70% but is still relatively higher than other developing countries around the ASEAN region

The implication of higher inflation is that financing costs will likely remain high, which may affect corporate earnings and business decision making

2. Upgraded earnings estimates already priced in and now experiencing reversal of expectations

The weakened currency has helped improve earnings forecasts for Indonesian companies, while aiding valuations, but being overly dependent on currency weakness leaves markets susceptible to strengthening of the IDR, should that occur unexpectedly, could cause a reverse of profit expectations

After heavily upgrading corporate earnings estimates, especially for Indonesian exporters, analysts have lowered 2015 and 2016 earnings estimates for the JCI Index by -2.9% and -2.2% respectively (as of 27 March 2015)

3. Low upside potential

While earnings have been revised lower, the JCI Index has rallied, which means that the valuation has also re-rated upwards and become more expensive

As of 27 March 2015, the JCI Index is trading at estimated PE ratios of 13.8X and 11.6X for 2016 and 2017 respectively, slightly lower than its fair PE ratio of 14.0X. We estimate an annualised expected return of 11.3% by end-2016 (including dividends)



PAGE 29

STAR RATINGS REVIEW

Thailand (2.0 STARS - UNATTRACTIVE) Why we like it

1. Structural growth trends remain intact

While Thailand faces near term cyclical headwinds, the country’s longer term structural growth trends remain intact (Averaged 4.2% per annum GDP growth between 2000 and 2012; urban population as of 2012 is 34% of total population according to the World Bank, lower than some of its South East Asian peers)

2. Infrastructure investment as fiscal stimulus to boost GDP

The Thai junta government has sped up budget spending and is currently pushing for significant infrastructure projects that include rail, water and air-related projects. The stepping up of fiscal stimulus will help to boost GDP and economic growth, which have been weak in recent times

With Thailand’s strategic location in South East Asia, infrastructure upgrades would improve connectivity and trade between its neighbours like Cambodia, Laos, Malaysia and Myanmar, which have increasingly begun to adopt market-based economic policies for economic growth.

3. Accommodative monetary policy

BOT recently cut its key policy rate by 25 bps to 1.75%, and is of the opinion that “more active fiscal policy and the prevailing monetary policy accommodation should lend support to a sustained economic recovery.”


1. Unattractive valuations

The market trades at estimated PE ratios of 12.9X and 11.6X for 2016 and 2017 respectively as compared with its fair PE of 12.5X (as of 27 March 2015). Upside potential for the next three years is estimated to be one of the lowest among the markets under our coverage, making Thailand relatively unattractive compared to other cheaper markets

2. Fiscal health may be affected due to increased borrowing by the government

The government may issue more bonds to fund public spending and infrastructure development projects. This may further increase the debt-to-GDP ratio of Thailand which is at 45.9% currently according to the IMF (as of 2 June 14)

Thailand’s debt-to-GDP ratio is close to 50%, which is at the higher end of the range when compared to its peers such as Indonesia in the ASEAN region

3. Political uncertainty still lingers

While the recent civil unrest that gripped the Thai capital since 4Q 13 has already subsided, it is possible that the current quiet climate imposed by the junta’s martial law and takeover could only be temporary, as elections are still expected to be held after 2H 15 and as certain political issues have not yet been resolved

The pace of reforms has been slower than expected, and hopes are high for the junta government to continue executing and implementing them. The deregulating of domestic LPG and NGV prices have commenced, but the private sector is still wary of further future political uncertainty that could stall reform agendas



PAGE 30

STAR RATINGS REVIEW

India (3.5 Stars –Attractive) Why we like it


According to consensus estimates, as on 31st March 2015, the estimated PE for India’s stock market (Sensex) is 18.38X, 15.59X and 13.17X for 2015, 2016 and 2017 respectively. Estimated earnings growth is 6.77% 17.87% and 18.42% for 2015, 2016 and 2017 respectively. We maintain an “Attractive” rating of 3.5 stars for the Indian market.

2. Macro fundamentals improving

The key macroeconomic parameters such as inflation and GDP data have shown an improvement. The CPI which was 7.88% in February 2014 has declined to 5.37% in February 2015 while WPI registered -2.06 for February 2015 against 5.03% in February 2014. The Q4 GDP for 2014 stood at 7.50% which is a positive signal for the economy.

3. Pro-active reform policies

The government has passed some crucial bills such as The Insurance Laws (Amendment) Bill, 2015 which increased foreign participation in insurance from 26% to 49%.The 2 other major bills like mines and minerals bill and the coal mines bill were also passed in the Budget session of Parliament. This is a clear indication that the government is serious about reforms and these reforms will help the economy in the long term.


4. Global Uncertainty

Global uncertainty has always been a threat to India. In the month of March 2015, Saudi Arabia has waged a war against the rebels in Yemen. This should be a cause of concern as this war could have an impact on oil prices. As India is a major importer of oil, any rise in oil price will have a severe impact on the fiscal situation.

5. High Inflation Expected

The unseasonal rains have caused widespread damage to crops. This could not only impact the total production of fruits and vegetables but also can lead to higher prices due to reduced output. This in turn will lead to higher inflation in the coming months which is again a cause of concern.



PAGE 31

STAR RATINGS REVIEW

EMERGING MARKETS COUNTRY STAR RATINGS

Brazil (4.0 stars –Very Attractive) Why we like it


Trading at forward PE ratios of 12.2X, 9.9X and 8.2X projected earnings for 2015, 2016 and 2017 respectively (as of 30 March 2015), valuations remain relatively attractive for the Brazilian equity market (as represented by the Bovespa Index)

2. Active Central Bank

The central bank has been supporting the local currency, the Brazilian Real, via currency purchase programs in an attempt to reduce imported inflation

The recent hiking of interest rates is seen as a move to rein in inflation and add credibility to the central bank’s perceived independence

3. Secular Growth Story Still Intact

While Brazil’s economy currently face cyclical headwinds, its long-term structural growth story as an emerging market still remains intact. With positive demographics, long-term investors would still find that there are many opportunities for growth


1. Heavy Trade Dependence on Europe & China

China accounts for approximately 18% of Brazil exports. Restructuring of China’s economy towards consumption and off exports has seen imports of primary products from Brazil fall

Europe accounts for approximately 20% of Brazil’s exports; a slow recovery in the continent is not helping exports growth from Brazil, especially as Europe is China’s largest export destination

2. Government Intervention

The government’s policies and intervention in the private sector has damaged business confidence and has led to lower levels of investment

Continued intervention in the private sector via the restriction of raising prices for various goods (e.g. utility prices and oil prices) has hurt companies such as Petrobras and Electrobras

Government interference in the market place could continue despite Dilma Rousseff proclaiming to be more market oriented in her second term. With the new finance minister, Joachim Levy, promising to reduce the budget deficit by implementing austerity measures, it remains to be seen if there is enough political unity and support to see these measures being executed and implemented

3. Over-reliant on Domestic Consumption

Trend of strongly rising retail sales has been fuelled by fiscal transfers by the government and rapid credit expansion by public banks. Further fiscal transfers without harming the government’s balance sheet are unlikely, situation has been mentioned in the Brazilian Central Bank’s policy meeting minutes

Previous rates of high credit growth might be unsustainable given that much of the recent lending has been done by public banks and not private sector banks



PAGE 32

STAR RATINGS REVIEW

Russia (4.5 stars –Very Attractive) Why we like it


Russian equities (represented by the RTSI$ index), currently trade at estimated PE ratios of 5.9X, 5.1X and 4.3X for 2015, 2016 and 2017 respectively, as compared to its fair PE ratio of 7.0X (as of 30 March 2015). Forecasted total returns by end-2017 shows that the market is expected to deliver an annualised return of more than 26.0%, making Russia one of the most attractive markets under our coverage

2. Active Government Support For The Energy Sector

The Russian government (energy and finance ministries) agree on new parameters of tax manoeuvres to aid petrochemical projects to offset the lower refining margins of the industry. Additionally, the ministry also plans to further reduce export duties for oil exporters and suggested a decrease to 30% of oil duty over three years. Such measures will support the energy sector in the country


1. High Reliance On Commodity-Related Businesses

Being a commodity exporter, Russia’s economy is highly correlated to the fate of commodity markets like crude oil, natural gas, and various sorts of base and industrial metals that the country exports. The recent hefty decline in global energy prices had its effect on the country’s economy – Russia’s economy is expected to shrink by -4.0% in 2015 alone

2. Geopolitical Risks Remain Elevated

With the civil unrest and military conflict in Eastern Ukraine still somewhat unresolved, investment sentiment remains poor as economists and investors monitor the political situation and the effect of the sanctions being imposed by both Russia and the West on either side – hampering economic growth and a return to normalcy

3. Corporate Earnings Expected To Be Weak

With sluggish macroeconomic conditions and high financing costs in the country, corporate earnings are expected to post a contraction in 2015 (by -15.6% as of 30 March 2015). Domestic loan activity and credit demand is expected to decline and consumption is expected to be weak as

inflationary pressures remain elevated

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