For distributors/dealers use only. The content of the presentation should not be reproduced /distributed to the public without prior approval of Franklin Templeton
Investments.For Professional Investors Only. Not for Distribution to Retail Investors.
Investing in Emerging Markets
Mark Mobius, PhD
Executive Chairman, Templeton Emerging Markets Group
For distributors/dealers use only. The content of the presentation should not be reproduced /distributed to the public without prior approval of Franklin Templeton
Investments.1
As of June 30, 2017 unless otherwise indicated.
* As of 30th September 2017, preliminary month-end
1. Franklin Resources, Inc. is a global investment management organization operating as Franklin Templeton Investments.
2. Investment professionals include portfolio managers, portfolio managers/analysts, research analysts and traders. Includes individuals that are not employees of Franklin Resources Inc. (FRI) or wholly owned subsidiaries of FRI.
However, these individuals are part of our joint venture or strategic partnership relationships worldwide and are an integral component of our overall research efforts
Franklin Resources:
NYSE Listed under BEN
Asset Under Management*: $753 bn
# of Employees Worldwide: 9,000+
# of Countries with Offices: 30+
# of Countries with Investors: 170+
Changes in Emerging Markets
2
For distributors/dealers use only. The content of the presentation should not be reproduced /distributed to the public without prior approval of Franklin Templeton
Investments.
Source: MSCI, S&P & IFC, EIU World Bank. See www.franklintempletondatasources.com for additional data provider information.
Investable Emerging Markets in 1987
- 6 markets : Mexico, Hong Kong, Philippines, Thailand, Malaysia and Indonesia
Emerging Markets - 1987
3
For distributors/dealers use only. The content of the presentation should not be reproduced /distributed to the public without prior approval of Franklin Templeton
Investments.
Source: MSCI, S&P & IFC, EIU World Bank, See www.franklintempletondatasources.com for additional data provider information.
Investable Emerging Markets in Dec 2016
- > 70 markets
Emerging Markets - 2016
4
5
Shanghai, China : About 25 Years Ago
6
Shanghai, China : Now
7
Dubai, U.A.E. : About 25 Years Ago
8
Dubai, U.A.E.: Now
9
Dubai, U.A.E.: Now
For Internal Use Only / Not for Distribution to the Public
Frontier Markets:
The Next Exciting Destination
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Investments.
Frontier Markets*
11Source: MSCI, S&P & IFC (International Finance Corporation), EIU (Economist Intelligence Unit) as of December 2012.
*The above is just a selected number of markets and is by no means an exhaustive list of markets defined as Frontier Markets. The Frontier Markets countries are generally smaller, less
developed and less accessible than Emerging Markets countries, but with "investable" equity markets and include those defined as Frontier Markets by International Finance Corporation
as well as included in Frontier Markets related indices
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Investments.
World’s Ten Fastest-growing Economies:
All Are Emerging Market Countries. Eight Are Frontier.
12
Source: EIU
Five of the world’s ten fastest-growing economies were in Africa, Four from Asia and one from Commonwealth of Independent States (our ranking excludes countries with a population of
less than 10m as well as Iraq and Afghanistan; 2017F, as of Feb 2017
Annual Average GDP Growth 2012-2016 % (Avg), & 2017F
% 2012-2016e 2017F
Ethiopia 9.1 7.5
Côte d'Ivoire 8.8 8.0
Myanmar 7.9 7.7
Uzbekistan 7.7 6.0
China 7.3 6.2
D.R.Congo 7.2 4.2
Cambodia 7.2 6.9
India 6.9 7.6
Tanzania 6.7 7.2
Rwanda 6.7 6.0
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Investments.
Frontier Markets:
Demographic Dividend
13
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Investments.
41
32
26
0
5
10
15
20
25
30
35
40
45
Developed Markets Emerging Markets Frontier Markets
Source : World Bank, June 2017
2015
14
Frontier & Emerging Vs Developed Markets:
Median Age
Median Age
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Investments.
Emerging & Frontier Markets: Market Cap/GDP
Frontier Markets as defined by the MSCI EM Frontier Markets Index; Emerging Markets are defined by the MSCI Emerging Markets Index; Developed Markets are defined by the MSCI World Index.
Source: MSCI via FactSet. MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared
or endorsed by MSCI. Past performance is not an indicator or a guarantee of future performance.
See www.franklintempletondatasources.com for additional data provider information.
Frontier Markets Emerging Markets Developed Markets
Market Cap
% GDP 32% 104% 117%
As at 31 August 2017
15
Emerging Markets:
Becoming Increasingly Important
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Investments.
2721.447
16.198
19.889
0%
5%
10%
15%
20%
25%
30%
35%
0
5.000
10.000
15.000
20.000
25.000
1987 1997 2007 2015Source : World Bank, World Federation of Exchanges database.
1987 –2015
17
Emerging Markets: Market Capitalization
Since 1987
% of World
Market CapUS$ Billion
For distributors/dealers use only. The content of the presentation should not be reproduced /distributed to the public without prior approval of Franklin Templeton
Investments.
19%
24%
31%
42%
24%
30%
42%
47%
23%
32%
38%
44%
0%
10%
20%
30%
40%
50%
1987 1997 2007 2016
GDP Exports Imports
Source : World Bank, June 2017
1987 –2016
18
Emerging Markets: GDP & Trade
% of World
GDP export Import GDP export Import GDP export Import GDP export Import
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Investments.19
Continued Future Fast Growth
19
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Investments.20
Emerging Vs Developed Markets:
GDP Growth 2017F
2017F
1,8%
4,6%
Developed Markets Emerging Markets
0,0%
0,5%
1,0%
1,5%
2,0%
2,5%
3,0%
3,5%
4,0%
4,5%
5,0%
Source: IMF, EIU
There is no assurance that any projection, estimate or forecast will be realized.
%
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Investments.21
EM Strong Fiscal Conditions
21
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Investments.22
US
$ b
n
1995 – 2015 (US$ Billion)
Foreign Reserves:
Emerging Vs. Developed Markets
1.0041.295
2.129
3.381
4.192
469733
2.251
6.330
7.060
1995 2000 2005 2010 2015
0
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000Developed Markets
Emerging Markets
Source: EIU
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Investments.
%
Developed Markets
23
%
Emerging Markets
Public Debt % of GDP:
Emerging Vs. Developed Markets
There is no assurance that any projection, estimate or forecast will be realized.
For distributors/dealers use only. The content of the presentation should not be reproduced /distributed to the public without prior approval of Franklin Templeton
Investments.
%Developed Markets
24
%
Emerging Markets
Private Debt % of GDP:
Emerging Vs. Developed Markets
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Investments.25
Emerging Markets:
Large Land Mass
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Investments.
26
35.073.137
94.660.036
Developed Markets Emerging MarketsSource: World Bank
Emerging Vs Developed Markets: Land AreaEM Covers More than 70% of World Land Area
26
Land area (sq. km)
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Investments.27
Emerging Markets:
Large Population
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Investments.
28
1,4
5,9
Developed Markets Emerging MarketsSource: United Nations
Emerging Vs Developed Markets: PopulationLarge Population
28
Billion (2015)
29
Currencies: Key Role
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Investments.
Emerging Markets: MSCI Currency Index
3-Year Period
+15%-15%
30
See www.franklintempletondatasources.com for additional data provider information.
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Investments.31
Major EM: Currency Performance Vs.US$ :
Since Recent Low
30th September 2017
46%
33%
24%
9% 9%7% 6% 6%
0% 0%
Russia01/16
Brazil09/15
SouthAfrica01/16
Korea02/16
Indonesia09/15
Singapore12/16
Turkey01/17
China01/17
Hong Kong01/16
Philippines08/17
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Source : Bloomberg; x-axis shows country name and Low date
32
Significant Undervaluation of
Some EM Currencies
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Investments.
4,0
4,5
5,0
5,5
6,0
6,5
7,0
7,5
8,0
8,5
9,001/90 01/92 02/94 02/96 02/98 01/00 01/02 01/04 01/06 01/08 01/10 01/12 01/14 01/16
RMB/ US$ Exchange Rates vs China/ US PPP Index
33
China: Purchasing Power Parity Vs US$
Since January 1990
RMB per US$China / US PPP Base Date: JAN 1990
RMB
undervalued 19%
14/07/17:
6.8 RMB/
US$
Source : Factset; IMF; EIU; Franklin Templeton Investments; Base date: Jan 1990. As at 14 July 2017.
See www.franklintempletondatasources.com for additional data provider information.
For distributors/dealers use only. The content of the presentation should not be reproduced /distributed to the public without prior approval of Franklin Templeton
Investments.
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,501/90 01/92 02/94 02/96 02/98 01/00 01/02 01/04 01/06 01/08 01/10 01/12 01/14 01/16
Real/ US$ Exchange Rates vs Brazil/ US PPP Index
34
Brazil: Purchasing Power Parity Vs US$
Since January 1990
Real per US$Brazil/ US PPP Base Date: JAN 1990
Real undervalued
8%
14/07/17:
2.9 Real/
US$
Source : Factset; IMF; EIU; Franklin Templeton Investments; Base date: Jan 1990. As at 14 July 2017.
See www.franklintempletondatasources.com for additional data provider information.
For distributors/dealers use only. The content of the presentation should not be reproduced /distributed to the public without prior approval of Franklin Templeton
Investments.
600
800
1.000
1.200
1.400
1.600
1.80001/90 01/92 02/94 02/96 02/98 01/00 01/02 01/04 01/06 01/08 01/10 01/12 01/14 01/16
Won/US$ Exchange Rates vs Korea/ US PPP Index
35
Korea: Purchasing Power Parity Vs US$
Since January 1990
Won per US$Korea/ US PPP Base Date: JAN 1990
Won
undervalued 15%
14/07/17:
1,126 Won/
US$
Source : Factset; IMF; EIU; Franklin Templeton Investments; Base date: Jan 1990. As at 14 July 2017.
See www.franklintempletondatasources.com for additional data provider information.
Commodity Prices:
Recovery Signs
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Investments.37
Commodity Prices:
% Change Recent Low
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Platinum, Jan_16
Gold, Dec_15
Silver , Dec_15
Nickel, Feb_16
Copper, Jan_16
Tin, Jan_16
Natural Gas, Mar_16
Palladium, Jan_16
Crude Oil , Feb_16
Source: Factset; last updated September 2017; % change in US$. See www.franklintempletondatasources.com for additional data provider information.
Commodity_low date
% Change from Low to 30th September 2017
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Investments.38
Iron Ore Imports in VALUE (US$ Million)
China
0
20.000
40.000
60.000
80.000
100.000
120.000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
China
Sources: ITC calculations based on UN COMTRADE statistics.; Iron ores and concentrates, incl. roasted iron pyrites
US$ Million
2001 to 2016
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Investments.39
Iron Ore Imports in QUANTITY (Million Tons)
China
0
200
400
600
800
1.000
1.200
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
China
Sources: ITC calculations based on UN COMTRADE statistics.; Iron ores and concentrates, incl. roasted iron pyrites
Million Tons
2001 to 2016
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Investments.40
Oil Consumption in VALUE (US$ Million)
China
0
50.000
100.000
150.000
200.000
250.000
300.000
350.000
400.000
450.000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
China
Sources: BP Statistics 2017
US$ million
2001 to 2016
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Investments.41
Oil Consumption in QUANTITY (Barrels/Day)
China
4.000
5.000
6.000
7.000
8.000
9.000
10.000
11.000
12.000
13.000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
China
Sources: BP Statistics 2017
Thousand barrels daily
2001 to 2016
Interest Rates and the Market
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Investments.43
Emerging Markets Vs FED Fund Rate:
Since 1987
FED Fund rateMSCI EM Index
See www.franklintempletondatasources.com for additional data provider information.
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Investments.44
Lots of Value in EM
44
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Investments.
Source: MSCI; Developed Markets as represented by the MSCI World ; Emerging Markets as represented by MSCI Emerging Markets;
There is no assurance that any projection, estimate or forecast will be realized.
45
Emerging Vs. Developed Markets: P/E
Valuations
P/E - 12 Months Forward, September 2017
12,5
16,7
Emerging Markets Developed Markets
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Investments.46
Emerging Vs. Developed Markets:
EPS Growth, 12-Month Forward
Source: MSCI; I/B/E/S, Developed Markets as represented by the MSCI World ; Emerging Markets as represented by MSCI Emerging Markets; 12 Months Forward EPS Growth
There is no assurance that any projection, estimate or forecast will be realized.
EPS Growth, September 2017
13,9
10,4
Emerging Markets Developed Markets
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Investments.47
Emerging Vs. Developed Markets:
Return on Invested Capital
Source: MSCI;Factset Aggregate, Developed Markets as represented by the MSCI World ; Emerging Markets as represented by MSCI Emerging Markets;There is no assurance that any
projection, estimate or forecast will be realized.
ROIC, September 2017
7,1
5,8
Emerging Markets Developed Markets
Internet = Technology TransferAcceleration
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Investments.
49Source: Internet Live Stats; updated July 2017
China 21%
Japan 3%
Russia 3%
India 14%
Brazil 4%
U.S. 9%
U.K. 2%
France 2%
Germany 2%
Nigeria 3%
• Around 40% of the world’s population has an Internet connection today; back in 1995, less than 1% did.
• The number of Internet users has increased tenfold from 1999 to 2013; the first billion was reached in 2005, the
second billion in 2010 and the third billion in 2014.
The InternetTop 10 countries’ share of world internet usage 2016
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Investments.
2008 – 2017F
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F
0
200
400
600
800
1000
1200
1400
1600
Emerging Markets
Developed Markets
Units ( Million)
Source: Gartner; Credit Swiss First Boston; Company data; GFK,June2017
There is no assurance that any projection, estimate or forecast will be realized
63% 63% 61% 53% 41% 32%37% 37%
39%47%
59%68%
50
30%
70%
30%
70%
Global Smartphone : Sales
28%
72%
28%
72%
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Investments.
Technology: Chinese Online SpendingSingles Day Biggest Retail Event Globally
51
For illustrative and discussion purposes only.
Source: Bloomberg; Techcrunch, Black Friday online sales US$3.3B, Cyber Monday; US$3.45bn and Thanksgiving US$1.9bn
Total was for the period from 24-28 November 2016.
$17.8B
Alibaba Singles Day Sales
$12.8BAll Retailers in US
2016
Thanksgiving, Black Friday, &
Cyber Monday Online Sales
2016
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Investments.
Source : WiPO
52
Emerging Vs Developed Markets:
Patent applications
% of Total Applications
80,4
19,6
2005
Developed Markets Emerging Markets
53,5
46,5
2015
Developed Markets Emerging Markets
53
Emerging Markets’ Reform
Movements
For professional investor use only. Not for distribution to retail investors.
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Investments.
54
Korea: Reform Movements
• President Park Geun-hye corruption Scandal.
Involving shamanistic friend’s influence
• Bribery, misuse of power, illegal disclosure of
government information.
• President Park impeached.
• Chaebol officials from Samsung, Hyundai, SK, LG,
Hanwha, CJ and POSCO, US$ 70 million donations to
Choi’s foundations.
• Samsung’s Jay Y. Lee indicted on corruption charges
for giving $38 million in bribes to Choi Soon-sil.
Source: Reuters, The Guardian
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Investments.
55
Brazil: Reform Movements
• Lavo Jato Scandal. 2004 and 2014, state-run Petrobras (Brazil's
largest company) engaged in massive corruption involving at
least $5.3 billion.
• Construction executives in collusion with Petrobras executives
secretly created a cartel to coordinate bids with inflated
contracts.
• From 2003 to 2010 President Dilma Rousseff was the Board
Chairwoman of Petrobras. Rousseff impeached on 31 August
2016.
• Marcelo Odebrecht, the head of Brazil's largest construction
company was sentenced to 19 years for bribery and money
laundering in March 2016
Source: Reuters, Vox
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Investments.
56
Argentina: Reform Movements
• President Cristina Fernández de Kirchner, and ex-planning
minister charged with taking millions of public funds.
Judge ordered to freeze $633m of each defendant’s assets.
• President Mauricio Macri wins Dec 2015 election for
President with his “Let’s Change” slogan . After taking
office:
• Lifted currency controls;
• Settled a decade-long lawsuit that blocked Argentina
from international capital markets;
• Launched a $16.5bn bond
• Began to compile and release accurate national
statistics for the first time in a decade;
• Hiked heavily subsidised utility tariffs.
Source: BBC; Guardian
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Investments.
Emerging Markets Private Equity
57
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Investments.58
Global EM Private Equity: Sector Exposure
EM Private Equity:
83% from Consumer, Industrials, Health Care and Technology sectors
Source: EMPEA, and MSCI December 2016 Emerging Markets Private Equity is represented by Emerging Markets Private Equity and Venture Capital Index and Emerging Markets Public Equity is represented by MSCI Emerging Markets Index. MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI. Most recent data available. Data is historical and subject to change
0,3%
0,4%
3,3%
9,7%
10,1%
13,1%
25,8%
37,2%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Utilities
Basic Materials
Telecommunications
Health Care
Technology
Financials
Industrials
Consumer
58
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Investments.59
Global EM Public Equity: Sector Exposure
EM Public Equity:
49% from Consumer, Industrials, Health Care and Technology sectors
Source: EMPEA, and MSCI December 2016 Emerging Markets Private Equity is represented by Emerging Markets Private Equity and Venture Capital Index and Emerging Markets Public Equity is represented by MSCI Emerging Markets Index. MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI. Most recent data available. Data is historical and subject to change
2,5%
2,6%
2,9%
5,8%
5,9%
7,4%
7,9%
17,5%
23,3%
24,4%
0% 5% 10% 15% 20% 25% 30%
Health Care
Real Estate
Utilities
Industrials
Telecommunications
Materials
Energy
Consumer
Technology
Financials
59
60
Confidence and Fund Flows
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Investments.
For illustrative and discussion purposes only. Past performance is not an indicator or a guarantee of future performance.
Source: FactSet Research Systems Inc.; Merrill Lynch Fund Manager’s Survey. Data last updated: September 2017. Based on Merrill Lynch Fund Manager’s Survey on Net
percentage saying they are underweight or overweight Emerging Markets Equities; positive figures represent percentage of investors overweight while negative figures
represent underweight; See www.franklintempletondatasources.com for additional data provider information.
Net
% W
eigh
t
Underweight
Overweight
Emerging Markets: SentimentEmerging Markets Exposures Picking Up
Net Percentage of Investors Over / Underweight Emerging Markets
January 2007 to September 2017
61
Net
% W
eigh
t
Underweight
Overweight
-40
-30
-20
-10
0
10
20
30
40
50
60
70
01.07 01.08 01.09 01.10 01.11 01.12 01.13 01.14 01.15 01.16 01.17
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Investments.62
0
500
1.000
1.500
2.000
2.500
-60
-40
-20
0
20
40
60
80
100
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
1996 – YTD 2017
Emerging Markets
Flows Into EM Equity Funds Globally
Net Flows
US$ BillionMSCI EM
Index (US$)
Net EM Equity Annual
Fund Flows
Emerging Markets Index
Source: EPFR Global, Equity Fund Flows Database (see last page for details), Morgan Stanley Research. Data as of Jul 26, 2017. *Dedicated EM Equity Fund Flows
include GEMs, LatAm, EMEA and EM Asia (ex China A) regional funds; including both ETF and Non-ETF
For distributors/dealers use only. The content of the presentation should not be reproduced /distributed to the public without prior approval of Franklin Templeton
Investments.
Source: MSCI, Factset. All MSCI data is provided “as is.” In no event shall MSCI, its affiliates or any MSCI data provider have any liability of any kind in connection with the MSCI data described herein. Copying and redistributing the
MSCI data is strictly prohibited. Index returns include reinvestment of dividends. Indices are unmanaged, and one cannot invest directly in an index. Emerging markets as represented by the MSCI Emerging Markets Index and world as
represented by the MSCI World Index. Past performance is not an indicator or a guarantee of future performance. See www.franklintempletondatasources.com for additional data provider information.
63
Emerging Markets: Performance
Since 1987
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Investments.
Source: FactSet;. Based on 30% decline from the peak and 30% increase from the bottom.
Past performance is not an indicator or a guarantee of future performance. See www.franklintempletondatasources.com for additional data provider information.
MSCI Emerging Markets Price Index
Bear Market Is Defined As A Decline Of Over 30%
64
-35%
17 months
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Investments.
Bull Markets Bear Markets
Source: FactSet; 31 Dec 2016. *Bull and bear markets are based on 30% changes of the MSCI EM Index , average does not take into account the current bull numbers.
Past performance is not an indicator or a guarantee of future performance. See www.franklintempletondatasources.com for additional data provider information.
Dates
%
Increase
# of
Months Dates
%
Decline
# of
Months
Bull 01/88-08/97 619% 116 Bear 08/97-09/98 -56% 13
Bull 09/98-04/00 114% 19 Bear 04/00-10/01 -49% 17
Bull 10/01-11/07 537% 73 Bear 11/07-10/08 -65% 12
Bull 10/08-08/14 154% 66 Bear 08/14-02/16 -35% 17
Bull 02/16-
Average 356% 69 -51% 15
Emerging Markets : Bear / Bull Markets
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Important Information
Copyright © 2017. Franklin Templeton Investments. All rights reserved.
Franklin Templeton Investments (Asia) Limited is the issuer of this document. The document, which is
for informational purposes only, sets forth our views as of the date published. The stock provided is for
illustration purpose only. It is not a recommendation to purchase, sell or hold any particular security.
The stock identified is not necessary indicative of a portfolio's holding at any one time. The underlying
assumptions and these views are subject to change. There is no guarantee that any forecasts
expressed will be realized. Franklin Templeton Investments accepts no liability whatsoever for any
direct or indirect consequential loss arising from use of this report or any information, opinion or
estimate herein. This document has not been reviewed by the Securities and Futures Commission of
Hong Kong.
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