BRIEFING BOOK

Data Information Knowledge WISDOM

GLOBAL ROUNDTABLE

Location: Forbes, New York, New York

About The Panelists ...........................................................................

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The Panelists in Forbes

"Investing In China,” 07/20/09………………………………….. "Tim Ferguson On The Global Economy," 12/15/09………… "China's Muni Mess" 03/18/10 ……………………………….. “The Changing IPO Market," 06/18/09……………..…………..

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The Discussion ..................................................................................

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ABOUT THE PANELISTS Intelligent Investing with Steve Forbes

John Burge is managing director at Auerbach Grayson. Before joining Auerbach Grayson in 1995, Burge was a founder and president of Triangle Asset Consulting, a firm specializing in consulting to medium-sized pension funds. He was also previously head of funds management for Ecofin, Ltd., a company which he helped found in London, England. Prior to that, he was senior funds manager for BIL/GT Group in Frankfurt, Germany.

Tim Ferguson is editor of Forbes Asia, the English-language publication of Forbes magazine in the Asia/Pacific region. He joined Forbes as its west coast bureau manager in 1995 and was assistant managing editor from 1998 to 2001. He has twice been a media fellow at the Hoover Institution at Stanford University.

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Paul Maidment is the Editor of Forbes.com, overseeing all editorial content, and executive editor of Forbes magazine. He is an awarding-winning financial journalist who hosts a weekly video commentary: Notes On The News, where he brings his deep understanding of global affairs to an informed audience.

Dr. Stephen Wood is chief market strategist at Russell Investments. He conducts research on the economy, capital markets, portfolio strategies and investor behavior. Before joining Russell, Wood was senior portfolio strategist at Manning & Napier Advisors. He was also previously senior equity portfolio strategist at Alliance-Bernstein. Wood began his career as a senior research associate and economist for the Milken Institute.

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THE PANELISTS IN FORBES Intelligent Investing with Steve Forbes

Intelligent Investing Panel

Investing In China Morgan Brennan, 07.20.09, 12:00 PM EDT

China's V-shaped recovery lures investors.

China's National Bureau of Statistics recently announced that its annual gross domestic product growth

at the end of the second quarter was 7.9%, up from 6.1% in the first. This narrowly exceeded

expectations and experts are now scrambling to revise second-half forecasts to reflect a growth rate

that will likely exceed China's 8% targeted rate. China, whose local stock market is up more than 73%

year-to-date, is rebounding from the collateral damage of the developed world's credit crunch, despite

lackluster demand from importing nations.

Chalk it up to a strong and steady surge in domestic consumption. Thanks to the government's four

trillion yuan stimulus package and amplified bank lending, Chinese consumers are purchasing more

cars (sales were up 20% in the second quarter), more homes (property sales are rising) and more

goods (many retailers reported higher-than-expected earnings for the second quarter). All of this makes

China an alluring prospect for investors.

China actually boasts three separate markets: the A-Share class, which is yuan-denominated and

dominated by local investors and retailers (foreigners need permission from the government to invest in

these shares); the B-Share class, which is dollar-denominated but trades at significantly high premiums

to corporate book value; and the H-Share class, which constitutes Chinese companies listed in Hong

Kong. Of the three, H-Shares prove the easiest and most popular way in since they provide direct

access without the regulatory approval. Individuals looking to buy can also find New York Stock

Exchange-listed American Depositary Receipts and Exchange Traded Funds.

January Yen, head of Institutional Sales of Greater China Equities at Auerbach Grayson, a brokerage

firm operating in 128 countries that provides trade execution and research to U.S. institutional investors,

is positive on the market in the medium to long term, emphasizing investment potential in the properties

sector (up almost 40% ytd in H-Share market) and the banking sector (up about 24% ytd). For H-Share

investment, she likes Bank of China and ICBC China for banking and Soho China (HKG:0410) for

properties. In addition, since the stimulus package focuses heavily on infrastructure and mass transit,

she also suggests construction companies like China Railway Construction (HKG: 1186) and steel

companies like Angang Steel (HKG:0347).

Jerome Booth, head of research and a member of the Investment Committee at Ashmore Investment

Management, an asset investor in emerging markets, agrees that investments in China will deliver

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positive results within the coming years. However, he warns, the areas currently yielding the most profit

are not as-of-now actually in the public sector. Additionally, "public equities are also clearly going to

offer a huge amount of value potentially but you do have a problem competing with so many local

investors in an environment which doesn't have everything that an occidental investor would ideally

want."

Even so, "the scope for further development is enormous," says Booth. "And if you are U.S. investor

investing in China, pretty much whatever you invest in over the medium and longer terms is almost

certain to see a currency appreciation in your favor as the dollar is managed down gradually against

China and other key emerging currencies."

Bill Singer, shareholder in the firm of Stark & Stark, invests in the ADR PowerShares Golden Dragon Halter USX China Portfolio (PGJ) and in the ETF iShares FTSE/Xinhua China 25 Index (FXI). He encourages American retail investors to pursue exchange-traded options, explaining that they trade completely liquid minute by minute, are directly accessible by a single computer click and trade in New York time rather than East Asian time (which is about a half-day ahead). In addition, he notes that given the Chinese government's reputation for journalistic suppression, there is always the risk that pertinent local information in China may not reach investors trading halfway across the world.

Advisers and analysts suggest spreading international investments over more than one or two

countries. Lynn Phillips-Gaines, founder and head of a Raymond James financial services firm, explains

that of the 15-20% of assets her firm invests in international markets, "we are more positioned in

emerging markets than the straight international, with China around 5-8% of the international index."

In addition to China, there are about 60 economies currently "emerging," and as Booth explains, "On

the whole emerging markets are offering much better risk adjusted return in whatever asset class you

look at when compared to their equivalents in the developing world."

According to John Burge, executive vice president and director of sales for Auerbach Grayson, some

countries to consider when diversifying your portfolio's international investments are: Brazil, where

growth continues with car sales up, lower income housing doing well and the government executing

some of infrastructure policies as China's; Africa, where many countries' growth outlooks are positive;

and Southeast Asia, where India nabs all of the world's attention but Pakistan, Bangladesh and even

newly peaceful Sri Lanka show promise.

"A lot of these markets are in the nascent stage," explains Burge, "We think that that in itself, with the

growing population and the demographics and improving GDP per capita, will mean that these

emerging markets as a whole will prove to be more interesting than the developed world in years to

come."

As the global economic playing field continues to shift and level out, investors should think

internationally and consider the potential developing countries show. China could be a good place to

start.

Investing in China

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Forbes : I've noticed that China's economy seems to be doing better and getting on the path to

recovery faster than ours. Is there something that U.S. investors should be doing now to take

advantage of these strides?

Bill Singer : How about we take up a collection for the Uighur Liberation Army? Or, you could buy the

FXI ETF.

Forbes: So then do you think it's worth American re tail investors buying more Chinese stocks,

commodities, etc.?

Singer : I can hardly imagine a scenario whereby a reasonable investment in FXI will not prove

profitable over the ensuing decade-plus. China is a force of nature now being unleashed on the world. It

is no different than being present at the birth of the British Empire or the emergence of the U.S. after

WWII. Undoubtedly, China will also be transformed by its growth as an economic superpower and we

should expect the same paroxysms that hit Britain and our own country. Every birth has its pangs.

Lynn Phillips-Gaines : Like commodities and think they need to be in everyone's portfolio ... kind of as

an insurance policy for the future and inflation. Only have about 5% in this area now.

Forbes: How internationally diversified should some one's portfolio be right now? When do you

know that you have the right mix in your portfolio?

Singer : Rather than beat around the bush, by way of full disclosure, this is everything that I presently

own as of July 13, 2009. As you can see, it is heavily weighted to foreign investment (India, Brazil,

China and the Middle East) and has some focus on commodities (Agricultura and metals):

MES

FXI

IGN

PIO

EWZ

MOO

DBA

INP

DBB

MVIS

Phillips-Gaines : We have from 15-20% in international. Recognizing that China has money pumping

into its system with lending up significantly, we are more bullish on China and our managers have

slightly increased exposure. In both growth portfolios and growth and income portfolios we have more

positioned in emerging markets than the straight international with China around 5-8% of international

index.

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Sneak Peek 10

Tim Ferguson On The Global Economy 12.15.09, 06:00 AM EST

Success in business will come from global partnersh ips and platform building.

The Big Trend

The business winners will be those that not only partner advantageously around the world, but also

create platforms that others can build on. Think Apple's iPhone and Apps.

The Unconventional Wisdom

Whereas many see the new Japanese prime minister, Yukio Hatayama, as a change from stagnant rule

by the Liberal Democratic Party, in fact many of his policies are retrograde LDP fare--none more so

than those from financial-services minister Shizuka Kamei. An old foe of reformist Junichiro Koizumi,

Kamei entered the government through a rump party in Hatayama's coalition. All in all, the signals to

Japanese enterprises are: go somewhere else.

The Misplaced Assumption

That we have survived the Great Recession without an outbreak of rank protectionism. In fact, the

greatest threat to world trade and prosperity, currency disruptions that include competitive devaluations,

is already acute.

The Watch List

ANZ Bank. The antipodean finance house is making a big play on Asia's regional growth.

Jack Ma . The founder of alibaba.com is not stopping there or in China in his Web-driven ambitions.

Steve S. Yang . We should hear more about the chief executive of rising Hyundai Motor as he emerges

from the shadow of the Chung family chaebol.

Tony Fernandes . Asia's discount travel innovator who, along with Michael O'Leary of Ryanair in

Europe, is changing the terms of mobility.

Qatar . Amid the mess in Dubai, watch the most significant Gulf NON-member of the United Arab

Emirates, whose financial buildup has been more prudent and likely more lasting.

A Bold Prediction

The Islamic entity whose expansionism will most challenge the West will be ... Turkey.

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Notes On The News With Paul Maidment

China's Muni Mess Paul Maidment, 03.18.10, 07:36 PM EDT

Local governments have taken on massive off-budget debt. Beijing's crackdown is about to start.

The 21st Century Business Herald, a Chinese-language newspaper based in the southern Chinese city

of Guangzhou, carried a story this week that illustrates what is rotten at the heart of local-government

finance in the country, so rotten that in its quarterly update on China's economic outlook published

earlier this week the World Bank said the strains on local government finance were one of the two

greatest risks the economy faces.

Officials from Jiangqiao, a township outside Shanghai, diverted 2 billion yuan ($300 million) intended for

devilment related to the new high-speed rail line to Beijing into real estate speculation, the newspaper

said citing audit documents. The money had been borrowed from local banks and funneled through a

town-owned investment vehicle. This couldn't service the debt, forcing the township to pick up the tab

and eventually to hi-jack stimulus money last year to stay solvent. That finally forced the Shanghai

authorities to step in.

There are at least 3,000 such special entities across China. Northwestern University's Victor Shih, who

has made a specialty of studying them, puts the number as high as 8,000. These captive investment

vehicles are set up so provinces and municipalities can circumnavigate the restrictions on their

spending imposed by the country's rudimentary system of local government finance.

A huge amount of last year's 9.6 trillion yuan of new bank-lending found its way into local government

infrastructure projects by way of these captive investment vehicles. The bank supervisory agency, the

China Banking Regulatory Commission (CBRC), estimates that their bank debt increased by 1.3 trillion

yuan in 2009 to 5 trillion to 6 trillion yuan at end 2009, with estimated additional committed lines of 3

trillion yuan. The possible total of 9 trillion yuan is equal to 27% of GDP. (Shih puts the total at 24 trillion

yuan.)

The concern is that these investment workarounds won't generate sufficient returns to cover operating

and interest costs let alone repay the principal of the loans taken on, leading to a rise in non-performing

bank loans, especially at smaller (and weaker) regional and local banks, or, as in he case of Jiangqiao,

leaving cash-trapped local governments holding the can.

The Domesday scenario would be if that happened against a bursting real estate bubble. Most of these

loans are secured against land. Local governments already fall back on land sales to pay the debts of

their investment vehicles, creating an incentive for local governments to inflate land prices artificially.

Provinces and municipalities generated 1.6 trillion yuan from land sales last year, according to official

figures. Half the land was sold to real estate developers.

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This is not a new problem, though Beijing has previously turned a blind eye to it in the dash for growth.

A large portion of the debt in captive investment companies was accumulated before 2009 following a

change in the tax distribution system in 1994 that directed more tax money to Beijing, leaving local

government's share reduced to 25%.

So far no systemic problems have occurred. But last year's massive stimulus spending has swelled

local-government debt from worrying to alarming levels. Of the 4 trillion yuan, only 1 trillion came from

central government. Local governments had to find the rest. So determined was the political drive to hit

a national growth target of 8% last year that it was full loans ahead and damn the credit quality.

Beijing now wants to clean up and choke off local-government debt growth before it becomes another

bubble. The CBRC and the central bank, the People's Bank of China, have both warned of potential

problems and called on banks to strengthen their risk assessment of lending to local government

projects, for which read rein in. The big state-owned banks have complied but smaller, regional banks,

with their crony links to local officials, remain under local sway.

New rules will follow on local government guarantees. Letters of guarantee or comfort from local

authorities will not be valid anymore. That, though, just switches the credit exposure from local

governments to lenders, which in China is mostly two sides of the same coin. Beijing will still be faced

with the prospect of having to bail out some wayward municipalities.

In addition, provinces and municipalities will be given more direct access to capital markets. A pilot

local-government bond market has been experimented with over the past couple of years. While this

will be expanded, there will be strict limits on issuance volumes set by central government.

Beijing needs to go much further: As the World Bank notes, fundamental reform of the fiscal system is

necessary to increase and diversify local government's revenue sources, lessening their reliance on

volatile land sale revenue and giving them a bigger share of sales and other consumption taxes.

The World Bank also calls for greater transparency in local-government finances. "It would be good to

include land sale revenues and the infrastructure and urban development activity in local government

budgets," it says. There is rarely anything good lurking in the murkier corners of off-balance-sheet

financing and special entities, as Beijing may find out the hard way.

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U.S. Equities

The Changing IPO Market Steve Schaefer, 06.18.09, 11:30 AM EDT

A rebound is coming in the market for new offerings . Is Wall Street ready?

There are signs of increased activity around initial public offerings. After a few successes this year,

filings have picked up. With the stock market recovering from its 2008 lows, entrepreneurs are hungry

for equity financing again. With some of the banks coming off of government life support and others

wanting to pay loans back to the Treasury, Wall Street is hungry for fees. But the traditional IPO

winners might not fare so well this time around. Watch for boutique and mid-market banks to lead the

way.

The financial sector made headlines last week as 10 firms paid back $68 billion in TARP loans, but the

news was a reminder that the massive losses and capital needs of larger players led many banks to

shrink departments, cut personnel and turn their focus inward. Where larger firms used to gobble up

smaller players, the latest wave of mergers took place at the high end of the market. From the

bankruptcy of Lehman Brothers to the last-minute rescues of Bear Stearns, Merrill Lynch and

Wachovia, which has a large banking operation but traditionally focused its IPO business on smaller

names, the universe of banks vying for company business has grown smaller.

Steve Wood, senior portfolio manager at Russell Investments, said that while there is still an ample

pipeline of companies that view the public markets as an attractive exit, softening business conditions

led a number of firms to pull their resources into a bunker. The trend did not cause the falloff in IPOs

last year, but it likely had an impact on the market as banks had to turn some attention to capital-raising

efforts of their own.

While the events of the past two years do not mean that firms like Morgan Stanley , Goldman Sachs or

JPMorgan Chase are in any danger of being upstaged completely, they have opened the door for more

nimble players to step in and pick up share once the IPO market turns itself around, an event which

some observers believe is already beginning. Tim Monfort, head of equity capital markets at mid-tier

investment bank Jefferies , said his firm has taken advantage of the turmoil at its larger competitors as

it seeks to grow its business.

Jefferies was among the underwriters on the highly successful April IPO of language-learning

technology company Rosetta Stone , as was Minnesota-based Piper Jaffray . Jon Salveson, the firm's

head of investment banking, said the traditional concentration of IPO underwriting within a small

number of large banks has been to the detriment of the market.

Salveson argues that the most important services an investment bank can provide to a small company

come post-IPO, when the firm's sales force has to make a concerted effort to keep the stock visible to

the marketplace. He believes such services were sorely lacking when the mega-banks had seemingly

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unlimited resources at their disposal, resulting in a higher cost of capital for fledgling public companies

as they tried to tap the capital markets.

Brett Paschke, co-head of equity capital markets: corporate finance at William Blair in Chicago, another

firm that helped underwrite the Rosetta Stone IPO, said the smaller boutique firms have been carving

out a niche for some time, but their success has been accelerated by the turmoil among larger players.

He said William Blair has been able to be more competitive with Wall Street's heavyweights within its

sweet spot of small-cap growth stocks.

Particularly when dealing with smaller companies, the breadth of services provided by a Wall Street

heavyweight is not necessarily attractive, Paschke said, echoing Piper Jaffray's Salveson. While a client

like General Motors or Johnson & Johnson might need a wide range of financing and transaction

advice, a small, fast-growing company has far fewer needs as it tries to tap the public markets for

financing. The depth of service and "high-touch" relationship that such companies need is one of the

primary draws to a specialty shop like William Blair, Paschke said.

"There's no doubt that in this environment larger firms can not commit their full resources to smaller cap

names," Paschke said, "and a small-cap stock needs more care and feeding than a large cap."

While the challenges of the current environment may help send some market share away from the

traditional heavyweights, the stress on the market in general is not solely limited to the biggest names

on Wall Street. Paschke said a number of smaller firms outside of New York that have had limited

transaction activity since the IPO market fell off the table in the second half of 2008.

As the market sputters to life it may be the best shot for those firms to take back some ground from their

larger rivals. They may need to hurry though, as the early returns on the limited number of 2009 IPOs

show encouraging signs. Four companies that priced in April and May -- Bridgepoint Education ,

Rosetta Stone, SolarWinds and OpenTable -- are all trading above their opening price. (See "From

Good to Public.")

Brent Siler, a partner in the public securities group at Cooley Godward Kronish said there are clear

opportunities for smaller banks to carve out some turf from larger rivals. Services among the major

banks are begin consolidated among fewer players, he said, and a number of his clients have been

approached by smaller boutique firms that are looking to stake their claim on more deals.

While a number of companies do not believe the IPO market will be truly humming until 2010, Siler said

entrepreneurs he has spoken with are very interested in laying the groundwork for a filing so they will

not miss the boat when it comes.

Whenever the recovery comes through, many agree that the recovery of access to the public market

will be driven at first by smaller, "best of breed" companies with compelling growth stories. Given that, it

seems likely that the seat of power for IPO banking will become a little more widely dispersed outside of

its former exclusive residence on Wall Street.

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THE DISCUSSION Intelligent Investing with Steve Forbes

Greece's Prognosis Paul Maidment: Let's start our tour around the globe, the investing globe, in Europe with Greece. A small part of the EU's GDP; not that much bigger part of its debt. But clearly, it's major crisis point at the moment. The government's in a catch-22 that it has to stimulate the economy to grow out of recession, and at the same time, it has to cut its deficit to meet its EU requirements. And it looks as though there's not enough bailout coming down the road. Steven, what's your prognosis for Greece? Do you think it can get out of it? And what's the investment play there? Steven Wood: I think the prognosis for Greece is dependent upon negotiations that come out of Europe. You're right. It's quite in a catch-22. Is an IMF American-based implementation the way to go or is it a European solution? We'll see what that's going to look like. That's more of a political issue, I think, than a financial issue. But I think for Greece right now, it's getting to be a very dire situation, because they need to refinance some of the churning debt, you know, within the next large number of days. So I think for them, you know, this is going to come to a head sooner rather than later. So, whether or not they're going to be successful is not really in Greece's hands, I don't believe at this point. It's really in the larger EU or euro zone context. So I think the credibility of the euro, you're seeing, you know, a very significant tradeoff in the last large number of weeks. So it's probably reflective of the fact that a lot of the details of the euro zone don't actually exist. And so this is a very European way of kind of creating solutions after the crisis has already come. So, I think it's going to depend on the details. But you're seeing a lot of German resentment. And I think the French and the Germans really disagree, so maybe it's going to need to take an external body like the IMF to come in and be the bad cop, to implement some quid pro quo. "If we give you this funding, then we need to see these changes come." Maidment: John, is that how you see it playing out? And if so, how does an investor position himself to take advantage of that? John Burge: Actually, we see it a little bit differently. We think that, yes, Greece has gotten itself into a situation. But the bigger question really is can the EU afford not to step in, whether it's Germany, whether it's the IMF, whether it's another world body. The euro zone is now so married to the euro, their entire financial system is on the euro. After the initial shock when the deficit announcement surprise came out, Greek bonds went up, yielding 300 basis points over the German bund. You've seen, and the market's been down 30% since probably September. You've seen people begin to look at those banks. The banks are actually, they're not completely, they have not lent 100% of their deposits. They are in reasonable shape. So the big question really for us is not whether it's going to be resolved, how it's resolved. I agree with Steven on the details of it are still a bit sketchy.

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But I think what you're going to find is there is going to be a resolution. We have had investors come in and begin looking at Greek banks and we have had people take positions in Greek banks. Maybe we're too optimistic, but we think that this is an opportunity that the market's overreacted and that the European countries cannot afford not to come up with a solution, because the domino effect would be considerably larger for not only the euro zone, but in particular, the financial system, which right now -- Wood: Well, if I can build on that as well, too, I mean, there's vested self interest, because a lot of that Greek debt sitting on French – Burge: Absolutely. Wood: -- and German balance sheets, public and private. So, I mean, it's not a totally altruistic, you know, common good perspective. Burge: Absolutely. Wood: But you're asking about investment implications, and I think one of the themes that I've been looking at, coming into 2010, has been sovereign risk. I think exit strategy and then sovereign risk are going to be two of the risk-oriented themes for investors at least for 2010. That de-leveraging that took place rapidly in the fourth quarter of 2008, and I think the Federal Reserve, to a lesser extent, the ECB, have been very successful at avoiding the abyss. But a lot of that debt's been transferred. It hasn't disappeared. It's just transferred from the private balance sheets onto the public balance sheets. So this is going to be an ongoing issue that Greece is the exemplar, but what it represents could be the real issue for a lot of investors. Maidment: Tim, do you think this has damaged the EU's reputation for its governance of its financial system? And what do you think the implications that are going to be both for the euro and also for growth of western Europe and the EU zone as a whole? Tim Ferguson: I think there's such fundamental tension between these more backward economies like Greece and Portugal and the phony prosperity that we saw in Spain and what is essentially still a German central bank at the ECB. That fundamental tension will be very difficult to resolve. I think it will not end happily on either end and I think therefore that the debt in general, or any euro-based bond, is to be watched warily. And as far as equity investments, any company that is based within the consumer market of Europe I think is precarious. Those that sell outside of Europe largely will be inoculated. Maidment: And do you think that the effects that we've seen in Greece will start to spill over into the other Mediterranean countries that are much talked about -- the Portugals and the Irelands and even the Spains, as you intimated?

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Ferguson: Ireland may be addressing the situation better than others, although the situation there obviously, the standard of living is bleak at the moment. I do think it will spill over and I think it will spill over also to the periphery of the euro zone, into the would-be euro countries, as they try to resolve their own debt situations. Maidment: So John, what's your prognosis for the euro against this background? Burge: Well, right now, we're seeing that it's just sort of breached a level around 135, and that's certainly a concern. I think the euro will continue to have some pressure on it. I don't want to indicate that I don't think that's going to happen. But I think what, when you were asking me from an investment perspective, I think this gets resolved. Maybe I'm more optimistic. And certainly there will be some lasting issues that come from it. But I think a lot of them have already been known, which is how does Europe sort of get its house in order when one of these problems arises? And I think that's really, Steve, what you're mentioning, is we just don't know the details of how they'll handle a situation like this. So this is a test for Europe, for the euro. But as far as the equity market's concerned in Greece, we think it was oversold on a reaction. It's primarily that the banks are a big chunk of the index there. And so if you look at those particular investment vehicles, those equities, I think what you'll find is they have begun to bounce some. But again, I don't want to indicate that I don't think the euro will suffer from this. I do think the credibility issue will remain. I just don't think that they will let Greece go, because again, you have problems with the euro. You have problems with the financial system. I agree, the Germans are very upset. I agree that they're going to have some serious discussions after this. But in the grand scheme of things, from an investment perspective, we would be buying the big banks right now. Ferguson: I think France is the interesting question here, vis-à-vis that tension with Germany and its own not stellar economic performance. Wood: Uh-huh. Sarkozy and Merkel have definitely had loggerheads on this, as well. And I think it also illuminates, you know, clearly a global perspective is going to need to be an American and any investor's perspective. But when you talk about Europe, what do you mean? I mean, is it those Club Med countries that we're talking about -- Spain, Portugal, which was downgraded this morning, Italy, and Greece? But then you have the core Europe if you're looking at France and Germany. You can see a lot more in terms of country analysis. Opportunities, you've got sterling, as well. So, I mean, when you talk about Europe, I mean, that is a very clumsy label, and investors just need to be a little bit more sophisticated in how they invest internationally. Good European Investments

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Maidment: Let's drill down on that point. So, which particular economies in Europe do you think have good prospects, and where would you like to be steering your clients to at the moment? Wood: Well, I think right now, well, we look globally diversified, but within Europe, to the, we don't go country specific. We go company specific. But I like, Germany's doing reasonably well. I think France is doing reasonably well. I think in some Scandinavian countries, you're seeing some opportunities. You know, how Sweden was able to clean up their banking system. You know, 15 years ago. It was a good blueprint I think for what we're likely to do. I think you can also make the argument for central as well, Switzerland, I think. So, non-euro countries right now are probably looking a little bit more attractive. I think Iceland obviously is going to have some very, very significant choices to make. None of them will be pleasant for them. And then emerging markets would balance that out. Maidment: John, do you see sectors perhaps that you find attractive in Europe at the present? Burge: Well, we again, we look at it from a more bottom-up perspective. And I would agree with some of the developed markets that Steve has mentioned. But one of the things from the emerging side that I would certainly want to get into is then, we just have visited Greece, by the way. And I'll just take a step back, if I may. The current government controls both houses of the parliament. And while you have been reading quite a lot about the demonstrations in the street, my colleague who is in Greece heard there was going to be a demonstration outside of his hotel. So he sort of waited to hear it. He never heard it. There is, and all of the companies that he visited, they seemed to understand that the restructuring plan that they are putting forward needs to take place. Now, whether it takes place in its current form or not is always a – Wood: Which is not the case in Portugal. The political solidarity is not there. Maidment: Yeah. And also, Greece has got a whole load of corruption issues that it really has to tackle, which are going to be politically very difficult. Maidment: Let's go around the table. One word answers please. Buy, sell, or hold. Steve, we'll start with you. Buy, sell, or hold Greece? Wood: Sell. Maidment: John? Burge: Buy. Ferguson: Hold at this point.

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Maidment: Euro, Steve? Wood: I think sell. Burge: Sell. Ferguson: Sell. Maidment: And the euro zone as a whole? Let's start with Tim. Ferguson: Equity buy Italy on a cheaper euro. Maidment: Steve? Wood: I'd say company specific, buy. Sovereign debt, depends. Maidment: John, last word? Burge: I would say buy equities in Europe. Laying Down BRICs Maidment: Let's continue our investing jaunt around the world by taking a look at the emerging markets. John, let's start with you. What do you see as a driving trend in emerging markets now, particular in the BRICs? Burge: Well, the BRICs, in the short-term, have not been stellar performers this year. They're basically flat with the exception of China. But what's been driving them is not a new story. It's the, you are continuing to see growth. Actually, the growth in the emerging markets and the BRICs have been quite good. As a matter of fact, the BRICs have been so good that you're probably getting close, and you have in some cases, you've started the tighten in some of the BRICs. So I think that's behind the plus or minus one or 2%, with the exception of China, which is down about seven, which we've all read about what's going on there. So what's the underlying driver goes all the way down to the consumer, where the real GDP per capita is still going up. Growth is still going up. And for the most part, they're not experiencing inflation with a few exceptions. And so the rates have remained favorable for them. So you've got a lot of things that are still good for emerging markets. And the fact that the domestic demand is still picking up where some of the internationally-exported demand is slacking. And I think you'll continue to see that. But you're getting close in the BRICs to a tightening and we would actually favor the next line of emerging markets other than BRICs. Maidment: Steve, do you see the same effect pair of your clients being more interested outside the BRICs now? What sort of flows of funds are you seeing into those areas?

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Wood: In emerging markets, I mean, well, again, it's such a diverse region that it's really difficult to draw general conclusions. But for the average institutional investor, you know, this will be a significant but a minority position within, you know, their larger portfolio. And I think you really are getting varied areas, like Brazil, which is performing much more strongly, and perhaps India, which might be a little bit more interesting. But I think you're looking at China right now, and for my money, what happened earlier in 2010 was that China is no longer discussing their exit strategy. They're implementing their exit strategy. So that's really adding, I think, to some of the volatility. So I think all good things in moderation. The growth is going to be there. The delta in the consumption and I think the delta in the GDP growth. I think you're going to see China very soon become the, you know, second largest economy on the planet. So I think that's going to happen in due time. That being said, investors need to understand that it is the negative correlations and the way that return patterns are created in a more favorable way by having diversified holdings. Don't chase heat. Don't chase good recent returns. You want to put in, you know, part of your portfolio needs to zag when the rest of it zigs. That's why you want to look at emerging markets I think for a longer period holding. China's Middle Class Maidment: Tim, do you see the economic fundamentals sort of driving that growth, particularly in Asia, which you know so well? Are they well set? Are we going to see the continued growth of these middle classes? Are we going to see any growth in these economies, at these sort of rates that we've seen in recent years? To such an extent? Ferguson: Yes. Overall rate and with some shifting among the countries from what we've seen in recent years. I think primarily the commodities, both the materials commodities and the food commodities will continue to have strong fundamental growth as those middle classes emerge. I do agree that Brazil probably has a more balanced situation. Also an economy that's been dealing with fairly high nominal interest rates for some time, and so somewhat used to, if you will, a more volatile interest rate environment. China is such a special case, because it's such a managed economy, centrally managed currency flows not being driven by the market. However much the central bank chooses to tighten in China, of course, it could easily make up for it by allowing as much foreign investment as it cared to. There's virtually limitless potential for that and I think that would be a more fundamentally strong way to build out that economy, than to rely on continued central bank lending through the state-owned enterprises. Burge: Can I ask a follow on? Maidment: Yeah. Evaluating Currencies

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Burge: In terms of the renminbi, you know, there's been a lot of talk that you'll see some loosening. Some people even saying up to 5%, which seems to make sense from the inflation standpoint, because certainly, their appetite for commodities are still big. How are you feeling on the renminbi? A specific question. Ferguson: Without a normative view, but simply what my expectations are, I would see a five to 10%, centrally returning to that gradual period of rising valuation that we saw until a year or two ago. It won't happen to the degree that they are put under direct political pressure. So we're going to have to hopefully get through this period without some regressive trade actions out of Washington, because I think that would have the effect of delaying it. Wood: But we've also simplified the relationships since the Greece incident. That the talk about this diversified basket, which would be euro heavy and then commodities-balanced and moving away from the greenback, that talk has died down now, since we've seen that flare-up in Club Med. So I think it becomes a dollar, you know, yuan story right now. Maidment: And the basket's always been very heavily dollar denominated, anyway. I mean, it's – Wood: And I think it will continue to be that way. Investing In Pakistan Maidment: This still though mirrors outside China, and we'll return to China at a later moment. But John, you were saying earlier that you thought the investment opportunities lay outside the BRICs, rather than inside it. Which parts of the world are you attracted to at the moment? Burge: Well, this gets back to what Steven was saying earlier, which is, you know, for the most part, we all read about the huge flows into emerging markets. In many of those flows, two thirds of them came into the ETFs last year, which by definition drove people into the BRICs. So the majority of the cash flows that you saw into the funds were going into BRICs. I think they basically have gotten ahead of themselves and I think that some of the other markets have been left behind. We like some of the newer markets. Certainly, there is quite a much higher dividend yield, lower valuations. And some of them, people have stayed away from, for one reason or another. We've just had, we've just finished a two-day Pakistan conference. Obviously, that gets some people nervous. Pakistan trades at seven times, has a 7% dividend yield. At the peak, it was $70 billion market cap. Now it's a $35 billion market cap. It traded $500 million in the heyday. It averaged about $300. It's down to $100.

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It's been completely left behind. Now there's political reasons for it. But if you're looking at emerging markets, one of the things you need to do is weigh where has the valuation gone, relative to the risk? Africa, we've been very active in. Africa ex-South Africa, and I think the Middle East, if you look at that, is completely, not completely, but for the most part, absent from portfolios. At $80 oil, the Middle East is cash flowing again. So you have a couple of regions, that the Eastern European region, which is under the shadow of Europe/the PIIGS, or you know, Greece. And then you have down in the Middle East, you have that. They're under the shadow of Dubai. And I think what really it has become is more of a stock-picking environment. And you have to do your homework. You have to look at what's been left behind. I agree, and you can't, you've got to zig when other people are zagging. And I think some of these markets offer some very good value, so – Wood: You bring up a good point because there's a difference between emerging markets and frontier markets. And so you need to do this intelligently. And I think when you look at Brazil, for example, in many ways, you're looking at for more an Asian economy than you are a Latin economy, in Brazil. So you would want to understand what their economic base is and how they're producing, so most of those economic flows are going into the East, in the case of Brazil. Maidment: Tim, do you see any particular hotspots, political hotspots where investors should be particularly wary, that perhaps aren't on their radar at this moment? Ferguson: I would, though I would generally follow John's investment arc that he described there geographically, I think there are some trouble spots, even along that arc. Pakistan goes without saying. But as you follow, it's interesting, the Chinese are essentially following the same arc, through south Asia, Pakistan, Sri Lanka, down to Africa, around the coast there for their resource plays, and the Gulf. The political risks one thinks are less actually in the Gulf at the moment, assuming that we have a stable Iraq and no military strike at Iran. But those are big ifs in my view. And therefore, I'm not as comfortable with that. The safest areas, I would say, would be those largely southeast Asian countries. Especially Singapore, Indonesia, Cambodia even, although we have obvious liquidity problems. But where you can find companies that are heavily dependent on growth in that core area, that's where I would be looking. Brazil, India and Russia Maidment: Okay. So let's go around the table once again. Buy, sell, or hold. John, let's start with you. Brazil? Burge: I would buy. Maidment: Tim? Ferguson: Buy. Wood: I would buy.

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Maidment: Consensus there. India? Steve? Wood: Buy. Maidment: John? Burge: Buy. Ferguson: Buy, with the reservation that they need to get governance issues straightened out, and even after the last election, that's still up in the air. Maidment: Okay, the tough one. Russia? Steve? Wood: Trade to sell. Burge: It is a tough one. The, I would probably buy Russia on the idea that commodities will continue to go up, and that should be good for Russia. Ferguson: If it's a $100 oil, I'm buying Russia. Wood: And if not? Ferguson: No. Issues In China Maidment: And we conclude our investing tour of the globe with a stop in Asia, of which of course the big looming economy is China. John, how do you see prospects for China now, look at the political situation there. We look at the tension with the US. Putting your investing hat on, what's the right way to navigate through those issues? Burge: Well, and we mentioned it earlier, one of the things that China's obviously battling is the inflation. I mean, in particular, on the real estate side. However, it's a very centralized economy, and they can do things that other economies cannot to try and cool that down. Just today, you saw that the prohibited companies who were not real estate companies from developing real estate, which makes sense, but it's something that was a problem there. I also think the other thing that you've seen is there's been tremendous liquidity. The banks in China had actually lent most of what they'd been budgeted to lend by the end of the, as we're approaching the end of the first quarter. So I think you'll see a slowdown in lending. I think they will address some of their inflationary concerns, and on the real estate side. But as a whole, I think they can do that and still continue to grow at a significant rate. So I think you'll see some adjustment in China. It is down about 6%

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against most of the markets this year. You could see it go down another 10%, but I think overall, China will be fine. Maidment: John, or Steve rather, are you equally pessimistic? Not pessimistic, but are you equally concerned about the market going down in China? And do you see the same sorts of problems that John sees? Wood: I think so because the authorities in China are clearly looking to decelerate any asset bubble formation, or to kind of pull back of whatever asset bubbles have already formed, specifically in real estate. I was just there about three weeks ago, so there's, to say it's a frenetic pace is to put it mildly. But we know that China is going to decelerate, and they're going to be successful. And they are already inflation fighting. So I think it kind of provides a blueprint for what the US is looking to do. But right now, for example, the US Fed is not between the rock and the hard place. We've got almost no inflation, so the Fed has wiggle room. That's not the case in China. So I think China is going to probably grow slower than a lot of people, at least on the retail side, might be expecting. So I would say guardedly optimistic on China, but we know that the rates are going to be slower. And we know that the government is going to be very intimately involved in controlling these asset prices that we're seeing. Maidment: Tim, do you think the government has enough control over the economy that they can manage it in the way that Steve and John have suggested? Ferguson: I think it has too much control over the economy. But that said, it's a big country. And with a big, Western outback, if you will, that has probably years and years to develop. So whether driven centrally or by more of a market economy, I think there remain virtually double digit percentage growth potentials in that part of the economy. The big thing I'm worried about is a trade war with the United States that is initiated by the US Congress. US, China Trade War Maidment: Talk us through how that would play out. Ferguson: Well, it will start with a battle probably over currency, but I think most congressmen don't actually have a refined sense of what that's about. It has to do with tit for tat, products and I think to some extent the low-end Chinese exports the US, greatly in textiles, will be one of the first battleground. There are others, steel and such, that are basic commodity output, that might actually be hit on a first round as well. And I think the comeback from China will be against the US investment in higher margin businesses -- financial services and technology. Maidment: Gentlemen, do you see it playing out the same way? Steve?

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Wood: Well, I think it's going to be very interesting, in the fact that we really do need each other in this relationship. And if you look at the earlier discussions on Europe, I mean, there is becoming a more American sino focus, in terms of where the wealth, the locus of power is going to be over the next, you know, 15, 20, 30 years. But also, if you look back about, now, two years ago, where the Asian sovereign wealth funds, when they went into US financials and they were actively managing their money, I mean, they got their heads handed to them, to put it politely. So I think that's going to create a lot of demand for US debt and a lot more, I think, transparency in more liquid, more developed markets, like in the US. You know, don't look too quickly, but the best performing market year-to-date -- the US and Canada, so North America. The rest of Europe and Asia is not even close. So when there is volatility, you know, Uncle Sam and our opportunities really do soak up a lot of that global demand. And that's probably going to be I think the -- Maidment: John, is that the way that that trade war will be mitigated? Or do you think it's just enhanced that Chinese sense that they have America over a barrel at the moment and this is a particular time that it's good to press that advantage? Burge: Well, I think there's a couple of things. First of all, I think that I agree completely with what Steve said, is we need each other. And we need them to continue buying our debt. We need them and they need us to continue to buy their goods. One of the things that we don't know right now is do they reallocate some of their resources to try and get the internal parts of China to grow? If they do do that, then yes, you'll see some slowdown in some of the coastal areas, but you still could have a good GDP number. That will give them more flexibility. So it's really a question of how the politics play out from an economic standpoint. We absolutely need each other, and I think in the end that will win. But do we hit some speed bumps in the road? It's very possible. It just, I think again, it really depends on what happens in the US Congress. Japan Needs China Ferguson: You know who else needs China is Japan. And anyone who's considering an investment play in Japan needs to watch very closely what the rate of Chinese development is. Maidment: How do you see that relationship, though, between China and Japan, working as, I mean, you've got the Japanese economy at the moment, is almost, you know, becalmed. I mean, it's just not really growing, and it's not shrinking. You're seeing a lot of Japanese investment going into China now. How is that changing the dynamics of the relationship, not just between China and Japan, but also between the US and China? Ferguson: Well there has been a bit of a pickup from a very steep trough in Japan, and I think it's largely ascribable to what's happening in China. And the curious, even ironic, notion is that Japan might, in the end, prove to be a bit of a bridge between the US and China. If things get particularly rough in the months ahead, I believe particularly with the

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Hatayama administration, as long as it survives in Japan, it is actually in a kind of mediating position vis-à-vis the US and China. Maidment: Gentlemen, do you see something similar there? Do you see Japan playing that role as a sort of broker between the US and China in this coming trade war, if it comes? Wood: It certainly could. I mean, I don't know if it would be a broker in a trade war, and I'm not convinced one's going to come. But you're getting a lot of squabbling at the margins, but fundamentally, that relationship is one of mutual need. But also, I mean, Japan provides a window in the future for China, you know, because right now, the Japanese economy's kind of playing out the clock and they're not really investing in growing the economy, given their demographics. So unless China's able to really be able to create some, you know, aggregate demand internally, and not just have an export-only-driven economy, I think that's kind of a glimpse into the future. So I think that lesson's going to be learned. But ultimately, I think, you know, the Chinese goals right now are to create this social contract of stability. And they need markets for what they're producing, which is this, you know, factories pumping out standards of living that will get them I think to a more established society. So, I think that's the endgame for them, and this is going to go on for a long time. Maidment: Are you saying then that they're not going to be able to grow their internal domestic market, that burgeoning middle class that they have, fast enough to compensate for the loss of export markets? And what's holding the growth of that market back, given the large growth rates that the country has? Wood: Well, I think it depends on what they want to accomplish. I think right now, the Chinese government is just investing in capacity and output. And eventually that has to come more into equilibrium. So right now, there's a lot of what from the West would be an odd concept of excess capacity that's persisting. So that is a government goal. But eventually, they're going to have to have I think more of a balance between export orientation and true aggregate demand. Maidment: John, we touched on the currency a little bit earlier. What do you see are the prospects for that now and over what time period do you think that the Chinese, that Beijing will allow the currency to revalue? Burge: Well, that is the $64,000 question. Maidment: So then go ahead and answer then, please. Burge: I think that it makes sense for them to begin loosening up on the renminbi. As long as people keep pushing them, I think they will keep putting it back. But one of the ways that they can address the inflation that we've discussed is that they will allow the renminbi to appreciate against the dollar. So I think that what you're going to see is at

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some point that the market wakes up or the politicians wake up and they will allow that to happen. They need for that to happen. The timing on it is, again, gets us back to politics and what's happening in Washington. Maidment: And do you think that Washington will wake up to that fact and realize they can't push China on this and that it's counterproductive to do so? Burge: I'm an optimist, so yes, I think they will. Maidment: All right. We have one minute left, so let's go around the table once more. I think the obvious starting point is China, so Steve? Buy, sell, or hold China? Wood: Long-term buy. Burge: Long-term buy. Maidment: Tim? Ferguson: Buy and especially if you can find private economic inroads into the economy. Maidment: Japan? John? Burge: I'd still be a hold on Japan. Maidment: Steve? Wood: A hold; at the most optimistic. Maidment: Tim? Ferguson: Hold on Japan. Buy South Korea. Maidment: South Korea, we haven't touched on at all, but we have talked a lot about America. So, let's take the last one is the US. Steve, buy, sell, or hold? Wood: On a company by company basis, I say buy. But it's going to be an active environment, not a passive environment. Maidment: Tim? Ferguson: I think you never go wrong in the long-term with the US, but I think for now, it's a hold. Maidment: John, last word?

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Burge: I think that I would be a buy on the US, but I think you don't go wrong buying the US in the long-term, but we do have some things to work out, and it may, we have had a good run. The problem right now, for me, or actually the opportunity is more moving out of the bonds and into the equities, because I think you have inflation coming down the road. Maidment: That's a point on which to end it. Gentlemen, thank you very much indeed.