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Global Emerging Markets
Outlook – March 2006
WestAM
Woolgate Exchange
25 Basinghall Street
London EC2V 5HA
March 2006
Emerging Markets, London
Page 1
Market Performance
from 31.12.1998 to 31.01.2006
60
110
160
210
260
310
360D
ec-
98
Jun
-99
Dec-
99
Jun
-00
Dec-
00
Jun
-01
Dec-
01
Jun
-02
Dec-
02
Jun
-03
Dec-
03
Jun
-04
Dec-
04
Jun
-05
Dec-
05
MSCI World MSCI EM S&P500
Emerging markets continue to outperform their developed counterparts
Source: Datastream, February 2006
WestAM
Woolgate Exchange
25 Basinghall Street
London EC2V 5HA
March 2006
Emerging Markets, London
Page 2
Global Growth Remains
Supportive for Emerging Markets
WestAM
Woolgate Exchange
25 Basinghall Street
London EC2V 5HA
March 2006
Emerging Markets, London
Page 3
Relative Performance of MSCI EM/World and OECD G7 Lead
Indicator (year-on-year % change)
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Jan-
90
Jan-
91
Jan-
92
Jan-
93
Jan-
94
Jan-
95
Jan-
96
Jan-
97
Jan-
98
Jan-
99
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
OECD G7 LI yoy % chg (LHS) MSCI EM / MSCI World Free yoy % chg (RHS)
Relative performance linked to economic activity
Source: Datastream, February 2006
WestAM
Woolgate Exchange
25 Basinghall Street
London EC2V 5HA
March 2006
Emerging Markets, London
Page 4
World GDP Growth
2007
Consensus % Consensus % Consensus %
World 3.3 3.3 3.2
US 3.6 3.4 3.1
Japan 2.5 2.2 2.1
EU 1.6 2.1 2.0
Latin America 4.2 4.0 4.1
North East Asia 7.1 6.9 6.8
South East Asia 4.8 5.4 5.3
Eastern Europe 5.3 5.3 5.3
2005 2006
Emerging markets offer premium growth
Source: Consensus Economics – January 2006
WestAM
Woolgate Exchange
25 Basinghall Street
London EC2V 5HA
March 2006
Emerging Markets, London
Page 5
Emerging Market Valuations
Remain Attractive
WestAM
Woolgate Exchange
25 Basinghall Street
London EC2V 5HA
March 2006
Emerging Markets, London
Page 6
Forward Price Earnings
6
8
10
12
14
16
18
20
22
Dec-
94
Dec-
95
Dec-
96
Dec-
97
Dec-
98
Dec-
99
Dec-
00
Dec-
01
Dec-
02
Dec-
03
Dec-
04
Dec-
05
EM US WORLD
P/E 11.3 15.3 14.9
EPS 17% 12% 12%
PE/G 0.7 1.2 1.2
2006
As at February 2006, IBES - 12 month forward
Forward P/E at low historic levels
Source: Datastream, February 2006
WestAM
Woolgate Exchange
25 Basinghall Street
London EC2V 5HA
March 2006
Emerging Markets, London
Page 7
Price Earnings Discount to MSCI World
MSCI EM 12month Forward P/E Relative to MSCI World
-60%
-40%
-20%
0%
20%
40%
60%D
ec-
88
Dec-
89
Dec-
90
Dec-
91
Dec-
92
Dec-
93
Dec-
94
Dec-
95
Dec-
96
Dec-
97
Dec-
98
Dec-
99
Dec-
00
Dec-
01
Dec-
02
Dec-
03
Dec-
04
Dec-
05
Dis
cou
nt
/ P
rem
ium
to W
orl
d
Emerging markets still at a discount to developed markets
Source: Datastream, IBES, February 2006
WestAM
Woolgate Exchange
25 Basinghall Street
London EC2V 5HA
March 2006
Emerging Markets, London
Page 8
Liquidity Still Supportive
WestAM
Woolgate Exchange
25 Basinghall Street
London EC2V 5HA
March 2006
Emerging Markets, London
Page 9
Inflows Support Emerging Markets
US Mutual Fund flows into Emerging Markets
-30000
-20000
-10000
0
10000
20000
30000
40000Ja
n-9
0
Jan
-91
Jan
-92
Jan
-93
Jan
-94
Jan
-95
Jan
-96
Jan
-97
Jan
-98
Jan
-99
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
Cumulative 12 month flow to GEM Bonds (RHS) Cumulative 12 month flow to GEM Equities (RHS)
MSCI ACWI ex US has 12.6% in EM. MSCI ACWI free has 6.4%
Anecdotal evidence suggests US investors in particular are underweight emerging markets
Source: UBS, January 2006
WestAM
Woolgate Exchange
25 Basinghall Street
London EC2V 5HA
March 2006
Emerging Markets, London
Page 10
WestAM’s
Regional Outlook
WestAM
Woolgate Exchange
25 Basinghall Street
London EC2V 5HA
March 2006
Emerging Markets, London
Page 11
Asia
China
Growth remains strong. Currency revaluation to continue
Korea
Stock market good value, export sector strong, domestic economy recovering
India
Excellent medium term outlook, current valuations expensive, reforms unlikely
WestAM
Woolgate Exchange
25 Basinghall Street
London EC2V 5HA
March 2006
Emerging Markets, London
Page 12
Russia
Economy strong, political concerns abating, oil price supportive
CE3
Convergence theme liquidity, market performance affecting valuations
Turkey
Economic environment improved, accession process commenced, reflected in prices
South Africa
Currency overvalued, but strong domestic economy
EMEA
WestAM
Woolgate Exchange
25 Basinghall Street
London EC2V 5HA
March 2006
Emerging Markets, London
Page 13
Brazil
Economy remains stable, exports strong but electoral uncertainty, currency overvalued
Mexico
Reforms stalled during Presidential election campaign
Argentina
Growth continues, inflation becoming a concern, populist economic policy
Chile
Solid domestic economy, but market expensive
Latam
WestAM
Woolgate Exchange
25 Basinghall Street
London EC2V 5HA
March 2006
Emerging Markets, London
Page 14
Risks
Treasury yields and Fed Funds rates
Impact of high oil prices on G7 growth and inflation
Profit taking and increase in risk aversion
Geo-politics
WestAM
Woolgate Exchange
25 Basinghall Street
London EC2V 5HA
March 2006
Emerging Markets, London
Page 15
Summary
The global economic growth outlook remains generally positive in 2006
Interest rates have risen in 2005. Further measured increases are discounted in the markets
Earnings growth continues to support equities.
Emerging Market valuations remain very attractive both relative to their own history, on a prospective P/E of
10x , and versus developed markets.
Liquidity remains high but this could be squeezed short term as interest rates rise or profits are taken
WestAM
Woolgate Exchange
25 Basinghall Street
London EC2V 5HA
March 2006
Emerging Markets, London
Page 16
Awarded Standard & Poor’sPerformance - Micropal (to December 2005)
Period 1yr 2yr 3yr 4yr 5yr
Return** 36.7 30.1 40.1 27.8 22.9
Percentile 23 31 22 21 14
Risk Adjusted Rank 51/415 91/391 35/372 18/341 3/310
Percentile 13 24 10 6 1
**Annualised Return%
Prizes*
S&P European winner over 3 years
S&P European winner over 5 years
S&P (Switzerland) winner over 5 years
S&P (Germany) second over 5 years
S&P (Italy) winner over 5 years*to end of March 2005
Source: S&P Micropal – December 2005
WestAM
Woolgate Exchange
25 Basinghall Street
London EC2V 5HA
March 2006
Emerging Markets, London
Page 17
Emerging Market Equities - Competitor Analysis
Rel. Return/Rel. Risk vs. MSCI EM Index* (since Inception: 01.01.99)
-3.0%
-1.0%
1.0%
3.0%
5.0%
7.0%
9.0%
2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%
Rela
tive R
etu
rn(in %
p.a
.)
Tracking Error (in % p.a.)
Genesis(0.52)
WestAM Comp.Global Emg Mkt
(1.14)JPMorgan
(0.73)
Templeton(0.47)
Schroder(-0.33)
Merrill Lynch(-0.21)
Fidelity(0.53)
Alliance Capital(0.47)
Pictet(0.32)
Frank Russell(0.47)
ABN AMRO(0.65)
ING(-0.32)
Capital Int.(0.37)
Date: December 2005
Source: WestAM
Data Source: Standard & Poors - Micropal Work Station * WestAM used S&P IFCI Index up to 31/12/02. Returns above all relative to MSCI EM
WestAM
Woolgate Exchange
25 Basinghall Street
London EC2V 5HA
March 2006
Emerging Markets, London
Page 18
Global Emerging Markets Strategy
MSCI EM Target Target
06-Feb-06 09-Jan-06 08-Feb-06 Comments
Asia:
Korea 17.6 21.9 21.0 Domestic recovery in place. Liquidity and valuations and d supportive.
China 8.0 11.1 11.4 Attractive valuations. Domestic economy remains strong. Currency appreciation expected.
Taiwan 13.9 16.6 17.0 Attractive valuations and improving earnings growth. Domestic economy supportive.
Thailand 1.8 4.8 4.9 Attractive valuations and earnings growth. Domestic economy improving.
Malaysia 2.8 2.8 2.8 Reasonable valuations. Oil price supportive. Fiscal and growth concerns.
Philippines 0.4 0.5 0.4 Attractive valuations, reasonable economic fundamentals. Uninspiring growth.
Indonesia 1.5 1.4 1.5 Reasonable valuations. Continuing inflation and interest rate concerns.
India 5.8 0.9 1.8 Expensive valuations fully reflect strong earnings growth. Selective bottom-up opportunities.
Pakistan 0.2 0.0 0.0
Total: 52.0 60.0 60.8
Latin America:
Peru 0.5 1.5 1.5 Commodity prices remain supportive but election uncertainty continues.
Argentina 0.6 0.6 2.1 Strong economic growth but inflation and policy concerns. Economic policy uncertainty. Oil price supportive.
Brazil 11.2 10.5 11.2 Reasonable valuations and declining interest rates. Expensive currency.
Chile 1.6 0.0 0.0 Strong economic fundamentals but expensive valuations. Interest rates rising.
Mexico 6.1 1.3 1.1 Unexciting valuations and earnings growth. Election concerns.
Colombia 0.4 0.0 0.0
Venezuela 0.1 0.0 0.0
Total: 20.5 13.9 15.9
EMEA:
Russia 5.7 8.6 5.7 Valuations no longer supportive following prolonged outperformance. Take profits.
Israel 3.2 3.2 3.2 Stable economic environment. Reasonable earnings growth but interest rates rising. Overriding political uncertainty.
Egypt 0.9 0.8 0.9 Expensive valuations offset earnings growth. Privatisation process accelerating. Liquidity remains supportive.
Hungary 1.2 1.3 1.2 Reasonable valuations but continuing fiscal and currency concerns.
Turkey 2.3 2.3 2.3 Good economic growth and earnings outlook. EU convergence process continues.
Czech Rep 0.9 0.9 0.0 Reasonable economic fundamentals but expensive valuations offset strong earnings growth.
Poland 1.6 0.0 0.0 Unattractive valuations, poor earnings growth. Short term political concerns
South Africa 11.2 8.7 9.4 Uninspiring valuations and current account concerns. Currency risk remains. Commodity prices supportive.
Jordan 0.2 0.0 0.0
Morocco 0.3 0.0 0.0
Total: 27.5 25.8 22.7
Liquidity: 0.0 0.3 0.6
Grand Total: 100.0 100.0 100.0
Source: WestAM
This document has been prepared by WestAM, which is the marketing name for the asset management activities of WestLB Asset Management, a business unit of WestLB AG or one of its affiliates, including but not limited to
WestLB Asset Management (UK) Limited, WestLB Asset Management Kapitalanlagegesellschaft mbH, JAIC WestLB Asset Management Co., Ltd, WestLB Asset Management (Australia) Pty. Limited, WestLB Asset Management
(US) LLC, WestLB Asset Management (USA) LLC, or Banque d’Orsay SA.
This document is for informational purposes only and is not intended to be an offer or solicitation, or a basis for any contract to purchase or sell any security, or other instrument, or for WestAM or for one of its affiliates to enter
into or arrange any type of transaction as a consequence of any information contained herein. WestAM or its affiliates or persons associated with it or such affiliates (“Associated Persons”) may: maintain a long or short position in
securities referred to herein, or in related futures or options; purchase or sell, make a market in or engage in any other transaction involving such securities, and earn brokerage or other compensation in respect to the foregoing.
Although the information in this document is derived from public sources we believe to be reliable, we do not represent, warrant or guarantee that this information is accurate, complete or suitable for any purpose and it should not
be used as a basis for investment decisions. All opinions and estimates herein, including forecast returns, involve a number of assumptions that may not prove valid. Further, investment in global markets can be affected by a
host of factors, including political or social conditions, diplomatic relations, limitations or removal of funds or assets or imposition of (or change in) exchange control or tax regulations in such markets. Any opinions or estimates
expressed in this document reflect our judgement as of the date of its publication and are subject to change without notice. Additionally, investments denominated in an alternative currency will be subject to changes in exchange
rates that may have an adverse effect on the value, price or income of the investment. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or
implied, is made regarding future performance. WestAM or its Associated Persons may, to the extent permitted by law, act upon or use the material in this document prior to its publication.
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