US Investment Grade Bonds. Asia USD Bonds. US Aggregate Bonds. US High Yield Bonds

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1 US Equity Developed Markets Equity Asia Pacific ex Japan Equity Japan Equity Europe Equity Emerging Markets Equity South Africa Equity Latin America Equity US Aggregate Bonds US Investment Grade Bonds Asia USD Bonds US High Yield Bonds US Leveraged Bonds Asia Local Bonds Emerging Markets USD Corporate Bonds Emerging Markets USD Sovereign Bonds Emerging Markets Local Bonds USD / EUR USD / GBP USD / AUD USD / JPY Brent Oil Copper Gold 8 Middle-East tensions ensure oil s ascendency. Emerging markets bonds and equities feel the brunt of a stronger US dollar. Growth is solid in US. Politics rattle Europe. Global economy is expanding. (% returns, USD) MTD YTD Asset Class EQUITIES: Not many places to hide as emerging markets lead the global sell-off. Latin American equites were particularly hit as the US dollar strengthened. Asia Pacific was more resilient as Chinese economic data surprised on the upside. An enclave of sanity was found in US equities as investors bought smallcap stocks in view of the US economy gathering steam. US equity valuations also slightly more appealing after the first quarter sell-down. European equities fell due in part to weak economic data and political uncertainty in Italy. BONDS: Investors reacted to tighter financial conditions and a stronger US dollar by selling off emerging market local bonds. Countries with twin deficits were hit hard with the Argentina Peso, Turkish Lira and Indonesian Rupiah seeing extreme weakness; authorities eventually responded by raising interest rates in all three cases. Asian local bonds in general fell less. US treasuries and investment-grade bonds saw some havendriven interest as Italy s political drama coupled with Spain s unrest boosted demand for low-risk debt. Investor demand for US treasuries were also strong during the issuance of seven, five and two year bonds towards the end of the month. CURRENCIES: The US Dollar marched forward as stronger domestic economic data pushed yields higher. The Euro weakened as a poor month of economic numbers and political strife stifled European assets. The commodity sensitive Australian dollar held firm over the month as oil and precious metal prices rose. The British pound lost ground as a soft exit from the European Union look less likely with the UK government at odds with the European Withdrawal Bill. The Japanese Yen held firm against the US Dollar in the light of increasing trade tensions and Euroskepticism. COMMODITIES: Oil bulls had another month to savor as tensions in the Middle-East, supply disruptions in Latin America and successful coordinated supply rationalization from OPEC members pushed oil prices upwards even as the US Dollar strengthened. Copper prices were lifted over the month due to a strike in Chile s Escondida copper mine, which accounts for % of global copper production. An ignited dollar weighed on gold buying but the ever-present economic and political cross currents gave some support. Source: Legg Mason, MSCI, Bloomberg, USD, data as at May 8 unless otherwise stated. Please refer to the appendix for definitions and representative indices

2 May 8 Economy The Global Composite Purchasing Managers Index was boosted by its manufacturing component at the end of April; to remain firmly in expansion territory. US GDP was revised lower to a.% annualized growth in Q 8. Personal consumption contributed more than services, with increased spending on durables. US unemployment fell to an 8-year low of.8% in May with the participation rate steady at 6.7%. Year on year inflation rose.% in April versus a.4% in March. Energy and housing costs were the main drivers. In Europe, Q 8 GDP grew.% over the last year but quarterly figures exposed weakness in Germany, France and the Netherlands. Euro Area inflation, however, is expected to grow.9% over May last year, above the.% reported in April. Rising energy prices are driving the this non-core figure. Core inflation which excludes energy and food inputs is projected at.% in May. While still positive, German Q 8 growth was unexpectedly weaker as less government spending and lower net exports weighed. However, year on year, the German economy expanded.%, with increasing exports and rising household consumption making up for weakness in investment growth. The ZEW indicator clocked its second month in the negative as sentiment remained suppressed by politics in the global and Eurozone arena. France s Q 8 GDP also grew less than expected. An increase in government spending could not completely negate the slowdown in corporate investment, household spending and consumption. However, year on year, the French economy expanded.% with a pick-up from services but muted growth in manufacturing and construction. In North Asia, China s Caixin Manufacturing Purchasing Managers Index was firmly in expansion at., the same figure as the month prior. Output and new orders increased but new export sales fell. Inflation as measured by the Consumer Price Index grew slower over April as falling food prices kept inflation in check and inline with the authorities inflation target of % in 8. Indian Manufacturing Purchasing Managers Index continued to expand, albeit at a slower pace reflecting slower output growth, new orders and higher unemployment. Wholesale price inflation rose.8% year on year driven by increased costs of fuel and food. Taiwan s Q 8 GDP grew. % versus expectations of.77%. Strong exports and rising private consumption drove the strong performance. The Directorate General of Budget, Accounting and Statistics (DGBAS) has raised growth forecast to.6% for 8. South Korea s economy grew.% over the previous quarter and.8% over the last year. A faster pace of manufacturing, increased construction and rising imports contributed positively. In ASEAN, Indonesia s Q 8 GDP weakened over the last quarter. Lower government spending, muted investments and lower exports weighed. Annual inflation eased to.% in May from.4% previously. Thailand s economy grew % in Q 8, over the last quarter and tracked a 4.8% growth year on year. Capital formation, manufacturing and agriculture contributed. Malaysia s Q 8 GDP grew.4% year on year, driven by sector activity and net exports Singapore s April NODX surged.8% over the previous year driven by increased exports of non-electronics, food related items, metals and pharmaceuticals. Central Banks The markets have all but discounted a Fed hike in June. However, the FOMC indicated that they discussed how they could communicate future forward guidance. Towards the end of the month, the Fed announced that it was reviewing a rule created post the 8 crisis to limit trading risks taken by banks. ECB policymakers are set to meet in June to discuss whether to wind down stimulus or prolong its current policy. Since the ECB last met, economic data out of the Euro area has been weak while political angst has built up in Italy and Spain. The BOJ meets in June to further debate its monetary policy and time frame for its % inflation target. During the month, board member Makoto Sakurai spoke of the risks of prolonged quantitative easing but called for calm in debating when could be the right time to rein in the accommodative stance. In May, the PBOC injected CNY6 billion into the financial markets through its medium-term lending facility while also releasing CNY4.76 billion into the banking system through its standing lending facility. Towards the end of May, markets were expecting a further cut in the reserve requirement ratio to ease any upcoming cash crunch while maintaining the ability to extend loans. Over May, a rising US Dollar, rising US yields and domestic issues required central banks in Argentina and Turkey to raise rates to 4% and 6.% respectively to combat capital flight and the rapid fall in their domestic currencies. Bank Indonesia also hiked policy rates by basis to stabilize the Rupiah following a sell-off in Indonesian assets. END Source: Legg Mason, Bloomberg, data as at May 8 unless otherwise stated. Please refer to the appendix for definitions and representative indices.

3 Nov- Jan-4 Mar- May 8 EQUITY VALUATIONS Price to Earnings Ratio (PE Ratio) (Since ) Russell US Index Russell US Index Russell US Index 6 (X) 6 (X) 6 (X) RIY +SD RTY +SD RAY +SD Europe Equity Emerging Market Equity Asia Pacific ex Japan Equity (X) 8 (X) 7 (X) MXEU +SD MXEF +SD MXAPJ +SD Source: Legg Mason, FTSE Russell, MSCI, Bloomberg, USD, data as at May 8 unless otherwise stated. Please refer to the appendix for definitions and representative indices

4 May-8 Jan-9 Sep-9 May- Jan- May- May-4 Jan- Sep- May-8 Jan-9 Sep-9 May- Jan- May- May-4 Jan- Sep- May-8 Jan-9 Sep-9 May- Jan- May- May-4 Jan- Sep- May-8 Jan-9 Sep-9 May- Jan- May- May-4 Jan- Sep- May 8 BOND VALUATIONS Global Government Year Bond Yields US Treasury Spread years years 6 (%) 4 (%) 4 US,.9 UK,.8 - EU,.9 Japan,..44 US High Yield Option Adjusted Spread US Investment Grade Option Adjusted Spread (%) 9 (%) Source: Legg Mason, Federal Reserve Economic Data, ICE BofAML, Figures are not seasonally adjusted, Bloomberg, USD, data as at May 8 unless otherwise stated. Please refer to the appendix for definitions and representative indices

5 May 8 DEFINITIONS Abbreviation ASEAN Asia Local Bonds Asia Pacific ex Japan Equity or MXAPJ Asia USD Bonds BOJ Brent Oil Copper Developed Markets Equity ECB Emerging Markets Equity or MXEF Emerging Markets Local Bonds Emerging Markets USD Corporate Bonds Emerging Markets USD Sovereign Bonds Europe Equity or MXEU FED FOMC GDP Gold Japan Equity Latin America Equity NODX OPEC PBOC PE RAY RIY RTY SD South Africa Equity US Aggregate Bonds US Equity US High Yield Bonds US Investment Grade Bonds US Leveraged Bonds USD / AUD USD / EUR USD / GBP USD / JPY UST ZEW Full Form The Association of Southeast Asian Nations Markit Iboxx ALBI MSCI AC Asia Pacific ex Japan Net Total Return USD Index Markit Iboxx ADBI Bank of Japan Generic st 'CO' Future Generic st 'HG' Future MSCI World Net Total Return USD Index European Central Bank MSCI Emerging Net Total Return USD Index J.P. Morgan Global Bond Index Emerging Markets Global Diversified IG %CAP J.P. Morgan CEMBI Broad Diversified Core Index J.P. Morgan EMBI Global Core Index MSCI Europe Net Total Return USD Index United States Federal Reserve Board Federal Open Market Committee Gross Domestic Product Generic st 'GC' Future MSCI Japan Net Total Return USD Index MSCI Emerging Latin America Net Total Return USD Index Singapore Non-oil domestic exports Organization of the Petroleum Exporting Countries People's Bank of China Price to Earnings Ratio Russell US Index Russell US Index Russell US Index Standard Deviation MSCI Emerging Markets Africa South Africa Net Total Return USD Index Bloomberg Barclays US Agg Total Return Value Unhedged USD MSCI USA Net Total Return USD Index iboxx USD Liquid High Yield Index iboxx USD Liquid Investment Grade Index Markit iboxx USD Liquid Leveraged Loans Total Return Index USDAUD Spot Exchange Rate - Price of USD in AUD USDEUR Spot Exchange Rate - Price of USD in EUR USDGBP Spot Exchange Rate - Price of USD in GBP USDJPY Spot Exchange Rate - Price of USD in JPY US Government Treasuries The ZEW Economic Sentiment is a German monthly economic survey. ZEW stands for Zentrum für Europäische Wirtschaftsforschung, which, when translated, says, the Center for European Economic Research. Source: Legg Mason, as at May 8 unless otherwise stated.

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