Learning objectives. Investors should leave the presentation with an ability to discuss

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2 Learning objectives Investors should leave the presentation with an ability to discuss the fundamentals and valuations of emerging markets economies in 2018 the key risks of emerging market debt in 2018 how emerging market debt is evolving as an asset class

3 Potential goldilocks scenario On average domestic demand makes up 72% of GDP in EM countries GDP growth should continue to accelerate Inflation likely to stay within CB s range 10% DM EMXC* China (Right (RHS) axis) 16% 18 12M inflation forecast Real GDP Growth (%yoy) 8% 6% 4% 2% 0% -2% 14% 12% 10% 8% 6% 4% Central bank target / midpoint of inflation target range -4% -6% % 0% India Indonesia S. Korea Russia Turkey South Africa Poland Brazil Mexico Argentina Colombia The views expressed are those of the presenter at the time of preparation and may change in the future. Source: Morgan Stanley, Global Macro Briefing, Haver Analytics, National sources, Morgan Stanley Research forecasts. 2

4 Falling external vulnerability Global cyclical upturn is underway and EM macro-adjustments have mostly been made Fiscal deficits have narrowed -3% EMXC Fiscal balance in % of GDP -4% -5% -6% Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 The views expressed are those of the presenter at the time of preparation and may change in the future. Source: Morgan Stanley, Global Macro Briefing, Haver Analytics, IMF, National sources, Morgan Stanley Research. 3

5 EM countries Not all moving in the same direction South Africa Colombia China Brazil Indonesia Russia 4 Restoring Macro Stability Mexico Gradual Recovery 3 South Korea 5 Adjustment Productive Growth 2 India 1 Misallocation Poland Turkey Source: Morgan Stanley, Global Macro Briefing, as at

6 Ballots could lead to power and policy shift Pakistan Jul 2018: Local Election Russia Mar 2018: Presidential Election Mexico Jul 2018: Presidential/ Legislative Election Hungary Apr 2018: Legislative Election Iraq May 2018: Local Election China Mar 2018: National People s Congress Thailand Nov 2018: Legislative Election Egypt Mar 2018: Presidential Election Cambodia Jul 2018: Local Election Colombia Mar 2018: Legislative Election May 2018: Presidential Election Brazil Oct 2018: Presidential/ Legislative Election Malaysia Aug 2018: Legislative Election Indonesia Jun 2018: Local Election South Africa Dec 2017: ANC Conference 5

7 Higher Fed fund rates Will they be negative for EM Assets? EM asset returns over FED tightening cycles 40 Hard Currency Local Currency Performance total return (%) Tightening: 2.75% Tightening: 1.75% Tightening: 4.25% Tightening: 1.25% (Taper Tantrum) YTD Source: Morgan Stanley, How Fed-proof is EM?, Data as of

8 The changing landscape Corporates dominate in EMD hard currency Emerging markets corporate issuance versus sovereign issuance* EM corporates make 67% (50% in 2008) of external universe (US$bn)** EM corps EM sovereigns 33% US$bn Sovereigns Corporates 1,895 67% *Source: BofA Merrill Lynch Global research, as at External debt. **Source: JP Morgan, as at

9 A size comparable to EURO investment grade US$trn EM corporate EURO IG US HY EM sovereign EURO HY Source: J.P. Morgan and BAML indices of

10 Good diversification across regions and sectors Geographic distribution Sector distribution 32% 24% 30% 36% Europe Middle-East Africa 16% 8% 36% 7% 16% Asia Latin America 0% Financial Oil & Gas TMT Utilities Consumer Industrial Real Estate Metals & Mining Diversified Infrastructure Pulp & Paper Transport Source: Jupiter, as at Index: JP Morgan CEMBI Broad Diversified. 9

11 Largely an investment grade asset class Despite continued de-rating in the last 2 years, over 66% remained in IG Total EM corporate external bond stock An improved credit story US$ mn 1,600 1,400 1,200 1, Investment Grade High Yield 66% Credit Rating Migration Rate, Pct of Issuers EMG HY EMG IG Source: BofA Merrill Lynch Global Research, BofA Merrill Lynch Bond Indices,

12 Emerging markets corporates Fundamentals in context Generally lower leverage and comparable interest rate coverage 5.0x Gross leverage Net leverage 4.0x 3.0x 2.0x 1.0x 0.0x US IG EM IG US HY EM HY Source: BofA Merrill Lynch Global Research, BofA Merrill Lynch Bond Indices,

13 Attractive spread per turn of leverage A US EM BBB BB B Spread per turn of leverage (bps/x) The views expressed are those of the presenter at the time of preparation and may change in the future. Source: BofA Merrill Lynch Global Research, BofA Merrill Lynch Bond Indices, as at

14 Strong technicals Net financing for 2018 expected to be supportive for valuations 500 Gross Issuance Tender/buyback/calls Coupons Amortizations Net Financing F Source: JP Morgan, Bloomberg, Bond Radar, as at

15 Conclusion Don t misjudge the innocent bystander Note: Jupiter has purchased the copyright to this image(s). 14

16 Current themes Geographies Positioning Favour LATAM Rationale Visible cyclical recovery with high carry opportunities and a stable commodity outlook Favour Brazil, Argentina & Colombia Limited exposure to Mexico Sectoral preferences Consumer Transport Metals and Mining Local consumption picking up due to lower inflation expectation and stronger economic growth Global trade continues to surge and local airlines seeing improving margins Prices look set to remain stable in 2018 with limited new supply and stable demand Rating Preference for High Yield Improving fundamentals Strong fallen angels (sovereign and corporates) Enough spread cushion to absorb UST volatility Duration Preference for belly of the curve and beyond Taking advantage of very steep curves across EM Local vs USD Increasing allocation to local currency Inflation coming below CB s range High real rates Political stability across several EM countries The views expressed are those of the presenter at the time of preparation and may change in the future. 15

17 Learning outcomes Investors should have gained an ability to discuss the fundamentals and valuations of emerging markets economies in 2018 the key risks of emerging market debt in 2018 how emerging market debt is evolving as an asset class

18 Disclosure This presentation is intended for investment professionals and not for the benefit of retail investors. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. Any data or views given should not be construed as investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given. Past performance is no guide to the future. Company examples are for illustrative purposes only and are not a recommendation to buy or sell. Quoted yields are not guaranteed and may change in the future. Awards and ratings should not be taken as a recommendation. This document contains information based on the JPMorgan CEMBI Broad Diversified Total Return Index. Information has been obtained by sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. The index is used with permission. The index may not be copied, used, or distributed without J.P. Morgan s prior written approval. Copyright 2016, J.P. Morgan Chase & Co. All rights reserved. For your security we may record or randomly monitor telephone calls. Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. No part of this presentation may be reproduced in any manner without the prior permission of JAM. 17