290 US firms reported: less exciting yearly comparison but still good in absolute terms.

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1 GI Research Market Commentary 290 US firms reported: less exciting yearly comparison but still good in absolute terms. After 290 US results, numbers for Q2 are less exciting when compared to Q1. In absolute terms they remain encouraging, both at the index level as well as for the median stock. The global GDP momentum supports corporate sales growth and margins as its magnitude is appreciable and widespread across countries. European results are pressured by a stronger trade-weighted euro versus Q1 but they are attractive anyway: euro area (EA) growth in Q2 for earnings and sales is indeed 13% and 6.8% yoy, respectively. Japanese numbers are even better. Due to less buoyant yearly comparisons, lower oil prices, less upbeat macro surprises and still optimistic earnings consensus, analysts have started to lower their estimates. In Europe this trend is exacerbated by the strong euro. We think earnings estimates for the current year to be high (albeit less than before) and we remain below consensus. Having said this, even with prudent earnings growth assumptions, we are still able to justify a total return of 6-7% in the EA and Japan (yen hedged) in the next 12 months. Analysis of earnings and sales of Brazilian and Indian companies at the stock level reveals an appreciable improvement, both in terms of earnings and sales. We expect further improvement of the bottom line of EM companies which would be supported by higher global trade, stabilizing macro surprised and increasing commodity / oil prices. Nearly 290 US companies reported so far which is slightly less than 60% of the S&P 500. In respect to our previous commentary (July 25 th ), when 100 results were reported, the reporting season is currently less exciting when compared to the Q1 season, when a similar number of firms reported. But they are still encouraging in absolute terms. This is consistent with a good global growth momentum which is supporting the global sales one. In particular, the year-on-year (yoy) earnings growth is 10.6% which is lower than Q1 (15.6%). But when commodity sectors are excluded, the yearly growth is mostly unchanged at 6.3%. The sales growth is 6% yoy, below Q1 (8.6%) but it is unchanged, at 5%, when we exclude the commodity sectors. The earnings surprise is also a tad lower at 5% (5.9% in Q1) while the sales one higher at 1.3% vs. 0.5% in Q1. The relative strength of sales reveals a good momentum of the top-line which ultimately has to do with a decent GDP growth and stabilizing firms pricing power. In this respect, the ratio of positive-to-total surprises is slightly lower for earnings (78% vs. 83% in Q1) but higher for sales: 71% vs. 66%. Overall the margins momentum is progressing well as the earnings growth surpass the sales one.

2 S&P Euro Stoxx Topix S&P Euro Stoxx Topix earnings growth, yoy: Q sales growth, yoy: Q Energy 178.9% 34.2% 3.0% 15.8% 16.3% 26.2% Materials 9.7% 47.2% 178.8% 9.5% 11.8% 14.0% Industrials 6.3% -3.3% 46.7% 4.7% 5.1% 5.9% Cons. Discretionary 1.1% -0.3% 57.3% 5.3% 6.2% 4.8% Consumer Staples 2.8% 109.4% 17.9% 0.2% 12.9% 6.0% Health Care 5.2% -1.6% 12.0% 4.1% 7.3% 1.3% Financials 9.6% 4.1% 20.3% 4.9% 2.8% 13.2% IT 18.1% 28.5% 70.5% 11.5% 7.9% 7.0% Telecoms 6.1% 15.9% -2.8% -0.9% 1.6% 4.3% Utilities 7.0% 0.5% 16.3% 5.2% 0.9% 5.0% Market 10.6% 12.9% 38.9% 6.0% 6.8% 6.7% Median (all sectors) 7.0% 10.0% 20.3% 5.2% 7.3% 6.0% Median, ex. Energy & Materials 6.3% 2.3% 20.3% 4.9% 6.2% 5.9% S&P Euro Stoxx Topix S&P Euro Stoxx Topix earnings surprise: Q sales surprise: Q Energy -4.0% 12.4% 27.6% 3.7% 12.4% -9.3% Materials 5.2% 11.1% 43.5% 0.9% 0.6% -1.1% Industrials 4.6% 9.4% 6.9% 0.9% 0.7% -0.6% Cons. Discretionary 5.3% -5.0% 12.5% 0.9% 1.0% 2.1% Consumer Staples 2.9% -21.2% 1.9% 0.8% -2.2% -0.5% Health Care 5.6% 0.8% 15.1% 0.7% -1.1% 2.6% Financials 5.8% 6.7% 13.9% 1.9% 1.7% 9.8% IT 7.7% 8.1% 30.0% 1.3% 1.7% 1.9% Telecoms 3.9% 13.1% 1.1% 0.9% 0.5% 0.5% Utilities 2.9% -1.7% 180.6% 1.0% -6.2% 2.6% Market 5.1% 3.5% 19.8% 1.3% 0.8% 1.5% Median (all sectors) 4.6% 7.4% 15.1% 0.9% 0.7% 1.9% Median, ex. Energy & Materials 4.6% 3.7% 13.9% 0.9% 0.7% 2.1%

3 S&P 291 reported 295 reported earnings growth, yoy sales growth, yoy Energy 252.6% 178.9% 31.4% 15.8% Materials 23.0% 9.7% 9.9% 9.5% Industrials 0.6% 6.3% 4.8% 4.7% Consumer Discretionary 6.5% 1.1% 8.9% 5.3% Consumer Staples 2.6% 2.8% -3.0% 0.2% Health Care 14.2% 5.2% 8.9% 4.1% Financials 18.0% 9.6% 7.7% 4.9% Information Technology 24.6% 18.1% 9.7% 11.5% Telecommunication Services -3.7% 6.1% -4.9% -0.9% Utilities 2.2% 7.0% 2.4% 5.2% Real Estate 9.5% 11.6% 5.1% 8.3% S&P 15.6% 10.6% 8.6% 6.0% Median (all sectors) 9.5% 7.0% 7.7% 5.2% Median, ex. Energy & Materials 6.5% 6.3% 5.1% 4.9% S&P 291 reported 295 reported earnings surprise % sales surprise % Energy 22.8% -4.0% -2.7% 3.7% Materials 7.9% 5.2% 4.1% 0.9% Industrials 8.0% 4.6% 1.5% 0.9% Consumer Discretionary 12.9% 5.3% 1.5% 0.9% Consumer Staples 0.7% 2.9% -1.2% 0.8% Health Care 5.3% 5.6% 1.1% 0.7% Financials 3.8% 5.8% 1.1% 1.9% Information Technology 5.6% 7.7% 0.7% 1.3% Telecommunication Services -0.6% 3.9% -2.6% 0.9% Utilities 5.6% 2.9% -0.3% 1.0% Real Estate 1.3% 3.7% 1.2% 0.2% S&P 5.9% 5.1% 0.5% 1.3% Median (all sectors) 5.6% 4.6% 1.1% 0.9% Median, ex. Energy & Materials 5.3% 4.6% 1.1% 0.9%

4 S&P Eps Surpr. Ratio pos/tot Sales Sur. Ratio pos/tot Energy 80.0% 50.0% 53.3% 75.0% Materials 81.3% 78.6% 87.5% 78.6% Industrials 85.2% 77.4% 81.5% 67.9% Consumer Discretionary 85.0% 63.9% 67.5% 64.9% Consumer Staples 84.6% 62.5% 23.1% 75.0% Health Care 90.9% 85.7% 78.8% 71.4% Financials 80.8% 84.9% 63.5% 76.9% Information Technology 90.9% 91.7% 60.6% 80.6% Telecommunication Services 50.0% 100.0% 0.0% 100.0% Utilities 62.5% 72.7% 37.5% 54.5% Real Estate 63.6% 86.4% 56.0% 54.5% S&P 82.6% 78.2% 66.0% 71.1% 10% S&P: Average earnings surprise 50% Stoxx600: Average earnings surprise 8% 40% 6% 30% 4% 2% 20% 10% 0% 0% -10% -2% -20% -4% 06/15 09/15 12/15 03/16 06/16 09/16 12/16 03/17 06/17 All Securities Information Technology Financials -30% 06/15 09/15 12/15 03/16 06/16 09/16 12/16 03/17 06/17 All Securities Energy Industrials 90% Euro Stoxx: Average earnings surprise 40% Topix: Average earnings surprise 70% 30% 20% 50% 10% 30% 0% -10% 10% -20% -10% -30% -40% -30% 06/15 09/15 12/15 03/16 06/16 09/16 12/16 03/17 06/17 All Securities Financials Consumer Discretionary -50% 06/15 09/15 12/15 03/16 06/16 09/16 12/16 03/17 06/17 All Securities Industrials Financials Results for the Stoxx 600 Europe (262 firms reported or the 61% of the index), show a good yearly growth, at 19% for earnings. This is lower than the brilliant one in Q1 which was 32%. The latter was supported by a better base effect (very weak Q1 in 2016). Ex-commodity sectors, the earnings growth remains lower than in Q1 but less so: 5% vs. 6%. The sales growth is 7.8% yoy, unchanged from Q1, still when a similar number of firms reported. Excluding commodity sectors, it is lower at 5.4% vs 7.5% in Q1. The ratio of positive-to-total surprises is worse vs. Q1: 58% for earnings (69% in Q1) and 57% for sales (78% in Q1). As we said in the previous commentary, the stronger euro played a role in lowering the magnitude of positive surprises. For the European results, the margin momentum is improving too (better earnings momentum vs. the sales one).

5 In the EA, 166 firms reported, (60% of the Euro Stoxx index). Results are weaker as well when compared to Q1. In absolute terms they look attractive. The earnings growth is 13% and the sales one 6.8%. While the earnings growth is very dispersed across sectors (probaly still due to a currency effect), the sales one is homogeneusly positive across sectors. The surprises vs. analysts estimates are positive (3.5% and 0.8% for earnings and sales respectively) but lower than in Q1. The same is true for the ratio of positive-to-total surprises which is 55.4% for earnings (66% in Q1) and 53% for sales (85% in Q1). Here we notice that albeit still lower than in Q1, the current surprise ratio for sales is better than in our previous note when 31 firms reported (July 25 th ). In Japan, results alre weaker than in Q1 but still noticeable in absolute terms. The earnings growth is 39% which reduces to 20% ex-commodity sectors. The sales growth is 6.7% which is lower than the 8% in Q1. Positive surprises vs. analysts expectations are 20% for earnings (in acceleration vs our previous note and higher than in Q1 when the sectors median is taken into consideration) and 1.5% for sales (broadly unchanged vs. Q1). Stoxx reported 256 reported earnings growth, yoy sales growth, yoy Energy 76.7% 97.7% 37.5% 20.9% Materials 23.9% 43.9% 11.1% 9.7% Industrials 27.4% 5.0% 7.5% 5.6% Consumer Discretionary 31.8% 1.6% 9.3% 6.1% Consumer Staples 6.1% 115.5% 4.7% 11.4% Health Care 11.9% 0.7% 8.9% 5.1% Financials 98.2% 17.4% 14.7% 2.4% Information Technology -29.7% 15.8% 4.5% 5.4% Telecommunication Services -25.9% 4.0% 2.2% 0.2% Utilities -24.8% 0.5% -25.8% 0.9% Real Estate -65.1% 52.4% 12.8% 20.1% Stoxx % 19.5% 7.9% 7.8% Median (all sectors) 11.9% 15.8% 8.9% 5.6% Median, ex. Energy & Materials 6.1% 5.0% 7.5% 5.4%

6 Stoxx 600 earnings surprise sales surprise Energy 22.4% 13.1% 3.5% 6.7% Materials 5.5% 9.6% 2.7% 0.2% Industrials 19.5% 3.0% 2.3% 0.4% Consumer Discretionary 2.5% -4.3% 1.8% 1.0% Consumer Staples -6.7% -19.2% 0.2% 0.8% Health Care 8.1% 2.4% 2.1% -0.1% Financials 11.4% 3.1% 2.0% 1.6% Information Technology -39.9% 6.9% 1.9% 0.7% Telecommunication Services 13.8% -0.4% 0.3% 0.4% Utilities 8.2% -1.7% -7.3% -6.2% Real Estate 23.6% -7.8% -0.2% -1.4% Stoxx % 2.9% 1.5% 1.3% Median (all sectors) 8.2% 2.4% 1.9% 0.4% Median, ex. Energy & Materials 8.2% -0.4% 1.8% 0.4% Stoxx 600 Eps Surpr. Ratio pos/tot Sales Sur. Ratio pos/tot Energy 72.7% 72.7% 63.6% 75.0% Materials 58.3% 65.0% 83.3% 34.6% Industrials 71.4% 47.4% 87.5% 51.1% Consumer Discretionary 61.1% 53.8% 73.5% 56.3% Consumer Staples 0.0% 33.3% 71.4% 52.9% Health Care 66.7% 47.1% 80.0% 68.2% Financials 82.8% 72.4% 76.7% 70.0% Information Technology 71.4% 66.7% 89.5% 58.8% Telecommunication Services 75.0% 75.0% 50.0% 75.0% Utilities 71.4% 50.0% 50.0% 46.2% Real Estate 75.0% 33.3% 50.0% 66.7% Stoxx % 58.2% 77.5% 57.1% EURO STOXX 166 reported 164 reported earnings growth, yoy sales growth, yoy Energy 45.4% 34.2% 29.4% 16.3% Materials 29.6% 47.2% 13.9% 11.8% Industrials 9.5% -3.3% 7.2% 5.1% Consumer Discretionary 46.4% -0.3% 11.1% 6.2% Consumer Staples 228.9% 109.4% 9.3% 12.9% Health Care 12.1% -1.6% 10.4% 7.3% Financials 41.3% 4.1% 6.8% 2.8% Information Technology 34.6% 28.5% 8.0% 7.9% Telecommunication Services -44.5% 15.9% 3.4% 1.6% Utilities -4.4% 0.5% 5.0% 0.9% Real Estate 241.1% % 9.1% Total 32.4% 12.9% 10.8% 6.8% Median (all sectors) 34.6% 10.0% 9.3% 7.3% Median, ex. Energy & Materials 34.6% 2.3% 8.0% 6.2%

7 EURO STOXX earnings surprise sales surprise Energy 19.4% 12.4% 3.5% 12.4% Materials 9.4% 11.1% 4.5% 0.6% Industrials 11.9% 9.4% 2.6% 0.7% Consumer Discretionary 5.4% -5.0% 2.6% 1.0% Consumer Staples -21.1% -21.2% 0.6% -2.2% Health Care 9.8% 0.8% 3.5% -1.1% Financials 11.8% 6.7% 1.9% 1.7% Information Technology -0.5% 8.1% 2.6% 1.7% Telecommunication Services 125.6% 13.1% 0.3% 0.5% Utilities 3.6% -1.7% 4.6% -6.2% Real Estate 19.8% - 0.0% 0.9% Total 8.2% 3.5% 2.6% 0.8% Median (all sectors) 9.84% 7.36% 2.61% 0.73% Median, ex. Energy & Materials 9.8% 3.7% 2.6% 0.7% EURO STOXX Eps Surpr. Ratio pos/tot Sales Sur. Ratio pos/tot Energy 66.7% 57.1% 53.3% 75.0% Materials 83.3% 69.2% 87.5% 78.6% Industrials 66.7% 54.5% 81.5% 67.9% Consumer Discretionary 66.7% 40.0% 67.5% 64.9% Consumer Staples 0.0% 25.0% 23.1% 75.0% Health Care 63.6% 27.3% 78.8% 71.4% Financials 71.4% 69.2% 63.5% 76.9% Information Technology 55.6% 60.0% 60.6% 80.6% Telecommunication Services 50.0% 80.0% 0.0% 100.0% Utilities 66.7% 50.0% 37.5% 54.5% Utilities 100.0% % 54.5% Total 66.0% 55.4% 84.9% 53.3%

8 TOPIX 1070 reported 909 reported earnings growth, yoy sales growth, yoy Energy 12.5% 3.0% 37.5% 26.2% Materials 208.5% 178.8% 11.1% 14.0% Industrials 566.6% 46.7% 7.5% 5.9% Consumer Discretionary 46.1% 57.3% 9.3% 4.8% Consumer Staples -1.0% 17.9% 4.7% 6.0% Health Care 25.3% 12.0% 8.9% 1.3% Financials -91.7% 20.3% 14.7% 13.2% Information Technology 30.7% 70.5% 4.5% 7.0% Telecommunication Services 523.5% -2.8% 2.2% 4.3% Utilities % 16.3% -25.8% 5.0% Real Estate 17.0% 46.5% 12.8% 14.8% Topix 145.4% 38.9% 7.9% 6.7% Median (all sectors) 25.3% 20.3% 8.9% 6.0% Median, ex. Energy & Materials 25.3% 20.3% 7.5% 5.9% TOPIX earnings surprise sales surprise Energy 61.4% 27.6% 3.5% -9.3% Materials 67.6% 43.5% 2.7% -1.1% Industrials -0.8% 6.9% 2.3% -0.6% Consumer Discretionary 11.9% 12.5% 1.8% 2.1% Consumer Staples -5.7% 1.9% 0.2% -0.5% Health Care 61.9% 15.1% 2.1% 2.6% Financials -12.3% 13.9% 2.0% 9.8% Information Technology 5.4% 30.0% 1.9% 1.9% Telecommunication Services 215.8% 1.1% 0.3% 0.5% Utilities -3.0% 180.6% -7.3% 2.6% Real Estate 0.9% 27.2% -0.2% 5.1% Topix 22.3% 19.8% 1.5% 1.5% Median (all sectors) 5.4% 15.1% 1.9% 1.9% Median, ex. Energy & Materials 0.9% 13.9% 1.8% 2.1% TOPIX Eps Surpr. Ratio pos/tot Sales Sur. Ratio pos/tot Energy 66.7% 100.0% 77.5% 0.0% Materials 88.9% 100.0% 63.6% 63.2% Industrials 48.6% 81.1% 83.3% 71.8% Consumer Discretionary 59.0% 67.4% 87.5% 60.4% Consumer Staples 50.0% 56.3% 73.5% 52.9% Health Care 66.7% 76.9% 71.4% 58.3% Financials 45.5% 53.8% 80.0% 81.3% Information Technology 58.7% 56.3% 76.7% 53.9% Telecommunication Services 50.0% 50.0% 89.5% 100.0% Utilities 53.3% 76.9% 50.0% 73.3% Real Estate 60.0% 80.0% 50.0% 58.3% Topix 58.1% 69.4% 77.5% 62.6%

9 The median stock analysis (which is biased vs. small and medium firms instead of big-size ones) shows respectable results for both earnings and sales. With the exception of Japan (which is characterized by a superior growth), both the yearly growth and the surprise vs. analysts expectations are lower than in Q1 but still high in absolute terms. This is valid both for earnings and for sales. In general, when compared to our previous note, the median stock momentum is better or unchanged for the US and Japan, while slightly weaker for the stocks belonging to the European and the EA indices. Analysis of the median stock Earnings Sales Median stock Growth Growth availability Q S&P % % 6.02 % 6.00 % 58.6% Stoxx % 7.71 % 7.52 % 6.30 % 61.1% Euro Stoxx % 5.49 % 7.47 % 5.41 % 59.7% Topix % % 2.65 % 5.11 % 42.0% Earnings Sales Median stock Surpr Surpr availability Q S&P 4.16 % 3.33 % 1.14 % 0.91 % 58.6% Stoxx 5.24 % 2.73 % 1.68 % 0.30 % 61.1% Euro Stoxx 5.54 % 1.63 % 1.61 % 0.12 % 59.7% Topix 6.21 % 8.71 % 0.63 % 0.90 % 42.0% Now a word on the recent evolution on the earnings consensus since the US reporting season started. The global earnings forecast for the current year (2017) is now unchanged while till July 25 th (our previous note) it was improving by 1.2%. This has to do with the still optimistc consensus forecasts and the highlighted pressure coming from the stronger euro. Japan (together with the EM index) is an exception as analysts revisions are positive, coherently with the better set of results cited above. Analysts are revising down also the forecasts for 2018 and 2019 and even slightly more aggressively than for the current year. 15/06/17-31/07/17 Consensus eps estimates: changes (%) since 15/06/17 (IBES) m fwd eps MSCI AC WORLD 0.2% 0.8% 0.0% -0.1% -0.2% MSCI Fmr THE WORLD IN 0.1% 0.7% 0.0% -0.2% -0.2% S&P 500 COMPOSITE 0.1% 0.6% 0.0% -0.5% -0.4% FTSE-100 INDEX -0.8% -1.6% -2.4% -2.0% -2.1% TOPIX FJ Index -2.9% 1.0% 0.4% 0.1% SWISS MARKET INDEX -0.6% 0.3% -0.4% -0.7% -0.3% MSCI EUROPE -2.7% -2.9% -3.6% -3.6% -3.6% MSCI EMU (UNADJUSTED 0.0% 0.3% -0.4% -0.5% -0.5% STOXX 50 (EURO) -1.1% -1.4% -2.0% -2.1% -2.3% EURO STOXX 50 E -0.3% -0.2% -0.8% -1.0% -1.1% MSCI USA IT -0.3% 0.9% 0.7% -0.1% 0.1% MSCI EMG 0.4% 1.1% 0.3% 0.3% 0.1%

10 Consensus earnings estimates (IBES): changes (%) since 15/06/17 European s 12m fwd eps Auto G -2.0% -2.4% -2.4% -2.5% Banks IG -1.7% -2.4% -2.4% -2.5% Cap Gds -2.3% -3.0% -3.1% -2.7% Comm Prof Svs -3.0% -3.6% -3.5% -3.6% Cons Dur/App -1.7% -2.7% -2.8% -3.1% Div Fin IG -2.3% -3.7% -4.1% -4.5% Energy IG -9.4% -10.2% -10.7% -11.4% Fd/Bev/Tob -3.0% -3.8% -3.5% -2.8% Fd/Drug RtlIG -3.0% -3.2% -4.3% -4.5% H/C Eq/Svs -2.4% -3.1% -3.3% -3.3% H/H Pers Prd -0.4% -1.0% -1.3% -1.5% Consr Svs Ind -3.4% -4.2% -4.1% -4.0% Insurance IG -2.4% -2.9% -2.9% -2.8% Materials IG -4.9% -5.6% -4.4% -4.1% Media IG -2.9% -3.9% -3.8% -2.8% Pharm/Biotec -2.1% -2.7% -2.8% -3.3% REALEG -2.1% -2.6% -2.5% -2.3% Retailing -2.0% -2.5% -3.0% -3.3% S/W & SVS -2.0% -2.7% -2.8% -3.2% SemiIG -0.4% -2.3% -1.5% -2.9% T/Cm Svs IG -1.6% -2.0% -2.8% -2.8% Tch H/W/Eq -4.6% -7.8% -6.6% -4.8% Transpt -0.1% -0.7% -1.2% -1.0% Utilities IG -2.8% -3.5% -3.0% -2.8% MSCI EUROPE -2.9% -3.6% -3.6% -3.6% MSCI EMU 0.3% -0.4% -0.5% -0.5% S&P 500 COMPOSITE 0.6% 0.0% -0.5% -0.4% In this respect, our earnings forecasts are still below analysts ones. 8/1/2017 Area past earnings expected yoy growth difference ** growth, p.a. * 2017, GIE 2017, Consensus 2017 US 7.0% 6% - 8% 10.2% -3.2 pp Euro Area 4.3% 6% - 8% 10.7% -3.7 pp Japan 2.9% 9% - 11% 16.7% -6.7 pp EMs 9.4% 9% - 12% 20.4% -9.9 pp * Earnings for developed countries since 1987, for EMs since mid 90's ** Midpoint of GIE forecasts minus consensus Current consensus:

11 World Markets: Forecast Earnings Growth (IBES Consensus) 31-Jul-2017 A12FE vs / / /2018 MSCI AC WORLD 20.2% 13.2% 10.5% 9.8% MSCI Fmr THE WORLD INDE 18.9% 12.0% 10.3% 9.7% S&P 500 COMPOSITE 18.1% 10.2% 11.5% 10.3% FTSE-100 INDEX 23.5% 18.2% 7.7% 9.2% TOPIX FJ Index 19.9% 16.7% 7.4% 7.7% SWISS MARKET INDEX 14.7% 8.0% 10.7% 8.9% MSCI EUROPE 18.1% 12.1% 9.1% 8.8% MSCI EMU (UNADJUSTED) 16.8% 10.7% 9.3% 8.7% STOXX 50 (EURO) 17.3% 12.2% 7.6% 8.6% EURO STOXX 50 E 15.9% 10.0% 9.1% 8.8% MSCI USA IT 21.9% 12.9% 11.5% 9.8% MSCI EMG 27.9% 20.3% 11.4% 11.1% Emerging markets: Overall, the improving global trade (with still some risks of trade frictions in the next future between the US and China), stabilizing macro surprises and commodity/oil prices should contribute to improving bottom line of EM companies. Whereas the reporting seasons for Indian and Brazilian companies have advanced to cover 64% and 42% of eligible companies, the one for China has hardly started (only 5 companies reported). The Indian earnings growth in Q1 has shown a turnaround and increased at the index level by 5.8% yoy. The reporting season of the previous quarter, when comparable number of companies is drawn to make comparisons, has presented a negative growth of -3.5% yoy. The sales growth has, however, slightly decreased but from a very high level (from 18.3% in Q4 to 15.9% in Q1). Nonetheless, the earnings growth has deteriorated as the median earnings growth has decreased, becoming slightly negative at -1.5%. The median sales growth has, on the other hand, improved (from 4.9% in Q4 to 6.3% in Q1). The sectors with the highest yoy earnings growth are Energy and Materials (28.4% and 46.2, respectively). The sales growth of the energy sector was one of the highest as well. Having disappointed in the previous quarter, the reported net profits exceeded consensus estimates in the index by 4.0% (for the first time since one year). The sales have exceeded expectations as well. The sectors significantly beating the expectations are Energy and Financials. For Brazil, the Q2 earnings growth has somewhat decreased (11.7% vs. 20.9% in Q1), which is attributed to the negative earnings growth of the Materials (-36.6%) and less positive growth of consumer staples. However, the median earnings growth has increased (from 10.1% to 30%). The sales growth has improved at the index level (from 5% in Q1 to 30% in Q2). The median sales growth has increased as well (from 5.7% in Q1 to 7% in Q2). At the index level, while earnings have slightly disappointed (-1%), sales exceeded expectations significantly (27.7%). The largest sales surprise came from financials. Analyzing earnings and sales at the stock level, we can conclude that both Indian and Brazilian companies are doing better on average, both in terms of earnings and sales. The development for Brazil companies is more compelling as the economy is coming out of the recession. Markets earnings growth, yoy sales growth, yoy INDIA -3.5% 5.8% 18.3% 15.9% Median (all sectors) -4.4% -1.4% 4.9% 6.3% Median, ex. Energy & Materials -7.5% -7.9% -0.3% 2.6% BRAZIL 20.9% 11.7% 5.0% 30.0% Median (all sectors) 10.1% 30.0% 5.7% 7.0% Median, ex. Energy & Materials 10.0% 32.2% 2.5% 8.8% * For India, the financial year ends in March

12 Markets earnings surprise % sales surprise % INDIA -4.3% 4.0% -0.4% 6.0% Median (all sectors) 2.3% 0.9% -1.5% 0.2% Median, ex. Energy & Materials 2.3% 0.1% -1.5% 0.2% BRAZIL -3.9% -1.0% -0.4% 27.7% Median (all sectors) -3.8% 2.8% 0.5% 2.6% Median, ex. Energy & Materials -2.5% -1.2% 1.4% 3.0% * For India, the financial year ends in March Analysis of the median stock Earnings Sales Index Growth Growth availability Q India (5.73)% 2.23 % 3.82 % 6.00 % 63.6% Brazil 1.25 % % 2.48 % % 41.5% Earnings Sales Index Surpr Surpr availability Q India (0.08)% 6.20 % (1.95)% 0.22 % 57.6% Brazil (2.56)% (0.78)% (0.69)% 0.83 % 41.5% * For India, the financial year ends in March

13 EARNINGS FORECAST BY IBES 31-Jul-2017 A12FE vs / / / 2018 S&P 500 COMPOSITE 18.1% 10.2% 11.5% 10.3% FTSE-100 INDEX 23.5% 18.2% 7.7% 9.2% TOPIX FJ Index 19.9% 16.7% 7.4% 7.7% SWISS MARKET INDEX 14.7% 8.0% 10.7% 8.9% MSCI EUROPE 18.1% 12.1% 9.1% 8.8% MSCI EMU (UNADJUSTED) 16.8% 10.7% 9.3% 8.7% STOXX 50 (EURO) 17.3% 12.2% 7.6% 8.6% EURO STOXX 50 E 15.9% 10.0% 9.1% 8.8% MSCI EMG 27.9% 20.3% 11.4% 11.1% MSCI CHINA 26.0% 17.0% 14.2% 14.1% SHANGHAI A 24.2% 16.3% 11.5% 13.4% MSCI KOREA 54.8% 47.9% 8.0% 5.6% MSCI BRAZIL 29.7% 26.4% 4.5% 21.3% MSCI TAIWAN 16.0% 10.3% 8.7% 8.8% MSCI SOUTH AFRICA 33.2% 20.3% 17.9% 13.6% MSCI INDIA 20.6% 13.2% 19.7% 13.4% MSCI MEXICO 24.7% 16.4% 12.2% 9.6% MSCI RUSSIA 12.9% 4.8% 13.3% 1.7% MSCI MALAYSIA 13.7% 9.1% 6.6% 7.1% MSCI INDONESIA 26.4% 16.7% 14.2% 11.9% MSCI THAILAND 12.6% 7.0% 8.9% 8.7% MSCI TURKEY 37.5% 28.5% 11.9% 12.0% MSCI POLAND 16.1% 13.4% 4.0% 7.8% MSCI PHILIPPINES 10.6% 3.9% 11.0% 13.3% MSCI CZECH REPUBLIC -12.6% -9.1% -6.6% -2.1% MSCI HUNGARY 2.1% -1.7% 6.6% 14.1% MSCI GREECE 10.3% -1.1% 18.4% 10.9% MSCI ARGENTINA % 9.8% MSCI AUSTRALIA 22.1% 15.4% 5.3% 4.7% MSCI CHILE 14.6% 7.5% 11.4% 18.3% MSCI COLOMBIA 9.5% -6.7% 27.0% 28.7% MSCI HONG KONG 15.6% 10.4% 7.3% 7.6% MSCI PERU 32.7% 22.3% 14.6% 16.2% MSCI SINGAPORE 11.6% 7.1% 7.7% 6.2%

14 EM: exports vs. forward earnings /02 01/04 01/06 01/08 01/10 01/12 01/14 01/16 01/18 Exports from EM (yoy, %) Commodity prices (yoy, %) MSCI EM: 12m fwd earnings growth (rhs) Emerging markets and macro surprises /14 12/15 12/16 EM macro surprise index MSCI EM - 12m fwd earnings growth (rhs) In conclusion, analyzing 200 more results of US companies (compared to our previous commentary when we had 96), firms numbers for Q2 are less exciting when compared to Q1. That said, they remain encouraging in absolute terms, both at the index level and for the median stock. The global GDP momentum supports corporate sales growth and margins as its magnitude is appreciable and widespread across countries. European results are pressured by a stronger trade-weighted euro versus Q1 but they are attractive anyway: EA yoy growth in Q2 for earnings and sales is 13% and 6.8%, respectively. Japanese numbers show a bigger yoy growth and surprise, also because Japanese results have so far lagged European and US ones, starting from the trough in In general, the global margin momentum is holding well as earnings growth surpass the sales growth. Low input costs should continue to represent a helpful factor for margins. Due to less upbeat yearly comparisons in Q2, lower oil prices, lower levels of the macro surprise indices and still optimistc earnings consensus, analysts have started to lower their estimates for this year and the next two. In Europe this trend is exacerbated by the strong euro. Currrent earnings growth estimates remain high (albeit less than before) and we remain below consensus. Our estimates are backed by our quantitative models which use macro variables and our economic forecasts as inputs. We deem any earnings-related risk to be relatively contained at this stage, as we remain constructive on the ongoing recovery and the margin expansion (especially in the EA). With our more prudent earnings growth assumptions we are still able to justify a total return of 6-7% in the EA and Japan (yen hedged) in the next 12 months. Regards, Michele Morganti and Vladimir Oleinikov Michele Morganti Equity strategist T M michele.morganti@generali-invest.com Macro & Market Research Strategy Generali Investments Europe Sp.A. Società di gestione del risparmio Via Trento Trieste Italy