By John Praveen, Chief Investment Strategist of Prudential International Investments Advisers, LLC.*

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1 By John Praveen, Chief Investment Strategist of Prudential International Investments Advisers, LLC.* For Market Commentary Interviews Contact: Lisa Villareal, Financial Market Outlook & Strategy: Global Stock Markets Likely to Post Further Gains Amidst Volatility. Bond Yields Likely to Rise on GDP Rebound & Rising Inflation John Praveen s Global Investment Strategy May 2011 expects global stock markets to remain resilient and post further gains with solid earnings, liquidity, the Q1 GDP rebound in Eurozone, the expected rebound in the U.S. (Q2) and Japan (H2) and continued solid growth in the emerging economies. However, equity markets are likely to remain volatile with several risk factors, including continued turmoil in the middle east, the Greek debt crisis Part II, high oil prices and volatile commodities, rising inflation and interest rate hikes in emerging economies and Eurozone. Bond yields are likely to edge higher after the April decline with continued upward pressure on headline inflation and GDP rebound in Eurozone (Q1), U.S. (Q2) and Japan (H2). However, fresh rumblings in Eurozone debt crisis with increased talk of a Greek debt restructuring and fear of contagion to other Periphery Eurozone countries is likely to revive the safe haven appeal of bonds. Among global stock markets, we remain modest overweight in the Emerging Markets and the U.S., upgrade Japan to modest overweight, downgrade Eurozone to underweight, and remain underweight on the U.K. Among global sectors, we are overweight on Industrials, remain modest overweight on Energy, Materials, Consumer Discretionary, and Info Tech; Downgrade Financials to neutral, and remain underweight on Consumer Staples, Healthcare, Utilities and Telecomms. Among global government bond markets, we remain overweight in Emerging Markets and Japanese bonds, upgrade Eurozone bonds to neutral, downgrade U.S. Treasuries to modest underweight, and remain underweight on U.K. Gilts. Market Outlook: Stocks Resilient as Solid Earnings, Liquidity & Improving GDP Offset Rolling Shocks Stocks: Stocks to Post Further Gains on Solid Earnings, GDP Rebound, Liquidity & Easing Risk Aversion Global equity markets shrugged off the continued turmoil in Middle East, Japan earthquake uncertainty, S&P downgrade of U.S. debt outlook, and renewed debt tensions in Eurozone as these negatives were offset by Q1 earnings surprising on the upside and expectations of GDP rebound. Developed Markets rose 4% in April taking YTD 2011 gains to 8.5%. Emerging Market stocks rose 2.8% taking YTD gains to 4.6%. The macro backdrop continues to support equities but several head winds are likely to keep volatility high. GDP growth on track to rebound in U.S. (Q2), Eurozone & U.K. (Q1) and Japan (H2), and remains solid in the Emerging economies. The Fed, BoE and BoJ kept rates unchanged in April/May The ECB paused in May and likely to raise rates again in July. However, other developed central banks are unlikely to follow the ECB. China and India raised rates in April/May. Rate tightening in EM likely to continue, but tightening is likely close to a peak. Earnings results for Q are coming in stronger than expected. The earnings outlook remains solid driven by revenue growth and wide margins. Earnings in 2011 are expected to rise 14% in Japan, 10% in Eurozone, 17% in Emerging Markets, and 16% in U.S. Global equity P/E multiples rose in April due to the rally, but the rise was modest due to strong Q1 earnings. P/E Multiples remain below long-term averages. Global stock markets continue to show resilience, shrugging off the rolling series of shocks. In the nearterm, stocks remain supported by: 1) U.S. GDP expected to rebound in Q2 after Q1 GDP was depressed by transitory factors. Japan s GDP expected to post a strong rebound in H2 with reconstruction spending following the sharp decline in Q1 & Q2. GDP growth remains solid in the emerging economies and in core Eurozone, especially Germany and France; 2) Liquidity remains abundant. The end of QE II in June is unlikely to have a negative impact on stocks as the Fed is expected to keep its balance sheet steady and maintain rates at record low. The BoJ continues to provide liquidity. The ECB started the rate tightening cycle in April but paused in May. Further ECB tightening is likely to be modest, while the Fed, BoJ and BoE are unlikely to follow the ECB in the near-term; 3) Q1 earnings surprise on the upside. Earnings outlook remains solid in H with strong revenue growth from solid nominal GDP growth. Low expectations for 2011 give scope for positive earnings surprises; 4) Valuations not very expensive. Current P/E multiples still below long-term averages as strong earnings growth cap the rise in P/E multiples. *Prudential International Investments Advisers, LLC. (PIIA) is a business of Prudential Financial, Inc., (PFI), which is not affiliated in any manner with Prudential plc, a company headquartered in the United Kingdom. For Informational Use Only. Not Intended As Investment Advice. See Disclosures on the last page for important information. Page 1

2 In addition to the positives above, some of the recent risk factors that have kept markets volatile are now easing: 1) Uncertainty in Japan about the nuclear fallout, the duration of supply disruptions and power outages are diminishing; 2) While the turmoil in the Middle East and North Africa remains unresolved, there is a stalemate in Libya and a lot of negatives are priced in. However, other risk factors persist, including: 1) Fresh after-shocks from the European debt crisis with increasing talk about Greek debt restructuring; and 2) Elevated headline inflation and further rate hikes by emerging central banks and the ECB. Looking ahead, we expect the positive fundamentals to help stocks post further gains amidst continued volatility from the Greek debt crisis Part II, Middle East uncertainty, high oil prices and volatile commodities, rising inflation and interest rate hikes. Bonds: GDP Rebound & Rising Inflation Likely to Lift Yields. Safe Haven Support From Renewed Greek Debt Rumbling Global bond yields declined modestly in April. Yields continued to rise earlier in the month, but trended lower mid month as stocks stalled and as investors revised U.S. GDP growth forecasts lower. The J.P. Morgan Global Bond Index was up 0.6% LC in April, 3.9% in US$. Looking ahead, bond yields are likely to edge higher after the April decline with continued upward pressure on headline inflation and expected GDP rebound in Eurozone (Q1), U.S. (Q2) and Japan (H2). However, fresh rumblings in Eurozone debt crisis with increased talk of a Greek debt restructuring and contagion to other periphery countries is likely to revive the safe haven appeal of bonds. U.S. Treasury yields are likely to rise in the near-term having declined in early May following the pullback in the ISM confidence indicators. Treasury yields are likely to be under pressure with headline inflation expected to rise further, Q2 GDP growth expected to rebound after the Q1 weakness, diminishing safe haven appeal, and negative real interest rates. However, momentum and the Fed being slow to reverse monetary stimulus should provide some support to Treasuries. The outlook for Eurozone bonds is neutral relative to other markets. The ECB starting the rate tightening cycle is a major negative for Eurozone bonds. However, the pace of tightening is expected to be relatively slow, especially with renewed rumblings in the Eurozone debt crisis and increased talk of Greek debt restructuring. Further, headline inflation remains elevated which should put upward pressure on yields. While robust GDP growth in Core Eurozone is a negative for bonds, the growth pace for Eurozone as a whole is relatively modest with a drag from the periphery. Further, the continued rise in sovereign credit spreads is likely to revive safe haven appeal of core Eurozone bonds. The outlook for U.K. Gilts remains negative. Inflation remains one of the biggest negatives for U.K. gilts, with the highest inflation rate among the major economies. Further, the BoE is expected to remain on hold in June, but inflationary pressures suggest that the BoE will raise rates before the U.S. and Japan. Real interest rates are elevated relative to history. However, the GDP growth outlook is still relatively modest, which should limit the rise in Gilt yields. The outlook for JGBs is relatively favorable. The earthquake is expected to lead to a sharp decline in GDP growth in Q1 (-2%) and Q2 (-4%) before reconstruction spending leads to a rebound in H2. In addition, the BoJ added additional monetary stimulus and the market has pushed back expectations for the beginning of hikes. Inflation is still low and is likely to remain low due to the GDP decline in the near-term. However, given the rise in commodity prices, there are some upward pressures. Further, the massive expenditure on earthquake reconstruction (~ 25 trn, ~5.2% of GDP) is likely to further increase Japan s government debt and put modest upward pressure on JGB yields. The outlook for EM bonds is negative in the near-term with elevated inflation and continued rate hikes. Rising food prices, elevated commodity prices, and narrow output gaps relative to the developed markets are keeping inflation elevated in several Emerging economies. Rising headline inflation is a major concern for Emerging central banks, prompting interest rate tightening. In the medium-term, the outlook for EM debt is more positive. While headline inflation in the emerging economies remains elevated, core remains contained and a correction in commodities prices could put downward pressure on headline inflation. Further, EM growth is expected to remain solid, reducing the risk aversion associated with EM debt, and putting downward pressure on the spread between EM and DM debt. Investment Strategy: Liquidity, Solid Earnings & GDP Rebound Lift Stocks Amidst Continued Volatility Asset Allocation: Remain Overweight Stocks; Remain Underweight Bonds; Global Equities: Remain Modest Overweight on U.S. and Emerging Markets; Upgrade Japan to Modest Overweight; Remain Underweight U.K.; Downgrade Eurozone to Underweight Global Bonds Remain Overweight Japan; Upgrade Eurozone to Neutral; Remain Underweight U.K.; Downgrade U.S. to Modest Underweight Global Sectors Overweight: Industrials; Modest Overweight: Energy, Materials, Consumer Discretionary, Info Tech Neutral: Financials; Underweight: Consumer Staples, Healthcare, Telecomms, Utilities Currencies Informational Use Only. Not Intended As Investment Advice. See Disclosures on the last page for important information. Page 2

3 Overweight: EM Currencies; Neutral: Yen & U.S. Dollar; Underweight: Euro & Sterling ASSET ALLOCATION: Stocks vs. Bonds May 2011 Stocks Remain Overweight: Global equity markets are likely to post further gains as solid earnings, liquidity, and expected GDP rebound in Eurozone (Q1), the U.S. (Q2) and Japan (H2) offset continued turmoil in the Middle East, the Greek debt crisis Part II, high oil prices and volatile commodities, rising inflation and interest rate hikes in emerging economies and Eurozone. Bonds Remain Underweight: Bond yields are likely to edge higher with rising headline inflation and expected GDP rebound. However, fresh rumblings in the Eurozone debt crisis with increased talk of a Greek debt restructuring is likely to revive the safe haven demand. CURRENCIES Overweight: EM Currencies; Neutral: Yen & U.S. Dollar; Underweight: Euro & Sterling The U.S. Dollar is expected to strengthen against the euro and pound but trade range bound against the yen. The euro is likely to pullback after its recent strong gains. Further, the ECB is likely to remain on hold in June and hike rates again only in July. Renewed debt concerns is a negative for euro. Elevated inflation is a negative for the sterling. The yen is likely to remain range bound against the dollar with weaker H1 GDP growth offset by increased yen repatriation. Further gains are expected for EM currencies due to stronger growth and central bank hikes. Commodity currencies are likely to post gains as solid global GDP growth leads to continued commodity demand. Global Equity Strategy Emerging Markets (EM): GDP growth remains solid in the emerging economies in early 2011 driven by robust domestic demand. For full year 2011, EM is expected to post around 6% GDP growth with around 8% growth in EM Asia and 4% and 4.5% in EM Europe and LatAm is expected around 4%. Inflation remains in an uptrend in several emerging economies, which has prompted several EM central banks to hike rates, however rate hikes are likely close to a near-term peak. The earnings outlook remains strong, supported by strong domestic demand and solid exports. EM equity valuations are modestly attractive. Lingering risk aversion due to Middle East tensions and European debt crisis, and currency appreciation are negatives for EM stocks. Remain Modest Overweight. U.S.: GDP growth expected to rebound to around 3.5% in Q2 after Q1 GDP decline driven by "transitory" factors (adverse weather, a plunge in government spending and surge in energy prices). The Federal Reserve left rates unchanged in April. QE II expected to be completed, as scheduled, in June. However, the end of QE II unlikely to have a negative impact on stocks as the Fed is likely to keep its balance sheet steady (no passive tightening) and maintain rates at record low. Q1 earnings growth stronger than expected, tracking 18% YoY in Q1, well above the 14% expected at the beginning of the earnings season, after 37% in Q4. Further, revenue growth expected to strengthen with increase in nominal GDP. In addition, earnings revisions have been positive indicating that the earnings outlook for coming quarters remains solid. Remain Modest Overweight. Japan: Japanese economy expected to rebound sharply in H2 with reconstruction spending following GDP decline in Q1 (around -2% annualized) and Q2 (around-4%). Current expectations are for GDP to rebound around 6% in Q3 and around 5% in Q4, with risks to the upside. Valuations have improved due to the decline in stocks after the earthquake. The BoJ continues to keep rates low and has maintained the scale of its asset purchase program in April. Japanese earnings expectations for 2011 are currently around 14%, but are likely to be revised lower. Japanese Industrials are likely to benefit from the post earthquake reconstruction spending in H2 as well as continued solid infrastructure spending in China. Upgrade to Modest Overweight. Eurozone: Fresh rumblings in the Eurozone debt crisis with increased talk of Greek debt restructuring are a risk for Eurozone equities, especially Financials. Eurozone Q1 GDP rebounded to around 3.2% QoQ annualized with strong growth in core Eurozone, especially Germany (6% annualized) and France (4% annualized) with strong production, elevated business confidence and declining unemployment. However, the periphery continues to struggle with fiscal tightening, high unemployment and elevated funding costs with spreads further widening. The ECB held rates at 1.25% at their May meeting and is likely to raise rates again in July. Eurozone headline inflation continues to trend higher, rising to 2.8% YoY in April (flash estimate) from 2.7% YoY in March and 2.4% in February. Eurozone earnings results for Q1 were stronger than expected, but the earnings outlook continues to be revised lower from last month. Remain Modest Underweight. U.K.: U.K. Q1 GDP growth rebounded 2% with preliminary data suggesting that services and production industries grew modestly. GDP is expected to rise 2.1% in Q2. U.K. headline inflation remains elevated, around 4% YoY in March. The Bank of England left rates unchanged at 0.5% at the May meeting and the stock of asset purchases fixed at 200bn. The relative earnings outlook for U.K. stocks is negative while valuations are a modest positive. Remain Underweight. Global Bond Strategy Informational Use Only. Not Intended As Investment Advice. See Disclosures on the last page for important information. Page 3

4 Emerging Markets: The outlook for Emerging Market bonds is negative in the near-term with elevated inflation and continued rate hikes. Rising food prices, elevated commodity prices, and narrow output gaps relative to the developed markets are keeping inflation elevated in several Emerging economies. Rising headline inflation is a major concern for Emerging central banks, prompting interest rate tightening. In the medium-term, the outlook for EM debt is more positive. While headline inflation in the emerging economies remains elevated, core remains contained and a correction in commodities prices could put downward pressure on headline inflation. Further, EM growth is expected to remain solid, reducing the risk aversion associated with EM debt, and putting downward pressure on the spread between EM and DM debt. Remain Overweight. Japan: The outlook for JGBs remains relatively favorable. The earthquake is expected to lead to a sharp decline in GDP growth in Q1 (-2%) and Q2 (-4%) before reconstruction spending leads to a rebound in H2. The Bank of Japan (BoJ) kept its policy rate and the scale of its asset purchase program unchanged at its policy meeting in April. The market has also pushed back expectations for the beginning of hikes. Inflation is still low and is likely to remain low due to the GDP decline in the near-term. However, given the rise in commodity prices, there are some upward pressures. Further, the massive expenditure on earthquake reconstruction (expected ~ 25 trn, ~5.2% of GDP) is likely to further increase Japan s government debt and put modest upward pressure on JGB yields. Remain Overweight JGBs. Eurozone: Eurozone bond outlook is neutral relative to other markets. The ECB starting the rate tightening cycle is a major negative for Eurozone bonds. However, the pace of tightening is expected to be relatively slow, especially with renewed rumblings in the Eurozone debt crisis and increased talk of Greek debt restructuring. Eurozone headline inflation continues to trend higher, rising to 2.8% YoY in April from 2.7% YoY in March and 2.4% in February. This should put upward pressure on yields. Eurozone Q1 GDP rebounded to around 3.2% QoQ annualized after slowing to 1.1% in Q4. While robust GDP growth in Core Eurozone is a negative for bonds, the growth pace for Eurozone is being dragged lower by weakness in the periphery. Further, the continued rise in sovereign credit spreads is likely to revive the safe haven appeal of core Eurozone bonds. Upgrade Eurozone Bonds to Neutral. U.S.: U.S. Treasury yields are likely to rise in the near-term having declined in early May following the pullback in the ISM confidence indicators. Treasury yields are likely to be under pressure with headline inflation expected to rise further, Q2 GDP growth expected to rebound after the Q1 weakness, diminishing safe haven appeal (from the turmoil in the Middle East and the Japanese earthquake uncertainty), and negative real interest rates (which cannot go meaningfully lower). However, momentum and the Fed keeping rates at record low and balance sheet steady should provide some support to Treasuries. Downgrade U.S. Treasuries to Modest Underweight. U.K.: The outlook for U.K. Gilts remains negative. Inflation remains one of the biggest negatives for U.K. gilts, with the highest inflation rate among the major economies. Headline inflation remains elevated despite edging down to 4% YoY in March, the first decline in eight months, after rising to 4.4% in February, its fastest pace since The Bank of England left rates unchanged at 0.5% at the May meeting and the stock of asset purchases fixed at 200bn. While the BoE expected to remain on hold in June, inflationary pressures suggest that the BoE will raise rates before the U.S. and Japan. Real interest rates are also elevated relative to history. U.K. GDP growth rose 2% in Q1 after declining -1.9% in Q4, and is expected to rise 2.1% in Q2. However, the GDP growth outlook is still relatively modest, which should limit the rise in Gilt yields. Remain Underweight U.K. Gilts. Global Sector Strategy Our global sector model ranks sectors on a comparative basis using macro factors, valuation, earnings and risk measures. Industrials - Global industrial activity remains solid with PMIs in the largest industrial regions remaining above the 50 mark. Manufacturing production rose in the US, Eurozone and UK. Japan reconstruction is a positive. Q2 GDP growth rebound in many developed economies and Japan reconstruction in H2 are positives. Sector valuations are modestly attractive. Remain Overweight. Energy Sector has pulled back in early May. However, oil prices remain elevated despite the recent correction. EM demand remains solid. Earnings are expected to grow 27% in European Energy sector valuations are cheaper relative to that of U.S. Oil Services rebound likely to continue in coming months. Remain Modest Overweight. Materials - Materials stocks have not fully reflected the rise in commodity prices year to date. Continued solid demand from emerging economies remains supportive of the sector. EM rate hikes are a negative for the sector. Sector earnings are expected to post strong growth of around 40% in Agricultural prices remain firm due to supply constraints. Remain Modest Overweight. Consumer Discretionary - Improving labor markets in developed economies is a positive. However, rising energy prices are a negative. EM consumption remains driven by strong employment and government spending. Sector earnings growth and valuations are attractive. Autos likely to underperform the overall sector given the hit to their supply chains from the Japan earthquake. Remain Modest Overweight. Information Technology Demand remains solid for Info Tech products. However, the recent Japanese earthquake is likely to cause supply chain disruptions. Solid business confidence likely to result in strong infrastructure spending and upgrades. Telecomm equipment demand remains solid. Earnings expected to rise 16% in Remain Modest Overweight. Financials - Renewed concerns about the Greek debt is a negative for European Financials. Low rates and lower loan loss reserves as economies continue to recover is a positive for the sector. U.S. housing declines further and Informational Use Only. Not Intended As Investment Advice. See Disclosures on the last page for important information. Page 4

5 regulatory changes continue to fuel uncertainty. Sector earnings expected to rise 14% in Downgrade to Neutral. Consumer Staples - Rising input costs are putting pressure on margins as companies find it difficult to pass on costs to their customers. However, there is interest from investors who are seeking higher dividend yields. Staples earnings are expected to rise 8% in The sector is likely to underperform the market as the global recovery remains solid. Remain Underweight. Healthcare - Defensive nature of Healthcare benefitted the sector in April as defensive led gains with the markets continuing to be volatile. However, earnings are expected to rise just 4% in 2011 as sales growth remains weak. Further, headline Pharma risks still remain a negative. Biotech stocks are likely to benefit from the increase in M&A activity. Remain Underweight. Telecomm Services - Increased near term market volatility is a positive for this defensive sector. While demand for Telecomm services is increasing due to increased use of smart phones, pricing still remains weak. Telecomms earnings are expected to rise just 3% in Telecomms have a high dividend yield and the low Price/Cash Earnings multiple. Remain Underweight. Utilities - The sector has recovered from the steep declines seen after the Japanese earthquake. However, the sector is unlikely to outperform as risk appetite increases. Earnings growth has been revised down to -10% for The sector has a very high dividend yield and low forward P/E multiple. Downgrade to Underweight. Strategy Summary: Asset Allocation: Remain Overweight Stocks; Remain Underweight Bonds; Global Equities: Remain Modest Overweight on U.S. and Emerging Markets; Upgrade Japan to Modest Overweight; Remain Underweight U.K.; Downgrade Eurozone to Underweight Global Bonds Remain Overweight Japan; Upgrade Eurozone to Neutral; Remain Underweight U.K.; Downgrade U.S. to Modest Underweight Global Sectors Overweight: Industrials; Modest Overweight: Energy, Materials, Consumer Discretionary, Info Tech Neutral: Financials; Underweight: Consumer Staples, Healthcare, Telecomms, Utilities Currencies Overweight: EM Currencies; Neutral: Yen & U.S. Dollar; Underweight: Euro & Sterling Disclosures: Prudential International Investments Advisers, LLC. (PIIA), a Prudential Financial, Inc. (PFI) company, is an investment adviser registered with the Securities and Exchange Commission of the United States. Pramerica is a trade name used by PFI and its affiliated companies in select countries outside of the United States. PFI, a company incorporated and with its principal place of business in the United States of America is not affiliated in any manner with Prudential plc, a company headquartered in the United Kingdom. The commentary presented is for informational purposes only, and is not intended as investment advice. This material has been prepared by PIIA on the basis of publicly available information, internally developed data and other third party sources believed to be reliable. However, no assurances are provided regarding the reliability of such information. All opinions and views constitute judgments of PIIA as of the date of this writing, and are subject to change at any time without notice. There can be no assurance that any forecast made herein will be realized. Distribution of this information to any person other than the person to whom it was originally delivered and to such person s advisers is unauthorized and no part of this material may be reproduced or distributed further without the written approval of PIIA. These materials are not intended for distribution to, or use by, any person in any jurisdiction where such distribution would be contrary to local law or regulation. The companies, securities, sectors and/or markets referenced herein are included solely for illustrative purposes to highlight the economic trends, conditions, and the investment process, but may or may not be held by accounts actually managed by PIIA. The strategies and asset allocations discussed do not refer to any service or product offered by PIIA or by its affiliates The global asset and strategy allocation models presented are hypothetical allocation models shown for illustrative purposes only, and do not necessarily reflect the management of any actual account. Following the allocation recommendations presented will not necessarily result in profitable investments. Past performance is not an assurance of future results. Nothing herein should be viewed as investment advice to adopt any investment strategy, nor should it be considered an offer to provide investment advisory or other allocation services. The Rock symbol is a service mark of PFI and its related entities, registered in many jurisdictions worldwide. Copyright 2011 Informational Use Only. Not Intended As Investment Advice. See Disclosures on the last page for important information. Page 5