EASTSPRING INVESTMENTS

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1 EASTSPRING INVESTMENTS THE GROWTH OF EMERGING MARKETS ASIA NCPERS 2013 Annual Conference Jeffrey W. Smith, CFA.

2 SUMMARY LONG TERM DRIVERS (10 years) Growth Improving corporate fundamentals NEAR TERM DRIVERS (1-3 years) Economic recovery Structural reforms Globally easy monetary conditions RISKS WHERE IS THE VALUE China Credit & India External account US Fiscal Cliff negotiations EU political will Eventual reversal in Global monetary conditions Valuation that under-prices relative fundamentals Alpha opportunities from stock selection 2 Source: Eastspring Investments (Singapore) Limited.

3 AGENDA I. Asia - Long term Drivers II. Asia - Medium term drivers III. Risks IV. Where is the Value

4 e 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e DEMOGRAPHICS RISING NUMBER OF MIDDLE CLASS HOUSEHOLDS 300 NUMBER OF HOUSEHOLDS WITH DISPOSABLE INCOME MORE THAN US$10,000 (MILLIONS) China India Russia Brazil Japan US 4 Source: Euromonitor, Morgan Stanley Asia / GEM strategy team, 30 November Note: The graph above is included for illustrative purposes only. It should not be construed as being indicative of the future or likely performance of any market or the Fund.

5 % of Global Population DEMOGRAPHICS MORE THAN HALF THE WORLD S POPULATION LIVES IN ASIA 60 WORLD S GLOBAL POPULATION Africa Asia Europe Latam North America Oceania Large, young, growing population provides factory labor and consumers for the economy Source: United Nations Department of Economic and Social Affairs/Population Division. World Urbanization Prospects: The 2011 Revision.

6 Cars sold per year (millions) DEMOGRAPHICS THE ASIAN CONSUMER HAS BECOME GLOBALLY RELEVANT 20.0 CHINA IS NOW THE LARGEST AUTO MARKET IN THE WORLD USA China 6 Source: Goldman Sachs, July 2012.

7 DEMOGRAPHICS GLOBAL RELEVANCE CELL PHONES COUNTRY 2011 NUMBER OF MOBILE PHONE CONTRACTS (MILLIONS) CHINA 986 INDIA 894 UNITED STATES 331 RUSSIA 256 INDONESIA 237 BRAZIL 242 VIETNAM 127 JAPAN 130 GERMANY 109 PAKISTAN 109 Asia accounts for 6 of the top 10 countries in mobile phone contracts 7 Source: World Bank Databank, October 2012.

8 1Q95 4Q95 3Q96 2Q97 1Q98 4Q98 3Q99 2Q00 1Q01 4Q01 3Q02 2Q03 1Q04 4Q04 3Q05 2Q06 1Q07 4Q07 3Q08 2Q09 1Q10 4Q10 3Q11 Computers sold per year (millions) DEMOGRAPHICS GLOBAL RELEVANCE HOME COMPUTERS 35.0 ASIA ACCOUNTS FOR OVER A THIRD OF THE GLOBAL MARKET IN HOME COMPUTERS 40% % % 25% 20% % 10% 5.0 5% 0.0 0% Asia Pacific ex Japan computers (m) % of World-wide (RHS) 8 Source: Citigroup, IDC, July 2012.

9 Penetration (unit/1000 ppl) DEMOGRAPHICS DESPITE GROWTH, STILL EARLY DAYS FOR ASIA CONSUMPTION 900 CURRENT AUTO PENETRATION LEVELS SUGGEST CONTINUED GROWTH FOR A LONG TIME 800 US Malaysia Portugal Poland Czech Republic Taiwan Hungary Slovakia South Korea Greece Spain Australia Austria Italy Canada Belgium Sweden Japan Germany Netherlands France UK Ireland Denmark India Argentina Brazil China Thailand Russia Romania Mexico Turkey GDP per capita (US$) 9 Source: CEIC, UBS estimates, 2010.

10 DEMOGRAPHICS INFRASTRUCTURE DEMAND Asia is still very rural. It will continue to urbanize at a rapid pace for the next 20 years. Urbanization and industrialization are multi-decade opportunities. 10 Source: United Nations Department of Economic and Social Affairs / Population Division. World Urbanization Prospects: The 2011 Revision.

11 DEMOGRAPHICS INFRASTRUCTURE DEMAND Urban dwellers as % of China s population: 10.6% in 1949 (start Communism) 19% in 1979 (Market reforms) 51.3% today In 30 years, China has replicated what took the UK 200 years, US 100, and Japan 50 Significant infrastructure needs 11 Source: China urnamization rate exceeds 50 percent, xinhuanet.com, May 29, Source: China Turns Predominantly Urban, January 16, 2012.

12 DEMOGRAPHICS ASIAN INFRASTRUCTURE INVESTMENT IS A LONG-TERM THEME URBAN AND RURAL POPULATIONS BY DEVELOPMENT GROUP, Telecom Airports Highways Drinking Water Power Asian urban population will double Railways 12 Source: United Nations (Department of Economic and Social Affairs, Population Division (2011). Note: More developed regions comprise all regions of Europe plus Northern America, Australia/New Zealand and Japan. Less developed regions comprise all regions of Africa, Asia (excluding Japan) and Latin America and the Caribbean, as well as Melanesia, Micronesia and Polynesia. The above chart is included for illustrative purposes only. Any projection or forecast is not necessarily indicative of the future or likely performance of the economies shown, their respective stock markets or the Fund.

13 DEMOGRAPHICS INFRASTRUCTURE DEMAND CHINA S EXPECTED URBANIZATION IN Chinese cities will have over one million people living in them Europe has 35 today 5 BILLION Square meters of road will be paved 170 Mass-transit systems could be built 40 BILLION Square meters of floor space will be built in five million buildings 50,000 Of these buildings could be skyscrapers the equivalent to constructing up to ten New York cities 5 The number of times which GDP will have multiplied by 2025 Urbanization and investment are continued growth drivers 13 Source: McKinsey Global Institute, March 2009, Preparing for China s Urban Billion.

14 GDP Growth % GROWTH ASIA LEADS THE WORLD IN GDP GROWTH 6 ASIA HAS BEEN THE DOMINANT CONTRIBUTOR TO GLOBAL GROWTH IN RECENT YEARS E 2013E Asia Pacific ex Japan Rest of World Average Growth ( ) 14 Source: Morgan Stanley, 22 July 2012.

15 GDP Growth % GROWTH FASTER GROWTH OVER THE NEXT 10 YEARS 8.0 GDP GROWTH ESTIMATES MODELED OUT TO World economy US Japan Asia Pacific ex Japan 20 year avg ( ) Model-generated trend, (With globalisation) Asia expected to grow > 3% faster per annum over 10 years compared to the world economy 15 Source: UBS, 23 July 2012.

16 National Savings Rate % STRONG FUNDAMENTALS INTERESTINGLY ASIA FUNDS ITS OWN GROWTH 50 SAVINGS RATE IN ASIA VS. US & EUROPE 45 IMF forecast Advanced economies, National saving rate, % Asia: National saving rate, % 16 Source: UBS AG, 23 July 2012.

17 Gross debt level (USDbn) STRONG FUNDAMENTALS SOVEREIGN HEALTH IS BETTER IN EMERGING MARKETS AND IN ASIA CENTRAL GOVERNMENT GROSS DEBT Advanced economies Emerging economies 17 Source: BIS 82 nd Annual Report, June Weighted average of the economies listed, based on 2005 GDP and PPP exchange rates and available data. 2. Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom and the United States. 3. Argentina, Brazil, Chile, China, Chinese Taipei, Colombia, the Czech Republic, Hong Kong SAR, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, the Philippines, Poland, Russia, Singapore, South Africa, Thailand, Turkey and Venezuela. Sources: European Commission AMECO database; IMF, World Economic Outlook, April 2012; OECD, Economic Outlook, November 2011.

18 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Basis point spread STRONG FUNDAMENTALS BANKING SECTOR IS STRONG IN ASIA, FEW TOXIC ASSETS 700 AVERAGE CDS SPREAD OF WORLD BANKS EU banks North American banks Asian banks 18 Source: BIS 82 nd Annual Report, June 2012.

19 STRONG CORPORATE SECTOR ASIA S CORPORATE SECTOR HAS COME A LONG WAY Hyundai Excel X1 (1985) Early sales success marred by quality problems* Hyundai Elantra (2012) North American Car of the Year for 2012** Hyundai has significantly improved dependability 19 Source: *Korea IT Times, **Autoguide,

20 US$ incentive per vehicle STRONG CORPORATE SECTOR AMBITION TO BE GLOBALLY COMPETITIVE, IT IS SUCCEEDING 4,500 HYUNDAI INCENTIVES ARE BUCKING THE TREND 4,000 3,500 3,000 2,500 2,000 1,500 1, Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Hyundai GM Toyota 20 Source: Macquarie, 2012.

21 Interbrand brand value (US$m) STRONG CORPORATE SECTOR IT S NOT ALL ABOUT LOW COST MANUFACTURING 25,000 ASIAN CORPORATE BRAND AWARENESS CONTINUES TO GROW 20,000 Samsung Brand Value (US$m) 15,000 10,000 5,000 Samsung Galaxy SIII (2012) Broke 10m sales mark in less than 2 months Calendar Years 21 Source: Interbrand, July 2012 * The Telegraph, 23 July 2012, million-sales.html

22 STRONG CORPORATE SECTOR IMPROVING COMPETITIVENESS 50% 40% BRAND VALUE GROWTH: AVERAGE GLOBAL TOP 100 VS SAMSUNG & HYUNDAI 40% 30% 20% 19% 20% 24% 10% 9% 9% 6% 4% 5% 5% 11% 9% 4% 5% 10% 0% -10% -1% -5% -5% Global Top 100 Brands Hyundai Samsung Exporters focus on brand image is paying off 22 Source: Interbrand & Morgan Stanley Research, December 2012

23 Return on capital % STRONG CORPORATE SECTOR STRONGER FOCUS ON SHAREHOLDER VALUE CREATION 17% ASIA PAC EX-JAPAN RETURN ON CAPITAL IS GLOBALLY COMPETITIVE 15% 13% 12.8% 12.1% 11% 9% 7% 5% 3% Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 MSCI Asia Pac ex Jpn MSCI World 23 Source: Morgan Stanley, 22 July 2012.

24 STRONG CORPORATE SECTOR IMPROVING PROFITABILITY & BALANCE SHEET STRENGTH Deteriorating health ASIA CORPORATE HEALTH Z-SCORE -1.5 Improving health -2.0 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 z-score equal weighted composite of AxJ ROE, Leverage, Interest Coverage 24 Source: Eastspring Investments Singapore, February 2013

25 AGENDA I. Asia - Long term Drivers II. Asia - Near term drivers III. Risks IV. Where is the Value

26 ECONOMIC RECOVERY RECENT MACRO DATA DID NOT DISAPPOINT Citi Econ Surprise Index Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 G10 Asia Pac 26 Source: Bloomberg, Citi Research, December 2012

27 STRUCTURAL REFORMS INDIA REFORMS DRIVE GROWTH GDP GROWTH SINCE ECONOMIC LIBERALISATION IN % 9.0% Reforms 1.0 Avg. GDP growth - 6.5% Reforms 1.1 Avg. GDP growth - 5.4% Reforms 2.0 Avg. GDP growth - 7.7% Stagnant policies Reforms 3.0: GDP growth can potentially move back to 8% 7.0% 5.0% 3.0% 1.0% FY92 FY95 FY98 FY01 FY04 FY07 FY10 FY13E FY16E 27 Source: Macquarie, January 2013

28 STRUCTURAL REFORMS CHINA LONG TERM POSITIVE REFORM IMPACTS VARY WIDELY BY SEGMENT AND MAY DIFFER OVER TIME Structural reforms in China Reform earnings impact by sector Valuation impact Pricing deregulation Insurance Alternative energy Tax reforms Railway Gas Energing saving & environment protection Healthcare Oil Property Coal Short term depends on direction of earnings impact Social safety net & healthcare Airlines Banks Fiancial sector deregulation Consumer retail Auto Financial sector innovation Railway restructuring Brokers Utilities Mentals and minings Long term rerating 28 Source: Goldman Sachs Global ECS Research estimates, November 2012

29 Index (rebased so January 2011 = 100) Index (rebased so January 2011 = 100) GLOBAL MONETARY CONDITIONS DM MONETARY POLICY ACTION HAS EASED FINANCIAL CONDITIONS SIGNIFICANTLY IN Financial Conditions Indexes Easier 99.0 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Advanced Economies (left scale) China (right scale) India (right scale) Source: Goldman Sachs, November 2012

30 AGENDA I. Asia - Long term Drivers II. Asia - Near term drivers III. Risks IV. Where is the Value

31 RISKS China Credit & India External account US Fiscal Cliff negotiations EU political will Eventual reversal in Global monetary conditions 31 Source: Eastspring Investments (Singapore) Limited.

32 AGENDA I. Asia - Long term Drivers II. Asia - Near term drivers III. Risks IV. Where is the Value

33 VALUATION ASIA COMPARES FAVORABLY GIVEN FUNDAMENTALS 2013 FORECAST DATA REGION GDP GROWTH (%) PE(X) PB(X) ROE (%) ASIA EX JAPAN JAPAN EUROPE USA WORLD Source: CLSA, Bloomberg Consensus data, March 2013.

34 VALUATION VALUE WORKS IN EVERY MARKET PB (X) OBSERVATION 1 YEAR 2 YEARS 5 YEARS LESS THAN % 52% 66% 95% 1.5 TO % 14% 30% 90% 1.9 TO % (1)% 4% 13% 2.3 TO % (1)% (18)% 4% GREATER THAN 2.6 3% (39)% (26)% NA Current valuations in Asia are at 1.55x P/B Indicates a positive outcome 34 Source: Goldman Sachs Research, July 2012.

35 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 P/B ratio STRONG FUNDAMENTALS ASIAN EQUITIES ARE ATTRACTIVELY PRICED 3.25 MSCI Asia Pac ex-japan price/book ratio P/B Ratio Average P/E MSCI Asia Pacific ex Japan + 1 standard deviation Average Average P/E MSCI Asia Pacific ex Japan - 1 standard deviation 35 Source: Datastream, July 2012.

36 Taiwan Mexico Philippines Kazakhstan China S. Arabia Indonesia Australia Israel Peru US Colombia Japan Argentina Malaysia Chile Switzerland India Russia Korea Croatia S.Africa Germany Singapore UAE Thailand Brazil Qatar Venezuela Hong Kong Czech NZ Estonia Austria Poland Romania Turkey Sweden Canada Lithuania Hungary Norway Latvia Nigeria France Denmark UK Finland Vietnam Italy Netherlands Ukraine Spain Belgium Greece Ireland Portugal UBS Risk Rating DIVERSIFICATION IS ASIA TRULY AS RISKY AS PERCEIVED? 7.0 ASIA MARKETS RISK IS FALLING Source: UBS, 20 July 2012.

37 E 2013E 2014E 2015E 2016E 2017E DIVERSIFICATION GLOBAL INVESTORS ARE UNDERINVESTED IN ASIA 30% GLOBAL INVESTORS REMAIN UNDERINVESTED IN ASIA 25% 20% IMF Forecast 15% 10% 5% 0% Share of APxJ* Economies in Global GDP Weight of MSCI APxJ in MSCI AC World (based on Free Float Mkt Cap) 37 Source: Morgan Stanley, 22 July 2012.

38 MARKET OPPORTUNITY ASIA OFFERS HIGHER DISPERSION DISPERSION OF STOCK RETURNS HIGHEST IN ASIA EX JAPAN POINTS TO RICH SOURCE OF ALPHA RELATIVE TO OTHER REGIONS 38 Source: Morgan Stanley. Note: Dispersion is based on the cross-sectional standard deviation of monthly returns of the index constituents.

39 PORTFOLIO POSITIONING AGAINST MSCI ASIA EX-JAPAN INDEX Hong Kong Taiwan Malaysia Singapore Philippines Thailand Korea China Indonesia India Cash COUNTRY RELATIVE POSITIONING (%) Difference % Telecom Energy Utilities Cons Staples Industrials Health Care IT Materials Financials Cons Disc Cash SECTOR RELATIVE POSITIONING (%) Difference % 39 *This picture changes on a regular basis, this is not indicative of any particular Eastspring Fund and is meant for example use only

40 EXAMPLE SAMSUNG ELECTRONICS 250% 200% 150% Price indexed Samsung Electronics 100% 50% MSCI Asia Pac ex Jpn 0% -50% Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Samsung Electronics has made its mark as a strong global consumer electronics brand. Success Formula : Integrated efficient manufacturing + Strong design capability + Brand building Stock performed strongly during the transition from a cyclical manufacturer to a global franchise 40 Source: Eastspring Investments (Singapore) Limited.

41 EXAMPLE BUMI SERPONG DAMAI 200% Price indexed 150% Bumi Serpong Damai 100% 50% MSCI Asia Pac ex Jpn 0% -50% Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 BUMI SERPONG DAMAI Bumi Serpong Damai is a major township developer in Indonesia MSCI Asia Pac ex Japan Rising middle class income and falling interest rates created a strong demand environment Solid execution by the company led to profits growing more than 10 fold over five years* Stock performed strongly as investors realized the inherent value in the franchise 41 Source: Eastspring Investments (Singapore) Limited. *Bloomberg ( )

42 SUMMARY LONG TERM DRIVERS (10 years) Growth Improving corporate fundamentals NEAR TERM DRIVERS (1-3 years) Economic recovery Structural reforms Globally easy monetary conditions RISKS WHERE IS THE VALUE China Credit & India External account US Fiscal Cliff negotiations EU political will Eventual reversal in Global monetary conditions Valuation that under-prices relative fundamentals Alpha opportunities from stock selection 42 Source: Eastspring Investments (Singapore) Limited.

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