MONTHLY REVIEW: FEW PLACES TO HIDE SEPTEMBER 2015

Page 1 MONTHLY REVIEW: FEW PLACES TO HIDE SEPTEMBER 2015 Disappointing economic data from China, further commodity weakness and Fed uncertainty fuelled the sell-down. Oneoff events like the Volkswagen emissions scandal, the U.S biotech inquiries, the Tianjin explosion and S&P s downgrade of Brazil s sovereign rating to junk also dampened investor sentiment. EQUITY: In a month where majority of equity markets fell, Emerging Market equity outperformed Developed Markets (DM). The decline in DM was led by Japan which saw weak industrial profits being attributed to a slowing Chinese economy. European equities, too, lost ground as the health care sector retreated in tandem with the U.S. biotech sector after U.S Democratic lawmakers launched price-gouging investigations. Emerging markets were once again haunted by China s economic slowdown; commodity related weakness and Fed uncertainty. Chinese equities were punished on the back of poor economic data and fear of policy mis-steps while Brazilian equities plunged due to the S&P downgrade and political instability. Indonesian equities also weakened in the run up to the Fed no-hike decision with the IDR markedly weaker on portfolio outflows. FIXED INCOME: Global bond markets posted mixed returns in September against a volatile backdrop, increased equity volatility, weak commodity prices and EM currencies. Investors moved assets into government bonds over the month preferring longer term investments as volatility rose and the Fed signaled worries on global growth. U.S. Investment grade corporate bonds continued to be a safe haven while U.S. high yield bonds were sold off on energy related stress. Capital outflows in anticipation of the U.S. Federal Reserve rate hike led to EM and Asian local currency bonds ending the month lower. JPM Asia Credit Index posted a mild decline on the increased demand for Chinese property bonds. Fig.1. Equity Indices Performance in USD (%) Fig. 2. Bond Indices Performance in USD (%) MSCI AC Asia ex Japan YTD MTD US 10Y Treasuries YTD MTD MSCI USA US 30Y Treasuries MSCI Emerging Markets JPM GBI MSCI AC World BAML US Investment Grade MSCI Developed World JPM Asia Credit MSCI Europe HSBC Asia Local Bond MSCI Latin America JPM EMBI Global MSCI Japan BAML US High Yield -40.0-30.0-20.0-10.0 0.0 10.0-10 -5 0 5

Macro Briefing Page 2 CURRENCIES: The USD gained some ground as the currencies of the U.S s main trading partners weakened a tad. The USD continued to appreciate on the year on the strength of the U.S. economy and demand for U.S. assets. Over the month, the Brazilian Real and Malaysian Ringgit were the worst performers as both economies continued to be plagued with commodity price weakness, political instability and fiscal issues. In Asia, all Asia Pacific ex Japan currencies except the INR and RMB depreciated against the U.S. dollar amid softening commodity prices, slowing Chinese growth and Fed uncertainty. The Indian Rupee bucked the trend as the Reserve Bank of India cut rates more than expected and allowed foreigners to hold more debt. COMMODITIES: Commodities had another torrid month as Zinc and Steel endured the brunt of the commodities retreat in September. Price of Zinc collapsed on the back of Glencore s debt problems while Steel continues to be hit by falling prices, weak demand and a flood of cheap imports. Brent Oil was also weaker during the month. However Nickel and Copper bucked the downward trend. The price of Nickel firmed on Indonesia s decision to continue to ban unprocessed ores while copper gained on production cuts in mines globally. Fig. 3. Currencies Performance versus the USD (%) Fig.4. Commodities Performance in USD (%) INR JPY U.S. Dollar USD Index YTD MTD Nickel Copper RMB KRW Aluminium EUR GSCI Gold SGD GBP Brent Oil RUB NOK DS Commodities Index IDR MYR BRL Steel (HRC) Zinc YT D -40-30 -20-10 0 10-40 -30-20 -10 0 10

Macro Briefing Page 3 ECONOMICS: U.S. economic data came in mixed but had an upward undertone. Q2 GDP was revised up to 3.9% y/y with upgrades to consumption and equipment spending. Small businesses who employ over 40% of the U.S. labor were also generally more upbeat. However, manufacturing metrics declined. On the jobs front, non-farm payrolls rose, while unemployment fell. Average hourly earnings also rose along with factory orders. Headline retail sales rose, reflecting higher consumer confidence. Headline inflation fell m/m. Core CPI ex food and energy rose y/y. House prices in the top 20 cities rose 5.0% y/y but housing starts, building permits and existing home sales fell m/m. New home sales however rose m/m. In the Eurozone, data displayed slowly improving growth. Eurozone Q2 GDP was revised upwards. Although the Eurozone composite PMI fell y/y, Industrial production, construction output and retail sales rose m/m. Inflation fell slightly y/y; but core inflation ex food and energy was unchanged y/y. Generally weaker Chinese economic data was reported during the month. On a y/y basis, falling exports, imports and industrial profits dampened investor sentiment. However, retail sales and industrial production improved. The Caixin manufacturing PMI declined to a seven year low while services also expanded less than a month ago. Japanese economic data was disappointing over the month. Q2 GDP was revised slightly higher but was mainly due to an increase in inventory build. While, the composite PMI signaled further expansion, business spending, Industrial production and machine orders fell m/m. Consumption was revised upwards but was still in deflationary territory. Retail sales did expand m/m while consumer confidence rose. Exports continued to grow but imports fell when compared to a year ago. Consumer prices showed signs of measured growth versus. a year ago. Inflation was much healthier on a y/y basis when fresh food and energy were excluded. CENTRAL BANKS: Central banks continued to adjust to the domestic and international economic environment during the month. The Reserve Bank of Australia decided to leave the cash rate unchanged at 2.0%, citing the need to balance diverging developments in the U.S. when compared to China and East Asia. The Reserve Bank of New Zealand reduced the Official Cash Rate by 25 basis points to 2.75%. They pointed out that although global economic growth remains moderate, developing economies pose risk. The Bank of England's Monetary Policy Committee voted by a majority of 8-1 to maintain the Bank Rate at 0.5%. The Committee voted unanimou.s.ly to maintain the stock of purchased assets financed by the issuance of central bank reserves at 375 billion. The U.S. Fed left interest rates unchanged citing recent global economic and financial developments as reasons for the decision. The Fed still expects it to be appropriate to raise rates before year end given the domestic economic fundamentals.

Macro Briefing Page 4 Fig.6. Key Regional Price-to-book Valuations (x) Fig.7. Key Bond Yields (%) 8 7 6 US 10Y JP 10Y EU 10Y HK 10Y UK 10Y 5 4 3 2 1 0 Jan-15 Jan-14 Jan-13 Jan-12 Jan-11 Jan-10 Jan-09 Jan-08 Jan-07 Jan-06 Jan-05 Jan-04 Jan-03 Jan-02 Jan-01 Jan-00

Macro Briefing Page 5 KEY TERMS CA Current Account CBR Central Bank of Russia COPOM Central Bank of Brazil CPI Consumer Price Index DM Developed Markets ECI Employment Cost Index EM Emerging Markets EM Currencies MSCI Emerging Markets Currency Index EM Equities MSCI Emerging Markets Index EM Local Currency Bonds JP Morgan Emerging Local Currency Bond Index EM USD Bonds JP Morgan Emerging Market Bond Index EMU European Monetary Union EU European Union Fed The Federal Reserve Board of the United States FOMC Federal Open Market Committee GDP Gross Domestic Product Global Developed Equities MSCI Developed Markets Index Global Equities MSCI All Country World Index Global Government Bonds Citigroup World Government Bond Index IP Industrial Production M2 M2 Money mom Month on month PBoC Peoples Bank of China qoq Quarter on quarter Repo Repossession SDRs Special Drawing Rights SELIC Sistema Especial de Liquidação e CU.S.todia (SELIC) (Special Clearance and Escrow System) Tankan Japan Large Business Sentiment Survey TSF Total Social Financing UK United Kingdom y/y Year on year REPRESENTATIVE INDICIES Aluminum S&P GSCI Aluminum Index Asia Local Bond (ALBI) HSBC Asia Local Bond Index Brent Oil Cash settlement price for the InterContinental Exchange (ICE) Brent Future based on ICE Futures Brent index Commodities Datastream Commodities Index Copper S&P GSCI Copper Index EMU 10 Year Datastream EMU 10 Year Global Emerging Bond JPM Global Emerging Bond Index Gold S&P GSCI Gold Index Japan 10 Year Datastream Japan 10 Year JACI JP Morgan Asia Credit Index MSCI Dev World MSCI Developed Markets Index MSCI EM MSCI Emerging Markets Index MSCI Europe MSCI Europe Index MSCI Japan MSCI Japan Index MSCI Latam MSCI Latin America Index MSCI Russia MSCI Russia Index MSCI U.S. MSCI U.S. Index MSCI World MSCI All Country World Index Steel (HRC) TSI Hot Rolled Coil Index UK 10 Year Datastream UK 10 Year U.S. 10 Year Treasuries Datastream U.S. 10 Year Treasuries U.S. 30 Year Treasuries Datastream U.S. 30 Year Treasuries U.S. High Yield BAML U.S. High Yield Constrained II U.S. Investment Grade BAML Corporate Master DXY U.S. Dollar Index Zinc S&P GSCI Zinc Index

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