WEEKLY MARKET UPDATE. H-shares rally still has further to go. Performance. Asset Allocation. Weekly Market Update 14 April 2015.

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WEEKLY MARKET UPDATE 14 April 2015 H-shares rally still has further to go Hong Kong listed Chinese equities (H-shares) sky-rocketed last week, triggered by upward southbound flows. This outperformance is backed by flows from HK/China investors rather than foreign flows. US/EU investors market share in HK dropped 6ppt to 25% in 2014 against the backdrop of rising US$ and China s macro concerns while HK/China investors gained 7ppt. Despite the rally, on-shore local Chinese stocks (A-shares) are still trading at a significant premium versus offshore H-shares with A/H P/E premium at 35%. We believe the current A/H valuation premium may narrow to historical average levels at 21% by end-2015 and eventually to 0% over several years with conversions in prices in both markets through SH-HK connect or potential SZ-HK connect. Performance Global equities rose again last week with MSCI AC World reaching a new record high of 435.93. US equities continued to post weekly gains with the Dow Jones and S&P 500 index higher 1.66% and 2.70% respectively. European equities also finished the week higher with the Stoxx Europe gaining 3.8 %. Japanese equities also rose with the Nikkei and Topix up 2.43% and 1.62% respectively. EM equities continue to outperform DM counterparts with the MSCI Emerging Markets Index up 4.05% led by Russia (RTS: 7.45%). MSCI Latin America and the MSCI Emerging Europe rose 2.81% and 5.64% respectively while the MSCI Asia rose 4.71%. In China, offshore Chinese equities (H-shares) continued to outperform local shares with the HSCEI up 10.46% versus the Shanghai Composite which gained 4.41% last week. Asset Allocation Equities We think this bull market is maturing but not finished. At a trailing PE of 18x, global equities are no longer cheap. But they still look attractive compared to QE-inflated bond markets. We remain equities overweight via Europe and Japan. Credit We see further spread tightening in Europe in particular, with HY expected to outperform IG. In the US, it is likely that spreads range trade. Favour high quality Single-B & Double-B credits. Rates We forecast divergent yield paths for the major government bond markets in 2015. European government bonds may outperform USTs. Commodities We expect further price weakness in the short term, and a recovery further out. Europe and Asia enjoy positive momentum Citi Economic Surprise Index CESIUSD Index CESIEUR Index CESICNY Index -90 EM Debts continue to outperform Accumulated 3-month Bond Index Returns World Govt Bonds Index Global EMD Index HY Index Asian equities continue to outperform Accumulated 3-month Equity Index Returns 120-1.0% MSCI World MSCI EM MSCI Asia 90 60 30 0-30 -60 4.0% 3.0% 2.0% 1.0% 0.0% 12% 10% 8% 6% 4% 2% 0% -2% -4% Week Ahead Key Data and Event Date Country Data & Event Period Survey Prior Citi Fct 13-Apr JN Machine Orders MoM Feb -2.2% -1.7% -5.0% 13-Apr JN PPI YoY Mar 0.4% 0.5% 0.7% 13-Apr CH Exports YoY CNY Mar 8.2% 48.9% 10.0% 13-Apr CH Money Supply M2 YoY Mar 12.4% 12.5% 12.6% 13-Apr CH New Yuan Loans CNY (Bn) Mar 1,040 1,020 1,300 14-Apr US Retail Sales Advance MoM Mar 1.0% -0.6% 1.2% 15-Apr US Industrial Production MoM Mar -0.3% 0.1% -0.7% 15-Apr CH GDP YoY 1Q 7.0% 7.3% 6.7% 15-Apr EC ECB Deposit Facility Rate 15-Apr -0.2% -0.2% -- 17-Apr US CPI MoM Mar 0.3% 0.2% 0.4% 17-Apr EC CPI MoM Mar 1.1% 0.6% 1.1% 17-Apr US U. of Mich. Sentiment Apr P 94.0 93.0 93.0 Page 1

Drivers and Risks By Market United States Driver: Citi s view is that US stock market gains may mostly match earnings growth, especially once the Fed begins to lift rates. Equities typically climb for many months after the first rate hike, not to mention the third year of a presidential cycle is typically strong for equities. Risk: Earnings face challenges from a stronger dollar, weak energy prices and the soft global economy, but may generate a modest pickup due to consumer benefits from energy savings as well as likely wage gains and job creation. Implication: Large caps and value could lead in 2015. Capital spending excluding the Energy sector may show a 5% gain in 2015. Capex is expected to grow double digits in tech. End-2015 Target: 2200 2200 2100 2000 1900 1800 1700 1600 S&P 500 1500 Europe Driver: Higher PMIs have traditionally meant higher EPS. Europe has recently joined Japan as the only other region with positive ERI (Earnings Revision Index). Stronger macro and a weaker euro are helping to drive net EPS upgrades. We expect these conditions to persist and see 10%+ EPS growth in 2015 and 2016, with upside risk. Risk: We see two key risks: 1) growth cycle interrupted/broken, 2) upside CPI risk and hence sharply higher rates. Elections in France and Spain also highlight the theme of rising political uncertainty across Europe. 430 410 390 370 350 330 310 290 270 End-2015 Target: 450 DJ Stoxx TMI Implication: We retain our thematic preference of liquidity and leverage beneficiaries. Key themes include (1) Yield strategies (High dividend yields and growth stocks), (2) Cyclicals/Financials over Defensives, (3) Potential de-equitisation cases (companies with a strong balance sheet) and (4) Beneficiaries of weak Euro and companies with high sales exposure to the US. Japan Driver: We expect the Japanese economy to continue recovering thanks to declines in oil prices, further yen depreciation caused by monetary policy and wage increases. We continue to expect the Bank of Japan (BoJ) will implement additional easing measures around July this year. Risk: Two main drivers for a recent rebound in Japan s export and production namely, a pickup in equipment investment in the US and a recovery in global technology demand may be losing steam and starting to weigh on Japan s manufacturers. Core capital goods orders in the US are peaking while Japan s production of electronic parts and devices appears to be slowing. Implication: Auto related and industrial sectors are likely to be supported by the yen depreciation. Financials are a big laggard and are likely to benefit from increases in asset prices caused by the policies to get Japan out of deflation. End-2015 Target: 1650 1600 1500 1400 1300 1200 1100 Japan Topix 1000 Asia Driver: Asia continues to be the main beneficiary of lower commodity prices and the US growth upswing. We expect that to continue into Q2. Given the CA surpluses in Asia, this is also the region where rates have room to fall further. Risk: The Chinese economy observed a weak start for 2015, and faces further downside risks from the combination of slowing credit growth, real exchange rate appreciation and sluggish world trade growth. Implication: Prefer China, Taiwan and Singapore and within sectors, prefer Financials, Utilities, Consumer Disc and IT. 640 620 600 580 560 540 520 500 480 End-2015 Target: 630 MSCI Asia ex JP Page 2

Currency Forecast Last price Forecasts Currency 10-Apr-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 G10-US Dollar Euro EURUSD 1.06 1.02 0.97 0.93 0.93 0.94 Japanese yen USDJPY 120 124 127 130 131 132 British Pound GBPUSD 1.46 1.46 1.41 1.37 1.37 1.37 Swiss Franc USDCHF 0.98 1.07 1.13 1.18 1.18 1.17 Australian Dollar AUDUSD 0.77 0.72 0.71 0.70 0.70 0.70 New Zealand NZDUSD 0.75 0.69 0.67 0.66 0.66 0.66 Canadian Dollar USDCAD 1.26 1.31 1.33 1.35 1.35 1.35 EM Asia Chinese Renminbi USDCNY 6.21 6.26 6.28 6.30 6.30 6.30 Hong Kong USDHKD 7.75 7.78 7.78 7.79 7.79 7.79 Indonesian Rupiah USDIDR 12,927 13,587 13,700 13,781 13,621 13,461 Indian Rupee USDINR 62 63.9 64.5 65.0 64.9 64.8 Korean Won USDKRW 1,093 1,159 1,170 1,179 1,171 1,163 Malaysian Ringgit USDMYR 3.67 3.77 3.80 3.83 3.81 3.80 Philippine Peso USDPHP 44.39 45.6 45.8 46.0 46.1 46.2 Singapore Dollar USDSGD 1.37 1.43 1.44 1.45 1.45 1.45 Thai Baht USDTHB 32.55 33.6 33.7 33.9 33.9 33.9 Taiwan Dollar USDTWD 31.23 32.1 32.3 32.5 32.4 32.3 EM Europe Russian Ruble USDRUB 53.59 67.0 68.7 70.1 69.6 2.8 South African Rand USDZAR 12.00 12.72 12.87 12.98 12.84 0.00 EM Latam Brazilian Real USDBRL 3.08 3.40 3.40 3.40 3.36 3.32 Mexican Peso USDMXN 15.23 15.4 15.2 15.0 14.8 14.6 Source: Citi Research and Bloomberg as of 10 April 2015 Weekly Market Performance (6 10 April 2015) -0.1% 2.1% 1.9% 1.7% 1.6% 0.9% 0.8% 0.4% 0.2% 4.7% 4.4% 3.8% 3.8% 2.6% 5.6% 5.1% 10.5% 7.9% -10% 0% 10% 20% China HSCEI HK Hang Seng MSCI Emerging Europe MSCI AsiaXJapan China Shanghai Composite Europe Stoxx Europe 600 UK FTSE 100 MSCI Latin America Korea KOSPI MSCI AC World US S&P 500 Japan TPX Index Citi High Yield Citi Global Emerging Mkt Sovereigns Gold Taiwan TAIEX Citi World Broad Inv Grade Market Performance (Year-To-Date) (As of 10 April 2015) Oil China Shanghai Composite MSCI Emerging Europe Europe Stoxx Europe 600 Short Rates and 10-Year Yield Forecasts Last price Forecasts 10-Apr-15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Short Rates (End of Period) US 0.25 0.25 0.25 0.50 0.50 0.75 1.00 Japan 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Euro Area 0.05 0.05 0.05 0.05 0.05 0.05 0.05 10-Year Yield (Period Average) US 1.95 2.05 2.30 2.45 2.50 2.55 2.60 Japan 0.34 0.35 0.40 0.45 0.50 0.50 0.55 Euro Area 0.16-0.05-0.05 0.20 0.25 0.30 0.30 16.7% China HSCEI 15.5% HK Hang Seng 12.9% Japan TPX Index 11.0% MSCI AsiaXJapan 9.0% Korea KOSPI 8.0% UK FTSE 100 4.5% MSCI AC World 3.6% Citi Global Emerging Mkt Sovereigns 3.3% Taiwan TAIEX 3.3% Citi High Yield 2.1% US S&P 500 2.0% Citi World Broad Inv Grade 1.9% Gold -3.1% Oil -4.2% MSCI Latin America -20% 0% 20% Source: Citi Research and Bloomberg as of 10 April 2015 Page 3

World Market At Glance US / Global Last price 52-Week 52-Week 10-Apr-15 High Low 1 week 1 month 1 year Year-to-date Year-to-date (USD) MSCI World 435.93 435.93 387.49 1.92% 4.49% 6.77% 4.51% 4.51% Dow Jones Industrial Average 18057.65 18288.63 15855.12 1.66% 2.23% 11.67% 1.32% 1.32% S&P 500 2102.06 2119.59 1814.36 1.70% 2.83% 14.67% 2.10% 2.10% NASDAQ 4995.98 5042.14 3946.03 2.23% 2.80% 23.23% 5.49% 5.49% Europe MSCI Europe 461.24 506.61 409.57 1.35% 5.40% -5.96% 5.82% 5.82% Stoxx Europe 600 412.93 413.03 302.48 3.80% 5.97% 23.85% 20.55% 5.53% FTSE100 7089.77 7095.36 6072.68 3.75% 5.77% 6.74% 7.98% 1.55% CAC40 5240.46 5240.65 3789.11 3.28% 7.34% 18.74% 22.65% 7.36% DAX 12374.73 12390.75 8354.97 3.40% 7.60% 30.89% 26.20% 9.96% Japan NIKKEI225 19907.63 20006.00 13885.11 2.43% 6.66% 39.21% 14.08% 13.35% Topix 1589.54 1596.81 1121.50 1.62% 4.25% 38.28% 12.93% 12.21% Emerging Markets MSCI Emerging Market 1034.59 1104.31 906.25 4.05% 9.63% 1.26% 8.19% 8.19% MSCI Latin America 2614.23 3720.81 2317.86 2.61% 10.64% -20.20% -4.16% -4.16% MSCI Emerging Europe 147.80 198.14 106.52 5.64% 15.65% -17.54% 23.04% 23.04% MSCI EM Middle East & Africa 290.82 341.09 248.54 3.02% 10.02% -10.66% 7.41% 7.41% Brazil Bovespa 54214.11 62304.88 45852.81 2.05% 12.26% 6.04% 8.41% -6.82% Russia RTS 999.38 1421.07 578.21 7.45% 18.22% -17.64% 26.39% 26.39% Asia MSCI Asia ex-japan 625.95 632.93 542.90 4.71% 9.31% 10.94% 11.04% 11.04% Australia S&P/ASX 200 5968.37 5996.90 5122.00 1.18% 2.48% 8.90% 10.30% 3.65% China HSCEI (H-shares) 13987.53 14380.49 9620.42 10.46% 21.55% 34.22% 16.71% 16.77% China Shanghai Composite 4034.31 4109.52 1991.06 4.41% 22.77% 89.02% 24.72% 24.60% Hong Kong Hang Seng 27272.39 27922.67 21680.33 7.90% 14.12% 17.62% 15.54% 15.59% India Sensex30 28879.38 30024.74 22247.39 2.19% 0.59% 27.14% 5.02% 6.70% Indonesia JCI 5491.34 5524.04 4721.60 0.64% 0.52% 15.23% 5.06% 0.94% Malaysia KLCI 1844.31 1896.23 1671.82 0.53% 3.05% -0.82% 4.72% -0.02% Korea KOSPI 2087.76 2099.97 1876.27 2.07% 5.19% 3.94% 8.99% 9.25% Philippines PSE 8127.48 8136.97 6570.60 1.68% 3.82% 22.42% 12.40% 12.76% Singapore STI 3472.38 3493.62 3149.91 0.54% 2.18% 8.39% 3.19% 0.02% Taiwan TAIEX 9617.70 9775.63 8501.29 0.18% 0.85% 7.48% 3.34% 4.61% Thailand SET 1547.83 1619.77 1369.63 0.77% 1.10% 11.39% 3.35% 4.41% Commodity Historical Returns (%) Oil 51.64 107.73 42.03 5.09% 6.94% -50.06% -3.06% -3.06% Gold spot 1207.57 1345.46 1131.24 0.39% 3.94% -8.44% 1.92% 1.92% Page 4

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