Emerging Markets: Fad or New Reality?

Emerging Markets: Fad or New Reality?

Agenda 1 2 Why emerging markets matter Medium- and long-term trends 1

Global Outlook Economic forecast summary GDP growth, % CPI inflation, % 21 211 212F 213F 21 211 212F 213F G7 3. 1.4 1.9 2.2 1.4 2.6 2.1 1.9 US 3. 1.7 2.7 3. 1.6 3.1 2.6 2.6 Japan 4.5 -.7 2.8 1.5 -.7 -.3 -.1 -.2 Euroland 1.9 1.5 -.2.8 1.6 2.7 2.5 1.7 EM Asia 9.5 7.4 7.1 7.5 4.6 6.1 4.1 4.3 China 1.3 9.2 8.6 8.6 3.3 5.4 3.1 3.5 India 9.9 7.3 7.3 8. 9.6 9.5 6.4 6.8 EMEA 4.5 4.6 3.2 4. 6.1 6.5 5.6 6.1 Russia 4.3 4.3 4.6 4.9 6.8 8.4 5.3 7.6 Latam 6.2 4. 3.6 4.3 8.4 8.5 7.8 7.7 Brazil 7.5 2.7 3.2 5. 5.9 6.5 5. 5.7 Advanced economies 2.8 1.4 1.7 2.1 1.5 2.6 2.2 1.9 EM economies 7.7 6. 5.5 6.1 5.6 6.6 5.1 5.4 Global 5.1 3.5 3.5 3.9 3.4 4.5 3.6 3.5 Source: DB 2

Emerging markets make up a large and growing share of the world economy EM share in world GDP (at PPP) % 6 56.5% 5 4 39.5% 3 2 15.6% 1 5.6% 1995 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 EM China Source: IMF; EM here includes the newly industrialised economies in Asia 3

More importantly, they contribute significantly to global growth World real GDP growth and EM contribution Percentage points 6 5 4 3 2 1-1 -2 EM: 52% 2 21 22 23 24 25 26 27 28 29 21 211e EM (incl. NIE) DM EM: 92% Source: IMF, DB 4

Global financial crisis accelerated the West-East shift Cumulative growth since the crisis Real GDP, 27=1 17 16 15 14 13 12 11 1 7% 53% 37% 22% 15% 6.6%.% 9 27 28 29 21 211E 212F 213F USA Euro area Emerging Asia China LatAm CEE EM Source: 5

Decoupling yes or no? EMs will continue to outperform DMs Real GDP growth, % yoy 12 12 EM stocks sensitive to global shocks MSCI Indices, Jan 2, 27=1 16 1 8 1 8 14 Lehman Greece Sep 11 sell-off 6 4 6 4 12 2 2 1-2 -2 8-4 -4-6 -6 27 28 29 21 211E 212F 213F Latin America Emerging Asia Industrial countries CEE Source: 6 4 7 8 9 1 11 12 EM (right) World (left) Sources: Bloomberg, DB 6

Economic fundamentals had a dramatic improvement... Public debt: A new world General government gross debt, % of GDP 12 1 8 6 4 External debt less of a burden % of GDP, EM aggregate* 45 4 35 3 25 2 15 3. 2.5 2. 1.5 1. 2 2 22 24 26 28 21 212 EM* * Not including newly industrialised economies Source: IMF DM 1 5. 1995 1997 1999 21 23 25 27 29 211 213 External debt (left) * Not including newly industrialised economies Source: IMF Interest payments on ext. debt (right).5 7

which in turn led to a large country risk realignment "Great risk shift" - Emerging markets trade inside several DMs 5Y CDS spreads, bp 1,2 1, 8 6 4 Sovereign rating convergence L/t foreign currency ratings, weighted averages AAA 22. 2. A 18. 16. BBB 14. 12. 2 PT IE ES IT BE TR PL FR RU ID BR CN DE BB 1. 25 26 27 28 29 21 211 DM EM Source: Bloomberg as of Apr 23, 212 Source: DB based on the average of S&P, Moody's, Fitch ratings 8

Agenda 1 2 Why emerging markets matter Medium- and long-term trends 9

Emerging markets: Poor but sexy Strong convergence under way GDP per capita, USD (PPP) 5, 3 Lots of new consumers Population living on USD 2 - USD 13 a day, million 1,2 4, 3, 2, 25 2 15 1 1, 8 6 4 1, 5 2 IN CN BR RU JP DE US 211 level (left) % change vs 2 (right) E. Asia S. Asia CEE Latin America 199 25 MENA SSA Source: IMF Source: The Economist based on M. Ravallion 1

Demographic developments very uneven for EMs India is the demographic winner Old-age dependency ratio*, % 5 4 3 2 1 2 25 21 215 22 225 23 Brazil Russia India China Germany * Ratio of population aged 65+ to population aged 15-64. Projections correspond to the medium variant Source: UN 11

Urbanisation: The past Growth rates of urban agglomerations, 197-211 Source: UN 12

Urbanisation: The future Growth rates of urban agglomerations, 211-225 Source: UN 13

Emerging market companies: Climbing the ranks The new corporate world Ten largest companies in the world by market cap. Global rank Company Country 211 21 1 2 Exxon Mobil US 2 1 PetroChina China 3 5 Apple US 4 4 ICBC China 5 1 Petrobras Brazil particularly in banking 3 largest banks worldwide, % of total market cap. China 26.4 Brazil 7.1 Russia 2.6 Other DM 25.9 US 25. UK 13.1 21 6 6 BHP Billiton Australia/UK 7 11 CCB China 8 19 Royal Dutch Shell UK 9 25 Chevron US 1 3 Microsoft US Other DM 47.7 UK 12.5 US 39.8 26 Source: FT Sources: IMF, BanksDaily.com, DB 14

Why not industrial countries yet? Low quality of institutions in many emerging markets Ranking out of 183 countries 2 4 6 8 1 12 14 16 DE JP US KR SA TR ZA BR CN IN MX ID RU Corruption perceptions index 211* Ease of Doing Business 212** * Indicates the perceived level of public sector corruption. A country's rank indicates its position relative to the other countries in the index. ** A high ranking (i.e. lower number) means the regulatory environment is more conducive to the starting and operation of a local firm. Source: Transparency International, World Bank 15

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