Friday, February 12, 2010

February 12, 2010 EM Equity Flows Monitor

EM equity funds recorded net outflows for a third consecutive week of $2.9bn for the week ended 02/10/10. ETF type funds accounted for 59% of
outflows. GEMs funds recorded maximum outflow of $1.78bn, 61% of the total outflow. On a cumulative basis the last 10 weeks brought $6.1bn in net
inflows. Total assets under management tracked by EPFR reached $484bn, now 16% below the all-time high.

• MSCI EM was down 0.4% over the week ending February 11th. At the country level, Poland (-4.9%), Russia (-4.5%) and Turkey (-4.5%)
underperformed, Peru( +7.2%), Brazil (+4.4%) and Chile (+1.2%) outperformed. At the sector level, Materials (+1.6%), Telecom (+0.4%) and Industrials
(-0.2%) outperformed, while Energy (-1.5%), IT(-1.3%) and Financials (-0.6%) underperformed.

Our Economic team upgraded their global growth forecast for 2010 and 2011 led by strong growth in Asian countries. AxJ GDP growth is now projected
to grow at 8.8% (from 8.2%) in 2010 and 7.8% (from 7.3%) in 2011. Growth forecasts in Asia region are largely driven by improvement in external
demand, except for India where it is due to robust domestic demand. 2010 and 2011 GDP growth for EM region is now forecast at 6.9% and 6.0% (from
6.5% and 5.8%). Our economics team sees global growth for 2010 at 4.4% (from 4.0%). CPI inflation, for 2010, in the AxJ region is expected to

average 4.1% (from 3.7%) and in EM region 4.8% (from 4.5%) for 2010. A recovery in external demand and rising commodity prices may necessitate
an earlier than anticipated policy exit in AxJ. We expect China, Malaysia and Thailand to start hiking rate in 2Q10 vs. 3Q10 earlier.

On our base case of 40% US$ EPS growth in 2010, MSCI EM is trading on 12.5x 2010e P/E. Our scenario weighted price target for year-end
2010 is
1200, implying 30% upside from the current levels. We remain comfortable with our 4% overall overweight equities stance and would add exposure on
additional weakness.
GEMs Equity Strategy

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