MONTHLY MORNING MEETING APRIL 2017 · 2017-05-19 · monthly morning meeting april 2017 page 2...

MONTHLY MORNING MEETING APRIL 2017

PAGE 2 INDICES 3 MARKET INFORMATION 5 MARKETS REVIEW 14 BOND MARKET REVIEW 16 SECTOR REVIEW 18 STAR RATING

PRESENTED BY IFAST FINANCIAL (HK) LTD

p5. USA

p8. Singapore p9. Malaysia p10. Indonesia p10. Thailand

p7. South Korea

p11. India

P12. China

P12. Taiwan

P12. Hong Kong

p13. Brazil

p13. Russia

p7. Japan

p6. Europe

DISCLAIMER: THIS REPORT IS NOT TO BE CONSTRUED AS AN OFFER OR SOLICITATION FOR THE SUBSCRIPTION, PURCHASE OR SALE OF ANY FUND. NO INVESTMENT SHOULD BE TAKEN WITHOUT FIRST VIEWING A FUND’ PROSPECTUS. ANY ADVICE HEREIN IS MADE ON A GENERAL. BASIS AND DOES NOT TAKE INTO ACCOUNT THE SPECIFIC INVESTMENT OBJECTIVES OF THE SPECIFIC PERSON OR GROUP OF PERSONS. PAST PERFORMANCE AND ANY FORCAST IS NOT NECESSARILY INDICATIVE OF LIKELY PERFORMANCE OF THE FUND.THE VALUE OF UNITS AND THE INCOME FROM THEM MAY FALL AS WEEL AS RISE. OPINIONS EXPRESSED HEREIN ARE SUBJECT TO CHANGE WITHOUT NOTICE. INVESTMENT INVOLVES RISK. THE MATERIAL IS ISSUED BY IFHK AND HAS NOT BEEN REVIEWED BY SFC.

MONTHLY MORNING MEETING APRIL 2017. PRESENTED BY iFAST FINANCIAL (HK) LTD ©

PAGE 2

INDICES

US Market & Market PE

SOURCE: BLOOMBERG & IFAST COMPILATIONS

(x) Index Europe Market & Market PE


(x) Index

Singapore Market & Market PE


(x) Index

India Market & PE Market PE


(x) Index

Technology & Market PE


(x) Index

China H-Share Market & Market PE


(x) Index

Asia ex-Japan Market & Market PE


(x) Index

Japan Market & Market PE


(x) Index



PAGE 3

MARKET INFORMATION (AS AT 28 MARCH 2017)

INDEX AS AT 28 MAR 2017

CHANGE SINCE 28 FEB 2017

2017 RETURN YTD (%)

2016 RETURN (%)

5 YEAR BOND YIELD (%)

USA (S&P 500) 2358.6 -0.2% 5.3% 9.5% 2.0%

Europe (Stoxx 600) 377.3 1.9% 4.4% -1.2% -0.3%

Japan (Nikkei 225) 19202.9 0.4% 0.5% 0.4% -0.2%

Emerging Markets (MSCI EM) 970.3 3.6% 12.5% 8.6% 4.0%

Asia ex Japan (MSCI Asia ex Japan) 586.1 3.9% 14.0% 2.9% 2.3%

Singapore (STI) 3157.8 2.0% 9.6% -0.1% 1.6%

Hong Kong (HSI) 24345.9 2.5% 10.7% 0.4% 1.2%

Taiwan (Taiwan Weighted) 9876.5 1.3% 6.7% 11.0% 1.0%

South Korea (KOSPI) 2163.3 3.4% 6.8% 3.3% 1.9%

China (HS Mainland 100) 7178.6 2.9% 12.1% -1.3% 3.1%

Malaysia (KLCI) 1754.4 3.6% 6.9% -3.0% 3.8%

Thailand (SET Index) 1576.7 1.1% 2.2% 19.8% 2.2%

India (SENSEX) 29409.5 2.3% 10.5% 1.9% 6.7%

Indonesia (JCI) 5541.2 2.9% 4.6% 15.3% 6.9%

Russia (RTSI$) 1125.6 2.4% -2.3% 52.2% 7.9%

Brazil (IBOV) 64640.5 -3.0% 7.3% 38.9% 9.6%

Australia (S&P/ASX 200) 5821.2 1.9% 2.7% 7.0% 2.2%

Technology (NASDAQ 100) 5407.2 1.4% 11.2% 5.9% -

P/E Yr 2017 P/E Yr 2018 P/E Yr 2019 Earnings

Growth 2017 (%) Earnings

Growth 2018 (%)

USA (S&P 500) 18.3 16.3 14.7 8.9% 12.3%

Europe (DJ Stoxx 600) 15.6 14.2 13.0 11.1% 9.7%

Japan (Nikkei 225)* 16.6 15.0 - 9.5% 10.2%

Emerging Markets (MSCI EM) 12.8 11.4 10.0 19.3% 11.7%

Asia ex Japan (MSCI Asia ex Japan) 13.4 12.2 10.7 17.7% 9.9%

Singapore (STI) 14.7 13.7 12.8 4.3% 7.4%

Hong Kong (HSI) 12.2 11.1 9.9 10.3% 9.0%

Taiwan (Taiwan Weighted) 13.9 13.1 11.9 14.9% 6.3%

South Korea (KOSPI) 10.0 9.4 7.6 21.7% 6.6%

China (HS Mainland 100) 10.1 9.2 8.1 9.6% 10.3%

Malaysia (KLCI) 16.6 15.6 14.8 5.2% 6.5%

Thailand (SET Index) 15.5 13.9 12.6 5.6% 11.4%

India (SENSEX) 17.2 14.6 - 19.7% 17.9%

Indonesia (JCI) 16.0 14.1 12.9 14.2% 13.4%

Russia (RTSI$) 6.2 5.5 5.4 19.9% 12.9%

Brazil (IBOV) 12.1 10.9 9.1 33.3% 11.8%

Australia (S&P/ASX 200) 15.5 14.8 - 3.6% 5.0%

NASDAQ 100 (Technology Heavy) 20.3 17.8 15.8 6.0% 13.8%

SOURCE: IFAST COMPILATIONS, BLOOMBERG ESTIMATES ALL EARNINGS GROWTH FIGURES WERE UPDATED AS AT DATE SPECIFIED

RETURNS ARE IN THE RESPECTIVE LOCAL CURRENCY TERMS AND MSCI INDEX RETURNS ARE IN USD TERMS

MARKET INFORMATION



PAGE 4

EARNINGS YIELD

EARNINGS YIELD 2017 (%) 5 YEAR

BOND YIELD (%) EXCESS YIELD (%)

USA (S&P 500) 5.5% 2.0% 3.5%

Europe (Stoxx 600) 6.4% -0.3% 6.7%

Japan (Nikkei 225)* 6.0% -0.2% 6.2%

Emerging Markets (MSCI EM) 7.8% 4.0% 3.8%

Asia ex Japan (MSCI Asia ex Japan) 7.5% 2.3% 5.2%

Singapore (STI) 6.8% 1.6% 5.2%

Hong Kong (HSI) 8.2% 1.2% 7.0%

Taiwan (Taiwan Weighted) 7.2% 1.0% 6.2%

South Korea (KOSPI) 10.0% 1.9% 8.2%

China (HS Mainland 100)+ 9.9% 3.1% 6.8%

Malaysia (KLCI) 6.0% 3.8% 2.2%

Thailand (SET Index) 6.5% 2.2% 4.3%

India (SENSEX)* 5.8% 6.7% -0.9%

Indonesia (JCI) 6.3% 6.9% -0.7%

Russia (RTSI$) 16.0% 7.9% 8.1%

Brazil (IBOV) 8.2% 9.6% -1.4%

Australia (S&P/ASX 200)^ 6.4% 2.2% 4.2%

MARKET STAR RATINGS OUR 3 YEAR VIEW

Asia ex-Japan 5.0 Very Attractive

Emerging Markets 5.0 Very Attractive

Europe 3.0 Attractive US 2.5 Neutral

Japan 3.5 Attractive

MARKET STAR RATINGS OUR 3 YEAR VIEW

Singapore 4.0 Very Attractive

China A 3.5 Attractive

China 5.0 Very Attractive

Hong Kong 5.0 Very Attractive

Technology 3.0 Attractive

South Korea 4.5 Very Attractive

Indonesia 3.0 Attractive

India 3.5 Attractive

Thailand 3.0 Attractive

Malaysia 3.0 Attractive

Taiwan 4.0 Very Attractive

Brazil 3.5 Attractive

Russia 4.0 Very Attractive

SOURCE: IFAST FINANCIAL COMPILATIONS, BLOOMBERG ESTIMATES. EARNINGS YIELD IS THE RECIPROCAL OF THE PRICE-EARNINGS RATIO. IT IS BASICALLY

THE AMOUNT OF EARNINGS YOU PURCHASE FOR EVERY DOLLAR WORTH OF THE STOCK (I.E. IF A MARKET HAS AN ESTIMATED PE OF 12X, THE EARNINGS YIELD IS 8.3%) *JAPAN AND INDIA PE FORECASTS ARE BASED ON FISCAL YEAR ENDED MARCH 2017, 2018 AND 2019 RESPECTIVELY

^AUSTRALIA PE FORECASTS ARE BASED ON FISCAL YEAR ENDED JUNE 2017, 2018 AND 2019 AND ALL RETURNS ARE IN THEIR RESPECTIVE LOCAL CURRENCY TERMS.

+THE HANG SENG MAINLAND 100 INDEX (HSML100) COMPRISES BOTH H-SHARE COMPANIES AND RED-CHIP STOCKS AS WELL AS SHARES OF OTHER HONG KONG –LISTED MAINLAND COMPANIES.

HSML100 INDEX DERIVES A MAJORITY OF THEIR SALES REVENUE FROM MAINLAND CHINA. THIS SUMMARY IS NOT TO BE CONSTRUED AS AN OFFER OR SOLICITATION FOR THE SUBSCRIPTION, PURCHASE OR SALE OF ANY FUND. NO INVESTMENT DECISION SHOULD

BE TAKEN WITHOUT FIRST VIEWING A FUND'S PROSPECTUS. ANY ADVICE HEREIN IS MADE ON A GENERAL BASIS AND DOES NOT TAKE INTO ACCOUNT THE SPECIFIC INVESTMENT OBJECTIVES OF THE SPECIFIC PERSON OR GROUP OF PERSONS. PAST PERFORMANCE AND ANY FORECAST IS NOT NECESSARILY INDICATIVE OF THE FUTURE OR LIKELY PERFORMANCE OF THE FUND. THE VALUE OF UNITS AND THE INCOME FROM THEM MAY FALL AS WELL AS RISE. OPINIONS EXPRESSED HEREIN ARE SUBJECT TO

CHANGE WITHOUT NOTICE. PLEASE READ OUR DISCLAIMER

MARKET INFORMATION

http://www.fundsupermart.com/main/home/disclaimer.tpl



PAGE 5

MARKETS REVIEW

REGIONAL MARKETS UPDATE

US MARKET (2.5 STARS – NEUTRAL)

MARKET OUTLOOK

ISM Manufacturing PMI came in at 56.2 in Feb 17, up from 56.0 in Jan 17

ISM Non-Manufacturing came in at 57.6 in Feb 17, up from 56.5 in Jan 17

Nonfarm payrolls rose by 235,000 in Feb 17, after an upward-revised 238,000 increase in Jan 17

Private payrolls rose by 227,000 in Feb 17, after a downward-revised 221,000 increase in Jan 17

Unemployment rate decreased to 4.7% in Feb 17 from 4.8% in Jan 17

Factory orders rose 1.2% m-o-m in Jan 17, after a 1.3% gain in Dec 16

Advance retail sales rose 0.1% m-o-m in Feb 17, after an upward-revised 0.6% m-o-m increase in Jan 17

Excluding autos and gas, retail sales rose 0.2% m-o-m in Feb 17, after an upward-revised 1.1% m-o-m change in Jan 17

Industrial production came in at a 0.0% m-o-m change in Feb 17, after an upward-revised -0.1% m-o-m decrease in Jan 17

Leading index posted a 0.6% m-o-m change in Feb 17, after a 0.6% increase in Jan 17

Housing starts registered a 1.288 million annual rate in Feb 17, after an upward-revised 1.251 million annual rate in Jan 17

Building permits registered a 1.213 million annual rate in Feb 17, after an upward-revised 1.293 million rate in Jan 17

Existing home sales fell -3.7% m-o-m in Feb 17 to a 5.48 million annual rate, after a 3.3% m-o-m increase in Jan 17

Consumer confidence index at 125.6 in Mar 17, up from an upward-revised 116.1 reading in Feb 17

Based on the S&P/Case-Shiller Composite 20, US home prices rose 5.73% y-o-y in Jan 17, after a downward-revised 5.47% increase in Dec 16

Fed Funds Rate: 0.75% – 1.00%

For the scorecard of 4Q 16 earnings season, American companies have as a whole, beaten their targets, with 53% of the reported companies of the benchmark S&P 500 Index beating their revenue targets while 72% of them recording positive earnings surprises. Energy companies and the information technology (IT) sector registered the most positive sales surprises, while IT, healthcare and financials saw the most number of positive earnings surprises. Corporate America is now expected to continue the positive earnings momentum going into 2017. Earnings estimates for US companies (as represented by the S&P 500 Index) on aggregate saw minor changes over the month of March – with 2017’s and 2018’s estimated earnings revised -0.3% and -0.1% respectively (as of 27 March 2017). On a sector basis, energy companies saw the most EPS downgrades, with the sector seeing a -2.4% downgrade to its 2017 earnings on the back of a decline in crude oil prices globally (WTI crude fell -11.6% month-to-date). The consumer discretionary and healthcare sector also saw EPS downgrades month-to-date, while the IT sector saw upgrades to their 2017, 2018 and 2019 EPS (0.7%, 0.8% and 0.6% respectively) over the month. With regards to recent economic data from the US, the ISM Manufacturing PMI rose to 57.7 in February from a prior 56.0, beating expectations and continuing its ascent over the past 7 months. Input prices that US manufacturers pay for remained almost unchanged, with the ISM Prices Paid Index coming in at 68.0 for the month, as compared to a prior 69.0. The readings on services (ISM Non-Manufacturing PMI) came in at 57.6, beating the consensus forecast of 56.5 and rising from a prior 56.5. Readings on new orders, new export orders, employment and backlogs all rose, while supplier deliveries fell, indicating relatively robust demand. In terms of employment data, February’s nonfarm payrolls came in above expectations at 235,000, as compared to January’s upward-revised 238,000 print. Manufacturing posted strong job gains, and business services, construction as well as private education services also saw gains in February. Wages rose 2.8% year-on-year, higher than January’s 2.6% year-on-year rise (a 0.2% month-on-month rise). Job creation remains relatively robust, although moderation is expected as the business cycle matures in the US and as a gradual rise in inflation is expected going forward. On 15 March 2017, the Federal Reserve raised benchmark policy rates by 25 basis points to a range of 0.75% – 1.00%, a move which was widely anticipated. Markets cheered the news, interpreting the Fed’s latest move as a rather dovish one and reacted positively, with equity markets rallying and bond yields falling (bond prices rising) post-announcement. Gold rallied intra-day as well, and the USD weakened broadly against many currencies. In their statement release, the US central bank reaffirmed its outlook on the US economy, stating that “household spending has continued to rise moderately while business fixed investment appears to have firmed somewhat”, and that “inflation has increased in recent quarters, moving close to the Committee’s 2 percent longer-run objective; excluding energy and food prices, inflation as little changed and continued to run somewhat below 2 percent.” The Core PCE inflation target was revised 10 bps higher to a 1.8% – 1.9% range for 2017, with policy-makers emphasising that it will monitor for sustainable inflationary pressures. The Fed has also communicated via its Dot Plot assessment that 2 more rate hikes are on the table for 2017. In the press conference, Fed chair Janet Yellen reiterated that the Fed will wait for further clarity on potential policies coming out of Washington before readjusting its forecasts and stance. As of 27 March 2017, the US equity market (as represented by the benchmark S&P 500 Index) trades at 18.1X and 16.2X for 2017’s and 2018’s estimated earnings respectively, as compared to its fair PE ratio of 15.0X. Earnings of US companies are expected to grow by 8.9% this year and by 12.2% in 2018. Expectations run high for Trump’s administration to deliver fiscal expansion (either in the form of corporate tax cuts or infrastructure spending), which if implemented successfully, could provide strength to domestic growth in the US. However, there is an element of uncertainty regarding the new administration’s attitude and possible policies regarding trade relations with emerging markets like Mexico and in Asia. We are monitoring overall valuations at the moment and may review our rating of 2.5 Stars “Neutral” for the US market.



PAGE 6

MARKETS REVIEW

REGIONAL MARKETS UPDATE EUROPE (3.0 STARS – ATTRACTIVE)

MARKET OUTLOOK

EUROZONE AGGREGATE

Advance reading of Eurozone PMI composite at 56.7 in Mar 17, up from a finalised 56.0 in Feb 17

Advance Consumer Confidence at -5.0 in Mar 17, up from a finalised -6.2 reading in Feb 17

Retail sales rose 1.2% y-o-y in Jan 17, on par with an upward-revised 1.2% rate in Dec 16

ZEW survey (expectations) at 25.6 in Mar 17, up from 17.1 in Feb 17

Sentix Investor Confidence came in at 20.7 in Mar 17, up from 17.4 in Feb 17

GERMANY

Advance composite PMI at 57.0 in Mar 17, up from a finalised 56.1 level in Feb 17

Factory orders fell -0.8% y-o-y in Jan 17, after a downward-revised 8.0% increase in Dec 16

ZEW readings rose for both the current situation and expectations surveys in Mar 17

IFO surveys recorded an increase for the current assessment, business climate and expectations surveys in Mar 17

FRANCE

Preliminary PMI composite rose to 57.6 in Mar 17, up from a finalised 55.9 level in Feb 17

Industrial production fell -0.4% y-o-y in Jan 17, down from a downward-revised 0.9% rise in Dec 16

Bank of France business sentiment at 104 in Feb 17, INSEE business confidence at 104

UNITED KINGDOM

Preliminary PMI Composite at 53.8 in Feb 17, down from a downward-revised 55.4 in Jan 17

Retail sales ex auto fuel rose 4.1% y-o-y in Feb 17, up from a downward-revised 2.1% rise in Jan 17

Retail sales ex auto fuel rose 1.3% m-o-m in Feb 17, up from a downward-revised -0.3% decline in Jan 17

With earnings season almost over, more than 60% of European companies (of the benchmark Stoxx 600 Index) have beaten their 4Q 16 sales targets while 54% of them have beaten their earnings targets. European financials have reported the most number of positive sales surprises, followed by the healthcare and materials sectors. In terms of earnings surprises, the utilities and materials sectors reported the most number of positive surprises this time round. Moving forward, positive earnings momentum is expected to continue as economic momentum continues to improve globally and in the Eurozone.

European companies on aggregate (as represented by the benchmark Stoxx 600 Index) saw minor changes to their earnings estimates over the course of March – with 2017’s estimated earnings revised by -0.5% and 2018’s estimated earnings revised -0.5% lower (as of 27 March 2017). On a sector basis, European financial services continued to enjoy earnings upgrades (3.8%) over the month. Resource companies also continued to enjoy earnings upgrades, with the sector seeing a 3.6% month-to-date upgrade on aggregate. European oil and gas firms however, saw their sector earnings downgraded -2.6% over the month as crude oil prices globally fell below USD 50 per barrel on the back of larger inventories and supplies.

Recently released economic data reinforces our point that economic momentum in the Euro-region is increasingly entrenched. Industrial production and retail sales data across the Eurozone remain relatively robust, and various leading indicators point to continued expansion in region. Advance readings of composite PMIs for both Germany and France in March have beaten consensus expectations, and PMIs in peripheral members like Italy and Spain have been gradually ascending since 3Q 2016. Investment sentiment and business confidence have also been unaffected by uncertainty stemming from politics, suggesting that European corporates have taken the heavy political calendar in their stride thus far.

With regards to monetary policy, the European Central Bank (ECB) maintained its benchmark policy rates and reaffirmed its over that the ongoing global economic recovery, resilient domestic demand, past deleveraging across sectors, as well as continued improvement in the Euro area’s labour market would likely be supportive of the region’s economy in the near future. The ECB also reiterated its adjustment to its asset purchase programme (APP) from April onwards (to EUR 60 billion per month from the current monthly amount of EUR 80 billion), and reemphasised the importance for fiscal strategies and structural reforms. Over across the English Channel, the Bank of England (BOE) made no changes to benchmark policy rates and its asset purchases as expected, and acknowledged that inflation has risen in the UK, stating that it “expects it to rise above 2.0% target over the next few months, before peaking at around 2.75% in early 2018 and drifting gradually back down towards the target thereafter… the projected overshoot entirely reflects the expected effects of the drop in Sterling.” Input prices have risen and pinched on UK manufacturers, and it remains to be seen if the BOE will tighten monetary policy going forward as policy-makers are intending to look through current rising prices as long as its deemed acceptable and as focus is on Britain’s transition leaving the European Union (EU).

Over the course of March, the benchmark Stoxx 600 Index has risen 1.3% in EUR terms as of 27 March 2017 (3.3% in SGD price terms), with

banking stocks being the top performers and the energy and materials sector lagging this time round. Currently, the European equity market trades at 15.5X and 14.1X 2017’s and 2018’s estimated earnings, as compared to its fair PE ratio of 13.5X. European corporates are projected to see their earnings grow by 11.0% this year and by 9.6% in 2018. Although the region has a heavy political calendar (Brexit schedule and negotiations, elections in core EU-members France and Germany), various indicators and data points suggest that the recovery on the continent is increasingly entrenched. We advocate investors not to speculate on the outcomes of these political events as they remain difficult to anticipate. We are keeping a watchful eye on overall valuations at the moment as we retain a 3.0 Stars “Attractive” rating for the European equity market.



PAGE 7

MARKETS REVIEW

REGIONAL MARKETS UPDATE NORTH ASIA

MARKET OUTLOOK As at 27 March 2017, both the estimated earnings of Japanese equities for FY 2017 (ended-March 2017) and FY 2018 (ended March 2018) have been revised downwards by -2.12% and -1.27% year-to-date (in terms of fiscal year, ranging from 1 April 2016 to 27 March 2017) respectively. Earnings of Japanese equities are expected to increase by 12.5% in FY 2017 and 9.4% in FY 2018. On the other hand, earnings of the South Korean equity market are expected to increase by 21.5% in 2017 and 6.8% in 2018.

Thanks to gradual recovery in the world economy and global demand, general expectation on Japanese economy has improved substantially as compared to early half of 2016, manufacturing PMI, Economy watcher survey outlook and consumer confidence all witnessed strong improvement. Like Taiwan and South Korea, Japan’s export demonstrated strong year-on-year growth in recent months, thanks to China and ASEAN countries.

Being a cyclical market in nature, Japan will likely benefit from a global economic recovery, and we believe such recovery is now in its early stages, such belief is now further supported by improvements in exports for major exporting countries in Asia.

Besides, Japan is much more attractive than its developed market peers from a valuation perspective, factoring in a 12% growth throughout next fiscal year, the Nikkei 225 index is now trading at an estimated PE ratio lower than its historical average, the same can’t be said for US and Europe, who is now trading with historical PE at least 1 standard deviation higher than its average.

Although we remain cautious on risk of correction if the Federal Reserve and President Trump were to disappoint the market, we will recommend investor to buy on the dip or when uncertainties regarding Trump’s policies and rate hike schedule have faded.

March has been a great month for South Korea equities, former president Park Geun-Hye were officially impeached, boosting investor sentiment and sending KOSPI index higher, exports have been strong recent month, so market were looking forward to the earnings announcement and have priced in that optimism into stock price. Within the Korea market, we still believe the semiconductor business is among the most attractive sector as of now, although prices of memory chips have stopped rising, demand for it stays strong as shown by the export figures, especially towards China and possibly the US with upcoming new iPhone model.

As at 27 March 2017, the estimated PE ratios of Nikkei 225 Index are at 17.9X for FY 2017 and 16.4X for FY 2018; the estimated PE ratios for the KOSPI index was at 10.0X for 2017 and 9.3X for 2018. Valuations remain rather attractive compared with other markets. Thus, we maintain our star ratings of the Japanese and the South Korean market at an “Attractive” rating of 3.5 stars and at a “Very Attractive” rating of 4.5 stars respectively.

**Japan’s fiscal year ended in March (e.g FY 2016 ends in March 2016)

Eco Watcher’s Outlook Index increased to 50.6 in Feb 17, up from to 49.4 in Jan 17

Jan Machine Orders fell by -8.2% y-o-y, down from Dec’s 6.7% increase

Consumer Confidence Index fell slightly to 43.1 in Feb 17, down from 43.2 in Jan 17

Mar Manufacturing PMI’s preliminary figure fell slightly to 52.6, down from 53.3 in Feb 17

Exports rose sharply by 11.3% in Feb 17, up from 1.3% in Jan 17

Imports rose by 1.2% y-o-y in Feb 17, down from 8.5% increase in Jan 17

JAPAN (3.5 STARS– ATTRACTIVE)

SOUTH KOREA: 4.5 STARS－VERY ATTRACTIVE

KRW’s appreciated by 2.23% against USD month-to-date (data as of 27 Mar 17), as compared to 1.36% appreciation seen in Feb

Feb Manufacturing PMI rose slightly to 49.2, higher than 49.0 in Jan 17

Exports rose by 20.2% y-o-y in Feb, compared to 11.2% in Jan 17

Imports rose by 23.3% y-o-y in Feb, higher than 18.6% in Jan 17



PAGE 8

MARKETS REVIEW

SOUTH EAST ASIA

MARKET OUTLOOK As at 27 March 2017, the 2017 and 2018 earnings estimate for the Straits Times Index have remained unchanged (0.0% changed) over the month, with the earnings of Singapore companies expected to rise by 4.4% in 2017 before rising by 7.3% in 2018. Conglomerate Jardine Matheson Holdings Ltd, which has a 50% stake in Hongkong Land Holdings, as well as real estate companies appeared at the top of the table in terms of earnings revisions over the month; while mixed sectors were seen with the greatest earnings downgrades over the month. When looking at Singapore’s largest sector, the banking sector, slight earnings downgrades (an average -0.3% downgrade in their 2017 estimated EPS) were seen month-to-date as of 27 March 2017. Nonetheless, it remains likely that the banking sector’s earnings would be supported over the next few quarters given the rising interest rate environment, improving global economic growth, stabilising oil prices, as well as continued government support offered to Singapore’s SMEs and oil-linked companies. Singapore’s industrial production rose by 12.6% year-on-year in February 2017, surpassing expectations of a 10.0% increase, and coming in as the seventh consecutive month to see an expansion year-on-year. The recent months’ data have shown laudable double-digit year-on-year growth in Singapore’s industrial production, which have significantly contributed to the 2.9% year-on-year GDP growth in 4Q 2016, notably outperforming advance estimates of a 1.8% year-on-year growth. The electronics manufacturing cluster had posted robust growth in the recent months amid a recovery in global semiconductors demand and this trend seems likely to persist over the next few quarters given a continued turnaround in the global electronics industry and an increasing chip-content in mid-tier Chinese smart phones and new premium smart phone launches. Additionally, Singapore’s precision engineering manufacturing cluster would likely see increased growth as well, as global semiconductor firms increase their investments amid the recovering demand in semiconductors. While the sluggish transport engineering manufacturing cluster has continued to be major laggard in the manufacturing sector with a -9.6% decline year-on-year in February 2017, its decline is likely to be maintained or to slowdown over the next few quarters on the back of continued stabilisation in oil prices. A strong growth in the electronics and precision engineering clusters, contained decline in the transport engineering cluster, as well as a stronger global demand for Singapore’s exports would likely see Singapore’s industrial production supported in the near future which bodes well for Singapore’s GDP growth in 2017. In MAS’s “Recent Economic Developments In Singapore” report published on 8 March 2017, MAS maintained their GDP forecast for the Singapore economy at 1.0-3.0% for 2017. Singapore’s January retail sales rose 2.0% year-on-year, buoyed by the increase in sales from supermarkets (13% year-on-year increase) and food and beverage outlets (12% year-on-year increase) as consumers’ prepared for the Lunar New Year. For the month of February 2017, Singapore’s volatile Non-Oil Domestic Exports (NODX) rose on a year-on-year basis (by 21.5%) for the fourth consecutive month, amid an increase in the exports of both electronic and non-electronic products. Headline inflation came in at 0.7% year-on-year in February 2017, extending January 2017’s 0.6% year-on-year increase, and has become the third consecutive month in 2 years in which consumer prices have increased on a year-on-year basis. Inflation is expected to rise modestly in 2017 given the continued stabilisation in oil prices but slackened labour market which may dampen domestic consumption slightly. As of 23 March 2017, the MAS and MTI maintained their stance that headline inflation is expected to pick up to 0.5–1.5% in 2017. On current estimates as of 27 March 2017, the Singapore equity market, as represented by the Straits Times Index, has risen 1.0% month-to-date and trades at estimated PE ratios of 14.5X and 13.5X for 2017 and 2018 respectively, representing a significant discount to our fair PE estimate of 16.0X for the Singapore market. The earnings growth of Singapore companies would likely improve from that in 2016 in view of improved global and domestic economic conditions as well as a possible bottoming out of the private residential property sector and a supported oil & gas sector. We think a 4.0 Stars “Very Attractive” rating on the Singapore equity market continues to be warranted at this juncture.

SINGAPORE –4.0 STARS (VERY ATTRACTIVE)

Purchasing Managers Index came in at 50.9 in Feb 17, down slightly from 51.0 in Jan 17

Electronics sector PMI fell slightly to 51.4 in Feb 17 from 51.8 in Jan 17

Retail sales rose 2.0% y-o-y in Jan 17, up from an upward revised 0.7% y-o-y increase in Dec 16

Retail sales ex-autos rose 2.0% y-o-y in Jan 17, improving from an upward revised 0.6% y-o-y in Dec 16

Non-oil domestic exports surged 21.5% y-o-y in Feb 17, extending the 8.6% y-o-y increase in Jan 17

Electronic exports rose 17.2% y-o-y in Feb 17, up from a 6.1% y-o-y increase in Jan 17

CPI rose 0.7% y-o-y in Feb 17, up from a 0.6% y-o-y increase in Jan 17

Core CPI rose 1.2% y-o-y in Feb 17, down from the 1.5% y-o-y increase in Jan 17

Industrial production rose 12.6% y-o-y in Feb 17, up from an upward revised 3.8% increase in Jan 17



PAGE 9

MARKET OUTLOOK

MARKETS REVIEW

As at 24 March 2017, KLCI companies are expected to post EPS of 105.32, 112.33 and 118.33 for 2017, 2018 and 2019 respectively, representing earnings growth of 5.0%, 6.7% and 5.3% for the three respective years. These translated into PE ratios of 16.1X, 15.5X and 14.8X for 2017, 2018 and 2019 respectively. As a whole, KLCI index’s 2017 earnings estimates saw tepid downgrades of -0.3% over the month. Energy sector posted the biggest earnings downgrades amongst all, with its only constituent, Petronas Dagangan Berhad’s 2017 earnings being revised downwards by -1.98% over the month. Contrarily, within the upgraded sectors, Consumer Discretionary saw a moderate upward earnings revision of 0.89%. This was probably due to the improving prospects for its heavy weight constituents Genting Berhad and Genting Malaysia Berhad as Malaysia might be benefited from China’s South Korea travel ban. Genting is also expected to be the major beneficiaries on the return of Chinese tourism, with the expansion of casino and the reopening of the theme park in 2017.

Malaysia’s exports expanded by 13.6% year-on-year in January 2017, beating prior month’s 10.7% year-on-year expansion. The growth in the local exports was led by double digit growth in the major sectors such as refined petroleum products (85.8%), palm oil & palm oil-based products (23.3%) and E&E products (11.4%). Meanwhile, Malaysia’s imports also recorded a double-digit expansion of 16.1% year-on-year in January 2017. The capital goods component soared by 35.2%, intermediate goods expanded by 10.4% while the consumption goods fell by -1.6%. Imports for capital goods as well as intermediate goods have been strong, which was merely a reflection of a pick-up in infrastructure projects as well as improving business spending – a sign we see it as healthy rather than worrying. We believe this trend could be here to stay for now as infrastructure spending will likely to be robust on the domestic front (thus a high capital imports) while pick up in external demand remains gradual.

Malaysia’s Index of Industrial Production grew by 3.5% year-on-year in January 2017. Although we see growth in all three components, namely Manufacturing (4.6%), Mining (1.1%) and Electricity (1.1%), both Mining and Electricity grew at a slower pace in January after recording higher year-on-year growth rates of 5.8% and 6.1% respectively in December 2016. Moving forward, Malaysia’s industrial production is likely to grow gradually, underpinned mainly by the manufacturing component amid improving activities in the manufacturing sector as reflected by an improving PMI reading.

KLCI increased by 2.79% in March 2017, causing the estimated PE for 2017 to increase slightly over the month. As a result, KLCI index is currently trading at 16.6X estimated PE, which is slightly higher than our fair PE of 16X. This year, local corporates’ earnings are expected to improve supported by increasing external demand, expansion in private consumption, increasing government spending and escalating foreign direct investment. Consequently, these catalysts will probably result in a GDP growth rate of 4.0% to 5.0%. With the expectation of improving corporate earnings and coupled with a fair market valuation, the local stock market is expected to deliver a rather reasonable return for investment horizon over the next 3 years on a relative basis. As such, we maintain the star ratings for Malaysia at 3.0 stars “Attractive”.

SOUTH EAST ASIA

MALAYSIA – 3.0 STARS (ATTRACTIVE) Exports expanded 13.6% y-o-y in Jan, after a 10.7% increase y-o-y in Dec 16

Imports increased 16.1% y-o-y in Jan 17

Trade Balance fell to RM 4.71 billion in Jan from RM 8.72 billion in Dec 16

Industrial Production growth expanded 3.5% y-o-y in Jan 17, down from 4.71% y-o-y in Dec 16

CPI surged 4.5% y-o-y in Feb 17, up from the prior 3.2% y-o-y in Jan 17

Nikkei Malaysia PMI improved to 49.4 from previous reading of 48.6



PAGE 10

MARKET OUTLOOK

MARKETS REVIEW

As the calendar flips towards the end of March, 2017’s and 2018’s earnings forecasts for Thai equities were downgraded by -0.6% and -0.2% respectively, bringing the SET Index’s earnings growth to 6.0% and 11.4% for 2017 and 2018 respectively. All sectors but two witnessed downgrades in earnings. Industrials contributed the most to the drawdown in earnings, with its earnings slashed by -3.7%. Among Industrial companies, Thai Airways International suffered significant downgrades (-26.5%), as concerns on high aircraft maintenance expenses and impairment charges on decommissioned aircraft fleets were exerting great downward pressures in its earnings, on top of rising fuel prices. Consumer Staples have also seen its earnings revised downwards by -1.7% over the month, with Thai supermarket chain Big C Supercenter (-7.1%) weighing down most of its sector’s earnings. The earnings downgrade reflected its weakened sales resulted from new sales strategy which discontinues big basket discounts, along with the slower-than-expected ramp up of new stores. Consumer Discretionary, Materials and Health Care have also posted downgrade in their earnings estimates, falling -0.8%, -0.4% and -2.9% respectively. Energy is the only sector that received upward revision in earnings, both increased by 0.3% over the month. Looking south, Indonesian equities, represented by JCI Index, received upward revision of 1.0% and 1.1% in their 2017 and 2018’s earnings respectively. Consensus remains positive towards Energy, with sector’s earnings upgraded by 8.3% over the month with analysts forecasting strong earnings recovery on the back of better commodity prices and pick-up in export activities. United Tractors Tbk (11.3%) in particular, is expected to benefit from higher coal mining contracting volume and improving demand for heavy equipment from the mining sector. Consumer Staples also saw earnings upgraded by 0.2% over the month, with Hanjaya Mandala Sampoerna Tbk (2.3%) contributing most of the positive earnings revision. Earnings for Financials, Consumer Discretionary and Industrials were also upgraded by 0.4%, 0.8% and 1.3% respectively over the month. On the other hand, outlook for Materials remains gloom given low-levels of cement price and rising energy costs, and the sector saw its earnings revised downward by -0.2% over the month. On Thailand’s domestic front, the nation is currently in the midst of the drought season which will last through the month of May. Authorities are reporting a healthier level of water dam as well as lower number of areas out of water irrigation zone, which points to less worries from the drought impact for the kingdom. Thai authorities have numerous irrigation projects in the pipeline this year to reduce drought impact in the future, which will also provide job opportunities for farmer during the drought season. These measures would provide support towards farmers’ income moving forward. Rotating the globe towards Indonesia, the JCI Index rallied to record high on March 24, 2017 as foreign investors bought into the market as speculations that Indonesia is going to get its ratings upgraded by Standard and Poor, which has driven the index beyond our fair PE level. The positive sentiments were piling on the ameliorating macroeconomic condition of the Indonesia economy, which points to healthier current account surplus and foreign reserves. Standard and Poor’s remains the only rating agency which hold Indonesia’s credit rating at ‘junk’ grade. Both Thailand and Indonesia’s export growth figures came in softer than previous’ values, falling to -2.76% and 11.2% respectively. Thailand’s export contraction was due to higher exports figures a year ago, which is attributable to the surge in gold price and helicopter sales. Excluding those items, Thai exports rose 8.5% year-on-year, which is a positive sign that exports growth remains resilient. Indonesia’s exports were primarily driven by oil and gas products together with rubber. The major cause for the surge in imports growth for both nations was the low-base effect from the imports of oil and gas related products a year ago, when oil prices were relatively depressed back then. Going forward, we maintain our positive expectations on the exports growth within the ASEAN countries, underpinned by the pickup in trading activities which entails the acceleration of global economic growth, plus a favorable backdrop from stabilising commodity prices. These positive elements will also contribute notably to the economic growth within Thailand and Indonesia, where domestic consumption dominates more than 50% of GDP growth, as they provide income support to a weighty group of population that serves within the agriculture-related industries. With that, we maintain both of these nations’ star ratings at 3.0 stars (Attractive).

SOUTH EAST ASIA THAILAND –3.0 STARS (ATTRACTIVE)

Consumer Price Index decreased to 1.44% y-o-y in Feb 17, after a 1.55% y-o-y increase in Jan 17

Core CPI slipped to 0.59% y-o-y in Feb 17, down from 0.75% y-o-y increase in Jan 17

Consumer economic confidence increased to 64.3 in Feb 17, up from 63.1 in Jan 17

Consumer confidence increased to 75.8 in Feb 17, up from 74.5 in Jan 17

Custom exports contracted -2.76% y-o-y in Feb 17, after an 8.83% y-o-y increase in Jan 17

Custom imports surged to 20.36% y-o-y in Feb 17, after a 5.17% y-o-y increase in Jan 17

Custom trade balance increased to USD 1.61 billion in Feb 17, up from prior value of USD 0.83 billion in Jan 17

INDONESIA –3.0 STARS (ATTRACTIVE) Exports grew by 11.2% y-o-y in Feb 17, after a 27.7% y-o-y increase in Jan 17

Imports grew by 10.6% y-o-y in Feb 17, after a 14.5% y-o-y increase in Jan 17

Indonesia posted a trade surplus of USD 1319 million in Feb 17, compared to previous’ surplus of USD 1396 million in Jan 17

CPI increased by 3.8% y-o-y in Feb 17, after a 3.5% y-o-y increase in Jan 17

Consumer Confidence Index increased to 117.1 in Feb 17, from 115.3 in Jan 17

Foreign reserves increased to USD 119.9 billion in Feb 17, from USD 116.9 billion in Jan 17



PAGE 11

During the month of February 2017, Indian Exports recorded a double digit growth of 17.48% year-on-year to USD 24.49 billion. Imports grew by 21.76% and to USD 33.39 billion. Overall the trade balance has improved. Overall trade deficit for February 2017 is estimated at USD 8.9 billion. Taking merchandise and services together, overall trade deficit for April-February 2016-17 is estimated at USD 41.81 billion which is 24 percent lower in USD terms than the level of USD 55.03 billion during April-February 2015-16. The index of industrial production (IIP) grew by 2.7% year-on-year in January. Growth rate in major sectors like Mining, Manufacturing and Electricity sectors for the month of January 2017 stand at 5.3%, 2.3% and 3.9% as compared to January 2016. As per Use-based classification, the growth rates in January 2017 for Basic goods, Capital goods, intermediate goods, Consumer durables and consumer non-durables were 5.3%, 10.7%, -2.3%, 2.9% and -3.2% with the overall growth in Consumer goods being -1 percent. India’s Consumer Price Index (CPI) for February 2017 rose marginally to 3.65% year-on-year as against 3.17% in the previous month. The rise in CPI was led by higher food inflation which rose by 2.46% in February 2017 as against 1.29% in January 2017. Fuel inflation also rose to 3.90% in February 2017 as against 3.42% in the previous month. However, miscellaneous inflation declined to 4.79% in February 2017 as against 5.06% in January 2017. India’s Wholesale price Index (WPI) increased sharply to 6.55% year-on-year for the month of February 2017 as compared to 5.25 % in the previous month and -0.85% during the corresponding period month of the previous year. A look into the numbers revealed that the sharp rise was mainly led by higher inflation in Fuel & power index which rose by 21.02% in February 2017 as against -7.06% in February 2016. Manufactured products inflation also rose by 3.66% in February 2017 as against -0.52% in February 2016. Primary articles inflation also rose by 5% in February 2017 as against 2.03% in February 2016. As on March 23rd, 2017, the benchmark Index (Sensex) stood at 29,332.16. The earnings estimates for HDFC bank, the highest weighted stock in the index stood at 15.56% and 18.86% for FY17 and FY18. Housing Development Finance Corp Ltd, the next stock with the highest weightage, has an earnings estimate of 9.89% and 10.19% for FY17 and FY18 respectively. The top performers in the index during the month were Adani Ports & Special Economic zone (9%), Reliance Industries(8%) and Hero MotoCorp(6%) while the top losers included Coal India (-10%) Dr Reddy’s Laboratories (-9%) and Bharti Airtel (-8%). According to consensus estimates, as on March 23rd, 2017, the estimated PE for India’s stock market (Sensex) are 21.0X, 17.4X and 14.8X for FY17, FY18 and FY19 respectively. Estimated earnings growth is 4.9%, 20.8% and 17.9% for FY17, FY18 and FY19 respectively. We maintain an “Attractive” rating of 3.5 stars for the Indian market.

MARKETS REVIEW

INDIA – 3.5 STARS (ATTRACTIVE)

MARKET OUTLOOK

Exports grew by 17.48% y-o-y to USD 24.49 billion in Feb 17 while imports were higher by 21.76% to USD 33.39 billion during the

same month last year.

The Index of Industrial Production (IIP) grew by 2.7% in Jan 17, as against Bloomberg’s estimate of 0.5%.

Consumer Price Index (CPI) grew by 3.65% y-o-y in Feb 17, as against 3.17% y-o-y in Jan 17.

WPI Inflation was at 6.55% y-o-y for Feb 17, as against the Bloomberg’s estimate of 6.1%

Consensus estimated earnings growth for FY18 and FY19 are 20.74% and 17.83% respectively.

SOUTH ASIA



PAGE 12

China’s Caixin Manufacturing PMI came in at 51.7 in February rising from 51.0 in January 17. Similarly, the official Manufacturing PMI was 51.6 in February, remaining in the expansion zone since the beginning of this year. The Caixin PMI focuses on smaller and medium-sized firms, while the official figures tend to focus on larger companies. Both readings indicate the mainland’s economy has been recovering, with new orders and output increasing at a higher rate. CPI dropped sharply to 0.8% year-on-year in Feb 17, from 2.5% year-on-year in January 2017. The stats bureau attributed the slowdown in consumer inflation to the Lunar New Year and cold weather. China's consumer inflation remains well within the central bank's comfort zone, but expectations of eventual upward pressure could keep the central bank on a gradual tightening monetary policy. Moreover, PPI improved further to 7.8% year-on-year from 6.9% year-on-year; similar to previous months, gains in the PPI were driven largely by mining and heavy industry. Since the above figures have shown stronger sign of growth, we do not think further easy monetary policy will be implemented in the short run. In Hong Kong, Nikkei Hong Kong Manufacturing PMI decreased slightly to 49.6 in February down from 49.9 in January, remaining in the contraction mode, as new export orders declined the most in eleven months, with demand from China falling for the 31st consecutive period. Not only does the domestic demand lose momentum, but also the competitiveness of export is negatively impacted by the stronger US dollar. The seasonal adjusted unemployment rate maintained at 3.3% in January for the fourth consecutive month. We believe that the local economy may well continue to face downside pressure in the short term, aggravated by a subdued external market support. Foreign exchange reserves decreased to USD 390.5 billion in February from USD 391.5 billion in January. Taking into account further inflow via Shanghai/Shenzhen-Hong Kong connect and economic resilience, we maintain our rating. Taiwan’s CPI year-on-year turned negative to -0.04% in Feb 17 from 2.25% Jan 2017, thanks to a slump in vegetable prices and nursery care expenses. Industrial production rose to 10.64% year-on-year in February, compared to a 2.46% in Jan 17, indicating a faster pace for manufacturing. Nikkei Taiwan Manufacturing PMI dropped to 54.5 in February from 55.6, still in the expansion mode at the beginning of the year 2017. Exports increased to 27.7% year-on-year in February as compared to 7.0% year-on-year in January. February’s expansion was driven again by a rise in exports of electronics and this led the 12-month trailing sum of exports to total USD 286.8 billion. Imports rose sharply to 42.1% year-on-year in February as from 8.4% year-on-year in January. Taking above indicators into consideration, we maintain a positive outlook for Taiwan, but the external market’s uncertainties may need further monitoring. As at 24 March 2017, the CSI 300 Index is currently trading at estimated PE ratios of 13.3X and 11.7X based on estimated earnings in 2017 and 2018 respectively, a discount to its fair value of 15.0X, while the HSML100 Index is trading at 10.2X and 9.3X (based on estimated earnings in 2017 and 2018 respectively) as compared to our fair PE of 13.0X as of 24 March 2017. We continue to favour H-shares relative to the onshore market. We maintain our 5.0 Stars “Very Attractive” rating for the offshore Chinese equity market. Hong Kong equity market is currently trading at 13.4X, which is higher than 12.2X and 11.2X based on 2017 and 2018 estimated earnings. Therefore, we maintain our 4.0 Stars “Very Attractive” rating for Hong Kong. Lastly, Taiwan is trading at estimated PE ratios of 13.9X and 13.1X based on 2017 and 2018 earnings estimates respectively, below our fair PE ratio of 15.0X. We maintain a 4.0 Stars “Very Attractive” rating for Taiwan.

MARKET OUTLOOK

MARKETS REVIEW

GREATER CHINA China: Offshore (H) 5.0 Stars — Very Attractive, Onshore (A) 3.5 Stars — Attractive

Caixin China Manufacturing PMI came in at 51.7 in Feb 17, rising from 51.0 in Jan 17

Official Manufacturing PMI was 51.6 in Feb 17, as compared to 51.3 in Jan 17

CPI rose 0.8% y-o-y in Feb 17, compared with a 2.5% y-o-y in Jan 17

PPI improved further to 7.8% y-o-y in Feb 17, rose up from 6.9% y-o-y in Jan 17

Exports decreased -1.3% y-o-y in Feb 17, compared with 7.9% y-o-y in Jan 17

Imports increased 38.1% y-o-y in Feb 17, compared with 16.7% y-o-y in Jan 17

Taiwan: 4.0 Stars — Very Attractive

Nikkei Taiwan Manufacturing PMI dropped to 54.5 in Feb 17 from 55.6

CPI y-o-y turned negative to -0.04% in Feb 17 from 2.25% Jan 2017

Exports increased to 27.7% y-o-y in Feb 17 as compared to 7.0% y-o-y in Jan 17

Imports rose sharply to 42.1% y-o-y in 17 from 8.4% y-o-y in Jan 17

Industrial production rose to 10.64% y-o-y in Feb 17, compared to a 2.46% in Jan 17

Hong Kong: 4.0 Stars—Very Attractive

Nikkei Hong Kong Manufacturing PMI decreased slightly to 49.6 in Feb 17 down from 49.9 in Jan 17

Seasonal-adjusted unemployment rate maintained at 3.3% in Feb 17 for the fourth consecutive month

Foreign exchange reserves decreased to USD 390.5 billion in Feb 17 from USD 391.5 billion in Jan 17



PAGE 13

EMERGING MARKETS

MARKET OUTLOOK

MARKETS REVIEW

In South America, the 2017 and 2018 earnings outlook of the Bovespa Index (as of 29 March 2017) continued to be revised upwards by 2.2% and to be revised downwards by -1.3% over the month respectively. As of 29 March 2017, the earnings of Brazilian companies are expected to increase by 32.9% in 2017 before increasing by 11.9% in 2018. Divergent performances were witnessed from the materials sector as companies from the said sector could be found amongst those seeing the largest upward and downward earnings revisions over the month. Meanwhile, the 2017 estimated earnings of several energy companies fell slightly amid a drop in crude oil prices over the month (-9.09% as of 29 March 2017), with the exception of state-owned Petrobras which saw a sharp upward revision in earnings as the company reported an operating income of BRL 17.1 billion for the year 2016 (up from BRL -12.4 billion in 2015) and a reduced negative net profit in 2016 compared to that in 2015. Little was changed with respect to the estimated earnings of the heavily-weighted banking sector, which saw an average 0.1% revision in earnings. Nonetheless, improvements in the country’s macroeconomic environment continue to bode well for business confidence and companies’ take-up rate for funding which should see the earnings of Brazilian banks supported.

Across the Atlantic in Russia, the RTSI$ Index saw slight upward revisions in estimated earnings over the month of February (as of 29 March 2017), with the estimated earnings for 2017 and 2018 revised higher by 0.6% and 0.9% respectively. As of 29 March 2017, the earnings of Russian companies are expected to rise 19.5% in 2017 before growing further by 13.4% in 2018. Over the month (as of 29 March 2017), the dominant financials sector saw some of the largest upward revisions in its 2017 estimated EPS which averaged to a 26.2% upward revision. Meanwhile, earnings revisions in the energy sector were more varied, with Lukoil PJSC and Surgutneftegas OJSC seeing the largest earnings upgrades, while Rosneft Oil Co PJSC and Gazprom PJSC were laggards in the sector. Mixed sectors were seen with the largest earnings downgrades over the month, including the materials and utilities sectors.

Latin America’s largest economy has continued to gradually shift towards a turnaround, as a slowing in the decline of several econom ic indicators continued to be observed and January’s industrial production had expanded year-on-year (by 1.4%) for the first time since the country entered a recession in 2014. While PMIs have continued to come in below the 50.0 neutral reading, they have improved in February 2017 after having moderated in the recent months, which is a good sign for industrial production going forward. Retail sales, although volatile, had presented an overall upward trend rather than a downward one. On the 7 March 2017, Brazil’s released her 4Q 2016 GDP growth, which showed a -2.5% year-on-year contraction, up from the prior quarter’s -2.9% decline, but missed expectations of a -2.4% decline. While this makes it Brazil’s second consecutive quarter where actual growth has missed economists’ expectations, it is worth noting that the decline in household consumption (household consumption accounts for around 60% of Brazil’s GDP) had continued to slow and inflation had continued to trend downwards, encouraging consumption and making conditions more suited for further monetary easing. The expected monetary easing ahead and continued stabilisation in commodity prices as well as China’s economy would likely support Brazilian companies’ earnings over the next few quarters. As of 24 March 2017, a weekly survey of about 100 economist conducted by the Brazilian central bank revealed that the consensus is expecting the economy to grow 0.47% in 2017 before expanding 2.5% the following year.

On the 24 March 2017, the Central Bank of the Russian Federation (CBR), contrary to consensus expectations, had slashed the key rate by -25 basis points to 9.75%, whilst announcing the possibility of cutting the rate further (albeit gradually) in 2Q (policy meetings in 2Q are in April and June) and 3Q (policy meetings in 3Q are in July and September) 2017. With inflation falling further to 4.6% in February (and being expected to fall further in March) down from 5.0% in January, the central bank stated that “the risks that inflation will miss the 4% target by the end of 2017 have slightly abated”. Nonetheless, it is worth noting that risks remain given continued volatility in the globa l commodity and financial markets which may weigh negatively on exchange rate and inflation. A continued easing in monetary policy would likely be supportive of the recovery of Russia’s economy given its still moderately tight policy stance. Economic data have continued to show overall good progress towards economic recovery. While industrial production has contracted -2.7% year-on-year in February 2017, it remains too early to conclude a negative trend in the data, especially given its consecutive 12-month year-on-year expansion from January 2016 to January 2017. Russia’s trade surplus for January 2017 had widened 36.8% year-on-year to USD 11.4 billion, although this falls slightly below estimates. While crude oil prices have fallen through March, its gradual improvement through 2017 continues to seem likely at this juncture and should continue to provide good support to the global oil exporter. As at 29 March 2017, the consensus is expecting Russia’s GDP to grow 1.2% and 1.5% in 2017 and 2018 respectively.

As of 29 March 2017, the Bovespa Index has fallen -1.7% month-to-date and currently trades at estimated PE ratios of 12.3X and 11.0X for 2017 and 2018 respectively as compared to its fair PE ratio of 11.5X. This represents a discount from its fair PE ratio when looking at the metric from a longer term perspective (2018 PE ratio). Continued signs of recovery as well as a stabilisation in commodity prices and China’s economy have led us to be less pessimistic about the Brazilian economy which is still struggling at this juncture. As such, we believe that a star rating of 3.5 Stars “Attractive” continues to be warranted for Brazil’s equity market at this juncture . On the other hand, Russian equities have posted a 2.3% gain month-to-date as of 29 March 2017 in USD terms and the RTSI$ index currently trades at estimated PE ratios of 6.2X and 5.5X for 2017 and 2018 respectively as compared to its fair PE ratio of 7.0X. In the near future, the market can still be expected to be easily impacted by geopolitical tensions as well as the overall direction of crude oil prices. While we retain Russia’s star ratings at 4.0 Stars “Very Attractive”, we are keeping an eye on overall valuations should there be continued gains in stock prices without overall improving fundamentals.

BRAZIL (3.5 STARS – ATTRACTIVE)

Brazil’s GDP contracted -2.5% y-o-y in 4Q 16, improving from 3Q 16’s -2.9% y-o-y growth

Manufacturing PMI stood at 46.9 in Feb 17, up from 44.0 in Jan 17

Services PMI came in at 46.4 in Feb 17, up from 45.1 in Jan 17

Composite PMI was recorded at 46.6 in Feb 17, up from 44.7 in Jan 17

Retail sales fell by -4.4% y-o-y in Jan 17, up from a -4.9% decline in Dec 16

Industrial production rose 1.4% y-o-y in Jan 17 up from the -0.1% fall in Dec 16

IPCA inflation came in at 4.76% y-o-y in Feb 17, easing from a 5.35% y-o-y increase in Jan 17

Selic rate at 12.25% as of 27 March 2017

RUSSIA (4.0 STARS – VERY ATTRACTIVE)

Industrial production contracted -2.7% y-o-y in Feb 17, down from a 2.3% growth in Jan 17

CPI came in at 4.6% y-o-y in Feb 17, down from the 5.0% increase in Jan 17

PPI came in at 15.1% y-o-y in Feb 17, up from an upward revised 12.9% increase in Jan 17

Retail sales fell -2.6% y-o-y in Feb 17, down from a -2.3% decline in Jan 17

CBR rate at 9.75% as of 28 March 2017



PAGE 14

HKG BONDS BENCHMARK YEARS TO MATURITY

OFFER INDICATIVE YIELD (%) AS AT 24 MAR 2017

OFFER INDICATIVE YIELD (%) AS AT 28 FEB 2017

HKGB, Coupon 1.61%; Maturity 12/10/2018 2 year 1.55 0.808 0.895

HKGB, Coupon 1.19%, Maturity 12/06/2021 5 year 4.22 1.261 1.344

HKGB, Coupon 1.94%, Maturity 12/04//2023 7 year 6.05 1.378 1.484

HKGB, Coupon 2.07%, Maturity 08/26/2026 10 year 9.43 1.508 1.614

HKGB, Coupon 2.24%, Maturity 08/27/2029 15 year 12.44 1.647 1.724 OFFER YIELDS INCLUDE SALES CHARGE OF 0.1% AND COMMISSION CHARGE OF 0.3%

SOURCE: IFAST FINANCIAL

OVERNIGHT 1-WEEK 1-MONTH 2-MONTH 3-MONTH 6-MONTH 12-MONTH

31-Oct-16 0.13 0.23 0.34 0.48 0.62 0.96 1.28

30-Nov-16 0.34 0.35 0.44 0.55 0.69 1.02 1.32

31-Dec-16 0.66 0.62 0.75 0.89 1.02 1.27 1.58

31-Jan-17 0.19 0.22 0.59 0.81 0.99 1.22 1.55

28-Feb-17 0.13 0.21 0.46 0.74 0.94 1.09 1.49

28-Mar-17 0.07 0.20 0.44 0.73 0.94 1.08 1.49

SOURCE: HKMA

COUNTRY / REGION PARAMETER CPI VALUE ON 31-JAN-17 (YOY)

CPI VALUE ON 28-FEB-17 (YOY)

BENCHMARK INTEREST RATES AS AT 28-MAR-17

US CPI 2.50% 2.70% 1.00%

Europe CPI 1.80% 2.00% 0.00%

Japan CPI 0.30% 0.40% 0.10%

Indonesia CPI 3.49% 3.83% 6.50%

Malaysia CPI 3.20% 4.50% 3.00%

South Korea CPI 2.00% 1.90% 1.25%

Hong Kong CPI 1.30% -0.10% 1.25%

Thailand CPI 1.55% 1.44% 1.50%

China CPI 2.50% 0.80% 4.35%

Taiwan CPI 2.25% -0.04% 1.38%

India WPI 2.23% 1.86% 5.75%

Singapore CPI 0.60% 0.70% 0.08%

*BENCHMARK INTEREST RATE HAS BEEN CHANGED SINCE LAST MONTH

BOND MARKET REVIEW

BONDS

HONG KONG INTERBANK RATES (HIBOR)



PAGE 15

BOND CHART OF THE MONTH

HKG Bond Yield Curve


Historical Yields of US Treasuries


Historical Yields of HKG Bonds


BOND MARKET REVIEW

Throughout the first quarter of 2017, the USD has broadly weakened against many developed markets’ and emerging markets’ currencies. The Dollar Index fell -2.2% year-to-date, while the Asian Dollar Index (a measure of Asian currencies’ strength against the USD) rose 2.5%. The major currencies like the JPY and the EUR have both appreciated against the USD by 5.2% and 2.2% respectively, while the Swiss Franc (CHF) have risen against the greenback as well. Despite poor sentiment on Sterling due to the uncertainty surrounding Britain’s transition post-EU, the GBP has also recorded an appreciation against the USD year-to-date. We have cautioned investors against betting on continued USD appreciation when highlighting our key investment themes for 2017 last year, as currency directions are notoriously difficult to predict. For investors who are tempted to gain USD exposure to play an appreciating Dollar via unhedged USD share classes on fixed income funds, we would like to reiterate the fact that the fixed income portion of one’s portfolio is meant to be a stabiliser. Currency bets that do not play out as expected could affect one’s total return; and the currency movements over the quarter thus far is a pertinent reminder of this.

Corporate Bond Spreads Against US 10-Yr Treasury




PAGE 16

STAR RATINGS REVIEW & UPDATE FOR END 1Q 2017

STAR RATINGS METHODOLOGY At the end of each quarter, we review our calls on the various regional and single-country equity markets under our coverage to assess each market’s attractiveness as an investment proposition both on a standalone basis, as well as with respect to other markets. In our quarterly star rating exercise, we look at key valuation metrics like PE and PB ratios, expected earnings growth, as well as excess earnings yield to determine how attractive a particular market is. In addition, we consider the economic outlook utilising both consensus forecasts, as well as our own assessment of longer-term economic prospects. Our methodology not only incorporates both top-down and bottom-up forecasts, but also includes qualitative adjustments where necessary to achieve reasonable estimates of target upside for each market under our coverage over a 3-year horizon.

1Q 2017 REVIEW AND CHANGES TO STAR RATINGS The first quarter of 2017 has been pretty decent to investors all around the world, with both equity and bond markets on aggregate posting positive returns year-to-date. Global equity markets, as represented by the MSCI AC World Index, posted a 2.9% return, while in the global fixed income markets, the JPMorgan Global Aggregate Bond Index posted a -1.9% return over the first quarter (1.7% in local currency terms as of March 2017). Breaking down the equity markets regionally, we saw that the developed markets, while posting positive gains year-to-date, have generally lagged behind emerging markets. The MSCI Emerging Markets Index posted a 8.7% gain, while the MSCI Asia ex Japan Index rose close to 10.1%, driven by a broad-based rally across Asian equity markets like China, India, South Korea and Taiwan. The highlight of the quarter was in the US, where the Federal Reserve has once more raised benchmark policy rates in the US, this time to a range of 0.75% – 1.00% in its March FOMC meeting, making it the third rate hike in its current monetary tightening cycle. The Fed retained its forecasts for the Fed Funds rate for 2017, implying that it is staying with its stance of 3 hikes for the year (2 more on the cards). Additionally, the Fed also reaffirmed its outlook on the US economy, stating that “household spending has continued to rise moderately while business fixed investment appears to have firmed somewhat”, and added that inflation has risen in recent months, revising its core PCE target higher to a 1.8% – 1.9% range for this year. The Fed also reiterated that they would wait for further clarity on potential policies coming out of Washington before readjusting its forecasts and stance. Across the Atlantic in Europe, data indicates that growth on the continent is improving, and despite the heavily-loaded political calendar and development, equity markets there have taken in their stride and continued to climb higher over the quarter. The Dutch elections are now over, with the Eurosceptic factions getting less support than expected. Across the English Channel, UK Prime Minister Theresa May has triggered Article 50, officially signalling that Britain will leave the European Union (EU) by end-March 2019. The ball is now in the EU council’s court, with negotiations now on the agenda over the next few months as European politicians prepare for an EU without the UK in it. Financial markets remained concerned over the upcoming elections in France in late-April, as polls indicate that Euro-sceptic candidate Marine Le Pen has a possible shot at the Presidency. Meanwhile in Germany, federal elections are scheduled to take place in September. In Asia, economic data from many countries indicate broad-based improving economic momentum. This trend is seen across markets like China, South Korea, Japan, India as well as in Southeast Asia, and has buoyed investment sentiment lately, leading to relatively strong equity market performance over the quarter. Exports data across the various markets in the region also suggests a pickup in demand, and corporate earnings estimates have also continued to see broad-based improvements in many markets under our coverage. As we have pointed out and emphasised last year, with economic stabilisation in China, we expect Asian economies and markets to continue their gradual recovery this year, benefiting asset markets across the region.

MARKETS STAR RATINGS OUR 3 YEAR VIEW

Emerging Markets 5.0 Very Attractive

Asia ex-Japan 5.0 Very Attractive

Europe 3.0 Attractive

US 2.5 Neutral

Japan 3.5 Attractive

SINGLE COUNTRY MARKETS STAR RATINGS OUR 3 YEAR VIEW

China 5.0 Very Attractive

Hong Kong 5.0 Very Attractive

South Korea 4.5 Very Attractive

Taiwan 4.0 Very Attractive

Russia 4.0 Very Attractive

Singapore 4.0 Very Attractive

Brazil 3.5 Attractive

Malaysia 3.0 Attractive

Thailand 3.0 Attractive

India 3.5 Attractive

Indonesia 3.0 Attractive

Source: iFAST Compilations



PAGE 17

Equities: Monitoring Valuations In Western Developed Markets Once Again…

While the world continues to monitor Washington following the debacle of the withdrawal of the healthcare bill, uncertainty lingers over the Trump administration’s next move, given that tax reform and some form of infrastructure spending remains on the cards. Equity markets had a minor sell-off following the news, with higher quality bond market segments rallying and the USD weakening broadly against many currencies across the board. Despite this development, valuation multiples in the US equity market remain elevated, with corporate earnings growth expected to be the main driver of returns over the next two years.

While over the Atlantic in Europe, equity markets have climbed higher year-to-date, as investors and businesses have taken in their stride the various political developments happening across the continent. Near-term volatility may arise as markets attempt to discount changes from the political sphere. While we acknowledge that economic recovery in Europe is increasingly entrenched, we find ourselves once again looking at relatively stretched valuation multiples in European equities. Corporate earnings seem to be on the mend, but have not been upgraded in a similar magnitude as the rise in share prices thus far. For both the US and Europe equity markets, we are keeping a watchful eye and may review their respective star ratings going forward.

Fixed Income: Still Prefer Short Duration

Bond markets have also been pretty decent and benign over the first quarter of 2017, with yields in many fixed income segments declining over the period. These segments include US and Asian investment grade corporate bonds, emerging market debt as well as the US high yield market (despite a brief sell-off in March). Although the Fed has continued its normalisation of monetary policy via an additional 25 basis point hike in its March FOMC meeting, bond market volatility should remain subdued as long as US policy-makers continue their gradual tightening approach and as inflationary pressures remain gradual.

While yields on G7 sovereign bonds have risen since 4Q 16, they are not high enough to be attractive on an absolute basis and to compensate for interest rate risk as well. We reiterate our preference for the short duration segments, given the still relatively decent yields that investors could obtain and also low duration risks. We also continue to advocate investors to remain on the defensive for fixed income.

Overweight Equities Vis-À-Vis Fixed Income, Still Positive On Global Emerging Markets And Asia Ex-Japan

For 2017, we are overweight equities vis-à-vis fixed income, and for the equity exposure, we retain our preference for emerging and Asian equity markets relative to their developed market peers (like the US and Europe). Despite their pretty decent returns year-to-date, valuation multiples remain attractive on aggregate, and we expect gradual recovery in corporate earnings across the region, which would support equity market gains going forward. These emerging Asian markets with lower valuations provide a “margin of safety” for investors, helping to minimise the effect of a rise in risk-free rates moving forward.



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STAR RATINGS REVIEW

REGIONAL STAR RATINGS US (2.5 Stars – Neutral) Why we like it

1. Economic Fundamentals Robust, Lending Support To Corporate Earnings Growth

Economic momentum remains robust, manufacturing has picked up since 3Q 16 while consumption is expected to be the key

driver for GDP, supported by a robust labour market and relatively subdued energy costs

In an environment of positive economic growth, earnings are forecast by consensus to grow by a 9.2% annualised rate by end-

2019 (as at 24 March 2017)

2. Strong Brands, Global Reach and Importance

Many US companies possess strong branding power; 9 out of the 10 most valuable brands of the world are US companies

(according to Forbes’ 2016 study)

A large proportion of the largest US companies derive significant proportions of revenue from overseas, allowing such companies

to benefit from global growth rather than being fully dependent on the domestic economy

Leading US companies still remain global leaders in various fields like technology (Apple, Google, IBM), finance (JP Morgan,

Citigroup), energy (Exxon Mobil, Chevron), consumer-orientated (P&G, Coca Cola, Amazon, Walt Disney) and even healthcare

(Johnson & Johnson, CVS Health)

3. Domestic Growth Drivers and Trends

Other than a normalisation of the residential housing market, unparalleled access to cheaper energy prices – via the shale energy

revolution – should provide a competitive advantage for US manufacturing and companies

The incoming Trump administration is expected to roll some form of a fiscal stimulus package (either via corporate tax cuts or

infrastructure spending) which will lend support to domestic growth

The US remains a key player in the global innovation scene, leading the way in digitisation

What we don’t like

1. Valuations Remain Elevated, Resulting In Lower Potential Returns

On several valuation metrics, valuations of the US equity market remain relatively stretched at this current juncture. The

forecasted annualised return of US equities by end-2019 is the lowest among the markets we cover

2. Earnings Growth Vulnerable To A Contraction Of Corporate Profit Margins

Profit margins of US companies remain high relative to historical averages (approximately 6.0%), may contract if labour costs

increase and the Fed continues on its monetary tightening stance as the US economy enters the later stages of the business

cycle

Earnings growth prospects will be affected if margins decline and sales growth do not increase

3. Selected Areas Of “Excesses” And “Frothiness”

Signs of over-optimism have manifested in selected areas of the market – the recent IPOs of new technology companies with no

profits calls to mind the more “bubbly” period of the stock market in the late 1990s

Relatively-high valuations in some areas in small caps, certain technology sub-sectors and the defensive sectors (healthcare,

utilities) are also areas of concern



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STAR RATINGS REVIEW

Europe (2.5 Stars - Neutral) Why we like it

1. International Companies Are Sound

MNC giants such as BMW, Siemens, Adidas, Carrefour and other well-known large caps are in good financial health and possess strong balance sheets

MNCs have exposure to overseas markets and the EUR’s weakness will aid in making European products more competitive, boosting profits from exports

2. Domestic demand recovering, ECB Policy’s Attempt to Spur Lending

Data continues to suggest that domestic demand and corporate investment remain supported

PMIs have remained resilient in expansion territory post-Brexit

ECB’s QE programme remains in place, and with an eventual modification beginning in April 2017 is helping to steepen the yield curve, boosting earnings of banks and insurers in the Eurozone

Why we don’t like it

1. Existing And New Reforms Need To Be Implemented

Not all countries have implemented all the reforms previously promised

Some countries, e.g. Italy and France, need to implement reforms to restructure their industries and work force and improve their efficiency and competitiveness

2. Valuations Not The Most Attractive

Valuations remain at premium relative to our estimated fair value

Against an estimated fair PE ratio of 13.5X earnings, 2017’s estimated PE of 15.4X is above fair value, 2018’s estimated PE ratio is 14.0X (as at 27 March 2017)

3. Political Uncertainty In The European Union (EU)

With the triggering of Article 50, the UK will officially leave the EU by end-March 2019, heralding a start of further negotiations among policy-makers and casting doubts on the long term future and viability of the EU and Eurozone

Being the second largest economy in the EU, the likely eventual departure of Britain could hurt the EU

Upcoming election cycles in core countries such as Germany and France, may lead to unexpected political changes that would weigh on investment sentiment and corporate decision-making



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STAR RATINGS REVIEW

JAPAN (3.5 Stars – Attractive) Why we like it:

1. Improving global economy

Japanese companies have large proportion of their revenue generated overseas, mostly related to export of capital goods and productivity enhancement solution. As a result, Japan’s corporations’ earnings are highly correlated to rate of global growth. Being a cyclical market in nature, Japan will likely benefit from a global economic recovery, and we believe such recovery is now in its early stages, such belief is now further supported by universal improvements in exports for major exporting countries in Asia.

2. Attractive Valuation

Although Japanese equities have risen in the fourth quarter of 2016, its valuations are still cheaper than US and Europe. In trailing PE terms,

NKY is trading at average level + 0.3 times SD, factoring in a 10% earnings growth, its estimated PE ratio will be lower than its average

historical level. Yet US and Europe equities are now trading at valuations of 1 SD higher than historical average or more.

In a situation where the market is expecting 10-13% of earnings growth for the aforementioned markets in 2017, Japan is looking much

more attractive than its peers in terms of valuations.

Why we don’t like:

1. Market may have priced in too much optimism into Japan’s currency and equity market

Although risk has been lowered for a slower than expected rate hike schedule from Federal Reserve, there are still concerns regarding disappointment towards Trump’s administration, which can drive the USD down and adversely impact Japanese equities, the recent USD’s weakness after Trump failing to pass his America Healthcare Proposal is a preview of what could happen.

2. The end of accommodative measures are approaching The difference between the pace of asset purchase and JGB issuance still pictures a scenario where the bank will have no JGB available for

purchase when we are heading into 2018. Eventually the asset purchase programme would need to end, it is made even easier given that the focus of monetary policy has shifted to yield curve control with no promise on size of asset purchase. If the government fails to start off the economy’s engine before the easing program meets a dead-end, there could be adverse repricing movements in Japan’s markets.



PAGE 21

STAR RATINGS REVIEW

Emerging Markets (5.0 stars – Very Attractive) Why we like it:

1. Relatively Stronger Long-Term Economic Growth Trajectory Healthier demographics, on-going trends of urbanisation and domestic consumption should drive long-term sustainable growth Emerging markets will likely post stronger economic growth compared to their developed market counterparts, which should imply higher rates of

earnings growth and stronger market returns Previously extremely reliant on exports for economic growth, emerging countries have been refocusing their economies towards sustainable

domestic consumption (e.g. China and India) 2. Attractive Valuations And High Potential Upside

The MSCI Emerging Markets Index trades at estimated PE ratios of 12.7X and 11.4X for 2017 and 2018 respectively (as of 27 March 2017); as compared to its fair PE of 13.5X

The estimated upside by end-2019 is more than 15.5% (annualised), representing substantial upside potential, similar to Asia ex-Japan Relatively attractive when compared to their developed market peers

3. Beneficiaries Of A Potential Pick-up In Global Trade

A potential rebound in global trade should see emerging markets pick up steam, with commodity producers such as Brazil and Russia amongst those who should benefit

Why we don’t like it:

1. While emerging markets have displayed increased resilience and have become more insulated against negative developments in the developed markets, they are still not immune to developments in the West and are exposed to the weak global trade and low commodity price environment, which has led to downward revisions in their earnings growth estimates

2. Emerging market governments have shown themselves to be unafraid of interfering with free market operations to curb inflation or to implement various policies; interference by governments have led to decreased profitability in various sectors such as utilities, telecommunications and financials, which has negatively impacted equity markets

3. The region still remains susceptible to geopolitical risk, as evidenced by events in Eastern Europe; political woes in South America and tensions in the Middle East also serve as a reminder that geopolitical risks for emerging markets tend to be higher than their developed market peers

4. Trade reliant emerging market countries may be affected should populist Western politicians enact protectionist policies, triggering ‘trade wars’ between multilateral trade channels

ASIA EXCLUDING JAPAN (5.0 STARS – VERY ATTRACTIVE) Why we like it:

1. Attractive Valuations Corporate earnings have stabilised since late-2016, and are seeing broad-based recovery across the region The estimated upside by end-2019 is 15.9% (annualised), representing substantial upside potential The MSCI Asia ex-Japan index trades at estimated PE ratios of 13.3X and 12.1X for 2017 and 2018 respectively, below its fair PE ratio of 14.5X

(as at 27 March 2017)

2. Global Economic Expansion To Benefit Asian Markets Economic momentum is likely to remain supported by recoveries in Europe and Japan while the US continues growing at a steady pace; and with

developed markets remaining supported, global trade could potentially be boosted with positive spill-over effects for Asia Asian exporters and export-oriented economies are poised to benefit from a potential pick-up in global trade, particularly those from North Asia and

other open-economies such as Singapore

3. High Potential Upside The high upside potential is a function of the region’s heavily weighted underlying markets such as China, which continues to trade at extremely

attractive valuations Relatively attractive when compared to their developed market peers

Why we don’t like it:

1. While Asian markets have displayed increased resiliency and become more insulated against negative developments in the developed markets, they are still not immune to developments in the West and are exposed to the weak global trade environment which has seen their earnings growth estimates reduced

2. Highly susceptible to capital flows as witnessed during the exodus of foreign capital in 2013 resulting in falling values of financial assets, and while the region’s capital flows have since stabilised, susceptibility to foreign capital outflows is a key source of asset price volatility for Asian assets

3. Asian countries that are driven by domestic consumption (which tends to be more resilient than exports) tend to have relatively higher valuations, reducing their attractiveness. On the other hand, Asian countries that are heavily exposed to global trade have seen their exports fall as a result of a sluggish global environment, impacting their valuations. Should global trade fail to pick-up, the export-reliant Asian countries could be set to remain cheap for quite some time

4. Trade reliant Asian countries may be affected should populist Western politicians enact protectionist policies, triggering ‘trade wars’ between multilateral trade channels



PAGE 22

STAR RATINGS REVIEW

ASIA COUNTRY STAR RATINGS SINGAPORE (4.0 STARS – VERY ATTRACTIVE)

Why we like it: 1. Attractive Valuations and Fairly Appealing Dividend Yields

The Straits Times Index (STI) trades at estimated PE ratios of 14.5X and 13.5X for 2017 and 2018 respectively, significantly below our

estimated fair PE ratio of 16.0X (as at 27 March 2016).

In addition, estimated PB ratios of the STI for 2017 and 2018 are 1.18X and 1.13X respectively, lower than its long-term historical

average of 1.4X.

Estimated dividend yields of 3.5% and 3.7% in 2017 and 2018 respectively are fairly appealing.

2. Relatively Lower Risk In Times Of Volatility And Uncertainty

In recent years, the STI has been less volatile as compared to several ASEAN peer equity indices such as Indonesia’s JCI Index,

Malaysia’s KLCI Index, as well as other Asian equity indices; notably Hong Kong’s Hang Seng Index and Japan’s Nikkei 225 Index. The

single one-day drop from the Brexit result on 24 June 2016 saw the STI fall -2.1%, less than the -2.9% decline seen in the Hang Seng

Index.

In times of heightened global risks and uncertainties, Singapore continues to offer investors a stable investment opportunity as compared

to its other Asian peers.

3. Pro-Business And Investment Climate

Given Singapore’s pro-business government, the country boasts an attractive tax system and pro-business government policies. Furthermore, Singapore offers strong political stability, government transparency, strict anti-corruption laws and a strong currency. Combining this with the STI’s derivation of two-thirds of its revenues from the region, the index enables investors to gain regional exposure coupled with strong stability.

Singapore ranked second in the World Economic Forum’s 2015-2016 Global Competitiveness Report, supporting the city state’s status as the gateway to the East for MNCs.

Why we don’t like it: 1. Reliant On Trade

Given Singapore’s small domestic market, the economy continues to be highly dependent on external trade. This sees the country’s

economic growth exposed to the global economy, especially the economies of its major trading partners (China, Malaysia, Hong Kong,

Indonesia).

While global growth is expected to pick up in 2017, particularly with the continued stabilisation in the Chinese economy and strength in

the US economy, Singapore’s reliance on trade no doubt remains a risk as this results in growth that is dependent on the growth in other

economies, to a notable degree.

2. Banking Sector Stocks Impacted By Overall Direction Of Oil Prices

With Singapore’s ailing Oil & Gas sector being the primary cause of Singapore bank’s rise in non-performing loan (NPL) ratios which

added stress to profits, investors in the market and in Singapore’s banking sector have become sensitive to the overall direction in oil

prices. While the global and domestic economy looks positioned to improve from that in 2016 (which should support the loan demand)

and that interest rates are expected to rise (which should support the net interest margins), investor concerns regarding the bank’s

provisions from the Oil & Gas sector would likely still continue to be present over the next few quarters. Singapore banks represent over

30% of the STI and form the largest sector.

3. Still Weak Property Sector

As we have estimated, around 60% of the STI has some exposure to the property sector, which on its own comprises about 19% of the STI. Across several property segments, the latest data has continued to reflect high vacancy rates and low prices and rentals. The sector continues to remain vulnerable to future interest rate increases, cooling measures and recent weakness in local retail sales.



PAGE 23

STAR RATINGS REVIEW

Hong Kong (5.0 Stars – Very Attractive) Why we like it 1. Attractive dividend yield offers by Hong Kong blue chip stocks Hang Seng index constituent stocks offers one of the most attractive dividend yield in global context. By the end of February 2017, Hang Seng

Index offers around 3.43% dividend yield.

2. Less currency volatility for investors who are using USD as base currency Currency movements remain a crucial investment factor in 2017. As the HKD is pegged with the USD, investors who are using USD as a base

currency would bear lower currency risks when compared to investing in other Asia ex Japan markets. Why we don’t like: 1. Economy highly dependent on international trade and finance

The trading and logistics services industry contributed the most to both GDP contribution and employment. Considering the external economic uncertainties, such as trade protectionism, Hong Kong’s economy may subject to more headwinds from external environment.

2. Hong Kong still suffering from a retail slump

Despite the retailing downturn has slowed down due to ahead of holiday shopping season, the weakening of the RMB led to declining number of mainland Chinese visitors to Hong Kong which still could return to haunt the industry.

3. High leverage in Hong Kong Mortgage Applications; A tipping point when the US tightens policy

The latest Hong Kong Residential Mortgage Survey’s reveal that outstanding loans still at a high level of HKD 1,126.2 billion by the end of January 2017. With the expectation of the US Federal Reserve continuing to hike rates, we believe any possible hikes in 2017 would negatively impact the mortgage market.



PAGE 24

STAR RATINGS REVIEW

China (5.0 Stars – Very Attractive) China A – 3.5 STARS (Attractive)

Why we like it

1. Economic stabilization

China’s economy has shown more signs of stabilisation in 1Q 17, carrying over the momentum from last quarter. PPI accelerated to its fastest

pace in recent eight years, peaking at 7.8% in February 2017, which mainly results from a sharp price hike in raw materials. The rebound in the

economy will increase the profitability and earning of corporates and consequently benefit the market

2. Potential MSCI index inclusion of A-shares

A-shares remains on the review list for inclusion into the emerging markets index this year. With the faster pace of opening-up or reform of China’s capital market, the possibility of MSCI index inclusion of A-share increases. China’s stock market is expected to gain great confidence once MSCI decides to include A-share in its emerging-markets index.

3. Opening up of domestic China market

0、 With the successful deployment of the Shenzhen-Hong Kong Stock connect, we expect the scheme would attract more institutional and

professional investors to the market. With more institutional and professional investors participating in the market, corporate governance,

information transparency and accounting standards will benefit the A-share market as a whole.

4. Attractive Valuations in H shares

0、 The Chinese H-share market brought valuations to lower levels of the PE band territory, presenting an attractive upside as the equity market

continues to be supported by easing measures and reform measures. Valuations remain attractive. According to market consensus, as at 24

March 2017, the HSML100 Index is trading at 10.2X and 9.3X (based on estimated earnings in 2017 and 2018 respectively) as compared to our

fair PE of 13.0X as at 21 Feb 2017, while the CSI 300 Index is currently trading at estimated PE ratios of 13.3X and 11.7X based on estimated

earnings in 2017 and 2018 respectively, a discount to its fair value of 15.0X.


1. External uncertainty

After Donald Trump became the 45th US president this year, the trade relationship between the US and China is now under threat, and trade friction might happen. The Trump’s preferences for trade protectionism and anti-globalisation have brought about uncertainty and serious concerns globally. During his election campaign, he accused China of being a currency manipulator and threatened to impose a punitive 45% tax on Chinese imports.

2. Quickened RMB depreciation on strong USD

In 2017, RMB’s depreciation may accelerate since the Fed’s “dot plot” projections show that the group expects the Fed to increase rates three

times in 2017 (to a rate of 1.4% by year's end). The recent RMB depreciation is a reasonable response to a stronger USD. Additionally, the RMB

faces downside pressure resulting from net capital outflows, which was mainly driven by domestic demand for diversifying into foreign assets.

3. Monetary Policy stays "prudent"

According to “two sessions” of the National People’s Congress and Chinese People’s Political Consultative Congress in March 2017, the focus for

2017 is on keeping the economy stable and managing risks, rather than unleashing radical reforms. Besides, "prudent" monetary policy indicates

the government may stay cautious on the credit expansion and monetary policy may not be as loose as in 2016.



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STAR RATINGS REVIEW

Taiwan (4.0 Stars – Very Attractive) Why we like it 1. Economic data continued to improve

Industrial production rose to 10.64% year-on-year in Feb 17, compared to a 2.46% in Jan 17, indicating a faster pace for manufacturing. Nikkei Taiwan Manufacturing PMI was 54.5 in Feb 2017, remaining in the expansion mode since the beginning of the year thanks to both domestic and external demand. The first quarter’s expansion was driven by a rise in exports of electronics and this led the 12-month trailing sum of exports to total USD 286.8 billion.

2. Valuations look attractive

Taiwan’s equity market is likely undervalued as compared to its fair valuation. As at 24 March 2017, Taiwan is trading at estimated PE ratios of 13.9X and 13.1X based on 2017 and 2018 earnings estimates respectively, below our fair PE ratio of 15.0X.

3. More sophisticated semi-conductors product offerings would be an edge for Taiwan semi-conductor producers

The worlds’ leading semi-conductors are located in Taiwan and Korea. Currently TSMC is producing 16nm FinFET node which serves as one of the world’s finest producer. The recent pick up of investments from semiconductors manufacturers maybe a potential signal for the manufacturers to boost up R&D to develop new products such as 10nm and even 7nm FinFET. The demand of such products would be more inelastic when compared to other lower- end conductors produced in EM Asia.

Why we don’t like it 1. Corporate earnings sensitive to changes in external demand

Taiwan is an export-oriented economy and corporate earnings are highly correlated with other major economies like China, the US, Europe and Japan. US President Trump's "America First" approach is likely to affect Taiwan's export performance. In addition, uncertainties surrounding the pace of the global economic recovery especially in Europe, Japan and China may weigh on Taiwan’s economy and corporate earnings outlook.

2. Corporate earnings downgrade might persist for some time

Corporate quarterly earnings have continued to be downgraded since the middle of 2015 as export orders from major trade partner continue to contract. Taking into account the external economic uncertainties, we expect that the deterioration in earnings may worsen.



PAGE 26

STAR RATINGS REVIEW

SOUTH KOREA (4.5 STARS – VERY ATTRACTIVE) Why we like it:

1. Semiconductor business are improving

DRAM price has stopped increasing, yet demand for memory chips remain strong as demonstrated by recent export figures. Demand for

mobile phones’ semiconductor from Chinese manufacturers is one of the driver with them increasing market penetration rate in local and

emerging market; upcoming demand from Apple for its new, celebratory iPhone model could give the sector an extra push.

2. Chinese economy is stabilising

Exports have been critical to South Korea’s economy, and China remains its largest export destination. We already see stabilisation in the

Chinese economy; if demand from China starts to increase again, we may see improvement in sentiment and corporate earnings for Korea.

Why we don’t like:

1. Demographic tension poses uncertainties on export outlook to China

Because of the deployment of THAAD missile defence system, political tensions between China and South Korea have risen, the Chinese government has taken measures to supress tourism towards Korea and there are news mentioning multiple Korean corporations have suffered losses because of China’s retaliation.

As mentioned above, China remains to be Korea’s largest export destination, prolonged political tensions may shift Chinese consumers’

product preferences and negatively impact Korea’s exports, which obviously disadvantages Korean equities.

2. Difficulty in providing additional stimulus

The high household debts continues to limit the BoK’s ability to boost the market with monetary policies, under the attempt to control capital

outflow, it is also not ideal for them to lower interest rate when US is gradually carrying out rate hike. Under current political environment, it is

unlikely for the government to push forward any fiscal policies until a new president is being elected and has consolidated enough political

influence. Generally speaking, Korea economy will be on its own for quite some time without much help from the central bank and government



PAGE 27

STAR RATINGS REVIEW

MALAYSIA (3.0 STARS – ATTRACTIVE) Why we like it

1. Growth remains reasonably decent

With improving global economic conditions, Malaysian economy could still see decent growth in 2017 (4.3% to 4.8%), supported by recovery in private consumption, modest expansionary fiscal spending, increasing external demand and a pick-up in foreign direct investment from China and Saudi Arabia.

2. Institutional liquidity to support local equity market

Strong participation of institutional funds within the local market will continue to serve as a buffer to cushion market performance should any selloff occurs.

3. Portfolio inflows on undervalued Ringgit-A tailwind to local equity market

According to the Bank for International Settlements, the real effective exchange rate for Ringgit is standing at 84.48 as of end February 2017. This indicates Ringgit could be undervalued by 15.52%, which may appear to be attractive enough to induce foreign investors to flow back into the equity market, serving as a positive factor that could support equity market performance in 2017.

In fact, foreign investors have been actively buying into the local equity as we saw a net purchase of RM 1.76 billion – the highest amount of net foreign purchase since May 2013. Foreign investors are net buyers on the local equity market for six consecutive weeks.

4. Earnings downgrades cycle possibly nearing a bottom

After multiple rounds of earnings disappointments and forecasts cuts, the earnings downgrades have eased recently and a downgrade cycle is likely nearing a bottom, in our view.

There is an increase in number of companies reporting positive earnings surprise for year 2016, which could lead earnings upgrades moving forward.

As economic growth is projected to pick up, the outlook for corporate earnings looks brighter ahead. Our expectation is that corporate profit to regain positive momentum and grow at a moderate pace in 2017.


1. Elevated debt level-A structural challenge to growth

According to the Bank for International Settlements, total debt to GDP ratio for Malaysia is estimated to be 244% as of end September 2016 – a level similar with some of the developed economies. While high level of debt does not always signal looming disasters, it suggests a structural challenge to growth, with rapid credit expansion to boost growth could risk debt sustainability while deleveraging would be a headwind to growth. We see the latter being a more possible outcome.

2. Modest Upside Potential

Despite the fact that Malaysia market has underperformed many other markets under our coverage in 2016, valuation for KLCI Index is still trading at a slight premium compared to what we deemed as fair.

With valuations at a slight premium now, equity return for KLCI is likely to be modest at best, considering earnings growth should be the major contributor to equity return, which we expect to come in at mid-single digit next year.



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STAR RATINGS REVIEW

INDONESIA (3.0 STARS – ATTRACTIVE) Why we like it

1. Robust Consumption on the back of Stabilising Commodity Prices

Higher commodity prices have furnished better wages for the farmers within the agriculture sector, which accounts for more than 30% of labor force;

Coupled with modest inflation, spending power of the population has been lifted, which bodes well for the private consumption-reliant economy;

On-going coordination between the Indonesian Government and Bank Indonesia to control inflation (target inflation: 4% ± 1%).

2. Increasing Macroeconomic Stability to Attract FDI

Current account balance continues to exhibit ameliorating trend, December 2016’s figure came in at -1.7% (%GDP) on the back of Indonesian Government’s continuous effort to trim fiscal deficit and build a stronger balance sheet to reduce external vulnerabilities;

Rebound in commodity prices and pickup in global trade activities helped exports growth, which lead to a higher trade balance surplus;

Various on-going structural reforms, including measures to loosen investment restrictions will serve as a plus to attract foreign direct investments (FDI).


1. Valuation remains slightly expensive

As at 24 March 2017, the JCI Index is trading at 16.1X, which is a little higher than our fair PE of 16.0X;

Year-to-date, earnings for 2017 and 2018 has been revised upwards by 0.2% and downwards by -4.2% respectively year-to-date;

Given the ameliorating macroeconomic environment and stabilising signs of earnings revision, we expect the equity market to remain supported in near term.



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STAR RATINGS REVIEW

Thailand (3.0 STARS- ATTRACTIVE) Why we like it

1. Farmers’ Income to Remain Supported During Drought Season

Ministry of Agriculture and Cooperatives (MOAC) reported 105 districts in 34 provinces out of water irrigation zone, which is significantly lower than 391 districts in 46 provinces last year. Hence, we foresee a softer impact to the agriculture industry from the drought season (March-May) this year, recovering from the previous’ El Nino effect;

29 projects in the pipeline from MOAC’s announcement involving budget of USD 488 million to reduce drought impacts in agriculture sector;

Thai government has imposed penalties to halt farming activities prior to the end of drought, and encourage rice farmers to diversify their crops to reduce reliance on water;

Irrigation Department is planning to spend THB 3.5 billion to create non-farming jobs for farmers during drought season, which includes construction of small irrigation projects that will benefit the farmers in mitigating drought impacts in the future, while providing support to farmers’ income during this period.

2. Government’s Initiative to Stimulate Tourism Activities

Earlier in March, Thailand’s Industrial Minister Uttama Savanayana announced a national plan involving US$ 11.6bn to be invested in airports over the next 10 years, which points to capacity expansion to accommodate more tourist and increase the ease of travel for tourists around the nation;

Visa fees waiver and increase ease of visa extension for long-stay tourist to attract foreigners;

Political instability in the Europe region may have also steered Europeans in changing their destination towards Thailand, which has a clearer political scene now, current data from the Association of Thai Travel agents portrays an increase in tourists’ arrival from European countries, particularly German and France (YoY growth for periods 1-Jan-2017 to 20-Mar-2017 were 5.2% and 10.0% respectively, in contrast to 2016’s -14.5% and -3.4% contraction respectively);

Recovery of tourists’ arrival from China remains gradual.

3. Brighter Outlook for Exports

Exports y-o-y growth figures has been encouraging over the past three months, excluding high-base effects from the surge in gold exports a year earlier;

Thailand’s National Economic and Social Development Board has revised its 2017 exports growth upwards to 2.9% from 2.4%;

The upward revision was done on the base the pickup in world trade activities, following acceleration of growth in the world’s economy, which includes its key trading partners in the US, EU, Japan and ASEAN nations.


1. Baht Strength a Potential Headwind to Exports

Over the first quarter, foreign funds have bought into Thai government bonds, which has buoyed the THB against the greenback (+3.9% against USD year-to-date);

Thai sovereign debt remains under-owned by foreign investors relative to Malaysia and Indonesia (Thailand 14.8%, Malaysia 51.3%, Indonesia 37.5%);

We have highlighted previously that Thailand has a healthy current account surplus and foreign reserves, which are supportive of the THB;

Despite the decent picture on strong economy fundamentals, relative strength of THB against its regional peers may pose potent headwinds to the recovery of exports growth.

2. Premium valuation

As at 24 March 2017, Thai equities are trading at an estimated PE ratio of 15.5X, which is 10.7% higher than our fair PE ratio of 14.0X;

As at 24 March 2017, Thai equities’ 2017 and 2018 earnings has been revised downwards by -1.0% and -1.8% respectively year-to-date;

While earnings growth remains a major driver to the potential returns within the Thai equities’ landscape, the annualised expected return susceptible to the expected annualised compression of PE ratios.



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STAR RATINGS REVIEW

India (3.5 STARS- ATTRACTIVE) Why we like it

1. Reform Measures of the Government

A reformist Government is an essential element for stable macro-economic indicators and attractive valuations. One of the biggest reform measures that the Government has undertaken is demonetisation; a move which will transform the country from a high cash economy to a cashless economy. We believe that this measure will also bring down inflation in the long term, a battle that the RBI and the Government has been try to fight for a long time. The other reform measures include Pradhan Mantri Jan Dhan Yojana, the biggest financial inclusion initiative in the world, Housing for All by 2022 and the huge projects being undertaken in the infrastructure sector which includes rail, roads and shipping. The biggest tax reform of the country that is Goods and Services Tax (GST) is expected to be implemented by July 2017. This measure will reduce slippages and will make our tax system more efficient.

2. Attractive Valuations

According to consensus estimates, as on March 23, 2017, the estimated PE for India’s stock market (Sensex) are 21.0X, 17.4X and 14.8X for FY17, FY18 & FY19 respectively. Estimated earnings growth is 4.9%, 20.8% and 17.9% for FY17, FY18 & FY19 respectively.


1. Trump’s policies will impact emerging markets including India

We are of the view that FED rate hikes along with Trump’s policies to rejuvenate the US economy will lead to FII outflows from the emerging markets including India. In addition to this, Trump’s protectionist policies are expected to impact the different sectors of the economy like IT, Pharma, etc.



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STAR RATINGS REVIEW

Brazil (3.5 stars –Attractive) Why we like it

1. Active Central Bank The central bank has been supporting the local currency, the Brazilian Real, via currency purchase programs in an attempt to

reduce imported inflation. It has hiked the benchmark Selic rate by a total of 200 basis points in 2015 in a move to rein in inflation and add credibility to its perceived independence.

In 2016, the central bank has shown itself to be cautious, by gradually implementing its easing cycle to spur economic growth whilst monitoring the country’s encouraging downward progression in inflation. It has slashed rates by a total of -50 basis points in both October and December monetary policy meetings.

2. Secular Growth Story Still Intact

While Brazil’s economy is still recovering from its recession which it entered in 2014, its long-term structural growth story as an emerging market still remains intact. With positive demographic trends, long-term investors would still find that there are many opportunities for growth.

Brazil remains amongst the more attractive investment destination amongst Latin American nations and is, at this juncture, expected to see positive GDP growth in 2017.

3. Strong Foreign Currency Reserves Position

Brazil is able to service its debt obligations due to its strong foreign currency reserves of USD 375.5 billion (as of 28 March 2017) that represents a comfortable buffer of about six times its short-term external debt.

Why we don’t like it

1. Slower-Than-Expected Economic Improvement

Brazil’s economic growth has missed economist estimates for 2 quarters in a row, which have triggered some downgrades in its expected 2017 GDP growth, although expected growth still remains positive. It is worth nothing that since early-2016, there have been strong signs of recovery, with marked improvements in consumer and business confidence, PMI indicators, industrial production, as well as increasing optimism in the government’s ability to steer the economy out of recession. Political uncertainty has improved since the impeachment of former president Dilma Rousseff.

2. Heavy Trade Dependence On Europe And China

China accounts for approximately 30% of Brazil’s net exports. The restructuring of China’s economy towards a services-led economy rather than a manufacturing-led one has seen Brazil’s steel exports to China decline. Even though the majority of Brazil’s exports to China have shifted to soybeans — which has helped to cushion the fall in steel exports — however, the economy’s dependence on exports to China remains a risk.

Europe accounts for approximately 18% of Brazil’s exports. While Europe is expanding at a modest pace, with domestic demand showing signs of improvement, it remains prudent not to strike out the possibility of downside risks to economic growth.

3. Government Intervention In Private Sector

The government’s policies and intervention in the private sector has damaged business confidence and has led to lower levels of investment. Continued intervention in the private sector via the restriction of raising prices for various goods (e.g. utility prices and oil prices) has hurt companies such as Petrobras and Eletrobras. The situation, however, could improve, given that President Michel Temer is perceived by market participants as more market-oriented than his predecessor.

EMERGING MARKETS COUNTRY STAR RATINGS



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STAR RATINGS REVIEW

Russia (4.0 stars –Very Attractive) Why we like it

1. Attractive Valuations

Russian equities (represented by the RTSI$ index) currently trade at estimated PE ratios of 6.2X and 5.5X for 2017 and 2018 respectively, as compared to its fair PE ratio of 7.0X (as at 29 March 2017). On a price-to-book basis, Russian equities are trading at 0.7X book value – indicating the relatively beaten-down levels of the market.

2. Active Government Support For the Economy

The government has instituted a variety of measures that include providing support to the banking sector as well as the vital energy sector.

Given the dominance of the energy sector in Russia’s economy, the government continues to impose accommodative tax measures on companies in the sector which should continue to lend support to the energy sector in Russia given the current environment of improving, but still low energy prices. Recent times have seen the government impose various measures such as the inclusion of further parameters of tax manoeuvres for petrochemical projects and a reduction of export duties for oil exporters. While the country currently has in place an oil export duty and a mineral extraction tax (MET) on the oil sector, the government has voiced its plans to eliminate export duty by 2022-2025 and can still be expected to be accommodative should there be further measures imposed.

3. Policymakers Expected To Continue Easing Monetary Policy

Russia’s central bank recently resumed its easing cycle, lowering benchmark rates by -25 basis points (to 9.75%) on 24 March 2017. Policymakers are expected to continue their easing cycle at a gradual pace through 2017 should economic conditions allow them to do so, which would lend support to the real economy.


1. High Reliance On Commodity-Related Businesses

Being a commodity exporter, Russia’s economic outlook is highly correlated to the fate of commodity markets like crude oil, natural gas, and various sorts of base and industrial metals that the country exports. Lower energy prices affect export revenues of the country.

2. Geopolitical Risks Remain Elevated

Investment and business sentiment remains poor as economists and investors monitor geopolitical tensions. Corporate sanctions have been in place for close to 2 years – hampering economic growth and a return to normalcy.

3. Structural Reforms Needed For Greater Long-Term Growth

Aside from the aforementioned points on Russia’s dependence on the energy sector and its elevated geopolitical risks, issues concerning its labour market productivity as well as corporate and government inefficiencies continue to challenge the Russian economy, which would be negative for the sustainability of long-term growth. Furthermore, the quality of its services and independence of corporations continue to post a notable room for improvement. Structural reforms are much needed for the sustainability of its long-term growth. While the economy has acknowledged this, its implementation would likely be gradual, and time would be required for its impact to be realised.

MONTHLY MORNING MEETING APRIL 2017 · 2017-05-19 · monthly morning meeting april 2017 page 2...

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