Key Trades and Risks August 2010

Emerging Markets
Equity Research
18 August 2010
Key Trades and Risks

Emerging Markets Equity Strategy
• Global growth is slowing. This is a normal early cycle dynamic as the Emerging Markets Equity Strategy
acceleration phase in manufacturing ends. While deflation is the Adrian Mowat
AC
concern in DM, the threat to EM equities is inflation. EM average (852) 2800-8599

inflation is hovering at the top of the central bank band. Higher interest [email protected]
rates and lower growth typically lead to a de-rating in EM equities. J.P. Morgan Securities (Asia Pacific) Limited
Inconclusive economic data argues for range bound markets. Ben Laidler
• EM growth is also decelerating but is still double DM growth. Capital (1-212) 622-5252
[email protected]
flows into EM remain strong, attracted by premium nominal growth
J.P. Morgan Securities Inc.
and arguably lower structural risk. Note that flows into EM equities
are running at a rate equivalent to 2009 records flows. Flows in EM Deanne Gordon
(27-21) 712-0875
bonds are also very strong. [email protected]
• Earnings growth expectations at c.17% for both EM and DM appear J.P. Morgan Equities Ltd.
too high relative to nominal growth. MSCI weighted nominal GDP Rajiv Batra
growth in 2011 is forecast to be 12% in EM and 4% in DM. Profits as (91-22) 6157-3568
a percentage of GDP are already at near cycle highs. [email protected]
J.P. Morgan India Private Limited

• The forward PE of EM and DM are 10.5 and 11.5 respectively. EM PE
Sanaya Tavaria
is 6% below its 10 year average and trend EPS-based P/E is 30% (91-22) 6157-3312
below its long term average. With DM 2011 EPS growth arguably too [email protected]
high, EM discount to DM is therefore larger. EM earnings yield J.P. Morgan India Private Limited
(9.5%) is higher than CEMBI (5.9%) making EM equities
Faheem S Desai
extraordinarily cheap relative to corporate bonds. (91-22) 6157-3329
• We continue to reduce our exposure to cyclical sectors by booking [email protected]

J.P. Morgan India Private Limited
profits in transportation stocks. Cyclical exposure is now restricted to
tech. Note the OW in tech is modest compared to the large UWs in
Figure 1: MSCI EM relative performance
commodities and energy.
150
• Our key trades ranked by conviction are:
o CEMBI surfers – OW India and Turkey 130
o ABC of Real Estate - Anything but China 110 v s World
o Overweight Technology 90
o China economic rebalancing: Focus on consumer
o Advantage ASEAN 70
• The main risks to our view are a significant increase in EM inflation, 50 v s USA
sharp slowdown in global growth and no sell-off in commodities. For
more on risks, please see 30
96 98 00 02 04 06 08 10
• Key asset allocation calls:
OW: India, Korea, Taiwan, ASEAN and Turkey Source: Bloomberg, 16 August 2010.
OW: Technology
UW: China and Brazil
UW: Commodities, energy
For our ‘Key Trade’ stock ideas, click here to download the Bloomberg
sheet.
See page 90 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision.
Adrian Mowat Emerging Markets Equity Research
(852) 2800-8599 18 August 2010
[email protected]
J.P. Morgan Emerging Markets

Coverage (see page 95) Table of Contents
893 stocks covered in EM Faster, stronger, cheaper ........................................................3
US$8 trillion of total market
capitalization
Risks to our strategy..............................................................12
US$21 billion of daily trading Global emerging markets model portfolio by country ........16
volume
Global emerging markets model portfolio by sector...........17
Key Trades ..............................................................................18
In this report, we highlight:
Our top trade ideas

Brazil: Good Times for Domestics ........................................26
Risks China: A volatile bottom building process...........................28
Our model portfolio South Korea: Investors’ portfolio shift likely .......................30
Valuation stress test Taiwan: Tech a break .............................................................32
Key ratios for EMBIG 100
Russia: Volatility trade hitting speed bumps .......................34
Consensus country weights
India: Disappointing margin performance ...........................36
South Africa: Remain Neutral................................................38
We have two pages on each
significant emerging market. The Mexico: Consumer Recovery ................................................40
first page has a qualitative
review of events driving the past Malaysia: Back on a high; what now? ..................................42
12 months, the outlook and a
comment on valuations; the Thailand: Resilient despite turmoil .......................................44
second page displays the
scorecard, which presents key Indonesia: Domestic liquidity turning? ................................46
economic and equity market
data
Turkey: Inflation risk and watered down fiscal rule ............48
Philippines: High hopes on positive politics .......................50
The extended markers: This Extended markers ..................................................................53
report contains 36 pages of data
designed to help track emerging Consensus Asset Allocation .................................................55
economies and markets
Hindsight trades: What has worked......................................56
Composite valuation indicators ............................................58
The emerging market
dashboards efficiently display EMBIG100................................................................................62
key economic, equity and debt
data, demonstrating change and Emerging Markets Strategy Dashboards .............................70
perspective.
2
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Faster, stronger, cheaper

Global growth is slowing. This is a normal early cycle Figure 2: Downshift in global and Chinese growth
dynamic as the acceleration phase in manufacturing ends. 65
Outside the US, our economists are confident that the China manufacturing PMI
60
private sector will sustain growth. Unfortunately in the
55
US, the behavioral foundation supporting the expansion
50
feels more fragile than our economists were forecasting. Global Serv ices PMI
45
Our base case is no double-dip but it is unlikely that the 40
Global manufacturing PMI
debate will be settled soon. MSCI EM has been range 35
bound between 850 and 1050 in the past year. The 30
S&P500 range is 1000 to 1200. Developed and emerging Jan-05 Oct-05 Jul-06 Apr-07 Jan-08 Oct-08 Jul-09 Apr-10
equities are inexpensive relative to bonds.
Source: Bloomberg, J.P. Morgan, July 2010.
In G3, deflation rather than inflation is the concern. G3
10 year bond yields are now 0.99%, 2.39% and 2.67% in Figure 3: EM CPI and Earnings Yield
Japan, Germany and the US respectively. J.P. Morgan’s 12 MSCI EM 12m Fw d PE 5
recent inflation survey (see J.P. Morgan View, Loeys et 11 EM CPI %oy a
(RHS inv erted)
al, 6 August 2010) revealed a modest increase in the risk 10 (LHS)
9 EM central banks' 8
of deflation.
8 av g target range ceiling
7
In EM the fear is inflation. The Russian drought plus 11
6
wildfires led to a ban in wheat exports and a 70% 5
increase in the international price of wheat. Floods in 4 14
China have reduced agricultural output. China food CPI 3
is now 6.8%. Rising non-discretionary costs will likely 02 03 04 05 06 07 08 09
reduce discretionary spending in EM. Please see Table 1
for the weight of food in CPI. We also track inflation, Source: J.P. Morgan economics, IBES, MSCI, August 2010. Note: CPI data is till Jun 10.
including food inflation, in EM every week in our

Figure 4: MSCI Turkey (USD) relative to MSCI EM
dashboards. Food inflation is elevated in Russia, China,
Indonesia, India, Argentina and Thailand. 125
120
In October 2007, the EM CPI exceeded central banks’
target zones. All the EM central banks that J.P. Morgan 115
follow, except for Venezuela, increased interest rates in
late 2007. EM equities are growth assets. Higher interest 110
rates and lower growth lead to a de-rating in equities. 105

Note the de-rating in EM equities post October 2007 (see
Figure 3). EM inflation today is hovering at the top of the 100
central bank band. Dec-09 Feb-10 Apr-10 Jun-10 Aug-10
Source: Bloomberg, 13 August 2010.

Inflation in Indonesia and Turkey is a concern. For now
we are watching the data rather than reducing exposure
MSCI Turkey has outperformed EM by 8% ytd. Inflation
to these markets. Indonesian inflation is modest relative
risks plus watered down fiscal rules have led to its
to the 2005 inflation spike. The driver of this spike was
underperformance since 2 August. As noted in Global
the increase in refined product prices (please page 7). In
Data Watch, Kasman, 13 August 2010: “This week
Turkey, the central bank has warned against a temporary
Turkey’s government announced it will delay the
rise in inflation in Aug-Sep mainly on the back of a weak
implementation of its “fiscal rule” reform, designed to
base. However, it remains confident on the disinflation
enforce cuts in the budget deficit and public debt.
process. Turkey's CPI at 7.6%yoy in July remains at
Rigorous application of the rule was expected to facilitate
historically low levels.
3
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Turkey’s upgrade to investment grade status and enhance Table 1: The weight of food in overall CPI (%)
the attractiveness of Turkish financial assets. The Countries Food Wt in CPI basket (%)
Philippines 46.6
decision raises concerns the government will deliver a India (CPI) 46.2
sharp rise in spending in the run-up to next year’s Pakistan 40.3
parliamentary elections, contravening existing budget Russia 40.2
Argentina 40.1
targets. This likely would exacerbate the rise in the Indonesia 36.1
current account deficit and leave the country more China 33.2
vulnerable to the whims of external financing. Market Thailand 33.0
reaction so far has been muted, reflecting the HK 32.1
Malaysia 31.4
government’s strong fiscal performance to date. Colombia 29.5
However, uncertainty regarding the future of the fiscal Turkey 27.7
rule could begin to hurt the markets if/when public India (WPI) 26.9
Taiwan 26.1
spending increases and/or global risk appetite South Africa 25.7
deteriorates more sharply.” We remain OW Turkey. The Poland 24.0
market’s forward PE is 9.4x. The discount to EM Mexico 22.7
Hungary 22.4
combined with high growth provides a margin of safety. Singapore 22.1
Brazil 20.8
EM growth is decelerating; J.P. Morgan’s forecast for Korea 20.1
Czech Republic 14.5
3Q10 is 4.6%. This is still double DM growth. Capital
Source: CEIC.
flows into EM remain strong, attracted by premium
nominal growth and arguably lower structural risk. Note
Figure 5: Performance of JPM Business Discretionary basket
that flows into EM equities are running at a rate relative to EM
equivalent to 2009 records flows. Flows in EM bonds are
150
also very strong. Cumulative inflows ytd at $50bn have
already surpassed the 2009 inflow of $46bn. Given the 140
strength of year to date flows, J.P. Morgan has revised 130
the full-year forecast of inflows into EM fixed income to
120
US$70-75 bn.
110
In our model portfolio, we are reducing exposure to 100
cyclical sectors by selling transportation stocks. J.P.
90
Morgan's business discretionary basket has outperformed
Jul-09 Sep-09 Nov -09 Jan-10 Mar-10 May -10 Jul-10
MSCI EM by 50% since end July 2009 (see Figure 5).
We are booking profits in the trade. We are adding banks Source: Bloomberg, 13 August 2010. On Bloomberg, JPHAXBZD <Go>.
and domestics in Taiwan, as they are potential
beneficiaries of the reflation theme. Our cyclical Figure 6: US equipment investment (QoQ saar)
exposure is restricted to tech. But the overweight is
30
modest compared to the large underweights in
20
commodities and energy.
10
There tends to be a contrasting reaction to capex 0
announcements made by material and tech companies. -10
When Caterpillar announced strong results due to -20
increased capex by mining companies, markets, -30
commodities and mining companies’ shares rallied?
-40
When a tech company announces higher capex, tech
Q1 08 Q3 08 Q1 09 Q3 09 Q1 10 Q3 10 Q1 11 Q3 11
shares fall. In our view, investors are overestimating tech
capex and underestimating tech demand. 7% earnings Source: J.P. Morgan. Note: Grey shaded area denotes forecasts till 4Q11.
growth for EM IT next year is modest relative to the
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market. At forward PE of 11x, we believe the tech sector Table 2: MSCI EM Earnings growth forecasts (%)
offers undervalued growth. Sectors Weight Earnings growth
(%) 2010F 2011F
Earnings growth expectations for both EM and DM EM 100.0 27.4 17.1
Materials 14.2 58.7 29.1
appear too high in our view. 2011 consensus earnings Financials 25.3 26.0 21.8
growth forecasts for EM and DM are 17% and 16% Health Care 0.8 23.0 18.6
respectively. Within EM, IT and telecom have the lowest Industrials 6.9 21.0 17.8
Utilities 3.8 11.7 15.9
growth forecasts at 7-8% while material and financial Consumer Discretionary 6.4 19.7 15.8
sectors’ earnings are forecast to grow in excess of 20%. Consumer Staples 6.8 17.2 15.4
In DM, financials, materials and consumer discretionary Energy 14.1 15.2 14.1
Telecommunication Services 8.4 9.3 7.9
are the primary drivers of growth, while earnings Information Technology 13.3 56.2 7.0
expectations are modest for the defensive sectors of Source: IBES, MSCI, J.P. Morgan estimates.
healthcare, utilities and telecom (see Table 2 and Table
3). Table 3: Developed World Earnings growth (%)
Sectors Weight Earnings growth
Earnings growth should follow the nominal growth (%) 2010F 2011F
within an economy. It is unlikely that trend earnings MSCI World 100% 36% 16%
growth significantly above nominal GDP growth can be Materials 7% 82% 28%
Financials 21% 57% 23%
sustained over long periods of time. A reality check with Consumer Discretionary 10% 84% 21%
nominal GDP growth presents an overoptimistic earnings Industrials 11% 40% 18%
outlook. MSCI weighted nominal GDP growth in 2011 is Energy 10% 37% 16%
Information Technology 12% 54% 13%
forecast to be 12% in EM and 4% in the Developed Consumer Staples 10% 9% 9%
world. Profits as a share of GDP are already at near cycle Health Care 10% 8% 8%
highs (see Figure 15). Utilities 4% -3% 7%
Telecommunication Services 4% 2% 7%
Source: IBES, MSCI, J.P. Morgan estimates.
Even assuming that EM EPS growth expectations are too
high, EM equities are extraordinarily cheap relative to
Table 4: MSCI Weighted Nominal GDP growth (%)
corporate bonds. EM corporate bond yields are at record
lows. The CEMBI yield (J.P. Morgan’s emerging market 2007 2011 CAGR (07-11)
EM 22.0 11.9 13.7
corporate bond index) is at 5.9% close to levels last DM 5.5 3.9 2.0
observed in early 2005. EM earnings yield is much Source: J.P. Morgan.
higher than both CEMBI and EMBI yields (see Figure 7).
Figure 7: EM Equities cheaper than bonds
We prefer relative rather than absolute valuations in EM.
18
EM valuations trend rather than mean revert. Note how
the MSCI EM trend EPS-based P/E has only crossed its 15
long-term average on four occasions since 1991 (see EM Earnings Yield
12 CEMBI
Figure 8). Also note the very rapid de-rating since
October 2007. But for the record, EM PE is 6% below its 9
10 year average and trend EPS-based P/E is 30% below
its long term average. The forward PE of EM and DM 6
EMBI
are 10.5 and 11.5 respectively. DM 2011 EPS growth is
3
arguably too high. EM discount to DM is therefore
02 03 04 05 06 07 08 09 10
larger.
Source: Bloomberg, MSCI, IBES, 13 August 2010. CEMBI = emerging market corporate
bond index
5
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Conclusion 2. Economic Risks

Based on relative valuation and growth, the case for EM • Slowdown in manufacturing
equities is compelling. But rapid appreciation is unlikely,
• Underestimating Euro sovereign stress contagion risk
in our view. Ambiguous developed economic data argues
for range- bound developed markets. In EM, we still fear 3. Political risks
a sharp correction in commodities as the commodity
• Tension between the two Koreas
bulls wake up to a hard landing in Chinese FAI. Inflation
is also a concern in EM. This is an environment to • Election-induced volatility
accumulate key trade stocks with limit orders.
For more details on these risks, please see page 12.
The global cyclical exposure in our strategy is at a post
Please see pages 26 for our detailed country views.
recovery low. The OW in technology is more than offset
by large UWs in commodities and energy. Proceeds from Figure 8: EM valuations trend rather than mean revert
the reduction in transportation stocks were reinvested
into domestic discretionary stocks. 42
37 Forward PE based on Trend EPS
Key asset allocation calls 32
• OW: India, Korea, Taiwan, ASEAN and Turkey 27
22
• OW: Technology
17 Av erage PE
• UW: China and Brazil 12
• UW: Commodities, energy 7
91 93 95 97 99 01 03 05 07 09
Our key trades ranked by conviction are:
• CEMBI surfers – OW India and Turkey Source: Datastream, MSCI, J.P. Morgan, 13 August 2010.
• ABC of Real Estate - Anything but China

Table 5: EM EPS integer in 2007 and 2011
• Overweight Technology Sectors 2007 2011E % change
• China economic rebalancing: Focus on consumer EM 65.3 98.2 50
Consumer Disc. 21.3 44.6 110
• Advantage ASEAN Health Care 21.4 42.6 99
Consumer Staples 13.9 24.2 74
For more details on these key trades, please see page 18. Financials 21.1 32.3 54
Utilities 17.6 26.3 49
Telecom 15.1 21.1 40
Please see pages 14, 16 and 17 for our Global Emerging Energy 71.0 98.8 39
Markets model portfolio and descriptions of changes IT 12.7 17.0 34
Materials 45.4 56.8 25
made this month. Industrials 14.3 16.2 13
Source: IBES.
Risks – are many:
1. Policy Risks
• Lack of G3 policy flexibility
• Strained social contract
• Central banks target asset prices
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Indonesia: Revisiting inflation

In this note we compare today's increase in inflation with bans on most varieties of rice to satisfy domestic
previous periods of high inflation. July 10 CPI was 6.2% consumption. Indonesia being a rice importer was
oya (consensus 5.7%) vs. 5.1%oya in June. Food affected as rice costs increased by more than 70%. BI
inflation was 14.1%oya; the key drivers of supply responded with six sequential 25bp rate increases
disruption are a) La Nina effect and b) Russian export between Jun and Oct 2008.
ban on foodgrains. Inflation is now higher than the Figure 9: Indonesia food and non-food CPI (%oya sa)
central bank’s target of 4-6%. The inflation report was
25
the catalyst for a decline in Indonesian equities. But this
proved short lived as equity investors took comfort from 20 Food
the limited reaction in the bond market. Policy makers
15
have pointed out that seasonal drivers of higher food and
non-food prices (the fasting month ahead of the Lebaran 10
festival, when bonuses are typically paid) are at play over Non-food
July-September, and are hence of the view that inflation 5
should cool past September. The risk is that prices prove
0
sticky beyond September.
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
2005: Removal of fuel subsidies Source: J.P. Morgan economics

CPI climbed to a 10 year high of 18.4% in Nov 05. Both
food and non food CPI peaked above 18%. Higher crude Figure 10: Indonesia policy rate and inflation cycle
oil prices (58%oya in Sep 05) generated an unsustainable 22 14
fiscal and current account deficit forcing an increase in
refined product prices (88% for motor gasoline to 185% 12
17
for household kerosene). Indonesia’s current account BI Policy rate %p.a. (RHS)
reduced to a deficit of 1.6% of GDP by 3Q05. The Bank 10
of Indonesia reacted aggressively; increasing interest 12
8
rates on five occasions with a cumulative 425 bps in
2H05. Policy rate reached a high of 12.75%. The 7
6
Indonesian market underperformed the rallying MSCI CPI y oy % (LHS)
EM by 20% in 2H05(in USD). IDR dropped 10% against 2 4
the dollar. MSCI Indonesia PE went to a deep discount of Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
20% relative to EM by end of 2005. Local bond markets
Source: Bloomberg, J.P. Morgan economics
saw marginal outflows of IDR 0.4 trillion in Dec 05 post
the inflation spike.
Figure 11: Indonesia local bond market flows (in IDR trillion)
Inflation today is a third of 2005 peak. Although refined 30 CPI Peak 05 CPI Peak 08
products subsidies remain, a large step change in prices is 20

unlikely. J.P. Morgan's economist forecast no increase in
the BI rate until 2Q11. Today BI rate of 6.5% offers the 10
third highest carry in EM after Turkey and Brazil. For
0
now, bond flows should continue to be attracted by this
carry. The risk is if inflation continues to rise then -10
interest rate and growth assumption will change resulting
in selling by both equity and bond investors, in our view. -20
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
2008: Oil woes and expensive grains
Source: Bank of Indonesia.
Headline CPI in Indonesia peaked at 12.1% in Sep 2008.
Food CPI rose to 10 year high of 20% while non-food
MSCI Indonesia declined by 54% in 2H08;
CPI climbed 10%. Main drivers of the inflation rise were
underperforming EM by 5%. The IDR fell 20% against
a) Historical peak in oil prices at 147 $/barrel in the
the dollar breaking past 12,500 in Nov 08. The market
middle of 2008 and b) Rising rice and wheat prices. A
traded at a large discount of 25% relative to EM by end
bad monsoon in the region led to lower production levels
of 2008. Bond markets saw strong outflows of IDR18
in 2008. Rice surplus countries like India imposed export
trillion in 4Q08.
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Conclusion Figure 13: MSCI Indonesia Performance

Headline inflation today at 6.2% is much lower than
2005 (18.4%) and 2008 (12.5%). However, food CPI is 400 CPI Peak 05 CPI Peak 08 200
close to the 2005 high. The key event in 2005 was the 350
Relativ e to EM (RHS)
increase in refined petroleum products prices. We believe 300 150
this is not likely to repeat. Fixed income investors lack 250
carry opportunities, in our view. Indonesia is a consensus 200 100
overweight for bond and equity investors. Fundamental 150
triggers for a downgrade, we believe, are: 100 50
Absolute (LHS)
50
• CPI above 7%. Note inflation is now higher than the 0 0
central bank’s target of 4-6%. Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
• CEMBI yields higher than 6.25% Source: MSCI, Bloomberg

• Domestic time deposit rates break past 7% (the
voluntary cap banks agreed upon) - suggesting Figure 14: IDR/USD performance
liquidity pressures are building. 13000 CPI peak 05 CPI peak 08
Figure 12: MSCI Indonesia valuations 12000

20 CPI Peak 05 30
CPI Peak 08 11000
12m Fw d PE (LHS) 20
15 10000
10
9000
10 0
8000
-10
5 12m Fw d PE premium to Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
EM (RHS) -20
Source: Bloomberg
0 -30
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
Source: I/B/E/S, MSCI, Datastream
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ECFA passed by lawmakers= Beginning of new economic era

Nick Lai AC
across the Taiwan Strait in China. This will be a
Faster than expected passing of ECFA significant political development that helps enhance
According to Economic Daily today, Taiwan’s mutual trust, in our view.
Legislative Yuen has successfully passed the third
reading of ECFA (Economic Cooperation Framework FTA (Free Trade Agreement) between Taiwan and other
Agreement) that was signed between Taiwan and China countries in Asia, including Singapore, New Zealand and
on June 29. We are encouraged by the faster than ASEAN members. Empirical study shows that FTA will
expected approval from lawmakers and maintain our benefit countries in the agreement through more trading
view that ECFA is only the beginning of Taiwan's activity at the expense of non-member in the same
economic integration or reconnection with the region. platform (see Table 8).
What’s next and the implication in equity market? Increasing cross-Strait M&A, direct investment or MOU
Effectiveness of ECFA will be Jan-2011 where 539 items in both financial and non-financial spaces. For instance,
or products in Taiwan will enjoy reduced export tariff to Taiwan’s Investment Commission of MoEA has
China (most are immediately cut to zero), according to approved 16 Chinese direct investments in Taiwan so far,
Early Harvest List which covers 16% of Taiwan’s total from IT, electronic component, restaurants to retail.
export value to China (see Table 6 and Table 7).
Recommendation
Second round of negotiation for further tariff reduction We maintain our positive view on Taiwan with year-end
on service and merchandize industries will start in 2H10 index view of 8,800. Smooth cross-strait development
or before the 6th cross-Strait talk in Dec-10. We expect should benefit non-tech sectors in both sentiment and
an increase of items or products that were not covered in industry fundamental, including financial, tourism,
Early Harvest List in Jun-10 will be included and see airline, consumer discretionary and China plays. On the
gradual reduction in export duty to China in 2011. tech side, momentum could be slow in the near term
given concern about end-demand and 2Q earnings. This,
Cross-Strait Economic Cooperation Commission will be nonetheless, provides potential entry point in the next 1-2
established in Sep-10, where official negotiation level is months, in our view. We recommend investors to remain
expected to increase to deputy minister from current exposed in non-tech but gradually add to tech in Sep-Oct
format of quasi-government body, i.e. Strait Exchange when there should be more visibility on 2011.
Foundation in Taiwan and Association for Relations
Table 6: Comparison of Cross-Strait Early Harvest List in Taiwan and China

Taiwan China
Annual export value to Annual export value to
Industry Item Industry Item
China in 2009 (USD bn) Taiwan in 2009 (USD bn)
Petrochemical 88 5.9 Petrochemical 42 0.3
Machinery 136 1.6 Machinery 22 0.1
Textile 107 1.4 Textile 69 0.5
Transport equipment 50 0.1 Transport equipment 17 0.4
Other categories 140 5.0 Other categories 117 1.5
Agricultural 18 0.0
total 539 13.8 total 267 2.9
% of Taiwan export value to China 16.1% % of China export value to Taiwan 10.5%
Source: MoEA.
Table 7: Tariff reduction scheduled based on current Early Harvest List

Export from China to Taiwan Export from Taiwan to China
Range (%) 2011 2012 2013 Range (%) 2011 2012 2013
0-2.5 0 0 0 0-5 0 0 0
2.6-7.5 2.5 0 0 6 -15 5 0 0
7.6 and above 5 2.5 0 16 and above 10 5 0
Source: MoEA.
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Table 8: Analysis of Taiwan’s trading growth with regional trading partners before and after they signed respective FTAs without Taiwan
ASEAN-Korea FTA Korea-Singapore FTA
Effective date of FTA
Jun-07 Mar-06
Period Before FTA After FTA Before FTA After FTA
2004-2006 2007-2008 2003-2005 2006-2008
Taiwan’s trading growth to ASEAN and Singapore 20.1% 11.8% 20.4% 13.2%
Korea’s trading growth to ASEAN and Singapore 16.6% 24.0% 20.9% 30.1%
Japan-Malaysia FTA Japan-Thailand FTA
Effective date of FTA
Jul-06 Nov-07
Period Before FTA After FTA Before FTA After FTA
2004-2006 2007-2008 2005-2007 2008
Taiwan’s trading growth to Malaysia and Thailand 16.6% 5.7% 16.2% -5.6%
Japan’s trading growth to Malaysia and Thailand 7.8% 22.5% 8.2% 15.2%
Source: Bureau of Foreign Trade.
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Focus on sectors within countries rather than country recommendations

The table below provides a level summary of our views on sectors within countries. Financials is 25%, Materials is 15% and
Energy is 14% of EM. All recommendations are relative to EM. The Industrials sector consists of an eclectic group of
stocks. We are overweight technology.
Table 9: Key country and sector recommendations
Country/Sector Weight Reco US$ Return (%) PE 09 PE PE EPS EPS EPS DY ROE ROE
10E 11E Growth Growth Growth 10E 10E
09 10E (%)
1 yr 3 yr 5 yr X X X (%) (%) CAGR % % 04-09
05-10E Avg
EM 100 -- 13 1 2 15.3 12.0 10.2 3 28 8.7 2.7 15.2 5.9
China 414.5 UW 4 17 226 15.6 12.5 10.6 17 25 14.7 2.9 16.1 13.3
China Financials 110.6 N 34 28 65 14.4 11.5 9.4 25 25 30.2 3.2 17.8 18.2
China Energy 168.5 UW 28 34 106 12.8 10.1 9.2 (5) 26 10.0 3.9 17.4 12.8
China Telecom 56.3 N 5 25 86 12.8 12.7 12.0 (4) 1 14.7 3.4 14.9 27.5
China Industrials 635.1 n/a 17 4 31 20.6 13.6 12.0 57 51 7.0 2.0 10.9 11.2
Brazil 926.2 UW 21 58 211 13.6 11.4 9.1 7 19 6.2 3.3 16.0 17.9
Brazil Materials 246.5 UW 29 63 261 18.5 9.0 6.3 (39) 107 10.5 3.2 19.0 25.4
Brazil Energy 195.8 UW (2) 69 218 10.0 10.5 9.1 (5) (5) 2.2 2.5 15.4 23.8
Brazil Financials 238.9 OW 33 58 234 12.8 12.1 10.1 41 5 6.7 3.4 16.3 21.3
Korea 773.1 OW 17 (10) 45 14.2 9.8 9.4 57 45 9.1 1.1 14.1 13.3
Korea IT 221.0 OW 18 10 26 18.0 9.9 11.1 (2,138) 81 14.7 0.2 18.1 15.1
Korea Financials 126.7 OW (1) (33) 20 15.9 9.4 8.2 (29) 69 2.0 2.1 11.6 12.4
Korea Industrials 116.4 n/a 13 (35) 86 15.7 12.3 11.1 28 28 11.8 1.2 11.5 11.3
Korea Materials 0.0 N 0 0 0 11.8 9.8 9.1 (2) 21 9.2 1.1 14.2 13.3
Korea Cons Disc 63.5 OW 33 50 113 9.1 8.0 7.6 124 15 17.7 0.8 18.2 15.6
Korea Cons Stap 36.6 N 15 (10) 50 16.1 12.6 12.7 7 28 14.1 1.5 16.8 15.3
Taiwan 111.2 OW 34 17 182 25.4 12.9 11.4 33 96 6.6 3.8 13.4 16.6
Taiwan IT 1080.4 OW 4 14 137 28.3 11.7 10.6 8 142 13.5 3.7 16.7 15.6
Taiwan Financials 77.7 OW 16 13 99 21.9 14.8 11.8 871 48 10.3 3.0 8.6 17.4
Taiwan Materials 88.3 UW 33 35 99 17.4 14.8 12.2 NM 18 (6.7) 4.7 10.5 17.8
India 451.8 OW 24 14 128 21.5 17.2 13.7 4 25 15.0 1.2 14.8 20.4
India Financials 121.4 OW 31 15 136 24.7 20.4 15.8 0 21 14.8 1.2 12.3 14.3
India Energy 65.6 N 4 10 230 20.6 14.6 12.1 (0) 42 15.8 1.2 16.3 20.3
India IT 102.9 OW 36 41 68 22.8 19.9 16.4 6 15 19.3 1.2 24.3 13.2
South Africa 427.7 N 25 28 75 16.5 12.2 9.7 (15) 36 11.6 3.2 16.5 18.3
SA Materials 116.4 UW 16 14 76 46.6 16.0 11.0 (55) 192 23.7 2.3 14.2 10.0
SA Financials 144.8 OW (3) 12 143 13.4 11.0 9.0 (11) 22 7.2 4.5 14.3 18.0
SA Telecom Ser 51.7 N 49 66 99 13.0 10.6 9.0 (5) 23 11.4 2.9 20.6 21.6
SA Cons Disc 76.4 N 44 17 110 14.4 11.7 9.9 14 22 14.2 2.5 18.5 31.3
SA Energy 41.3 UW 16 25 39 12.2 10.3 8.0 (22) 18 6.8 3.6 17.1 22.8
Russia 371.6 N 29 (27) 34 9.4 6.9 5.3 (37) 35 8.0 2.2 14.1 15.2
Russia Energy 210.2 N 16 (32) 10 6.2 5.4 4.6 (20) 16 4.7 2.3 13.6 15.4
Mexico 247.8 N 19 2 80 17.1 14.4 12.0 20 19 8.4 2.5 17.4 17.8
Mexico Telecom 92.5 N 13 2 132 13.8 11.5 10.2 21 19 18.5 4.0 43.5 31.4
Mexico Cons Stap 0.0 OW 0 0 0 19.9 20.1 16.7 54 (1) 14.1 1.6 14.8 13.5
Mexico Materials 40.4 UW 24 (28) 9 18.8 13.9 10.2 37 35 (7.4) 1.6 8.5 13.3
Malaysia 82.8 N (6) (19) 68 19.1 15.5 13.4 0 23 7.3 3.3 12.7 11.5
Indonesia 98.1 N 45 64 134 18.0 15.3 13.1 21 18 16.0 2.7 23.8 10.4
Turkey 99.9 OW 32 26 93 11.6 10.0 8.9 5 16 13.4 2.9 17.8 16.9
Turkey Financials 59.4 OW 37 44 130 10.7 9.4 8.4 30 14 19.8 2.2 18.6 16.7
Thailand 134.4 OW 35 83 242 13.6 11.9 10.2 33 15 (1.2) 3.8 15.2 25.2
Poland 87.5 N 16 (25) 27 14.9 12.9 10.9 (26) 16 (0.5) 3.5 11.8 15.6
Hungary 372.5 N 15 (3) 22 12.2 11.6 8.9 (37) 5 (2.1) 3.3 11.2 12.0
Philippines 172.4 OW 8 24 104 18.0 15.9 13.9 25 13 5.7 3.7 15.5 20.5
Source: J.P. Morgan Asian strategy team, MSCI, Datastream. Table sorted by descending weight in index, countries first followed by country-sectors, 16 August 2010.
11
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Risks to our strategy

Policy risks Figure 16: Falling PMIs
65
Lack of G3 policy flexibility Global manufacturing PMI
High fiscal deficits and record-low interest rates limit 60
policymakers’ ability to respond to a relapse in growth. A 55
growth relapse is not our base case. If it occurred, it 50 Gl b l
would be a serious blow to risk assets. Credit spreads 45
could widen and equities would fall. Global Serv ices PMI
40
35
Strained social contract
Political and regulatory risk is high. The corporate sector 30
Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10
has emerged from the global recession and credit crunch
stronger than the households. Note the profits as a share Source: Bloomberg
of GDP are near cycle highs but unemployment is 10%.
Policy makers constrained by high fiscal deficits are
Economic risks
likely to redress this imbalance through higher taxes and
increased regulation. This would add to business costs Slowdown in manufacturing
and delay normal investment decisions, threatening the We are overweight on the cyclical sectors of tech and
recovery. industrials. However, our overweight is more modest
than the large underweight in commodities and energy. If
As is the case in the US, Chinese corporate share of GDP economic growth slows meaningfully, it could be a
increased while the household share decreased. Labor potential risk to our sector view. Note that J.P. Morgan’s
disputes and subsequent large pay increases may start to all-industry PMI output index—which is a proxy for
reverse this trend. This rebalancing is healthy and should global GDP growth—has been falling for three
move China to a more sustainable growth model. But consecutive months now. It fell to 54.6 in July, with
near term the result is likely lower profit margins. declines in both the manufacturing and service sectors.
The coincidental decline in the manufacturing and
Policy risks may be more of a threat in the US than in services PMI indicates that global economic expansion is
Europe as legislation in US is negotiated rather than losing momentum.
following a defined objective. The recent UK budget is
encouraging as set out as long-term policy. Underestimating euro sovereign stress contagion risk
After Greece, there is speculation that Spain might reach
Central banks target asset prices out to the EU or IMF for financial support. The Spanish
Central banks are targeting asset prices in EM, notably in banking system is under significant pressure to address
China. These policies introduce economic and sector its solvency issues, especially among its saving banks.
specific risks. Note how poorly real estate stocks have These concerns have impaired the ability of Spanish
performed in EM despite low interest rates. banks to raise market funding, and increased the
possibility of seeking external liquidity support. If this
Figure 15: Strained social contract: US profit share and materializes, Spanish bond yields would likely rise
unemployment further and issuance could become more difficult.
% sa
22 Profit share 0
Euro sovereign stress generates both economic and
20
market risk. The economic risk is that business in core
18 3
Europe slows investment decisions. As we witnessed in
16 2008, rational individual risk reduction results in a
6
14 destructive downward spiral in risk assets.
12 9
Unemploy ment rate (inv erted)
10 The feedback loop between banks struggling to fund and
8 12 a subsequent reduction in the availability of credit is
70 75 80 85 90 95 00 05 10 another key risk. Nikolaos Panigirtzoglou in his weekly,
Flows and Liquidity, 4 June 2010 notes that: European
Source: J.P. Morgan. Note: Chart shows % share of gross value added, JPMorgan banks continue to face a difficult funding environment.
forecast for 2010.
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The primary market for unsecured bank debt remains in Figure 17: Spanish and German 10-year bond yield spread
hibernation. The contraction in the CP/CD issued by
240
European banks in the US is accelerating. Note that
European banks need to refinance nearly $130B per 200
month for the remainder of the year.
160
Uncertain outlook for commodities 120
We believe that the time limit for the financial correction
in commodity prices is September. The decline in bulk 80
commodity prices should lead to redemption from
40
commodity funds. However, so far, there is no evidence
of capitulation selling (see DBSCO Index). Three-month 0
forward iron ore prices hit a low on 9 July 2010, and are Jan-08 Jun-08 Nov -08 Apr-09 Sep-09 Feb-10 Jul-10
currently up nearly 30%.
Source: Bloomberg
Political risks Figure 18: Shares outstanding in Commodity ETF

Election-induced volatility
210000
Brazilian elections in October 2010 are likely to be a
source of volatility rather than a change in macro- 180000
economic policy. 150000
120000
90000
60000
30000
Dec-07 May -08 Oct-08 Mar-09 Aug-09 Jan-10 Jun-10
Source: Bloomberg, 30 July 2010
Figure 19: Public debt and fiscal balance as a % of GDP for EM and DM in 2010
0
Korea
Indonesia
-2 China Peru
Thai
Mex ico
EM Brazil
Phil
Russia Turkey
-4
Australia Italy
Czech India Hungary
Malay sia Germany
Portugal
S Africa
-6 Poland
Fiscal Balance
Euro area
Japan
DM Greece
-8
France
Spain
US
-10 UK
Ireland
-12
-14
0 50 100 Public Debt 150 200 250
Source: J.P. Morgan estimates
13
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Model portfolio changes

This month’s model portfolio reflects the changes made Table 10: Country asset allocation relative to MSCI EM
in the Regional model portfolio in “Conflicts: Country Deviation
Perspectives and Portfolios”, Mowat et al, 8 August India 4.8
Turkey 3.4
2010. Taiwan 2.7
Korea 2.6
In China, we are dropping China Shipping Container Thailand 2.5
Philippines 2.2
Lines as we reduce our exposure to cyclical sectors by Russia 0.4
selling transportation stocks. We are increasing exposure Mexico 0.2
to telecom by adding China Unicom which is CE3 -0.2
Malaysia -0.8
inexpensive compared to its regional telecom peers. Indonesia -1.3
South Africa -1.5
In Taiwan we are dropping Fubon Financial Holding and China -3.3
Brazil -7.6
China Airlines. We are replacing them with First
Source: J.P. Morgan.
Financial Holding Co Ltd, as banks should enjoy loan
growth as well as margin expansion driven by rate
Table 11: Sector asset allocation relative to MSCI EM
increases. We also add Far Eastern New Century Sector Deviation
Corporation on the back of attractive valuations, solid Financials 15.7
earnings, and positive outlook on the property market. Consumer Discretionary 12.7
Information Technology 6.5
Consumer Staples -0.1
In Indonesia, we are dropping Bank Danamon and Industrials -0.5
adding PT Telekomunikasi Indonesia as we expect it to Health Care -0.6
benefit from the improving dynamics of the Indonesian Utilities -2.4
Telecommunication Services -5.2
telecom sector which include emerging price stability Materials -11.7
driving faster-than-expected revenue growth. Energy -14.2
Source: J.P. Morgan.
In Russia, we dropped Magnit and added Protek as
valuations are attractive and we expect its EBITDA to Figure 20: Performance of GEM Model Portfolio vs. MSCI EM
expand driven by retail network expansion and general 35 GEMs Model Portfolio MSCI EM
pharma market growth.
25
In Philippines, we added Ayala Land, as it will benefit
from a combination of a much faster residential sales
15
take-up and increase in property prices amid a bright
sector outlook.
5
-5
1M 3M 12M
Source: J.P. Morgan Strategy, Bloomberg, 16 August 2010. Note: This is capital only
return i.e. no reinvestment of divs.
Please see pages 16 and 17 for our Global Emerging

Markets Model Portfolio.
Please note: Source for Data in Global emerging

market portfolio is: Bloomberg, MSCI, J.P. Morgan
estimates. Prices and valuations are as of 16 August
2010.
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Global emerging markets model portfolio by country

Ticker Price JPM Change Change Portfolio MSCI Deviation P/E P/E DY ROE
LC Rating 4 Wk (%) YTD (%) Weight(%) Weight(%) (%) 10E (x) 11E (x) 10E (%) 10E (%)
China 62.2 4.4 -2.3 15.4 18.6 -3.3 12.8 10.9 2.8 17.1
Bank of Communications 3328 HK 8.7 OW 4.1 -4.0 1.9 0.2 1.6 11.1 9.2 3.0 21.1
Belle International Holdings Ltd. 1880 HK 13.0 OW 9.5 43.0 2.0 0.2 1.8 34.4 32.9 1.0 19.4
China High Speed Transmission 658 HK 17.4 OW 11.8 -8.3 1.3 0.1 1.3 16.1 12.8 2.1 27.6
China Unicom (HK) Limited 762 HK 10.5 OW 4.8 2.1 2.3 0.2 2.0 38.2 25.0 1.1 3.2
Huabao International Holdings 336 HK 11.3 N 8.7 35.0 1.8 0.1 1.7 26.4 21.9 1.8 40.7
Lenovo 992 HK 4.8 N 3.0 -0.8 1.4 0.1 1.3 NM NM 0.1 9.8
Lifestyle International Holdings 1212 HK 17.5 OW 10.2 20.8 2.0 0.0 2.0 25.0 21.6 1.6 18.1
Ports Design 589 HK 21.0 OW 0.2 -13.1 1.6 0.0 1.6 22.2 18.1 2.7 36.5
Xinao Gas 2688 HK 18.2 N 1.1 -9.0 1.1 0.1 1.0 18.0 13.7 1.4 15.0
Brazil 229,018.2 6.7 -4.9 8.3 15.9 -7.6 11.9 9.5 3.1 17.5
BM&F Bovespa BVMF3 BZ 13.0 OW 10.5 6.0 2.6 0.4 2.2 14.4 12.3 2.5 na
Bradesco BBDC4 BZ 31.4 OW 8.7 4.3 2.1 1.0 1.1 12.2 10.4 2.8 20.3
CBD PCAR5 BZ 59.7 OW -4.9 -8.2 1.8 0.1 1.7 20.6 17.0 0.8 9.8
PDG Realty PDGR3 BZ 18.4 OW 4.9 5.8 1.8 0.2 1.6 14.0 9.1 1.3 14.2
Korea 492.1 3.3 1.9 16.1 13.5 2.6 9.7 9.3 1.2 14.9
Cheil Worldwide 030000 KS 12,050 NR -4.4 -4.4 1.0 0.0 1.0 14.0 13.0 3.0 16.6
Hynix Semiconductor 000660 KS 22,100 N -6.0 -4.5 2.5 0.3 2.2 5.4 8.1 0.0 33.8
Hyundai Department Stores 069960 KS 120,500 OW 2.1 7.1 1.6 0.0 1.5 10.4 9.5 0.5 13.8
Hyundai Mobis 012330 KS 209,000 OW 3.0 22.2 1.5 0.4 1.1 10.6 9.6 0.5 19.3
KB Financial 105560 KS 48,200 OW -3.0 -19.3 1.9 0.4 1.4 7.6 6.4 2.1 11.7
LG Chem 051910 KS 329,000 OW 1.4 44.0 2.1 0.4 1.7 12.3 12.0 1.1 27.5
Samsung Electronics 005930 KS 782,000 N -2.5 -2.1 3.8 2.3 1.5 9.8 11.2 1.6 17.3
SEMCO 009150 KS 129,500 OW -17.0 20.5 1.8 0.2 1.6 17.5 14.9 0.4 18.3
Taiwan 280.0 5.5 -1.9 13.6 11.0 2.7 13.2 11.6 3.7 14.1
Far Eastern New Century 1402 TT 40.0 OW 16.6 -0.1 1.8 0.1 1.7 NM 18.1 4.6 11.7
First Financial Holding Co Ltd 2892 TT 19.0 N 2.2 -1.9 2.7 0.1 2.6 14.6 11.2 2.6 7.9
Hon Hai 2317 TT 131.5 OW 9.1 -13.2 1.9 1.0 0.9 13.3 11.9 1.5 17.6
Nanya Technology Corporation 2408 TT 23.0 N -4.8 -29.8 1.2 0.0 1.2 NM 13.6 0.0 0.9
TSMC 2330 TT 59.8 OW -0.2 -7.3 2.3 1.4 0.9 10.5 9.6 5.0 27.7
UMC 2303 TT 13.9 OW -6.1 -19.2 1.8 0.2 1.6 9.5 8.3 3.7 8.5
Yuanta FHC 2885 TT 19.0 OW 1.9 -19.4 1.8 0.1 1.7 11.5 9.7 4.8 11.4
India 725.4 0.7 2.9 12.7 7.9 4.8 17.1 13.6 1.3 15.8
DLF DLFU IN 318.3 OW -0.4 -11.9 1.6 0.1 1.5 29.8 21.3 0.6 7.2
HDFC Bank HDFCB IN 2,121.1 OW 4.0 24.6 1.5 0.4 1.1 32.9 24.7 0.6 16.1
HDIL HDIL IN 287.6 OW 8.8 -20.3 1.5 0.4 1.2 15.2 10.0 0.0 11.3
IDFC IDFC IN 180.8 OW -7.5 17.1 1.6 0.1 1.5 22.1 19.2 0.9 16.1
Infosys INFO IN 2,750.5 OW -1.0 5.7 1.6 0.8 0.7 25.3 22.6 0.9 28.8
Kotak Mahindra Bank KMB IN 833.3 OW 6.4 3.3 1.6 0.1 1.5 23.5 19.3 0.2 16.7
Larsen & Toubro LT IN 1,773.6 OW -5.2 5.7 1.6 0.2 1.3 30.5 24.8 0.7 19.4
TCS TCS IN 850.2 OW 2.0 13.3 1.6 0.3 1.4 24.2 22.4 2.8 36.8
South Africa 721.6 6.6 4.8 5.8 7.4 -1.5 12.2 9.7 3.2 17.7
ABSA Group Ltd ASA SJ 126.0 OW -7.6 -1.9 1.9 0.2 1.7 10.0 8.2 3.9 17.8
Shoprite SHP SJ 84.5 OW -6.4 29.5 2.2 0.1 2.0 19.2 16.0 2.0 40.1
Spar Group Limited SPP SJ 82.0 OW -1.2 15.3 1.8 0.0 1.8 18.7 15.1 4.0 42.8
Russia 774.4 3.7 -0.8 6.8 6.4 0.4 7.5 5.8 2.0 15.0
Evraz EVR LI 26.1 OW 9.7 -7.6 1.5 0.0 1.5 11.2 5.7 0.0 20.1
Protek PRTK RU 3.8 OW 4.0 7.7 1.8 0.0 1.8 15.3 11.8 NM NM
Sberbank SBER RU 2.7 OW 3.1 -4.6 1.5 0.7 0.8 11.0 5.8 0.9 19.2
VTB VTBR LI 5.4 OW 7.2 13.6 2.0 0.1 1.9 14.3 7.1 1.1 11.2
Mexico 29,765.3 3.6 3.4 4.5 4.3 0.2 14.3 12.0 2.5 16.8
ICA ICA* MM 31.3 OW 1.1 2.5 1.4 0.0 1.4 29.0 21.0 0.0 3.6
Televisa TV US 19.5 OW 6.3 -6.0 1.8 0.3 1.5 19.6 13.8 1.3 14.7
Urbi URBI* MM 24.4 OW -1.6 -16.9 1.3 0.0 1.2 11.4 9.4 0.0 12.9
Malaysia 500.5 4.8 16.7 2.1 2.9 -0.8 15.8 13.6 3.2 13.1
Genting BHD GENT MK 8.9 OW 18.9 21.7 2.1 0.2 1.9 27.8 17.1 0.8 8.3
Indonesia 4,024.5 0.8 19.0 1.0 2.3 -1.3 14.9 12.7 2.8 26.0
PT Telekomunikasi Indonesia TLKM IJ 8,550.0 OW 5.6 -9.5 1.0 0.0 1.0 12.1 10.8 0.0 34.2
Thailand 336.3 5.4 19.7 4.0 1.5 2.5 12.4 10.7 3.7 16.8
Land and Houses LH TB 6.1 OW -0.8 -4.0 2.1 0.0 2.1 14.1 12.2 5.7 16.1
Siam Commercial Bank SCB TB 91.0 N 7.4 4.9 1.9 0.1 1.8 13.8 12.1 2.7 15.2
Turkey 861,335.4 3.3 12.9 5.1 1.7 3.4 10.1 8.9 2.9 18.8
Sabanci SAHOL TI 6.9 NR 3.0 20.0 2.0 0.1 2.0 8.6 7.5 1.4 14.2
Vakifbank VAKBN TI 3.9 OW 0.5 -8.5 1.1 0.1 1.1 7.1 5.6 4.2 17.5
Yapi Kredi YKBNK TI 4.5 OW 1.8 36.0 1.9 0.1 1.8 9.9 6.7 0.0 20.7
CE3 NA NA NA 2.0 2.2 -0.2 11.9 10.0 4.4 13.6
Erste Bank EBS AV 30.5 OW 6.4 17.0 2.0 0.0 2.0 14.4 7.7 0.7 6.0
Philippines 648.9 4.2 14.5 2.7 0.5 2.2 15.6 13.7 3.8 16.1
Ayala Land ALI PM 15.4 OW 4.3 36.7 1.6 0.1 1.5 41.4 37.2 0.4 8.7
MBT MBT PM 61.9 OW 3.2 37.6 1.1 0.0 1.1 13.7 9.3 2.3 11.4
Emerging Markets 42,960.2 4.6 1.4 100.0 100.0 0.0 11.2 10.0 2.7 17.1
Source: J.P. Morgan, MSCI, Datastream, IBES estimates for NR stocks
16
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Global emerging markets model portfolio by sector

Ticker Price JPM Change Change Portfolio MSCI Deviation P/E P/E DY ROE
LC Rating 4 Wk (%) YTD (%) Weight(%) Weight(%) (%) 10E (x) 11E (x) 10E (%) 10E (%)
Consumer Discretionary 525.6 3.3 4.4 18.4 5.7 12.7 12.5 10.7 1.8 16.9
Belle International Holdings Ltd. 1880 HK 13.0 OW 9.5 43.0 2.0 0.2 1.8 34.4 32.9 1.0 19.4
Lifestyle International Holdings 1212 HK 17.5 OW 10.2 20.8 2.0 0.0 2.0 25.0 21.6 1.6 18.1
Ports Design 589 HK 21.0 OW 0.2 -13.1 1.6 0.0 1.6 22.2 18.1 2.7 36.5
CBD PCAR5 BZ 59.7 OW -4.9 -8.2 1.8 0.1 1.7 20.6 17.0 0.8 9.8
PDG Realty PDGR3 BZ 18.4 OW 4.9 5.8 1.8 0.2 1.6 14.0 9.1 1.3 14.2
Cheil Worldwide 030000 KS 12,050.0 NR -4.4 -4.4 1.0 0.0 1.0 14.0 13.0 3.0 16.6
Hyundai Department Stores 069960 KS 120,500.0 OW 2.1 7.1 1.6 0.0 1.5 10.4 9.5 0.5 13.8
Hyundai Mobis 012330 KS 209,000.0 OW 3.0 22.2 1.5 0.4 1.1 10.6 9.6 0.5 19.3
Televisa TV US 19.5 OW 6.3 -6.0 1.8 0.3 1.5 19.6 13.8 1.3 14.7
Urbi URBI* MM 24.4 OW -1.6 -16.9 1.3 0.0 1.2 11.4 9.4 0.0 12.9
Genting BHD GENT MK 8.9 OW 18.9 21.7 2.1 0.2 1.9 27.8 17.1 0.8 8.3
Consumer Staples 442.3 4.0 6.9 5.7 5.8 -0.1 17.7 15.5 2.2 16.8
Huabao International Holdings 336 HK 11.3 N 8.7 35.0 1.8 0.1 1.7 26.4 21.9 1.8 40.7
Shoprite SHP SJ 84.5 OW -6.4 29.5 2.2 0.1 2.0 19.2 16.0 2.0 40.1
Spar Group Limited SPP SJ 82.0 OW -1.2 15.3 1.8 0.0 1.8 18.7 15.1 4.0 42.8
Energy 891.4 3.4 2.9 0.0 14.2 -14.2 7.0 8.0 2.4 19.3
Financials 407.0 5.4 6.1 40.0 24.3 15.7 12.8 10.5 2.7 14.2
Bank of Communications 3328 HK 8.7 OW 4.1 -4.0 1.9 0.2 1.6 11.1 9.2 3.0 21.1
BM&F Bovespa BVMF3 BZ 13.0 OW 10.5 6.0 2.6 0.4 2.2 14.4 12.3 2.5 na
Bradesco BBDC4 BZ 31.4 OW 8.7 4.3 2.1 1.0 1.1 12.2 10.4 2.8 20.3
KB Financial 105560 KS 48,200.0 OW -3.0 -19.3 1.9 0.4 1.4 7.6 6.4 2.1 11.7
First Financial Holding Co Ltd 2892 TT 19.0 N 2.2 -1.9 2.7 0.1 2.6 14.6 11.2 2.6 7.9
Yuanta FHC 2885 TT 19.0 OW 1.9 -19.4 1.8 0.1 1.7 11.5 9.7 4.8 11.4
DLF DLFU IN 318.3 OW -0.4 -11.9 1.6 0.1 1.5 29.8 21.3 0.6 7.2
HDFC Bank HDFCB IN 2,121.1 OW 4.0 24.6 1.5 0.4 1.1 32.9 24.7 0.6 16.1
HDIL HDIL IN 287.6 OW 8.8 -20.3 1.5 0.4 1.2 15.2 10.0 0.0 11.3
IDFC IDFC IN 180.8 OW -7.5 17.1 1.6 0.1 1.5 22.1 19.2 0.9 16.1
Kotak Mahindra Bank KMB IN 833.3 OW 6.4 3.3 1.6 0.1 1.5 23.5 19.3 0.2 16.7
ABSA Group Ltd ASA SJ 126.0 OW -7.6 -1.9 1.9 0.2 1.7 10.0 8.2 3.9 17.8
Sberbank SBER RU 2.7 OW 3.1 -4.6 1.5 0.7 0.8 11.0 5.8 0.9 19.2
VTB VTBR LI 5.4 OW 7.2 13.6 2.0 0.1 1.9 14.3 7.1 1.1 11.2
Land and Houses LH TB 6.1 OW -0.8 -4.0 2.1 0.0 2.1 14.1 12.2 5.7 16.1
Siam Commercial Bank SCB TB 91.0 N 7.4 4.9 1.9 0.1 1.8 13.8 12.1 2.7 15.2
Sabanci SAHOL TI 6.9 NR 3.0 20.0 2.0 0.1 2.0 8.6 7.5 1.4 14.2
Vakifbank VAKBN TI 3.9 OW 0.5 -8.5 1.1 0.1 1.1 7.1 5.6 4.2 17.5
Yapi Kredi YKBNK TI 4.5 OW 1.8 36.0 1.9 0.1 1.8 9.9 6.7 0.0 20.7
Ayala Land ALI PM 15.4 OW 4.3 36.7 1.6 0.1 1.5 41.4 37.2 0.4 8.7
MBT MBT PM 61.9 OW 3.2 37.6 1.1 0.0 1.1 13.7 9.3 2.3 11.4
Erste Bank EBS AV 30.5 OW 6.4 17.0 2.0 0.0 2.0 14.4 7.7 0.7 6.0
Health Care 542.3 2.0 11.0 1.8 2.4 -0.6 19.4 16.4 1.2 17.3
Protek PRTK RU 3.8 OW 4.0 7.7 1.8 0.0 1.8 15.3 11.8 NM NM
Industrials 218.7 4.0 7.7 6.2 6.8 -0.5 13.3 11.2 1.9 12.6
China High Speed Transmission 658 HK 17.4 OW 11.8 -8.3 1.3 0.1 1.3 16.1 12.8 2.1 27.6
Far Eastern New Century 1402 TT 40.0 OW 16.6 -0.1 1.8 0.1 1.7 NM 18.1 4.6 11.7
Larsen & Toubro LT IN 1,773.6 OW -5.2 5.7 1.6 0.2 1.3 30.5 24.8 0.7 19.4
ICA ICA* MM 31.3 OW 1.1 2.5 1.4 0.0 1.4 29.0 21.0 0.0 3.6
Information Technology 225.3 5.6 5.0 20.0 13.5 6.5 12.2 11.3 2.6 19.3
Lenovo 992 HK 4.8 N 3.0 -0.8 1.4 0.1 1.3 NM NM 0.1 9.8
Hynix Semiconductor 000660 KS 22,100.0 N -6.0 -4.5 2.5 0.3 2.2 5.4 8.1 0.0 33.8
Samsung Electronics 005930 KS 782,000.0 N -2.5 -2.1 3.8 2.3 1.5 9.8 11.2 1.6 17.3
SEMCO 009150 KS 129,500.0 OW -17.0 20.5 1.8 0.2 1.6 17.5 14.9 0.4 18.3
Hon Hai 2317 TT 131.5 OW 9.1 -13.2 1.9 1.0 0.9 13.3 11.9 1.5 17.6
Nanya Technology Corporation 2408 TT 23.0 N -4.8 -29.8 1.2 0.0 1.2 NM 13.6 0.0 0.9
TSMC 2330 TT 59.8 OW -0.2 -7.3 2.3 1.4 0.9 10.5 9.6 5.0 27.7
UMC 2303 TT 13.9 OW -6.1 -19.2 1.8 0.2 1.6 9.5 8.3 3.7 8.5
Infosys INFO IN 2,750.5 OW -1.0 5.7 1.6 0.8 0.7 25.3 22.6 0.9 28.8
TCS TCS IN 850.2 OW 2.0 13.3 1.6 0.3 1.4 24.2 22.4 2.8 36.8
Materials 595.3 7.2 11.0 3.6 15.4 -11.7 12.6 9.8 2.3 15.6
LG Chem 051910 KS 329,000.0 OW 1.4 44.0 2.1 0.4 1.7 12.3 12.0 1.1 27.5
Evraz EVR LI 26.1 OW 9.7 -7.6 1.5 0.0 1.5 11.2 5.7 0.0 20.1
Telecommunication Services 278.5 3.1 6.2 3.3 8.5 -5.2 12.0 10.9 4.3 18.4
China Unicom (HK) Limited 762 HK 10.5 OW 4.8 2.1 2.3 0.2 2.0 38.2 25.0 1.1 3.2
PT Telekomunikasi Indonesia TLKM IJ 8,550.0 OW 5.6 -9.5 1.0 0.0 1.0 12.1 10.8 0.0 34.2
Utilities 351.0 2.7 4.3 1.1 3.5 -2.4 13.0 11.2 3.1 9.9
Xinao Gas 2688 HK 18.2 N 1.1 -9.0 1.1 0.1 1.0 18.0 13.7 1.4 15.0
Emerging Markets 42,960.2 4.6 1.4 100.0 100.0 0.0 11.2 10.0 2.7 17.1
Source: J.P. Morgan, MSCI, Datastream, IBES estimates for NR stocks
17
(852) 2800-8599 18 August 2010
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Figure 21: CEMBI Yield, India 10Y Key Trades

Govt Yield and Indian nominal GDP
growth CEMBI surfers – OW India and Turkey
EM corporate bond yields are at record lows. CEMBI is J.P. Morgan’s emerging
Nominal GDP grow th
16 market corporate bond index. CEMBI yield (JCBYBLYD Index) is at a low of 5.9%,
close to its early 2005 level. Between May-June, CEMBI spreads (JCBSBLSD
Indian 10
Index) increased by 93bp to 368bp reflecting the uncertainty in global financial
12
markets. Since June, spreads have narrowed to 329bps. We remain confident in EM
Year y ields
growth fundamentals and believe that as the market stabilizes, spreads will recover to
8 300 bps by year-end.
CEMBI Yield Flows in EM bonds have been very strong. Cumulative inflows ytd at $50bn have
4 already surpassed the 2009 inflows of $46bn. Given the strength of year to date
Apr 06 Jul 07 Oct 08 Jan 10 flows, J.P. Morgan has revised the full-year forecast of inflows into EM fixed income
to US$70-75 bn, using a base-case of $4-6bn of inflows per month for the remainder
of the year. The strategic demand for fixed income assets (versus equities) and the
relative attractiveness of Emerging versus Developed economies are the drivers of
inflows into EM fixed income.
As noted in Emerging Markets Corporate Outlook & Strategy, Warren Mar, 13 July
2010, “After a brief lull in May, EM corporates have seized the opportunity of
improving market sentiment in recent weeks to raise an additional US$15.5 billion
from 27 separate transactions over the last six weeks. As of the week ending July 9,
new supply from EM corporates reached US$84.5 billion year-to-date, or two-thirds
of our full year forecast. Although we still have some way to go in order to reach our
year-end supply forecast for the asset class as a whole, recent activity by companies
to position themselves to sell new debt leaves us not only comfortable with our year-
end point target, but also now believe that there is potential upside risk to forecasts.”
CEMBI is particularly important to India as the Indian private sector funds the
current account deficit. We forecast India's nominal GDP growth could be 17% this
year. Long term borrowing costs are half the level of nominal GDP (Indian 10Y
bonds 7.8% and CEMBI yields 5.9%). Many Indian companies would view today's
monetary conditions as supportive of growth.
Turkey is also a beneficiary of lower borrowing costs due to its reliance on external
financing. J.P. Morgan forecasts current account deficit to widen from 3.4% to 4.3%
of GDP in 2010. Nominal GDP growth is forecast to be 15% in 2010 versus 10 year
bond yields of 9% and 5.9% CEMBI. Turkish corporates should benefit from the
delayed monetary stimulus.
Table 12: Yields for government and corporate bonds plus earnings yield for US & EM equity
markets
High Low Avg 05-07 Spot Diff
US EARNINGS YIELD 11.4 6.1 6.6 8.4 1.8
EM EARNINGS YIELD 17.3 6.8 8.7 9.5 0.8
US High Yield 21.0 7.5 8.4 8.7 0.3
CEMBI 14.3 5.7 6.4 5.9 (0.6)
JULI 8.7 4.4 5.7 4.4 (1.3)
EMBI 12.0 5.6 7.0 5.6 (1.3)
US 10 Yr 5.2 2.1 4.6 2.7 (1.9)
1 Month T-Bill 5.2 (0.1) 4.0 0.1 (3.9)
18
(852) 2800-8599 18 August 2010
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Figure 22: MSCI EM Real Estate wts

ABC of Real Estate - Anything but China
M oroc
EM Real estate index underperformed MSCI EM by 38% since July 09. China
2% dominates the benchmark with 43% share (see Figure 22). Note that prior to the
Brazil
26%
credit crunch there were strong inflows into EM real estate equities by both dedicated
real estate and regional funds. EM real estate stocks were punished by association as
China
43%
Chinese government implemented tightening measures to control asset inflation. We
think the broad sell-down in real estate equities regardless of different underlying
M alay
1% conditions is unjustified. Our preferred markets for homebuilders within the
Phil
4%India emerging markets are Brazil, India, ASEAN and Mexico.
8% Taiwan
Egypt
SA 2% Brazilian homebuilders are attractively valued, trading on average at 1.3x - 2.1x
8% M exico
2% Poland 3% P/BV. Sales and launches are accelerating QoQ, which was not the case in the
1%
previous two quarters. Strong balance sheets, decline in cash burn and low capital
Source: MSCI, Datastream. Note: We have needs are other key drivers, in our view.
included LatAm homebuilders in this customized
weighting. Real estate stocks in LatAm is Indian developer stock prices are still 75%-80% off their peak levels, although the
classified as Cons. Disc. by MSCI. prices and volumes in the residential market have risen to the peak of pre-crisis
levels. In our view, this disconnect presents a buying opportunity. Indian real estate
Figure 23: MSCI EM Real Estate rel stocks have remained under pressure since 4Q09 and underperformed the region as
MSCI EM RBI and central government have started to roll back the fiscal/monetary stimulus.
140 Increase in wage growth/hiring trends across sectors should prevent any sharp
deterioration in affordability. Combination of inexpensive valuation and pent up
130
demand provides a fundamental support to Indian real estate sector.
120
Rapid growth in the urban economically active population is driving strong demand
110 for residential properties across emerging markets. Mexico is likely to experience
100 strong growth as favorable demographics and large housing deficit boosts housing
demand. Recently Infonavit started a new program in Mexico to offer mortgages to
90 the informal sector (50% of total population). This initial program is for domestic
80 workers, which represent around 1.8 mn citizens, and Infonavit expects to grant 2k
Aug-08 Apr-09 Dec-09 Aug-10 mortgages over the coming months. This program will significantly increase
potential demand for homes as noted in LatAm Infrastructure, 9 July 2010 by J.P.
Source: MSCI, Datastream. Note: Rebased to Morgan's Latam Infrastructure & Homebuilders analyst, Adrian Huerta.
100 = July 2008.
We expect the Philippines property sector to benefit the most in the near to medium
EM Real Estate Team term. Strong GDP growth and a business friendly administration should support the
property sector. Through April and May, most developers indicated stabilization in
Christopher Gee
(65) 6882-2345 sales across the residential market. Thai property stocks were the clear outperformers
[email protected] in the region in July after country’s Property Developers Index rose 13.9% M/M, the
J.P. Morgan Securities Singapore Private index is now up 28.7% Q/Q. Declining political risk and strong broader economic
Limited
growth supported last month’s rally in Thai property companies’ stock prices.
Adrian Huerta Despite a 3% M/M rise in Indonesia Construction/Properties Index last month, the
(52 81) 8152-8720
[email protected] discount to NAV has remained undemanding and is now considerably below its
J.P. Morgan Casa de Bolsa, S.A. de C.V., historical average. Indonesian property companies remain upbeat with the outlook
J.P. Morgan Grupo Financiero for marketing sales as they plan to launch new clusters in the next few quarters.
Elena Jouronova
Table 13: Top picks
+7 495 967 3888
Stock Ticker JPM Mkt cap Price P/E DY ROE
[email protected]
JPMorgan Bank International LLC Rating (US$B) (LC) 10E 11E 10E 10E
DLF Ltd DLFU IN OW 12 318 27.3 21.0 0.7 7.1
Muneeza Hasan PDG Realty PDGR3 BZ OW 5.6 18 12.5 9.0 1.5 15.9
+971 4 428-1766 Cyrela Brazil Realty CYRE3 BZ N 5.5 22.7 11.5 9.3 1.9 18.5
[email protected] Unitech UT IN OW 4.6 86 22.4 15.5 0.1 8.3
JPMorgan Chase Bank N.A. Dubai Branch MRV Engenharia MRVE3 BZ OW 4.0 14.4 11.7 8.9 1.8 21.0
Gafisa GFSA3 BZ OW 3.0 12 11.9 9.3 1.7 12.0
HDIL HDIL IN OW 2.2 281 10.7 6.6 0.8 11.5
IJM Corp IJM MK OW 2.1 5 16.1 12.4 1.2 7.6
Source: Bloomberg, IBES, J.P. Morgan estimates. Share prices as of 16 Aug 2010.
19
(852) 2800-8599 18 August 2010
[email protected]
Figure 24: US equipment Overweight Technology

investment (QoQ SAAR)
30
The drivers of our overweight technology are:
1. Investors are underestimating the business investment cycle. J.P. Morgan forecast
20 that US business equipment spending will grow at 15% in 2010 and 11% in 2011.
10 This forecast is conservative in that 20% growth is needed this year to return
0 business investment to the normal post recession level.
-10 2. MSCI EM IT has underperformed MSCI EM by 134% over the past 10 years.
-20 The sector has transitioned from an expensive growth sector to value. Its PE
-30 relative to EM is now 1.0 compared to its 10 year average of 1.3. Investors are
understandably cynical, fearing that the sector will repeat the over investment that
-40
characterized the sector more than a decade ago. In our view, they are
Q1 08 Q1 09 Q1 10 Q1 11
underestimating rationalization and the sector’s relatively high cost of capital.
Source: J.P. Morgan, Bloomberg. Note that there are only four producers of NAND globally and the top four
DRAM producers have a combined market share of 80%.
Figure 25: Performance of MSCI EM
IT and MSCI EM IT rel to EM
3. Mobile video devices, such as the iPad, could generate a positive demand shock.
Users of such devices will expect high quality streaming video and fast download
250 Relativ e 100 speeds. This will require network and server upgrades. Plus if users wish to store
(RHS) video on the device then demand for NAND should accelerate.
200 80
Table 14: Overweight Technology
Stock Ticker JPM Mkt cap Price P/E DY ROE
150 60 Rating (US$B) (LC) 10E 11E 10E 10E
Samsung Electronics 005930 KS N 98 782000 9.8 11.2 0.0 16.1
TSMC 2330 TT OW 49 60 10.5 9.6 5.0 26.0
100 40
Hon Hai Precision 2317 TT OW 35 132 13.6 11.0 1.5 15.9
Absolute (LHS) LG Electronics 066570 KS OW 13 105000 10.5 5.6 0.8 12.2
50 20 Hynix Semiconductor 000660 KS N 11 22100 5.2 8.4 0.0 30.3
LG Display 034220 KS OW 11 36150 5.1 4.7 0.0 20.3
Aug-00 Aug-05 Aug-10
Chimei Innolux 3481 TT OW 9.2 37 10.0 8.4 0.0 8.8
SEMCO 009150 KS N 8.2 129500 14.2 16.1 0.6 21.8
Source: Bloomberg, 16 August 2010. AU Optronics 2409 TT N 8.0 29 10.8 22.2 0.0 7.9
Lenovo Group 992 HK N 6.0 5 22.5 15.4 1.9 15.9
Figure 26: MSCI EM IT PE rel to EM UMC 2303 TT OW 5.7 14 8.4 8.0 3.7 9.9
ASE 2311 TT OW 4.6 24 9.2 8.3 1.5 17.2
4.0 Inotera Memories 3474 TT UW 2.5 18 NM 48.2 0.0 -4.5
Nanya Technology 2408 TT UW 2.5 23 NM 28.2 0.0 -0.8
3.5 Powertech Technology 6239 TT OW 2.1 97 8.8 7.5 3.3 27.1
3.0 Epistar 2448 TT N 2.1 87 16.5 17.1 2.1 10.5
2.5 Seoul Semiconductor 046890 KQ OW 2.0 40450 24.0 14.8 0.3 17.7
E Ink Holdings 8069 TT OW 1.7 50.1 12.4 8.7 0.0 17.0
2.0 Catcher Technology 2474 TT OW 1.5 74 11.4 10.2 2.6 12.8
1.5 Novatek 3034 TT OW 1.5 82 8.0 7.2 6.1 26.3
Richtek Technology 6286 TT N 1.2 251 16.6 14.9 3.0 36.3
1.0 Everlight Electronics 2393 TT OW 1.1 87.0 14.1 12.8 4.6 16.4
0.5 Source: Bloomberg, IBES, J.P. Morgan estimates. Share prices as of 16 Aug 2010
0.0
00 02 04 06 08 10
Source: IBES, 16 August 2010.
20
(852) 2800-8599 18 August 2010
[email protected]
Figure 27: Contribution to China China economic rebalancing: Focus on consumer

real GDP growth (in %)
Real GDP
FAI story so far
18 Consumption In response to the 4Q08 synchronized global recession, the Chinese authorities
Inv estment reversed their policy of reducing FAI as a percentage of GDP. FAI contributed 8.6%
Ex ternal demand
13 of China’s impressive 9.1% economic growth in 2009 (see Figure 27). Through out
8.6 10.0
9.1
8
2010, policy announcements are consistent with slowing property investment and
4.4 4.6 5.1
FAI.
3 0.4 Policy now favors consumption
-2 Chinese authorities announced a series of policies to stimulate domestic consumption
and restrain FAI: a) 5% resource tax of the revenue for coal, natural gas and oil
-7 -3.9
companies in Xinjiang and 12 other provinces in Western China and possible
2009 2010
expansion to whole of China. b) Regulatory measures to crack down the property
Source: J.P. Morgan Economics
sector. c) Removal of export rebates for 406 materials and energy products. d) Price
caps for coal companies. e) Lower PBoC loan growth target. f) Tacit support for
Figure 3: Sector Weights in MSCI wage increases designed to boost household income.
China Evidence of rebalancing is now building
Industrials Others Fixed asset investment growth is slowing and property transactions are weak.
7% 4% Manufacturing PMI fell for the third consecutive month to 51.2 in July. Iron ore
Financials
Cons import prices (TSIPIO62 Index) are down 20% from the April 21 high. Commodity
42%
umer demand is showing moderation with lower iron ore imports and slowing steel
11% production.
OW Consumer
China’s transition to balanced growth is healthy. The consumer sector is the clear
Telcom beneficiary from the rebalancing and its earnings growth should outpace the market.
15% We are positive on consumer staples and discretionary (excluding Autos) with high
Materials and Energy 20% growth and high valuations.
Source: MSCI, Datastream . UW China, energy and commodities
The consumer sector is only 11% of MSCI China free float market cap. The
remaining is still subject to policy uncertainty and earnings downside risk. Our oil
Figure 28: Squeezing steel margins and gas analyst Brynjar Bustnes estimates the 2011 impact on EPS due to a
nationwide resource tax is -12% for Petrochina and -7% for Sinopec. Materials and
950 Iron Ore + Coking coal
HRC Price energy constitute 20% of MSCI China. Policy risk and margin pressure due to lower
850 commodity prices are key drivers for our UW in China and commodities.
750
Table 15: OW China Consumer
650 Stock Ticker JPM Mkt cap Price P/E DY ROE
550 Rating (US$B) (LC) 10E 11E 10E 10E
450 Belle Int Hldg 1880 HK OW 14 13 30.2 28.8 1.2 18.3

Hengan Intl 1044 HK N 11 70 33.5 28.6 1.9 26.4
350 China Resources Ent 291 HK N 9.4 31 27.7 23.8 1.6 9.7
250 China Yurun Food 1068 HK OW 6.1 27 23.8 19.6 1.2 16.7
China Mengniu 2319 HK OW 5.2 23 26.1 19.5 0.8 13.7
Jan-07 Jan-08 Jan-09 Jan-10 Huabao Int Hldg 336 HK N 4.6 11 22.9 16.7 0.0 33.8
Lifestyle Intl Hldgs 1212 HK OW 3.8 18 23.3 21.0 1.7 16.6
Source: Bloomberg. Note: Chart shows price in Ports Design 589 HK OW 1.5 21 19.4 15.9 3.1 34.0
$/tonne Source: Bloomberg, IBES, J.P. Morgan estimates. Share prices as of 16 Aug 2010.
21
(852) 2800-8599 18 August 2010
[email protected]
Figure 29: Consensus and JPM Advantage ASEAN

2010 GDP forecasts for ASEAN
ASEAN markets are squeezing higher driven by good fundamental data and low
8
ownership ex-Indonesia.
JPM 2010
7
J.P. Morgan forecast ASEAN GDP growth to be 7% this year. Thailand's economic
6
data is particularly strong. Initially we downgraded GDP forecast fearing that the
political unrest would dampen economic growth throughout 2010. This was too
5 pessimistic with economic activity and business sentiment recovering rapidly.
Consumer confidence in Thailand rose to 71.4 in July. The 2010 GDP growth
4 Consensus 2010 forecast is now 8.5%oya, with upside risk. The current 2010 GDP growth forecasts
for Indonesia, Malaysia and Philippines are 6%, 7.2% and 6.8% respectively.
3
Feb-09 Aug-09 Feb-10 Higher economic growth should support positive earnings revisions and continued
re-rating. As we note in our weekly Dashboards earnings revisions are positive
Source: J.P. Morgan economics, Bloomberg. throughout ASEAN. Valuations are low relative to history, except for Indonesia.
MSCI Thailand is trading at a discount to APxJ at 11x forward PE.
Figure 30: Earning revisions in
Philippines in 2010 and 2011 In the Philippines, consumer and business confidence is rising. Solid earnings growth
125 is being driven by improved volumes and pricing for the property sector, and
2011 acquisitions and tariff hikes for the utilities sector.
The average EM fund is neutral Thailand, overweight Indonesia and underweight
115 Malaysia and Philippines. Investor interest in ASEAN should increase driven by
good economic data and equity performance. We also note increasing interest by
non-traditional investors such as international funds, which could drive additional
105 2010 fund flows, providing potential for upside surprises on inflows into markets such as
Indonesia, which is perceived as well-owned.
95 Political risk in Thailand remains high but that is the consensus. Tension may
Feb-09 Jul-09 Dec-09 May -10 increase late this year as the opposition expects the government to call an election. In
Philippines, the newly elected President Noynoy Aquino is widely viewed as market-
Source: I/B/E/S. EPS figures are normalized,
starting at 100 on base date Feb 2009 for ease of friendly due to his reformist platform anchored on a clean government. He thus
comparison. begins his presidency with a very strong mandate, providing the unique opportunity
to make bold decisions that would be positive for the Philippine economy.
Figure 31: ASEAN has
outperformed APxJ YTD Inflation is a concern in Indonesia. The market would also be vulnerable to a sell off
125 in bulk commodity prices. This would hit its coal and metal producers.
ID TH
120 With in ASEAN, we are OW Thailand and Philippines, and neutral Malaysia and
115 MY Indonesia. In Thailand, we like KBANK as a beneficiary of higher policy rates, while
110 laggard SCB could also play catch-up as corporate and consumer loan momentum
PH
105 gathers pace in 2H10. We like the property and utilities sector in Philippines. Top
100 picks in the Philippines are Ayala Land, EDC, Manila Water, Filinvest Land, and
95 APx J
Metrobank.
90 Table 16: OW ASEAN
85 Stock Ticker JPM Mkt cap Price P/E DY ROE
Dec 09Feb 10 Apr 10 Jun 10 Rating (US$B) (LC) 10E 11E 10E 10E
Astra International ASII IJ OW 22 48300 14.4 13.6 2.8 28.2
Source: IMSCI, Datastream, 16 August 2010. Telekomunikasi TLKM IJ OW 19 8550 12.1 10.8 0.0 32.4
Siam Com. Bank SCB TB OW 10 90 13.6 12.0 2.8 14.5
ASEAN Strategist Advanced Info ADVANC TB OW 8.4 90 12.1 10.1 7.0 36.7
Sriyan Pietersz Kasikornbank KBANK TB OW 7.6 101 13.5 10.5 2.7 13.5
(662) 684 2670 Semen Gresik SMGR IJ OW 5.9 8900 14.2 12.3 3.1 30.3
[email protected] Ayala Corporation AC PM OW 3.5 330 19.6 14.6 1.2 7.8
JPMorgan Securities (Thailand) Limited Aboitiz Power AP PM OW 3.1 19 13.8 13.8 2.2 24.7
Metropolitan Bank MBT PM OW 2.6 62 13.7 9.3 2.3 11.2
IJM Corp IJM MK OW 2.1 5 16.1 12.4 1.2 7.6
Energy Development EDC PM OW 2.0 5 10.0 12.0 10.0 28.5
Source: Bloomberg, IBES, J.P. Morgan estimates. Share prices as of 16 Aug 2010
22
(852) 2800-8599 18 August 2010
[email protected]
Country asset allocation changes

Table 17: Summary of country asset allocation changes from August 2007
Country From To Recommendation Relative return from the date of YTD relative return
Recommendation
South Africa 24-Aug-07 5-Feb-08 OW (11.3)
Taiwan 24-Aug-07 28-Feb-08 UW 9.6
Turkey 27-Sep-07 27-Jul-08 UW 16.6
India 2-Nov-07 17-Jan-08 N 15.7
India 18-Jan-08 7-Jan-09 UW 15.3
Czech 18-Jan-08 18-Aug-09 UW (6.9)
Hungary 18-Jan-08 18-Aug-09 UW 13.4
Poland 18-Jan-08 18-Aug-09 UW 15.7
Mexico 1-Feb-08 26-Feb-09 OW (2.4)
Brazil 1-Feb-08 16-Jun-08 N 16.9
South Africa 6-Feb-08 16-Jun-08 N 2.1
Taiwan 29-Feb-08 2-Apr-08 OW 6.0
Malaysia 17-Mar-08 14-May-09 N 8.8
Taiwan 3-Apr-08 17-Apr-08 N 3.3
Taiwan 18-Apr-08 19-Nov-08 OW 0.2
China 16-May-08 16-Jun-08 N (4.7)
Brazil 17-Jun-08 22-Sep-08 UW 7.9
China 17-Jun-08 14-May-09 OW 14.1
South Africa 17-Jun-08 27-Jul-08 UW (7.7)
Russia 28-Jul-08 14-May-09 UW 21.0
Turkey 28-Jul-08 5-Oct-08 OW 7.0
South Africa 28-Jul-08 14-May-09 N 8.2
Brazil 23-Sep-08 16-Apr-10 N 4.6
Turkey 6-Oct-08 1-Dec-09 N (16.2)
Indonesia 3-Nov-08 30-Mar-09 UW (5.3)
Taiwan 19-Nov-08 30-Mar-09 N 3.9
India 8-Jan-09 5-Aug-09 N 27.0
South Korea 26-Feb-09 3-Sep-09 OW 25.6
Mexico 27-Feb-09 23-Mar-09 N 2.0
Philippines 16-Mar-09 3-Sep-09 N (2.0)
Mexico 23-Mar-09 18-Aug-09 OW 6.5
Taiwan 30-Mar-09 - OW (21.7) (4.8)
Indonesia 30-Mar-09 14-May-09 N 11.1
Russia 15-May-09 18-Oct-09 N 4.1
South Africa 15-May-09 17-Sep-09 UW (6.1)
China 15-May-09 17-Sep-09 N (3.3)
Indonesia 15-May-09 3-Sep-09 OW 21.2
Malaysia 15-May-09 2-Feb-10 UW 4.8
Thailand 20-Jul-09 17-Sep-09 N 0.3
India 6-Aug-09 - OW 5.2 2.4
Czech 19-Aug-09 25-Oct-09 OW (17.2)
Hungary 19-Aug-09 25-Oct-09 OW 10.5
Poland 19-Aug-09 25-Oct-09 OW 8.2
Mexico 19-Aug-09 1-Dec-09 N (3.1)
Indonesia 3-Sep-09 - N 21.2 16.9
Philippines 3-Sep-09 - OW 6.7 11.0
South Korea 3-Sep-09 1-Jun-10 N (3.8)
South Africa 17-Sep-09 16-Apr-10 N (6.1)
China 17-Sep-09 - UW 7.8 3.7
Thailand 17-Sep-09 14-Dec-09 OW (8.2)
Russia 19-Oct-09 7-Dec-09 OW (8.2)
Czech 26-Oct-09 - N (13.4) (4.2)
Hungary 26-Oct-09 - N (19.5) (11.8)
Poland 26-Oct-09 - N (7.8) (3.9)
Turkey 2-Dec-09 - OW 21.1 10.6
Mexico 2-Dec-09 14-Jul-10 OW 2.9
Russia 8-Dec-09 - N 1.9 (2.2)
Thailand 15-Dec-09 14-Jul-10 N 16.1
Malaysia 2-Feb-10 - N 11.0 11.0
South Africa 19-Apr-10 14-Jul-10 OW 2.3
Brazil 19-Apr-10 - UW 3.2 3.2
South Korea 2-Jun-10 - OW 0.4 0.4
South Africa 15-Jul-10 - N 1.2 1.2
Mexico 15-Jul-10 - N (2.8) (2.8)
Thailand 15-Jul-10 - OW 3.0 3.0
Source: J.P. Morgan, 16 August 2010.
23
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24
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Emerging Markets: Outlook & Scorecards
25
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Brazil
Market Strategy Brazil: Good Times for Domestics
Issues over the past 12 months
Emy Shayo AC Brazil, along with China, has been the worst performing EM YTD. Heightened risk
(5511) 3048-6684 aversion has delivered poor equity flows in Brazil. In 1H10, flows were negative –US$1.6
[email protected]. Morgan.com billion, with only March posting positive flows. Still, the economy has been very robust,
Recommendation with data for the real economy coming out consistently strong: unemployment is at a
OW: Financials, Homebuilders record low, and credit growth is robust.
Key drivers Outlook

7.5% growth driven by domestic Brazil faced the largest tightening cycle in the EM world, a 200-bp increase from 8.75%
demand. to 10.75%, as GDP growth was forecast to accelerate to the unsustainable rate of 7.5%,
versus a ‘potential’ GDP growth rate of 4.0%. This cycle is now pausing early, with no
Potential for lower than expected further rate increases expected between now and January 2011. Then, J.P. Morgan expects
rate cycle. the cycle to resume, with rates increasing 175bps, to a mid-2011 peak of 12.50%. It will
be key to monitor inflation going forward as a marker for when equities will react to a
Potential for large foreign flows possible resumption of the rate cycle. At this point, inflation remains pretty tame, with 0%
readings in both June and July and 12-month inflation running at 4.6%, pretty close to the
Key risks 4.5% target. The presidential election is less than two months away. We believe the
Equity overhang from large certainty of a victor in the near term will begin to give some relief to the market,
Petrobras capitalization in late regardless of who the victor is. Latest polls show PT candidate Dilma Rousseff lead
September. widening, making her victory the consensus market expectation. We are still holding to
the domestic OW despite the sector's strong performance. We still think that there is more
Medium to long term policy upside to financials as they remain in a sweet spot, supported by high loan growth and
direction post election. higher NIMs, at the same time that NPLs are stable. Valuations are also attractive in the
sector, especially on a PE basis, and although the sector is well known by locals, globals
Market Statistics (%) are still to enter the market, as demonstrated by the flow of funds. Homebuilders are not
MSCI Brazil Index 229018
Weightings in Region (%) 15.8
only a fundamental call, but the sector has good momentum with strong 2Q sales and
BRL/US$ 1.76 launches.
Avg. Daily Turnover (US$MM) 2899
MSCI Total Mkt. Cap (US$B) 461 Recommendations
Source: Datastream. Prices as of 16 August 2010.
Brazil is relatively inexpensive at 9.9x 12M fwd PE, cheaper than Latam, EM and
Globals. 2010 earnings at 17% have room to grow, although we don’t think this is a driver
for 2011 as the economy slows. We prefer domestic names and get exposure to banks
(Bradesco), homebuilders (Gafisa, which is at a discount to peers), and retail, via CBD,
despite recent underperformance, which we believe should see significant upside on the
Casa Bahia deal.
JPM Mkt cap P/E EPS Div Yld. ROE

Price Code Rating (US$B) 10E 11E 10E 11E 10E 10E
(BRL) (x) (x) (BRL) (BRL) (%) (%)
Top picks
Bradesco 31.3 BBDC4 BZ OW 60.6 12.2 10.9 2.6 2.9 2.8 21.8
Gafisa 12.1 GFSA3 BZ OW 3.0 14.4 10.8 0.8 1.1 1.3 13.1
CBD 59.5 PCAR5 BZ N 7.8 26.3 21.0 2.3 2.8 0.6 7.2
Stocks to Avoid
CSN 16.7 SID US UW 25.2 9.5 7.2 1.8 2.3 9.3 43.9
Sabesp 35.3 SBSP3 BZ UW 4.6 7.4 6.7 4.8 5.3 4.7 9.6
Source: Datastream, J.P. Morgan estimates. Note: The share price and valuations are as of 16 August 2010
26
(852) 2800-8599 18 August 2010
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Brazil scorecard
Key Financial Data Summary Local Interest Rates and Inflation Trend
EPS Growth P/E ROE Yield Spot -3M ∆ +3M ∆
2008 4.6 14.7 16.4 3.1 3 Month 10.7 0.4 na
2009E 7.7 13.7 16.5 2.9 Long Bond 11.3 -0.3 -0.5
2010E 16.3 11.8 17.3 3.2 Inflation 4.6 -0.6 0.2
2011E 25.4 9.4 18.7 4.0 Real 3 Month 6.1 1.0 na
Economic Forecasts Risk Appetite

GDP (YoY) Forecast -3M ∆ - EMF - Cons US$ Spread Spot -3M ∆ +3M ∆
2008 5.1 -0.2 0.2 0.0 BAA 3.0 0.1 na
2009E 7.5 1.3 0.7 1.0 EMBI 3.0 -0.5 1.0
2010E 4.0 0.0 -1.6 -0.5 Country 1.9 -0.4 na
Country Relative -1.0 0.1 na
Economic Momentum Foreign Fund Flows (US$ mils)
GDP Q2 10E Q3 10E Q4 10E Q1 11E Month 09 YTD Avg 12-Mo Avg
GDP SAAR 2.6 6.2 3.3 3.8 EM Funds* 8,474 3,695 4,647
LatAm* 252 -296 147
Brazil 1,994 60 422
MSCI Brazil Absolute and Relative (vs EMF) Index MSCI Fair value Range
1200 Absolute Relativ e to MSCI EMF FWD PER (133058) (240739)
1000 PER (138928) (312888)
800 PBR (80884) (251286)
600 DY (134127) (245514)
400 (204732)
BY/EY
200
BY/DY (199138) (312340)
0
0 50000 100000 150000 200000 250000 300000 350000 400000
Jan-03 Dec-03 Nov -04 Oct-05 Sep-06 Aug-07 Jul-08 Jun-09 May -10
Currency Outlook (BRL/USD) EPS Integer over Time

2.8 Spot Fo recast Consensus
130 2010 2011
2.6 J .P . M o rga n f o re c a s t :
end Sep 10: 1.80 120
2.4 end Dec 10: 1.80
end M ar 11: 1.80 110
2.2
100
2.0 Co nsensus
90
1.8
80
1.6 J.P . M organ
70
1.4
Dec 04 A ug 06 M ar 08 No v 09 Jun 11 Feb 09 May 09 Aug 09 Nov 09 Feb 10 May 10 Aug 10
Source: MSCI, Bloomberg, IBES, Datastream, CEIC, J.P. Morgan, Consensus Economics. Unless stated all forecasts are J.P. Morgan’s. The scorecards are designed to assist in tracking trends
and expectations. -3M∆ refers to the change in this factor over the past three months and +3M∆ refers to the forecast change in this factor over the next three months. The Economic Forecast
table contains J.P. Morgan’s real GDP forecasts, the change in these forecasts over the past three months, the difference between these forecasts and the average for emerging markets and the
final column is the difference between J.P. Morgan’s forecast and consensus expectations. The MSCI Fair Value chart is designed to show current valuations relative 10 year valuation history. The
vertical dotted line is the current index level. The five horizontal bars show a +/- one standard deviation range for these valuation measures. A dotted line to the left indicates a market that is cheap
relative to history. *US Mutual fund subscriptions.
27
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China
Market Strategy China: A volatile bottom building process
Issues over the last 12 months
Frank LiAC
(852) 2800-5811
Entering 2010, China’s stock market underperformed major stock markets because of (1)
[email protected] the expected sharp fall in China’s excess liquidity growth (M2 growth minus nominal GDP
Recommendation growth) from 21% in FY09 to 5% in FY10 due to the combined effect of the drop in M2
OW: (1) consumer staples and low- growth and the rise in nominal GDP growth; (2) a series of policy tightening risks as
and-medium-end consumer reflected in the three 50bp RRR hikes, the window guidance for banks to strictly follow the
discretionary; (2) new economy quarterly lending quota, and the recent crackdown on the housing sector. YTD 2010, the
stocks; (3) railway MSCI China index has declined 2.8%, underperforming MSCI EM by 3.5%.
UW: (1) property; (2) Outlook

commodities; (3) home appliances; After a 4.1% rebound in July on the expectation of potential monetary easing, China
equities started to correct as of August 10, with MSCI China index down 1.3% on August
Key drivers 11th in response to the macro economic data released on August 11th pointing decisively to
Undemanding valuations for an economic slowdown. Looking ahead, we believe China equities may experience
MSCI-China, more pro- a volatile bottom building process over the next three to six months. On one hand, China
consumption measures for the equities may feel the pressure arising from the continued downward earnings revision
remainder of the year, and solid pressure as the economic slowdown ripples through the economy, i.e. from the macro
balance sheet conditions sensitive sectors of steel and aluminum to more downstream sectors such as property,
industrial, etc. Given that the macro tightening measures were adopted as of late FY09, and
Key risks that it normally took six to nine months for the tightening measures to make most impact on
Downside earnings risk to MSCI economic growth, we believe China's economic growth may well bottom out in 2H10 or
China and policy risks early 2011.
On the other hand, we expect China’s economy to engineer a soft landing with China's
GDP growth expected to bottom out in 1Q FY11 at 8.4% on a yoy basis. We do not expect
China's economy to suffer from a hard landing of tanking below 7%. Government's
initiatives of launching the economic housing project across the country and activating the
western China development related projects can help cushion the slowdown in property
Market Statistics (%)
MSCI China Index 62.3
market and the moderation in infrastructural projects on the back of the banks' stringent
Weightings in Region (%) 18.9 lending to the local government's funding vehicles.
CNY/US$ 6.80
Avg. Daily Turnover (US$MM) 3652 Recommendations
MSCI Total Mkt. Cap (US$B) 551
In our model portfolio, we are bullish on consumer staples, low- and medium-end
consumer discretionary, expressways, IPPs, banks, and insurance, while we are bearish on
commodities, property, energy, paper, and airlines.

(CNY) (x) (x) (CNY) (CNY) (%) (%)
Top picks
Yurun 27.0 1068 HK OW 6.1 23.8 19.6 1.1 1.4 1.2 19.6
Shanda GAME 6.6 GAME US OW 1.9 9.5 7.5 4.7 6.0 NA 38.3
China Merchant Bank 20.6 3968 HK N 46.8 17.8 14.0 1.2 1.5 1.1 21.4
Zhejiang Expressway 7.3 576 HK OW 4.1 15.4 13.8 0.5 0.5 4.3 14.1
Huabao International Holdings Limited 11.3 336 HK N 4.6 26.4 21.9 0.4 0.5 0.0 40.7
Stocks to avoid
Chalco 6.4 2600 HK N 18.2 20.1 NA 0.3 NA 1.1 6.4
Angang 12.0 347 HK N 9.5 36.5 17.3 0.3 0.7 1.4 4.5
Source: Datastream, JPMorgan estimates. Note: The share price and valuations are as of 16 August 2010.
28
(852) 2800-8599 18 August 2010
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China scorecard
2008 -10.9 19.3 14.2 2.1 3 Month 2.4 -0.3 -0.6
2009 17.0 16.5 15.4 2.3 Long Bond 3.3 0.1 -0.3
2010E 25.6 13.2 17.1 2.7 Inflation 3.3 0.3 -0.2
2011E 17.3 11.2 17.9 3.2 Real 3 Month -0.9 -0.5 -0.4

2008 9.6 0.7 4.7 0.0 BAA 3.0 0.1 na
2009 10.0 0.1 3.2 0.0 EMBI 3.0 -0.5 1.0
2010E 8.8 -0.6 3.2 -0.1 Country 0.9 0.4 na
GDP Q2 10 Q3 10E Q4 10E Q1 11E Month 09 YTD Avg 12-Mo Avg
GDP SAAR 7.2 8.2 8.6 9.5 EM Funds* 8,474 3,695 4,647
Asia ex Japan* 3,028 992 1,048
China 345 -391 212
MSCI China Absolute and Relative (vs EMF) Index MSCI Fair value Range
800 Absolute Relativ e to MSCI EMF (28) (57)

FWD PER
700
PER (50) (87)
600
500 PBR (30) (72)
400 DY (49) (85)

300
BY/EY (62)
200
100 BY/DY (58)
0
10 30 50 70 90 110 130 150
Currency Outlook (CNY/USD) EPS Integer over Time

8.5 140 2010 2011
Spo t Fo recast Co nsensus
8.0 130
7.5 120
J .P . M o rgan f o rec a s t:
end Sep 10: 6.70
Co nsensus
end Dec 10: 6.60 110
7.0
end M ar 11: 6.50
100
6.5
J.P. M o rgan
90
6.0
Feb 09 May 09 Aug 09 Nov 09 Feb 10 May 10 Aug 10
Dec 04 A ug 06 M ar 08 No v 09 Jun 11
29
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South Korea
Market Strategy South Korea: Investors’ portfolio shift likely
Scott YH Seo AC
(82-2) 758 5759
Despite economic expansion, the KOSPI remained range bound throughout 1H10, with
[email protected] global financial markets under stress and on concerns about the impact on the behavior of
consumer and business sectors. As of now, the volatile financial markets seem to have
had a limited impact on real economic activity. The recent dip in the KOSPI, along with
Recommendation more than a 13% of depreciation in the KRW vs USD to 1250 from 1100 at the end of
OW: Auto, Tech, Consumers April, offered good buying opportunities in Korea equities, in our view. Since then, the
KRW has slipped moderately to below 1200s – J.P. Morgan forecasts that it will
UW: Shipbuilding, Construction eventually stabilize at 1150 by end-2010 – while the KOSPI has recovered to the mid-
1700 level.
Key Drivers
Fund managers’ portfolio shift after Outlook
2Q10 earnings season, policy mix Going into 2H10, we believe the key areas to focus on in the Korea market are: 1) fund
changes managers’ possible portfolio adjustments after the 2Q10 earnings season; 2) whether
private sector demand in both DM and EM is sustained to keep up global expansion,
Key risk despite moderated growth momentum in the manufacturing sector; and 3) the policy mix
Softer than expected global demand
changes (e.g. policy rate rise) in Korea and its impact on the overall economy and
financial markets. Based on J.P. Morgan’s view of a further uplift in private demand
Market Statistics (%) from DM and continuous consumer spending growth from EM, we expect large-cap
MSCI South Korea Index 492.1
exporters to be able to keep strong momentum in 2H10. End of 1H10 data points for key
KRW/US$ 1187 stock holdings by domestic equity funds suggest that our positive view on banks/insurers
Avg. Daily Turnover (US$MM) 3871 and POSCO is a non-consensus call. But we believe the start of monetary tightening will
MSCI Total Mkt. Cap (US$B) 388 push Korean banks’ and insurers’ shares up; POSCO should be one of the biggest
beneficiaries of macro changes in China and should maintain its profitability with its
competitive cost structure amid the uncertain commodity cycle.
Recommendations
We maintain our positive view on companies with global competitiveness, such as LG
Chemical, whose share price looks to have further upside with positive news on HEV
RB. Among exporters, we still recommend HMC, and believe the recent sluggish market
share gain in both domestic and international markets provides a buying opportunity.
Among financials, we stay positive on SFG, which we think is the biggest beneficiary of
monetary tightening with a strong deposit franchise.

(KRW) (x) (x) (KRW) (KRW) (%) (%)
Top picks
LG Chemical 329000 051910 KS OW 18.6 12.3 12.0 26761.4 27363.1 1.1 27.5
Hyundai Motors 135000 005380 KS OW 25.3 6.8 6.2 19826.6 21872.3 1.2 16.6
LG Innotek 159000 011070 KS OW 2.5 16.9 11.4 9400.0 13900.0 NA 15.1
LG Electronics 105000 066570 KS OW 12.9 6.4 5.8 16452.3 18007.5 0.8 21.1
Shinhan Financial Group 46100 055550 KS OW 18.6 10.6 8.9 4364.0 5166.5 1.5 10.0
Stocks to Avoid
Honam Petrochem 25900 011170 KS UW 4.8 1.2 1.7 21564.1 15211.6 3.9 17.0
Hyundai Heavy 279500 009540 KS UW 18.1 12.0 17.6 23384.6 15892.4 NA 20.3
Source: Datastream, J.P. Morgan estimates. Note: The share price and valuations are as of 16 August 2010.
30
(852) 2800-8599 18 August 2010
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South Korea scorecard

2008 -38.9 23.3 7.8 1.0 3 Month 2.8 0.1 0.3
2009 56.9 14.9 11.5 0.9 Long Bond 4.9 -0.1 0.3
2010E 44.8 10.3 14.8 1.1 Inflation 2.6 -0.1 0.2
2011E 4.5 9.8 13.7 1.3 Real 3 Month 0.3 0.2 0.0

2008 2.3 -0.2 -2.6 0.0 BAA 3.0 0.1 na
2009 6.1 0.8 -0.8 0.1 EMBI 3.0 -0.5 1.0
2010E 4.0 -0.1 -1.6 -0.6 Country na na na
Country Relative na na na
GDP SAAR 6.0 2.5 3.8 4.0 EM Funds* 8,474 3,695 4,647
Asia ex Japan* 3,028 992 1,048
Korea 2,452 1,078 1,605
MSCI Korea Absolute and Relative (vs EMF) Index MSCI Fair value Range

FWD PER
400
350 PER (439) (915)
300
PBR (308) (533)
250
200 DY (223) (390)
150
BY/EY (214)
100
50 BY/DY (208) (769)
0
Jan-03 Dec-03 Nov -04 Oct-05 Sep-06 Aug-07 Jul-08 Jun-09 May -10 0 300 600 900 1200
Currency Outlook (KRW/USD) EPS Integer over Time

1,650 Spo t Forecast Consensus 2010 2011
160
1,550
J .P . M o rga n f o re ca st : 150
1,450 end Sep 10: 1130
end Dec 10: 1150 140
1,350 end M ar 11: 1180
Consensus 130
1,250
120
1,150
110
1,050 J.P . M organ
100
950
90
850
Dec 04 A ug 06 M ar 08 Nov 09 Jun 11 Feb 09 May 09 Aug 09 Nov 09 Feb 10 May 10 Aug 10
Source: MSCI, Bloomberg, IBES, Datastream, CEIC, J.P. Morgan, Consensus Economics. Unless stated all forecasts are J.P. Morgan’s. The scorecards are designed to assist in tracking trends and
expectations. -3M∆ refers to the change in this factor over the past three months and +3M∆ refers to the forecast change in this factor over the next three months. The Economic Forecast table
contains J.P. Morgan’s real GDP forecasts, the change in these forecasts over the past three months, the difference between these forecasts and the average for emerging markets and the final
column is the difference between J.P. Morgan’s forecast and consensus expectations. The MSCI Fair Value chart is designed to show current valuations relative 10 year valuation history. The vertical
dotted line is the current index level. The five horizontal bars show a +/- one standard deviation range for these valuation measures. A dotted line to the left indicates a market that is cheap relative to
history.* US Mutual fund subscriptions
.
31
(852) 2800-8599 18 August 2010
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Taiwan
Market Strategy Taiwan: Tech a break
Nick LaiAC
(886-2) 27259864
MSCI TW was up 8.6% in July, in line with MSCI APxJ (+8.5%) over the same period (in
[email protected] US$ terms). Rubber/tire sector was the best performer of the month and up 15.6%;
Recommendations followed by other non-tech sectors such as cement, textile, machinery, tourism, and auto
OW: Tech industries which all surged ~11% in a month. The worst performing sector was plastic,
only up 3.4% as the market was concerned about the two fire accidents in the plants of
UW: Financials Formosa Group. On the macro side, Taiwan’s July export growth came in better-than-
expected at 38.5% oya (JPMorgan: 32.5%; consensus: 31.0%), driven by rebound of non-
Key Driver tech export.
Cross-Strait developments on track
Outlook
Key risks The reporting season kicked off by the technology sector in August and the guidance
Downward revision of earning towards 2H10 so far is broadly conservative. We believe the technology sector is going
estimate in technology sector through a de-inventory stage and visibility will become clearer in 4Q10. Non-tech sectors
such as financial, domestic consumption and China plays are relatively immune from
Fade of economic recovery slowdown of global economy recovery and benefit from improvement in cross-strait
activities. Net-net, our economist, Grace Ng, looks for the economy’s 2H10 sequential
growth momentum to average at a moderate 3.0-3.5% q/q, saar pace. In terms of monetary
policy, we expect the Taiwan central bank to continue raising policy rates by 12.5bp due
to worries about rising property prices.
Recommendations
We maintain our long-term bullish view on Taiwan. We suggest adding downstream PC
names because we expect margin pressure to ease given declining component prices due
to weak end demand. For the upstream sector, we stick with foundry and remain bearish
on OSAT. In the non-tech universe, we like banks, brokers, transport, tourism, and asset
plays on the backdrop of intensifying cross-strait activities.
MSCI Taiwan Index 280.0
TWD/US$ 31.9

(NTD) (x) (x) (NTD) (NTD) (%) (%)
Top picks
Hon Hai Precision 102.0 KBANK TB OW 7.7 13.7 10.6 7.5 9.6 2.7 15.0
TSMC 91.0 SCB TB OW 9.7 13.8 12.1 6.6 7.5 2.7 15.2
Chimei Innolux 257.0 PTT TB OW 23.0 9.8 8.4 26.2 30.6 3.7 16.4
China Airline 275.0 SCC/F TB N 10.4 12.6 11.0 21.8 25.1 3.1 23.3
First FHC 6.1 LH TB OW 1.9 14.1 12.2 0.4 0.5 5.7 16.1
Stocks to Avoid 24.3 PS TB OW 1.7 12.8 11.3 1.9 2.2 2.7 29.1
Formosa Plastic
Nan Ya Plastic 2.2 TMB TB N 3.0 31.0 26.3 0.1 0.1 0.9 6.3
Taishin Holdings 60.0 1303 TT UW 14.8 17.2 13.6 3.5 4.4 3.2 10.5
Source: DataStream, J.P. Morgan estimates Note: The share price and valuations are as of 16 August 2010 .
32
(852) 2800-8599 18 August 2010
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Taiwan scorecard
2008 -69.2 34.6 5.6 4.6 3 Month 1.0 0.1 -0.4
2009 32.6 26.1 7.8 2.8 Long Bond 1.3 -0.1 0.4
2010E 94.1 13.4 13.9 3.7 Inflation 0.4 -0.2 0.8
2011E 14.8 11.7 14.7 4.5 Real 3 Month 0.6 0.3 -1.2

2008 0.7 0.6 -4.2 0.0 BAA 3.0 0.1 na
2009 8.8 1.8 2.0 4.3 EMBI 3.0 -0.5 1.0
2010E 4.2 -0.6 -1.4 0.2 Country na na na
GDP SAAR 2.0 3.0 3.5 4.2 EM Funds* 8,474 3,695 4,647
Asia ex Japan* 3,028 992 1,048
Taiwan 1,975 312 764
MSCI Taiwan Absolute and Relative (vs EMF) Index MSCI Fair value Range
250 Absolute Relativ e to MSCI EMF

FWD PER(115) (243)
200
150 PER (270) (593)
100
PBR (243) (450)
50
0 DY (275) (1360)
-50
BY/EY (362) (2912)
-100
-150 BY/DY (398)
-200
Jan-03 Dec-03 Nov -04 Oct-05 Sep-06 Aug-07 Jul-08 Jun-09 May -10 0 500 1000 1500 2000 2500 3000 3500
Currency Outlook (TWD/USD) EPS Integer over Time

38 Spo t Fo recast Co nsensus 2009 2010
180
37
170
J .P . M o rga n f o re c a s t :
36 160
end Sep 10: 31.5
35 end Dec 10: 31.00 150
end M ar 11: 30.80
34 140
33 Co nsensus 130
32 120
31
110
J.P . M o rgan 100

30
90
29
expectations. -3M∆ refers to the change in this factor over the past three months and +3M∆ refers to the forecast change in this factor over the next three months. The Economic Forecast table contains
J.P. Morgan’s real GDP forecasts, the change in these forecasts over the past three months, the difference between these forecasts and the average for emerging markets and the final column is the
difference between J.P. Morgan’s forecast and consensus expectations. The MSCI Fair Value chart is designed to show current valuations relative 10 year valuation history. The vertical dotted line is the
current index level. The five horizontal bars show a +/- one standard deviation range for these valuation measures. A dotted line to the left indicates a market that is cheap relative to history. *US Mutual fund
subscriptions.
33
(852) 2800-8599 18 August 2010
[email protected]
Russia
Market Strategy Russia: Volatility trade hitting speed bumps
Alex KantarovichAC
(7-495) 967 3172
The high-beta market it is, Russia outperformed other emerging markets in July, with the
[email protected] oil price recovering towards the 80s and the ruble strengthening. The cyclicals as our
market overweight, delivered on our expectations. Volatility, measured by the VIX Index,
Recommendations has visibly subsided quarter-to-date.
• Sberbank
Outlook
• VTB On the global scale, market concerns over the European fiscal consolidation seem to be
easing, leaving the stage to worries over the weakening global growth momentum.
• Mechel Russia’s still-elevated equity risk premium suggests the markets are seeing downside risks
to earnings growth, but not a double-dip recession as corporate risk premium is relatively
• Protek stable. Thus the market has most to gain should the growth fears be proven overblown.
Sustainability of the earnings trend would provide much-needed confidence to the market.
Key drivers In that respect, the starting 2Q10 IFRS reporting season and, even more importantly, 2H10
Oil holding grounds management guidance by corporates would be key to watch. On the macro side, our
economics team has lifted Russia's end-2010 CPI forecast from 7% to 7.5% y/y, and 2011
Domestic recovery largely intact average from 6.9% to 7.5% y/y as a prolonged heat wave and severe drought will
significantly hurt agricultural output this year and there is a risk that next year’s grain
Key risks crops will also be affected. By all indications, escalating food prices would send Russia’s
Slowdown of US economic recovery CPI higher. We also see risks to our full-year GDP forecasts stemming from
weather/ecological abnormalities of the summer season.
Taxation in the oil industry
Recommendations
We are OW Banks (with Sberbank and VTB remaining our Top Picks on improving 2H10
operating outlook) and UW Consumer Staples. We continue to be OW Materials, sticking
to our cyclical bias. In this space, our top pick is Mechel, the only sizable Russian coking
coal player and exporter with 46% y/y 2010 volume growth margins benefiting from the
operating leverage effect. In the Pharma space, which should not be negatively impacted
by inflation, Protek, offering downside protection as a defensive pharma company and
Market Statistics (%) upside potential stemming from retail network expansion is our top pick. Pharmacy Chain
MSCI Russia Index 731 36.6 is likely to remain the sector laggard due to poor cash flow generation. Our Energy
Weightings in Region (%) 6.5 stock to avoid is Novatek: the company continues to add capacity but might hit demand
RUB/US$ 30.4
Avg. Daily Turnover (US$MM) 1923 constraints in the Russian gas market, which could reduce gas business profitability. Rise
MSCI Total Mkt. Cap (US$B) 190 in production taxes and removal of discounts on transportation might lead to downgrades
Source: Datastream. Prices as of 16 August 2010. and might make the company look even more expensive vs. peers.

(US$) (x) (x) (RUB) (RUB) (%) (%)
Top picks
Sberbank 2.68 SBER RU OW 57.9 11.0 5.8 0.24 0.46 0.87 19.16
VTB 5.37 VTBR LI OW 28.1 14.3 7.1 0.38 0.76 1.05 11.16
Mechel 22.85 MTL US OW 9.5 11.7 7.4 1.95 3.08 NA 24.13
Protek 3.77 PRTK RU OW 1.8 15.1 11.8 0.25 0.32 NA 23.00
Stocks to Avoid
Pharmacy Chain 36.6 2.65 APTK RU UW 0.3 NM 33.1 NM 0.08 NA NM
Novatek 74.90 NVTK LI UW 22.7 18.6 14.3 4.03 5.23 0.12 25.49
34
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Russia scorecard
2008 -22.8 6.2 17.0 0.8 3 Month 4.4 -0.6 na
2009E -27.9 8.5 12.0 0.9 Long Bond 4.4 -0.6 na
2010E 33.5 6.4 15.0 2.3 Inflation 5.8 -0.3 0.0
2011E 28.3 5.0 16.6 3.0 Real 3 Month -1.3 -0.3 na

2008 5.6 0.0 0.7 0.0 BAA 3.1 0.7 na
2009E 5.5 0.0 -1.5 1.5 EMBI 3.3 0.6 0.7
2010E 5.0 0.0 -0.7 0.8 Country 2.7 0.8 na
GDP SAAR 2.2 13.5 4.0 4.0 EM Funds* 6,919 2,573 3,992
EM Europe* 87 376 419
Russia -509 -76 165
MSCI Russia Absolute and Relative (vs EMF) Index MSCI Fair value Range

FWD PER (676) (1399)
500 PER (404) (1842)
400
PBR (586) (1297)
300
DY (544) (2174)
200
BY/EY Not meaningful
100
BY/DY Not meaningful
0
Jan-03 Dec-03 Nov -04 Oct-05 Sep-06 Aug-07 Jul-08 Jun-09 May -10 0 500 1000 1500 2000 2500
Currency Outlook (RUB/USD) EPS Integer over Time

43 Spot Fo recast Co nsensus 170 2010 2011
160
39 J.P . M o rgan fo rec as t: 150
end Sep 10: 30.11
end Dec 10: 29.66 140
35 end M ar 11: 29.21
Co nsensus
130
120
31
110
100
27
90
J.P . M o rgan
80
23
Dec 04 A ug 06 M ar 08 Nov 09 Jun 11
current index level. The five horizontal bars show a +/- one standard deviation range for these valuation measures. A dotted line to the left indicates a market that is cheap relative to history. *US Mutual
fund subscriptions
35
(852) 2800-8599 18 August 2010
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India India: Disappointing margin performance

Market Strategy
Bharat Iyer A C Issues over the last 12 months

(91-22) 5639 3005 India's economy returned to strong growth in 2H09. With higher economic growth and
[email protected]
surging inflation, Indian policy makers initiated the process of reversal in extra-
supportive policy stance in Q4 2009. Food inflation has been one of the key
contributors to the spike in inflation. Higher food inflation could be partially attributed
Recommendation to a weak monsoon last year. The Central Bank has also been explicit about its
OW: Private sector banks, discomfort over the sharp rise in asset price inflation. Separately, in the general election
Industrials, IT, Energy last year, the INC got a significantly higher number of seats and the mandate boosted
investor confidence. The BSE Sensex is up a significant 22% over the past 12 months
UW: Materials, Telecom, Consumer led by Consumer Discretionary, IT Services and Health Care sectors.
Discretionary
Outlook
Key drivers We believe that the second half of the fiscal year should be good for Indian equities as
Long-term economic growth the growth momentum led by investments picks up and concerns related to inflation
eases. The progress of South-West monsoon so far has been good and this should help
Acceleration in cyclical recovery in easing food inflation. We do not expect any meaningful re-rating in valuations
though and expect returns to be largely driven by earnings growth. Separately, global
Key risks growth outlook is increasingly uncertain and India remains overly dependent on
external capital flows. A sharp reversal in global liquidity situation is the key risk to
Inflation Indian equities.
Fiscal deficit The Central Bank has started monetary policy normalization and our economics team
expects it to continue over the current fiscal year. They expect Repo rate to be hiked by
100 bps over the next 12 months. They also expect the INR to appreciate 5% vs. the
US$ by the fiscal year-end.
MSCI India Index 725.4
Weightings in Region (%) 8.0 We believe that the current MSCI India consensus earnings growth expectation of 28%
INR/US$ 46.8 and 19% for FY11 and FY12 respectively is achievable. The key risk to current year
Avg. Daily Turnover (US$MM) 341 earnings growth is from the Materials sector, which is contributing over 30% in FY11
growth. Metal prices have corrected sharply over the past two months and near-term
Source: Datastream Prices as of 16 August 2010.
outlook remains highly uncertain in the backdrop of European and Chinese
developments.
Recommendations
We are OW Industrials, private sector banks, Energy and IT services in our portfolio.
We are UW Consumption, Telecom, and SoE banks. Our key themes are a) OW
investments vs. Consumption b) Cautious on Metals c) Prefer private sector banks vs.
PSU.

(INR) (x) (x) (INR) (INR) (%) (%)
Top picks
BHEL 2475 BHEL IN OW 26.0 28.1 22.7 88.1 108.9 0.9 29.9
Axis Bank 971 RIL IN OW 68.1 20.2 12.9 48.1 75.4 0.7 14.6
TCS 850 TCS IN OW 35.7 24.2 22.4 35.1 37.9 2.8 36.8
Source: Datastream, J.P. Morgan estimates. Note: The share price and valuations are of 16 August 2010
36
(852) 2800-8599 18 August 2010
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India scorecard
2008 -16.9 22.2 15.7 1.0 3 Month 6.4 2.2 -1.7
2009E 4.1 21.4 14.4 1.1 Long Bond 7.8 -0.3 0.7
2010E 25.3 17.0 15.8 1.3 Inflation 13.9 0.6 -0.1
2011E 26.0 13.5 17.2 1.4 Real 3 Month -7.5 1.6 -1.5

2008 6.7 0.5 1.8 0.0 BAA 3.1 0.7 na
2009E 8.3 0.5 1.3 0.1 EMBI 3.3 0.6 0.7
2010E 8.5 0.2 2.7 na Country na na na
GDP SAAR 9.2 8.1 8.0 8.9 EM Funds* 6,919 2,573 3,992
Asia ex Japan* 1,724 577 806
India 2,096 974 1,409
MSCI India Absolute and Relative (vs EMF) Index MSCI Fair value Range

700
PER (474) (821)
600
500 PBR (584) (986)
400 DY (470) (722)

300
BY/EY (444)
200
100 BY/DY (448) (975)
0
150 300 450 600 750 900 1050
Currency Outlook (INR/USD) EPS Integer over Time

54 Spot Forecast Consensus
140 2010 2011
52
130
50 end Sep 10: 44.0
end Dec 10: 43.5 Consensus
48 end M ar 11: 43.0 120
46
110
44
J.P . M organ
42 100
40
90
38
fund subscriptions.
37
(852) 2800-8599 18 August 2010
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South Africa
Market Strategy South Africa: Remain Neutral
Deanne GordonAC
(27-21)712-0875
J.P. Morgan economists expect below-potential 2010 GDP growth of 2.9%y/y and 3.1% in
[email protected] 2011 (previously 3.0% and 3.5%, respectively), reflecting a loss in global growth
momentum, sluggish domestic IP, and pressure on export- and import-competing sectors
due to continued FX strength. We now expect the SARB to cut rates 50bp at the next
Recommendations
meeting in September, based on our GDP projections.
OW: Food retailers, banks
Outlook
Key Drivers
The prospect of growth below the 3.7% mark, which is our estimate of trend-growth,
Countercyclical accommodative
suggests continued labour market weakness and little progress in reducing the
monetary policy
unemployment rate, which currently stands at 25.3%. We remain neutral MSCI SA, after
outperforming MSCI SA in the year to date. (MSCI SA 5.2% vs MSCI EM 0.2% year-to
Improved disposable income
date in 2010). We believe that the most of the key drivers of outperformance have largely
played out in 1H10: (1) Growth recovery trade; (2) World Cup impetus; (3) Re-rating
Greater unwinding of bad debts
catchup; and (4) Low beta safe-haven status.
Stronger for longer ZAR
SA domestic cyclicals have outperformed meaningfully year-to-date in 2010 (Retail +26%).
We expect this trend to persist, given our revised short rate outlook of further rate cuts in
Key Risks
the latter half of this year:
Slowing growth momentum

(1) Improved disposable income for indebted high LSM category consumer.
MSCI South Africa Index 721.6
Weightings in Region (%) 7.4 (2) Greater unwinding of bad debts than forecast on even lower rates.
ZAR/US$ 7.29
MSCI Total Mkt. Cap (US$B) 215 (3) Stronger for longer ZAR - despite relatively strong intervention by the SARB, the rand
Source: Datastream Prices as of 16 August 2010 remains very well underpinned and this is likely to continue given the rather poor developed
world macro backdrop. Until the Fed starts tightening the rand is likely to be attractive from
a carry trade perspective.
SA retailers will continue to benefit across the board from increased consumer spending and
accelerated impairment unwind. We do believe that the endowment effect in the banking
sector will hamper earnings, but still favour SA Banks, with a potential for substantial
impairment unwind. Absa and Abil are best positioned, in our view.
Recommendations
We recommend overweight relatively resilient food retailers in SA such as Shoprite and
Spar and are also overweight SA Banks for a recovery in bad debts.

(ZAR) (x) (x) (ZAR) (ZAR) (%) (%)
Top picks
Spar 8188 SPP SJ OW 1.9 15.1 13.0 542.5 631.0 4.0 42.8
ABSA 12632 ASA SJ OW 12.5 10.0 8.2 1323.0 1601.6 4.2 17.8
Shoprite 8475 SHP SJ OW 6.3 19.2 15.9 442.4 532.5 2.6 40.1
38
(852) 2800-8599 18 August 2010
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South Africa scorecard

2008 -24.9 13.4 16.9 3.4 3 Month 6.5 -0.1 na
2009E -15.1 15.8 13.9 2.7 Long Bond 8.6 -0.1 na
2010E 36.8 11.6 17.7 3.4 Inflation 4.6 -0.2 0.1
2011E 25.6 9.2 19.4 4.3 Real 3 Month 1.9 0.1 na

2008 3.1 0.0 -1.8 0.0 BAA 3.1 0.7 na
2009E 3.0 0.0 -3.9 -0.1 EMBI 3.3 0.6 0.7
2010E 3.5 0.0 -2.3 -0.1 Country 1.9 0.2 na
Country Relative -1.4 -0.4 na
GDP SAAR 4.6 3.9 2.8 3.4 EM Funds* 6,919 2,573 3,992
EM Europe* 87 376 419
South Africa -86 342 506
MSCI South Africa Absolute and Relative (vs EMF) Index MSCI Fair value Range
FWD PER (614) (854)
350
300 PER (605) (811)
250
PBR (619) (840)
200
150 DY (593) (800)
100
50 BY/EY (635) (1374)
0
BY/DY (630) (1342)
-50
Currency Outlook (ZAR/USD) EPS Integer over Time

11.0 Spo t Fo recast Consensus 115 2010 2011
10.0 J.P . M o rgan fo rec as t :

end Sep 10: 7.85 105
9.0 end Dec 10: 7.90
end M ar 11: 7.95 Consensus
8.0 95
7.0
J.P . M o rgan 85
6.0
75
5.0
fund subscriptions
39
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Mexico
Market Strategy Mexico: Consumer Recovery
Ben LaidlerAC
The Mexican market has performed well in the 1H, outperforming both LatAm and Brazil.
(212) 622 5252
We expect a more muted relative performance in the 2H, as the cyclical US and Mexican
[email protected]
recovery slows. This will only partly be compensated, in our view, by the gradual recovery of
Mexican domestic demand. We are neutral Mexico, transitioning from a cyclical to a
Recommendation
consumer focus.
OW: Domestic Cyclicals
Outlook
UW: Fixed line Telco, Staples
Our economics team forecasts Mexico to grow 4.5% in 2010. Whilst US leading indicators
have peaked, we still expect only a moderate deceleration in the 2H. This should provide
Key drivers
some support to the ongoing Mexican recovery, but tail risks have been rising. The Mexican
US Growth Rebound to drive
recovery continues to be manufacturing led. June IP came in at 8.4% oya, with manufacturing
Mexico turnaround
activity at 15.2%. Consumption leading indicators have also been improving - employment,
confidence, remittances, and purchasing power- and we expect consumption to strengthen as
Undervalued Mexican Peso
we move into the 2H. On the monetary policy front, we expect Banxico to stay on hold for
long as the output gap remains wide and inflation expectations remain well-anchored. We
Underowned Mexican Market
continue to see upside risks to the Mexican peso, supported by its medium term
underperformance, undemanding REER valuation, and robust shorter term growth outlook.
Key risks
The security situation has been a drag on growth—leading Mexico to underperform its
US and Mexican GDP growth
traditional GDP beta of over 2x global growth. Oil accounts for 40% of fiscal revenue.
downsides.
Production has tentatively stabilized, whilst the price is hedged at the government budget
forecast for the year.
Small and Shrinking Equity
Market
Recommendations
We remain neutral Mexico, focused on the incipient consumer recovery. Our previous
Medium Term Structural issues
cyclical recovery call has largely played out given the rolling over of US recovery data.
Market Statistics (%) Whilst our Mexico conviction has certainly fallen, we do see consumer recovery upside in
MSCI Mexico Index 29765 Mexico, and little risk attached to that given the turn in leading indicators already.
Weightings in Region (%) 4.7 Additionally, we see the peso as undervalued; the market as underowned (by local and global
MXN/US$ 12.67
investors); not as expensive as it looks (12.7x 12m fwd sector-neutral P/E); with reasonable
MSCI Total Mkt. Cap (US$B) 138 growth (15%/20% 10e/11e earnings growth). Our top Mexico picks are discretionary names
Source: Datastream Prices as of 16 August 2010 Urbi, First Cash, and Televisa, along with ICA and AMX.

(MXN) (x) (x) (MXN) (MXN) (%) (%)
Top picks
Ternium 32.9 TX US OW 6.6 8.6 7.8 3.8 4.2 1.5 13.6
Urbi 24.4 URBI* MM OW 1.9 11.2 9.2 2.2 2.7 0.0 12.9
ICA 31.1 ICA* MM OW 1.6 29.1 21.0 1.1 1.5 0.0 3.7
First Cash 24.0 FCFS US OW 0.7 14.6 12.8 1.6 1.9 na 18.4
Televisa 19.1 TV US OW 11.2 19.8 13.9 12.3 17.5 1.3 14.7
Stocks to Avoid
Telmex 14.9 TMX US UW 13.5 10.6 11.1 17.8 16.9 5.3 46.7
Walmex 29.7 WALMEXV MM N 41.9 24.7 21.3 1.2 1.4 1.2 17.8
Source: DataStream, J.P. Morgan estimates. Note: The share price and valuations are as of 16 August 2010.
40
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Mexico scorecard
2008 -27.2 19.8 8.2 1.9 3 Month 4.8 0.0 na
2009E 19.8 16.5 8.8 2.5 Long Bond 4.8 -0.3 na
2010E 22.5 13.5 17.1 2.7 Inflation 3.7 -0.6 0.9
2011E 13.8 11.8 20.3 3.5 Real 3 Month 1.1 0.6 na

2008 1.3 0.0 -3.6 0.0 BAA 3.1 0.7 na
2009E 4.5 0.0 -2.5 0.1 EMBI 3.3 0.6 0.7
2010E 3.5 0.0 -2.3 -0.1 Country 2.0 0.2 na
Country Relative -1.4 -0.4 na
GDP SAAR -1.4 3.2 -1.8 4.2 EM Funds* 6,919 2,573 3,992
LatAm* -452 -334 124
Mexico -256 -186 -51
MSCI Mexico Absolute and Relative (vs EMF) Index MSCI Fair value Range
FWD PER (22261) (30126)
450
400 PER (14976) (44091)
350
PBR (15585) (37529)
300
250 DY (30773) (48961)
200
150 BY/EY (10434)
100 BY/DY (32576)

50
Jan-03 Dec-03 Nov -04 Oct-05 Sep-06 Aug-07 Jul-08 Jun-09 May -10 0 10000 20000 30000 40000 50000 60000
Currency Outlook (MXN/USD EPS Integer over Time

16.0 Spo t Forecast Consensus 130 2010 2011
15.0
J.P . M o rgan fo rec as t :
14.0 end Sep 10: 12.15 120
end Dec 10: 12.25 Consensus
13.0 end M ar 11: 12.25
110
12.0
J.P . M o rgan
11.0 100
10.0
90
9.0
fund subscriptions
41
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Malaysia
Market Strategy Malaysia: Back on a high; what now?
Chris OhAC
(60-3) 2270-4728
Malaysia appears to us to be a safe refuge for foreign investors for the moment given its
[email protected] strong domestic economy outlook vis-à-vis regional markets (7.2% 2010E GDP growth
JPM forecast) and relatively defensive characteristics, i.e., low volatility and weak
correlation with major indices, which stands out during this bout of increased volatility. In
Recommendation
our view, short term uncertainties surrounding the US bank bill, Chinese growth, EU bank
OW: Banks, GLCs and gaming
stress tests, and European sovereign funding have caused the KLCI to get compressed
stocks, Construction, property and
upwards alongside other ASEAN markets, with the index now standing above 1350
oil and gas mid caps.
(which is a 2010 as well as a 29-month high).
N: Plantations
Outlook
Malaysia-specific positive drivers we expect to see over the coming months:- 1) 2Q10
UW: Cyclical stocks that have run
reported results which are likely to remain relatively robust; 2) Unveiling of Part 2 of the
ahead of valuations.
New Economic Model policy (expected in August) which will provide greater granularity
on the structural reform policies; 3) Greater Malaysia-Singapore economic relations
Key Drivers
especially in Iskandar, South Johor); 4) Renewed interest on IPOs by domestic companies
Strong macro economic recovery
to put Malaysia back on foreign investors’ radar screens; 5) Positive sound bites on the
driving earnings growth
2011 Budget (14 October) and proposed pump priming agenda as the possibility of a snap
general election may emerge in 2011 and 6) Enhancements to the government delivery
Structural reforms, government
system and the GLCs which are expected to exhibit tangible results. However, key risks
pump-priming under 10MP
include:- 1) policy uncertainties (long lead time to implement measures and the need for
political buy-in), and 2) relatively high valuations. Thus, despite the perceptible low
Pro-growth monetary policy,
expectations of reform, the question is whether the market can further rerate without being
mergers & acquisitions
accompanied by strong upward earnings revisions.
Key Risks
Recommendation
Political uncertainty, policy flip
Malaysia's market PE premium at 15.5% in this market correction remains difficult for
flops, relatively high valuations
investors to justify on valuation grounds. However, the market remains relatively insular
with domestic institutions (with consistent inflows) dominating trading while foreign
External shocks which may derail
investors who have been keeping a safe distance are now incrementally net buyers of
external demand momentum
Malaysian equities in the last few weeks (safe refuge during this period of volatility).
Nevertheless, we would tactically be focused on owning companies that benefit from a
MSCI Malaysia Index 500.5 recovering economy but have less downside risks. Key picks would be AMMB, Public
Weightings in Region (%) 2.9 Bank, Tenaga, Genting and IJM Corp.
MYR/US$ 3.2
(MYR) (x) (x) (MYR) (MYR) (%) (%)
Top picks
AMMB Holdings 5.4 AMM MK OW 5.2 16.3 12.3 0.3 0.4 1.5 11.5
Public Bank 12.0 PBKF MK OW 13.4 13.7 12.6 0.9 0.9 3.7 26.5
Tenaga 8.6 TNB MK OW 11.9 13.7 12.2 0.6 0.7 2.5 10.1
Genting 8.9 GENT MK OW 10.5 27.8 17.1 0.3 0.5 0.8 8.3
IJM Corp 2.3 IJMLD MK OW 0.8 22.8 11.0 0.1 0.2 0.9 6.8
Stocks to Avoid
Bursa Malaysia 7.1 BURSA MK UW 1.2 23.7 21.7 0.3 0.3 3.8 19.2
BAT 44.2 ROTH MK UW 4.0 18.7 17.7 2.4 2.5 4.8 NM
YTL Power 2.3 YTLP MK UW 5.2 13.3 12.0 0.2 0.2 8.0 15.9
Source: Datastream, J.P. Morgan estimates. Note: The share price and valuations are of 16 August 2010.
42
(852) 2800-8599 18 August 2010
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Malaysia scorecard
2008 -13.0 19.7 11.4 2.6 3 Month 2.9 0.2 0.1
2009 0.3 19.6 11.2 2.6 Long Bond 3.9 -0.2 0.5
2010E 23.2 15.9 13.1 3.2 Inflation 1.7 0.1 1.0
2011E 16.4 13.7 14.2 3.5 Real 3 Month 1.2 0.1 -0.9

2008 4.7 -0.4 -0.2 0.0 BAA 3.0 0.1 na
2009 7.2 2.2 0.3 2.2 EMBI 3.0 -0.5 1.0
2010E 4.6 -0.5 -1.0 0.1 Country 1.5 -0.1 na
GDP SAAR 5.0 4.0 4.0 4.9 EM Funds* 8,474 3,695 4,647
Asia ex Japan* 3,028 992 1,048
Malaysia 169 -23 18
MSCI Malaysia Absolute and Relative (vs EMF) Index MSCI Fair value Range

250
PER (444) (728)
200
150 PBR (350) (698)
100
DY (431) (808)
50
0 BY/EY (248) (1374)
-50
-100 BY/DY (401) (1633)
-150
0 300 600 900 1200 1500 1800 2100
Currency Outlook (MYR/USD) EPS Integer over Time

4.0 Spo t Forecast Co nsensus 125 2010 2011
3.9
3.8
3.7 115
3.6
Consensus
3.5
105
3.4
3.3 J.P . M o rgan fo rec as t :
end Sep 10: 3.15
3.2 95
end Dec 10: 3.10
3.1 end M ar 11: 3.08
3.0 J.P . M organ 85
2.9
43
(852) 2800-8599 18 August 2010
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Thailand
Market Strategy Thailand: Resilient despite turmoil
Sriyan PieterszAC
(66-2) 684-2670
Despite violent protests, Thai equities are up YTD. Corporate and sovereign balance
[email protected] sheets remained healthy. GDP growth in 1Q10 was significantly stronger than
expectations; +16% q/q (cf. +15.5% q/q in 4Q09). The disruption caused by the Red
Recommendations Shirt protest in Bangkok has hit tourist related businesses. The impact on industrial
OW: Banks, Consumer, Property activity appears limited, if any. High frequency data for 2Q indicates that consumption is
particularly robust, with auto sales and retail sales accelerating strongly.
Key drivers
Improving macroeconomic Outlook
momentum Although political tensions remain, the end of the demonstration should bring a respite to
sentiment. The focus will shift to solid market fundamentals and attractive valuations
Earnings upgrades, political relative to regional ASEAN peers, in our view. Fundamental drivers include improving
roadmap for reconciliation and private spending, ramp-up of stimulus spending through year-end, and sustained export
elections, strength supporting the macroeconomic outlook. J.P. Morgan's GDP growth forecast for
FY10 has upside risk, as we are effectively assuming -2% in 2Q and 2.8%q/q, saar for
Stronger currency 2H10, which is below where we are tracking on the high frequency data. This should
also underpin potential for earnings upgrades (J.P. Morgan's EPS growth forecast is
Key risks 22.9% for FY10 and 13.5% for FY11). Thailand has been relatively defensive, despite
Continuation of political the political turbulence. Foreign investors have made net sales of US$0.11B YTD.
instability/global demand slump Maturing foreign investment funds (FIFs) could support local inflows (Bt70B of FIFs are
expected to mature in 2H10), with even a small fraction having the potential to make a
Stalling of fiscal stimulus. significant market impact. With attractive relative market valuation of 11.2x 12-month
forward P/E, potential upside surprises on growth could squeeze the index higher on
earnings revisions and continued re-rating. Catalysts are removal of Map Ta Phut
Market Statistics (%) injunction, announcement of a clear election timetable, and the Democrat Party
MSCI Thailand Index 336.3 dissolution verdict. Dissolution of the DP will not be a game changer, in our view, and in
Weightings in Region (%) 1.5 a worst case scenario, should only accelerate the anticipated early election.
THB/US$ 31.8
Avg. Daily Turnover (US$MM) 420 Recommendations
MSCI Total Mkt. Cap (US$B) 44 Preferred sectors are Banks, Property, and Consumer. We like KBANK as a beneficiary
of higher policy rates, while laggard SCB could also play catch-up as corporate and
consumer loan momentum gathers pace in 2H10. We also like PTT, SCC, PS, AP and
LH which we expect to benefit from stronger domestic spending, a premise that is
supported by recent strong consumer data. Among SMID caps we favor TCAP,
MAKRO, TTW, BEC and ROBINS. Key themes for 2010 include consumption,
rural/basic spending, earnings visibility/upgrade potential, and operating leverage.

(THB) (x) (x) (THB) (THB) (%) (%)
Top picks
Kasikornbank 102.0 KBANK TB OW 7.7 13.7 10.6 7.5 9.6 2.7 15.0
Siam Commercial Bank 91.0 SCB TB OW 9.7 13.8 12.1 6.6 7.5 2.7 15.2
PTT 257.0 PTT TB OW 23.0 9.8 8.4 26.2 30.6 3.7 16.4
Siam Cement 275.0 SCC/F TB N 10.4 12.6 11.0 21.8 25.1 3.1 23.3
Land and Houses 6.1 LH TB OW 1.9 14.1 12.2 0.4 0.5 5.7 16.1
Pruska Real Estate 24.3 PS TB OW 1.7 12.8 11.3 1.9 2.2 2.7 29.1
Stocks to Avoid
TMB Bank 2.2 TMB TB N 3.0 31.0 26.3 0.1 0.1 0.9 6.3
PTT Chemicals 99.3 PTTCH TB UW 4.7 14.5 8.6 6.9 11.5 3.0 10.0
Source: Datastream, J.P. Morgan estimates. Note: The share price and valuations are as of 16 August 2010
44
(852) 2800-8599 18 August 2010
[email protected]
Thailand scorecard
2008 14.6 20.4 11.4 3.0 3 Month 1.4 0.0 0.3
2009 41.2 14.4 16.0 3.1 Long Bond 3.4 0.1 0.3
2010E 15.5 12.5 16.8 3.7 Inflation 3.4 -0.1 2.1
2011E 16.5 10.7 17.6 3.9 Real 3 Month -2.0 0.1 -1.8

2008 2.5 -0.9 -2.4 0.0 BAA 3.0 0.1 na
2009 8.5 2.0 1.6 2.8 EMBI 3.0 -0.5 1.0
2010E 5.0 1.0 -0.6 0.6 Country 0.5 0.0 na
GDP SAAR -2.0 2.8 2.8 6.0 EM Funds* 8,474 3,695 4,647
Asia ex Japan* 3,028 992 1,048
Thailand 214 -58 -12
MSCI Thailand Absolute and Relative (vs EMF) Index MSCI Fair value Range
350
PER (264) (547)
300
250 PBR (220) (459)
200
DY (175) (359)
150
100 BY/EY (165) (1220)
50 BY/DY (191) (1453)

0
Currency Outlook (THB/USD) EPS Integer over Time

43 Spot Forecast Consensus 140 2010 2011
41
130
39
37 120
Co nsensus
35
110
33
end Sep 10: 32.0
31 100
end Dec 10: 31.7
J.P. M organ
29 end M ar 11: 31.5
90
27
expectations. -3M∆ refers to the change in this factor over the past three months and +3M∆ refers to the forecast change in this factor over the next three months. The Economic Forecast table
contains J.P. Morgan’s real GDP forecasts, the change in these forecasts over the past three months, the difference between these forecasts and the average for emerging markets and the final column
is the difference between J.P. Morgan’s forecast and consensus expectations. The MSCI Fair Value chart is designed to show current valuations relative 10 year valuation history. The vertical dotted
line is the current index level. The five horizontal bars show a +/- one standard deviation range for these valuation measures. A dotted line to the left indicates a market that is cheap relative to history.
*US Mutual fund subscriptions
45
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Indonesia
Market Strategy Indonesia: Domestic liquidity turning?
Aditya S SrinathAC
(62-21) 5291-8573
Indonesia continues to rally, with the local JCI index at record levels after breaching
[email protected] 3,000 in July. The influx of foreign money into Indonesia has kept the bond yield stable
and driven a compression in discount rates. Inflation has risen quickly in the last few
Recommendation months, and at 6.2% at the end of July is outside the BI comfort zone. Legislative and
OW: Consumer staples, consumer bureaucratic progress remains an ongoing challenge, which could impede reform and
discretionary execution. While the policy rate has remained stable at 6.5%, interbank liquidity has
shown some signs of tightening at the fringes, as credit expansion is accelerating.
N: Financials, Telcos
Outlook
UW: Resources, utilities The JCI is now starting to overshoot our year end target of 3,000, as relative valuations
and high overweight limits the upside. However, MSCI Indonesia underperformed the
Key drivers MSCI EM/AexJ benchmarks in July, and that underperformance has continued up to
Recovering currency, declining the point of writing in August. With inflation expectations on the rise, we suspect that
inflation there is lower appetite for Indonesian equities at higher levels until the liquidity and
inflation pictures clears. On the positive side, the paucity of growth elsewhere means
Declining country risk perception that new pools of capital are dipping their toes into Indonesia – supporting equity
prices. We expect 16-20% earnings growth p.a. over FY10-11. At around 14x 12M
Strong growth, benign interest rates forward P/E, we think valuations are not highly demanding. The signs of recovery in
manufacturing could offer a new driver for growth. Indonesia’s average wage is among
Improving terms of trade the lowest in the region, and we see increasing market share in textiles and footwear
market. Investment for manufacturing has grown by 38% in 2007-2009 versus 2004-
Key risks 2006 and job creation in manufacturing has started picking up – creating a new long
Valuations & rising OW positions of term demand driver. The near term picture however is likely to be determined by how
fund managers inflation pans out domestically, and capital flows supporting the currency.
Vulnerability to rising crude prices Recommendations

We prefer consumer and discretionary stocks if the manufacturing growths play out,
Politics curbing reform prospects and are Overweight on Astra International, Semen Gresik, Indofood. We see
underperformance due to wheat price increases as a buying opportunity, as low price
elasticity of noodles enables cost increases to be passed through. Astra International is
also another large-cap pick as the 2W profitability is recovering. We are Underweight
Market Statistics (%) on Bank Rakyat as we are worried that its stress on growth is resulting in new NPL
MSCI Indonesia Index 4024.5 formation running at a higher pace than its history or peers, which we think is not
Weightings in Region (%) 2.3 adequately appreciated by markets – even though the bank has underperformed market
IDR/US$ 8980
Avg. Daily Turnover (US$MM) 275 and domestic banking sector YTD. We maintain PGAS as UW, fearing earnings
MSCI Total Mkt. Cap (US$B) 68 downside as gas supplies have declined more than expected.
Source: Datastream Prices as of 16 August 2010..
(IDR) (x) (x) (IDR) (IDR) (%) (%)
Top picks
Astra Internatiol 48300 ASII IJ OW 21.8 15.0 14.0 3219.6 3459.5 2.7 29.8
Indofood Sukses 4275 INDF IJ OW 4.2 15.5 13.2 275.8 323.2 2.2 22.6
Bank Mandiri 6000 BMRI IJ OW 14.0 14.0 12.5 429.5 481.8 2.6 23.5
Stocks to Avoid
Perusahaan Gas 4100 PGAS IJ UW 11.1 17.0 15.5 241.4 264.9 3.2 44.3
Bank Rakyat 9200 BBRI IJ UW 12.7 13.4 10.9 688.7 844.6 1.8 27.8
Source: DataStream, J.P. Morgan estimates. Note: The share price and valuations are as of 16 August 2010.
46
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Indonesia scorecard
2008 4.8 21.7 24.8 1.6 3 Month 6.6 0.0 0.1
2009 20.7 18.0 26.4 2.1 Long Bond 8.0 -1.1 0.0
2010E 17.7 15.3 26.0 2.7 Inflation 6.1 2.0 -0.5
2011E 17.1 13.0 25.8 3.2 Real 3 Month 0.5 -1.9 0.6

2008 6.1 0.0 1.2 0.0 BAA 3.0 0.1 na
2009 6.0 0.5 -0.9 0.0 EMBI 3.0 -0.5 1.0
2010E 5.4 -1.2 -0.2 -0.9 Country na na na
GDP SAAR 7.5 4.5 5.0 5.3 EM Funds* 8,474 3,695 4,647
Asia ex Japan* 3,028 992 1,048
Indonesia 533 198 163
MSCI Indonesia Absolute and Relative (vs EMF) Index MSCI Fair value Range
FWD PER (1234) (3180)
700
PER (2600) (5779)
600
500 PBR (1666) (3556)
400
DY (2682) (6074)
300
200 BY/EY (3953)
100
BY/DY (1404)
0
Jan-03 Dec-03 Nov -04 Oct-05 Sep-06 Aug-07 Jul-08 Jun-09 May -10 0 1000 2000 3000 4000 5000 6000 7000 8000
Currency Outlook (IDR/USD) EPS Integer over Time

14,000 Spo t Forecast Consensus 150 2010 2011
13,000 J .P . M o rga n f o rec a st :

140
end Sep 10: 8800
end Dec 10: 8900
12,000
end M ar 11: 9000 130
11,000
Co nsensus 120
10,000
110
9,000
J.P . M o rgan 100

8,000
47
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Turkey Turkey: Inflation risk and watered down fiscal

Market Strategy
rule
Adrian MowatAC
MSCI Turkey has outperformed MSCI EM by 14% in the last 12 months. In March,
(852) 2800 8599
[email protected]
Turkey ended talks with the IMF about a stand-by loan arrangement as the country seemed
to weather the global financial crisis relatively well and the government believed it did not
Recommendation require emergency funding. This put additional focus on the government’s fiscal policies
OW: Domestic cyclicals to contain its ballooning fiscal deficit. Between mid-March and end July, MSCI Turkey
outperformed EM by 20% on the back of strong fiscal performance and declining
UW: Defensive plays inflation. However, rising inflation risks plus watered down fiscal rules have led to its
underperformance since 2 August.
Key drivers
Low borrowing costs Outlook
We remain positive on Turkey’s structural growth prospects. J.P. Morgan forecasts
Structural decline in interest rates Turkey’s GDP to grow 5.9% in 2010. Resilient domestic demand and a structurally low
interest rate environment are supportive of economic growth. However, inflation is
becoming a concern. The CBRT has warned against a temporary rise in inflation in Aug-
Key risks Sep mainly on the back of a weak base. Yet it remains confident in the disinflation
Inflation and CBRT reaction process. Turkey's CPI at 7.6%yoy in July remains at historically low levels. J .P. Morgan
forecasts CPI to rise to 8.1% by September and then fall to 6.9% by year-end. We
continue to expect the CBRT to remain on hold until 2H11.
Fiscal credibility
Last week, the finance ministry announced that the parliamentary approval of the
Contagion from Euro sovereign
proposed fiscal rule aimed at reducing Turkey’s budget deficit and public debt could get
stress delayed beyond October. The country’s fiscal performance to date has been encouraging.
The successful implementation of the fiscal rule was expected to improve the
government’s credibility, facilitate Turkey’s upgrade to investment grade status, and
enhance the attractiveness of Turkish financial assets. In the absence of the fiscal rule,
investors could start getting concerned about the fiscal outlook especially if public
MSCI Turkey Index 861335
Weightings in Region (%) 1.6 spending gains momentum in the pre-election period.
TRL/US$ 1.5
Avg. Daily Turnover (US$MM) 638 Monetary conditions for Turkish corporates are increasingly favorable. EM corporate
bond yields are at record lows. The CEMBI yield is at 5.9%, a level last observed in early
2005. Being a current account deficit economy, Turkey should benefit from lower dollar
funding costs and increased availability of credit.
Recommendations
We remain overweight Turkey and recommend domestic consumption and investment
names. We like the conglomerates that provide broad exposure to the economy. We
believe Turkish banks offer an attractive investment case supported by improving macro
outlook, better volume growth and asset quality, and strong balance sheets. In addition,
provisions should decline dramatically in the next 2-4 quarters further boosting EPS
growth. Our top picks are YKB, Sabanci and Vakifbank.

(TRL) (x) (x) (TRL) (TRL) (%) (%)
Top picks
Yapi Kredi Bank 4.5 YKBNK TI OW 13.0 9.9 6.7 0.5 0.7 0.0 20.7
Sabanci Hldg 6.9 SAHOL TI NR 10.0 8.8 7.6 0.7 0.9 1.5 3.1
Turkiye Vakifl 3.9 VAKBN TI OW 6.4 7.0 5.5 0.6 0.7 4.3 17.5
Source: Datastream, J.P. Morgan estimates. Note: The share price and valuations are as of 16 August 2010. Bloomberg for NR stocks
48
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Turkey scorecard
2008 5.3 12.4 17.9 3.1 3 Month 7.7 -0.1 na
2009 5.2 11.8 18.7 4.3 Long Bond 8.8 -0.7 -1.8
2010E 16.8 10.1 18.9 2.8 Inflation 7.6 -1.5 0.7
2011E 12.6 8.9 18.8 3.5 Real 3 Month 0.1 1.5 na

2008 0.9 -0.8 -4.0 0.0 BAA 3.0 0.1 na
2009 5.9 1.6 -0.9 -0.5 EMBI 3.0 -0.5 1.0
2010E 5.0 -0.5 -0.6 0.7 Country 2.3 -0.3 na
GDP SAAR 5.4 -4.7 -6.2 12.6 EM Funds* 8,474 3,695 4,647
EM Europe* 95 391 428
Turkey 149 7 23
MSCI Turkey Absolute and Relative (vs EMF) Index MSCI Fair value Range
FWD PER (473445) (1044763)
700
PER (476862) (1559973)
600
500 PBR (511398) (1448256)
400
DY (483426) (1482921)
300
200 BY/EY (503108)
100 BY/DY (1257002)

0
Jan-03 Dec-03 Nov -04 Oct-05 Sep-06 Aug-07 Jul-08 Jun-09 May -10 0 500000 1000000 1500000 2000000
Currency Outlook (TRL/USD) EPS Integer over Time

2.20 Spo t Fo recast Co nsensus 130 2010 2011
2.10
2.00 120
end Sep 10: 1.50
1.90 end Dec 10: 1.50
1.80 end M ar 11: 1.49 110
1.70
1.60 Co nsensus 100
1.50
1.40 90
1.30
J.P . M o rgan
1.20 80
1.10 Feb 09 May 09 Aug 09 Nov 09 Feb 10 May 10 Aug 10
49
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Philippines
Market Strategy Philippines: High hopes on positive politics
Gilbert LopezAC
(63-2) 878-1188
The Philippines has been relatively insulated from the global crisis compared to its
[email protected] regional peers as remittances have remained surprisingly resilient and as trade accounts
for a much smaller proportion of the economy. From a marginal 0.9% GDP growth in
Recommendation FY09, 1Q10 GDP was a positive surprise at 12.9%. Furthermore, BSP is set to continue
OW: Property, Utilities keeping rates at record lows, with the latest inflation data for the month of July coming
N: Banks, Conglomerates in below expectations at 3.9%. The political scene has also started on a positive note,
with President Noynoy Aquino’s government setting the stage for the next six years by
Key drivers working towards fulfilling his campaign promises of instituting reform by weeding out
Post election euphoria leading to corruption. Notable would be the commencement of the weekly filing of cases against
genuine reform tax evaders, as well as the firing of midnight appointees of the preceding
administration.
Resurgence in consumption driven by
steady remittances growth Outlook
We believe the Philippine market remains attractive due to its strong domestic growth
Government fiscal stimulus story and its relatively under-owned state. Key drivers are a rebound in private
consumption, continued fiscal stimulus and the secular growth in remittances and BPO
Solid earnings momentum, under- activity. J.P. Morgan forecasts 2010 GDP growth at 6.8%oya and full-year inflation to
owned market remain well within historical trend at 4.0%oya. With the Philippines taking a positive
step politically with a newly elected president provided a strong mandate, the key
Key risks challenge in the near term would be to keep the government fiscal deficit under control
Global economic slowdown through better revenue generation. Meanwhile, we find corporate fundamentals to be
attractive, with a good economic backdrop and a return of consumer and business
Fiscal deficit becoming uncontrolled confidence. Solid earnings growth is being driven by improved volumes and pricing for
the property sector, and acquisitions and tariff hikes for the utilities sector. We
highlight that the improving earnings is being validated by the strong corporate
earnings that have thus far been released for 2Q10.
MSCI Philippines Index 648.9 Recommendations
Weightings in Region (%) 0.5 We continue to be positive on the Philippines. For the first time in many years,
PHP/US$ 45.4
Avg. Daily Turnover (US$MM) 38 improving economic growth, corporate earnings momentum, and a conducive political
MSCI Total Mkt. Cap (US$B) 14 environment are present. Coupled with the market’s highly under-owned state, we
Source: Datastream Prices as of 16 August 2010. believe the Philippines should be well supported despite ongoing risks of external
volatility. Among the sectors, we find the property and utilities sectors to offer the
greatest upside potential, especially with earnings likely to show the most growth
acceleration versus 2009. Our top picks in the Philippines are Ayala Land, Energy
Development, Manila Water, Filinvest Land, and Ayala Corporation.
(PHP) (x) (x) (PHP) (PHP) (%) (%)
Top picks
Ayala Land 15.4 ALI PM OW 4.4 37.9 29.6 0.4 0.4 0.4 8.7
Energy Development 4.8 EDC PM OW 2.0 12.7 13.0 0.4 0.4 7.9 24.2
Manila Water 17.2 MWC PM OW 0.8 11.0 10.2 1.6 1.7 2.8 21.0
Filinvest Land 1.1 FLI PM OW 0.6 11.1 9.9 0.1 0.1 1.5 5.9
Ayala Corporation 329.6 AC PM OW 3.5 19.4 15.8 17.0 20.9 1.2 8.1
Stocks to Avoid
BDO 48.4 BDO PM UW 2.8 16.6 13.4 2.9 3.6 2.2 10.7
Meralco 180.1 MER PM N 4.5 19.7 14.6 9.2 12.3 3.9 16.2
50
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Philippines scorecard
2008 -13.2 23.0 12.4 2.8 3 Month 4.0 0.1 1.3
2009 24.8 18.5 15.2 3.9 Long Bond 7.3 -0.7 0.7
2010E 12.2 16.5 16.1 3.7 Inflation 3.9 -0.4 2.5
2011E 14.9 14.3 17.1 3.3 Real 3 Month 0.1 0.5 -1.3

2008 3.7 -0.9 -1.2 0.0 BAA 3.0 0.1 na
2009 6.8 2.3 0.0 2.6 EMBI 3.0 -0.5 1.0
2010E 4.3 0.0 -1.3 0.0 Country 1.9 -0.4 na
GDP SAAR 3.6 4.9 4.0 4.5 EM Funds* 8,474 3,695 4,647
Asia ex Japan* 3,028 992 1,048
Philippines -10 51 18
MSCI Philippines Absolute and Relative (vs EMF) Index MSCI Fair value Range
FWD PER
400 PER (481) (985)
PBR (323) (780)

300
DY (776)
200
BY/EY (616) (1702)
100
BY/DY (959)
0
0 500 1000 1500 2000 2500 3000
Currency Outlook (PHP/USD) EPS Integer over Time

58 Spo t Fo recast Co nsensus 131 2010 2011
56
54 125
52
119
50
Co nsensus
48 113
46
44 J .P . M o rga n f o re c a s t :
107
42 end Sep 10: 44.75 J.P . M o rgan
end Dec 10: 43.75 101
40
end M ar 11: 43.00
38 95
36
relative to history. *US Mutual fund subscriptions
51
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Scorecard notes
Key financial data
Market forecast numbers are derived from bottom-up calculations of each MSCI
constituent where estimates are available from J.P. Morgan for covered stocks and
I/B/E/S for stocks not covered by J.P. Morgan.
Local interest rates and inflation trends

Interest rates
Country Long rate Three-month rate
South Korea 10 year treasury bond 91 day commercial paper
South Africa Longest dated bond 91 day treasury bill
Taiwan 10 year treasury bond 90 day money market
Brazil Fixed to floating swap 12 month Fixed to floating swap 3 month
China Government Bond maturing in 2011 3 month interbank
Mexico CETES 364 90 day 2nd market bankers acceptance
Russia 90 day interbank 90 day interbank
Turkey 3 month interbank 3 month interbank
Poland 1 year interbank 3 month interbank
Hungary 10 year treasury bond 3 month interbank
Czech Republic 10 year treasury bond 3 month interbank
India 10 year treasury bond 91 day bank CD
Malaysia 10 year treasury bond 3month interbank
Israel 1 year secondary treasury bill 3 month secondary treasury bill
Thailand 10 year treasury bond 3 month interbank
Turkey 12 month interbank 3 month interbank
Indonesia SBI/DISC 90 day 3 month interbank
Philippines 10 year treasury bond 91 day T Bill
Inflation
Year-over-year change in Consumer Price Index used.
Real three-month rate

This is calculated using three-month rate minus latest inflation data available.
Risk appetite
Countries included in the Emerging Market Bond Index (EMBI) are South Africa,
Brazil, Mexico, Russia, Malaysia, Thailand and Turkey. Data for EMBI is as such
available only for these countries. Country relative is the Country EMBI blended
yield minus the EMBI Index blended yield.
Foreign fund flows

EM, Asia Ex Japan, LatAm and EM Europe Funds are net subscriptions of US
mutual funds data into specified regions. Country data where available is total net
foreign investment.
EPS integer over time

All year-ends are for December. EPS figures are normalized, starting at 100 on base
date February 2008 for ease of comparison. EPS integers are mean EPS forecasts for
each index.
52
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Extended markers
Table 18: Exports
Country Index Current %oya 3M/3M % One year ago %oya Latest data for Reporting lag
Australia AUITEXP Index 38.4 17.9 (26.1) Jun 10 One month
Brazil BZTBEXPM Index 25.0 21.8 (30.8) Jul 10 One month
China CNFREXP$ Index 38.0 27.0 (22.9) Jul 10 One month
Hong Kong HKETEXP Index 26.1 19.8 (4.9) Jun 10 One month
Hungary HUTREXP Index 7.5 0.6 (30.1) Jun 10 One quarter
India INMTEXIR Index 31.1 0.2 (28.9) Jun 10 One quarter
Indonesia IDEXP Index 31.0 4.1 (27.2) Jun 10 One month
Malaysia MAETEXP Index 27.7 2.9 (28.1) Jun 10 One month
Mexico MXTBBEXP Index 28.8 12.1 (26.4) Jun 10 One month
Philippines PHEXEXP Index 33.4 9.3 (24.7) Jun 10 One month
Poland POMECBGE Index 12.2 0.5 (29.8) Jun 10 One month
Russia RUTBEX Index 31.8 5.7 (44.1) Jun 10 One month
Singapore SIEXP Index 23.4 5.8 (26.3) Jul 10 One month
South Africa SATBEX Index 30.6 12.8 (27.8) Jun 10 One month
South Korea KOEXTOT Index 29.6 11.3 (22.1) Jul 10 One month
Taiwan TWTREXP Index 38.5 16.3 (24.5) Jul 10 One month
Thailand THNFEXP Index 47.1 9.5 (26.5) Jun 10 One month
Turkey TUTBEX Index 14.7 10.5 (29.1) Jun 10 One month
Source: Bloomberg.
Table 19: Imports

Country Index Current %oya 3M/3M % One year ago %oya Latest data for Reporting lag
Australia AUITIMP Index 18.0 2.1 (26.4) Jun 10 One month
Brazil BZTBIMPM Index 45.3 11.4 (34.4) Jul 10 One month
China CNFRIMP$ Index 23.2 6.7 (14.9) Jul 10 One month
Hong Kong HKETIMP Index 30.4 17.8 (7.4) Jun 10 One month
Hungary HUTRIMP Index 4.5 0.2 (34.2) Jun 10 One quarter
India INMTIMU$ Index 23.6 6.5 (20.3) Jun 10 One quarter
Indonesia IDIMPTL Index 30.6 9.9 (34.5) May 10 One month
Malaysia MAETIMP Index 41.8 16.0 (26.5) Jun 10 One month
Mexico MXTBBIMP Index 29.5 12.8 (25.1) Jun 10 One month
Philippines PHIMIMP Index 31.4 14.4 (24.3) May 10 One month
Poland POMECBGI Index 11.5 0.9 (38.0) Jun 10 One month
Russia RUTBIM Index 29.2 28.0 (39.6) Jun 10 One month
Singapore SIIMP Index 28.8 5.8 (30.9) Jul 10 One month
South Africa SATBIM Index 26.9 3.6 (33.4) Jun 10 One month
South Korea KOIMTOT Index 28.9 4.2 (35.6) Jul 10 One month
Taiwan TWTRIMP Index 42.6 14.8 (34.1) Jul 10 One month
Thailand THNFIMP Index 38.5 3.9 (29.3) Jun 10 One month
Turkey TUTBIM Index 21.5 17.5 (35.8) Jun 10 One month
Source: Bloomberg.
Table 20: Retail sales

Country Index Current %oya Previous %oya One year ago %oya Latest data for Reporting lag
Argentina ARSSTOTL Index 29.6 24.4 16.3 May 10 One month
Australia AURSTTSA Index 1.9 1.1 8.1 Jun 10 One month
Brazil BZRTRETA INDEX 11.3 10.2 5.7 Jun 10 One month
China CNRSCONS INDEX 17.9 18.3 15.2 Jul 10 One month
Czech Republic CZRSYOY Index 6.6 3.1 (4.9) Jun 10 One month
Hong Kong HKRSN INDEX 15.4 19.7 (5.1) Jun 10 One month
Hungary HURTAYOY Index (4.7) (5.0) (3.9) May 10 Variable
Mexico MXWRTRET Index 5.0 (0.1) (8.4) May 10 One quarter
Poland PORSYOY Index 6.4 4.3 0.9 Jun 10 One month
Russia RURSL INDEX 12.2 11.7 4.4 Jun 10 One month
Singapore SRSAT Index (5.1) (3.3) (8.6) Jun 10 One month
South Africa SARSCONY Index 4.6 2.9 (3.7) May 10 One quarter
South Korea KODSDEPT Index 11.3 8.0 3.6 Jun 10 One month
Taiwan TARSTTL Index 7.2 6.9 (0.8) Jun 10 One month
Thailand THRSTOTL Index 7.6 11.5 (9.7) May 10 One month
Source: Bloomberg.
53
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Table 21: Industrial production

Country Index Current %oya One year ago %oya Latest data for Reporting lag
Brazil BZIPYOY% Index 11.1 (10.9) Jun 10 One quarter
China CHVAIOY Index 13.4 10.7 Jul 10 One month
Hong Kong HKIPIYOY Index 0.4 (10.1) Mar 10 One quarter
Hungary HUIPIYOY Index 12.6 (18.6) Jun 10 One quarter
India INPIINDY Index 7.1 8.3 Jun 10 One month
Indonesia IDMPIYOY Index 4.9 0.6 Jun 10 One quarter
Malaysia MAIPINDY Index 9.4 (9.7) Jun 10 One month
Mexico MXIPTYOY Index 8.5 (9.7) Jun 10 Irregular updates
Poland POISCYOY Index 14.5 (4.5) Jun 10 One month
Russia RUIPRNYY Index 5.9 (9.8) Jul 10 One month
Singapore SIIPYOY% Index 26.1 (6.6) Jun 10 One month
South Africa SFPMYOY Index 8.9 (17.0) Jun 10 One month
South Korea KOIPIY Index 16.9 (1.1) Jun 10 One month
Taiwan TWINDPIY Index 24.3 (11.3) Jun 10 One month
Turkey TUIOIYOY Index 10.2 (10.3) Jun 10 One month
Source: Bloomberg.
Table 22: Consumer confidence

Country Index Current Previously One year ago Latest data for Reporting lag
Australia WMCCCONN Index 119.2 113.1 113.4 Aug 10 One month
Brazil BZCCIFGV Index 117.0 115.3 106.4 Jun 10 One month
China CHCSCONF Index 108.0 106.6 101.2 May 10 One month
Hungary HUCCINDX Index (29.3) (23.4) (63.1) Jul 10 One month
Indonesia IDCCI Index 105.7 111.4 115.4 Jul 10 One quarter
Malaysia MIERCSI Index 109.6 105.4 110.9 Dec 09 One quarter
Mexico MXCFCONF Index 87.4 87.5 85.4 Jul 10 Irregular updates
Poland POCCWOK Index 96.7 94.3 79.1 Jul 10 Irregular updates
Russia RUCISENT Index 102.0 108.0 113.0 Mar 09 Irregular updates
South Korea KOCCCSI Index 112.0 112.0 109.0 Jul 10 One month
Thailand THCCECON Index 71.4 69.1 66.3 Jul 10 One month
Turkey TUCNCC Index 87.5 88.0 82.4 Jul 10 One quarter
Source: Bloomberg.
Table 23: Auto/Motor vehicle sales

Country Index Current %oya 3m/3m % One year ago %oya Latest data for Reporting lag
Argentina ARVSCATA Index (99.9) (30.8) (27.8) Jul 10 One month
Australia AUVHSALE Index 11.6 (0.7) (10.1) Jul 10 One month
Brazil BZVLTLVH Index 5.9 (4.3) (0.9) Jul 10 One month
China* CNVSPSGR Index 13.6 (8.6) 70.5 Jul 10 One month
Hong Kong HKRSVOV Index 35.1 13.1 (15.2) Jun 10 One month
India INVSTOTL Index 32.8 5.7 18.5 Jul 10 One month
Indonesia* IDVHCLOC Index 77.9 12.7 (27.7) Jun 10 One month
Malaysia MAVSTTL Index 3.0 8.8 (3.8) Jul 10 One month
Mexico MXVHTOTL Index 9.8 (1.0) (33.8) Jul 10 One month
Philippines PHCSTOTL Index 37.7 9.6 (0.3) Jul 10 One month
Singapore SIRSMVEH Index (32.4) (28.1) (22.7) Jun 10 One month
South Africa NAAMTOTL Index 15.8 (0.3) (27.5) Jul 10 One month
South Korea* KOVMTOTS Index 25.0 10.5 0.8 Jul 10 One month
Thailand* THVHSCAR Index 52.2 13.8 (3.6) Jul 10 One month
Turkey TUCSMT Index 16.5 (63.3) 6.8 Jun 10 One quarter
Source: Bloomberg. *Motor/Passenger car sales.
54
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Consensus Asset Allocation

In this report we analyze the country asset allocation of Emerging Markets net fund flows:
the 46 EM fund managers surveyed by EPFR Global as
• 2006 CY: Net inflows US$22.4 billion
of the end June 2010.
Consensus overweight markets
Indonesia, Russia, Mexico, India and Turkey • 2008 CY: Net Outflows US$39.4 billion
Consensus underweight markets
South Africa, China, Korea, Malaysia, Taiwan, Thailand,
Egypt, Poland, Hungary, Philippines and Czech • 2010 YTD: Net inflows US$22.7 billion
Table 24: Survey of Key EM Managers Positioning Relative to Table 26: Average Asset Allocation of Global Emerging Market
MSCI EM – For major EMs Funds
Country > 2% OW < 2% UW OW-UW < 0.1% EM % Weights Performance (%)
Indonesia 12 (11) 4 (6) 8 (5) 4 (6) 2.4 Funds MSCI Rel Abs Rel
Russia 15 (16) 8 (9) 7 (7) 3 (3) 6.2 Turkey 3.0 1.6 1.3 (1.3) 13.8 5.9
Mexico 11 (8) 4 (5) 7 (3) 2 (4) 4.4 Indonesia 3.4 2.4 1 (0.8) 5.4 -2.5
India 9 (8) 6 (8) 3 (0) 1 (1) 8.3 Mexico 5.1 4.4 0.7 (0.5) 7.0 -1.0
Brazil 9 (9) 9 (9) 0 (0) 0 (0) 15.6 Thailand 2.2 1.5 0.6 (0.6) 4.0 -3.9
South Africa 5 (6) 14 (15) -9 (-9) 2 (2) 7.1 Russia 6.6 6.2 0.4 (0.7) 13.6 5.6
China+HK 6 (8) 19 (15) -13 (-7) 0 (0) 19.3 India 8.7 8.3 0.3 (0.4) 2.3 -5.6
Korea 6 (8) 21 (17) -15 (-9) 1 (1) 13.5 Egypt 0.8 0.5 0.3 (0.4) 0.6 -7.4
Malaysia 2 (2) 17 (17) -15 (-15) 10 (11) 3.0 Peru 0.7 0.6 0.1 (0.1) 11.7 3.7
China 2 (1) 26 (23) -24 (-22) 0 (0) 19.3 Hungary 0.5 0.4 0.1 (0.2) 8.1 0.2
Taiwan 2 (2) 29 (24) -27 (-22) 1 (1) 10.8 Philippines 0.5 0.5 0 (0) 3.3 -4.6
Source: EPFR Global, MSCI, J.P. Morgan calculations Czech Republic 0.3 0.4 -0.1 (-0.1) 9.2 1.3
Morocco 0.0 0.2 -0.2 (-0.2) 4.3 -3.6
Table 25: Survey of Key EM Managers Positioning Relative to Brazil 15.2 15.6 -0.4 (0) 11.0 3.1
Colombia 0.2 0.8 -0.6 (-0.6) 11.4 3.5
MSCI EM – For EMs that are less than 2% of the benchmark
Poland 0.7 1.3 -0.7 (-0.7) 14.1 6.2
Country > 2% OW < 0.1% OW-Zero EM % South Africa 6.0 7.1 -1.1 (-0.9) 13.9 6.0
Turkey 14 (14) 5 (4) 9 (10) 1.6 Malaysia 1.6 3.0 -1.4 (-1.3) 3.9 -4.0
Thailand 8 (8) 10 (9) -2 (-1) 1.5 China + HK 17.3 19.3 -2 (-1.2) 4.1 -3.8
Egypt 4 (4) 20 (21) -16 (-17) 0.5 Korea (South) 11.2 13.5 -2.3 (-1.9) 7.7 -0.2
Peru 3 (3) 21 (21) -18 (-18) 0.6 Taiwan 8.0 10.8 -2.8 (-2.2) 8.1 0.2
Poland 1 (1) 21 (23) -20 (-22) 1.3 China 15.3 19.3 -3.9 (-3.2) 4.1 -3.8
Hungary 2 (3) 25 (21) -23 (-18) 0.4 Asia 52.8 59.3 -6.5 (-4.8) 5.4 -2.5
Philippines 1 (1) 25 (25) -24 (-24) 0.5 Latam 21.9 23.0 -1.1 (-0.9) 10.4 2.5
Czech Republic 1 (1) 32 (32) -31 (-31) 0.4 EMEA 17.9 17.7 0.2 (-1.2) 13.3 5.4
Colombia 0 (0) 36 (37) -36 (-37) 0.8 Cash 3.3 0.0 3.3 (3)
Morocco 0 (0) 44 (44) -44 (-44) 0.2 Other GEMs 4.1 0.0 4.1 (4)
Other Markets 40 (40) 0 (0) 0.0 Source: EPFR Global, MSCI, J.P. Morgan calculations. Note: (1) Fund weightings are as of
Hong Kong 17 (17) 13 (15) 0.0 30 June 2010 and MSCI weightings as of 1 July 2010. (2) The survey covers 46 fund
Singapore 1 (1) 35 (36) 0.0 managers. Potentially China stocks have been misclassified as Hong Kong, hence the
combined weight for Hong Kong and China. Hong Kong investment may be providing non-
Kazakhstan 0 (2) 38 (36) 0.0
China exposure Numbers in brackets are the previous month values. The performance is
Greece 1 (1) 43 (43) 0.0
from current month to date performance.
Source: EPFR Global, MSCI, J.P. Morgan calculations. Note: (1) <0.1% = zero weighting
or bearish view. (2) The fund weightings are simple average of global emerging market
funds country weights tracked by EPFR. The survey covers 46 fund managers. (3) The
calculation of OW is greater than 2% overweight versus the MSCI benchmark. UW is less
than -2% of benchmark weighting (4) Fund weightings are as of 30 June 2010 and MSCI
weightings as of 1 July 2010. Numbers in brackets are the previous month values.
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Hindsight trades: What has worked

Table 27: Performance of sectors in EM (in US$ terms)
Sector/Country 1M Sector/Country 3M Sector/Country YTD Sector/Country 12M
Brazil Materials 14.1 South Africa Telecom Ser 19.3 Thailand 19.7 South Africa CD 49.1
Brazil Financials 8.6 Brazil Financials 12.1 Indonesia 19.0 India IT 43.7
South Africa Energy 8.2 China Telecom Services 12.1 Malaysia 16.7 Turkey Financials 37.3
Brazil 8.0 Taiwan Financials 10.3 China Telecom Services 15.5 Korea CD 35.5
Korea Industrials 7.9 Turkey 10.0 Turkey Financials 15.4 Indonesia 35.0
China Telecom Services 7.6 Turkey Financials 9.3 Philippines 14.5 Korea Materials 34.4
Poland 6.6 Poland 9.2 Turkey 12.9 South Africa Financials 33.6
Brazil Energy 6.0 Thailand 8.4 India Financials 12.1 Thailand 33.2
South Africa Materials 5.8 Indonesia 7.5 Korea CD 11.3 Brazil Financials 33.0
Taiwan Materials 5.6 Korea Industrials 7.4 Korea Industrials 8.6 Mexico CS 32.7
Taiwan Financials 5.6 South Africa Energy 7.1 South Africa Financials 8.4 Turkey 31.7
South Africa Cons Disc 5.4 Korea Materials 6.9 India IT 7.0 India Financials 30.5
Thailand 5.4 China Financials 6.2 South Africa CD 7.0 Brazil Materials 29.1
Taiwan 5.3 China Industrials 5.6 Mexico CS 6.3 Russia 28.6
South Africa Telecom Ser 5.2 Brazil 5.6 Mexico Telecom Services 5.6 Malaysia 27.8
China Industrials 4.8 South Africa 5.2 South Africa 4.8 South Africa 25.1
Korea CD 4.5 India Financials 5.2 South Africa Telecom Ser 4.2 Mexico Materials 24.4
South Africa 4.4 China 4.7 Mexico 3.4 Philippines 24.2
Russia 4.3 Philippines 3.9 Taiwan Materials 3.1 India 23.7
Korea Materials 4.3 Korea Consumer Staples 3.8 India 2.9 Brazil 20.6
Mexico Telecom Services 4.2 Taiwan 3.8 Korea Materials 2.9 Mexico 18.8
EM 4.2 EM 3.7 Brazil Financials 2.2 Korea IT 18.5
Taiwan IT 4.1 Malaysia 3.6 Korea CS 2.0 EM 18.4
China 4.0 Mexico CS 3.5 Korea 1.9 Korea 17.3
Turkey 3.9 Brazil Materials 3.1 EM 1.4 Taiwan 16.5
Mexico CS 3.9 Taiwan Materials 3.1 South Africa Materials (0.3) Poland 16.1
Malaysia 3.9 South Africa CD 3.0 South Africa Energy (0.4) South Africa Materials 15.9
Russia Energy 3.9 South Africa Materials 2.8 Korea IT (0.8) South Africa Energy 15.8
China Energy 3.5 India IT 2.4 Russia (0.8) Russia Energy 15.6
Mexico 3.3 Mexico Telecom Services 2.0 Taiwan Financials (1.4) Taiwan Materials 15.6
Philippines 3.1 South Africa Financials 1.7 Brazil Materials (1.5) Taiwan IT 15.4
India Financials 2.4 India 1.6 Mexico Materials (1.6) Korea Consumer Staples 15.3
Korea 1.8 Russia 1.5 China Industrials (1.8) Taiwan Financials 13.3
China Financials 1.8 Mexico 1.0 Taiwan (1.9) Mexico TelecomServices 13.2
Mexico Materials 1.0 Russia Energy 0.3 China (2.3) Korea Industrials 12.5
Turkey Financials 0.6 Taiwan IT (0.1) Poland (2.7) China Energy 8.4
India IT 0.5 China Energy (0.4) China Financials (4.2) Hungary 6.9
South Africa Financials 0.5 Brazil Energy (0.6) Brazil (4.9) South Africa Telecom Ser 4.5
Korea Consumer Staples 0.4 Korea (2.6) China Energy (5.1) China Financials 4.5
India (0.1) India Energy (4.2) Taiwan IT (5.9) China 4.3
Indonesia (0.2) Mexico Materials (4.3) Russia Energy (6.2) India Energy 3.9
Korea Financials (0.8) Korea CD (4.7) India Energy (6.3) Korea Financials (0.5)
Hungary (1.2) Korea Financials (5.1) Korea Financials (6.7) Brazil Energy (2.3)
Korea IT (2.6) Hungary (6.0) Hungary (11.1) China Telecom Services (3.1)
Source: Datastream, MSCI. 16 August 2010.
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Table 28: Valuation of key sectors in EM – ranked by P/E 10E

MSCI Sector Index Value Market Value P/E 09 P/E 10E P/E 11E EPS Growth 10E EPS Growth 11E ROE 10E DY 10E
(US$M) (x) (x) (x) (%) (%) (%) (%)
Russia Energy 955 116,782 6.2 5.4 4.6 15.8 18.4 13.6 2.3
Russia 774 206,413 9.4 6.9 5.3 35.4 29.5 14.1 2.2
Korea Cons Disc 1,395 57,141 9.1 8.0 7.6 14.7 4.5 18.2 0.8
Brazil Materials 1,900 136,929 18.5 9.0 6.3 106.7 41.6 19.0 3.2
Korea Financials 235 70,385 15.9 9.4 8.2 69.3 15.3 11.6 2.1
Turkey Financials 541 32,979 10.7 9.4 8.4 13.6 11.5 18.6 2.2
Korea Materials 679 61,777 11.8 9.8 9.1 20.5 7.2 14.2 1.1
Korea 328 429,473 14.2 9.8 9.4 44.9 4.1 14.1 1.1
Korea IT 468 122,768 18.0 9.9 11.1 81.2 (10.2) 18.1 0.2
Turkey 582 55,471 11.6 10.0 8.9 16.5 12.8 17.8 2.9
China Energy 621 95,800 12.8 10.1 9.2 25.9 10.6 17.4 3.9
South Africa Energy 361 22,946 12.2 10.3 8.0 18.4 27.8 17.1 3.6
Brazil Energy 1,256 108,773 10.0 10.5 9.1 (5.1) 14.9 15.4 2.5
South Africa Telecom Svcs 989 31,276 13.0 10.6 9.0 22.5 17.4 20.6 2.9
South Africa Financials 205 61,446 13.4 11.0 9.0 21.9 21.1 14.3 4.5
Brazil 3,387 514,560 13.6 11.4 9.1 19.1 25.1 16.0 3.3
China Financials 486 230,295 14.4 11.5 9.4 25.3 22.0 17.8 3.2
Mexico Telecom Serv 867 51,372 13.8 11.5 10.2 19.3 12.8 43.5 4.0
Hungary 652 13,743 12.2 11.6 8.9 5.4 30.5 11.2 3.3
Taiwan IT 133 206,943 28.3 11.7 10.6 142.3 10.3 16.7 3.7
South Africa Cons Discr 683 28,749 14.4 11.7 9.9 22.5 18.7 18.5 2.5
Thailand 264 49,066 13.6 11.9 10.2 14.8 16.1 15.2 3.8
EM 985 3,217,602 15.3 12.0 10.2 28.0 16.7 15.2 2.7
Brazil Financials 861 132,723 12.8 12.1 10.1 5.5 20.0 16.3 3.4
South Africa 484 237,600 16.5 12.2 9.7 36.1 25.6 16.5 3.2
Korea Industrials 206 64,654 15.7 12.3 11.1 27.8 10.1 11.5 1.2
China 62 600,229 15.6 12.5 10.6 25.3 17.2 16.1 2.9
Korea Consumer Staples 528 20,338 16.1 12.6 12.7 28.0 (0.4) 16.8 1.5
China Telecom Svcs 131 80,415 12.8 12.7 12.0 1.3 5.6 14.9 3.4
Poland 863 48,593 14.9 12.9 10.9 15.8 18.0 11.8 3.5
Taiwan 250 352,797 25.4 12.9 11.4 96.0 13.9 13.4 3.8
China Industrials 167 45,981 20.6 13.6 12.0 51.1 13.8 10.9 2.0
Mexico Materials 224 22,463 18.8 13.9 10.2 35.5 35.5 8.5 1.6
Mexico 5,271 137,683 17.1 14.4 12.0 18.9 19.5 17.4 2.5
India Energy 1,151 36,449 20.6 14.6 12.1 41.8 20.6 16.3 1.2
Taiwan Financials 76 55,554 21.9 14.8 11.8 48.2 25.5 8.6 3.0
Taiwan Materials 206 43,146 17.4 14.8 12.2 17.7 20.9 10.5 4.7
Indonesia 739 74,685 18.0 15.3 13.1 17.9 16.9 23.8 2.7
Malaysia 392 93,611 19.1 15.5 13.4 22.9 16.3 12.7 3.3
Philippines 297 15,249 18.0 15.9 13.9 12.8 14.5 15.5 3.7
South Africa Materials 530 64,642 46.6 16.0 11.0 191.8 45.3 14.2 2.3
India 478 251,000 21.5 17.2 13.7 25.1 25.4 14.8 1.2
India IT 588 42,418 22.8 19.9 16.4 14.8 20.8 24.3 1.2
Mexico Consumer Staples 351 35,303 19.9 20.1 16.7 (1.0) 20.4 14.8 1.6
India Financials 4,185 67,457 24.7 20.4 15.8 21.4 29.4 12.3 1.2
Source: Datastream, IBES, MSCI 16 August 2010.
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Composite valuation indicators

Our composite valuation indicators (CVIs) monitor valuations relative to each market’s valuation history with a focus on
valuation variables that have historically been indicative of 12-month forward performance.
India is the most expensive market followed by Brazil, Korea, Mexico and South Africa.
On the other side, the inexpensive markets compared to its history are Australia, Russia, Taiwan, Czech, Thailand, Hungary,
Turkey, Indonesia, China, Philippines, Malaysia, Poland, Hong Kong and Singapore.
The CVI assumes mean reversal. After years of structural decline in interest rates, reflation in Asia and economic stability
helped drive a structural re-rating of emerging equity markets; arguably we are in a stage of mean reversal now.
Figure 32: CVI ranking

Australia
Russia
Taiw an
Czech
Thailand
Hungary
Turkey
Indonesia
China
Philippine
Malay sia
Poland
Hongkong
Singapore
S. Africa
Mex ico
Korea
Brazil
India
-1.0 -0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8
Cheap Expensive
Source: MSCI, Datastream, J.P. Morgan. 16 August 2010.
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Table 29: Updated market valuations

Country 16 Aug LT LT 3Y 3Y LT Index LT Index Percent from #SD #SD
Valuation Measure Index Avg SD Avg SD High Level Low Level High Low (LT) (ST) CVI
US 1036
P/E 16.1 21.3 5.1 18.2 3.0 34.6 1079 11.6 784 -53% 39% (1.02) (0.69)
P/B 2.0 3.1 0.9 2.5 0.4 5.5 1446 1.4 701 -64% 37% (1.33) (1.22)
D/Y 2.1 2.2 0.7 2.2 0.4 4.0 282 1.1 1453 -48% 90% 0.20 0.31
12m Fwd PER 12.4 16.2 3.6 14.4 1.4 25.2 1367 10.2 282 -51% 22% (1.06) (1.44)
Bond/Earnings Yield Ratio 0.5 1.1 0.4 0.7 0.2 1.9 1465 0.3 854 -77% 46% (1.71) (1.77)
Bond / Dividends Yield Ratio 1.4 2.7 1.0 1.9 0.5 5.7 1465 0.8 854 -76% 76% (1.31) (1.16)
Composite Score (1.20) (1.22) -1.20
Australia 913.0
P/E 15.5 17.3 2.4 15.6 1.5 21.8 655 11.4 268 -29% 36% (0.75) (0.07)
P/B 1.9 2.1 0.3 2.3 0.4 2.8 1361 1.5 690 -32% 32% (0.61) (0.96)
D/Y 4.1 3.9 0.7 4.2 0.5 6.3 268 2.8 624 -35% 44% (0.23) 0.31
12m Fwd PER 12.0 14.3 2.4 13.7 1.7 20.7 624 8.0 307 -42% 50% (0.92) (0.98)
Hong Kong 10575.5

P/E 17.1 14.9 3.1 16.6 2.0 22.8 7022 7.8 7533 -25% 119% 0.71 0.26
P/B 1.5 1.6 0.3 1.6 0.3 2.6 8220 0.9 3962 -45% 63% (0.36) (0.43)
D/Y 3.0 3.6 0.8 3.3 0.7 6.2 1995 2.3 14463 -52% 28% 0.74 0.43
12m Fwd PER 15.8 14.0 3.3 15.9 2.1 21.9 8525 7.1 2170 -28% 123% 0.56 (0.03)
Composite Score 0.05 (0.64) -0.23
Singapore 347.7
P/E 15.8 18.8 4.8 14.4 2.1 37.7 212 8.3 193 -58% 90% (0.63) 0.66
P/B 1.8 1.8 0.4 1.8 0.3 2.7 322 0.9 130 -32% 95% 0.06 0.22
D/Y 3.2 2.7 1.1 3.9 0.7 5.8 193 1.2 365 -44% 166% (0.46) 0.97
12m Fwd PER 13.8 15.9 2.9 14.0 1.8 24.0 210 8.2 215 -42% 69% (0.70) (0.09)
Korea 497.2
P/E 11.4 15.6 5.5 12.5 2.6 45.5 121 7.7 256 -75% 49% (0.75) (0.41)
P/B 1.49 1.3 0.3 1.5 0.2 2.1 558 0.5 63 -28% 218% 0.68 (0.15)
D/Y 1.0 1.8 0.5 1.7 0.5 2.9 87 1.0 481 -64% 9% 1.58 1.19
12m Fwd PER 9.0 11.9 4.1 10.0 1.6 25.5 121 5.5 126 -65% 65% (0.70) (0.61)
Bond / Dividends Yield Ratio 4.7 5.1 2.3 3.4 1.1 11.7 115 1.4 256 -60% 238% (0.18) 1.09
Composite Score 0.68 0.10 0.33
Taiwan 279.6
P/E 16.0 24.8 9.3 17.0 4.4 68.9 477 11.7 245 -77% 37% (0.94) (0.21)
P/B 1.8 2.4 0.7 1.9 0.2 4.4 232 1.2 160 -58% 53% (0.78) (0.27)
D/Y 3.4 2.1 1.4 3.9 1.1 7.8 160 0.6 477 -57% 512% (0.96) 0.46
12m Fwd PER 12.4 18.7 6.6 14.2 4.4 61.6 199 9.5 244 -80% 30% (0.94) (0.40)
China 62.2
P/E 14.1 15.5 4.2 15.8 3.8 31.2 26 7.2 20 -55% 96% (0.33) (0.45)
P/B 2.2 1.8 0.7 2.4 0.6 4.8 103 0.5 20 -54% 387% 0.52 (0.32)
D/Y 2.6 2.6 0.7 2.6 0.5 5.7 20 1.2 26 -54% 122% 0.01 (0.09)
12m Fwd PER 12.3 13.1 4.5 13.0 3.0 35.0 33 6.0 20 -65% 106% (0.18) (0.23)
Source: Datastream, MSCI, J.P. Morgan calculations. Note: #SD refers to the number of standard deviations from the long-term (LT) and short-term (ST) means.
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Valuation Measure Index Avg SD Avg SD High Level Low Level High Low (LT) (ST) Index
India 728.6
P/E 18.3 16.3 4.4 16.6 2.6 33.7 169 10.2 340 -46% 79% 0.47 0.67
P/B 2.7 2.9 0.7 3.2 0.8 4.6 148 1.5 340 -42% 76% (0.28) (0.73)
D/Y 1.2 1.6 0.3 1.5 0.3 2.5 126 0.9 169 -51% 37% 1.03 0.74
12m Fwd PER 16.2 13.7 3.4 15.6 2.9 23.6 163 8.2 383 -32% 97% 0.71 0.17
Bond/Earnings Yield Ratio 1.5 1.6 0.7 1.2 0.2 3.8 169 0.6 369 -62% 135% (0.14) 0.89
Bond / Dividends Yield Ratio 6.4 6.2 2.3 5.3 1.3 12.5 169 2.3 126 -49% 175% 0.06 0.84
Composite Score 0.42 0.74 0.55
Malaysia 494.1
P/E 17.0 20.2 4.9 16.7 2.3 45.5 257 12.3 317 -63% 38% (0.65) 0.12
P/B 2.1 2.1 0.7 2.0 0.3 4.9 455 0.6 101 -58% 218% (0.11) 0.35
D/Y 3.0 2.6 0.8 3.2 0.4 5.1 101 1.1 455 -42% 171% (0.45) 0.62
12m Fwd PER 14.2 16.0 3.8 13.9 1.4 27.2 455 7.8 101 -48% 82% (0.46) 0.21
Thailand 337.6
P/E 13.1 15.7 5.5 13.2 4.6 43.2 114 8.2 267 -70% 60% (0.48) (0.03)
P/B 2.1 2.0 0.7 2.0 0.3 5.1 639 0.6 74 -59% 235% 0.08 0.34
D/Y 3.5 3.2 1.0 4.0 0.7 6.3 166 0.9 217 -44% 277% (0.30) 0.78
12m Fwd PER 10.8 14.3 7.6 10.0 1.2 44.9 156 5.4 345 -76% 100% (0.46) 0.65
Indonesia 4011.6
P/E 16.1 16.8 6.4 15.6 3.9 49.0 829 5.3 451 -67% 202% (0.11) 0.12
P/B 3.8 2.5 0.9 3.4 0.9 5.5 3960 0.9 316 -30% 342% 1.39 0.54
D/Y 2.5 2.7 1.0 3.1 0.5 5.9 475 0.8 961 -58% 209% 0.19 1.17
12m Fwd PER 13.2 12.0 5.3 11.5 2.3 35.4 860 3.7 406 -63% 259% 0.23 0.72
Phil 657.3
P/E 17.1 19.0 6.5 16.6 3.2 47.7 256 7.9 277 -64% 116% (0.30) 0.16
P/B 2.6 2.2 0.9 2.2 0.4 4.7 830 0.9 210 -45% 205% 0.48 0.82
D/Y 3.8 2.0 1.2 3.5 0.8 5.2 374 0.6 884 -27% 553% (1.48) (0.31)
12m Fwd PER 14.3 13.6 3.8 13.3 1.9 21.8 777 4.0 176 -34% 262% 0.20 0.57
South Africa 727.4

P/E 13.5 13.1 1.9 12.7 1.6 17.7 182 9.1 221 -24% 49% 0.19 0.52
P/B 2.1 2.1 0.3 2.3 0.3 2.9 248 1.4 138 -28% 53% (0.02) (0.82)
D/Y 3.0 3.2 0.5 3.3 0.4 4.7 221 2.3 248 -35% 31% 0.43 0.73
12m Fwd PER 10.7 10.8 1.8 10.6 1.3 15.5 174 6.7 545 -31% 59% (0.05) 0.07
Bond / Dividends Yield Ratio 2.7 3.7 1.3 2.6 0.4 6.9 182 1.5 513 -60% 78% (0.73) 0.30
Composite Score (0.15) 0.18 0.01
Brazil 231360
P/E 12.6 12.3 4.7 12.7 2.9 42.6 21547 6.5 24255 -70% 95% 0.06 (0.02)
P/B 2.0 1.4 0.7 2.3 0.4 3.2 291681 0.4 17017 -36% 432% 0.77 (0.54)
D/Y 3.0 4.0 1.2 3.4 0.8 7.6 25508 2.1 263964 -61% 43% 0.85 0.51
12m Fwd PER 12.5 8.4 2.7 10.0 2.7 15.8 291681 4.2 50366 -21% 198% 1.53 0.96
Composite Score 1.53 (0.50) 0.51
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Valuation Measure Index Avg SD Avg SD High Level Low Level High Low (LT) (ST) Index
Mexico 30263
P/E 15.5 15.1 7.5 14.2 1.6 79.1 2566 9.0 2558 -80% 73% 0.05 0.82
P/B 2.5 2.2 0.9 2.8 1.3 6.0 18728 0.7 17106 -59% 256% 0.34 (0.25)
D/Y 2.6 2.1 0.5 2.2 0.6 3.6 17106 1.0 18728 -29% 168% (1.09) (0.56)
12m Fwd PER 13.5 11.7 1.8 12.8 1.7 16.2 26503 8.0 17106 -17% 68% 1.03 0.42
Composite Score 0.22 (0.07) 0.07
Russia 743.7
P/E 7.6 11.5 7.3 9.4 2.4 54.0 83 3.4 379 -86% 121% (0.53) (0.73)
P/B 1.0 1.3 0.5 1.6 0.5 2.7 1567 0.2 38 -62% 430% (0.56) (1.07)
D/Y 1.6 1.3 0.8 1.3 0.6 3.2 265 0.1 223 -51% 1086% (0.28) (0.43)
12m Fwd PER 5.8 8.1 2.8 8.7 2.4 22.8 332 2.5 59 -74% 134% (0.81) (1.19)
Poland 1701.2
P/E 13.6 16.0 10.6 11.8 1.9 98.7 861 6.3 917 -86% 115% (0.23) 0.92
P/B 1.6 1.8 0.4 1.9 0.4 3.1 589 0.9 1192 -50% 69% (0.71) (0.86)
D/Y 3.2 2.6 1.4 4.0 1.2 7.2 1192 0.8 1463 -55% 287% (0.47) 0.68
12m Fwd PER 11.8 12.0 3.4 12.1 1.9 25.1 1630 5.5 618 -53% 116% (0.05) (0.14)
Turkey 866077
P/E 10.8 12.7 6.7 11.7 3.1 46.2 234490 5.1 9691 -77% 112% (0.28) (0.30)
P/B 1.7 2.1 1.0 1.6 0.3 6.7 237918 1.0 179225 -74% 79% (0.41) 0.29
D/Y 3.6 3.9 2.0 3.8 1.5 9.4 13825 1.0 237918 -62% 258% 0.15 0.14
12m Fwd PER 9.3 8.2 3.1 9.3 1.8 18.7 264873 2.7 34351 -50% 243% 0.37 0.01
Composite Score 0.10 (1.22) -0.51
Hungary 1268.9
P/E 11.2 11.6 4.6 7.9 2.7 22.1 872 3.4 559 -49% 229% (0.09) 1.21
P/B 1.3 2.0 0.7 1.9 0.6 3.7 616 0.6 148 -66% 128% (1.07) (1.09)
D/Y 2.9 2.1 0.9 2.9 0.6 5.3 857 0.9 752 -45% 218% (0.94) (0.01)
12m Fwd PER 9.5 10.2 2.0 9.8 1.9 17.0 872 4.3 810 -44% 123% (0.33) (0.14)
Composite Score (0.62) 0.46 -0.62
Czech 360.6
P/E 11.1 14.9 5.1 16.1 4.1 39.6 111 7.3 76 -72% 52% (0.73) (1.22)
P/B 2.0 1.4 0.8 2.2 0.5 3.1 470 0.5 104 -37% 267% 0.74 (0.46)
D/Y 5.8 4.1 2.8 5.9 2.5 10.0 374 0.8 540 -42% 622% (0.62) 0.03
12m Fwd PER 10.6 13.4 3.7 13.6 2.9 28.7 135 6.7 318 -63% 58% (0.74) (1.01)
61
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EMBIG100
Table 30: Cheaper valuations and The equity EMBIG100 is the top 100 companies in the MSCI Emerging markets free
higher ROE than the US index sorted by MSCI free float market capitalization. We are interested in tracking the
EMBIG US major stocks in the emerging market universe as country and sector aggregates can hide
Median Median key trends. Also these names need to be attractive relative to global valuations and
2010 PE 13.3 14.0 growth in order to attract net flows in emerging markets. This table gives a valuation
2011 PE 11.6 12.3
2010 DY 2.5 1.4
summary for these stocks.
2010 ROE 18.9 14.7
Source: J.P. Morgan. Table 33: EMBig100 valuation summary (ranked by 2010 PE)
Stock Code Country Rec Price P/E P/E DY ROE
16-Aug-10 2010E 2011E 2010E 2010E
Table 31: Quartile valuation ranking Gazprom GAZP RU Russia OW 5.4 4.4 3.8 1.8 13.7
P/E Lukoil LKOH RU Russia N 54.0 4.5 4.9 3.6 14.9
LG Display 034220 KS Korea OW 36150 4.7 5.0 2.0 23.8
2010E 2011E
OTP Bank OTP HB Hungary OW 5120.0 8.0 5.8 3.8 13.4
Min 4.4 3.8 Sberban SBER RU Russia OW 2.7 11.0 5.8 9.6 19.2
Lower Quartile 10.8 9.2 LG Electronics 066570 KS Korea OW 105000.0 6.4 5.8 0.8 21.1
Median 13.3 11.6 Hyundai Motor 005380 KS Korea OW 135000.0 6.8 6.2 1.2 16.6
Top Quartile 17.2 14.0 KGHM KGH PW Poland NR 108.7 6.7 6.3 7.1 27.8
Max 38 28.1 KB Financial 105560 KS Korea OW 48200.0 7.6 6.4 2.1 11.7
Source: J.P. Morgan. Petrobras PETR4 BZ Brazil N 28.3 8.5 6.4 3.2 14.9
Rosneft ROSN LI Russia OW 6.7 6.0 6.5 1.6 19.4
Sinopec 386 HK China OW 6.2 7.8 6.8 3.2 17.1
Table 32: Quartile valuation ranking Sider Nacional SID US Brazil UW 16.9 9.6 7.3 9.2 43.9
Div Yld ROE Gerdau GGBR4 BZ Brazil OW 25.0 13.1 7.3 1.7 12.9
2010E 2010E Bank Of China 3988 HK China OW 4.0 9.7 7.4 4.4 18.9
Sasol SOL SJ South Africa OW 29050.0 12.2 7.8 0.0 NA
Min 0.0 2.8
Garanti Bankasi GARAN TI Turkey OW 7.4 8.6 7.8 3.5 23.8
Lower Quartile 1.3 14.8
Hynix Semi 000660 KS Korea N 22100.0 5.4 8.1 0.0 33.8
Median 2.5 19.0
KEPCO 015760 KS Korea OW 30900.0 11.1 8.1 0.0 3.9
Top Quartile 3.7 24.5
Vale Pn VALE/P US Brazil OW 25.1 9.2 8.2 1.8 21.1
Max 9.6 53.7
PTT PTT TB Thailand OW 257.0 9.8 8.4 3.7 16.4
Source: J.P. Morgan. Posco 005490 KS Korea OW 490500.0 8.8 8.5 1.4 14.8
Banco Brasil On BBAS3 BZ Brazil N 30.1 9.1 8.5 4.4 20.2
Figure 33: ROE vs. P/E Shinhan Financial 055550 KS Korea OW 46100.0 10.6 8.9 1.5 10.0
Firstrand FSR SJ South Africa OW 1905.0 11.0 9.0 4.1 17.1
50 PLDT TEL PM Philippines N 2400.0 10.3 9.2 9.4 43.3
Bank of Comm. 3328 HK China OW 8.7 11.1 9.2 3.0 21.1
40 CEZ CEZ CP Czech NR 867.0 9.6 9.4 6.1 22.9
ICBC 1398 HK China OW 5.7 11.7 9.5 3.8 22.1
30 TSMC 2330 TT Taiwan OW 59.8 10.5 9.6 5.0 27.7
ROE 10 E
Hyundai Mobis 012330 KS Korea OW 209000.0 10.6 9.6 0.5 19.3

20 MTN Group MTN SJ South Africa OW 11920.0 11.9 9.7 1.9 19.5
Standard Banking SBK SJ South Africa N 10401.0 11.9 9.7 3.5 15.0
10 China Const Bank 939 HK China OW 6.6 11.5 9.7 3.8 21.6
US PKO Bank PKO PW Poland UW 39.7 14.7 9.9 1.7 15.5
Banco Itau PN ITSA4 BZ Brazil NR 12.6 11.1 9.9 3.2 21.6
0
Fubon Fin Holding 2881 TT Taiwan N 37.8 12.1 10.1 5.1 11.7
1 9 17 25 33
PE 10 E Mobile Tele MBT US Russia OW 22.3 12.9 10.5 4.5 31.5
Femsa FMX US Mexico OW 48.6 12.0 10.5 1.2 10.7
Telkom TLKM IJ Indonesia OW 8550.0 12.1 10.8 0.0 34.2
Source: J.P. Morgan, IBES. Scatter plot of ROE
and P/E. Stocks in second quadrant have higher Source: IBES, Datastream, J.P. Morgan estimates. All estimates are for the calendar year. IBES estimates for non-rated (NR) stocks. NM =
ROE and lower P/E than the MSCI US median. not meaningful due to negative numbers. SA stands for South Africa, CZ stands for Czech Republic.
US position is indicated by the red dot.
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EMBig100 valuation summary (cont’d)

Stock Code Country Rec Price P/E P/E DY ROE
16-Aug-10 2010E 2011E 2010E 10E
Bradesco BBDC4 BZ Brazil OW 31.4 12.2 10.9 2.8 21.8
Bank Rakyat BBRI IJ Indonesia UW 9200.0 13.4 10.9 1.8 27.8
AMX AMX US Mexico OW 50.6 14.0 11.0 0.8 22.9
Mediatek 2454 TT Taiwan N 456.0 12.4 11.0 5.7 33.4
Banco Itau ITUB4 BZ Brazil OW 38.0 13.0 11.1 2.7 24.4
Samsung Electronics 005930 KS Korea N 782000.0 9.8 11.2 0.0 17.3
Ecopetrol ECOPETL CB Colombia UW 3345.0 16.9 11.4 3.6 27.1
MMC Norilsk Nickel GMKN RU Russia N 170.0 14.3 11.5 2.1 16.2
Petrochina 857 HK China UW 8.7 12.0 11.5 3.8 15.0
Gold Fields GFI SJ South Africa OW 10345.0 21.8 11.7 1.8 7.8
Hon Hai Precision 2317 TT Taiwan OW 131.5 13.3 11.9 1.5 17.6
LG Chem 051910 KS Korea OW 329000.0 12.3 12.0 1.1 27.5
China Steel 2002 TT Taiwan N 30.6 12.6 12.1 3.3 12.2
Orascom Construction OCIC EY Egypt NR 253.8 16.9 12.1 4.0 17.9
China Mobile 941 HK China N 84.1 12.6 12.1 3.0 21.5
Siam Comm Bank SCB TB Thailand OW 91.0 13.8 12.1 2.7 15.2
Impala Platinum IMP SJ South Africa N 18900.0 22.1 12.1 1.7 12.1
Tenaga TNB MK Malaysia OW 8.6 13.7 12.2 2.5 10.1
Credicorp BAP US Peru N 101.1 14.0 12.3 1.7 22.9
CIMB Group Holdings CIMB MK Malaysia N 7.4 15.0 12.6 2.7 16.4
CNOOC 883 HK China N 13.0 12.9 12.6 4.3 24.9
Grupo Mexico GMEXICOB MM Mexico OW 34.1 14.2 12.6 5.8 26.3
Cemex CX US Mexico OW 8.7 28.2 12.7 0.0 NA
Reliance Industries RIL IN India OW 970.7 20.2 12.9 0.7 14.6
Anglogold Ashanti ANG SJ South Africa OW 31900.0 15.2 13.0 1.2 30.7
Turkcell TCELL TI Turkey N 9.0 15.7 13.4 2.9 NA
Nan Ya Plastics 1303 TT Taiwan UW 60.0 17.2 13.6 3.2 10.5
Malayan Banking MAY MK Malaysia N 8.0 14.9 13.8 3.4 14.7
Brasil Foods BRFS3 BZ Brazil N 23.4 25.2 13.8 2.0 5.5
Itissalat Al Maghrib IAM MC Morocco NR 149.0 14.1 13.8 7.0 53.7
China Overseas 688 HK China OW 16.3 14.4 13.8 1.5 20.2
Chunghwa Telecom 2412 TT Taiwan NR 64.9 13.7 13.9 7.1 12.1
Bmf Bovespa BVMF3 BZ Brazil OW 13.1 16.1 13.9 NA NA
Astra International ASII IJ Indonesia OW 48300.0 15.0 14.0 2.7 29.8
Sime Darby SIME MK Malaysia N 7.7 31.8 14.0 2.9 6.6
CMB - H 3968 HK China N 20.6 17.8 14.0 1.1 21.4
Ambev ABV US Brazil N 110.3 15.8 14.4 4.1 30.6
Televisa TV US Mexico OW 19.5 16.2 14.6 1.6 18.3
NHN 035420 KS Korea NR 189000.0 18.0 15.0 0.0 40.7
Formosa Plastics 1301 TT Taiwan UW 70.0 16.8 15.2 5.7 11.2
Perusahaan Gas PGAS IJ Indonesia UW 4100.0 17.0 15.5 3.2 44.3
Bank Central Asia BBCA IJ Indonesia OW 5900.0 19.6 16.1 2.4 24.8
Naspers NPN SJ South Africa OW 30640.0 21.2 16.3 0.8 15.6
Cathay Financial 2882 TT Taiwan N 49.5 24.2 16.5 2.3 9.3
IOI IOI MK Malaysia OW 5.2 19.8 17.1 2.6 17.8
Hyundai Heavy Ind 009540 KS Korea UW 279500.0 12.0 17.6 NA 20.3
High Tech Computer 2498 TT Taiwan N 611.0 20.5 20.3 3.7 31.9
China Life 2628 HK China UW 33.8 24.0 20.6 NA 15.6
Walmex WALMEXV MM Mexico N 29.9 24.9 21.5 1.2 17.8
Ping An Insurance 2318 HK China OW 64.4 26.8 21.9 NA 14.6
Tata Consltncy Servcs TCS IN India OW 850.2 24.2 22.4 2.8 36.8
ICICI Bank ICICIBC IN India N 958.9 26.6 22.6 1.3 8.0
Infosys Technologies INFO IN India OW 2750.5 25.3 22.6 0.9 28.8
HDFC Bank HDFCB IN India OW 2121.1 32.9 24.7 0.6 16.1
Larsen & Toubro LT IN India OW 1773.6 30.5 24.8 0.0 19.4
China Unicom H 762 HK China OW 10.5 38.2 25.0 1.1 2.8
HDFC HDFC IN India OW 3009.0 30.6 25.0 1.2 20.0
Tencent Hldg 700 HK China OW 146.9 36.3 28.1 0.3 46.8
China Shenhua Enrgy 1088 HK China N 28.6 16.3 NA 2.2 18.9
OGX Petroleo OGXP3 BZ Brazil OW 20.5 NM NM 0.0 4.1
Source: IBES, Datastream, J.P. Morgan estimates. All estimates are for the calendar year. IBES estimates for non-rated (NR) stocks. NM = not
meaningful due to negative numbers. SA stands for South Africa, CZ stands for Czech Republic.
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Table 34: Quartile earning growth Table 35: EMBig100 earnings growth
ranking NAME RIC Country Reco CAGR
Earnings Growth
Earnings growth 2009 2010E 2011E 2008-11E
2010E 2011E Cathay Financial 2882 TT Taiwan N 404.3 79.9 46.9 137.1
Min 2.2 24.8 Ping An Insurance 2318 HK China OW NM 11.2 22.3 137.0
Lower Quartile 12.4 30.7 Perusahaan Gas Negara PGAS IJ Indonesia UW NM -7.1 9.7 115.6
Median 22.5 36.5 Walmex WALMEXV MM Mexico N NM -40.0 15.8 84.9
Top Quartile 32.7 59.7 LG Electronics 066570 KS Korea OW 325.2 15.8 9.5 75.3
Max 42.9 82.8 Nan Ya Plastics 1303 TT Taiwan UW 69.7 67.3 26.3 53.1
Tencent Hldg 700 HK China OW 84.8 44.8 29.2 51.2
Source: J.P. Morgan calculations.
Hyundai Motor 005380 KS Korea OW 104.5 32.4 10.3 44.0
Sinopec 386 HK China OW 116.5 11.3 14.4 40.2
Fubon Financial Holdings 2881 TT Taiwan N 70.7 29.9 19.7 38.5
Sberbank of Russia SBER RU Russia OW -80.4 613.6 89.6 38.4
LG Display 034220 KS Korea OW 6.1 136.4 -4.8 33.6
China Overseas 688 HK China OW 56.5 41.6 4.3 32.2
Mediatek 2454 TT Taiwan N 88.0 8.7 12.1 31.8
Samsung Electronics 005930 KS Korea N 76.6 40.1 -12.5 29.4
Bank Of China 3988 HK China OW 26.0 30.3 31.0 29.1
China Life 2628 HK China UW 71.8 5.6 16.6 28.4
Garanti Bankasi GARAN TI Turkey OW 63.9 16.0 10.1 27.9
Bmf Bovespa BVMF3 BZ Brazil OW 35.6 32.8 16.0 27.8
LG Chem 051910 KS Korea OW 70.5 18.9 2.2 27.5
CIMB Group Holdings CIMB MK Malaysia N 37.5 24.1 18.9 26.6
Banco Itau PN ITSA4 BZ Brazil NR 43.6 25.1 11.5 26.1
Femsa FMX US Mexico OW 12.3 53.4 13.8 25.2
Gold Fields GFI SJ South Africa OW -2.0 6.7 86.3 24.9
HDFC Bank HDFCB IN India OW 17.6 22.1 33.1 24.1
Larsen & Toubro LT IN India OW 30.7 13.3 23.3 22.2
Credicorp BAP US Peru N 31.2 22.8 13.4 22.2
ICBC 1398 HK China OW 16.1 27.8 22.2 21.9
Bank Rakyat Indonesia BBRI IJ Indonesia UW 22.6 16.1 22.6 20.4
China Const Bank 939 HK China OW 15.3 26.1 17.8 19.6
Hyundai Mobis 012330 KS Korea OW 51.0 2.0 10.9 19.5
Hon Hai Precision 2317 TT Taiwan OW 35.0 11.1 12.5 19.1
Naspers NPN SJ South Africa OW 5.6 22.4 30.1 18.9
PTT PTT TB Thailand OW 14.8 24.7 16.9 18.7
Ambev ABV US Brazil N 29.8 16.9 9.9 18.6
TSMC 2330 TT Taiwan OW -9.8 65.0 9.6 17.7
Bank of Comm. 3328 HK China OW 5.6 27.3 19.8 17.2
NHN 035420 KS Korea NR 15.9 14.7 20.2 16.9
Bank Central Asia BBCA IJ Indonesia OW 17.9 8.8 22.0 16.1
Astra International ASII IJ Indonesia OW 12.0 29.8 7.5 16.0
Infosys Technologies INFO IN India OW 29.8 6.3 12.0 15.6
Tata Consltncy Servcs TCS IN India OW 3.5 32.9 8.0 14.1
Banco Itau ITUB4 BZ Brazil OW -1.3 25.9 17.5 13.4
PLDT TEL PM Philippines N 15.8 11.2 11.8 12.9
Reliance Industries RIL IN India OW -7.7 -0.6 56.5 12.8
Grupo Mexico GMEXICOB MM Mexico OW -14.3 50.0 11.1 12.6
HDFC HDFC IN India OW -6.4 22.7 22.2 11.9
MTN Group MTN SJ South Africa OW -16.6 32.5 23.3 10.9
Source: IBES, Datastream, J.P. Morgan estimates. All estimates are for the calendar year. IBES estimates for non-rated (NR) stocks.
NM = not meaningful due to negative numbers. SA stands for South Africa. CZ stands for Czech Republic Recommendations: OW =
Overweight, N = Neutral, UW = Underweight, NR = Not rated. 16 August 2010.
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EMBig100 earnings growth (cont’d)

Stock RIC Country Reco Earnings Growth CAGR
2009 2010E 2011E 2008-11E
CMB - H 3968 HK China N -13.5 21.5 26.9 10.1
Formosa Plastics 1301 TT Taiwan UW 30.6 -7.5 10.4 10.1
KB Financial 105560 KS Korea OW -71.0 274.9 19.7 9.2
Telkom TLKM IJ Indonesia OW 7.1 9.6 10.1 8.9
Mobile Tele MBT US Russia OW -25.8 46.5 18.1 8.7
PKO Bank PKO PW Poland UW -21.4 10.2 48.1 8.6
Televisa TV US Mexico OW -22.2 13.5 42.3 7.9
Orascom Construction OCIC EY Egypt NR -30.9 29.4 39.8 7.7
AMX AMX US Mexico OW 30.1 -25.1 27.1 7.4
China Steel 2002 TT Taiwan N -21.9 51.2 4.2 7.2
Gerdau GGBR4 BZ Brazil OW -40.4 14.5 79.4 7.0
Petrochina 857 HK China UW -9.7 28.0 4.2 6.4
Siam Commercial Bank SCB TB Thailand OW -1.9 7.8 13.9 6.4
Tenaga TNB MK Malaysia OW -64.7 197.9 12.7 5.9
KGHM KGH PW Poland NR -14.8 38.3 0.2 5.7
Vale Pn VALE/P US Brazil OW -61.7 172.0 12.9 5.6
Petrobras PETR4 BZ Brazil N -12.2 0.3 32.9 5.4
Shinhan Financial 055550 KS Korea OW -47.7 86.5 18.4 4.9
Standard Banking SBK SJ South Africa N -19.8 16.6 22.3 4.6
Firstrand FSR SJ South Africa OW -31.2 36.4 21.7 4.5
ICICI Bank ICICIBC IN India N -9.7 6.9 17.4 4.3
Posco 005490 KS Korea OW -28.7 52.9 3.5 4.1
Gazprom GAZP RU Russia OW -31.7 22.1 33.6 3.7
Sasol SOL SJ South Africa OW -25.5 -6.1 56.4 3.1
China Mobile 941 HK China N 2.1 1.6 4.1 2.6
CNOOC 883 HK China N -33.6 51.8 2.6 1.1
CEZ CEZ CP Czech NR 8.0 -7.0 2.0 0.8
Banco Brasil On BBAS3 BZ Brazil N 14.1 -15.9 6.3 0.7
Ecopetrol ECOPETL CB Colombia UW -46.3 27.9 48.0 0.6
Itissalat Al Maghrib IAM MC Morocco NR -0.9 -1.0 1.9 0.0
Malayan Banking MAY MK Malaysia N -80.0 346.5 8.1 -1.2
OTP Bank OTP HB Hungary OW -37.3 10.8 37.9 -1.4
IOI IOI MK Malaysia OW -11.9 -6.5 16.0 -1.5
Sime Darby SIME MK Malaysia N -35.1 -36.5 127.3 -2.1
Lukoil LKOH RU Russia N -25.4 14.6 3.1 -4.1
Rosneft ROSN LI Russia OW -41.4 60.7 -8.3 -4.8
Chunghwa Telecom 2412 TT Taiwan NR -10.8 -5.1 -1.7 -5.9
High Tech Computer 2498 TT Taiwan N -21.1 3.8 0.9 -6.2
Turkcell TCELL TI Turkey N -3.4 -29.5 17.3 -7.2
Cemex CX US Mexico OW -80.8 84.5 122.6 -7.5
Sider Nacional SID US Brazil UW -71.7 66.0 32.4 -14.7
China Unicom H 762 HK China OW -45.0 -27.3 54.2 -14.9
Hyundai Heavy Ind 009540 KS Korea UW -14.8 -7.6 -32.0 -18.8
Impala Platinum IMP SJ South Africa N -65.6 -14.6 82.0 -18.8
OGX Petroleo OGXP3 BZ Brazil OW NM -96.4 -66.7 -30.7
MMC Norilsk Nickel GMKN RU Russia N NM 42.9 24.8 NM
Brasil Foods BRFS3 BZ Brazil N NM 2.2 82.8 NM
Korea Electric Power 015760 KS Korea OW NM NM 36.5 NM
Hynix Semi 000660 KS Korea N NM NM -33.0 NM
Bradesco BBDC4 BZ Brazil OW NA 25.4 12.1 NA
Anglogold Ashanti ANG SJ South Africa OW NA NA 17.5 NA
China Shenhua Enrgy 1088 HK China N 10.6 6.5 NA NA
Source: IBES, Datastream, J.P. Morgan estimates. All estimates are for the calendar year. IBES estimates for non-rated (NR) stocks.
NM = not meaningful due to negative numbers. SA stands for South Africa. CZ stands for Czech Republic. Recommendations: OW =
Overweight, N = Neutral, UW = Underweight, NR = Not rated. 16 August 2010.
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Table 36: Ranked total returns of EMBig100

%
Name 3-month return Name 6-month return Name 12-month return
LC US$ LC US$ LC US$
High Tech Computer 59.8 58.4 High Tech Computer 122.6 123.6 High Tech Computer 98.4 104.4
Ecopetrol 22.3 31.5 LG Chem 51.7 47.1 LG Chem 89.5 97.8
OGX Petroleo 26.7 29.0 Ecopetrol 37.2 44.7 OGX Petroleo 79.9 87.2
MTN Group 15.1 19.6 Hyundai Mobis 48.6 44.2 Astra International 66.2 83.8
Credicorp 18.3 18.3 Astra International 37.7 42.8 Sberbank of Russia 71.4 78.0
Banco Brasil On 15.4 17.5 Bank Central Asia 27.9 32.6 Grupo Mexico 74.5 77.9
Telkom 15.5 17.0 Credicorp 30.9 30.9 Tata Consltncy Servcs 68.5 73.7
Astra International 15.4 16.9 HDFC Bank 30.5 28.9 Hyundai Mobis 66.0 73.2
Bank Central Asia 13.9 15.3 CIMB Group Holdings 19.6 28.6 MMC Norilsk Nickel 58.2 64.2
KGHM 10.2 15.1 Bank Rakyat Indonesia 22.0 26.5 Hyundai Motor 48.9 55.4
Bradesco 12.5 14.6 Malayan Banking 16.9 25.7 Bank Central Asia 38.6 53.2
Hyundai Heavy Ind 19.9 14.2 PTT 20.3 25.4 CIMB Group Holdings 38.3 52.9
Bmf Bovespa 11.7 13.7 HDFC 24.2 22.6 HDFC Bank 47.0 51.5
China Overseas 13.4 13.6 Garanti Bankasi 22.1 22.4 Ambev 38.5 44.1
Larsen & Toubro 16.9 12.9 Larsen & Toubro 23.6 22.0 Naspers 29.6 44.0
CMB - H 12.6 12.7 Fubon Financial Holdings 21.0 21.5 Banco Itau PN 38.1 43.6
China Mobile 12.4 12.6 China Unicom H 20.1 20.0 Firstrand 29.1 43.5
Perusahaan Gas Negara 11.1 12.5 Hyundai Heavy Ind 23.1 19.4 Bank Rakyat Indonesia 29.5 43.2
China Unicom H 12.1 12.2 Perusahaan Gas Negara 14.9 19.1 Credicorp 42.3 42.3
Banco Itau PN 10.2 12.2 Siam Commercial Bank 14.1 18.9 Hyundai Heavy Ind 35.5 41.4
Bank Rakyat Indonesia 10.5 11.9 OGX Petroleo 12.4 17.6 Infosys Technologies 36.7 40.9
Mobile Tele 11.0 11.0 Banco Itau PN 11.9 17.1 Ecopetrol 26.8 40.1
Bank of Comm. 10.7 10.8 Tenaga 8.7 16.8 Garanti Bankasi 41.3 39.9
Turkcell 8.3 10.4 Femsa 14.5 16.5 Malayan Banking 23.6 36.7
Tata Consltncy Servcs 14.2 10.3 MTN Group 9.9 16.4 Perusahaan Gas Negara 23.5 36.6
Chunghwa Telecom 10.9 9.9 Ambev 11.0 16.2 Vale Pn 31.2 36.5
CEZ 2.5 8.8 Bank of Comm. 15.9 15.8 Bradesco 30.6 35.9
Femsa 9.7 8.7 Chunghwa Telecom 15.2 15.6 Mobile Tele 35.6 35.6
Formosa Plastics 9.7 8.7 Gold Fields 9.2 15.6 Fubon Financial Holdings 31.0 34.9
China Const Bank 8.6 8.7 CMB - H 15.7 15.6 ICICI Bank 30.5 34.5
Fubon Financial Holdings 9.2 8.2 ICICI Bank 16.6 15.1 HDFC 30.3 34.3
Banco Itau 6.2 8.1 Mobile Tele 15.1 15.1 Banco Itau 28.7 33.9
Siam Commercial Bank 6.3 8.0 China Const Bank 15.1 15.1 Banco Brasil On 27.3 32.5
Ambev 6.0 7.9 Bradesco 9.8 14.9 Walmex 29.5 32.0
Sasol 3.1 7.1 Bmf Bovespa 9.0 14.0 Nan Ya Plastics 27.5 31.3
Grupo Mexico 7.7 6.8 Tata Consltncy Servcs 15.3 13.9 Standard Banking 17.5 30.6
Garanti Bankasi 4.3 6.4 KGHM 20.9 13.8 Femsa 25.5 27.9
MMC Norilsk Nickel 6.7 5.9 Hyundai Motor 17.1 13.6 PKO Bank 34.9 26.8
Bank Of China 5.5 5.6 Formosa Plastics 13.0 13.5 Hon Hai Precision 22.2 25.9
Sider Nacional 3.6 5.4 Anglogold Ashanti 7.1 13.4 Sider Nacional 20.7 25.6
HDFC 8.4 4.7 MMC Norilsk Nickel 14.5 13.0 Larsen & Toubro 21.1 24.9
Sinopec 4.5 4.6 Naspers 6.7 12.9 Siam Commercial Bank 16.6 24.7
Brasil Foods 2.6 4.5 Grupo Mexico 10.8 12.8 CNOOC 24.8 24.5
Hyundai Mobis 9.5 4.3 China Mobile 12.7 12.7 KGHM 30.8 23.0
Vale Pn 2.3 4.2 Firstrand 6.1 12.3 Tencent Hldg 23.1 22.8
Ping An Insurance 4.0 4.1 Brasil Foods 6.3 11.2 Formosa Plastics 19.2 22.8
ICBC 3.9 4.0 Bank Of China 10.7 10.7 Hynix Semi 15.4 20.4
Anglogold Ashanti (0.1) 3.7 AMX 8.5 10.5 CMB - H 20.0 19.6
HDFC Bank 7.4 3.7 Sasol 4.0 10.1 Tenaga 8.1 19.5
Gold Fields (0.5) 3.4 China Overseas 9.5 9.5 Lukoil 13.7 18.1
Malayan Banking 2.9 3.2 Banco Itau 4.1 9.0 Shinhan Financial 12.3 17.2
LG Chem 8.3 3.1 TSMC 8.4 8.9 Gold Fields 5.2 17.0
Lukoil 3.8 3.1 Sider Nacional 4.0 8.8 Anglogold Ashanti 4.4 16.1
ICICI Bank 6.5 2.9 Infosys Technologies 9.5 8.1 Sasol 4.2 15.8
China Steel 3.6 2.7 CNOOC 8.0 8.0 Brasil Foods 11.1 15.5
Sberbank of Russia 3.3 2.6 Banco Brasil On 3.1 7.9 Chunghwa Telecom 11.6 15.0
TSMC 3.5 2.6 IOI (0.1) 7.4 NHN 9.4 14.2
CIMB Group Holdings 1.8 2.2 Vale Pn 2.3 7.1 Orascom Construction 17.0 13.8
Cathay Financial 3.1 2.2 ICBC 6.5 6.5 Bmf Bovespa 9.3 13.7
Televisa 3.0 2.2 Shinhan Financial 9.7 6.4 Gerdau 9.1 13.5
PTT 0.4 2.1 Sinopec 6.2 6.2 Samsung Electronics 8.7 13.4
Source: Datastream. 16 August 2010.
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Table 40: Ranked total returns of EMBig 100 (cont’d)

%
Name 3-month return Name 6-month return Name 12-month return
LC US$ LC US$ LC US$
AMX 2.9 2.0 Lukoil 7.6 6.1 PTT 5.7 13.1
PKO Bank (2.5) 1.8 Standard Banking (0.2) 5.7 Telkom 1.9 12.7
Tenaga 1.2 1.5 Ping An Insurance 5.6 5.5 AMX 10.1 12.2
Orascom Construction 3.2 1.5 Impala Platinum (0.7) 5.2 PLDT 5.9 12.1
Gazprom 2.1 1.4 PLDT 2.9 4.5 China Const Bank 12.3 12.0
Posco 6.1 1.0 Telkom 0.4 4.2 IOI 0.8 11.5
Itissalat Al Maghrib (1.7) 1.0 Nan Ya Plastics 3.5 3.9 Rosneft 7.2 11.4
Infosys Technologies 4.5 0.9 Televisa 1.8 3.6 TSMC 7.5 10.8
Petrochina 0.7 0.8 Cathay Financial 3.1 3.5 Televisa 8.4 10.4
Naspers (3.0) 0.8 CEZ 4.6 2.7 Cathay Financial 6.7 10.0
CNOOC 0.6 0.7 NHN 5.7 2.5 ICBC 9.8 9.5
Walmex 1.1 0.3 Itissalat Al Maghrib 8.1 2.5 Bank Of China 9.0 8.7
Standard Banking (3.5) 0.2 Petrochina 2.4 2.4 Posco 3.3 7.8
Impala Platinum (4.1) (0.4) China Life 1.3 1.3 Gazprom 3.1 7.1
China Life (1.0) (0.9) Walmex (0.8) 1.0 China Steel 3.6 6.7
Nan Ya Plastics (0.3) (1.2) Samsung Electronics 4.1 1.0 Mediatek 0.9 4.0
Gerdau (3.5) (1.8) China Steel 0.3 0.7 Itissalat Al Maghrib 12.4 3.5
Shinhan Financial 3.0 (1.9) Hynix Semi 3.8 0.6 China Life 3.3 3.0
Firstrand (5.7) (2.1) Gerdau (4.6) (0.2) Sime Darby (6.9) 3.0
NHN 2.5 (2.4) Sime Darby (8.2) (1.3) Impala Platinum (7.5) 2.8
PLDT (1.2) (2.5) Tencent Hldg (1.4) (1.4) LG Display (1.8) 2.5
IOI (4.5) (4.1) Hon Hai Precision (1.9) (1.4) MTN Group (8.4) 1.9
Petrobras (6.9) (5.3) PKO Bank 3.8 (2.3) KEPCO (3.0) 1.2
Sime Darby (7.3) (7.0) Reliance Industries (3.4) (4.7) Reliance Industries (2.8) 0.2
Samsung Electronics (2.9) (7.5) LG Display (2.0) (5.0) Petrochina 0.1 (0.2)
Mediatek (7.1) (7.9) Gazprom (3.8) (5.1) Ping An Insurance (0.2) (0.5)
China Shenhua Enrgy (8.4) (8.3) Turkcell (5.3) (5.1) Bank of Comm. (1.2) (1.5)
Hon Hai Precision (8.0) (8.8) Sberbank of Russia (3.9) (5.1) China Mobile (2.2) (2.5)
KEPCO (4.8) (9.3) Mediatek (5.8) (5.4) Turkcell (1.8) (2.8)
Tencent Hldg (9.7) (9.6) Orascom Construction (2.2) (5.8) OTP Bank 9.1 (4.3)
Reliance Industries (6.5) (9.6) KB Financial (4.0) (6.9) China Unicom H (4.4) (4.7)
KB Financial (5.1) (9.7) Cemex (9.8) (8.2) Sinopec (6.3) (6.6)
Hyundai Motor (5.2) (9.7) Posco (9.6) (12.3) KB Financial (10.8) (6.9)
Rosneft (9.4) (10.0) Petrobras (16.5) (12.7) China Overseas (7.5) (7.7)
LG Electronics (7.6) (12.0) LG Electronics (10.0) (12.7) Petrobras (11.8) (8.2)
OTP Bank (20.6) (19.0) China Shenhua Enrgy (13.1) (13.1) China Shenhua Enrgy (11.9) (12.1)
Cemex (18.4) (19.1) Rosneft (13.1) (14.2) CEZ (7.2) (13.1)
Hynix Semi (16.9) (20.9) OTP Bank (9.0) (17.0) Cemex (18.1) (16.6)
LG Display (20.9) (24.6) KEPCO (23.1) (25.4) LG Electronics (26.1) (22.9)
Source: Datastream. Price as of 16 August 2010.
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Emerging Markets Strategy Dashboards

Summary: Regional and Countries Valuations
P/E (x) Div. Yield (%) P/BV (x) Earnings growth (%) ROE (%)
16-Jun-10 Hist.^ P/ EPS Current 12m Prospective Hist.^ Current Prospective Hist.^ Current Prospective
MSCI
Index Trough (Trend) Trailing Fwd 2009 2010E 2011E Peak Trailing 2010E 2011E Trough Trailing 2010E 2011E 2008 2009E 2010E 2011E 2009E 2010E 2011E
Global* 307 9.6 13.0 13.3 11.2 15.2 12.3 10.7 4.2 2.7 2.8 3.1 1.2 1.6 1.6 1.5 -33.4 -11.6 23.8 15.3 11.5 13.4 14.4
USA 1,027 11.6 11.8 16.0 12.6 28.6 13.7 11.9 4.0 2.1 2.2 2.3 1.4 2.1 1.8 1.7 -30.6 2.1 27.0 20.3 11.7 13.9 15.2
Europe* 1,082 7.0 11.2 15.0 10.9 18.7 11.9 10.2 6.1 3.4 3.8 4.3 1.1 1.6 1.5 1.4 -24.6 -21.1 27.6 21.0 12.7 16.0 18.4
Japan* 516 11.5 24.1 NM 13.6 NM 15.1 12.7 3.0 1.9 2.4 2.6 0.9 1.1 1.0 0.9 -17.8 NM NM 19.4 NM 6.6 7.4
Emerging Markets* 42,960 9.1 13.3 12.8 10.6 15.0 11.7 10.0 3.7 2.6 2.7 3.3 1.0 1.9 1.8 1.6 7.2 2.6 28.0 16.7 13.7 16.1 16.8
EMF Asia 611 10.3 16.4 13.6 11.4 16.4 12.4 10.9 3.4 2.4 2.5 2.9 1.0 2.0 1.9 1.7 -32.0 13.5 32.4 13.1 13.4 16.1 16.2
EMF LatAm* 7,242,485 8.6 13.9 13.7 11.3 15.2 12.9 10.5 5.5 2.8 2.9 3.8 0.6 2.1 2.0 1.9 6.2 9.0 17.1 23.5 11.1 16.8 18.5
EMF EMEA* 385 6.3 8.9 10.5 8.4 12.6 9.5 7.8 5.1 2.8 3.0 3.7 1.2 1.5 1.4 1.3 -18.2 -22.1 32.2 21.5 14.2 15.9 17.1
China 62 7.2 11.0 14.0 11.6 16.2 12.9 11.0 5.7 2.6 2.8 3.3 0.5 2.2 2.1 1.9 -10.9 17.1 25.8 17.2 15.4 17.1 17.9
Brazil* 229,018 6.5 8.5 12.6 10.3 13.9 11.9 9.5 7.6 3.0 3.1 4.0 0.4 2.0 1.9 1.7 4.6 7.7 16.3 25.4 16.5 17.3 18.7
Korea 492 7.7 11.3 11.2 9.6 14.3 9.9 9.5 2.9 1.1 1.1 1.4 0.5 1.5 1.4 1.2 -38.9 56.9 45.0 4.4 11.5 14.9 13.7
Taiwan 280 11.7 14.3 16.2 12.2 25.7 13.3 11.6 7.8 3.4 3.7 4.6 1.2 1.8 1.8 1.7 -69.2 33.0 93.6 14.6 7.8 13.9 14.7
South Africa* 722 9.1 10.8 13.6 10.6 16.6 12.2 9.8 4.7 3.0 3.3 4.1 1.4 2.1 2.0 1.8 -24.8 -15.3 35.9 25.3 14.1 17.6 19.1
India 725 10.2 20.3 18.2 14.4 21.0 16.8 13.3 2.5 1.3 1.3 1.5 1.5 2.6 2.5 2.1 -16.9 3.5 24.7 26.6 14.5 15.8 17.3
Russia* 731 3.4 3.9 7.6 6.0 9.5 6.8 5.6 3.2 1.5 2.1 2.7 0.2 1.0 1.0 0.8 -21.9 -32.0 40.3 21.3 13.3 15.2 16.3
Mexico* 29,765 9.0 10.5 15.4 13.2 16.9 14.6 12.5 3.6 2.6 2.5 3.6 0.7 2.4 2.5 2.4 -27.2 19.9 16.1 16.9 8.9 16.5 19.9
Malaysia 501 12.3 17.0 17.2 14.5 19.7 16.0 13.7 5.1 2.9 3.2 3.5 0.6 2.1 2.0 1.9 -13.0 0.3 23.3 16.4 11.2 13.1 14.2
Indonesia 4,025 5.3 15.5 16.1 13.7 17.8 15.1 12.9 5.9 2.5 2.7 3.2 0.9 3.9 3.6 3.1 4.8 20.7 17.7 17.1 26.4 26.0 25.8
Turkey* 861,335 5.1 6.5 10.8 9.4 11.9 10.2 9.0 4.0 3.3 2.8 3.4 1.4 1.9 1.8 1.6 5.3 5.2 16.8 12.6 18.7 18.9 18.8
Thailand 336 8.2 7.0 12.9 11.1 14.2 12.3 10.5 6.3 3.5 3.7 4.0 0.6 2.0 2.0 1.8 14.6 41.4 15.5 16.5 16.0 16.8 17.6
Poland* 1,696 6.3 12.6 13.6 11.6 15.0 12.9 10.9 7.2 3.1 3.5 4.4 0.9 1.6 1.5 1.4 -28.0 -25.7 16.6 17.9 11.3 12.5 13.4
Czech Republic* 359 7.3 6.9 11.1 10.6 10.9 11.2 10.3 10.0 5.7 6.1 6.3 0.5 2.0 1.9 1.8 1.2 11.9 -2.3 8.1 19.5 17.8 18.2
Egypt* 1,305 5.9 5.5 12.7 10.1 15.3 11.5 9.4 8.4 3.1 3.5 4.3 1.0 1.5 1.5 1.3 -32.1 -33.5 33.2 21.8 12.0 12.6 14.7
Philippines 649 7.9 21.9 16.8 14.8 18.1 16.2 14.1 5.2 3.8 3.8 3.4 0.9 2.6 2.5 2.3 -13.2 24.8 12.1 15.0 15.2 16.0 17.1
Hungary* 1,254 3.4 6.2 11.1 9.1 11.3 10.9 8.3 5.3 2.9 3.5 4.8 0.6 1.3 1.2 1.1 -36.6 -36.6 3.6 32.3 12.8 11.8 13.9
Source: I/B/E/S, MSCI, J.P. Morgan. Updated 16 August 2010.
* Market forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using I/B/E/S estimates. IBES Estimates are not available for Morocco, Jordan, Peru and Colombia.
For all other markets, forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using JPM estimates for covered stocks and I/B/E/S estimates for the rest.
Hist.^ refers to the historically lowest valuation of the MSCI indices since Jan 1991. Trough PE represents the lowest 12 month trailing PE. For dividend yield the highest values are taken to represent the best multiple.
P / EPS (Trend) uses the trend EPS for the indices calculated by the linear regression on the natural log of trailing EPS. For more, please refer to 'Mayday call for the shorts - Perspectives and Portfolios', 5 May 2009, Mowat et al.
P / EPE (Trend)' is NM for indices where the modeled relationship is weak with a less than 0.50 R-square. The start dates China and Singapore models are modified to make them more relevant. Sector indices inputs have not been altered.
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Market Performance: MSCI AC Performance by Regions, Countries and Sectors
North America
Philippines
EMF Latin
Indonesia
EMF Asia
EMF Asia
Malaysia
Thailand
America
Europe
Taiwan
Global
Japan
EMEA
Korea
China
India
EMF
2010 Year to Date
Consumer Discretionary 1.3% 4.1% -0.5% -13.9% 5.9% 9.5% -4.0% -0.3% 9.5% 11.8% 12.3% -6.4% 11.8% 11.3% 18.9% 39.2% 47.5%
Consumer Staples 0.3% 0.6% -2.7% -3.6% 9.0% 8.9% 7.1% 10.9% 8.9% 2.1% 10.4% 4.3% 14.2% 0.0% 70.3% 21.5%
Energy -10.8% -7.9% -16.6% -6.7% -9.2% -4.7% -18.1% -7.1% -4.7% 12.1% -9.0% -6.5% -6.2% 17.2% 1.0% -14.3%
Financials -5.7% -2.3% -11.8% -11.2% 1.1% -0.6% 4.6% 0.1% -0.6% -6.2% -4.2% -6.4% 11.7% 10.6% 11.7% 23.4% 16.7%
Healthcare -7.7% -7.2% -9.9% -9.0% 4.1% 2.3% 0.0% 10.8% 2.3% 0.0% 12.5% 3.0% 0.0%
Industrials 1.6% 4.2% -3.8% -6.8% 5.3% 4.8% 10.9% 1.1% 4.8% 9.3% 19.1% -2.8% 2.8% -1.5% 23.5% 41.7%
Information Technology -7.8% -8.8% -9.3% -10.1% -6.0% -5.9% -5.8% -7.7% -5.9% -0.2% -9.2% -11.9% 6.6%
Materials -6.0% -2.1% -11.0% -15.2% -1.4% -3.7% -1.0% 6.2% -3.7% 3.3% -1.4% -13.7% -11.3% 12.6% 18.4% 13.0%
Telecoms -1.9% -0.6% -7.4% 3.8% 3.8% 8.6% -2.0% 2.2% 8.6% 2.0% 0.8% 13.5% -2.5% 15.5% 13.2% -9.2% -10.1%
Utilities -7.1% -1.7% -19.2% 2.2% -1.0% -1.7% -2.3% 4.7% -1.7% -10.2% -1.7% -8.7% 4.7% 25.0% 5.1% -8.8%
Region / Country -4.7% -3.2% -9.7% -9.3% -0.4% -0.3% -1.9% -0.4% -0.3% 2.4% -5.6% -3.8% 2.6% 6.5% 11.5% 11.4% 8.5%
Benchmark
Change vs dollar 9.0% -1.0% 0.3% 0.5% -0.3% 8.5% 5.3% 5.0% 2.3%
Czech Republic
South Africa
EMF Latin
Argentina
Colombia
Morocco
Hungary
America
Mexico
Poland
Russia
Turkey
EMEA
Egypt
Brazil
Peru
2010 Year to Date
Consumer Discretionary -4.0% -2.8% -14.4% -0.3% 4.9% -2.5% 19.3% 0.0%
Consumer Staples 7.1% 3.2% 1.1% -4.9% 3.7% 10.9% 20.5% -12.2% 19.8% 0.0% 0.0%
Energy -18.1% -20.1% 6.2% 33.1% -7.1% -2.6% -7.1% 15.1% 8.3% 19.4% 0.0%
Financials 4.6% 0.7% 7.0% 38.4% 25.9% 17.9% 0.1% 4.5% -2.3% 14.1% 4.6% -7.7% 3.8% 16.2% 9.7%
Healthcare 0.0% 0.0% 10.8% 6.9% 4.9% 0.0%
Industrials 10.9% 0.6% 12.1% 1.1% -1.5% 6.6% 11.2% 0.0%
Information Technology -5.8% -5.3% -7.7% -10.4%
Materials -1.0% -2.0% -6.2% -1.3% 2.5% 6.2% -2.4% 13.5% -4.0% 1.8% 2.4% 0.0%
Telecoms -2.0% -21.4% 1.0% 22.4% 2.2% 0.7% 8.2% -3.4% 3.3% -8.5% 4.8% -8.4% 9.8%
Utilities -2.3% -4.1% -3.8% 4.7% 0.0% 0.0% -11.0% 0.1%
Region / Country -1.9% -6.1% -1.3% 24.7% 6.3% 15.1% -0.4% 2.0% -0.2% 10.8% 3.6% 1.4% 0.1% 3.3% 11.0%
Benchmark
Change vs dollar -0.4% 3.9% -3.4% 3.1% 12.4% 1.7% -1.2% 0.1% -6.9% -13.0% -4.6% -3.4% -8.5%
Source: Bloomberg, MSCI. 16 August 2010.
Notes: Regional headings first sorted by regional weights in the MSCI EMF and then country headings from left to right by relative weights within the MSCI EMF
Indices: Regions in US$ and countries in local currency. Local currency movements against the dollar: appreciation / (depreciation).
Country and sector cross sections in italic blue have outperformed their indices by more than 2%; numbers in red have underperformed their indices by more than 2%.
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Equity Markets Liquidity Monitor

Country Stock
FF Daily Trading Value Daily Velocity BRIC Trading value (US$ bn, 3MMA)
Mkt Cap (US$ bn) Ratio (%)
40 8
Exchange (US$ Bn) 1 Wk Avg 3 MMA 09 Avg 1 Wk Avg 3M Avg 09 Avg China (LHS) India Brazil Russia
35 7
Developed Markets
US NYSE + NASDAQ + AMEX 12,478 37 49 40 0.30 0.39 0.35 30 6
UK London Stk Exchange 2,695 7.3 7.9 7.7 0.27 0.32 0.32 25 5
Japan Tokyo Stk Exchange 2,695 12 15 15 0.46 0.56 0.47 20 4
Australia ASX 1,076 4.0 4.2 3.3 0.38 0.40 0.39 15 3
HK HKSE 1,465 5.4 5.2 6.0 0.37 0.37 0.34
10 2
Singapore SSE 273 1.1 1.0 1.0 0.41 0.40 0.30
EM Asia 5 1
China Shanghai & Shenzhen A 1,451 26 18 30 1.75 1.31 1.09 0 0

India BSE & NSE 482 3.9 3.7 4.3 0.82 0.79 0.46 00 01 02 03 04 05 06 07 08 09 10
Indonesia JSE 113 0.4 0.4 0.4 0.33 0.39 0.26
Korea KSE 548 4.6 4.6 4.6 0.84 0.87 0.72
Malaysia Bursa Malaysia 135 0.4 0.3 0.3 0.27 0.27 0.14 Korea, Taiwan, HK & Singapore Trading Value (US$ bn, 3MMA)
Philippines PSE 34 0.1 0.1 0.1 0.30 0.27 0.16
12.5
Taiwan TWSE & OTC 533 4.7 3.6 4.2 0.89 0.73 0.78 Korea Taiw an HK Singapore
Thailand TSE 76 1.1 0.8 0.5 1.49 1.11 0.39 10.0

EMEA
Russia RTS + MICEX + DR 268 1.5 2.0 1.9 0.57 0.79 0.52 7.5
South Africa Johannesburg Stk Exchange 502 1.5 1.5 1.2 0.30 0.32 0.27 5.0
Turkey Istanbul Stk Exchange 84 1.1 1.3 1.2 1.25 1.58 0.75
Poland Warsaw Stk Exchange 70 0.4 0.5 0.4 0.63 0.80 0.44 2.5
Egypt Egyptian Exchange 36 0.1 0.1 0.0 0.37 0.29 0.00

0.0
LatAm
04 05 06 07 08 09 10
Brazil Bovespa + DR 728 3.9 5.5 4.6 0.54 0.79 0.49
Mexico Mexico Stk Exchange + DR 224 1.1 1.1 0.9 0.49 0.48 0.31
Colombia Bogota Stk Exchange 41 0.08 0.07 0.05 0.20 0.19 0.05
Peru Lima Stk Exchange 36 0.02 0.02 0.02 0.06 0.06 0.04 Emerging ASEAN Trading Value (US$ bn, 3MMA)
Argentina Argentina Stk Exchange 28 0.11 0.09 0.08 0.40 0.35 0.26 1.2 Malay sia Indonesia Thailand Philippines
1.0
Source: Bloomberg, J.P. Morgan. Notes: Market cap uses all exchanges covered by Bloomberg for a specific country and primary security of
company only.
0.8
The latest one week average is red (gray box in B&W, dark blue in blue scale) if less than 90% of the three month average or blue (solid black box in
B&W, light blue in blue scale) if greater than 110% of the three month average. 0.6
To calculate the free float we use the MSCI free float factor for all markets except for Hong Kong, Russia and South Africa where we calculate the
free float for the Hong Kong Composite Index, MICEX, and JSE. 0.4
Trading value calculation for Russia, Mexico and Brazil, includes value of depository receipts traded (DR) along with local stock exchange turnover.
0.2
South Africa and Australia market capitalization and trading value includes only local listed portion of dual listed stocks. Velocity Ratio = (Trading
Value / Free float market cap) * 100 0.0
Updated 16 August 2010 04 05 06 07 08 09 10
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Monitoring Inflation: The real threat to EM equities

Central bank Policy
Inflation JPM f'cast CPI (YoY) CPI (YoY) Food CPI (YoY) CPI (%) FX (%) Rate Policy Rate Policy Rate
Country Inflation Rate Target/Est (%) CY2010 Date Previous Latest Previous Latest MoM 3M ann YoY 3M ann Current Last Change Next Change
United States Chained CPI na 1.6 Jun-10 2.0 1.2 0.6 0.5 (0.1) (1.5) 4.4 (13.1) 0.13 16 Dec 08 (-87.5bp) 4Q 11 (+37.5bp)
US core PPI Core PPI SA na na Jun-10 1.3 1.5 - - 0.1 2.1 4.4 (13.1) - - -
US core CPI Urban core CPI na na Jun-10 1.0 0.9 - - 0.2 1.3 4.4 (13.1) - - -
US Unit Labor Cost LC Nonfarm na na Jun-10 (2.6) (2.8) - - NA 0.0 4.4 (13.1) - - -
Euro Area CPI Under 2% 1.4 Jun-10 1.6 1.7 (0.2) 0.2 0.0 2.4 (9.2) 11.7 1.00 7 May 09 (-25bp) On hold
Japan CPI na -1.1 Jun-10 (0.9) (0.7) (0.9) (0.1) 0.0 0.4 12.9 41.0 0.10 19 Dec 08 (-20bp) On hold
Australia CPI 2-3 3.4 Jun-10 2.9 3.1 0.7 1.4 NA 2.6 7.4 (0.3) 4.50 4 May 10 (+25bp) Nov 10 (+25bp)
Hong Kong CPI na 2.5 Jun-10 2.5 2.8 2.0 2.2 0.2 1.8 (0.2) 0.7 0.50 17 Dec 08 (-100bp) 4Q 11 (+50bps)
Singapore CPI # 2.5 - 3.5 3.2 Jun-10 3.2 2.7 1.3 1.3 (1.0) 2.0 5.8 5.8 - - -
EM Asia
China CPI # 3% 2.8 Jul-10 3.3 2.9 5.7 6.8 0.4 (1.2) 0.8 2.8 5.31 22 Dec 08 (-27bp) 4Q 10 (+27bp)
Korea CPI 2-4 2.9 Jul-10 2.6 2.6 4.1 4.7 0.3 1.0 4.0 (18.6) 2.25 9 Jul 10 (+25bp) 4Q 10 (+25bp)
Indonesia CPI 4-6 4.4 Jul-10 5.0 6.2 10.3 14.1 1.6 11.9 10.6 5.2 6.50 5 Aug 09 (-25bp) 2Q 11 (+25bp)
India WPI # 8.5% 5.0 Jun-10 10.2 10.0 16.5 14.6 0.7 10.5 2.9 (15.3) 5.75 27 Jul 10 (+25bp) 16 Sep 10 (+25bp)
India (CPI) CPI Ind. Workers na 6.5 Jun-10 13.9 13.7 na na 1.2 9.7 2.9 (15.3) - - -
Malaysia CPI na 2.2 Jun-10 1.6 1.7 2.5 2.7 0.2 1.8 10.5 0.3 2.75 8 Jul 10 (+25bp) On hold
Philippines CPI 3.5 - 5.5 5.3 Jul-10 3.9 3.9 3.1 3.2 0.2 1.2 5.7 (5.4) 4.00 9 Jul 09 (-25bp) 1Q 11 (+25bp)
Thailand CPI # 3.5 - 5.5 4.8 Jun-10 3.5 3.4 6.1 6.9 0.2 2.5 6.6 5.3 1.25 8 Apr 09 (-25bp) 25 Aug 10 (+25bp)
Taiwan CPI # 0.9 1.0 Jul-10 1.2 1.3 1.6 2.2 0.3 2.0 3.0 (3.2) 1.38 24 Jun 10 (+12.5bp) 3Q 10 (+12.5bp)
Latin America
Argentina CPI na 8.0 Jun-10 10.7 11.2 15.1 15.7 0.7 9.6 (2.5) (5.0) - - -
Brazil CPI IPCA 4.5 (±2) 5.0 Jul-10 4.8 4.6 5.1 4.3 0.0 1.8 3.6 0.2 10.75 21 Jul 10 (+50bp) Jan 11 (+25bp)
Colombia CPI 4.0 (±0.5) 2.5 Jul-10 2.3 2.2 1.5 1.7 (0.0) 0.7 12.2 42.2 3.00 30 Apr 10 (-50bp) 1Q 11 (+50bp)
Mexico CPI 3.0 (±1) 4.7 Jul-10 3.7 3.6 2.0 1.8 0.2 (1.8) 1.5 (10.1) 4.50 17 Jul 09 (-25bp) 4Q 11 (+25bp)
Peru CPI 2.0 (±1) 1.4 Jul-10 1.6 1.8 2.6 2.9 0.4 3.5 4.3 4.8 2.50 5 Aug 10 (+50bp) 9 Sep 10 (+50bp)
Europe, Middle East and Africa
Czech Republic CPI 2.0 (±1) 1.9 Jul-10 1.1 1.9 0.8 3.4 0.3 1.6 (5.6) 22.6 0.75 6 May 10 (-25bp) 2Q 11 (+25bp)
Hungary CPI 3.0 (±1) 4.8 Jul-10 5.9 4.0 1.1 2.8 0.1 4.9 (13.1) (0.3) 5.25 26 Apr 10 (-25bp) 3Q 11 (+25bp)
Poland CPI 2.5 (±1) 2.5 Jun-10 2.1 2.0 1.9 3.0 0.3 4.1 (5.9) 5.9 3.50 24 Jun 09 (-25bp) 2Q 11 (+25bp)
Russia CPI 6.5 - 7.5 6.3 Jul-10 6.0 5.5 4.6 4.2 0.4 5.3 6.1 (5.9) 2.75 31 May 10 (-50bp) 2Q 11 (+25bp)
South Africa CPI 3.0 - 6.0 5.1 Jun-10 4.6 4.2 0.1 0.0 0.0 1.4 10.6 11.1 6.50 25 Mar 10 (-50bp) 4Q 11 (+50bp)
Turkey CPI 6.5 (±2) 8.6 Jul-10 7.6 8.4 5.6 5.5 (0.5) (5.5) (2.0) (0.7) 7.00 - Jul 11 (+50bp)
Source: J.P. Morgan Economics, Bloomberg. Note: Current inflation data for countries which outside/above target range is highlighted.
# Countries where central banks target is not available. We have given J.P. Morgan Economic estimates.
No target is available for China, but general expectation is that the Central Bank would continue raising rates when the headline CPI rises above 3.0 % Updated as of 16 August 2010
In case of Taiwan, Estimate by DGBAS,CB targets M2 growth (2.5-6.5% for 2010)
Russia's CBR is not yet in a full-fledged inflation targeting, so they can change the target during the year.
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Outlook: Market Drivers
Global and developed market drivers
Country Positive Negative
Global Record low interest rate, Private demand driving the recovery, Healthy corporate balance sheets High policy risk as governments reduce fiscal deficits and business fear populist regulation
US Steep yield curve, Improving Private Debt Ratio, Inventory/IP cycle, strong household income & Fiscal Deficit, Stronger dollar, Fragile consumer confidence.
corporate profit
Europe Euro Weakness, Increasing US/Europe Bond yield spread, Cheaper valuations, Strong corporate profits Fiscal Situation in peripheral countries, Mixed Dataflow
and Positive Payrolls.
UK Faster recovery in financial markets, firm commodity and energy prices Fiscal deficit, disappointing economic data
Japan Leveraged to global industrial production cycle. Strong Yen, weaker than expected recovery
Australia Fiscal flexibility, resilient economy Overheating risk, rising short rates with high debt levels, exposure to bulk commodity price correction
Hong Kong Record low mortgage rates, Leveraged to a recovery in global trade and financial services Asset inflation story is consensus
Singapore Domestic catalysts powering strong GDP growth, strong hub for intra-Asia growth Exposed to external sector weakness, especially G3 economies
Emerging Market Drivers
Country Positive Negative
China Consensus underweight market, RMB appreciation. Rebalancing from fixed investment to consumption Policy tightening, trade friction over the RMB, negative earnings revisions, monetary supply growth to
good for long term sustainable growth slow. Near term impact of rebalancing could be lower commodity prices and lower profit margins
Brazil Upside risks to growth, Closed economy and large state, resilient consumption. Commodity Driven Market, 2010 elections, Regulatory risks, Largest tightening cycle in EM.
Korea Undervalued currency, cheap valuations, possible removal of price controls post elections, global cyclical Weaker global demand, structurally weak domestic economy, high private sector debt
exposure, large consensus underweight
Taiwan Global cyclical exposure, Fiscal stimulus, corporate tax cuts, realizing closer cross-straits links, Weak euro hurts price hurting price elasticity of tech products, wage inflation in China causing higher
investment positioning (consensus UW position among FIs), ongoing M&A deals manufacturing costs
South Africa Earnings growth rebound off a decimated base, sustained low interest rates in SA through 2010 vs. Low beta MSCI SA in a high beta Rand environment, slowing growth momentum.
tightening in many EM countries, SA underowned by foreigners, huge domestic investor cash holdings.
India Constructive consumption & investments outlook. Lower dollar funding cost. Reform process Rising inflation, Relatively expensive valuation compared to peer group EMs.
Russia Cheap valuations, high earnings growth, macro-economic recovery, accommodative monetary policy, low Elevated exposure to global slowdown/risk of a double dip, consensus overweight, political risk, budget
debt/output deficit
Mexico 11.0% point swing in GDP, acceleration in consumer demand Slowdown in US recovery, security concerns
Malaysia Strong domestic demand, GLC reforms, Government pump-priming under 9MP, greater than expected Sectarian political issues, Low beta play, high valuations
fiscal stimulus package
Indonesia Recovering currency, improving liquidity, recovery in the business and credit cycle, improving terms of Consensus OW, need to encourage long term investment, political turmoil
trade
Turkey Robust banking sector, inexpensive valuations, lower political tensions, secular decline in interest rates. Politics, higher oil prices, inflation, threat to CBRT credibility.
Thailand Strong economic data, Valuations, Improving fiscal spending data, sustained export strength, Earnings Confrontational political environment.
momentum has picked up sharply - upgrades in Property and Consumer/Media sectors.
Poland Domestic demand, market-friendly political setting Wage and margin pressures
Czech Republic Diversified growth, low interest rates, reformed banking sector CDS spread narrowing relatively less than other emerging markets
Philippines Improved confidence leading to stronger consumption, acceleration of corporate capex, growth in Global risks to affect risk appetite on emerging economies
remittances and BPO activity, post election reform expectations, underowned market.
Hungary IMF support, low possibility of entering the Euro zone by 1 Jan 2012 target date High exposure to FX-denominated loans by households, poor growth prospects
Updated as of 16 August 2010.
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Profit Outlook: Earnings Forecasts Matrix for Countries and Sectors
Weight EPS Growth Weight EPS Growth Weight EPS Growth
Emerging Markets (%) JPMorgan Consensus China (%) J.P. Morgan Consensus India (%) JPMorgan Consensus
Median 2010 2011 Median 2010 2011 Median 2010 2011 Median 2010 2011 Median 2010 2011 Median 2010 2011
Total Market 100.0 - - - 19.3 28.0 16.7 Total Market 100.0 23.6 25.6 17.3 20.7 23.8 16.5 Total Market 100 21.7 24.8 25.9 18.7 22.4 21.0
Consumer Discretionary 6.5 - - - 19.2 18.9 16.6 Consumer Discretionary 5.3 22.6 28.1 15.6 21.3 21.4 16.4 Consumer Discretionary 4.9 22.6 23.7 11.7 13.0 12.8 15.3
Consumer Staples 6.7 - - - 17.8 21.6 10.0 Consumer Staples 6.0 17.2 16.3 16.8 18.6 13.8 20.1 Consumer Staples 5.8 18.4 18.3 17.8 15.0 21.0 19.0
Energy 13.8 - - - 18.5 18.9 15.6 Energy 16.3 12.0 25.9 10.2 31.4 30.4 12.7 Energy 14.6 34.8 41.8 20.6 17.0 24.0 8.9
Financials 26.0 - - - 19.8 24.8 21.2 Financials 38.6 25.7 25.8 22.0 20.0 18.9 18.7 Financials 26.5 22.3 21.4 29.3 24.5 23.6 30.6
Health Care 0.8 - - - 22.8 21.6 17.9 Health Care 0.8 24.2 17.6 30.2 20.4 16.4 28.5 Health Care 3.8 22.8 28.9 13.9 22.8 28.9 13.9
Industrials 6.9 - - - 18.9 22.7 17.1 Industrials 7.8 21.3 50.8 14.0 20.4 68.0 18.0 Industrials 10.0 21.9 24.3 71.0 23.0 33.3 41.0
Information Technology 13.1 - - - 34.1 56.7 7.4 Information Technology 5.1 64.3 201.6 36.9 41.7 119.2 41.1 Information Technology 17.3 15.5 14.8 20.8 17.7 16.8 18.1
Materials 14.3 - - - 35.1 56.6 25.0 Materials 5.2 48.5 42.5 30.9 35.2 74.4 24.3 Materials 10.6 19.7 36.9 23.2 17.3 25.6 14.5
Telecommunication Services 8.2 - - - 6.6 9.0 10.8 Telecommunication Services 13.0 1.7 0.5 5.2 1.7 0.5 5.2 Telecommunication Services 0.8 -31.2 -31.2 35.4 -3.9 -3.9 28.6
Utilities 3.7 - - - 9.7 14.7 16.2 Utilities 1.9 NM NM 20.1 NM NM 20.9 Utilities 5.6 8.3 8.9 27.7 13.0 14.2 19.8
Indonesia (%) JPMorgan Consensus Korea (%) JPMorgan Consensus Malaysia (%) JPMorgan Consensus
Total Market 100.0 15.7 17.7 17.1 20.0 20.3 20.8 Total Market 100.0 17.0 44.8 4.5 22.6 55.1 6.3 Total Market 100.0 14.1 23.2 16.4 15.2 22.6 13.1
Consumer Discretionary 14.6 29.8 29.8 7.5 26.3 26.3 14.4 Consumer Discretionary 13.4 12.2 14.7 4.6 15.8 20.9 9.5 Consumer Discretionary 11.8 3.9 -2.7 40.1 20.1 22.2 15.5
Consumer Staples 10.7 17.6 14.6 21.8 19.5 15.8 15.7 Consumer Staples 4.8 23.0 26.4 1.1 35.2 52.2 -19.8 Consumer Staples 13.5 32.4 18.6 -1.6 35.7 23.1 -1.4
Energy 11.2 1.2 23.9 51.2 -4.5 22.3 56.3 Energy 2.5 18.5 18.6 12.4 88.9 71.1 12.9 Energy 0.9 5.0 5.0 1.5 5.0 5.0 1.5
Financials 29.0 24.5 18.5 20.5 25.2 27.2 18.7 Financials 16.8 18.8 68.7 15.2 18.8 68.5 17.6 Financials 31.2 15.8 29.4 15.5 16.9 18.9 14.3
Health Care 0.0 NA NA NA NA NA NA Health Care 0.5 26.0 20.6 21.9 26.0 20.6 21.9 Health Care 0.0 NA NA NA NA NA NA
Industrials 4.3 7.5 7.5 -7.0 7.8 7.8 16.6 Industrials 14.6 12.8 28.2 10.7 18.0 42.0 8.9 Industrials 18.4 27.1 37.1 29.8 20.4 34.2 27.4
Information Technology 0.0 NA NA NA NA NA NA Information Technology 28.4 82.1 81.3 -10.3 97.5 92.7 -1.2 Information Technology 0.0 NA NA NA NA NA NA
Materials 10.1 60.5 35.3 -3.3 70.4 35.1 13.6 Materials 14.4 11.6 20.9 9.0 23.1 25.2 5.3 Materials 0.8 -6.4 -6.4 14.8 -6.4 -6.4 14.8
Telecommunication Services 13.5 6.7 7.9 10.8 6.7 7.9 10.8 Telecommunication Services 2.8 22.9 53.1 11.3 22.9 53.1 11.3 Telecommunication Services 11.2 12.2 10.2 10.8 9.2 7.7 10.9
Utilities 6.6 -7.1 -7.1 9.7 3.2 3.2 17.1 Utilities 1.8 NM NM NM NM NM NM Utilities 12.3 8.4 36.6 9.5 8.4 35.7 8.1
Philippines (%) JPMorgan Consensus Taiwan (%) JPMorgan Consensus Thailand (%) JPMorgan Consensus
Total Market 100.0 13.3 12.2 14.9 17.4 23.8 12.3 Total Market 100.0 26.8 94.1 14.8 22.7 88.0 13.6 Total Market 100.0 10.1 15.5 16.5 15.9 18.5 18.0
Consumer Discretionary 5.0 16.6 16.6 12.8 16.6 16.6 12.8 Consumer Discretionary 3.0 -4.8 85.4 27.5 5.4 100.6 24.6 Consumer Discretionary 1.7 8.8 8.8 5.0 16.6 16.6 11.3
Consumer Staples 0.0 NA NA NA NA NA NA Consumer Staples 1.6 17.5 17.7 10.3 22.2 20.0 11.3 Consumer Staples 9.1 20.0 21.5 5.8 24.1 24.5 7.8
Energy 0.0 NA NA NA NA NA NA Energy 0.8 -2.6 -2.6 8.3 -15.0 -15.0 21.3 Energy 37.9 7.1 15.8 17.8 7.0 18.9 19.1
Financials 46.2 11.6 14.0 21.8 18.8 17.5 18.5 Financials 15.7 31.7 46.8 26.4 17.0 27.1 25.2 Financials 37.5 20.0 14.3 16.9 19.1 18.1 17.2
Health Care 0.0 NA NA NA NA NA NA Health Care 0.0 NA NA NA NA NA NA Health Care 0.0 NA NA NA NA NA NA
Industrials 12.0 13.6 13.6 12.1 11.2 11.2 16.5 Industrials 3.5 14.2 -219.0 26.6 15.5 -451.8 3.3 Industrials 0.0 NA NA NA NA NA NA
Information Technology 0.0 NA NA NA NA NA NA Information Technology 58.8 32.8 138.1 11.7 38.9 129.4 13.0 Information Technology 0.0 NA NA NA NA NA NA
Materials 0.0 NA NA NA NA NA NA Materials 12.1 27.5 18.0 20.7 27.5 30.2 10.3 Materials 7.5 29.4 16.7 29.5 32.5 18.3 34.3
Telecommunication Services 20.2 -1.4 3.4 5.4 -1.4 3.4 5.4 Telecommunication Services 4.6 -0.2 -3.1 0.8 -0.2 -3.1 0.8 Telecommunication Services 5.1 10.0 10.0 4.8 10.0 10.0 4.8
Utilities 16.6 25.8 26.8 19.4 138.0 123.9 9.1 Utilities 0.0 NA NA NA NA NA NA Utilities 1.1 10.2 10.2 -4.6 13.6 13.6 8.8

South Africa (%) JPMorgan Consensus Brazil (%) JPMorgan Consensus Mexico (%) JPMorgan Consensus
Total Market 100.0 - - - 22.2 35.9 25.3 Total Market 100.0 - - - 21.7 16.3 25.4 Total Market 100.0 - - - 20.6 16.1 16.9
Consumer Discretionary 12.3 - - - 25.4 21.9 20.0 Consumer Discretionary 5.1 - - - 57.6 29.3 35.1 Consumer Discretionary 9.9 - - - 16.9 21.8 15.1
Consumer Staples 5.7 - - - 12.3 10.1 14.8 Consumer Staples 8.5 - - - 16.2 32.5 24.1 Consumer Staples 25.3 - - - 13.3 -3.5 20.0
Energy 9.4 - - - 18.1 18.1 26.5 Energy 20.8 - - - 55.5 -7.2 15.9 Energy 0.0 - - - NA NA NA
Financials 27.1 - - - 22.0 22.1 20.9 Financials 26.1 - - - 21.4 3.5 19.5 Financials 6.1 - - - 154.7 50.6 29.5
Health Care 2.0 - - - 25.8 25.7 18.7 Health Care 0.0 - - - NA NA NA Health Care 0.0 - - - NA NA NA
Industrials 4.4 - - - -6.8 0.9 19.1 Industrials 3.1 - - - -8.9 -44.6 27.6 Industrials 4.4 - - - 54.1 46.7 -0.9
Information Technology 0.0 - - - NA NA NA Information Technology 2.0 - - - 13.2 13.2 3.7 Information Technology 0.0 - - - NA NA NA
Materials 26.4 - - - 41.4 193.2 43.6 Materials 26.4 - - - 54.3 96.9 43.8 Materials 16.8 - - - 36.8 26.7 20.0
Telecommunication Services 12.7 - - - 10.0 21.5 17.9 Telecommunication Services 2.7 - - - 20.0 -14.0 15.9 Telecommunication Services 37.5 - - - 7.1 17.2 14.8
Utilities 0.0 - - - NA NA NA Utilities 5.2 - - - -2.5 5.6 9.7 Utilities 0.0 - - - NA NA NA
Russia (%) JPMorgan Consensus Poland (%) JPMorgan Consensus Turkey (%) JPMorgan Consensus
Total Market 100.0 - - - 49.1 40.3 21.3 Total Market 100.0 - - - 14.2 16.6 17.9 Total Market 100.0 - - - 13.3 16.8 12.6
Consumer Discretionary 0.0 - - - NA NA NA Consumer Discretionary 2.6 - - - 8.6 5.3 17.8 Consumer Discretionary 1.4 - - - -4.6 -4.6 1.4
Consumer Staples 2.8 - - - 37.0 27.9 38.8 Consumer Staples 1.5 - - - 14.2 14.2 14.9 Consumer Staples 10.3 - - - 11.3 14.2 21.0
Energy 57.0 - - - 20.2 23.4 14.9 Energy 14.0 - - - -23.7 -17.3 22.5 Energy 4.9 - - - 8.7 8.7 10.4
Financials 14.4 - - - 522.2 522.2 67.0 Financials 53.9 - - - 30.5 51.4 27.0 Financials 61.3 - - - 14.6 14.1 11.1
Health Care 0.0 - - - NA NA NA Health Care 0.0 - - - NA NA NA Health Care 0.0 - - - NA NA NA
Industrials 0.0 - - - NA NA NA Industrials 1.5 - - - 5.2 5.2 10.5 Industrials 9.1 - - - 11.2 25.7 18.3
Information Technology 0.0 - - - NA NA NA Information Technology 2.4 - - - -14.6 -14.6 5.5 Information Technology 0.0 - - - NA NA NA
Materials 13.5 - - - 114.0 104.6 19.0 Materials 9.8 - - - 38.3 38.3 0.2 Materials 1.9 - - - NA -396.2 56.6
Telecommunication Services 6.9 - - - 96.5 123.1 22.2 Telecommunication Services 6.9 - - - -8.7 -8.7 6.1 Telecommunication Services 11.2 - - - 13.3 12.9 9.3
Utilities 5.4 - - - NM NM NM Utilities 7.3 - - - -21.5 -21.5 16.0 Utilities 0.0 - - - NA NA NA
Source: I/B/E/S, MSCI, J.P. Morgan. Note: Average earnings growth calculated based on earnings aggregate of MSCI constituents. Consensus numbers are used for stocks not covered by J.P. Morgan under J.P. Morgan forecasts calculation. Median numbers are for
the year 2009. Updated as of 16 August 2010.
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Profit Outlook: Changes in 2010 and 2011 EPS Forecasts
World Emerging Markets (EM) EM Asia EM Europe
130 150 160 2011 150
2011 2011
140 150 140
120 2011
140
130 130
130
110 120 120 2010
2010 120
2010
110 2010 110 110
100
100 100
100
90 90
90 90
Feb-09 Sep-09 Apr-10 Feb-09 Sep-09 Apr-10
EM Latin America Korea Taiwan China

140 160 180 130
2011 2011 2011
130 150 170
160 120 2011
120 140
150
130
110 140 110
120 130 2010
100 2010
110 120 2010
100
90 110
2010 100
100
80 90 90
90
Feb-09 Sep-09 Apr-10 Feb-09 Sep-09 Apr-10 Feb-09 Sep-09 Apr-10
Feb-09 Sep-09 Apr-10
Brazil Russia South Africa Mexico

130 160 120 130
2011
150 2011
120 2011
110 120
2011 140
110
130 100
100 110
120 2010
90 2010
90
110 100
80 2010
100 80
70 90 90
2010 70
Feb-09 Sep-09 Apr-10 80 Feb-09 Sep-09 Apr-10
Source: I/B/E/S
Notes: The dashboard aims to show changes in earnings expectations. All year ends are for December. EPS figures are normalized, starting at 100 on base date Feb 2009 for ease of comparison. These numbers are directly from IBES aggregate and may differ from
those in the growth expectations pages where adjustments are made for exceptional items. Countries earnings revisions are in local currencies term whereas APxJ regions earnings revisions is in US $ term. Updated 16 August 2010.
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Profit Outlook: Changes in 2010 and 2011 EPS Forecasts

India Malaysia Thailand Poland
140 130 140 110
2011 2011 2011
130 120 2011
130 100
120 110 120 90
110 100 110 80
100 2010 90 2010 2010

100 70
2010
90 80
90 60
Czech. Republic Turkey Philippines Indonesia

110 130 130 150
2011 2011
2011
120 120 140
2011
130
110 110
100 120
100 100
2010 110
2010
90 90
2010 100 2010
90 80 90
Hungary
130
2011
120
110
2010
100
90
80
70
Source:I/B/E/S Notes: The dashboard aims to show changes in earnings expectations. All year ends are for December. EPS figures are normalized, starting at 100 on base date Feb 2009 for ease of comparison. These numbers are directly from IBES aggregate and
may differ from those in the growth expectations pages where adjustments are made for exceptional items. Countries earnings revisions are in local currencies term whereas APxJ regions earnings revisions is in US $ term. Updated 16 August 2010.
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Value: PE Matrix for Countries and Sectors
EMF LATAM
Philippines
EMF EMEA
Indonesia
Emerging
EMF Asia
Malaysia
Thailand
Markets
Taiwan
Korea
China
India
USA
12-month forward PE
Consumer Discretionary 13.3 12.0 11.6 14.0 11.6 8.4 18.0 14.6 12.9 16.0 14.5 19.8 26.6
Consumer Staples 13.1 16.9 16.3 18.5 16.5 13.3 17.3 18.5 15.3 16.4 18.1 16.1 NA
Energy 11.6 7.9 5.8 10.4 10.4 8.7 17.8 10.2 12.5 12.6 10.1 10.2 NA
Financials 11.5 11.4 10.1 12.0 11.9 9.0 13.4 10.6 17.9 13.2 14.0 11.6 18.0
Health Care 10.9 17.0 13.6 NA 19.5 14.8 NA 28.6 17.4 NA NA NA NA
Industrials 14.1 12.5 9.9 20.4 12.2 12.4 19.4 13.6 19.1 15.6 16.6 NA 15.4
Information Technology 12.0 11.1 11.4 11.1 11.0 10.6 11.3 23.3 18.5 NA NA NA NA
Materials 14.4 10.1 10.5 9.5 10.6 9.9 13.6 11.5 9.1 14.4 15.2 11.3 NA
Telecom Services 13.6 11.2 10.2 10.2 12.6 7.9 14.5 13.2 10.8 16.4 12.8 14.1 10.3
Utilities 12.5 11.6 11.0 10.6 13.1 NM NA 12.8 15.8 13.1 16.0 13.2 15.1
Market Aggregate 12.6 10.6 8.4 11.3 11.4 9.6 12.2 11.6 14.4 14.5 13.7 11.1 14.8
Sector Neutral** 12.5 10.3 9.6 11.7 11.7 9.6 14.4 12.7 13.9 13.7 13.3 12.1 12.5
South Africa
EMF LATAM
EMF EMEA
Republic
Hungary
Mexico
Poland
Russia
Turkey
Czech
Brazil
12-month forward PE
Consumer Discretionary 11.6 NA 11.3 17.4 10.1 NA -9.4 14.0 12.7 15.9
Consumer Staples 16.3 20.7 14.8 7.8 19.9 NA NA 18.5 17.8 18.6
Energy 5.8 5.1 9.0 12.5 9.0 9.7 NA 10.4 10.0 NA
Financials 10.1 9.4 10.1 13.6 9.1 8.6 11.1 12.0 11.7 13.4
Health Care 13.6 NA 12.9 NA NA 14.9 NA NA NA NA
Industrials 9.9 NA 9.4 13.6 8.8 NA NA 20.4 22.5 16.1
Information Technology 11.4 NA NA 11.4 NA NA NA 11.1 11.1 NA
Materials 10.5 7.2 12.9 6.4 10.5 NA NA 9.5 8.3 13.6
Telecom Services 10.2 9.3 10.2 16.4 9.5 9.9 12.7 10.2 7.9 11.0
Utilities 11.0 12.6 NA 11.6 NA NA 9.4 10.6 9.1 NA
Market Aggregate 8.4 6.0 10.6 11.6 9.4 9.1 10.6 11.3 10.3 13.2
Sector Neutral** 9.6 8.9 10.7 11.1 10.1 10.3 12.4 11.7 10.9 12.1
Source: IBES, MSCI, J.P. Morgan. Note: Market forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using I/B/E/S estimates. IBES Estimates are not available for Morocco, Jordan, Peru and Colombia.
**Sector neutral PE are calculated by using sector weights of MSCI EM and sector PE of respective markets (MSCI EM sector PE used where country sector does not exist) Updated 16 August 2010.
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Value: Distribution Tables for PE, PBR, DY and RoE

2010E: Price to Earnings Ratio (x) 2010E: Price to Book Value Ratio (x)
Weighted Quartiles Weighted Quartiles
Average Min Lower Median Higher Max Average Min Lower Median Higher Max
Global* 12.3 2.7 11.3 14.3 18.4 490.9 Global* 1.6 0.3 1.1 1.7 2.7 41.3
USA* 13.7 2.7 11.5 14.6 18.8 490.9 USA* 1.8 0.5 1.3 1.9 3.0 41.3
Europe* 11.9 5.0 10.8 14.2 17.5 106.5 Europe* 1.5 0.3 1.0 1.8 2.8 30.3
Japan* 15.1 3.8 12.0 14.6 18.6 59.3 Japan* 1.0 0.3 0.8 1.0 1.3 5.8
Emerging Markets* 11.7 4.3 10.5 13.6 17.9 254.1 Emerging Markets* 1.8 0.4 1.3 1.9 2.9 39.4
China 12.9 4.7 10.7 14.1 21.8 254.1 China 2.1 0.5 1.4 1.8 2.8 11.7
Brazil* 11.9 6.1 10.5 13.2 18.9 242.8 Brazil* 1.9 0.4 1.4 1.9 3.1 24.2
Korea 9.9 4.3 7.9 11.2 15.8 91.1 Korea 1.4 0.5 1.0 1.4 1.9 7.9
Taiwan 13.3 7.0 10.7 13.7 16.4 134.6 Taiwan 1.8 0.7 1.2 1.6 2.2 7.9
South Africa* 12.2 6.6 10.5 11.6 14.5 81.3 South Africa* 2.0 0.5 1.4 2.0 3.2 12.1
India 16.8 6.9 12.0 18.1 22.0 60.5 India 2.5 0.4 1.8 2.4 3.5 18.8
Russia* 6.8 4.7 7.6 11.4 13.8 35.5 Russia* 1.0 0.6 1.0 1.7 2.0 6.5
Mexico* 14.6 8.8 14.0 16.2 18.8 42.6 Mexico* 2.5 0.6 1.8 2.2 3.6 10.8
Malaysia 16.0 7.3 13.1 16.1 18.8 88.8 Malaysia 2.0 1.1 1.6 1.9 3.0 39.4
Indonesia 15.1 10.0 14.1 15.9 16.8 33.6 Indonesia 3.6 1.4 2.7 3.7 4.6 26.5
Turkey* 10.2 7.3 9.2 10.0 13.8 27.5 Turkey* 1.8 0.8 1.2 1.9 2.2 14.6
Thailand 12.3 7.1 11.4 12.8 14.3 23.5 Thailand 2.0 1.0 1.3 1.8 2.8 8.1
Poland* 12.9 6.4 12.7 14.3 17.0 23.4 Poland* 1.5 0.6 1.2 1.7 2.2 8.6
Czech Republic* 11.2 9.5 10.7 11.9 12.4 12.9 Czech Republic* 1.9 1.2 1.8 1.9 2.0 2.1
Egypt* 11.5 7.6 9.7 10.5 12.0 16.2 Egypt* 1.5 0.6 1.0 1.7 2.7 3.9
Philippines 16.2 10.1 12.5 16.7 18.9 39.0 Philippines 2.5 1.5 1.9 2.5 3.2 4.4
Hungary* 10.9 9.7 10.3 11.3 13.0 16.0 Hungary* 1.2 1.1 1.2 1.3 1.5 2.0
2010E: Dividend Yield (%) 2010E: Return on Equity (%)

Weighted Quartiles Weighted Quartiles
Average Min Lower Median Higher Max Average Min Lower Median Higher Max
Global* 2.8 0.0 1.1 2.1 3.5 17.2 Global* 13.4 -2.2 7.7 12.5 18.6 252.0
USA* 2.2 0.0 0.0 1.5 2.9 15.5 USA* 13.9 0.3 8.4 13.5 19.8 252.0
Europe* 3.8 0.0 1.9 3.0 4.5 11.5 Europe* 16.0 1.0 8.1 13.2 19.2 196.1
Japan* 2.4 0.0 1.4 2.0 2.5 6.6 Japan* 6.6 1.1 5.1 7.1 9.6 43.0
Emerging Markets* 2.7 0.0 1.1 2.2 3.6 17.2 Emerging Markets* 16.1 -2.2 10.5 14.7 20.2 209.3
China 2.8 0.0 1.1 1.8 2.9 6.7 China 17.1 0.4 10.5 14.3 19.6 37.4
Brazil* 3.1 0.0 1.4 2.5 4.5 17.2 Brazil* 17.3 2.7 10.3 14.6 22.2 209.3
Korea 1.1 0.0 0.5 1.2 2.2 5.9 Korea 14.9 2.0 10.1 13.8 17.9 33.4
Taiwan 3.7 0.0 1.8 3.0 5.0 8.9 Taiwan 13.9 1.3 7.9 11.9 17.3 48.5
South Africa* 3.3 0.3 2.6 3.5 4.6 8.9 South Africa* 17.6 1.7 12.2 17.7 22.4 98.6
India 1.3 0.0 0.7 1.0 1.7 3.4 India 15.8 2.5 10.6 17.6 21.8 88.3
Russia* 2.1 0.0 0.5 1.7 2.7 5.3 Russia* 15.2 5.1 13.1 16.3 20.8 43.1
Mexico* 2.5 0.0 1.0 1.6 2.5 7.4 Mexico* 16.5 2.9 11.4 14.1 20.4 57.5
Malaysia 3.2 0.0 1.8 3.1 4.3 8.3 Malaysia 13.1 2.0 9.8 13.6 16.3 219.5
Indonesia 2.7 1.2 1.9 2.5 3.1 5.1 Indonesia 26.0 8.3 19.4 23.9 28.0 78.9
Turkey* 2.8 0.0 0.9 2.0 2.8 9.2 Turkey* 18.9 3.0 13.2 16.9 19.9 53.0
Thailand 3.7 2.6 2.9 3.6 4.6 7.7 Thailand 16.8 8.9 13.6 15.1 22.0 39.7
Poland* 3.5 0.0 0.5 2.7 3.5 9.4 Poland* 12.5 4.8 8.5 10.7 14.5 63.1
Czech Republic* 6.1 0.0 3.7 5.5 6.8 9.1 Czech Republic* 17.8 -2.2 10.7 15.7 17.8 21.9
Egypt* 3.5 0.7 1.8 2.9 4.9 6.8 Egypt* 12.6 7.8 10.4 12.3 17.1 43.0
Philippines 3.8 0.4 1.6 2.4 5.0 8.8 Philippines 16.0 7.9 10.9 14.0 17.5 40.8
Hungary* 3.5 1.7 2.4 2.6 4.7 10.9 Hungary* 11.8 10.3 10.5 11.6 13.0 14.1
Source: Datastream, IBES, MSCI, J.P. Morgan. Updated 16 August 2010.
Note: Weighted average numbers based on aggregate of MSCI constituents. Consensus numbers are used for stocks not covered by J.P. Morgan. * only consensus numbers are used
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Value: Demand Classification: MSCI Emerging Markets Index Composition by Countries

MSCI Emerging Domestic Global Capex Global Global Price Total EM Domestic Demand Sector Absolute and relative (vs EMF) Index
Markets Free Index Demand Consumer Takers
400 100
China 14.9 0.5 0.2 4.0 19.6 350 Absolute (lhs) 90
India 4.5 1.5 0.0 2.3 8.2 300
80
Indonesia 2.0 0.0 0.0 0.3 2.3 250
200 70
Korea 5.9 2.4 3.7 2.3 14.4 Relative to EM (rhs)
150
Malaysia 2.4 0.0 0.0 0.6 3.0 60
100
Philippines 0.5 0.0 0.0 0.0 0.5 50
50
Taiwan 3.3 3.4 3.3 1.4 11.4 0 40
Thailand 1.0 0.0 0.0 0.5 1.6 Jan-90 Jul-92 Jan-95 Jul-97 Jan-00 Jul-02 Jan-05 Jul-07 Jan-10
Asia 34.5 7.8 7.3 11.4 61.0 EM
Czech Republic 0.5 0.0 0.0 0.0 0.5 Global Capex Sector Absolute and relative (vs EMF) Index
Egypt 0.5 0.0 0.0 0.0 0.5 1200 500
Hungary 0.2 0.0 0.0 0.2 0.5 1000
Absolute (lhs)
400
Morocco 0.2 0.0 0.0 0.0 0.2 800
Poland 1.3 0.0 0.0 0.2 1.6 300
600
Russia 2.0 0.1 0.0 4.8 6.9 200
400
South Africa 4.9 0.0 0.0 2.8 7.8 100
200
Turkey 1.7 0.0 0.0 0.0 1.8 Relative to EM (rhs)
EMEA 11.4 0.2 0.1 8.1 19.7 0

Jan-90 Jul-92 Jan-95 Jul-97 Jan-00 Jul-02 Jan-05 Jul-07 Jan-10
0
Brazil 9.0 0.0 0.0 7.8 16.9

Colombia 0.6 0.1 0.0 0.2 0.9 EM Global Consumer Sector Absolute and relative (vs EMF) Index
Mexico 3.8 0.3 0.0 0.4 4.5
Peru 0.2 0.0 0.0 0.4 0.7 800 300
Absolute (lhs)
LatAm 15.3 0.3 0.0 9.0 24.6 700
250
600
Total 61.1 8.3 2.1 28.5 100.0 200
500
400 150
300
100
200
Relative to EM (rhs) 50
100
0 0
EM Global Price Taker Sector Absolute and relative (vs EMF) Index
450 110
400 Absolute (lhs)
350 90
300
70
250
200 Relative to EM (rhs)
50
150
100 30
50
0 10
Source: Datastream, MSCI. J.P. Morgan. MSCI emerging markets companies have been classified in five categories. Of the five categories, Global Consumer/Capex (Tech-Hardware) weighting equally divided between Global consumer and Global Capex. The above
table contains MSCI free float market capitalization as a percentage of MSCI emerging markets. Charts show the relative absolute and relative performance of emerging markets sectors by demand classification. Updated 16 August 2010.
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Value: Equities relative to Bonds

Relative out performance of equities versus bonds by country (%)
36-month
1-month 3-month 6-month 12-month 36-month
Country annualized
Brazil 9.8 2.5 1.8 7.6 14.0 4.5
China 7.8 3.0 4.6 2.5 -2.3 -0.8
Colombia 8.4 4.1 6.8 12.5 48.8 14.2
Czech 2.6 -1.2 -2.8 -12.6 -16.9 -6.0
Hungary 10.0 -3.4 6.3 19.2 -34.7 -13.2
India 4.1 3.9 9.7 16.0 16.7 5.3
Indonesia 0.0 -5.4 -2.5 -3.1 32.1 9.7
Malaysia 4.1 0.7 5.4 10.2 5.9 1.9
Mexico 3.0 -2.3 0.1 3.9 0.1 0.0
Peru 4.8 12.7 22.4 26.3 14.9 4.7
Poland 9.8 4.8 10.3 19.0 -29.6 -11.0
Russia 11.1 0.2 -4.1 0.7 -44.1 -17.6
South Africa 3.0 -2.2 1.0 2.3 10.2 3.3
Thailand 7.6 0.9 18.0 22.4 5.8 1.9
Turkey 6.1 3.3 10.5 18.0 2.0 0.7
Relative value of equities versus bonds by country

Bond DDM
Generic 10 Maturity Bond Yield Earnings Dividend Implied
Country years (years) To Maturity Yield Yield Growth
Brazil 12.3 11.5 10.0 10.0 3.8 13.1
China 3.3 6.7 3.1 8.8 2.9 5.1
Colombia 7.8 10.2 6.1 8.0 4.1 7.7
Czech 3.8 6.7 3.4 9.2 6.1 1.8
Hungary 7.2 5.0 7.0 10.1 4.0 8.6
India 7.8 8.4 7.9 6.6 1.2 10.8
Indonesia 8.1 11.6 8.5 7.1 2.7 10.5
Malaysia 3.9 5.3 3.7 7.0 3.3 5.3
Mexico 6.6 7.5 6.4 7.7 3.0 8.6
Peru 5.7 15.9 6.2 11.2 5.5 4.2
Poland 5.8 4.9 5.4 8.5 4.0 4.9
Russia 5.0 2.4 5.9 16.8 2.5 8.3
South Africa 8.3 10.0 8.2 9.4 3.7 9.1
Thailand 3.4 7.4 3.3 9.2 3.8 4.4
Turkey 8.7 2.5 8.4 10.7 3.3 9.7
Source: Bloomberg, J.P. Morgan, DataStream, MSCI, IBES Note: GBI-EM Bond Maturity and Yield to Maturity are used for each country. Updated 16 August 2010.
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Economic Forecasts: Changes in Real GDP Forecasts

Real GDP Growth (% Y/Y) Change in Forecasts Past 3 months (%) Economic Momentum Inflation
JPM Consensus JPM Consensus GDP SAAR (% Y/Y)
2010E 2011E 2010E 2011E 2010E 2011E 2010E 2011E 1Q 10E 2Q 10E 3Q 10E 4Q 10E 2010E 2011E
US 3.0 2.7 3.0 2.8 -0.6 -0.4 0.0 -0.2 3.7 2.4 2.5 3.0 1.5 1.1
Euro 1.3 1.4 1.2 1.3 -0.2 -0.7 -0.1 -0.2 0.8 3.0 2.0 1.0 1.4 1.0
Japan 3.3 1.8 3.4 1.7 1.0 -0.1 2.0 -0.1 5.0 2.3 1.8 1.6 -1.0 -0.1
China 10.0 8.8 10.0 8.9 0.1 -0.6 0.5 0.0 10.8 7.2 8.2 8.6 2.8 2.7
Brazil 7.5 4.0 6.6 4.5 1.3 0.0 1.8 0.3 11.4 2.6 6.2 3.3 5.0 5.3
S Korea 6.1 4.0 6.0 4.6 0.8 -0.1 1.0 0.1 8.8 6.0 2.5 3.8 2.9 3.4
Taiwan 8.8 4.2 4.6 4.0 1.8 -0.6 0.0 0.0 11.3 2.0 3.0 3.5 1.0 1.8
South Africa 3.0 3.5 3.2 3.6 0.0 0.0 0.3 0.1 4.6 3.9 2.8 3.4 4.8 5.4
India 8.3 8.5 8.2 8.3 0.5 0.2 0.2 na 9.2 8.1 8.0 8.9 13.6 10.2
Russia 5.0 5.0 4.0 4.5 -0.5 0.0 0.7 0.3 2.2 11.5 4.0 4.5 6.4 7.5
Mexico 4.5 3.5 4.4 3.6 0.0 0.0 0.9 0.2 -1.4 3.2 -1.8 4.2 4.7 4.0
Malaysia 7.2 4.6 5.0 4.5 2.2 -0.5 0.5 0.0 5.0 5.0 4.0 4.0 2.2 2.4
Indonesia 6.0 5.4 6.0 6.3 0.5 -1.2 0.3 0.2 3.0 7.5 4.5 5.0 4.9 5.6
Turkey 5.9 5.0 6.4 4.3 1.6 -0.5 2.4 0.1 - - - - 8.6 6.6
Thailand 8.5 5.0 5.7 4.4 2.0 1.0 1.7 0.1 16.0 -2.0 2.8 2.8 4.8 4.0
Poland 3.5 3.8 3.0 3.5 0.3 -0.4 0.8 0.3 2.0 4.0 3.5 3.5 2.5 2.8
Czech Republic 2.0 3.2 1.8 2.2 0.0 -0.8 -0.3 -0.3 2.0 2.5 2.5 2.3 1.9 2.7
Peru 7.3 6.0 6.1 5.5 1.8 0.0 1.8 0.5 7.3 9.5 4.0 4.5 1.7 2.3
Egypt na na na na na na na na na na na na na na
Colombia 4.5 4.1 3.4 4.0 1.5 0.0 0.9 0.0 5.3 4.8 3.7 4.0 2.3 3.6
Philippines 6.8 4.3 4.2 4.3 2.3 0.0 -0.2 0.2 12.9 3.6 4.9 4.0 5.3 4.9
Hungary 1.0 3.0 0.6 2.8 0.5 -1.0 0.6 0.2 3.6 3.0 2.0 2.0 5.0 3.5
Morocco na na na na na na na na na na na na na na
2010E GDP Growth in EM: J.P. Morgan and Consensus Forecasts Consensus Forecasts for 2010E GDP growth in EM and DM
7.6 6.5 2.6
7.0
2.4
J.P.Morgan EM growth forecast 5.9
DM consensus growth forecast (RHS) 2.2
6.4
5.3 2
5.8 1.8
4.7 1.6
5.2
4.1 1.4
4.6 Consensus EM growth forecast
EM consensus growth forecast (LHS) 1.2
4.0 3.5 1
Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10
Source: Bloomberg, J.P. Morgan estimates. Updated 16 August 2010.

Note: Consensus estimates for Jordan, Egypt, and Pakistan sourced from WES and Morocco from EIU.
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Economic Forecasts: Policy Rate Trend and Forecasts

Policy Rate
Country Official interest rate 3Q'09 4Q'09 1Q'10F Current 2Q'10F 3Q'10F 4Q'10F 1Q'11F Last Change Next Change
Developed Markets
United States Federal funds rate 0.13 0.125 0.125 0.125 0.125 0.125 0.125 0.125 16 Dec 08 (-87.5bp) 4Q 11 (+37.5bp)
Euro Area Refi Rate 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 7 May 09 (-25bp) On hold
Japan Overnight Call Rate 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 19 Dec 08 (-20bp) On hold
Latin America
Brazil SELIC overnight rate 8.75 8.75 10.25 10.75 10.75 10.75 11.50 12.50 21 Jul 10 (+50bp) Jan 11 (+25bp)
Mexico Repo rate 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 17 Jul 09 (-25bp) 4Q 11 (+25bp)
Europe, Middle East and Africa
Czech Republic 2-week repo rate 1.00 1.00 0.75 0.75 0.75 0.75 0.75 1.00 6 May 10 (-25bp) 2Q 11 (+25bp)
Hungary 2-week deposit rate 6.25 5.50 5.25 5.25 5.25 5.25 5.25 5.25 26 Apr 10 (-25bp) 3Q 11 (+25bp)
Poland 7-day intervention rate 3.50 3.50 3.50 3.50 3.50 3.50 3.50 3.75 24 Jun 09 (-25bp) 2Q 11 (+25bp)
Russia 1-week deposit rate 4.00 2.75 3.50 2.75 2.75 2.75 2.75 3.25 31 May 10 (-50bp) 2Q 11 (+25bp)
South Africa Repo rate 7.00 6.50 6.50 6.50 6.50 6.50 6.50 6.50 25 Mar 10 (-50bp) 4Q 11 (+50bp)
Turkey 1 week repo rate 6.50 7.00 6.50 7.00 7.00 7.00 7.00 7.00 - Jul 11 (+50bp)
EM Asia
China 1-year working capital 5.31 5.31 5.31 5.31 5.31 5.58 5.58 5.85 22 Dec 08 (-27bp) 4Q 10 (+27bp)
Korea Overnight call rate 2.00 2.00 2.00 2.25 2.25 2.50 2.75 2.75 9 Jul 10 (+25bp) 4Q 10 (+25bp)
Indonesia BI rate 6.50 6.50 6.50 6.50 6.50 6.50 6.50 6.75 5 Aug 09 (-25bp) 2Q 11 (+25bp)
India Repo rate 4.75 5.25 5.00 5.75 6.00 6.25 6.50 6.50 27 Jul 10 (+25bp) 16 Sep 10 (+25bp)
Malaysia Overnight policy rate 2.00 2.50 2.25 2.75 2.75 2.75 2.75 2.75 8 Jul 10 (+25bp) On hold
Philippines Reverse repo rate 4.00 4.00 4.00 4.00 4.00 4.00 4.25 4.75 9 Jul 09 (-25bp) 1Q 11 (+25bp)
Thailand 1-day repo rate 1.25 1.25 1.25 1.25 1.75 2.00 2.00 2.00 8 Apr 09 (-25bp) 25 Aug 10 (+25bp)
Taiwan Official discount rate 1.25 1.38 1.25 1.38 1.50 1.63 1.75 1.88 24 Jun 10 (+12.5bp) 3Q 10 (+12.5bp)
Change in policy rates Emerging Markets policy rate

Brazil
Russia 22
Japan
Malaysi
China 18
Poland Change from Aug 07
Taiwan
Thailand 14
India
Forecast change from now to Q4 10
Czech Nominal Policy Rates
Korea 10
Indonesi
Hungary
Mexico 6
Chile Real Rates
S Africa
EU
Philippin 2
USA
Turkey
-2
-1150 -1050 -950 -850 -750 -650 -550 -450 -350 -250 -150 -50 50 150 250 350 98 99 00 01 02 03 04 05 06 07 08 09 10
Source: J.P. Morgan Economics, Bloomberg. Bold figures on next column indicate tightening. Updated 16 August 2010.
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Economic Forecasts: Currency Movements and Forecasts

Euro (EUR) Japanese Yen (JPY) ) South Korean Won (KRW) Taiwan Dollar (TWD) Chinese Yuan Renminbi (CNY) Brazilian Real (BRL)
124 1,600 J.P. Morgan forecast: 37 J.P.Morgan forecast: 2.9 J.P. Morgan forecast:
8.4
J.P.Morgan forecast: 120 end Sep 10: 31.25 Consensus end Sep 10: 1.80
1,500 end Sep 10: 1070 36 2.7
1.52 end Sep 10: 1.25 116 8.0
Consensus 112 end Dec 10: 1100 35 end Dec 10: 30.75 end Dec 10: 1.80
Consensus 1,400 2.5
end Dec 10: 1.20 108 end Mar 11: 30.60 7.6
end Mar 11: 1110 Consensus 34 end Mar 11: 1.80
end Mar 11: 1.18 104 1,300 2.3
100 33 7.2
1,200 J.P.Morgan forecast: Consensus
1.32 96 J.P. Morgan forecast: 32 2.1
6.8 end Sep 10: 6.70
92 end Sep 10: 90 1,100 31 Consensus
88 end Dec 10: 6.60 1.9
end Dec 10: 93 1,000 6.4
J.P. Morgan 84 J.P. Morgan 30 J.P. Morgan
J.P. Morgan J.P. Morgan end Mar 11: 6.50 1.7
1.12 80 end Mar 11: 96 900 29 6.0
1.5 J.P. Morgan
Dec 04 Aug 06 Mar 08 Nov 09 Jun 11 Dec 04 Aug 06 Mar 08 Nov 09 Jun 11 Dec 04 Aug 06 Mar 08 Nov 09 Jun 11 Dec 04 Aug 06 Mar 08 Nov 09 Jun 11 Dec 04 Aug 06 Mar 08 Nov 09 Jun 11
Dec 04 Aug 06 Mar 08 Nov 09 Jun 11
Source:
Russian Rouble (RUB) South African Rand (ZAR) Mexican Peso (MXN) Indian Rupee (INR) Malaysian Ringgit (MYR) Colombian Peso (COP)
43 14.0 J.P.Morgan forecast: 15.7 J.P.Morgan forecast: J.P.Morgan forecast: 3.9 J.P.Morgan forecast:
J.P.Morgan forecast: 52.5 2,600
13.0 end Sep 10: 7.85 15.1 end Sep 10: 12.15 Consensus end Sep 10: 44.0 end Sep 10: 3.10
39 end Sep 10: 30.11 Consensus 3.7
12.0 14.5 end Dec 10: 12.25 50.5 end Dec 10: 46.5 Consensus end Dec 10: 3.02 2,400
end Dec 10: 30.28 end Dec 10: 7.90
35 11.0 13.9 48.5 end Mar 11: 2.98
end Mar 11: 30.06 end Mar 11: 7.95 end Mar 11: 12.25 end Mar 11: 43.0 3.5 J.P. Morgan 2,200 Consensus
13.3
Consensus
10.0 46.5 J.P. Morgan forecast:
31 12.7 2,000
9.0 44.5 3.3
12.1 end Sep 10: 1950
27 8.0 11.5 1,800
42.5 end Dec 10: 2000
7.0 J.P. Morgan 3.1 J.P. Morgan
J.P. Morgan
10.9 40.5 J.P. Morgan Consensus end Mar 11: 2080
23 6.0 1,600
J.P.Morgan 10.3
38.5 2.9
Dec 04 Aug 06 Mar 08 Nov 09 Jun 11 5.0 9.7 Dec 04 Aug 06 Mar 08 Nov 09 Jun 11
Dec 04 Aug 06 Mar 08 Nov 09 Jun 11 Dec 04 Aug 06 Mar 08 Nov 09 Jun 11
Polish Zloty (PLN) Philippine Peso (PHP) Turkish Lira (TRL) Thai Baht (THB) Indonesian Rupiah (IDR) Hungarian Forint (HUF)
J.P.Morgan forecast: 2.0 J.P.Morgan forecast: 44 J.P.Morgan forecast: 13,500 J.P. Morgan forecast:
3.9 Consensus 60 J.P. Morgan forecast: 270 J.P. Morgan forecast:
3.7 end Sep 10: 3.12 1.9 end Sep 10: 1.50 42 end Sep 10: 31.5 end Sep 10: 8700 257 end Sep 10: 220
end Sep 10: 43.25 12,500
J.P. Morgan
3.5 56 1.8 end Dec 10: 1.50 40 end Dec 10: 31.0 end Dec 10: 8900 244 end Dec 10: 229
end Dec 10: 3.21 end Dec 10: 42.75 231
3.3 52 1.7 end Mar 11: 1.49 Consensus 38 end Mar 11: 30.5 end Mar 11: 9000 end Mar 11: 229
end Mar 11: 3.22 end Mar 11: 42.75 Consensus 11,500 218
3.1 1.6 36 205
2.9 48 1.5 34 Consensus 10,500 192
2.7 44 1.4 32 Consensus 179
Consensus
2.5 1.3 J.P.Morgan 30 9,500 166
J.P. Morgan J.P. Morgan
2.3 40 1.2 153
28 J.P. Morgan 140
2.1 J.P. Morgan 1.1 8,500
36
1.9 Dec 04 Aug 06 Mar 08 Nov 09 Jun 11 Dec 04 Aug 06 Mar 08 Nov 09 Jun 11 Dec 04 Aug 06 Mar 08 Nov 09 Jun 11
Czech Koruna (CZK) Peruvian Nuevo Sol (PEN)

26 3.8 J.P. Morgan forecast:
end Sep 10: 2.84
24 3.5 end Dec 10: 2.85
Consensus end Mar 11: 2.85
22 3.3
20 J.P. Morgan
J.P. Morgan forecast: 3.0
18 end Sep 10: 20.60 2.8
16 end Dec 10: 21.25 Consensus
J.P. Morgan 2.5
end Mar 11: 21.36
14
Expected % Gain vs USD till December 2010 (J.P. Morgan) Expected % Loss vs USD till December 2010 (J.P. Morgan)
12 0
-2
9
-4
6
-6
3 -8
0 -10
COP
JPY
ARS
ZAR
TWD
IDR
KRW
PHP
THB
ILS
INR
CLP
CNY
RUB
TRL
MYR
MXN
PLN
Source: Datastream, J.P. Morgan estimates Source: Datastream, J.P. Morgan estimates
Source: Bloomberg, Datastream, J.P. Morgan estimates. Updated 16 August 2010.
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Economic Forecasts: Credit Risk

External (2010E) Fiscal Position Sovereign Ratings (Long Term Foreign Debt)
Foreign Current Account External Debt Fiscal Deficit Public Sector Debt
Reserves 2010F** 2011F** 2010F** 2010F** 2010F** 2011F** 2009** 2010F** Moody’s S&P
(US$bil) % GDP % GDP (US$bil) %GDP % GDP % GDP % GDP % GDP Rating Action Date Rating Action Date
China 2447 4.6 3.8 414 7.0 -2.1 -1.8 19.3 19.0 A1 O/L changed to (+), Affirmed Nov-09-09 A+ Affirmed, O/L stable Jan-12-10
Brazil 250 -3.2 -3.4 294 14.5 -3.4 -2.5 64.1 61.7 Baa3 (+) Upgrade, O/L (+) Sep-22-09 BBB- Upgrade, O/L stable Apr-30-08
Korea 270 1.8 0.4 365 35.3 -0.5 0.5 44.4 42.8 A1 Upgrade, O/L stable Apr-14-10 A Affirmed, O/L stable Jan-12-10
Taiwan 360 7.4 7.0 80 17.9 -2.5 -2.0 na na Aa3 Affirmed, O/L stable Jan-24-02 Jan-24-02 AA- O/L changed to (-), Affirmed Apr-14-09
South Africa 37 -4.0 -4.7 73 20.4 -5.7 -4.6 32.9 38.2 A3 Upgrade, O/L changed to stable Jul-16-09 BBB+ O/L changed to (-), Affirmed Nov-11-08
India 255 -2.4 -2.4 260 15.9 -5.5 -4.8 42.3 41.1 Baa3 Upgrade, O/L stable Jan-22-04 BBB- O/L changed to stable, Affirmed Mar-18-10
Russia 436 5.1 3.4 503 33.5 -4.1 -2.1 8.0 7.9 Baa1 O/L changed to stable, Affirmed Dec-12-08 BBB O/L changed to stable, Affirmed Dec-21-09
Mexico 97 -0.8 -1.3 189 17.8 -2.8 -2.2 37.4 34.1 Baa1 Upgrade, O/L stable Jan-06-05 BBB Downgrade, O/L changed to stable Dec-14-09
Malaysia 96 15.5 16.5 65 29.0 -5.2 -4.5 53.3 46.9 A3 Upgrade, O/L stable Dec-16-04 A- O/L changed to stable, Affirmed May-15-08
Indonesia 75 2.0 1.4 143 20.5 -2.0 -1.0 35.8 32.5 Ba2 Affirmed, O/L stable Jan-21-10 BB+ Upgrade, O/L (+) Mar-12-10
Poland 89 -2.5 -3.5 260 48.3 -5.8 -4.5 51.0 53.2 A2 Affirmed, O/L stable Jan-05-10 A- O/L changed to stable, Affirmed Oct-27-08
Turkey 72 -4.3 -4.4 271 37.3 -3.7 -1.8 55.4 49.0 Ba2 Upgrade, O/L stable Jan-08-10 BB Upgrade, O/L (+) Feb-19-10
Thailand 143 4.7 5.7 72 22.4 -2.5 -3.0 34.2 34.4 Baa1 Affirmed, O/L (-) Apr-13-10 BBB+ Affirmed, O/L (-) Apr-13-10
Czech
Republic 39 -1.8 -3.3 84 42.3 -4.5 -3.5 35.3 38.5 A1 O/L changed to stable, Affirmed Dec-08-08 A Affirmed, O/L stable Dec-21-09
Peru 35 0.2 -1.8 36 24.1 -1.8 -1.0 24.7 22.1 Baa3 Upgrade, O/L changed stable Dec-16-09 BBB- Upgrade, O/L stable Jul-14-08
Egypt* 17 -2.6 -2.1 na na na na na na Ba1 O/L changed to stable, Affirmed Aug-19-09 BB+ Affirmed, O/L stable Mar-26-10
Colombia 26 -2.1 -2.9 56 20.6 -3.7 -3.5 48.8 47.9 Ba1 Upgrade, O/L stable Jun-19-08 BB+ Affirmed, O/L stable Feb-25-08
Philippines 47 5.2 4.5 59 31.7 -3.5 -2.5 52.6 49.3 Ba3 Affirmed, O/L stable Mar-29-10 BB- Affirmed, O/L stable Apr-18-08
Hungary 46 -1.0 -2.4 208 142.9 -4.2 -3.5 78.3 79.3 Baa1 Downgrade, O/L (-) Mar-31-09 BBB- O/L changed to stable, Affirmed Oct-2-09
Morocco* 14 -5.0 -4.4 na na na na na na Ba1 O/L changed to stable Jun-18-03 BB+ Upgrade, O/L stable Mar-23-10
Emerging Asia 3703 4.4 3.6 1449 14.3 - - na na - - - - - -
Emerging Euro 781 0.5 -0.3 1372 41.4 - - na na - - - - - -
Latin America 482 -1.1 -1.5 896 21.3 - - na na - - - - - -
EMBI Global Spreads and Yields EMBI Asia Spreads and Yields EMBI Europe Spreads and Yields EMBI Latin America Spreads and Yields
1000 12.0 900 12 1000 12.0 1000 13.0
900 11.0 800 11 900 11.0 900 12.0
800 700 800 800
10.0 10 10.0 11.0
700 700 700
600
600 9.0 9 600 9.0 600 10.0
500
500 8.0 8 500 8.0 500 9.0
400 400 400 400
7.0 7 7.0 8.0
300 300 300 300
200 6.0 200 6 6.0 200 7.0
200
100 5.0 100 5 100 5.0 100 6.0
Jun-08 Feb-09 Oct-09 Jun-10 Jun-08 Feb-09 Oct-09 Jun-10 Jun-08 Feb-09 Oct-09 Jun-10 Jun-08 Feb-09 Oct-09 Jun-10
Spread (L) Yield Spread (L) Yield Spread (L) Yield Spread (L) Yield
Source: CEIC, J.P. Morgan estimates, Moody's, Standard & Poor's, Bloomberg * Data from World Economic Outlook for April 2006 for Current Account data, ** F denotes forecast Note: Forex reserves as of 30 April 2010 or latest available data. Updated 16 August
2010.
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Perspective: Emerging Markets Balance Sheets
No. of Companies Debt/Equity Debt/Assets Debt/Market. Cap Asset Turnover Current Ratio Interest Coverage Altman Z Score
China 105 0.56 0.26 0.66 0.77 1.03 7.8 4.9
Brazil 67 0.59 0.27 0.49 0.56 1.58 7.4 3.3
Korea 78 0.39 0.20 0.21 0.94 1.13 7.3 3.4
Taiwan 99 0.32 0.19 0.15 1.04 1.36 7.7 3.9
South Africa 34 0.46 0.22 0.17 0.87 1.31 5.2 4.3
India 52 0.80 0.33 0.23 0.73 1.42 5.9 4.1
Russia 25 0.60 0.32 0.66 0.53 1.28 9.8 3.7
Mexico 21 0.56 0.26 0.32 0.66 1.25 6.4 4.1
Malaysia 33 0.75 0.34 0.38 0.47 1.68 4.5 4.2
Indonesia 17 0.61 0.28 0.11 0.84 1.21 11.2 7.7
Turkey 12 0.67 0.27 0.37 1.14 1.17 6.1 3.3
Thailand 15 0.70 0.34 0.34 1.45 1.44 6.8 4.6
Poland 11 0.43 0.23 0.38 1.03 1.03 5.5 3.6
Czech Republic 2 0.40 0.19 0.17 0.43 0.85 22.6 3.1
Peru 2 0.38 0.22 0.05 0.65 2.11 22.2 9.7
Egypt 9 0.65 0.27 0.22 0.56 1.22 5.9 2.2
Colombia 5 0.35 0.23 0.17 0.44 1.30 1.1 5.5
Philippines 8 0.62 0.27 0.20 0.62 1.12 7.2 2.8
Hungary 3 0.56 0.28 0.35 1.00 1.35 4.6 5.1
Morocco 3 0.79 0.29 0.21 0.59 1.17 14.2 3.5
Debt to Equity Ratios Quartile Distribution Chart (x)
8
0
South Africa
India
Indonesia
Israel
Korea
China
Russia
Thailand
Chile
Poland
Peru
Morocco
Colombia
Brazil
Hungary
Czech Republic
Philippines
Egypt
Taiwan
Mexico
Malaysia
Turkey
Source: Datastream, Bloomberg, J.P. Morgan. Data as of 10 February 2010

Note: 1. All ratios are calculated from latest financial reports available ex Financial sector and calculations are based on weighted average of companies in the MSCI EMF universe. For Altman z-score, its application on company level is such that a score of less than
1.8 indicates bankruptcy likely, between 1.8-2.7 bankruptcy likely within 2 years and more than 3 most likely safe from bankruptcy. For market as a whole, the ratio is a weighted average of companies' z-score, thereby giving a general quality of companies in the
market.2. For the debt to equity distribution chart, each box indicates quartile levels and markets with values exceeding the scale are indicated by the open-ended top box. The diamond indicates weighted average for each market. 3. Quartile Distribution Charts: each
quartile is separated by a line, with the exception of the top quartile which is subdivided in order to show the top decile of companies, shaded in blue. Markets with values exceeding the scale are indicated by the open-ended top box. The diamond indicates the
weighted mean for each market.
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Perspective: Demographic and Key Economic Statistics

Population and demographics Nominal GDP Real GDP
Population## Age Gross 2010 10 year CAGR*** 10 year CAGR***
2010 Growth Dependency Ratio* Enrollment Ratio US$ Per capita Total Per capita Total Per capita
million %YoY Young Old Secondary** billion (US$) (%) (%) (%) (%)
USA 310 1.0 na na 98 14,839 47,836 4.2 3.2 3.0 2.0
China 1354 0.6 0.3 0.1 73 5963 4465 17.6 16.8 9.9 9.3
Brazil# 194 1.2 0.4 0.1 102 2061 10645 12.3 11.0 3.1 1.7
Russia# 1184 1.3 0.5 0.1 54 1712 1415 13.8 12.1 9.5 8.3
India 141 -0.1 0.2 0.2 93 1606 11369 20.0 20.5 5.9 6.4
Mexico 111 1.0 0.5 0.1 80 1064 9610 6.2 4.9 1.5 0.4
Korea 48 0.1 0.3 0.1 91 1017 21673 7.0 6.6 6.3 5.6
Turkey 233 1.2 0.4 0.1 64 734 3121 16.0 14.5 5.1 3.8
Indonesia 76 1.2 0.4 0.1 79 712 9400 13.6 12.1 3.2 1.9
Poland 38 -0.1 0.2 0.2 97 463 12167 10.4 10.6 3.6 3.8
Taiwan 23 0.3 0.3 0.1 na 430 19222 3.1 2.8 3.0 2.7
Argentina 41 1.0 0.4 0.2 86 382 9426 3.0 2.0 3.2 2.2
South Africa 49 0.7 0.5 0.1 90 350 7153 10.2 9.1 3.2 2.2
Thailand 68 0.7 0.3 0.1 77 318 4703 10.2 9.2 4.0 3.3
Colombia 46 1.5 0.5 0.1 75 286 6167 13.1 12.0 3.9 2.2
Malaysia 28 2.0 0.5 0.1 76 242 8463 10.2 8.1 10.4 8.1
Egypt 78 2.0 0.5 0.1 87 216 2759 8.1 5.9 4.9 2.8
Czech Rep. 17 1.0 0.4 0.1 89 199 11632 10.2 8.9 3.6 2.3
Philippines 10 0.2 0.2 0.2 96 190 18262 12.8 12.7 3.1 3.0
Peru 30 1.2 0.5 0.1 92 149 5061 10.9 9.1 5.4 3.8
Hungary 10 -0.1 0.2 0.2 97 127 12667 10.2 10.4 1.9 2.1
MSCI EM 3,918 1.0 18,731 4,801 13.6 13.2
Source: CEIC, Datastream, Bloomberg, US Consensus Bureau, World Bank, UNESCO, J.P. Morgan estimates
* Age dependency ratio defined as dependents to working-age population.
** Gross Enrollment Ratio is defined as pupils enrolled in a secondary level, regardless of age expressed as a percentage of the population in the relevant official age group
*** 10-year CAGR for period 2000-2010, in local currency. # CAGR for period 2000-2010 ## Population data based on IMF estimate as on October 2009.
Data for Gross enrollment data for 2004 except for Malaysia, Brazil and Argentina which is for 2003. Updated 16 August 2010.
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Perspective: Global Emerging Capital Markets

MSCI EMF Index Markets Concentration JPM EMBI Global
% of
Stocks
Total Average Emerging Stocks constituting
Estimated Weighting in constituting
Market Companies Daily Market 75% of Country Market Cap Issues
Free Float MSCI EMF 75% of Country
Cap Turnover Trading Market Cap
Market Cap
Volume
US $ bn. (%) Number US $ mn. % (%) Number (%) US $ bn. Number
China 1246 48 124 3464 20.7 18.8 9 15 7.0 8
Brazil 854 59 76 2554 15.3 15.8 16 17 49.5 23
Korea 690 63 99 3599 21.5 13.7 28 18 na na
Taiwan 501 71 118 1848 11.0 11.1 31 25 na na
India 729 35 60 320 1.9 7.9 22 33 na na
South Africa 341 69 45 923 5.5 7.4 17 40 4.3 4
Russia 521 36 23 1596 9.5 5.9 5 30 32.8 4
Mexico 239 57 21 322 1.9 4.3 7 29 49.5 29
Malaysia 229 40 40 210 1.3 2.9 20 60 9.1 7
Indonesia 183 41 22 215 1.3 2.3 10 41 5.7 5
Turkey 170 32 20 586 3.5 1.7 11 60 22.0 14
Thailand 146 36 16 108 0.6 1.7 9 69 4.9 8
Poland 110 44 22 226 1.3 1.5 7 23 3.4 3
Colombia 118 23 8 35 0.2 0.9 4 50 7.4 7
Peru 42 47 3 158 0.9 0.6 2 67 7.8 8
Hungary 35 46 10 63 0.4 0.5 7 30 1.2 1
Egypt 47 33 12 33 0.2 0.5 7 67 19.0 14
Philippines 23 59 4 106 0.6 0.4 2 75 1.4 1
Czech Republic 40 34 4 49 0.3 0.4 3 50 na na
Morocco 26 21 3 7 0.0 0.2 4 100 0.7 1
Total 6429 50 750 16745 100 100 232 141
AC World Index Market Capitalization MSCI Regional Market Capitalization Top 8 versus Rest of Emerging Markets
Emerging India Russia

EM Latin
6% Rest of EM
Markets America 8%
North America Mex ico 15%
13% 23%
47% 4% Korea
Japan EM Europe 14%
9% and Middle
EM Asia China
East Taiw an
Dev eloped 59%
18% 20% 11%
Asia South Africa
Dev eloped Brazil
5% 7%
Europe 15%
26%
Source: MSCI, J.P. Morgan. Updated 16 August 2010.
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Perspective: MSCI Emerging Market Index Composition by Countries and Sectors

Number of Companies: 753 Total Market Capitalization (in billion US$): 6202 Estimated Free float : 50%
Consumer Staples
Telecom Services
Discretionary
Technology
Information
Health care
Industrials
Consumer
Financials
Materials
Utilities
Energy
MSCI Emerging
Total
Markets Free Index
China 1.0 1.2 3.0 7.2 0.2 1.4 1.0 1.0 2.5 0.4 18.8
Korea 1.8 0.7 0.3 2.3 0.1 2.0 3.8 2.0 0.4 0.2 13.7
Taiwan 0.3 0.2 0.1 1.7 0.4 6.5 1.4 0.5 11.1
India 0.4 0.5 1.1 2.1 0.3 0.8 1.4 0.9 0.1 0.5 7.9
Malaysia 0.3 0.4 0.0 0.9 0.5 0.0 0.3 0.4 2.9
Indonesia 0.3 0.3 0.3 0.7 0.1 0.2 0.3 0.2 2.3
Thailand 0.0 0.1 0.6 0.6 0.1 0.1 0.0 1.5
Philippines 0.0 0.2 0.1 0.1 0.1 0.5
Asia 4.2 3.3 5.5 15.7 0.5 5.4 12.6 5.6 4.2 1.7 58.7
South Africa 0.9 0.4 0.7 1.9 0.2 0.3 2.0 0.9 7.4
Russia 0.0 3.4 0.9 0.8 0.4 0.4 5.9
Poland 0.0 0.0 0.2 0.8 0.0 0.0 0.1 0.1 0.1 1.5
Turkey 0.0 0.2 0.1 1.0 0.2 0.0 0.2 1.7
Hungary 0.1 0.2 0.1 0.0 0.4
Egypt 0.2 0.1 0.0 0.1 0.5
Czech Republic 0.0 0.1 0.1 0.2 0.4
Morocco 0.1 0.1 0.2
EMEA 1.0 0.7 4.6 5.2 0.2 0.7 0.0 3.0 2.0 0.7 18.1
Brazil 0.8 1.3 3.3 4.1 0.5 0.3 4.2 0.4 0.8 15.8
Mexico 0.4 1.1 0.3 0.2 0.7 1.6 4.3
Peru 0.2 0.4 0.6
Colombia 0.1 0.2 0.3 0.2 0.1 0.9
LatAm 1.3 2.7 3.6 5.1 1.0 0.3 5.8 2.0 1.4 23.2
Total 6.5 6.6 13.6 26.0 0.8 7.1 13.0 14.4 8.3 3.7 100.0
Source: MSCI, J.P. Morgan. Updated 16 August 2010.
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Companies Recommended in This Report (all prices in this report as of market close on 18 August 2010, unless
otherwise indicated)
Asian Property Development (AP.BK/Bt6.55/Overweight), Bank Danamon (BDMN.JK/Rp5,300/Overweight), BEC World
(BEC.BK/Bt29.50/Overweight), China Airlines (2610.TW/NT$21.45/Overweight), China Shipping Container Lines
(2866.HK/HK$3.02/Overweight), Fubon Financial Holdings (2881.TW/NT$37.40/Neutral), Honam Petrochemical Corp
(011170.KS/W188,000/Underweight), Hynix Semiconductor (000660.KS/W21,700/Neutral), Hyundai Department Stores
(069960.KS/W117,500/Overweight), Hyundai Heavy Industries (009540.KS/W278,500/Underweight), Hyundai Mobis
(012330.KS/W207,500/Overweight), Hyundai Motor Company (005380.KS/W132,000/Overweight), KB Financial Group
(105560.KS/W48,350/Overweight), KEPCO (015760.KS/W30,950/Overweight), Land & Houses
(LHf.BK/Bt6.20/Overweight), LG Chem Ltd (051910.KS/W340,000/Overweight), LG Display
(034220.KS/W35,650/Overweight), LG Electronics (066570.KS/W107,000/Overweight), LG Innotek
(011070.KS/W141,500/Overweight), Magnit (MGNTq.L/$21.85 [17-August-2010]/Overweight), Metropolitan Bank
(MBT.PS/Php62.90/Overweight), PetroChina (0857.HK/HK$8.59/Underweight), POSCO
(005490.KS/W492,500/Overweight), Robinson Department Store (ROBI.BK/Bt20.10/Overweight), Samsung Card
(029780.KS/W53,900/Overweight), Samsung Electro-Mechanics (009150.KS/W127,000/Neutral), Samsung Electronics
(005930.KS/W778,000/Neutral), Samsung SDI (006400.KS/W177,000/Overweight), Semen Gresik (Persero) Tbk
(SMGR.JK/Rp8,800/Overweight), Seoul Semiconductor (046890.KQ/W39,800/Overweight), Shinhan Financial Group
(055550.KS/W45,950/Overweight), Siam Makro (MAKR.BK/Bt114.50/Overweight), Sinopec Corp - H
(0386.HK/HK$6.13/Overweight), S-Oil Corp (010950.KS/W59,100/Neutral), Thai Tap Water Supply Public Company
(TTW.BK/Bt5.10/Overweight), Thanachart Capital (TCAP.BK/Bt32.75/Overweight), Woori Financial Group
(053000.KS/W13,900/Overweight)
Analyst Certification:
The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily
responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with
respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report
accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research
analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the
research analyst(s) in this report.
Important Disclosures
• Market Maker/ Liquidity Provider: JPMSL and/or an affiliate is a market maker and/or liquidity provider in Magnit.
• Lead or Co-manager: JPMSI or its affiliates acted as lead or co-manager in a public offering of equity and/or debt securities for
Hyundai Heavy Industries, Hyundai Motor Company, POSCO, Semen Gresik (Persero) Tbk, Woori Financial Group within the past
12 months.
• Analyst Position: The following analysts (and/or their associates or household members) own a long position in the shares of
Metropolitan Bank: Jeanette Yutan.
• Beneficial Ownership (1% or more): JPMSI or its affiliates beneficially own 1% or more of a class of common equity securities of
Hyundai Department Stores, Hyundai Motor Company, Seoul Semiconductor.
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• Client of the Firm: Asian Property Development is or was in the past 12 months a client of JPMSI. Bank Danamon is or was in the
past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company non-investment banking securities-
related services and non-securities-related services. China Airlines is or was in the past 12 months a client of JPMSI; during the past
12 months, JPMSI provided to the company non-investment banking securities-related services and non-securities-related services.
China Shipping Container Lines is or was in the past 12 months a client of JPMSI. Fubon Financial Holdings is or was in the past 12
months a client of JPMSI; during the past 12 months, JPMSI provided to the company non-investment banking securities-related
services and non-securities-related services. Hynix Semiconductor is or was in the past 12 months a client of JPMSI. Hyundai Heavy
Industries is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company investment
banking services, non-investment banking securities-related services and non-securities-related services. Hyundai Mobis is or was in
the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company non-investment banking securities-
related services. Hyundai Motor Company is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI
provided to the company investment banking services, non-investment banking securities-related services and non-securities-related
services. KB Financial Group is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the
company non-investment banking securities-related services. KEPCO is or was in the past 12 months a client of JPMSI; during the
past 12 months, JPMSI provided to the company non-investment banking securities-related services. LG Chem Ltd is or was in the
past 12 months a client of JPMSI. LG Display is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI
provided to the company investment banking services and non-investment banking securities-related services. LG Electronics is or
was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company investment banking
services, non-investment banking securities-related services and non-securities-related services. Magnit is or was in the past 12
months a client of JPMSI. Metropolitan Bank is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI
provided to the company non-investment banking securities-related services and non-securities-related services. PetroChina is or was
in the past 12 months a client of JPMSI. POSCO is or was in the past 12 months a client of JPMSI; during the past 12 months,
JPMSI provided to the company investment banking services, non-investment banking securities-related services and non-securities-
related services. Samsung Electro-Mechanics is or was in the past 12 months a client of JPMSI. Samsung Electronics is or was in the
past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company investment banking services, non-
investment banking securities-related services and non-securities-related services. Samsung SDI is or was in the past 12 months a
client of JPMSI; during the past 12 months, JPMSI provided to the company non-investment banking securities-related services.
Semen Gresik (Persero) Tbk is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the
company investment banking services. Shinhan Financial Group is or was in the past 12 months a client of JPMSI; during the past 12
months, JPMSI provided to the company investment banking services, non-investment banking securities-related services and non-
securities-related services. Siam Makro is or was in the past 12 months a client of JPMSI. Sinopec Corp - H is or was in the past 12
months a client of JPMSI; during the past 12 months, JPMSI provided to the company non-investment banking securities-related
services and non-securities-related services. Thanachart Capital is or was in the past 12 months a client of JPMSI; during the past 12
months, JPMSI provided to the company non-investment banking securities-related services. Woori Financial Group is or was in the
past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company investment banking services, non-
investment banking securities-related services and non-securities-related services.
• Investment Banking (past 12 months): JPMSI or its affiliates received in the past 12 months compensation for investment banking
services from Hyundai Heavy Industries, Hyundai Motor Company, LG Display, LG Electronics, POSCO, Samsung Electronics,
Semen Gresik (Persero) Tbk, Shinhan Financial Group, Woori Financial Group.
• Investment Banking (next 3 months): JPMSI or its affiliates expect to receive, or intend to seek, compensation for investment
banking services in the next three months from Bank Danamon, Hyundai Heavy Industries, Hyundai Motor Company, LG Display,
LG Electronics, PetroChina, POSCO, Samsung Electronics, Semen Gresik (Persero) Tbk, Shinhan Financial Group, Woori Financial
Group.
• Non-Investment Banking Compensation: JPMSI has received compensation in the past 12 months for products or services other
than investment banking from Bank Danamon, China Airlines, Fubon Financial Holdings, Hyundai Heavy Industries, Hyundai
Mobis, Hyundai Motor Company, KB Financial Group, KEPCO, LG Display, LG Electronics, Metropolitan Bank, POSCO,
Samsung Electronics, Samsung SDI, Shinhan Financial Group, Sinopec Corp - H, Thanachart Capital, Woori Financial Group. An
affiliate of JPMSI has received compensation in the past 12 months for products or services other than investment banking from
Bank Danamon, China Airlines, Fubon Financial Holdings, Hyundai Heavy Industries, Hyundai Motor Company, KB Financial
Group, KEPCO, LG Chem Ltd, LG Display, LG Electronics, Magnit, Metropolitan Bank, Samsung Electronics, Shinhan Financial
Group, Thanachart Capital, Woori Financial Group.
• J.P. Morgan Securities (Far East) Ltd, Seoul branch is acting as a Market Maker (Liquidity Provider) for the Equity Linked Warrants
of Hynix Semiconductor and owns 13,733,670 as of 18-Aug-10.
of Hyundai Heavy Industries and owns 3,500,000 as of 18-Aug-10.
of Hyundai Mobis and owns 3,268,010 as of 18-Aug-10.
of Hyundai Motor Company and owns 13,796,590 as of 18-Aug-10.
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of KB Financial Group and owns 3,496,370 as of 18-Aug-10.
of Korea Electric Power Corporation and owns 3,363,420 as of 18-Aug-10.
of LG Chem Ltd and owns 7,098,530 as of 18-Aug-10.
of LG Display and owns 10,441,710 as of 18-Aug-10.
of LG Electronics and owns 9,732,590 as of 18-Aug-10.
of POSCO and owns 10,534,110 as of 18-Aug-10.
of Samsung Electro-Mechanics Co. Ltd. and owns 9,939,970 as of 18-Aug-10.
of Samsung Electronics and owns 10,411,810 as of 18-Aug-10.
of Samsung SDI and owns 6,670,390 as of 18-Aug-10.
of Woori Financial Group and owns 3,259,270 as of 18-Aug-10.
• MSCI: The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior
written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, redisseminated or
used to create any financial products, including any indices. This information is provided on an 'as is' basis. The user assumes the
entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or
compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness
for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of
its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages
of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates.
Important Disclosures for Equity Research Compendium Reports: Important disclosures, including price charts for all companies
under coverage for at least one year, are available through the search function on J.P. Morgan’s website
https://mm.jpmorgan.com/disclosures/company or by calling this U.S. toll-free number (1-800-477-0406)
Explanation of Equity Research Ratings and Analyst(s) Coverage Universe:

J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the
average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve
months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s)
coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of
the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] J.P. Morgan Cazenove’s UK Small/Mid-Cap dedicated research
analysts use the same rating categories; however, each stock’s expected total return is compared to the expected total return of the FTSE
All Share Index, not to those analysts’ coverage universe. A list of these analysts is available on request. The analyst or analyst’s team’s
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J.P. Morgan Equity Research Ratings Distribution, as of June 30, 2010

Overweight Neutral Underweight
(buy) (hold) (sell)
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J.P. Morgan Emerging Markets Coverage

J.P. Morgan covers 893 companies in Emerging markets. The total market capitalization of the covered universe is US$8
trillion. EM Asia accounts for 57% of total market cap. The daily trading volume of the universe is US$21 billion. The table
below provides a summary of J.P. Morgan’s EM coverage.
Table 37: Companies covered in EM

Country Cons. Disc Cons. Staples Energy Financials Health Care Industrials IT Materials Telecom Utilities Total
China 24 10 7 32 7 19 21 12 4 9 145
India 11 7 8 18 14 18 10 5 13 104
Russia 4 9 12 9 2 2 10 12 29 89
Brazil 12 12 2 14 3 7 4 8 6 17 85
S Africa 9 13 2 14 5 10 22 5 80
Taiwan 3 1 1 14 8 36 7 70
Korea 11 6 2 9 17 7 7 3 2 64
Thailand 4 5 5 15 4 2 2 4 41
Mexico 7 9 4 4 4 5 33
Indonesia 1 4 5 10 1 3 4 3 1 32
Malaysia 4 4 1 11 1 7 1 3 32
Phil 10 1 2 5 18
Poland 2 1 2 7 1 13
Turkey 2 1 7 1 2 13
Chile 1 3 2 1 1 1 3 12
UAE 9 1 10
Argentina 1 1 2 1 1 1 7
Nigeria 7 7
Colombia 1 3 1 1 6
Egypt 2 3 5
Qatar 3 2 5
Hungary 1 1 1 1 4
Peru 1 3 4
Saudi Arabia 1 3 4
Czech 1 1 1 3
Kazakhstan 2 2
Kuwait 2 2
Croatia 1 1
Morocco 1 1
Panama 1 1
Total 97 85 53 205 19 98 87 93 68 88 893
Source: J.P. Morgan, Bloomberg. 17 August 2010
Table 38: Top liquid names which J.P. Morgan does not cover
Name Ticker Country Sector Total Mkt Cap (US$ Mn) 3M Avg daily T/O (US$ Mn)
Hyundai Steel Co 004020 KS Korea Materials 8.1 71
Samsung Life Insurance Co 032830 KS Korea Financials 19.0 60
Samsung C&T Corp 000830 KS Korea Industrials 8.0 56
Jiangxi Copper Co Ltd-H 358 HK China Materials 10.0 37
Turk Hava Yollari Ao THYAO TI Turkey Industrials 3.1 36
Powszechny Zaklad PZU PW Poland Financials 10.8 36
Gome Electrical Appliances 493 HK China Consumer Discretionary 4.4 36
Chunghwa Telecom Co Ltd 2412 TT Taiwan Telecommunication Services 19.7 36
Daewoo Securities Co Ltd 006800 KS Korea Financials 3.7 34
Ncsoft Corporation 036570 KS Korea Information Technology 3.8 33
Nhn Corp 035420 KS Korea Information Technology 7.7 33
Wintek Corp 2384 TT Taiwan Information Technology 1.5 33
Samsung Fire & Marine Ins 000810 KS Korea Financials 8.0 32
Kghm Polska Miedz Sa KGH PW Poland Materials 7.1 31
Hyosung Corporation 004800 KS Korea Materials 2.6 31
Hyundai Mipo Dockyard 010620 KS Korea Industrials 2.8 30
Eregli Demir Ve Celik Fabrik EREGL TI Turkey Materials 4.6 29
Dogan Sirketler Grubu Hldgs DOHOL TI Turkey Industrials 1.7 28
Celltrion Inc 068270 KS Korea Health Care 2.1 22
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Table 39: Total Market Capitalization of covered Universe (US$ bn)

Country Cons. Disc Cons. Staples Energy Financial Health Care Industrials IT Materials Telecom Utilities Total
China 85 67 286 1017 22 125 118 78 305 57 2160
Brazil 40 123 187 281 5 30 25 228 44 84 1047
India 47 57 174 168 102 109 69 41 97 863
Russia 6 26 308 88 3 5 116 64 69 685
South Africa 33 26 27 100 13 17 343 49 608
South Korea 88 28 16 73 86 140 76 25 20 550
Taiwan 5 4 22 57 17 222 63 389
Mexico 21 109 24 5 43 148 350
Indonesia 22 23 21 58 3 10 19 26 11 193
Malaysia 20 22 1 63 1 40 13 20 179
Thailand 6 19 49 47 2 15 12 6 155
Turkey 1 6 91 1 27 127
Chile 19 20 26 9 10 4 30 119
Colombia 4 81 11 7 103
Saudi Arabia 70 33 102
Poland 2 2 7 45 7 64
Philippines 23 6 12 11 52
UAE 27 22 49
Peru 8 38 46
Czech Rep 8 7 24 40
Argentina 1 21 3 3 4 0 33
Qatar 22 9 30
Hungary 1 10 7 3 21
Kuwait 21 21
Egypt 6 13 19
Morocco 15 15
Nigeria 11 11
Kazakhstan 5 5
Croatia 4 4
Panama 2 2
Total 397 530 1215 2268 47 457 617 1177 908 428 8044
Table 40: 3M Average daily trading value (US$ Mn)
Country Cons. Disc Cons. Staples Energy Financial Health Care Industrial IT Materials Telecom Utilities Total
China 297 322 395 1432 82 185 1548 187 354 83 4883
Brazil 250 298 459 415 10 97 65 1339 167 142 3242
S Korea 502 72 87 294 501 904 369 81 66 2876
S Africa 160 68 71 349 24 47 1452 145 2315
India 135 55 268 522 274 170 272 108 132 1937
Taiwan 28 8 6 182 91 995 111 1421
Russia 13 19 243 27 0 4 455 104 1 866
Mexico 62 97 33 13 269 217 691
Turkey 17 14 401 6 27 465
Thailand 24 55 118 188 15 21 29 6 456
Indonesia 22 22 61 46 8 12 29 20 12 232
Saudi Arabia 144 38 181
Peru 28 150 178
Malaysia 21 19 2 60 4 34 5 17 162
Argentina 0 81 6 57 3 0 147
Poland 3 23 15 69 25 134
Hungary 11 14 79 5 109
Colombia 2 73 23 3 100
Chile 11 14 13 13 20 4 20 95
Czech 13 9 24 46
Philippines 24 2 9 11 45
Egypt 12 29 42
UAE 32 3 35
Panama 18 18
Kuwait 14 14
Qatar 8 2 10
Nigeria 6 6
Morocco 2 2
Kazakhstan 2 2
Croatia 1 1
Total 1557 1073 1906 4264 129 1305 3739 4827 1401 513 20714
Source: J.P. Morgan, Bloomberg. 17 August 2010.
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Figure 34: History of corrections in MSCI Emerging Markets: 20% corrections common in a bull market
16 Feb 94, 563 10 Jul 97, 571 10 Feb 00, 531.0 10 May 06, 879
24 Aug 94, 454 5 Oct 98, 241 3 Oct 01, 247 13 Jun 06, 665
Decline 19% Decline 58% Decline 54% 12-April-04, 497 Decline 24%
Duration 59 day s Duration 323 day s Duration 430 day s 17-May -04, 396 Duration 25 day s
Fed tightening Asian Crisis 2000 Global Correction Decline 20% Fear of Fed ov ertightening
1 Aug 90, 257
Duration 26 day s
16 Jan 91, 175
Start of Fed tightening
Decline 32%
Duration 121 day s 26 Feb 07, 940
Iraq inv ades Kuw ait 5 Mar 07, 844
Decline 10%
Duration 8 day s
22 Sep 94, 586 A-shares fall, US profit
9 Mar 95, 396 f
Decline 33%
22 Apr 92, 353 Duration 121days 23 July 07, 1163
24 Aug 92, 286 Mexican Tequila Crisis 31 October 2007, 1338
19 Feb 90, 239 25%rally 16 August 07, 957
Decline 19% 27 October 2008, 454
9 Apr 90, 198 Decline 18%
Duration 89 day s Decline 66%
Decline 17% Duration 19 day s
Brazilian Fall 18-Apr-02, 364 Duration 268 day s
Duration 36 day s 10-Oct-02, 254 US sub-prime and
Credit Crisis and EM
Decline 30% global credit market
Inflation
concerns
4.4
Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
Source: Datastream, J.P. Morgan.
J.P. Morgan Emerging Market Strategy Team

Chief Equity Strategists
Adrian Mowat Asia and Emerging Market (852) 2800 8599 [email protected]
Ben Laidler Latin America (212) 622 5252 [email protected]
Deanne Gordon CEEMEA, South Africa (27-21) 712 0875 [email protected]
Sriyan Pietersz ASEAN and Frontier Markets (66-2) 684 2670 [email protected]
Christian Kern MENA (971) 4428 1789 [email protected]
Thomas J Lee US (1) 212 622 6505 [email protected]
Mislav Matejka Europe (44-20) 7325 5242 [email protected]
Hajime Kitano Japan (81-3) 5545 8655 [email protected]
Country Strategists
Frank Li China (852) 2800 8511 [email protected]
Bharat Iyer India (91-22) 6157 3600 [email protected]
Aditya Srinath Indonesia (62-21) 5291 8573 [email protected]
Nick Lai Taiwan (886-2) 27259864 [email protected]
Scott Seo Korea (82-2) 758 5759 [email protected]
Chris Oh Malaysia (60-3) 2270 4728 [email protected]
Emy Shayo Brazil (55-11) 3048 6684 [email protected]
Ben Laidler Mexico (212) 622 5252 [email protected]
Alex Kantarovich Russia (7-495) 967 3172 [email protected]
Brian Chase Southern Cone & Andean (562) 425 5245 [email protected]
Deanne Gordon South Africa (27-21) 712 0875 [email protected]
Gilbert Lopez Philippines (63-2) 878-1188 [email protected]
Economic & Policy Research
Joyce Chang Global Head, Emerging Markets Research (1-212) 834 4203 [email protected]
David Fernandez Emerging Asia (65) 6882 2461 [email protected]
Jiwon Lim Korea (82-2) 758 5509 [email protected]
Jahangir Aziz India (9122) 6157 3385 [email protected]
Qian Wang China, Taiwan and Hong Kong (852) 2800 7009 [email protected]
Vladimir Werning Argentina (1-212) 834 4144 [email protected]
Fabio Akira Brazil (55-11) 3048 3634 [email protected]
Gabriel Casillas Mexico (52-55)-5540-9558 [email protected]
Michael Marrese Regional Head, Emerging Europe (44-20) 7777 4627 [email protected]
Yarkin Cebeci Turkey (90-212) 326 5890 [email protected]
Sonja Keller South Africa (27-11) 507 0376 [email protected]
Nina A Chebotareva Russia (7-095) 937 7321 [email protected]
Nora Szentivanyi Hungary, Poland & Czech Republic (44-20) 7777 3981 [email protected]
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Key Trades and Risks August 2010

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What are the main risks to the emerging markets strategy outlined?

What are the main risks to the emerging markets strategy outlined?

What are the key asset allocation calls?

What are the key asset allocation calls?

Emerging Markets

Key Trades and Risks

concern in DM, the threat to EM equities is inflation. EM average (852) 2800-8599

J.P. Morgan India Private Limited

• We continue to reduce our exposure to cyclical sectors by booking [email protected]

J.P. Morgan Emerging Markets

Our top trade ideas

Faster, stronger, cheaper

including food inflation, in EM every week in our

rates and lower growth lead to a de-rating in equities. 105

Source: Bloomberg, 13 August 2010.

Conclusion 2. Economic Risks

• ABC of Real Estate - Anything but China

Indonesia: Revisiting inflation

2005: Removal of fuel subsidies Source: J.P. Morgan economics

products subsidies remain, a large step change in prices is 20

Conclusion Figure 13: MSCI Indonesia Performance

• CEMBI yields higher than 6.25% Source: MSCI, Bloomberg

Figure 12: MSCI Indonesia valuations 12000

Source: I/B/E/S, MSCI, Datastream

ECFA passed by lawmakers= Beginning of new economic era

Table 6: Comparison of Cross-Strait Early Harvest List in Taiwan and China

Table 7: Tariff reduction scheduled based on current Early Harvest List

Focus on sectors within countries rather than country recommendations

Risks to our strategy

Political risks Figure 18: Shares outstanding in Commodity ETF

Source: Bloomberg, 30 July 2010

Source: J.P. Morgan estimates

Model portfolio changes

Please see pages 16 and 17 for our Global Emerging

Please note: Source for Data in Global emerging

Global emerging markets model portfolio by country

Global emerging markets model portfolio by sector

Figure 21: CEMBI Yield, India 10Y Key Trades

Figure 22: MSCI EM Real Estate wts

Figure 24: US equipment Overweight Technology

Source: IBES, 16 August 2010.

Figure 27: Contribution to China China economic rebalancing: Focus on consumer

450 Belle Int Hldg 1880 HK OW 14 13 30.2 28.8 1.2 18.3

Figure 29: Consensus and JPM Advantage ASEAN

Country asset allocation changes

Emerging Markets: Outlook & Scorecards

Key drivers Outlook

JPM Mkt cap P/E EPS Div Yld. ROE

Economic Forecasts Risk Appetite

1200 Absolute Relativ e to MSCI EMF FWD PER (133058) (240739)

1000 PER (138928) (312888)

800 PBR (80884) (251286)

600 DY (134127) (245514)

Currency Outlook (BRL/USD) EPS Integer over Time

UW: (1) property; (2) Outlook

JPM Mkt cap P/E EPS Div Yld. ROE

Economic Forecasts Risk Appetite

800 Absolute Relativ e to MSCI EMF (28) (57)

400 DY (49) (85)