Emerging Markets Equity Research 04 July 2014

Herd Instinct Key Emerging Markets and Developed Asia Fund Flow Weekly, 26 June - 2 July 2014 During the week to 2 July, there were net subscriptions of US$540million in EM equity funds. For the week, total subscriptions into ETFs came in at US$636million.YTD redemption in EM is US$24.3billion (redemption US$6billion in EM ETF’s), but subscriptions have been over US$14billion since April. The net flows by mandate were:      

Total EM equity funds US$540million subscriptions GEMS equity funds US$593million subscriptions Asia ex-Japan equity funds US$506million subscriptions EMEA equity funds US$52million redemptions LatAm equity funds US$485million redemptions US equity funds US$3.8billion redemptions

Inflows in all emerging markets except Brazil, India and South Africa:   

Korea: US$1.0billion inflows Taiwan: US$1.0billion inflows Thailand: US$151million inflows

For countries that do not publish official foreign transactions in their equity markets, we use the monthly data from EPFR Global (they cover 12,000 international, EM and US funds with total net assets greater than US$ 6 trillion). During the month of May, funds were net buyers in Australia, Malaysia, Mexico, Chile, Turkey, Singapore, Hong Kong, Poland and Russia. They were net sellers in China. In China, there were YTD cumulative outflows of US$8.3billion. Please see page 15 for global portfolio weightings and household equity weights. Also see page 16 for the consensus overweight and underweight markets for May 2014.

Table 1: Market data & net foreign investment, 26 June - 2 July 2014 Net MTD 2014 Index Chg Flows (%) US$M US$M US$M Stock Exchange Investors' Trading Data Japan (1 wk lag) -1.4 -321 8260 -14309 2.4 -69 94 1573 South Africa -2.2 -437 -437 5869 Brazil* 3.8 1038 502 10544 Taiwan 1.4 1042 429 3303 Korea 2.1 -373 -324 10059 India Thailand 2.0 151 19 -1226 2.2 81 68 3898 Indonesia 0.1 69 37 1049 Philippines Monthly Tracking of Cross Border Funds (May 2014)* Australia -0.1 578 1749 1.2 154 9 Singapore 3.8 98 -1629 Hong Kong 4.0 -310 -8345 China -0.5 89 -657 Malaysia 1.1 159 -2039 Mexico Russia 10.2 218 -2098 -1.3 75 -170 Chile 0.1 52 -352 Poland 8.1 38 -211 Turkey Regional & US Mutual Fund Flows Total EM Equity**** 1.8 540 -24346 1.8 593 -5347 Global EM Equity* -0.2 -485 -3911 LatAm Equity* 0.0 -52 -2085 EMEA Equity* 2.9 506 -12339 Asia ex-Japan Equity* 1.5 -23 -665 BRIC Equity* 1.6 1 13159 Japan Equity Funds 1.1 1306 51558 Developed Europe* 1.5 4535 39272 International Equity 0.8 -3824 21213 US Equity***

2013 Agg. US$M

12M Avg (x).

154550 220 6010 9173 4855 20139 -6193 -1797 681

-0.2 -0.3 -2.3 1.6 1.4 -1.2 1.4 0.4 0.9

2040 1023 754 -4933 -238 -40 -4240 -315 -275 -106

1.2 1.1 0.8 -0.1 1.2 1.3 1.1 1.4 1.0 0.6

-17342 3808 -8651 -6548 -2767 -3184 43591 48420 86111 123858

0.4 0.5 -1.7 -0.3 1.1 -0.6 0.0 0.6 2.4 -0.6

Emerging Market Equity Strategy Adrian Mowat

AC

(852) 2800-8599 [email protected] Bloomberg JPMA MOWAT J.P. Morgan Securities (Asia Pacific) Limited

Pedro Martins Junior, CFA (55-11) 4950-4121 [email protected] Banco J.P. Morgan S.A.

David Aserkoff, CFA (44-20) 7134-5887 [email protected] J.P. Morgan Securities plc

Rajiv Batra (91-22) 6157-3568 [email protected] J.P. Morgan India Private Limited

Sanaya Tavaria (1-212) 622-5469 [email protected] J.P. Morgan Securities LLC

Akshay Kapoor (91-22) 6157 5030 [email protected] J.P. Morgan India Private Limited

Source: Bloomberg, J.P. Morgan, I:Net, MKK, MSCI, Datastream. *EPFR Global data. **Data for Brazil is from 25 June – 1 July 2014. Monthly Tracking flows of Cross Border Funds- data is till May 2014. BRIC Funds separated from EM Funds from 11 May 07. The final column is designed to show the scale of net subscriptions or redemptions - the calculation is if net inflows (This week’s net subscription/(average of weeks with net subscriptions)( or if net redemptions /(This week’s net redemptions/(average of weeks with net redemptions)). ****Total EM Equity includes GEMs, LatAm, EMEA, Asia ex Japan and BRIC equity funds.

See page 17 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. www.morganmarkets.com

Adrian Mowat (852) 2800-8599 [email protected]

Asia Pacific Equity Research 1 November 04 July 2014 2013

Emerging Markets – Marginal inflows during the week

Asia ex Japan – Net inflows during the week

Figure 1: Global Emerging Markets Funds, Weekly net flows

Figure 2 Asia Ex Japan Funds, Weekly net flows

US$, mils

Index 1120

5,500 4,000

1080

2,500

1040

1,000

1000

(500)

960

(2,000) (3,500)

920

(5,000) Nov-11

880

Mar-12

Jul-12

Nov-12

Mar-13

Weekly Net Flows (L)

Jul-13

Nov-13

Mar-14

2-Jul-14 Jul-14

Index

2,200

580

1,650

560

1,100

540

550

520

0

500

(550) (1,100)

480

(1,650)

460

(2,200) Nov 11

Mar 12

Jul 12

Nov 12

Mar 13

Jul 13

Weekly Net Flows (L)

MSCI EMF Index (R)

Source: MSCI, Datastream, EPFR Global. BRIC Funds separated from EM funds from 11 May 07.

Nov 13

Mar 14

440 Jul 14 2-Jul-14

MSCI Asia ex Japan Index (R)

Source: MSCI, Datastream, EPFR Global

US – Net outflows during the week

International – Strong inflows during the week

Figure 3: Weekly Net foreign investment into the US stock market

Figure 4: International Funds, Weekly net inflows

US$, mils

Index

US$, mils

Index

18,000

1900

4,000

300

12,000

1800

2,500

285

6,000

1700

1,000

270

1500

(500)

255

1400

(2,000)

240

(3,500)

225

1600

0 (6,000) (12,000)

1300

(18,000)

1200

(24,000) Nov-11

Mar-12

Jul-12

Nov-12

Weekly Net Flows (L)

Source: MSCI, Datastream, EPFR Global.

2

US$, mils

Mar-13

Jul-13

Nov-13

MSCI US Index (R)

Mar-14

1100 2-Jul-14 Jul-14

(5,000) Nov-11

Mar-12

Jul-12

Nov-12

Weekly Net Flows (L)

Source: MSCI, Datastream, EPFR Global.

Mar-13

Jul-13

Nov-13

MSCI AC World ex US Index (R)

Mar-14

2-Jul-14 Jul-14

210

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Asia Pacific Equity Research 04 July 2014

Emerging Markets – Marginal inflows during the week Figure 5: Global Emerging Markets Funds, Weekly net flows

Figure 6: Global Emerging Markets Funds, monthly cumulative net flows

US$, mils

Index

1400

6,000 4,500

1100

3,000

168 138 108

800

1,500 0

500

(1,500) (3,000) Jan-02

US$, bils

78 48 18

200 Aug-04

Mar-07

Weekly Net Flows (L)

Oct-09

May-12

2-Jul-14

MSCI EMF Index (R)

(12) Jan-01

Jan-03

Dec-04

Nov-06

Oct-08

Sep-10

Aug-12

Sep-10

Aug-12

Jul-14

Source: EPFR Global

. Asia ex Japan – Net inflows during the week Source: MSCI, Datastream, EPFR Global. BRIC Funds separated from EM funds from 11 May 07

Figure 7: Asia Ex Japan Funds, Weekly net flows

Figure 8: Asia Ex Japan Funds, monthly cumulative net flows

US$, mils

US$, bils

Index

3,200

700

1,600

63

480

50

370

37

260

24

0 (1,600) (3,200) Jan 02

150 Aug 04 Weekly Net Flows (L)

Source: MSCI, Datastream, EPFR Global.

Mar 07

Oct 09

May 12

2-Jul-14

76

590

11 (2) Jan-01

Jan-03

Dec-04

Nov-06

Oct-08

Jul-14

MSCI Asia ex Japan Index (R)

Source: EPFR Global.

3

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Asia Pacific Equity Research 1 November 04 July 2014 2013

Latin America – Strong outflows during the week Figure 9: Latin America Funds, Weekly net flows US$, mils

Figure 10: Latin America Funds, monthly cumulative net flows

Index

US$, bils

5200

1,200 800

4000

400 2800 0 1600

(400) (800) Jan-02

400 Aug-04

Mar-07

Weekly Net Flows (L)

Oct-09

May-12

2-Jul-14

24 21 18 15 12 9 6 3 (3) Jan-01

Jan-03

Dec-04

Nov-06

Oct-08

Sep-10

Aug-12

Jul-14

Oct-08

Sep-10

Aug-12

Jul-14

MSCI LatAm Index (R)

Source: MSCI, Datastream, EPFR Global Please note: the flows include liquidation of a closed-ended fund which resulted in an outflow of $994mn for the week ended June 14, 2006.

Source: EPFR Global

EMEA – Marginal outflows during the week Figure 11: EMEA Funds Weekly net flows

Figure 12: EMEA Funds, monthly cumulative net flows

US$, mils

Index

900

500

500

425

100

350

(300)

275

6

(700)

200

2

(1,100)

125

(1,500) Jan-02

50 Aug-04 Weekly Net Flows (L)

Source: MSCI, Datastream, EPFR Global.

4

US$, bils

Mar-07

Oct-09

May-12

2-Jul-14

14 10

(2) (6) Jan-01

MSCI EMEA Index (R)

Source: EPFR Global.

Jan-03

Dec-04

Nov-06

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Asia Pacific Equity Research 04 July 2014

International – Strong inflows during the week Figure 13: International Funds, Weekly net inflows US$, mils

Figure 14: International Funds, monthly cumulative net flows

Index

5,000

US$, bils

380

3,000

310

1,000 240 (1,000) 170

(3,000) (5,000) Jan-02

100 Aug-04

Mar-07

Weekly Net Flows (L)

Oct-09

May-12

2-Jul-14

200 178 156 134 112 90 68 46 24 2 (20) Jan-01

Jan-03

Dec-04

Nov-06

Oct-08

Sep-10

Aug-12

Jul-14

Aug-12

Jul-14

MSCI AC World ex US Index (R)

Source: MSCI, Datastream, EPFR Global.

Source: EPFR Global.

US – Net outflows during the week Figure 15: Weekly Net foreign investment into the US stock market US$, mils

21,000 13,500 6,000 (1,500) (9,000) (16,500) (24,000) Jan-02

Aug-04 Weekly Net Flows (L)

Source: MSCI, Datastream, EPFR Global

Mar-07

Oct-09

Figure 16: Monthly cumulative net foreign investment into the US stock market

Index

May-12

2-Jul-14

US$ bils 1910 1770 1630 1490 1350 1210 1070 930 790 650

585 510 435 360 285 210 135 60 (15) Jan-01

Jan-03

Dec-04

Nov-06

Oct-08

Sep-10

MSCI US Index (R)

Source: EPFR Global.

5

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Asia Pacific Equity Research 1 November 04 July 2014 2013

Japan – Marginal outflows from 21 – 27 June 2014 Figure 17: Weekly Net foreign investment into the Japan stock market US$, mils

Index

1,200

Figure 18: Monthly cumulative net foreign investment into the Japan stock market US$ bils

600

15,000

1,100

10,500

1,000

500

6,000

900

400

800

1,500

700

(3,000) (7,500) (12,000) Apr-01

600

200

500

100

400 Nov-03

Jun-06

Jan-09

Foreig ners' Net Buy (L)

27-Jun-14 Mar-14

Aug-11

300

0 Apr-01

Jul-03

Sep-05

Nov-07

Feb-10

Apr-12

Jun-14

MSCI Japan (R)

Source: Bloomberg, Ministry of Finance, Japan

Source: MSCI, Bloomberg, Ministry of Finance, Japan

Australia – Strong inflows in May Figure 19: Monthly Net foreign investment into Australian equities by funds monitored by EPFR Global US$, mils

Index

1,400

1,000 600

1,100

200 (200)

800

(600) (1,000) Nov-00

500 Mar-03

Jul-05 Foreigners' Net Buy (L)

Source: MSCI, Datastream, EPFR Global.

6

Nov-07

Mar-10 MSCI Australia (R)

Jul-12

May-14

Figure 20: Monthly cumulative net foreign investment into Australian equities by funds monitored by EPFR Global US$, mils

14,000 12,000 10,000 8,000 6,000 4,000 2,000 (2,000) Mar-00 Source:EPFR Global.

Aug-02

Dec-04

Apr-07

Sep-09

Jan-12

May-14

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Asia Pacific Equity Research 04 July 2014

Hong Kong – Net inflows in May Figure 21: Monthly Net foreign investment into Hong Kong equities by funds monitored by EPFR Global

Figure 22: Monthly cumulative net foreign investment into Hong Kong equities by funds monitored by EPFR Global

US$, mils

US$, mils

1,500 1,000 500 0 (500) (1,000) (1,500) (2,000) Nov-00

Index

15,000

20,000

12,500

16,000

10,000 7,500 5,000 2,500 Jun-02

Feb-04

Oct-05

May-07

Jan-09

Foreigners' Net Buy (L)

Sep-10

May-12

Dec-13 May-14

MSCI Hong Kong (R)

Source: MSCI, Datastream, EPFR Global, ICBC was listed on 27 October 2006.

12,000 8,000 4,000 (4,000) Mar-00

Aug-02

Dec-04

Apr-07

Sep-09

Jan-12

May-14

Source: EPFR Global.

Singapore – Net inflows in May Figure 23: Monthly Net foreign investment into Singapore equities by funds monitored by EPFR Global

Figure 24: Monthly cumulative net foreign investment into Singapore equities by funds monitored by EPFR Global

US$, mils

US$, mils

600 400 200 0 (200) (400) (600) (800) (1,000) Nov-00

Index

500 400 300 200

Nov-02

Nov-04

Nov-06

Foreigners' Net Buy (L) Source: MSCI, Datastream, EPFR Global.

Nov-08

Nov-10 MSCI Singapore (R)

Nov-12

100 May-14

9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 (1,000) Mar-00

Aug-02

Dec-04

Apr-07

Sep-09

Jan-12

May-14

Source: EPFR Global.

7

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South Africa – Marginal outflows during the week Figure 25: Weekly Net foreign investment into the South Africa stock market US$, mils

1,800 1,400 1,000 600 200 (200) (600) (1,000) Dec-01

Index

1,200 1,100 1,000 900 800 700 600 500 400 300 200 Jul-04

Feb-07

Sep-09

Foreigners' Net Buy (L)

Apr-12

2-Jul-14

Figure 26: Monthly cumulative net foreign investment into the South Africa stock market US$ bils

75 60 45 30 15 0 Feb-97

MSCI South Africa (R)

Source: I:Net, Datastream, Johannesburg Stock Exchange.

Jan-00

Nov-02

Oct-05

Sep-08

Aug-11

Jul-14

Source: Datastream, Johannesburg Stock Exchange.

Russia – Net inflows in May Figure 27: Monthly Net foreign investment into Russian equities by funds monitored by EPFR Global Figure 28: Monthly cumulative net foreign investment into Russian equities by funds monitored by US$, mils Index EPFR Global US$, mils

1,600

30

1,300

25

400

1,000

20

(400)

700

15

(1,200)

400

1,200

(2,000) Nov-00

Jul-02

Mar-04

Dec-05

Aug-07

Foreigners' Net Buy (L)

.

Source: MSCI, Datastream, EPFR Global

8

May-09

Jan-11 MSCI Russia (R)

Sep-12

100 May-14 Jun-14

10 5 Mar-00 Source: EPFR Global

Aug-02

Dec-04

Apr-07

Sep-09

Jan-12

May-14

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Asia Pacific Equity Research 04 July 2014

Brazil – Strong outflows from 25 June – 1 July 2014 Figure 29: Weekly Net foreign investment into the Brazilian stock market US$, mils

Index

Figure 30: Monthly cumulative net foreign investment into the Brazilian stock market US$, bil

1,500

320,000

18

1,000

280,000

15

500

240,000

0

200,000

(500)

160,000

(1,000)

120,000

(3)

(1,500)

80,000

(6)

(2,000) Jan-01

40,000 Dec-02

Nov-04

Oct-06

Sep-08

Foreigners' Net Buy

Aug-10

Jul-12

Jul-14 1-Jul-14

12 9 6 3 -

(9) (12) Jul-98

Nov-00

Feb-03

Jun-05

Sep-07

Dec-09

Apr-12

Jul-14

MSCI Brazil (R)

Source: Datastream, Bloomberg, Bovespa. Note: Starting 1 Jan, 2008, we take weekly net flows into the Brazil stock market. Prior to that, we took the 10 day net foreign investment in Brazil.

Source: MSCI, Bloomberg, Bovespa

Mexico – Strong inflows in May Figure 31: Monthly Net foreign investment into Mexican equities by funds monitored by EPFR Global Figure 32: Monthly cumulative net foreign investment into Mexican equities by funds monitored by US$, mils Index EPFR Global

1,000 700 400 100 (200) (500) (800) (1,100) (1,400) Nov-00

45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 Feb-03

May-05

Sep-07

Foreigners' Net Buy (L)

.

Source: MSCI, Datastream, EPFR Global

Dec-09

Apr-12

MSCI Mexico (R)

Jul-14 May-14

US$ bils

16 14 12 10 8 6 4 2 (2) Mar-00

Aug-02

Dec-04

Apr-07

Sep-09

Jan-12

May-14

Source: EPFR Global.

9

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Asia Pacific Equity Research 1 November 04 July 2014 2013

Taiwan – Strong inflows during the week Figure 33: Weekly Net foreign investment into the Taiwan stock market US$, bils

4 3 2 1 0 (1) (2) (3) (4) (5) Jan-02

Figure 34: Monthly cumulative net foreign investment into the Taiwan stock market

Index

110 400

94

350

Jul-04

Jan-07 Foreig ners' Net Buy (L)

Jul-09

Jan-12

78

300

62

250

46

200

30

150

14

Jul-14 2-Jul-14

(2) Feb-97

MSCI Taiwan (R)

Source: Bloomberg, DataStream, TWSE & OTC. Please note the flow numbers for Taiwan has been adjusted to exclude a US$ 3.6 billion cross trade for TSMC between Philips Taiwan (selling) and Philips Netherlands (buying).

Jan-00

Nov-02

Oct-05

Sep-08

Aug-11

Jul-14

Source: Bloomberg, TWSE & OTC., Data in US$ billion

Korea – Strong inflows during the week Figure 35: Weekly Net foreign investment into the Korea stock market

Figure 36: Monthly cumulative net foreign investment into the Korea stock market

US$, mils

Index

700

2,000

600

40

500

30

1,000 0

400

(1,000)

300

(2,000) (3,000)

200

(4,000) Jan-02

100 Aug-04

Mar-07 Foreigners' Net Buy (L)

Source: Bloomberg, Datastream, KSE.

10

60

3,000

Oct-09

May-12

2-Jul-14

50

20 10 0 -10 -20 -30 Feb-97

Jan-00

MSCI Korea (R)

Source: Bloomberg, KSE, Data in US$ billion

Nov-02

Oct-05

Sep-08

Aug-11

Jul-14

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Asia Pacific Equity Research 04 July 2014

China – Marginal outflows in May Figure 37: Monthly Net foreign investment into Chinese equities by funds monitored by EPFR Global US$, mils

Index

Figure 38: Monthly cumulative net foreign investment into Chinese equities by funds monitored by EPFR Global US$, bils:

10,000 8,000 6,000 4,000 2,000 0 (2,000) (4,000) (6,000) Nov-00

110 90 70 50 30

75,000 60,000 45,000 30,000 15,000

10 Jul-02

Mar-04

Dec-05

Aug-07

May-09

Foreigners' Net Buy (L) Source: MSCI, Datastream, EPFR Global, ICBC was listed on 27 October 2006

Jan-11

Sep-12

-

Jun-14 May-14

Mar-00

MSCI China (R)

Aug-02

Dec-04

Apr-07

Sep-09

Jan-12

May-14

Source: EPFR Global.

.

India – Strong outflows during the week Figure 39: Weekly Net foreign investment into the Indian stock market

Figure 40: Monthly cumulative net foreign investment into the Indian stock market

US$, mils

Index

2,400

150 920

1,800

820

1,200

720

600

620

0

520 420

(600)

320

(1,200) (1,800) Jan-02

220 120 Aug-04

Mar-07 Foreigners' Net Buy (L)

Oct-09

May-12

2-Jul-14

135 120 105 90 75 60 45 30 15 Jan-99

Mar-01

Jun-03

Sep-05

Nov-07

Feb-10

May-12

MSCI India (R)

Source: Bloomberg, Datastream, BSE & NSE The y-axis range has been scaled down to exclude ONGC IPO flows on May 31, 2004, TCS IPO flows included for week ended Aug. 25, Infosys deal value impact adjusted for week ended Dec 6, DLF IPO and ICICI public issue flows for week ended July 04.

Source: Bloomberg, BSE & NSE.

11

Jul-14

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Asia Pacific Equity Research 1 November 04 July 2014 2013

Thailand – Strong inflows during the week Figure 41: Weekly Net foreign investment into the Thailand stock market US$, mils

Index

600 550 500 450 400 350 300 250 200 150 100

1,000 750 500 250 0 (250) (500) (750) (1,000) (1,250) Jan-02

Aug-04

Mar-07

Oct-09

Foreigners' Net Buy (L)

May-12

2-Jul-14

MSCI Thaila nd (R)

Figure 42: Monthly cumulative net foreign investment into the Thailand stock market 9 7 5 2 0 -2 Dec-97

Apr-00

Sep-02

Jan-05

Jun-07

Oct-09

Mar-12

Jul-14

Source: Bloomberg, TSE.

Source: Bloomberg, Datastream, TSE.

Malaysia – Net inflows in May Figure 43: Monthly Net foreign investment into Malaysian equities by funds monitored by EPFR Global US$, mils

Index

US$, mils

600

700

6,000

300

600

5,000

0

500

(300)

400

(600)

300

(900) Nov-00

200 Jul-02

Apr-04

Dec-05

Foreigners' Net Buy (L) Source: MSCI, Datastream, EPFR Global.

12

Figure 44: Monthly cumulative net foreign investment into Malaysian equities by funds monitored by EPFR Global

Sep-07

May-09

Feb-11

MSCI Malaysia (R)

Oct-12

Jul-14 May-14

4,000 3,000 2,000 1,000 Mar-00 Source: EPFR Global.

Aug-02

Dec-04

Apr-07

Sep-09

Jan-12

May-14

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Asia Pacific Equity Research 04 July 2014

Indonesia – Marginal inflows during the week Figure 45: Weekly Net foreign investment into the Indonesia stock market US$, mils

900 750 600 450 300 150 0 (150) (300) (450) (600) Jan-02

Index 6,600 5,800 5,000 4,200

Foreigners' Net Buy (L)

May-12

26 22

2,600

14

200 Oct-09

30

18

1,000 Mar-07

US$, bils

3,400 1,800

Aug-04

Figure 46: Monthly cumulative net foreign investment into the Indonesia stock market

2-Jul-14

10 6 2 Feb-97

MSCI Indonesia (R)

Jan-00

Nov-02

Oct-05

Sep-08

Aug-11

Jul-14

Source: Bloomberg, Datastream, JSE. The y-axis range has been scaled down to exclude block transactions, primarily due to Astra in 2003. Source: Bloomberg, JSE. Large outflow on 18th May 2005 includes HM Sampoerna selling 40% stake to Philip Morris. 29th May data excludes block deal between OCBC and PT Bank NISP. June 1data includes block deals of OCBC and Sampoerna- Philip Morris. On 30th Sep there was a large Rp 7.75 trn (c$850m) block trade crossed in Matahari Dept Store

Philippines – Net inflows during the week Figure 47: Weekly Net foreign investment into the Philippine stock market US$, mils

520 420 320 220 120 20 (80) (180) (280) (380) Jan-02

Index 1,350 1,200 1,050 900 750 600 450 300 150

Jul-04

Jan-07 Foreig ners' Net Buy (L)

Jul-09

Jan-12

Jul-14 2-Jul-14

Figure 48: Monthly cumulative net foreign investment into the Philippine stock market US$, mils 8,000 6,600 5,200 3,800 2,400 1,000 (400) Jun-99

Jul-01

Sep-03

Nov-05

Jan-08

Mar-10

May-12

Jul-14

MSCI Philip pines (R)

Source: Bloomberg, DataStream, PSE. Note: Flow numbers has been adjusted to exclude a cross trade between Singtel and Ayala Corp involving Globe Telecom in a US$118mil transaction and Kirin SMC deal valued at 157 million. 15th Feb 2006 data excludes US$ 140 mil foreign investment in Universal Robina corp IPO. 5th Oct 2006 data excludes U$ 5,400 mill of primary share issue to international investors. Large inflow on 5th May 2011 includes US$ 900mn secondary offering by San Miguel Corporation (SMC). Data for Philippines is till 29 Nov.

Source: Bloomberg, PSE.

13

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Asia Pacific Equity Research 1 November 04 July 2014 2013

Poland – Net inflows in May Figure 49: Monthly Net foreign investment into Poland equities by funds monitored by EPFR Global US$, mils

Index

Figure 50: Monthly cumulative net foreign investment into Poland equities by funds monitored by EPFR Global US$, mils

300 200 100 0 (100) (200) (300) (400) (500) Nov-00

2,700 2,300 1,900 1,500 1,100 700 Jul-02

Mar-04

Dec-05

Aug-07

Foreigners' Net Buy (L)

May-09

Jan-11

Sep-12

Jun-14 May-14

MSCI Poland (R)

4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 (500) Mar-00

Aug-02

Dec-04

Apr-07

Sep-09

Jan-12

May-14

Source: EPFR Global.

Source: MSCI, Datastream, EPFR Global.

Turkey – Net inflows in May Figure 51: Monthly Net foreign investment into Turkey equities by funds monitored by EPFR Global US$, mils

Index

Figure 52: Monthly cumulative net foreign investment into Turkey equities by funds monitored by EPFR Global US$, mils

500

1,300,000

250

1,100,000 900,000

0

700,000

(250)

500,000

(500) (750) Nov-00

300,000 100,000 Sep-02

Jul-04

May-06

Foreigners' Net Buy (L) Source :MSCI, Datastream, EPFR Global.

14

Mar-08

Jan-10

Nov-11

MSCI Turkey (R)

Sep-13 May-14

8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Mar-00 Source: EPFR Global.

Aug-02

Dec-04

Apr-07

Sep-09

Jan-12

May-14

Adrian Mowat (852) 2800-8599 [email protected]

Asia Pacific Equity Research 04 July 2014

Global Portfolio Weightings and Household Equity Weights Figure 53: Global portfolio weightings of FI, Equities and Cash

Figure 54: Household equity weights 70%

US

Japan

Euroarea

UK

60% 50% 40% 30% 20% 10% 0% 52

58

64

70

76

82

89

95

01

07

13

Source: J.P. Morgan, BIS, Datastream. Global FI is proxied by the sum of the global domestic debt securities reported by BIS and J.P. Morgan’s EMBIG index for external debt. For equities, we used the Datastream world equity index. Global cash is an aggregated M2 (or close proxy of M2) of developed and developing countries.

Source: Fed, ECB, BoJ, ONS and J.P. Morgan. Includes direct holdings of equities and indirect holdings through pension funds, mutual funds and Insurance companies. For the US, figure above does not include direct holdings of non-corporate equities.

Table 2: G4 Pension funds and insurance companies equity and bond levels

Figure 55: G4 Pension funds and insurance companies equity and bond levels

% held in Equity(Q3 2013)

% held in bonds (Q3 2013)

US

45.9%

36.5%

UK

28.2%

58.5%

Euro area

17.0%

61%

Japan

9.7%

69.9%

Source : JP Morgan.

55%

Bond

Equity

50%

45%

40%

35%

30%

25%

20% 99

01

03

05

07

09

11

13

Source: ECB, BOJ, BOE, Federal Reserve flow of funds 15

Adrian Mowat (852) 1 November 2800-8599 2013 [email protected]

Asia Pacific Equity Research 04 July 2014

Consensus Asset Allocation We come out with the Consensus Asset Allocation report every month, where we review the asset allocation of managers of major emerging market funds relative to the MSCI EM index as at the end of the reporting month. We use two approaches. Our preferred is to count the number of managers that are meaningfully OW or UW a market; this is defined as a greater than 2% deviation from the benchmark. These results are displayed in the tables. The other is a simple average of the managers’ country weightings compared with the benchmark. Extreme positions of a few managers distorts this analysis.

YTD Taiwan is up 9% vs. EM 5%. Taiwan IT is up 19%. Yet Taiwan is a significant consensus UW. The case for IT remains strong. If US yields rise then this would support Taiwan financials. In our view, Taiwan is where the consensus is most at risk. India remains the highest net overweight market in EM (net OW decreased to 24 from 27). Net underweights in Russia and China decreased to two and five respectively, back to the fence! Net overweights in Turkey increased to four from one. MSCI Turkey outperformed EM by 19% over the last three months. We are overweight Turkey.

This report reviews the country asset allocation of the emerging market funds for 55 EM fund managers surveyed by EPFR Global as of the end May 2014.

The sectors and markets that significantly outperformed in the past month were Greece, Thailand, Czech, China consumer discretionary, Brazil financials and Russia Energy. Earnings and price momentum are outperforming quant factors over the last one month. Dividend yield and reversion are key underperformers.

Consensus overweight markets India, Thailand, Brazil and Turkey Consensus underweight markets: Russia, Taiwan, Malaysia, China, South Africa, Korea, Mexico, Indonesia, Czech, Egypt, Hungary, Peru, Poland, Philippines, Chile and Greece

For more, please see, “Consensus Asset Allocation: EM funds asset allocation and performance,” Mowat et al, 24 June 2014

Table 3: Survey of Key EM Managers Positioning Relative to MSCI EM – For major EMs Country

> 2% OW

< 2% UW

India Thailand Brazil Russia Indonesia China+HK Mexico China Korea South Africa Taiwan Malaysia

27 (28) 6 (9) 15 (14) 7 (5) 1 (2) 13 (12) 4 (5) 10 (9) 9 (11) 6 (6) 6 (8) 2 (1)

3 (1) 4 (6) 14 (14) 9 (11) 6 (6) 18 (19) 16 (17) 26 (29) 26 (25) 28 (31) 29 (29) 30 (32)

OW-UW

< 0.1%

24 2 1 -2 -5 -5 -12 -16 -17 -22 -23 -28

0 3 0 1 4 0 1 0 0 0 1 10

(27) (3) (0) (-6) (-4) (-7) (-12) (-20) (-14) (-25) (-21) (-31)

(0) (4) (0) (1) (4) (0) (1) (0) (0) (0) (1) (11)

MSCI EM Wts (%) 7.0 2.2 10.8 5.3 2.6 18.6 5.1 18.6 16.1 7.7 12.1 3.8

Funds asset allocation relative to MSCI EM Benchmark Minimum Bottom quartile Median Top quartile Maximum (3.9) (0.2) 1.8 3.8 18.3 (2.2) (0.9) 0.0 0.8 4.5 (9.1) (1.9) (0.1) 2.1 8.2 (5.3) (1.4) 0.1 1.2 5.9 (2.6) (1.4) (0.5) 0.1 4.1 (13.1) (3.2) (0.6) 1.9 10.3 (5.1) (3.0) (1.1) 0.2 8.7 (15.8) (5.5) (1.8) 0.6 7.7 (13.9) (4.7) (1.1) 0.5 9.0 (7.5) (4.0) (2.0) 0.0 4.7 (12.1) (5.9) (2.1) 0.5 3.3 (3.8) (3.4) (2.2) (0.9) 8.7

Source: EPFR Global, MSCI, J.P. Morgan calculations.

Table 4: Survey of Key EM Managers Positioning Relative to MSCI EM – For EMs that are less than 2% of the benchmark Country

> 2% OW

Turkey Philippines Poland Peru Chile Greece Colombia Czech Republic Hungary Egypt

10 (8) 5 (7) 1 (1) 3 (3) 2 (2) 1 (1) 1 (1) 0 (0) 0 (0) 1 (1)

< 0.1% UW 6 13 18 24 24 31 33 35 40 43

(7) (13) (18) (23) (24) (32) (32) (36) (42) (44)

OW-UW 4 -8 -17 -21 -22 -30 -32 -35 -40 -42

(1) (-6) (-17) (-20) (-22) (-31) (-31) (-36) (-42) (-43)

MSCI EM Wts (%) 1.8 1.0 1.7 0.4 1.5 0.6 1.1 0.3 0.2 0.2

Funds asset allocation relative to MSCI EM Benchmark Minimum Bottom quartile Median Top quartile Maximum (1.8) (0.7) 0.1 1.4 3.7 (1.0) (0.8) (0.0) 1.2 3.5 (1.7) (1.7) (1.1) (0.1) 3.6 (0.4) (0.4) (0.2) 0.4 3.5 (1.5) (1.5) (1.2) (0.7) 6.2 (0.6) (0.6) (0.6) (0.0) 2.1 (1.1) (1.1) (1.1) (0.2) 2.7 (0.3) (0.3) (0.3) 0.2 1.5 (0.2) (0.2) (0.2) (0.1) 1.9 (0.2) (0.2) (0.2) (0.2) 6.1

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 55 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 31 May 2014and MSCI weightings as of 1 June 2014. Numbers in brackets are the previous month values.

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Asia Pacific Equity Research 04 July 2014

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Asia Pacific Equity Research 04 July 2014

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Asia Pacific Equity Research 04 July 2014

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J.P. Morgan Emerging Markets Strategy Team Chief Equity Strategists Adrian Mowat Pedro Martins Junior David Aserkoff Frontier Markets Aditya Srinath Christian Kern Diego Celedon Developed Markets Mislav Matejka Jesper J Koll Country Strategists Adrian Mowat Emy Shayo Bharat Iyer Aditya Srinath Scott Seo Hoy Kit Mak Anne Jirajariyavech Nur Cristiani Jeanette Yutan Alex Kantarovich Ayan Ghosh Alvin Kwock Economic & Policy Research Joyce Chang Luis Oganes Colin P Fenton Jahangir Aziz Vladimir Werning Sin Beng Ong Grace Ng Haibin Zhu Jiwon Lim Sajjid Z Chinoy Fabio Akira Gabriel Lozano Michael Marrese Sonja Keller Yarkin Cebeci Anatoliy A Shal Nora Szentivanyi Nicolaie Alexandru Rates Research Bert Gochet Jonny Goulden Holly Huffman Eric Beinstein

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