Deutsche Bank Research Asia Malaysia

Economics

Special Report

Date 11 June 2015 Diana Del-Rosario

Malaysia: The next five years

Economist (+65) 6423 5261 [email protected]

K 

The Eleventh Malaysia Plan is the final phase of the government’s 5-year plan to bring the nation towards high-income status by 2020. The Plan envisions an economy that would grow within 5-6% per year within 20162020 with inflation expected to remain below 3%. It is also affirming the government’s goal of bringing the fiscal deficit to a balanced budget by 2020. Moreover, it is placing greater emphasis on spurring productivity and innovation so that economic growth trickles into people’s wellbeing.



We think an improvement in external demand and recovery in commodity prices would allow the economy to grow about 5% going forward. But given this environment where global trade and commodity prices could remain subdued and low interest rates are bound to normalize, there is a need for the Malaysian government to embark on reforms to build economic resilience and meet the targets set forth under the Eleventh Plan.



The current rate of MYR depreciation and projected slowdown in economic activity this year, for instance, could reverse the uptrend in incomes seen in previous years. And while growth could find support from a firmer recovery in external demand and commodity prices, the economy faces risks of a slowdown in domestic demand from a maturing debt cycle, as already unraveling in Singapore and South Korea.



In this report, we examine four strategies identified in the Plan which are expected to strengthen the country’s macroeconomic fundamentals and facilitate sustainable growth. These are (1) boosting productivity, (2) promoting investment, (3) increasing exports, and (4) consolidating the fiscal position to enhance fiscal buffers.



In our view, the government is on the right track to pursue these strategies. But a firm commitment to the delivery of these reforms remains to be seen.

________________________________________________________________________________________________________________ Deutsche Bank AG/Hong Kong DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015.

11 June 2015 Special Report: Malaysia: The next five years

Malaysia in the next five years Highlights of the Eleventh Malaysia Plan The Eleventh Malaysia Plan is the final phase of the government’s 5-year plan to bring the nation towards high-income status by 2020. The Plan envisions an economy that would grow within 5-6% per year within 2016-2020 with inflation expected to remain below 3%. The Eleventh Plan is also affirming the government’s goal of bringing the fiscal deficit to a balanced budget by 2020. Moreover, it is placing greater emphasis on spurring productivity and innovation so that economic growth trickles into people’s wellbeing. 1.

The Eleventh Plan envisions a high-income Malaysia in the next five years.

GNI per capita (USD bn)

15.7 bn

16.0

The economy is seen to grow 5-6%yoy within 20162020, led by considerable increases in productivity.

contributions to GDP growth (bps) 5.0-6.0

6.0

14.0

10.8 bn

10.0

6.0

44%

3.0

49%

2.0

2.6%yoy growth 2012-14

4.0

16%

21%

4.0

6.4%yoy growth 2015-20

8.0

5.3

5.0

12.0

1.0

2.0

40%

30%

0.0

0.0 2010

2012

2014

2016

2018

2020

Note: GNI from Department of Statistics Malaysia, derived from expenditure components in current prices; High-income threshold in 2020 is estimated by the government at USD15,000 (based on the World Bank’s Atlas Method assuming the WB's historical global inflation benchmark of 2%). Source: CEIC and Deutsche Bank

3.

2.

Fiscal consolidation is set to continue to meet the balanced budget target by 2020.

Fiscal deficit (% of GDP)

Labour

2011-2015 Capital

2016-2020 Total factor productivity

Note: 2011-2015 covers the 10 Malaysia Plan, includes 2015 forecasts by the government. Source: Eleventh Malaysia Plan (Economic Planning Unit of Malaysia dated 21 May 2015) and Deutsche Bank th

4.

Steady growth would be facilitated by a mild easing in import demand.

Real GDP growth breakdown (bps)

0.0

0%

-1.0

Private cons

6.4

Private inv

9.4

-2.0

Public cons

-3.0

Public inv

3.2%

-4.0

5.3% 2010

2011

2012

2013

2014

2015F

2020 Target

2011-2014

2.1

Imports

Source: CEIC, Eleventh Malaysia Plan (Economic Planning Unit of Malaysia dated 21 May 2015), and Deutsche Bank

Page 2

2.7

Exports

-5.0 -6.0

3.7

2016-2020F

2.3 0.0

2.5

5.0

7.5

10.0

12.5

15.0

Source: CEIC, Eleventh Malaysia Plan (Economic Planning Unit of Malaysia dated 21 May 2015), and Deutsche Bank

Deutsche Bank AG/Hong Kong

11 June 2015 Special Report: Malaysia: The next five years

The Eleventh Plan though did not move markets when it was tabled on 21 May by Prime Minister Najib. The MYR appreciated 0.2% against the USD from the previous day whereas the KLCI equity index fell 0.8%. Perhaps this lack of surprise is due to the fact that the Plan basically carries on the broad goals of the Tenth Plan that was laid out in 2010 by the same Prime Minister, and so is not seen as a game changer. The Eleventh Plan is also criticized by some economic observers for lack of transparency in the delivery of specific programs (e.g., it lacked details on new development and infrastructure projects while off-budget expenditure items were not identified) and for being unrealistic on government spending amid an environment of low commodity prices. Nonetheless, we believe that the Eleventh Plan could give us a sense of Malaysia’s medium-term economic trajectory and the policies that are likely to be prioritized in the next five years. We think Malaysia’s Eleventh Plan does recognize a challenging domestic environment, amid a commitment to fiscal consolidation and perhaps, muted commodity prices and higher cost of borrowing. Both private and public sector activities—consumption and investment—are expected to see some mild easing in the next five years from their corresponding pace of growth in the past four years (Chart 4). And this slowdown in domestic activity could ease demand for imports such that a wider trade surplus would facilitate a 5-6%yoy real GDP growth from 2016 through 2020, which would be in line with the 5.3% annual average in the past four years. But the headwinds facing the Malaysian economy underscore the need for economic reforms, in our view, to ensure targets are met in the medium term. For instance, the current rate of MYR depreciation and projected slowdown in economic activity this year could reverse the uptrend in incomes that has been experienced in previous years. That is, we see income per capita fall by 6% this year from the 3% growth in 2012-14 because of the considerable depreciation in the MYR. This means that it would be difficult to achieve at least a 6% annual rate towards the USD15,000 high-income mark by 2020 without economic reforms. (Chart 1). And while a firmer recovery in external demand and commodity prices could well facilitate 5-6% GDP growth in the next five years, the economy additionally faces risks of a slowdown in consumer spending from a maturing debt cycle, as already unraveling in Thailand, South Korea and Singapore. Headwinds facing the Malaysian economy underscore the need for economic reforms Weak trade: A new normal? Merch. exports %yoy, 3mma 40

%yoy, 3mma 80

30

60

20

40

10

20

0

0

-10

-20 EM Asia Asia-ex …

-20

2003

2005

2007

Household debt, % of GDP 90 80 70 60 50 40 30 20 10 0

-40

-30 2001

Growing debt burden

Falling commodity prices

2009

2011

2013

2015

-60 2007

2009

2011

2013

2009

Dec-14

2015

Source: CEIC, Haver Analytics, and Deutsche Bank

We examine below four strategies identified in the Eleventh Plan that are expected to enhance economic resilience, in terms of strengthening macroeconomic fundamentals and attaining sustainable growth. These are (1) boosting productivity, (2) promoting investment, (3) increasing exports, and (4) consolidating the fiscal position. Deutsche Bank AG/Hong Kong

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11 June 2015 Special Report: Malaysia: The next five years

First strategy: Boost productivity The 5-6% annual GDP growth under the Eleventh Plan is expected to be driven by significant improvements in productivity, with reduced dependence on capital and labor inputs. The contribution of total factor productivity to growth is projected to increase from 30% under the Tenth Plan (2011-15) to 40% in the next five years (Chart 2). Increased labor productivity would be facilitated by improving the quality of education and developing industry-led technical and vocational training programmes, both of which would be spearheaded by the government. Industries would also be compelled to adopt new technologies and improve processes, upgrade employee skills, and move to higher valueadded output. Moreover, the public sector is called upon to accelerate regulatory reforms and rationalize government institutions. We welcome the government’s increased emphasis on boosting domestic productivity. Malaysia joins EM Asian economies like China and Singapore that are moving towards reducing the dependence of growth on accumulation of inputs and more on the efficient utilization of these inputs. This is because input accumulation is inherently subject to diminishing marginal returns. Productivity gains could also translate to higher real wages. The OECD, for instance, has stressed that boosting productivity is key for developing economies to close the income gap with the advanced economies.1 But even within Malaysia, enhancing productivity holds the potential of further narrowing the income gap and improving the quality of education. Productivity gains could also offset the drag from a slowdown in population growth and decline in net migration amid steady demand for labor, and even on a possible squeeze on consumer spending due to a substantial household debt burden. Boosting productivity could narrow the income gap…

…and improve the quality of education

Bumiputera Chinese Indians

Percentage of average 160

650 600

Average score

140 120 100

80

550 500 450 400

Malaysia

350

60

300 40 1970

1976

1982

1988

1994

Note: The three groups account for99% of the population in 2014. Source: CEIC and Deutsche Bank

2000

2006

2012

7

8

9

10

11

12

13

Log of GDP per capita Note: Average scores of science, mathematics, and reading PISA 2012 test scores Source: Programme for International Student Assessment, World Development Indicators, and Deutsche Bank

1

Perspectives on Global Development 2014. Organization for Economic Cooperation and Development. http://www.keepeek.com/Digital-Asset-Management/oecd/development/perspectives-on-globaldevelopment-2014_persp_glob_dev-2014-en#page28

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Deutsche Bank AG/Hong Kong

11 June 2015 Special Report: Malaysia: The next five years

Decline in net migration calls for improved productivity

Singapore’s productivity has been lackluster

Net migration ('000 persons) 700.0

35.0

Singapore: Change in labour productivity 30.0

600.0

25.0

500.0

20.0 15.0

400.0

10.0

300.0

5.0 0.0

200.0

-5.0 -10.0

100.0

-15.0

0.0

1982

1987

1992

1997

2002

2007

2012

2007 Overall

Note: Net migration is the net total of migrants during the period, that is, the total number of immigrants less the annual number of emigrants, including both citizens and noncitizens. Data are fiveyear estimates. Source: CEIC and Deutsche Bank

2009 Manufacturing

2011

2013 Construction

2015Q1 Services

Source: CEIC and Deutsche Bank

But the experience of neighboring Singapore has demonstrated that increasing productivity could be an uphill task; the government’s 10-year economic restructuring program that was launched in 2010 has yet to show meaningful gains in the city-state’s labor productivity. In our view, Malaysia is moving in the right direction; we are just not entirely optimistic that productivity would become a major growth driver in the medium term. Perhaps, capital investments (transport, machinery equipment, telecommunications, computer software and hardware) which have partly supported Malaysia’s economic growth in recent years could translate into productivity gains in the medium term, as hoped by authorities.2 Growth in the region, including Malaysia’s, is heavily dependent on capital Accounting for growth (2011-2014 average)

8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 -1.0

TFP

Capital

Labor

Source: The Conference Board and Deutsche Bank

Second strategy: Promote investments The Eleventh Plan aims for private investment to grow 9.4% per year, with estimated annual investment to average MYR291bn (USD80bn).3 This goal is seen to be achieved by improving access to financing and ensuring regulations

2

Productivity Report 2013/2014. Malaysia Productivity Corporation. http://www.mpc.gov.my/home/?kod1=k&kod2=announcement&item=000165&sstr_lang=en&t=3 3

Based on April 2015 FX average rate of MYR3.63 per USD

Deutsche Bank AG/Hong Kong

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11 June 2015 Special Report: Malaysia: The next five years

are business-friendly. Domestic small to medium enterprises (SMEs) will be given priority with regard to domestic direct investments as they dominate establishments in the country and contribute more than 50% of total employment. On foreign direct investments (FDI), there will be increased focus to attract investments in higher value-added and knowledge-intensive employment activities, along with measures to boost productivity. Malaysia has seen an acceleration in private investments since 2010, lifting the share of fixed investment to GDP to 26% in 2012-14 from 22% in 2006-11. The number of newly registered companies, which were mostly local (99.9%), posted roughly 3.4% annual growth and averaged 46,124 per annum in 20102014. FDI averaged at least USD11bn per year in the same 5-year period, about twice the value recorded in 2005-09. The government credits its Economic Transformation Program that was launched in 2010 for catalyzing domestic investments. Though the Eleventh Plan has not explicitly identified key areas of growth, it is likely to carry on the development of 12 key economic areas identified in the Tenth Plan.4 Private investments have gained pace since 2010 % yoy

Newly registered companies ('000) 50.0

25.0 20.0

Number of registered companies has steadily increased

Public

Private

45.0 40.0

15.0

35.0

10.0

30.0

5.0

25.0 20.0

0.0

15.0

-5.0

10.0 5.0

-10.0 2006 2007 2008 2009 2010 2011 2012 2013 2014

0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: CEIC and Deutsche Bank

Source: CEIC and Deutsche Bank

But as borrowing costs rise and commodity prices remain subdued, Malaysia risks a slowdown in the growth of private investments going forward (i.e. less than the government’s projected 9.4%). Private investments still held up in Q42014 and Q1 of this year, growing 13%yoy in nominal terms, despite oil prices plummeting 40%yoy on average, but weakness could start to show thereafter. We are especially alarmed by the dominance of approved investments in real estate services. Of the USD72.1bn domestic direct investments approved by the Malaysian Investment Development Authority in 2014, constituting a 7.5%yoy increase, real estate services accounted for 38% (USD27bn). 5 As interest rates rise in the US and capital flows back to developed markets, Malaysia’s real estate sector could slow down, thereby, weighing on investment growth. Across sectors, the services sector (largely due to real estate) saw the biggest increase in approved investments—accounting for 63% of total—followed by manufacturing (31%; USD22bn) and the primary sector (6%; USD4.4bn), of which the latter was dominated by investor interest in mining. Soft commodity

4

These are oil, gas & energy, palm oil & rubber, financial services, tourism, business services, electronics & electrical, wholesale & retail, education, healthcare, communications content & infrastructure, agriculture, and Greater Kuala Lumpur. 5

Based on 2014 FX average rate of MYR3.27 per USD

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Deutsche Bank AG/Hong Kong

11 June 2015 Special Report: Malaysia: The next five years

prices going forward stand in the way of prospective investments in petroleum products (under manufacturing) and the mining sub-sector. But improving growth prospects in the US and EU could provide support for investments in other manufacturing areas such as electronics & electrical products. Of the total investments approved worth USD72bn in 2014, 72.6% came from domestic investments while 27.4% (MYR64.6bn) were foreign direct investments. Approved investments in 2014 consisted of 5,942 projects which are expected to generate about 178,360 jobs, mostly in high technology and high value-added industries, and accounting for about a third of the new entrants in the labor force. These developments could aid in meeting mediumterm targets, but are by no means guaranteed. Uneven distribution of investments in services Approved investments in services sector in 2014 (USD46bn) 30.0 25.0 20.0 15.0 10.0 5.0 0.0

Source: CEIC and Deutsche Bank

More even distribution in the manufacturing sector Approved investments in manufacturing sector in 2014 (total: USD22bn) 6.0 5.0 4.0 3.0 2.0 1.0 0.0

*Non-metallic mineral products Source: CEIC and Deutsche Bank

Away from the private sector, public investments are expected to increase 2.7%yoy in real terms in the next five years, posting an annual average of MYR131bn (USD36bn) in current prices. The Eleventh Plan expects these investments to come from Federal Government development expenditure and capital spending of non-financial public enterprises (NFPEs) with focus on infrastructure, transport, utilities, and oil & gas industries. Given the drag that these big-ticket projects could cause on the current account surplus, it has been mentioned under the Plan that steps will be taken by the government to sequence project implementation. We think serious challenges abound to meet the public investment target of about MYR131bn per annum under the Eleventh Plan. For one, meeting the target requires a 25% expansion from the average public investment record in 2012-14. The past two years already saw (nominal) public sector investments fall 0.2%yoy on average (+2.8% in 2013, -3.2% in 2014) as the government aimed to reduce the fiscal deficit. If muted commodity prices persist in the next five years and the government carries on with fiscal consolidation, some big-ticket public (and NFPE) projects are likely going to be delayed, in our view. In fact, the Eleventh Plan is already estimating the government’s development expenditure to fall by 0.4% per year from 2016 through 2020, which is at odds with the projected rate of increase in public investments. And even with this year’s projected 23% expansion in development expenditures (MYR48.5bn), we have yet to see a meaningful improvement in public investments which only grew 2.2%yoy in Q1 in nominal terms and 0.4% in real terms. Third strategy: Increase exports The government does recognize the more difficult external environment, with gross exports projected to grow about 4.6% per annum under the Eleventh Deutsche Bank AG/Hong Kong

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11 June 2015 Special Report: Malaysia: The next five years

Plan. This projection is in line with the average merchandise exports outturn in 2011-14, despite large variations in growth. Gross imports, on the other hand, are seen to expand by 4.8% per year in the next five years, slightly lower than the 6.4%yoy average growth since 2011. We believe this is a more reasonable projection and is in line with our view of a more subdued pace of investment expansion going forward. Accordingly, the trade surplus is seen to narrow to MYR57.3bn by 2020, from MYR83.1bn in 2014. The current account is also projected to maintain roughly the same balance as in 2014 to record MYR46.5bn in 2020. A smaller deficit in the services account is expected from higher tourism receipts, increased activities related to the storage and trading hub at the Pengerang Integrated Petroleum Complex (PIPC), and efforts to promote services exports. The authorities believe the implementation of the ASEAN Economic Community in 2015 as well as bilateral and multilateral trade agreements would be beneficial to Malaysia’s exports and so are efforts to move production higher in the value chain. Subdued trade outturn seen under the Eleventh Plan %yoy, 6mma 16 14 12 10 8 6 4 2 11MP forecasts 0 exports: 4.6%yoy -2 imports: 4.8%yoy -4 -6 2011 2012 2013 Exports Exports average Source: CEIC and Deutsche Bank

Steady current account surplus by 2020* Current account balance (MYR bn) 120 100 80 60 40

20

2014 2015 Imports Imports average

0 2011

2012

2013

2014

2020F

*But a lower current account-to-GDP ratio can be expected by 2020 if rGDP grows 5-6% per annum. Source: CEIC, Eleventh Malaysia Plan , and Deutsche Bank

Fourth strategy: Consolidate fiscal position The government remains committed in bringing the fiscal deficit to a balanced budget by 2020. Under the Eleventh Plan, the authorities will increase the efficiency of revenue collection and undertake more prudent use of government funds. With these measures, federal government debt is seen to fall to 45% (or less) of GDP by 2020. We think it will be difficult to meet a balanced budget by 2020, although there will be opportunities to strengthen the fiscal position along the way. Fiscal revenues could improve, in line with the government’s projected 7.9% per year, on the back of increased contribution from the GST. This, in turn, could reduce the reliance on oil revenues to about 18% of total according to our estimate (versus 15.5% as projected under the Plan) by 2020. The government, however, risks overshooting projected spending especially on subsidies. After totally eliminating fuel subsidies in 2014, the subsidy bill is expected to fall by 32% to MYR26.8bn in 2015 before it is seen to grow by a modest 1.6% annually to MYR29bn by 2020. But subsidies-related expenditure could grow more than that; already, this year’s budget has allocated a 6.5% increase in financial assistance to low-income households (BR1M worth MYR4.9bn) to reduce the burden due to the GST. As oil prices rise in the next year or so, the government will also have to commence a targeted fuel subsidy mechanism to protect vulnerable households from higher domestic prices. Moreover, higher borrowing costs amid a substantial household debt burden Page 8

Deutsche Bank AG/Hong Kong

11 June 2015 Special Report: Malaysia: The next five years

could prompt additional financial assistance from the government to avert a drastic slowdown in private consumption. Thus, subsidies, primarily on natural gas where the subsidy bill is still sizeable (MYR24.9bn in 2013, of which 55% was accounted by the power sector, according to the Malaysian Gas Association), would have to be further rationalized to make room for additional spending going forward. In addition, development expenditures might have to be increased if the government wants to ramp up public investments. Reliance on oil-related revenues is likely to fall

Gov’t debt could decline with lower fiscal deficits

Oil & gas related revenues (% of total) 40

35

% of GDP

11MP

30 25 20

DB

15 10 5

0 2010

2011

2012

2013

2014 2015F

Source: CEIC, Eleventh Malaysia Plan, and Deutsche Bank

55% legislated debt ceiling

60 55 50 45 40 35 30 25 20 15 10 5 0

2020F

2010

2011

2012

2013

2014 2015F

2020F

Forecasts under the Eleventh Malaysia Plan Source: CEIC and Deutsche Bank

A recap In summary, we think an improvement in external demand and recovery in commodity prices would allow the Malaysian economy to grow about 5% per annum in the next five years. But given this environment where global trade and commodity prices could remain subdued and low interest rates are bound to normalize, the government is on the right track to pursue strategies that will strengthen Malaysia’s economic resilience and safeguard citizens’ wellbeing. The onus now goes to the government to remain firmly committed to the timely delivery of these reforms. Diana Del-Rosario, Singapore, +65 6423 5261

Deutsche Bank AG/Hong Kong

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11 June 2015 Special Report: Malaysia: The next five years

Appendix 1 Important Disclosures Additional information available upon request *Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr

Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s). In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Diana Del-Rosario

(a) Regulatory Disclosures (b) 1.Important Additional Conflict Disclosures Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.

(c) 2.Short-Term Trade Ideas Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at http://gm.db.com.

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11 June 2015 Special Report: Malaysia: The next five years

(d) Additional Information The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively "Deutsche Bank"). Though the information herein is believed to be reliable and has been obtained from public sources believed to be reliable, Deutsche Bank makes no representation as to its accuracy or completeness. Deutsche Bank may consider this report in deciding to trade as principal. It may also engage in transactions, for its own account or with customers, in a manner inconsistent with the views taken in this research report. Others within Deutsche Bank, including strategists, sales staff and other analysts, may take views that are inconsistent with those taken in this research report. Deutsche Bank issues a variety of research products, including fundamental analysis, equity-linked analysis, quantitative analysis and trade ideas. 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11 June 2015 Special Report: Malaysia: The next five years

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11 June 2015 Special Report: Malaysia: The next five years

and/or services, customers should carefully read the relevant disclosures, prospectuses and other documentation. "Moody's", "Standard & Poor's", and "Fitch" mentioned in this report are not registered credit rating agencies in Japan unless Japan or "Nippon" is specifically designated in the name of the entity. Reports on Japanese listed companies not written by analysts of DSI are written by Deutsche Bank Group's analysts with the coverage companies specified by DSI. Some of the foreign securities stated on this report are not disclosed according to the Financial Instruments and Exchange Law of Japan. Malaysia: Deutsche Bank AG and/or its affiliate(s) may maintain positions in the securities referred to herein and may from time to time offer those securities for purchase or may have an interest to purchase such securities. Deutsche Bank may engage in transactions in a manner inconsistent with the views discussed herein. Qatar: Deutsche Bank AG in the Qatar Financial Centre (registered no. 00032) is regulated by the Qatar Financial Centre Regulatory Authority. Deutsche Bank AG - QFC Branch may only undertake the financial services activities that fall within the scope of its existing QFCRA license. Principal place of business in the QFC: Qatar Financial Centre, Tower, West Bay, Level 5, PO Box 14928, Doha, Qatar. This information has been distributed by Deutsche Bank AG. Related financial products or services are only available to Business Customers, as defined by the Qatar Financial Centre Regulatory Authority. Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any appraisal or evaluation activity requiring a license in the Russian Federation. Kingdom of Saudi Arabia: Deutsche Securities Saudi Arabia LLC Company, (registered no. 07073-37) is regulated by the Capital Market Authority. Deutsche Securities Saudi Arabia may only undertake the financial services activities that fall within the scope of its existing CMA license. Principal place of business in Saudi Arabia: King Fahad Road, Al Olaya District, P.O. Box 301809, Faisaliah Tower 17th Floor, 11372 Riyadh, Saudi Arabia. United Arab Emirates: Deutsche Bank AG in the Dubai International Financial Centre (registered no. 00045) is regulated by the Dubai Financial Services Authority. Deutsche Bank AG - DIFC Branch may only undertake the financial services activities that fall within the scope of its existing DFSA license. Principal place of business in the DIFC: Dubai International Financial Centre, The Gate Village, Building 5, PO Box 504902, Dubai, U.A.E. This information has been distributed by Deutsche Bank AG. Related financial products or services are only available to Professional Clients, as defined by the Dubai Financial Services Authority. Australia: Retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product. Please refer to Australian specific research disclosures and related information at https://australia.db.com/australia/content/research-information.html Australia and New Zealand: This research, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act and New Zealand Financial Advisors Act respectively. Additional information relative to securities, other financial products or issuers discussed in this report is available upon request. This report may not be reproduced, distributed or published by any person for any purpose without Deutsche Bank's prior written consent. Please cite source when quoting. Copyright © 2015 Deutsche Bank AG

Deutsche Bank AG/Hong Kong

Page 13

David Folkerts-Landau Group Chief Economist Member of the Group Executive Committee Raj Hindocha Global Chief Operating Officer Research Michael Spencer Regional Head Asia Pacific Research

Marcel Cassard Global Head FICC Research & Global Macro Economics

Ralf Hoffmann Regional Head Deutsche Bank Research, Germany

Richard Smith and Steve Pollard Co-Global Heads Equity Research

Andreas Neubauer Regional Head Equity Research, Germany

Steve Pollard Regional Head Americas Research

International Locations Deutsche Bank AG Deutsche Bank Place Level 16 Corner of Hunter & Phillip Streets Sydney, NSW 2000 Australia Tel: (61) 2 8258 1234

Deutsche Bank AG Große Gallusstraße 10-14 60272 Frankfurt am Main Germany Tel: (49) 69 910 00

Deutsche Bank AG London 1 Great Winchester Street London EC2N 2EQ United Kingdom Tel: (44) 20 7545 8000

Deutsche Bank Securities Inc. 60 Wall Street New York, NY 10005 United States of America Tel: (1) 212 250 2500

Deutsche Bank AG Filiale Hongkong International Commerce Centre, 1 Austin Road West,Kowloon, Hong Kong Tel: (852) 2203 8888

Deutsche Securities Inc. 2-11-1 Nagatacho Sanno Park Tower Chiyoda-ku, Tokyo 100-6171 Japan Tel: (81) 3 5156 6770

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Across sectors, the services sector (largely due to real estate) saw the biggest increase in ... electrical, wholesale & retail, education, healthcare, communications content & infrastructure, agriculture .... securities other than the primary subject of this research, please see the most recently published company report or visit our ...

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