Emerging Markets Equity Research 18 July 2014

Herd Instinct Key Emerging Markets and Developed Asia Fund Flow Weekly, 10 - 16 July 2014 During the week to 16 July, there were net subscriptions of US$1.1billion in EM equity funds. For the week, total subscriptions into ETFs came in at US$895million.YTD redemption in EM is US$21.8billion (redemption US$4.1billion in EM ETF’s). The net flows by mandate were: • • • • • •

Total EM equity funds US$1.1billion subscriptions GEMS equity funds US$936million subscriptions Asia ex-Japan equity funds US$762million subscriptions EMEA equity funds US$164million redemptions LatAm equity funds US$380million redemptions US equity funds US$2.7billion subscriptions

Inflows in all emerging markets except South Africa and Philippines: • • •

Korea: US$819million inflows Indonesia: US$745million inflows India: US$397million 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For countries that do not publish official foreign transactions in their equity markets, we use the monthly data from EPFR Global (they cover 12,000 international, EM and US funds with total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, 10 - 16 July 2014 Index Net MTD 2014 Chg Flows (%) US$M US$M US$M Stock Exchange Investors' Trading Data Japan (1 wk lag) -2.4 -1588 1654 -12655 South Africa 1.0 -156 -67 1412 Brazil* 3.8 20 -247 6060 Taiwan 0.0 142 619 10661 Korea 1.1 819 1658 4533 India -0.1 397 1472 11856 Thailand 1.5 218 430 -816 Indonesia 2.2 745 948 4778 Philippines -1.1 -2 54 1066 Monthly Tracking of Cross Border Funds (May 2014)* Australia -0.1 578 1749 1.2 154 9 Singapore Hong Kong 3.8 98 -1629 4.0 -310 -8345 China Malaysia -0.5 89 -657 1.1 159 -2039 Mexico Russia 10.2 218 -2098 Chile -1.3 75 -170 Poland 0.1 52 -352 Turkey 8.1 38 -211 Regional & US Mutual Fund Flows Total EM Equity**** 0.6 1138 -21863 0.6 936 -3212 Global EM Equity* LatAm Equity* 2.1 -380 -4452 EMEA Equity* 0.0 -164 -2437 Asia ex-Japan Equity* 0.4 762 -11067 BRIC Equity* 1.1 -16 -694 Japan Equity Funds 0.3 2 13874 Developed Europe* 0.1 -36 51844 International Equity 0.3 3684 46866 US Equity*** 0.4 2655 24631

2013 Agg. US$M

12M Avg (x).

154550 220 6010 9173 4855 20139 -6193 -1797 681

-0.8 -0.8 0.1 0.2 1.1 0.7 1.9 3.5 0.0

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

0.9 0.8 -1.3 -0.9 1.5 -0.4 0.0 -0.1 1.9 0.5

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 9 – 15 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

Asia Pacific Equity Research 1 November 18 July 2014 2013

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

Emerging Markets – Net inflows during the week

Asia ex Japan – Strong inflows during the week

Figure 1: Global Emerging Markets Funds, Weekly net flows US$, mils

Index

1120

5,500 4,000

1080

2,500

1040

1,000

1000

(500)

960

(2,000)

920

(3,500) (5,000) Nov-11

Mar-12

Jul-12

Nov-12

Mar-13

Jul-13

Weekly Net Flows (L)

Nov-13

Mar-14

880 Jul-14 16-Jul-14

US$, mils

Index

12,000 6,000 0 (6,000) (12,000) (18,000)

Weekly Net Flows (L)

Source: MSCI, Datastream, EPFR Global.

2

560 540 520 500 480 460 Mar 12

Jul 12

Mar-13

Nov 12

Mar 13

Jul 13

Nov 13

Mar 14 16-Jul-14 Jul 14

440

MSCI Asia ex Japan Index (R)

Source: MSCI, Datastream, EPFR Global

18,000

Nov-12

580

International – Strong inflows during the week

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

Jul-12

2,200 1,650 1,100 550 0 (550) (1,100) (1,650) (2,200) Nov 11

Index

Weekly Net Flows (L)

US – Marginal Inflows during the week

Mar-12

US$, mils

MSCI EMF Index (R)

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

(24,000) Nov-11

Figure 2 Asia Ex Japan Funds, Weekly net flows

Jul-13

Nov-13

Mar-14 16-Jul-14 Jul-14

1900 1800 1700 1600 1500 1400 1300 1200 1100

Figure 4: International Funds, Weekly net inflows US$, mils

Index

4,000

300

2,500

285

1,000

270

(500)

255

(2,000)

240

(3,500)

225

(5,000) Nov-11

Mar-12

Jul-12

Nov-12

Weekly Net Flows (L)

MSCI US Index (R)

Source: MSCI, Datastream, EPFR Global.

Mar-13

Jul-13

Nov-13

MSCI AC World ex US Index (R)

Mar-14

210 Jul-14 16-Jul-14

Asia Pacific Equity Research 18 July 2014

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

Emerging Markets – Net inflows during the week Figure 5: Global Emerging Markets Funds, Weekly net flows US$, mils

Index

6,000

1400

4,500

1100

3,000 1,500

800

0

500

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

Aug-04

Mar-07

Weekly Net Flows (L)

Oct-09

May-12

16-Jul-14

200

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

168 138 108 78 48 18 (12) Jan-01

Jan-03

Dec-04

Nov-06

Oct-08

Sep-10

Aug-12

Sep-10

Aug-12

Jul-14

Source: EPFR Global

MSCI EMF Index (R)

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

Figure 7: Asia Ex Japan Funds, Weekly net flows US$, mils

Index

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

Weekly Net Flows (L)

Source: MSCI, Datastream, EPFR Global.

Mar 07

Oct 09

May 12

16-Jul-14

US$, bils

700

76

590

63

480

50

370

37

260 Aug 04

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

150

24 11 (2) Jan-01

Jan-03

Dec-04

Nov-06

Oct-08

Jul-14

MSCI Asia ex Japan Index (R)

Source: EPFR Global.

3

Asia Pacific Equity Research 1 November 18 July 2014 2013

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

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

Index

1,200

5200

800

4000

400

2800

0

1600

(400) (800) Jan-02

Aug-04

Mar-07

Oct-09

Weekly Net Flows (L)

May-12

400

16-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.

Figure 10: Latin America Funds, monthly cumulative net flows US$, bils

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

Source: EPFR Global

EMEA – Net 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

Mar-07

Oct-09

May-12

16-Jul-14

US$, bils

14 10

(2) (6) Jan-01

Jan-03

MSCI EMEA Index (R)

Source: EPFR Global.

Dec-04

Nov-06

Asia Pacific Equity Research 18 July 2014

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

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

Index

5,000

380

3,000

310

1,000

240

(1,000)

170

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

Aug-04

Mar-07

Weekly Net Flows (L)

Oct-09

May-12

16-Jul-14

100

MSCI AC World ex US Index (R)

Source: MSCI, Datastream, EPFR Global.

Figure 14: International Funds, monthly cumulative net flows US$, bils

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

Source: EPFR Global.

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

Index

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 MSCI US Index (R)

May-12

16-Jul-14

1910 1770 1630 1490 1350 1210 1070 930 790 650

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

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

Jan-03

Dec-04

Nov-06

Oct-08

Sep-10

Source: EPFR Global.

5

Asia Pacific Equity Research 1 November 18 July 2014 2013

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

Japan – Net outflows from 5 July – 11 July 2014 Figure 17: Weekly Net foreign investment into the Japan stock market US$, mils

Index

1,200

15,000

1,100

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

600

10,500

1,000

500

6,000

900

400

800

1,500

700

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

Nov-03

Jun-06

Jan-09

Foreigners' Net Buy (L)

Aug-11

11-Jul-14 Mar-14

300

600

200

500

100

400

0 Apr-01

Jul-03

Sep-05

Dec-07

Feb-10

May-12

Jul-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

200 800

14,000 12,000 10,000 8,000 4,000 2,000

(600) Mar-03

Jul-05 Foreigners' Net Buy (L)

Source: MSCI, Datastream, EPFR Global.

6

US$, mils

6,000

(200)

(1,000) Nov-00

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

Nov-07

Mar-10 MSCI Australia (R)

Jul-12 May-14

500

(2,000) Mar-00 Source:EPFR Global.

Aug-02

Dec-04

Apr-07

Sep-09

Jan-12

May-14

Asia Pacific Equity Research 18 July 2014

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

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

Index

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

Jun-02

Feb-04

Oct-05

May-07

Jan-09

Foreigners' Net Buy (L)

Sep-10

May-12

Dec-13 May-14

20,000

12,500

16,000

10,000

12,000

7,500

8,000

5,000

4,000

2,500

US$, mils

Index

500 400 300 200

Nov-06

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

Aug-02

Dec-04

Apr-07

Sep-09

Jan-12

May-14

Source: EPFR Global.

Figure 23: Monthly Net foreign investment into Singapore equities by funds monitored by EPFR Global

Nov-04

(4,000) Mar-00

MSCI Hong Kong (R)

Singapore – Net inflows in May

Nov-02

US$, mils

15,000

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

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

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

Nov-08

Nov-10 MSCI Singapore (R)

Nov-12 May-14

100

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

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

Asia Pacific Equity Research 1 November 18 July 2014 2013

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

South Africa – Net outflows during the week

Figure 25: Weekly Net foreign investment into the South Africa stock market US$, mils

Index

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

Jul-04

Feb-07 Foreigners' Net Buy (L)

Sep-09

Apr-12

16-Jul-14

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

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)

wSource: 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

1,000

20

(400)

700

15

(1,200)

400

10

1,200 400

(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 Jun-14 May-14

5 -

Mar-00

Source: EPFR Global

Aug-02

Dec-04

Apr-07

Sep-09

Jan-12

May-14

Asia Pacific Equity Research 18 July 2014

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

Brazil – Marginal inflows from 9 July – 16 July 2014 Figure 29: Weekly Net foreign investment into the Brazilian stock market US$, mils

Index

1,500

320,000

1,000

280,000

500

240,000

0

200,000

(500)

160,000

(1,000)

120,000

(1,500)

80,000

(2,000) Jan-01

Dec-02

Nov-04

Oct-06

Sep-08

Foreigners' Net Buy

Aug-10

Jul-12

40,000 15-Jul-14 Jul-14

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

18 15 12 9 6 3 (3) (6) (9) (12) Jul-98

Nov-00

Feb-03

Sep-07

Jun-05

Dec-09

Jul-14

Apr-12

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

45,000

1,000

40,000

700

35,000

400

30,000

100

25,000

(200)

20,000

(500)

15,000

(800)

10,000

(1,100) (1,400) Nov-00

Feb-03

May-05

Sep-07

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

.

Dec-09

Apr-12

MSCI Mexico (R)

5,000 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

Asia Pacific Equity Research 1 November 18 July 2014 2013

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

Taiwan – Marginal 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

Index

400 350

Jul-04

Jan-07 Foreigners' Net Buy (L)

Jul-09

Jan-12

Jul-14 16-Jul-14

Figure 34: Monthly cumulative net foreign investment into the Taiwan stock market 110 94 78

300

62

250

46

200

30

150

14

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).

(2) Feb-97

Jan-00

Nov-02

Oct-05

Sep-08

Aug-11

Jul-14

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

Korea – Net inflows during the week Figure 35: Weekly Net foreign investment into the Korea stock market US$, mils

Index

3,000

700

2,000

600

1,000

500

0

400

(1,000)

300

(2,000)

200

(3,000) (4,000) Jan-02

Aug-04

Mar-07 Foreigners' Net Buy (L)

Source: Bloomberg, Datastream, KSE.

10

Oct-09

May-12

16-Jul-14

100

Figure 36: Monthly cumulative net foreign investment into the Korea stock market 60 50 40 30 20 10 0 -10 -20 -30 Feb-97

Jan-00

Nov-02

MSCI Korea (R)

Source: Bloomberg, KSE, Data in US$ billion

Oct-05

Sep-08

Aug-11

Jul-14

Asia Pacific Equity Research 18 July 2014

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

China – Marginal outflows in May Figure 37: Monthly Net foreign investment into Chinese equities by funds monitored by EPFR Global Figure 38: Monthly cumulative net foreign investment into Chinese equities by funds monitored by US$, mils Index EPFR Global US$, bils:

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

Jul-02

Apr-04

Jan-06

Oct-07

Jul-09

Foreigners' Net Buy (L)

Apr-11

Jan-13 May-14

110 100 90 80 70 60 50 40 30 20 10

MSCI China (R)

.

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

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

Mar-00

Aug-02

Dec-04

Apr-07

Sep-09

Jan-12

May-14

Source: EPFR Global.

India – Net inflows during the week Figure 39: Weekly Net foreign investment into the Indian stock market US$, mils

Index

2,400 1,800 1,200 600 0 (600) (1,200) (1,800) Jan-02

Aug-04

Mar-07 Foreigners' Net Buy (L)

Oct-09

May-12

16-Jul-14

920 820 720 620 520 420 320 220 120

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.

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

150 135 120 105 90 75 60 45 30 15 Jan-99

Mar-01

Jun-03

Sep-05

Nov-07

Feb-10

May-12

Jul-14

Source: Bloomberg, BSE & NSE.

11

Asia Pacific Equity Research 1 November 18 July 2014 2013

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

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

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

Aug-04

Mar-07

Oct-09

Index

May-12

16-Jul-14

600 550 500 450 400 350 300 250 200 150 100

9 7 5 2 0 -2 Dec-97

MSCI Thailand (R)

Foreigners' Net Buy (L)

Figure 42: Monthly cumulative net foreign investment into the Thailand stock market

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

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)

200 Oct-12 May-14 Jul-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

Asia Pacific Equity Research 18 July 2014

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

Indonesia – Strong 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

30

5,800

26

4,200

18

2,600

14

1,000 Oct-09

Foreigners' Net Buy (L)

May-12

16-Jul-14

22

3,400 1,800

Mar-07

US$, bils

6,600 5,000

Aug-04

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

200

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 – Marginal outflows 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

Jul-04

Jan-07 Foreigners' Net Buy (L)

Jul-09

Jan-12

Index

16-Jul-14 Jul-14

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

MSCI Philippines (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.

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

Source: Bloomberg, PSE.

13

Asia Pacific Equity Research 1 November 18 July 2014 2013

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

Poland – Net inflows in May Figure 49: Monthly 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

Index

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

Mar-04

Dec-05

Aug-07

Foreigners' Net Buy (L)

May-09

Jan-11

Sep-12

700 Jun-14 May-14

MSCI Poland (R)

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

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

US$, mils

500

1,300,000

8,000

250

1,100,000

7,000

900,000

6,000

0

700,000

(250)

500,000

(500) (750) Nov-00

Sep-02

Jul-04

May-06

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

14

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

Mar-08

Jan-10

Nov-11

MSCI Turkey (R)

May-14 Sep-13

5,000 4,000 3,000

300,000

2,000

100,000

1,000 -

Mar-00

Source: EPFR Global.

Aug-02

Dec-04

Apr-07

Sep-09

Jan-12

May-14

Asia Pacific Equity Research 18 July 2014

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

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

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Asia Pacific Equity Research 18 July 2014

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

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 18 July 2014

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Asia Pacific Equity Research 18 July 2014

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Asia Pacific Equity Research 18 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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