EFTA Document EFTA01451027

11 December 2013 GEM Equity Strategy Outlook 2014 4. Low GEM valuations give some option value; The relatively low level of valuations for some GEM markets and sectors, especially in terms of replacement cost (Figure 7 - EV/NCI is a reasonable proxy for replacement cost), mean that any positive turn in sentiment is likely to produce sharp rallies, albeit in an overall absolute and relative context that remains bearish. Investors should take longterm structural positions and live with volatility. or else take shorter term disciplined contrarian approach We prefer to base our recommendations on longer term strategic considerations rather than the more flow-based tactical calls, which are generally made on a post hoc basis to generate turnover. For those funds who feel the urge to pursue more active strategies however, we have continued to advocate a contrarian approach, which would have worked since early 2009 due largely to the increasing influence of momentum-based investors who focus on anticipated fund flows, which is an ultimately self-defeating strategy for most participants. The contrarian approach has continued to work well over 2013, both for GEM overall and for most individual markets, including all of the BRICs with the partial exception of Brazil. The pattern appears set to continue for the first part of 2014 but could shift if both China and the oil price finally break down, which should give dedicated investors the opportunity to generate some longer lasting alpha within the asset class. Ifigure 8: Net foreign inflows (USD millions) lotha Endooesia Korea PIXIinolnto Taiwan Thailand ASEAN Aare ex-Japan Japan Lad 1 week 315 80 -32 -611 -210 -268 -484 12.924 YID 17,252 -1,397 6,047 808 7,069 -4,338 -4,925 25,442 124,175 2012 24,574 1,707 15,059 2,548 4,916 2,504 6,759 51,317 27,733 2011 -564 2,950 -8,584 1,329 -9,488 -167 4,112 -14,523 -323 2010 29.338 2,390 19,800 1,224 9.241 2,687 6.301 64.680 22,926 2009 17,644 1,383 24.659 420 14.752 1,136 2,938 5.993 -6.513 2008 12,900 1,732 -36,641 -1.135 -14,719 -4,798 -4,191 48.451 -66.817 2007 18,558 3,598 -29,269 1,354 2,073 1,548 6,500 -2,138 32,759 2006 8.366 1,942 -12.659 720 17,424 2.067 4,730 17.852 68,885 21108 10,905 -1,735 -3,561 354 22,212 2,949 1,568 31.123 113,338 2004 8,642 2,126 10,134 278 9,865 103 2,607 30,647 95,603 ill Correa K Mt II NINITOR 2013. San Dana* ant Noomberg Arent* LP Country weightings unchanged ... bard on governance, oil and China view We discuss the outlook for the individual markets at greater length, later in the report, but our country weightings for GEM remain unchanged and are still driven by the underweight positions which we have found much easier to determine, whilst we continue to find it very difficult to identify compelling overweights. Underweight • Chine; Whilst China appears cheap in aggregate, this is largely due to the dominant financials sector, where investors are discounting major book value impairments from NPLs; Materials stocks also generally have very low valuations whilst Healthcare and Consumer Staples stocks are among the more expensive in the asset class. MSCI China has outperformed our expectations over 2013 and sentiment appears somewhat elevated, which if the past four years is any guide, suggests Deutsche Bank AG/London Page 9 CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0107143 CONFIDENTIAL SDNY_GM_00253327 EFTA01451027