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Global Emerging Markets – Investing in 3.9bn people Stuart James Aberdeen Asset Management Limited 23 November 2006.

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Presentation on theme: "Global Emerging Markets – Investing in 3.9bn people Stuart James Aberdeen Asset Management Limited 23 November 2006."— Presentation transcript:

1 Global Emerging Markets – Investing in 3.9bn people Stuart James Aberdeen Asset Management Limited 23 November 2006

2 Source: The Economist – IMF, MSCI, The Economist estimates. *2004; The Economist – OECD, Angus Madison Emerging economies as % of world total, 2005 The young pretenders Share of global GDP (in ppp)

3 Source: The Economist, Goldman Sachs Economics Research – Dreaming with BRICs A new world order Largest economies in 2004 and 2050

4 Source: Aberdeen, MSCI Current market snapshot

5 Global Emerging Markets – Coming of age

6 GEM story is sound Long-term outlook is positive: –Economic and market reform –Economic growth to outpace other regions –Strong demographics Corporate fundamentals have improved (but still some room to go) –Profitability is up thanks to restructuring and cost cutting –Management increasingly focused on creating shareholder value Valuations remain good and attractive on relative basis

7 Positive demographics will drive domestic demand Current Population (%) CountriesCurrent Population (m) Under 15 years15-64 yearsOver 65 years United States Eurozone Japan China India Brazil Mexico Turkey Thailand South Korea South Africa Source: Bloomberg, Jun 05

8 Sound company fundamentals GEM companies have been growing earnings across the board Bias in indices to resources skews aggregate figures Falling or stabilising interest rates will be positive for consumer, domestic demand stories Yields in Asia, Brazil stand out Shift to quality likely as valuations continue to steepen Sector Earnings Growth Dividend distributions – Asia ex Japan %2005E2006E All Consumer disc.12.3 Staples Energy Materials Telco Tech Industrials Utilities Fins Health Source: Merrill Lynch IQ; CLSA Asia Pacific Markets – note dividends are CLSA universe

9 Broad universe of stocks *EMEA: Emerging Europe, Middle East, Africa Source: MSCI, end Dec companies in the MSCI Emerging Markets Index to choose from

10 Valuations still comfortable GEM currently trades on aggregate P/E of 13x Some sectors are looking stretched; market variance is also notable Discount to developed markets is wide given potential, globalisation – this is the long-term story …cheap on relative basis pricier now… Source: Datastream

11 Potential risks Politics Factors beyond GEM control Quality of companies Volatility – risk Under-exposure

12 Factors beyond GEM control Commodity cycle may be near peak Sustained high oil prices could damage demand and corporate margins Global slowdown possible because of higher US interest rates, impact on consumption Excessive capital raising via IPOs and secondary offerings Last leg up for commodities? Source: ABN Amro, Bloomberg, Datastream

13 Quality of companies Source: Aberdeen Asset Management Asia Limited, end Sept 06 Portfolio data – Aberdeen Emerging Opportunities Fund Portfolio data – Aberdeen Asian Opportunities Fund * Historic NB p/e on calendar basis

14 MSCI Emerging Market Index USD – Jan Dec 2005 Source: MSCI, end Dec : Asian crisis 1998: Russian domestic debt meltdown 1999: Brazil – Collapse of currency peg 2001: Turkey – Collapse of lira and GDP 2001: Argentina – Collapse of banking system 2002: Brazil - “Lula paranoia” Improved fiscal policies, structural changes, stronger companies 1994: Mexico- “Tequila crisis” GEM markets have a history of volatility…

15 Source: Mercer, MSCI …but investors have been compensated Risk/Return, Asset ClassGeometric Return (% pa) (A$ terms) Standard Deviation (%pa) Risk/Return Ratio MSCI World (developed mkts only) MSCI Far East ex Japan MSCI Emerging Markets free

16 Building a stronger portfolio with BRICs

17 China an amazing macro story bn population Average GDP growth of 9% pa over the last 25 years 20m people relocate from rural to urban areas each year Foreign Direct Investment (FDI) Large and increasingly affluent consumer base

18 China – Good macro, poor micro Overcapacity is leading to margin erosion; few companies are making decent returns Banking system Consumer spending will be increasingly important to growth as Beijing seeks balance Quality still lacking at company level: Core holdings via HK, eg PetroChina, China Mobile

19 India Good business infrastructure Consumer spending, domestic credit cycle is at early growth stage Good quality companies, wide choice, eg ICICI Bank, Satyam and Hero Honda No longer cheap given recent foreign investment flows

20 Brazil Falling inflation, opportunity to cut interest rates Good quality companies, attractive valuations and supportive dividend yields Our preferred stocks are industry leaders such as CVRD, Petrobras and Souza Cruz Presidential elections in October will test the scandal-hit Lula administration; a lurch towards more populist policies is unlikely – but possible

21 Russia Oil price/commodity boom has produced windfall gains for economy, resulting in strong current account surplus, improved corporate profitability and consumer confidence But ripple benefits are limited by government choices – while oil stabilisation fund is sensible, higher public sector salaries are being preferred over structural reforms On company level poor corporate governance, unclear shareholding structures and opaque business practices persist post-Yukos – and these risks are not priced in

22 Implementation and allocation

23 Accessing Global Emerging Markets Actively managed ‘traditional’ international equity portfolio –Aberdeen International Equity Fund Specialist global emerging markets portfolio –Aberdeen Emerging Markets Fund Regional focused equity portfolio –Aberdeen Asian Opportunities Fund Single country equity portfolios –Aberdeen China Opportunities Fund

24 Fund portfolio: Aberdeen International Equity Fund Source: Aberdeen Asset Managers Limited, December 2005 Source: Aberdeen Asset Management Asia Limited, end September 06

25 Fund portfolio: Aberdeen Emerging Opportunities Source: Aberdeen Asset Management Asia Limited, end Sept 06

26 Fund portfolio: Aberdeen Asian Opportunities Fund Source: Aberdeen Asset Management Asia Limited, end Sept 06 CountryAsian Opportunities Fund % MSCI Asia Free ex JapanDifference Singapore China/Hong Kong Korea India Taiwan Thailand Malaysia Philippines Sri Lanka Indonesia Pakistan Cash Total

27 Additional information For more information on Aberdeen’s fund range please contact your TPC representative or Aberdeen directly: Performance data Independent research ratings Platform availability Investment process and philosophy Detailed regional and market updates

28 Disclaimer Equity Trustees Limited ABN AFSL No (EQT) is the issuer and responsible entity of the Aberdeen Fund Range (Funds). Aberdeen Asset Management Limited ABN AFSL No (Aberdeen) manages the assets of the Funds. All offers of units in the Funds are made in the Aberdeen Product Disclosure Statement dated 11 November 2005 (PDS), the Supplementary Product Disclosure Statements dated 19 April 2006 and 8 May 2006 (together SPDS). You should consider the PDS and SPDS in deciding whether to acquire, or to continue to hold units in the Funds. EQT and Aberdeen (including their officers, employees, agents and related bodies corporate), (together, EQT and Aberdeen) do not guarantee the repayment of capital, the performance or any distribution from the Fund. Information in this document is of a general nature only and based on sources believed to be reliable, and all opinions expressed are honestly held as at the applicable date. Subject to any applicable law, EQT and Aberdeen do not provide any warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. This document is not intended to provide investment or personal financial product advice and has not been prepared taking into account the particular objectives, financial situation or needs of any investor, so it is important that before acting investors should consider the appropriateness of the information, their own circumstances, objectives and financial situation and consult a financial and/or tax adviser. EQT and Aberdeen shall not be liable for any loss or damage caused to any person in respect of this information, except as required by applicable law. You must not copy, modify, sell, distribute, adapt, publish, frame, reproduce or otherwise use any of this material without the prior written consent of Aberdeen.


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