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Global Top30 equity strategy

This reflects the views of the Group equities | 26 September 2014

Internet stocks in focus post Alibaba IPO Contents

 ADD: Priceline Group (PCLN US) – Priceline is the world Internet stocks in focus post Alibaba IPO 1 leader in online accommodation reservations. We expect the Top30 stock review 2 company to continue to gain market share, underpinned by its strong presence in international markets such as Europe and Market views 8 . These markets are underpenetrated and present significant Top picks for yield 10 opportunities for the company. Technical Commentary 11  ADD: (LLOY LN) – Lloyds is the largest Global Top30 – Performance & Valuations 14 domestically focused group in the UK. We believe Lloyds is well positioned to benefit from an economic Top30 – Stock Rationale 15 recovery. Rising UK rates are expected to support a modest Top30 – Results update 17 expansion in net interest margins in 2015/16. We expect the Sector & Country – Performance & Valuations 18 to resume paying dividends in early 2015, with consensus expecting an indicative yield of c.4%. Equity Strategy – Country & Sector Weights 20  CUT: EMC Corp (EMC US) – The stock rose strongly on the Valuations & Earnings Revisions 22 back of market speculation of a spin-off of its VMware unit. We Important Information 27 have removed the company’s name from the Top30 list,

suggesting investors to take profit, as we do not believe the current valuation premium over its peers is justified.

 Our short-term ideas this month based on are: AIA, Teva and Schlumberger. Audrey Goh, CFA  On Watch: We have added Tullow Oil (TLW LN) to our Investment Strategist negative watchlist on the back of the recent decline in Brent oil Victor Teo, CFA price. Investment Strategist

Global Top30 (local currency, by sector) Stock Consensus 12m Fwd 12m Fwd Div Div 1M% TR YTD% TR ITD% TR Ticker Name Country Sector Price Rating P/E P/ Yield% Payout% Local Local Local PHM US PulteGroup Inc United States Financials 18.3 3.4 13.5 1.3 1.1 2.2 -3.7% -9.3% 5.4% 7201 JP Nissan Motor Co Japan Discretionary 1075.0 3.9 9.3 0.9 2.8 32.3 5.9% 23.6% 6.0% MCD US McDonald’s Corp United States Discretionary 95.0 3.4 16.7 5.8 3.4 55.8 1.4% 0.4% 2.6% NOV US Natl Oilwell Varco United States Energy 78.9 4.1 12.0 1.4 1.8 16.7 -5.6% 11.7% 32.5% HAL US Halliburton Co United States Energy 64.7 4.4 13.1 3.1 0.9 22.1 -3.9% 28.4%33.1% SLB US Schlumberger Ltd United States Energy 102.1 4.8 15.7 2.9 1.5 24.3 -6.0% 14.6% -5.5% BG/ LN BG Group Plc Britain Energy 1150.5 3.4 15.0 1.7 1.7 44.7 -3.2% -9.8% 0.5% TLW LN Tullow Oil Britain Energy 665.0 3.8 25.0 1.8 2.0 64.6 -5.1% -20.8% -15.3% CNQ CN Can Natural Res Canada Energy 44.1 4.8 11.7 1.6 2.0 27.6 -4.2% 24.7% 35.4% LLOY LN Lloyds Banking Britain Financials 75.4 3.9 9.4 1.3 N/A N/A -1.1% -4.4% 0% 1299 HK Aia Group Ltd Hong Kong Financials 41.6 4.0 18.2 2.1 1.1 23.3 -4.0% 8.1%65.3% COF US Capital One Fin United States Financials 82.4 4.4 10.7 1.0 1.5 12.8 1.4% 8.9% 21.1% AMT US American Tower United States Financials 94.2 4.8 34.9 8.4 1.4 79.1 -3.7% 19.4%22.9% AGN NA Aegon Nv Netherlands Financials 6.6 4.0 9.2 0.7 3.3 78.7 14.5% -0.1% 22.1% POP SM Banco Popular Spain Financials 4.7 3.0 17.5 0.8 1.1 0.0 2.8% 8.4% -4.2% WLP US Wellpoint Inc United States Health Care 124.2 3.6 13.6 1.3 1.4 17.0 10.4% 36.1% 55.3% ESRX US Express Scripts United States Health Care 72.8 4.5 13.7 2.7 N/A 0.0 -3.0% 3.6% 29.3% SAN FP Sanofi France Health Care 88.9 3.9 15.9 2.0 3.1 99.8 11.9% 19.5% 17.6% TEVA US Teva Pharm-ADR Israel Health Care 53.7 4.0 11.0 1.8 2.5 87.3 0.5% 36.9% 36.9% DG FP Vinci Sa France Industrials 46.4 4.1 12.5 1.7 3.8 54.3 -3.2% -0.6% 56.0% AIR FP Airbus Group Nv France Industrials 47.5 4.6 14.5 2.7 1.6 40.1 6.3% -13.6% 2.0% HOLN VX Holcim Ltd-Reg Switzerland Materials 69.1 3.9 14.4 1.3 1.9 33.3 -5.9% 5.2% -4.0% AAPL US Apple Inc United States Technology 101.8 4.3 14.2 4.5 1.8 28.5 0.4% 29.1% 66.1% QCOM US Qualcomm Inc United States Technology 76.2 4.3 13.7 3.0 2.0 30.5 -0.2% 4.3% 27.7% ORCL US Oracle Corp United States Technology 39.4 4.0 12.6 3.3 1.2 19.8 -5.3% 4.0% 23.5% CSCO US Cisco Systems United States Technology 25.0 3.9 11.5 2.1 2.9 47.9 1.3% 14.0% 22.5% PCLN US Priceline Group United States Technology 1182.0 4.7 19.3 6.0 N/A 0.0 -7.5% 1.7% 0% NTES US Netease Inc-ADR China Technology 88.3 4.0 12.9 2.6 2.4 25.0 1.1% 15.7% 43.4% BIDU US Baidu Inc-Sp ADR China Technology 222.0 4.5 27.6 7.2 N/A 0.0 3.6% 24.8% 29.9% RWE GY RWE Ag Utilities 31.6 2.8 14.6 1.8 3.2 N/A 7.9% 23.2% -0.9%

Source: Bloomberg, , data as of 24 September 2014 *Nissan Motors on FX hedged basis

This commentary reflects the views of the Wealth Management Group of Standard Chartered Bank. This is not a research 1 report and has not been produced by a research unit. Important disclosures can be found in the Disclosures Appendix.

equity strategy – Global Top30 | 26 September 2014

Our key themes and sector calls over the next 12 months

Prefer global equities to global  Equities expected to perform well and outperform global bonds. bonds:

Prefer cyclicals to ‘expensive  Given our base case that economic growth will continue to strengthen, we expect defensives’: further sector rotation from ‘expensive/defensive’ areas of the market (e.g., Telecoms and Consumer Staples) into cyclicals. The latter would include Technology, Industrials and certain areas of Consumer Discretionary and Financials. High-yielding, high-quality equities:  Despite becoming less relevant due to yield compression and valuations, these are likely to remain in high demand given the low-interest-rate environment. We will review this theme as interest rates rise. Global sector preference:  Technology (OW) – Attractive valuations, strong growth and significantly higher-than- average return on capital.  Energy (OW) – We like a diversified exposure to E&P and US service companies. Key is to focus on companies with expected improvement to cash flow generation.  Industrials (OW) – We expect the sector to benefit from an improving economy.  Financials (N) – Prefer defensive areas of the market, such as , Asset Managers and Exchanges. Be selective within European peripherals.  Healthcare (N) – Although we are Neutral in terms of allocation, we find good opportunities and prefer Services and Large/Specialty Pharmaceuticals. On watch for an upgrade to Overweight.

Source: Standard Chartered

Top30 stock review Highlighted stocks Ticker Events Priceline Group PCLN US Add ADD: Lloyds Banking Group LLOY LN Add  Priceline Group (PCLN US) – Priceline is the world leader in EMC Corp EMC US Cut online accommodation reservations. We expect the company to Tullow Oil TLW LN On Watch see continued market share gains, underpinned by its strong Aegon NV AGN NA Inline presence in international markets such as Europe and Asia. Vinci SA DG FP Highlight These markets remain underpenetrated and present significant Alibaba BABA US Highlight growth opportunities for the company.  The partnership with Ctrip will also allow it to gain a strong foothold in a booming Chinese tourism industry through resources and knowledge sharing. Synergies created with new acquisitions

are also expected to strengthen the network effect.

ADD:  Lloyds Banking Group (LLOY LN) – Lloyds Banking Group is the largest financial services group in the UK. It is the market leader across most product segments it operates in, including mortgages, consumer credit, deposits and current accounts. EMC had a strong run in the past two months EMC’s stock price  We believe Lloyds is well positioned to benefit from a recovery in the UK economy. Rising rates in the UK are expected to support 32 a modest expansion in net interest margins in 2015/16. Valuation 31 30 is attractive at c.9x P/E and c.1.3x P/B (below UK peers’ average 29 of c.1.6x). We expect the bank to resume paying dividends in 28

early 2015, with consensus expecting an indicative yield of c.4% 27 USD CUT: 26 25  EMC Corp (EMC US) – The stock has performed well YTD, 24

driven by a strong run of 9% in the past two months due to 1) 23

management’s guidance of a product ramp-up in H2, and 2) M&A 22 speculation surrounding the firm and its affiliates. Following the Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 EMC US Equity 50 dma 100 dma 200 dma outperformance, the stock is now trading at a premium to its Source: Bloomberg, Standard Chartered industry peers, which we believe is not justified.

This reflects the views of the Wealth Management Group 2

equity strategy – Global Top30 | 26 September 2014

 The stock is currently trading at 14x 12m forward P/E, with peers Tullow Oil’s share price is strongly impacted by oil such as IBM, Oracle and Cisco trading at 10-12x 12m forward prices P/E. The multiple expansion has likely priced in a favourable Tullow Oil stock performance and Brent crude spot scenario on its potential spin-off of VMware, which has not been 1,200 120 confirmed by the company. Therefore, we have removed the stock from our Top30 list. We suggest investors to take profit at 1,100 115 current levels and await further clarity on the company’s strategic 1,000 110 plans before re-visiting the stock. 900 105 On Watch: GBp 800 100

 Tullow Oil (TLW LN) – The stock has fallen by 8% over the past barrel per USD month, mainly due to weakness in Brent oil, which fell by 5% over 700 95 the same period. This has negatively impacted upstream 600 90 exploration and production companies such as Tullow Oil. For Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Tullow Oil Brent Crude (RHS) every USD 5 change in Brent oil price, the estimated impact on Source: Bloomberg, Standard Chartered Tullow Oil’s NAV is c.5%.  We expect Brent to remain well supported at current levels. OPEC is likely to intervene if oil price falls below the USD 100 mark for a prolonged period of time. Tullow Oil’s reserves hold

significant untapped potential. Management is also expected to

focus on free cash flow and improve spending discipline to limit

capex to wells that have a high probability of success.  Risks: Decline in Brent oil price, global economic slowdown and We expect Priceline to continue to register higher- USD strength. than-industry EPS growth Priceline’s fundamentals

40 80 ADD: Priceline Group (PCLN US) 30 60 Profile: Priceline Group is the world leader in online accommodation reservations. It is composed of six primary brands – Booking.com, 20 40 priceline.com, agoda.com, KAYAK, rentalcars.com and OpenTable – % USD and several ancillary brands. The company provides online travel 10 20 services, such as hotel bookings, airline tickets, car rentals and vacation packages, in over 200 countries and territories in Europe, the 0 0 America’s, Asia-Pacific, the and . International and 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 domestic bookings account for 85% and 15% of the total revenue, EPS EBIT Margin (RHS) ROE (RHS) respectively, and more than two-thirds of these bookings are derived Source: Bloomberg, Standard Chartered from agency channels.

Rationale  We expect Priceline Group to see continued market share gains in the online travel agencies (OTA) industry, underpinned by the company’s strong presence in international markets. We believe international markets, such as Europe and

Asia, remain underpenetrated and present significant Booking.com continues to see growth in hotel opportunities for the company. inventory  The trend of outbound travels from these regions is growing at a Number of hotel properties in Booking.com rapid pace. Additionally, with increased internet penetration, particularly in emerging markets, there is a switch from offline to 600 70 online travel bookings. The company is a market leader in Europe 500 60 50 and Asia via Booking.com and Agoda.com, on top of its strong 400 presence in the US through Priceline.com. It currently has the 40 300 % largest portfolio of hotel properties globally (525,000), which has 30 200 allowed it to capture a significant market share over the past few 20

years. Inventory ('000) 100 10  Priceline Group signed an expansion of its agreement with 0 0 Ctrip to improve its reach in the China outbound tourism Q1 08 Q2 09 Q3 10 Q4 11 Q1 13 Q2 14 market. Under the non-exclusive deal, the company may invest Hotel inventory y/y % (RHS) up to c.10% ownership in Ctrip via convertible bonds and share Source: Bloomberg, Standard Chartered existing resources on a larger scale.

This reflects the views of the Wealth Management Group 3

equity strategy – Global Top30 | 26 September 2014

 The move to strengthen the relationship reaffirms the company’s China's online travel industry remains strategic focus on penetrating the booming Chinese tourism underpenetrated relative to Developed Markets industry. The partnership allows both companies to gain China’s online travel gross merchandise volume and to each other’s hotel inventory and travel services. For Priceline, total OTA revenue this partnership brings a significant source of additional demand. 70 3.5 Given Ctrip’s market leadership in China (c.45% OTA market 60 3.0 share with c.100,000 hotel properties), Priceline will also be able 50 to leverage its extensive network and distribution channels, and 40 2.5 most importantly, the market know-how on navigating the local 30 2.0

regulatory environment. (bn) CNY (bn) CNY 20  Synergies gained from recent acquisitions are likely to 1.5 strengthen Priceline’s network effect, creating an additional 10 leg of growth. Going forward, we expect new acquisitions, such 0 1.0 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 as KAYAK and OpenTable, to leverage Priceline’s existing Online Travel GMV OTA total revenues (RHS) platforms to create a one-stop online solution for travel booking. Source: Bloomberg, Standard Chartered KAYAK is a travel search engine, while OpenTable is a restaurant reservation service.  With the growth in smart device usage, the acquisitions allow

Priceline to solidify its footprint in the mobile channel. While both acquisitions are expected to enhance the breadth of the current offerings (in terms of search content), the scale of Priceline’s international footprint through its OTA brands will, in turn, provide Priceline’s current share price is close to the USD captive traffic for new acquisitions, allowing cross-promotions 1,100 support level opportunities and sharing of unique travel content within its Priceline’s stock price

platforms. 1500

 Valuations: Priceline trades at 14x 12m forward EV/EBITDA and 1400 19x 12m forward P/E, both at a slight premium to its historical 1300 average. Given the company’s strong brand equity and growth visibility when compared with industry peers, we believe current 1200 USD valuations are attractive. Longer term, there may be room for 1100 further re-rating, should international bookings grow at a faster- 1000 than-expected pace. The stock, however, does not offer dividends. 900

800  Technicals: The stock has been consolidating in a broad range Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 (USD 1,100-USD 1,300) since the start of the year, following the PCLN US Equity 50 dma 100 dma 200 dma strong rally from its 2012 lows. In the event the stock pierces Source: Bloomberg, Standard Chartered through the horizontal trend line support at USD 1,110, the current retracement support is seen at USD 1,060. Any decline

from the above support levels can be used to accumulate the stock in anticipation of a rebound to the upper end of the range.  Risks: A negative turn in the global economy would lead to a slowdown in travel, increased competition from other online travel Lending volumes are beginning to recover as homeowners take advantage of currently low agencies, margin pressure from aggressive offline advertising and interest rates FX volatility. UK lending to individuals – net mortgage outstanding

12 ADD: Lloyds Banking Group (LLOY LN) 10 Profile: Lloyds is the largest financial services group in the UK. It was 8 formed through the merger of Lloyds TSB and HBOS in 2009. Its main 6 businesses are retail and commercial – the former accounts for c.70% 4 of the group’s profits. Lloyds has the largest distribution network, with GBP (m) 2 20-22% market share by deposits and branch/ATM network in the UK. It is the market leader across most product segments it operates in, 0 including mortgages, consumer credit, deposits and current accounts. -2 Lloyds operates primarily in the UK through , , Feb-05 Jun-07 Oct-09 Mar-12 Jul-14 Bank of and brands. Source: Bloomberg, Standard Chartered

This reflects the views of the Wealth Management Group 4

equity strategy – Global Top30 | 26 September 2014

Rationale: A reduction in branch network is expected to bring about cost savings  We believe Lloyds is well positioned to benefit from a Number of bank branches in the UK as of 2013 recovery in the UK economy. Consumer confidence has risen to above the pre-crisis highs. Credit growth is starting to pick up 2,500 2,253 2,000 after five years of deleveraging. Lloyds, through its network 2,000 franchise, is poised to benefit from this improvement in credit 1,560 1,500 1,172 demand and increased cross-sell opportunities. 1,010 Index 1,000 808  Rising UK rates to support a modest expansion in net 294 interest margins in 2015/16. The consensus expects the Bank 500 of to hike rates in Q1 15. This should feed through to 0 higher NIM by 2015/16, somewhat mitigated by the potential RBS TSB

compression in mortgage spreads due to higher capital risk LBG ex Sans UK HSBC UK HSBC

weighting. Nationwide Co-op Bank

 It is worthwhile to note that Lloyds managed to grow its NIM to Source: Bloomberg, Standard Chartered c.2.4% in 2013 from 1.9% in 2012 despite pressures on asset yields, focusing on improving product mix and lower deposit funding cost. Lloyds should continue to have a relative advantage in funding due to its strong deposit franchise, in our opinion, when interest rates in the UK begin to rise.

 Upcoming strategy update in autumn could be a potential positive catalyst. Management has successfully implemented the first round of its cost rationalisation. We expect more to come. Net interest margins have picked up on the back of Branch/network typically account for 30-40% of a retail bank’s lower cost of funds cost. Given reduced traffic at branches, and since Lloyds is under Llyods Banking Group’s net interest margin a moratorium from closing its branches till the end of 2014, we 2.8 see scope for cost savings from an optimisation in network and headcount. Management would also provide an update on group 2.6 2.32 product strategy, further sharpening its areas of focus after de- 2.4 2.48

risking its balance sheet for the past five years. % 2.16 2.17 2.2 2.29 2.05  Dividend payment likely to resume in 2015. Management has 1.95 1.96 2.0 2.09 1.93 indicated that it plans to seek permission from regulators to 2.06 1.97 1.94 restart dividend payments in 2015. Given reasonably flushed 1.8 1.91 capital position (core tier 1 at 11-12% currently) and continued 1.6 capital build-up from profit growth, we expect Lloyds to be in a

position to start paying dividends from 2015. Consensus is Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 expecting a payout of c.GBP 0.03 in 2015, suggesting an Source: Bloomberg, Standard Chartered indicative yield of c.4%.

 Asset quality expected to remain benign. While there are concerns about Lloyds’ significant mortgage exposure in the UK, it is worthwhile to highlight that even during the depth of the financial crisis in 2008/09, where housing prices in the UK collapsed by over 20%, UK residential loan losses peaked at c.9bps, which is much lower compared to the 4-5% loss seen in credit cards and unsecured credit. Lloyds share price has been range-bound over the past few months  Near term, potential misconduct cost and a shift to higher risk Llyods Banking Group’s stock price weighting for mortgages by the government may weigh on sector 90 sentiment. We expect Lloyds to be resilient, having made

significant provisions over the past years, with a solid capital 85 position. Valuations: Lloyds is trading at c.9x 2015 P/E and 1.2x P/B, which is 80 at a discount to UK peers that are trading at 11.8x P/E and 1.7x P/B. GBp 75 Technicals: The stock has been consolidating after touching a high of

GBP 85, post a strong rally from its 2011 lows. The broader technical 70 structure still appears positive. However, a break of the sideways channel support line at GBp 72 could spell further weakness, with the 65 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 next line of support at GBp 62. Alternately, if the price is sustained at LLOY LN Equity 50 dma 100 dma 200 dma these levels and climbs above GBp 80, it would signal the start of the Source: Bloomberg, Standard Chartered next intermediate uptrend phase.

This reflects the views of the Wealth Management Group 5

equity strategy – Global Top30 | 26 September 2014

Risks: Regulatory changes around risk weighting for mortgage Poor construction outlook in France led to a decline lending business, unanticipated fines due to misconduct and negative in orders surprise from the election in the UK in May 2015. The government is France Construction PMI planning to reduce its 25% stake prior to the election, which is an 50 overhang for the stock.

46 Highlight: Vinci SA (DG FP) 42 Shares of Vinci fell 20% from its five-year high of EUR 56.85 (19 June 2014) due to 1) deteriorating manufacturing PMI in France, and 2) Index 38 weak FY2014 earnings guidance by management. The broad market weakness in Europe also contributed to the negative sentiment in 34 markets. The recent management guidance suggests infrastructure 30 spending in Europe has slowed down. Thus, the company expects Jan-13 Jun-13 Nov-13 Apr-14 Aug-14 lower activity and order intake in H2 14. We were encouraged, Source: Bloomberg, Standard Chartered however, to read that the company is looking to re-accelerate growth by restructuring and making investments. While we are less sanguine on the contracting business, we believe the defensive quality of the concessionary business will shine through during periods of weaker economic activity. Longer term, the annuity- like cash flow that streams from these businesses (i.e., toll roads and car parks) should support dividends and offset earnings volatility. Concession earnings will help offset earnings Shorter term, the stock may range-trade for now but should see upside, volatility with the economic recovery in the Euro area gaining a firmer footing. Vinci’s operating income from concession and Valuations are fair at 7.6x forward EV/EBITDA and 13x 12m forward contraction segments P/E, in line with key competitors in the industry. A key risk to 2.0 valuations will be further downgrades to earnings. 1.5 The stock has done well since we added it to the Global Top30 list on 16 June 2012 (up 56%). The recent pullback has not changed our 1.0

view on the outlook of the company or the fundamentals of the stock. EUR (bn) We are cognisant that we may take profit at some point in time given 0.5 the outsized returns. However, for now, we believe there may be 0.0 further upside potential for the stock over the next 12 months.

S2 09 S1 10 S2 10 S1 11 S2 11 S1 12 S2 12 S1 13 S2 13 S1 14 Concessions Contracting Highlight: Alibaba (BABA US) Source: Bloomberg, Standard Chartered Shares of the highly anticipated Alibaba (IPO) climbed 38% after it commenced trading. Underwriters subsequently exercised an option to enlarge its IPO by 15%, bringing the total capital raised to a record USD 25bn. Based on the last traded price of USD90.57 (as on 24 September 2014), the stock currently trades at 39x 12m forward P/E, which is a slight premium to major Chinese internet stocks listed in the US, such as Tencent (700 HK) and Baidu (BIDU US).

Ahead of Alibaba’s IPO, supply chain vendors, and more visibly, its major shareholders, like Softbank (9984 JP) and Yahoo (YHOO US), Valuations for Alibaba look fair compared to peers rallied as the market priced in the better-than-expected demand for Forward valuations of Alibaba and industry peers the IPO. Short term, we will not be surprised to see downward 100 pressure on these stocks as investors take a quick profit. 81.2 Alibaba is the world’s largest online and mobile marketplace in retail 80 and wholesale trade, as well in cloud computing and trade services. It 60 operates three retail marketplaces in China (Taobao, Tmall and Juhuasuan), which account for c.82% of its revenue. It also has a 40 33.3 29.4 26.7 Multiples (x) Multiples 28.6 24.6 wholesale market platform through Alibaba.com, which serves 18.8 21.4 20.3 20 16.1 wholesale buyers, suppliers and manufacturers globally. Alibaba does 9.9 not offer products and merchandise on its platform, unlike the 2.5 0 traditional e-commerce models. Instead, it offers a highly complex Alibaba Amazon Ebay Tencent Baidu Rakuten eco-system and network (marketplace) for sellers and buyers to 12m forward P/E 12m forward EV/EBITDA connect and transact goods. It also has a distribution arm to ensure Source: Bloomberg, Standard Chartered the supply chain flow of transactions is conducted efficiently and a company to offer payment and escrow services.

This reflects the views of the Wealth Management Group 6

equity strategy – Global Top30 | 26 September 2014

The key difference between global online retailer Amazon (AMZN US) We may see some profit-taking post the IPO and Alibaba is that the former purchases merchandises from suppliers Daily stock performance (T=19 September 2014, IPO of and re-sells them to consumers for profits, while the latter merely acts Alibaba) as a ‘middle man’ to facilitate transactions. Alibaba does not earn 50 commissions from sales but takes a nominal fee from its suppliers, 38 both big and small merchants, for advertisements and other value- 40 added services. 30

Despite its dominant market leadership (c.80% of all online goods % 20 purchased online in China), bad publicity has plagued the company in 10 recent years, as merchants delivered fake goods or failed to deliver 1.5 0.6 1 goods as promised. The company has since stepped up its efforts to 0 eradicate ‘bad’ merchants and introduced secure payment services to -1.2 -2.7 -4.3 -3.3 -2.7 -10 -5.6 -6.1 boost buyers’ confidence in its services. T-1 T T+1 T+2 Alibaba Yahoo Softbank Risks: Reputation risks, regulatory changes in China’s e-commerce Source: Bloomberg, Standard Chartered industry and challenges in monetising its business model on mobile platforms. Alibaba’s business model allows it to have higher margins than Amazon Earnings update: Profit margins of major online retailers

50 Aegon NV (AGN NA) – Inline 40  Q2 rose 43.5% y/y to EUR 343m, driven by better- 30 than-expected investment returns and lower impairments. 20 %  Earnings in the US rose 2% in local currency terms as higher 10 earnings growth in its variable annuity (VA), and mutual 0 fund segments was partly offset by unfavourable mortality. -10  Earnings increased 29% y/y in the Netherlands, largely due to -20 improvements in non-life and investment income. The company Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 will pay a dividend of EUR 0.11 per share (unchanged from a Ebay Amazon Alibaba year earlier). Source: Bloomberg, Standard Chartered View: Aegon’s solid set of earnings highlights the resilience of its US businesses, which have delivered steady growth over the past Aegon's US business accounts for c.60% of its quarters. Positive earnings momentum from its Transamerica pension earnings business should support its share performance. In the longer term, we Aegon’s US business segment earnings expect growth to be well supported by improving demographics, such as an ageing population and increasing awareness of 200 retirement/insurance needs. The company continues to drive cost savings while investing in growth 150 initiatives such as web/mobile platforms and online portals. The stock 87 120 96 is currently trading at a discount to peers due to its ongoing 100 84 restructuring (at 10x 12m forward P/E). In the near term, the market (m) USD 50 expects the company to book a mortality charge next quarter in its 84 68 annual model assumptions review, and we believe this may create an 55 62 overhang on the stock in the coming months. 0 Q2 11 Q2 12 Q2 13 Q2 14 Risks: Regulatory changes, higher-than-expected mortality charges US US variable annuities and volatility in financial markets. Source: Bloomberg, Standard Chartered

This reflects the views of the Wealth Management Group 7

equity strategy – Global Top30 | 26 September 2014

Defensives sectors have outperforming relative to

cyclical recently Market views

Global sector performance over the past month (MSCI

Interest rates have once again appeared on investors’ radar screens AC World) following recent central bank meetings in the US, the Euro area and

Consumer Discretionary -1.9% the UK. Investment implications of this are centred in the UK as the Consumer Staples -0.2% will be the first of the three to raise rates, as per

Energy -3.8% consensus. We recommend adding UK to gain exposure to this Financial -0.7% theme. Healthcare 3.4%

A strong US dollar is contributing towards the easier financial Industrial -1.4% conditions in the Euro area and Japan. This is benefitting exporters in IT -0.5%

Materials -3.7% both markets, which are receiving a short-term fillip to their competitiveness as well as positive translation effect from their Telecom 0.7% overseas earnings. Japanese auto exporters, in particular, are Utilities -1.1% beneficiaries of this trend. Global Property Equity/REITs -5.6% -7.0%-6.0%-5.0%-4.0%-3.0%-2.0%-1.0%0.0%1.0%2.0%3.0%4.0% The US technology and European banking sectors have both been in the spotlight over the past month. Launches that have been in focus Source: MSCI, Bloomberg, Standard Chartered include the Alibaba IPO and the iPhone 6. In the European banking sector, October will witness the release of the asset quality review.

Another round of capital raising is expected for the minority of banks that are found to have asset quality issues.

Global interest rate divergence and opportunities FOMC members’ expectations for Fed Funds Minutes from the Fed’s September FOMC meeting indicated Fed Dot Plot committee members expect rates to be higher than the consensus 5.0 view by the end of 2015. The so-called Dot Chart, a scatter chart 4.5 indicating committee members’ rate expectations, shows rates will rise 4.0 3.5 to 1.27% by the end of 2015, up from 1.2% at the time of the last 3.0 update in June.

% 2.5 Assuming consensus expectations on the timing of the first rate hike 2.0 proves to be correct and the Fed starts to raise rates in June, it implies 1.5 a 25bps hike at five of the six meetings in H2 15. This significantly 1.0 0.5 exceeds current market expectations. The investment implications of 0.0 such an outturn are significant and imply that we may see spikes in 2015 2016 asset market volatility in 2015, with commensurate short term Source: Bloomberg, Standard Chartered downward pressure on asset prices.

While the Fed has attracted considerable attention, we are focused on \ the investment implications of a rate hike by the Bank of England, which is expected will raise rates as soon as Q1 15. We have added

Lloyds Bank to our Top30 list, as it is viewed as a beneficiary of rising rates given its pure focus on the UK and high current and savings account funding base.

While the US and UK are raising rates, the European Central Bank Developed Markets rate hike timing and the People’s are heading in the opposite direction Market consensus expectations of first rate hike – lowering rates and easing monetary policy. The investment 3.5 implication of this trend in the Euro area centres on the impact of a weaker euro. We analysed this topic in last month’s Global Top30 3.0 publication, and we have exposure to it in our stock list via Airbus (AIR 2.5 FP) and Banco Popular (POP SM). 2.0 % For China, an easing of monetary policy to limit the downside risks to 1.5 growth has investment implications for the local banking sector, and in 1.0 turn, Chinese banks on our Asia Top30 list. For our Global Top30 list, 0.5 we believe we are shielded from the full impact of the slowing Chinese 0.0 growth, as most of our portfolio comprises companies with exposure Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 to the Chinese consumer sector: Qualcomm and Apple. We do have US UK Canada Australia exposure to the Chinese Industrial sector via Airbus. This is a concern Source: Bloomberg, Standard Chartered as half of the firm’s revenue comes from the Asia-Pacific. However, not all of this is associated with China.

This reflects the views of the Wealth Management Group 8

equity strategy – Global Top30 | 26 September 2014

Japanese auto exporters – Beneficiaries of yen weakness US auto sales by manufacturer The yen has declined 5% over the past 30 days as investors focus on Auto sales market share in the US by volumes (August 2014) potential capital outflows related to changes in the investment mandate of the Government Pension Investment fund (GPIF) as well Mercedes Others GM 1.8 BMW 2.7 17.3 as divergent US and Japanese rate paths. This is resulting in a re- Mazda 1.7 rating of export stocks in Japan, particularly in the auto sector. 2.0 Volkswagen Toyota The weakness in the yen appears to be structural as opposed to 2.2 Subaru 15.6 3.2 cyclical in terms of the deterioration in the balance of payments. Hyundai-Kia Relative to a surplus of JPY 210trn in 2007, the annualised balance in 7.9 2014 is a deficit of JPY 32bn. A deteriorating current account balance Ford Nissan 13.8 due to a spike in energy imports is primarily responsible for this 8.5 decline. Honda Chrysler 10.6 12.5 Japanese exporters have clearly benefitted from the weakness in the Source: Bloomberg, Standard Chartered yen, with auto exporters being the stand out beneficiaries. This sector has been performing well, not just due to a weak yen, but also due to an improvement in US and European auto sales. Annualised auto sales in Europe rose to 16m units in August, which, if maintained, would be the first year of growth since 2010. In the US, annualised auto sales were USD 17.45m in August, putting the industry on track for a record year. Nissan is the star performer YTD and is in our Global General Motors was the top-selling brand in the US in August, with Top30 list Toyota taking the second spot. Among the top-six selling brands in the YTD performance of Japanese automakers

US, three were Japanese and the remainder US manufacturers. In 130 Europe, Japanese manufacturers tend to have a smaller market share. Among the top-six manufacturers, four were European and two 120

American. Only Toyota makes it to the top 10 in Europe. 110

Nissan is included in our Global Top30 list. The stock has performed 100 well on the back of the recovery in US and European auto sales. It is benefitting from its tie-up with Renault, in terms of shared production 2014 = (1 Jan Index 100) 90 platforms and lower R&D costs. Among the four Japanese 80 manufacturers (Toyota, Nissan, Honda and Fuji Heavy), Nissan is the 70 best-performing stock, rising 23% (in local currency terms) YTD. Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Nissan Toyota Honda Fuji heavy Source: Bloomberg, Standard Chartered

Banks – divergent rate outlook

Interest rate divergence is expected to be a key trend in 2015. The consensus view states that the Bank of England will be the first to move in Q1 15, with the Fed likely to follow in Q2 15. The European Central Bank and the Bank of Japan are expected to leave rates untouched for an extended period of time. Banks tend to outperform following rate hikes Apart from increased market volatility in the approach to and British bank performance at the time of rate hikes immediately following the first rate hike, there are some specific 140 investment implications for investors to consider in the banking sector. 130 Banks tend to benefit in the early stages of rate hikes via an increase 120 in net interest margins, assuming they fund their lending via current 110

and savings accounts as opposed to the interbank market. In Index 100 essence, banks tend to reprise their loans faster than their deposits, 90 and this leads to an increase in net interest margins. 80 This fundamental feature of the sector is reflected in banks’ T-9mth T-6mth T-3mth T+3mth T+6mth T+9mth T-12mth performance relative to the FTSE before and after the 2006 rate hike T+12mth Rate Hike Hike Rate cycle; as such, we have added Lloyds to our Top30 list. The bank FTSE 100 Lloyds RBS Barclays offers investors focused exposure to the UK economy and funds its Source: Bloomberg, Standard Chartered lending primarily from its current and savings accounts, which is a key feature to look for as the rate cycle turns.

This reflects the views of the Wealth Management Group 9

equity strategy – Global Top30 | 26 September 2014

Top picks for yield

There are no changes to the dividend picks this month.

Asia Top divi picks* (local currency) Stock 12m Fwd 12m Fwd P/B Div Net Debt/ TR Ticker Name Sector Price Dvd Yield P/E Trailing Payout% Equity TR 1M% YTD% 1088 HK China Shenhua-H Energy 22.55 4.8 8.5 1.2 40.2 22.0 -3.8% -3.0% MINT SP Mapletree Indust Financials 1.44 7.0 14.4 1.2 53.4 50.9 3.2% 13.5% CDREIT SP Cdl Reit Financials 1.69 7.0 14.0 1.0 76.0 38.8 2.1% 10.0% CCT SP Capitacommercial Financials 1.66 5.5 19.8 0.9 62.5 41.2 1.8% 20.8% SGREIT SP Starhill Global Financials 0.81 6.5 15.7 0.9 44.3 39.2 -1.8% 8.1% 2388 HK Boc Hong Kong Ho Financials 25.50 4.6 10.3 1.6 48.0 -92.9 4.4% 6.9% DBS SP Dbs Group Hldgs Financials 18.28 3.4 10.8 1.3 38.7 -42.6 3.3% 10.5% PBK MK Public Bank Bhd Financials 18.96 3.0 15.2 3.1 44.8 -46.8 -0.9% 3.7% BBL TB Bank Pub Financials 209.00 3.8 9.7 1.3 34.6 -62.74.4% 21.3% 1398 HK Icbc-H Financials 5.13 7.2 4.9 1.0 35.0 -153.9 -2.5% 4.5% HPHT SP Hutchison Port-U Industrials 0.70 7.7 27.0 0.7 N/A 33.2 -0.7% 12.0% KEP SP Keppel Corp Ltd Industrials 10.60 4.3 11.4 1.9 39.2 8.0 -3.1% -1.5% STE SP Singap Tech Eng Industrials 3.65 4.4 18.3 5.7 80.2 -30.6 -1.9% -3.9% ST SP Singapore Teleco Telecommunication Services 3.86 4.8 15.4 2.5 73.2 33.7 -1.3% 8.2% 941 HK China Mobile Telco 98.70 3.2 N/A N/A 43.3 -52.3 7.3% 27.3%

Source: Bloomberg, Standard Chartered, Data as at 24 September 2014 *Hutchison Ports pays 100% of distributable income (operating cash flow)

DM Top divi picks* (local currency) Stock 12m Fwd 12m Fwd P/B Div Net Debt/ TR Ticker Name Sector Price Dvd Yield P/E Trailing Payout% Equity TR 1M% YTD% DAI GY Daimler Ag Discretionary 63.06 4.2 9.3 1.6 34.3 160.4 5.6% 3.6% BSY LN British Sky Broa Discretionary 875.00 4.0 13.7 12.8 57.3 120.5 3.0% 5.2% ENI IM Eni Spa Energy 18.04 6.1 12.9 1.2 37.9 33.3 1.1% 9.5% FP FP Total Sa Energy 49.45 5.1 10.2 1.5 64.0 24.0 4.5% 13.8% BP/ LN Bp Plc Energy 468.30 5.4 9.2 1.1 29.0 19.2 -0.6% -0.2% CVX US Chevron Corp Energy 124.24 3.6 11.2 1.5 34.9 2.6 -1.5% 2.1% WPL AU Woodside Petro Energy 42.14 6.5 12.4 1.9 117.3 9.7 3.2% 17.4% DB1 GR Deutsche Boerse Financials 54.13 4.0 14.2 3.4 80.8 17.8 2.3% -6.5% NAB AU Natl Aust Bank Financials 33.80 6.3 11.9 1.7 85.1 251.9 -2.6% 1.1% SAN FP Sanofi Health Care 87.18 3.4 15.9 2.3 99.8 11.1 11.8% 17.2% NOVN VX Novartis Ag-Reg Health Care 88.10 3.2 16.5 3.2 66.5 11.8 12.9% 27.9% GSK LN Glaxosmithkline Health Care 1432.00 5.8 14.7 11.2 69.1 161.9 2.9% -7.3% ZURN VX Zurich Insurance Financials 280.10 6.3 10.2 1.3 69.7 15.0 3.9% 15.6% DG FP Vinci Sa Industrials 45.15 4.2 12.5 1.8 54.3 105.2 -3.7% -3.2% SIE GY Siemens Ag-Reg Industrials 97.38 3.7 12.8 2.8 61.9 42.5 7.4% 1.2% PM US Philip Morris In Staples 84.20 4.7 15.6 N/A 68.1 N/A -0.4% -1.2% SBRY LN Sainsbury Plc Staples 284.20 6.1 9.0 0.8 45.9 19.9 -8.8% -18.9% VOD LN Group Telco 201.50 5.6 30.3 0.8 33.1 20.4 2.0% -18.6% GSZ FP Gdf Suez Utilities 19.51 5.3 13.9 0.9 N/A 58.7 3.0% 18.3%

Source: Bloomberg, Standard Chartered, Data as at 24 September 2014 *Stock selection in both dividend list are based on a quantitative screen with a qualitative overlay

This reflects the views of the Wealth Management Group 10

equity strategy – Global Top30 | 26 September 2014

Technical Commentary

Below, we present the technical views for our Global Top30 stocks. The stocks are given a rating of 1-5, with 1 being the most favourable technicals and 5 being the least favourable technicals on a 1-3 month basis. This is from a pure technical standpoint and may run contrary to the fundamental views we hold of the stocks within the Global Top30, which are on a 12-month basis.

Global Top30 Technical rating Name Ticker Sector Rating Name Ticker Sector Rating Aia Group Ltd 1299 HK Financials 2 Express Scripts ESRX US Healthcare 3 Teva Pharm-ADR TEVA US Healthcare 2 Vinci Sa DG FP Industrials 3 Schlumberger SLB US Energy 2 Airbus Group Nv AIR FP Industrials 3 PulteGroup Inc PHM US Financials 3 Apple Inc AAPL US Technology 3 Nissan Motor Co 7201 JP Discretionary 3 Qualcomm Inc QCOM US Technology 3 Natl Oilwell Varco NOV US Energy 3 Oracle Corp ORCL US Technology 3 Halliburton Co HAL US Energy 3 Cisco Systems CSCO US Technology 3 BG Group Plc BG LN Energy 3 Netease Inc-ADR NTES US Technology 3 Tullow Oil TLW LN Energy 3 Baidu BIDU US Technology 3 Can Natural Res CNQ CN Energy 3 RWE AG RWE GY Utilities 3 Sanofi SAN FP Healthcare 3 Banco Popular POP SM Financials 3 Capital One Fin COF US Industrials 3 McDonald’s MCD US Discretionary 3 American Tower AMT US Financials 3 Holcim HOLN VX Materials 3 Aegon Nv AGN NA Financials 3 Priceline.com PCLN US Technology 3 Wellpoint Inc WLP US Healthcare 3 Lloyds Banking LLOY LN Financials 3

Source: Standard Chartered Views as of 24 September 2014 On the following pages, we present the Technical charts for 1) existing stocks which are ranked 1 and 2, and 2) new stock additions to the list.

This reflects the views of the Wealth Management Group 11

equity strategy – Global Top30 | 26 September 2014

Technical Commentary

 AIA Group (1299 HK) – The stock has recently begun to pull back from its life high of HKD 44 witnessed a few months ago. The previous resistance breakout point of HKD 40 looks unlikely to be broken easily, given the broader positive chart pattern. The daily chart momentum indicator is also approaching historical oversold levels, suggesting the likelihood of a reversal soon.

Daily Chart

 Teva Pharma ADR (TEVA US) – The broader chart structure continues to appear positive since the initial rally from 2014 lows. The ongoing consolidation range of USD 49–USD 56 is expected to create a base for the next up-leg, which is likely to gradually follow. The recent correction off the highs gives an opportunity to accumulate the stock, and this is unlikely to easily break the support of USD 49 on the downside.

Daily Chart

 Lloyds Banking Group (LLOY LN) – The stock has been consolidating after touching a high of GBP 85, post a strong rally from its 2011 lows. The broader technical structure still appears positive. However, a break from the sideways channel support line at GBp 72 could spell further weakness and indicates a much stronger support at GBp 62. Alternately, if prices sustain at these levels and climb above GBP 80, it would signal the start of the next intermediate uptrend phase.

Weekly Chart Source: Reuters, Standard Chartered

This reflects the views of the Wealth Management Group 12

equity strategy – Global Top30 | 26 September 2014

Technical Commentary (cont’d)

 Priceline Group (PCLN US) – The stock has been consolidating in a broad range (USD 1,100– USD 1,300) since the start of the year, following the strong rally from its 2012 lows. In the event the stock pierces through the horizontal trend line support at USD1,100 the current retracement support is seen at USD 1,060. Any decline from the above support levels can be used to accumulate the stock in anticipation of a rebound to the upper end of the range.

Daily Chart

 Schlumberger (SLB US) – The stock has corrected c.15% from the peak of USD 118 in the last two months and trades close to the 200DMA support of USD 100. The daily momentum indicator line seems to have fallen below the oversold line, which indicates that the decline may be nearing an end. Further, a deterioration in market sentiment could push it slightly lower towards the next support of USD 90. However, we believe the broader uptrend could trigger a quick reversal.

Daily Chart Source: Reuters, Standard Chartered

This reflects the views of the Wealth Management Group 13

equity strategy – Global Top30 | 26 September 2014

Global Top30 – Performance & Valuations

Global Top30 (local currency) Stock Consensus 12m Fwd 12m Fwd Div Div 1M% TR YTD% TR ITD% TR Ticker Name Country Sector Price Rating P/E P/B Yield% Payout% Local Local Local PHM US PulteGroup Inc United States Financials 18.3 3.4 13.5 1.3 1.1 2.2 -3.7% -9.3% 5.4% 7201 JP Nissan Motor Co Japan Discretionary 1075.0 3.9 9.3 0.9 2.8 32.3 5.9% 23.6% 6.0% MCD US McDonalds Corp United States Discretionary 95.0 3.4 16.7 5.8 3.4 55.8 1.4% 0.4% 2.6% NOV US Natl Oilwell Varco United States Energy 78.9 4.1 12.0 1.4 1.8 16.7 -5.6% 11.7% 32.5% HAL US Halliburton Co United States Energy 64.7 4.4 13.1 3.1 0.9 22.1 -3.9% 28.4%33.1% SLB US Schlumberger Ltd United States Energy 102.1 4.8 15.7 2.9 1.5 24.3 -6.0% 14.6% -5.5% BG/ LN BG Group Plc Britain Energy 1150.5 3.4 15.0 1.7 1.7 44.7 -3.2% -9.8% 0.5% TLW LN Tullow Oil Britain Energy 665.0 3.8 25.0 1.8 2.0 64.6 -5.1% -20.8% -15.3% CNQ CN Can Natural Res Canada Energy 44.1 4.8 11.7 1.6 2.0 27.6 -4.2% 24.7% 35.4% LLOY LN Lloyds Banking Britain Financials 75.4 3.9 9.4 1.3 N/A N/A -1.1% -4.4% 0% 1299 HK Aia Group Ltd Hong Kong Financials 41.6 4.0 18.2 2.1 1.1 23.3 -4.0% 8.1%65.3% COF US Capital One Fin United States Financials 82.4 4.4 10.7 1.0 1.5 12.8 1.4% 8.9% 21.1% AMT US American Tower C United States Financials 94.2 4.8 34.9 8.4 1.4 79.1 -3.7% 19.4% 22.9% AGN NA Aegon Nv Netherlands Financials 6.6 4.0 9.2 0.7 3.3 78.7 14.5% -0.1% 22.1% POP SM Banco Popular Spain Financials 4.7 3.0 17.5 0.8 1.1 0.0 2.8% 8.4% -4.2% WLP US Wellpoint Inc United States Health Care 124.2 3.6 13.6 1.3 1.4 17.0 10.4% 36.1% 55.3% ESRX US Express Scripts United States Health Care 72.8 4.5 13.7 2.7 N/A 0.0 -3.0% 3.6% 29.3% SAN FP Sanofi France Health Care 88.9 3.9 15.9 2.0 3.1 99.8 11.9% 19.5% 17.6% TEVA US Teva Pharm-ADR Israel Health Care 53.7 4.0 11.0 1.8 2.5 87.3 0.5% 36.9% 36.9% DG FP Vinci Sa France Industrials 46.4 4.1 12.5 1.7 3.8 54.3 -3.2% -0.6% 56.0% AIR FP Airbus Group Nv France Industrials 47.5 4.6 14.5 2.7 1.6 40.1 6.3% -13.6% 2.0% HOLN VX Holcim Ltd-Reg Switzerland Materials 69.1 3.9 14.4 1.3 1.9 33.3 -5.9% 5.2% -4.0% AAPL US Apple Inc United States Technology 101.8 4.3 14.2 4.5 1.8 28.5 0.4% 29.1% 66.1% QCOM US Qualcomm Inc United States Technology 76.2 4.3 13.7 3.0 2.0 30.5 -0.2% 4.3% 27.7% ORCL US Oracle Corp United States Technology 39.4 4.0 12.6 3.3 1.2 19.8 -5.3% 4.0% 23.5% CSCO US Cisco Systems United States Technology 25.0 3.9 11.5 2.1 2.9 47.9 1.3% 14.0% 22.5% PCLN US Priceline Group United States Technology 1182.0 4.7 19.3 6.0 N/A 0.0 -7.5% 1.7% 0% NTES US Netease Inc-ADR China Technology 88.3 4.0 12.9 2.6 2.4 25.0 1.1% 15.7% 43.4% BIDU US Baidu Inc-Sp ADR China Technology 222.0 4.5 27.6 7.2 N/A 0.0 3.6% 24.8% 29.9% RWE GY RWE Ag Germany Utilities 31.6 2.8 14.6 1.8 3.2 N/A 7.9% 23.2% -0.9% Source: Bloomberg, Standard Chartered As of 24 September 2014

Closed trades (local currency) Closing Inception Closed P&L% TR Ticker Name Country Sector Price Date Date Local AAPL US Apple Inc United States Technology 70.46 20120614 20130123 -9.3% 1928 HK Sands China Ltd Macau Discretionary 34.36 20120720 20130220 56.3% CVX US Chevron Corp United States Energy 109.34 20120614 20130220 15.6% BP/ LN Bp Plc Britain Energy 416.28 20120614 20130220 12.0% 883 HK Cnooc Ltd China Energy 14.52 20120614 20130220 8.5% DGE LN Plc Britain Staples 1861.98 20120614 20130220 24.8% RIO LN Plc Britain Materials 3141.81 20120614 2013031519.9% NSC US Norfolk Southern United States Industrials 72.90 20120614 20130315 13.4% MCD US Mcdonalds Corp United States Industrials 94.02 20120614 20130320 12.8% AXP US United States Industrials 64.89 20120614 20130320 21.1% 005380 KS Hyundai Motor South Korea Discretionary 199500 20120614 20130501 -15.5% KEP SP Keppel Corp Ltd Singapore Industrials 10.24 20120614 20130528 15.6% VOD LN Vodafone Group Britain Telco 216.92 20120614 2013062611.2% MSFT US Microsoft Corp United States Technology 33.16 20120614 20130626 20.7% 941 HK China Mobile Hong Kong Technology 78.73 20120614 20130729 10.6% HPHT SP Hutchison Port-U Singapore Technology 0.68 20130220 20130729 -10.7% 1088 HK China Shenhua-H China Technology 21.91 20121106 20130729 -26.7% 2388 HK Boc Hong Kong Ho Hong Kong Financials 23.44 20130220 20130903 -3.2% SAN FP Sanofi France Health Care 69.72 20120614 20130903 34.3% INTC US Intel Corp United States Technology 21.33 20120614 20130903 -14.1% JNJ US Johnson&Johnson United States Health Care 87.44 20120614 20130918 43.1% DG US Dollar General C United States Discretionary 57.92 20130314 20130918 18.8% DBS SP Dbs Group Hldgs Singapore Financials 15.88 20130220 20130930 11.5% WFC US & Co United States Financials 40.18 20130321 20130930 12.9% FCX US Freeport-Mcmoran United States Materials 32.37 20120614 20131010 7.2% BBBY US Bed Bath &Beyond United States Discretionary 77.44 20130321 20131029 22.7% ALO FP Alstom France Industrials 25.52 20130904 20131210-4.9% TIT IM Telecom Italia S Italy Telco 0.69 20131011 20131210 1.5% GSZ FP Gdf Suez France Utilities 16.10 20120614 2013121013.5% TSCO LN Plc Britain Staples 320.86 20121016 20131210 12.7% UG FP Peugeot Sa France Discretionary 9.60 20130904 20131210 8.9% 7751 JP Canon Inc Japan Technology 2948.80 20130730 20140131 1.0% PM US Philip Morris In United States Discretionary 78.21 20120614 20140228 -0.7% IBM US Ibm United States Technology 183.02 20120614 20140228 -1.9% DB1 GY Deutsche Boerse Germany Financials 55.66 20120830 2014040148.4% FP FP Total Sa France Energy 46.7418 20120614 20140401 54.3% ROST US Ross Stores Inc United States Discretionary 66.34 20131211 20140701 -5.0% COH US Coach Inc United States Discretionary 35.48 20130402 20140805 -26.5% GDX US Mkt Vect-Gold Mi United States Materials 26.10 20120614 20140805 -43.3% DXJ US Wisdomtree Jpn H United States Fund 49.19 20130730 20140805 12.3% 005930 KS Samsung Electron South Korea Technology 1194000.00 20120614 20140902 -3.8% MRVL US Marvell Tech Grp Bermuda Technology 13.79 20140204 20140902 -3.3% EMC US Emc Corp/Ma United States Technology 29.72 20131211 20140924 28.9% Source: Bloomberg, Standard Chartered As of 24 September 2014

This reflects the views of the Wealth Management Group 14

equity strategy – Global Top30 | 26 September 2014

Top30 – Stock Rationale

Global Top30 stock rationale (pg 1) Company Ticker Sector Initial Rationale Aegon AGN NA Financials The Netherlands-domiciled insurance company offers , pension savings and retirement products. The company is focusing more on the ‘fee-based’ pension and asset management businesses. It is also well positioned in the US to a rising interest rate environment. AIA Group 1299 HK Financials Only insurer with pan-Asia exposure and wholly owned insurance operations in China. Structural tailwinds from low insurance penetration in Asia and a steeper yield curve to lead to higher reinvestment rates, resulting in stronger EV and value of new business growth. Airbus AIR FP Industrials Benefitted from strong order intake and has a large order book. Management has indicated confidence in attaining a 10% margin for the Airbus commercial division. Trades at a discount to Boeing. American Tower AMT US Financials As one of the largest tower companies, AMT has excellent exposure to the increasing amount of mobile data traffic. There are also considerable barriers to entry due to zoning restrictions. The company has the longest contracts in the sector. Apple AAPL US Technology The company remains overly focussed on one key revenue driver – the iPhone – and margins will likely be increasingly diluted by competitors. The stock trades at very reasonable metrics and generates significant cash flows that should increasingly be paid out to investors. Baidu BIDU US Technology Baidu is the largest internet PC search engine in China. It has c.80% revenue share of the Chinese search engine market. There are c.470m active search engine users in China, and penetration (which is only a little over 40%) is expected to pick up further as users shift over to mobile. Banco Popular POP SM Financials Banco Popular is sixth-largest bank in Spain by assets, with a strong focus on the domestic business. We believe its NPL ratio, which fell for the first time since 2007, may have peaked. Popular would also benefit from a further decline in funds in the Euro area. BG Group BG/ LN Energy The integrated energy company is primarily involved in the exploration and production of natural gas in various parts of the world. It should benefit from lower prices of natural gas, which is used as an input in its liquefaction process. Canadian Natural CNQ CN Energy The Horizon project is performing well and capacity is expected to pick up significantly – Resources construction of Phases 2 and 3 is in line with the plan. Management expects free cash flow to increase significantly between now and 2020. Capital One COF US Financials The financial services company is involved in lending and consumer banking. Financial It is one of the top credit card issuers in the US and is developing its commercial and automotive loan segment. Cisco CSCO US Technology A major leader in networking products and should be able to generate high-single-digit earnings growth as networks expand and cloud computing gets built out. It generates strong free cash flows and will be able to increase the dividend payout or undertake additional share purchases. ESRX ESRX US Healthcare Largest pharmacy benefits manager (PBM) in the US. Has made a number of acquisitions, giving it unmatched bargaining power with suppliers and the ability to leverage its fixed cost base effectively. It should benefit from the Affordable Care Act in the US, as it will result in a broad expansion of insurance coverage. Halliburton HAL US Energy Given its scale and scope of activity, the company offers integrated service packages, which allow it to maintain its market share and competitive edge. In 2014, it should benefit from the ‘frac of the future’ initiatives in the form of higher margins. Holcim Ltd HOLN VX Materials We expect H2 earnings recovery on the back of cost-cutting initiatives, improvement in underlying market outlook, acceleration in US construction demand and reduced FX headwinds. Merger with Lafarge will likely unlock further upside to stock performance on cost synergies. Lloyds Banking LLOY LN Financials Lloyds is the largest financial services group in the UK, with c.20-22% market share of Group UK deposits and branch/ATM networks. The company is well positioned to benefit from an economic recovery in the UK. Rising UK rates are expected to support a modest expansion in net interest margins in 2015/16. The bank is likely to resume paying dividends in early 2015, with consensus expecting an indicative yield of c.4%.

x

This reflects the views of the Wealth Management Group 15

equity strategy – Global Top30 | 26 September 2014

Global Top30 stock rationale (pg 2) Company Ticker Sector Initial Rationale McDonald's Corp MCD US Discretionary Global leader in fast food retailing, with significant footprint in higher growth Emerging Markets. Defensive franchise-driven model provides income support with streams of rent/royalties, allowing the company to have a strong emphasis on return capial to shareholders. Same-store sales should see gradual recovery due to improving consumer spend and store traffic. National Oilwell NOV US Energy One of the largest equipment suppliers in the drilling industry, with c.60% market share, Varco providing equipment for rigs and consumables used in oil and gas production. The company’s equipment can be found on c.90% of the world’s rigs, and benefits from the fact that many shipyards use a standardised design, making it more cost effective for equipment suppliers such as NOV. NetEase NTES US Technology It is the largest online gaming company in the Chinese market, earning its revenue through usage and item fees on its online games and other value-added services as well as online advertising. Margins are expected to remain well supported on the back of a greater contribution from in-house games and increased traction from their upcoming new title launches/upgrades. Nissan 7201 JP Discretionary A strong alliance with Renault gives the company greater scale – Renault holds 43.4% of Nissan and Nissan owns 15% of Renault. Nissan is a prime mover in the electric car market, having recently launched a four model line-up in this space. Oracle ORCL US Technology Offers a wide range of enterprise IT solutions, including databases, middleware, applications and hardware. Oracle’s product line-up is fairly defensively positioned, as larger clients will be cautious in shifting over to cloud on a new platform. Priceline Group PCLN US Technology Global leader in online accommodation reservations, with international bookings accounting for 85% of total revenue. The company is likely to continue to gain market share in the online travel agencies industry, owing to its strong presence in international markets, such as Europe and Asia, as these markets currently remain underpenetrated, and hence, present significant growth opportunities. PulteGroup PHM US Discretionary The US homebuilder focuses on the entry-level and ‘move-up’ categories. We expect the housing market to continue to gradually improve, with a strengthening economy and relatively low borrowing costs. Qualcomm QCOM US Technology It is the developer of the code division multiplexing (CDMA), which forms the backbone of 3G networks and is used and licensed by almost all handset makers. The company’s licensing arrangements allow it to receive a royalty on almost every handset sold, c.3- 5% of its value. These have an 80% operating margin. RWE AG RWE GY Utilities RWE is an integrated power company with diversified power generation sources. The company is in the process of transforming its business model by deleveraging, asset disposals, increasing efficiency and reducing capex. This should be supportive of a lower risk profile and better free cash flow in the future. Sanofi SAN FP Healthcare Sanofi is a major researcher, developer and marketer of pharmaceutical products, with c.25% of sales to the US, 25% to Europe and the rest to high-growth markets. We like the stock for its cash generation and strong growth. Schlumberger SLB US Energy Schlumberger is a dominant player in deepwater and international oilfield development. We believe the company's strong reputation, execution history and R&D expertise has positioned it well to benefit from the increased demand for oil services in the unconventional drilling space. Teva TEVA US Healthcare Large global pharmaceutical company that develops and markets generic and branded human-use pharmaceuticals. Tullow Oil TLW LN Energy Tullow is an independent oil and gas producer with a focus on the underexplored areas of the world, such as Africa. The group has added some 200m barrels of oil equivalent (boe) over the last seven years and now has over 1,400mmboe of reserves. Vinci DG FP Industrials A major player in the European concessions and construction market. The company’s concessions and a network of toll roads across France and a number of other markets are the most attractive part of its portfolio and generate the majority of the company’s profits. Wellpoint WLP US Financials Wellpoint has the ability to negotiate advantageous pricing with its provider network, given its size and membership base. The company’s return on invested capital is, however, lower than that of peers, but we expect it to improve over time in relative terms.

Source: Standard Chartered

This reflects the views of the Wealth Management Group 16

equity strategy – Global Top30 | 26 September 2014

Top30 – Results update

Name Year Quarter Est. EPS Reported EPS Surprise% CISCO SYSTEMS 2014 A 0.53 0.55 4.17 NETEASE INC-ADR 2014 Q2 1.52 1.54 1.32 AEGON NV 2014 S1 0.18 0.17 (2.86) RWE AG 2014 S1 - (0.15) - MARVELL TECH GRP 2015 Q2 0.28 0.34 21.00 CAN NATURAL RES 2014 Q2 0.98 1.04 6.01

This reflects the views of the Wealth Management Group 17

equity strategy – Global Top30 | 26 September 2014

Sector & Country – Performance & Valuations

MSCI AC World Sectors (USD)

12m Fwd 12m Fwd Div Div 1M TR YTD TR Name Last Price P/E P/B Yield% Payout% USD USD Consumer Staples 298.9 18.0 3.3 2.7 53.5 2.8% 6.9% Consumer Discretionary 227.3 15.3 2.5 1.8 33.2 2.5% 3.0% Energy 327.8 12.61.5 2.9 43.7 2.7%12.5% Financials 137.3 12.1 1.2 2.9 N/A 3.0% 7.8% Healthcare 219.1 17.13.4 1.9 46.8 4.3%16.1% Industrials 210.9 15.3 2.2 2.3 39.0 2.7% 3.7% Information Technology 139.5 15.5 3.0 1.5 28.9 3.7% 12.9% Materials 324.1 14.6 1.7 2.5 57.3 0.3% 6.3% Telecommunication Svs 150.9 15.1 2.1 5.8 29.2 1.2% 5.4% Utilities 195.4 15.2 1.4 3.8 76.7 2.2% 14.9% Index 431.2 14.51.9 2.5 41.7 2.7%7.6% Source: Bloomberg, Standard Chartered As of 24 September 2014

MSCI AC World Countries (local currency)

12m Fwd 12m Fwd Div Div 1M TR YTD TR Name Last Price P/E P/B Yield% Payout% USD USD United States 1916.2 15.9 2.5 1.9 36.1 4.3% 9.8% 2016.7 13.5 1.8 4.6 42.1 0.9% 4.0% Japan 793.9 13.51.2 1.9 29.4 -1.6%-0.4% Canada 1981.7 15.3 2.0 2.6 59.8 2.8% 13.8% Australia 1156.7 15.02.0 4.4 78.4 2.5%14.6% Switzerland 1136.2 15.9 2.5 3.0 57.9 2.8% 5.2% France 122.4 14.11.4 3.3 77.8 1.6%-0.3% Germany 126.7 12.4 1.5 2.8 46.9 0.7% -5.6% China 66.3 9.21.3 3.2 31.3 1.4%8.1% South Korea 582.4 8.9 1.3 1.1 17.0 -1.4% 2.4% Index 431.2 14.51.9 2.5 41.7 2.7%7.6%

Source: Bloomberg, Standard Chartered As of 24 September 2014

MSCI AC World Sector and Country breakout

Information Materials Germany China 2.2% Technology 6.13% Telco France 3.2% South Korea 13.12% 3.94% 3.5% 1.7% Utilities Switzerland 3.26% 3.2% Industrials 10.46% Staples Australia 9.41% 2.9% Canada 3.9% Healthcare Japan US 10.68% Discretionary 48.7% 11.50% 7.5%

Britain Energy 7.8% Financials 9.92% 21.58%

Source: MSCI, Bloomberg, Standard Chartered As of 24 September 2014

This reflects the views of the Wealth Management Group 18

equity strategy – Global Top30 | 26 September 2014

Sector and Country – Performance & Valuations (cont’d)

MSCI Asia ex-Japan Sectors (USD) 12m Fwd 12m Fwd Div Div 1M TR YTD TR Name Last Price P/E P/B Yield% Payout% USD USD Consumer Staples 456.3 21.8 2.9 1.8 49.7 1.9% 9.7% Consumer Discretionary 598.2 11.2 1.7 2.1 25.6 -0.2% 1.4% Energy 727.3 10.71.3 3.2 37.7 7.3%13.8% Financials 327.1 9.7 1.1 3.1 31.3 4.5% 14.1% Healthcare 755.1 24.73.6 0.8 21.0 12.7%29.1% Industrials 183.0 14.4 1.2 2.8 40.3 2.3% 7.0% Information Technology 372.4 12.2 2.0 1.7 21.0 2.6% 14.8% Materials 337.2 13.7 1.2 2.3 39.7 2.9% 4.2% Telecommunication Svs 161.8 16.7 2.1 3.4 64.2 9.8% 20.7% Utilities 244.2 14.1 1.5 2.4 25.3 3.1% 15.8% Index 605.1 12.01.4 2.5 31.4 3.7%12.1% Source: Bloomberg, Standard Chartered As of 24 September 2014

MSCI Asia ex-Japan Countries (local currency) 12m Fwd 12m Fwd Div Div 1M TR YTD TR Name Last Price P/E P/B Yield% Payout% USD USD China 68.3 9.51.3 3.1 31.3 4.9%11.4% South Korea 579.9 10.0 1.0 1.1 17.0 0.4% 1.6% Thailand 551.4 13.42.0 2.8 40.4 5.0%26.2% Singapore 1764.1 13.8 1.3 3.5 48.0 0.4% 6.6% Hong Kong 13279.0 15.5 1.3 3.5 35.3 -6.1% 12.0% Indonesia 6140.3 14.8 3.0 2.3 37.1 2.5% 32.8% India 1025.8 16.02.4 1.5 26.0 7.9%29.5% Philippines 1234.6 19.1 2.9 2.3 48.6 6.2% 27.9% 660.9 15.82.0 3.1 52.4 1.8%3.7% Taiwan 344.7 13.8 1.8 2.8 56.5 5.5% 16.4% Index 605.1 12.01.4 2.5 31.4 3.7%12.1% Source: Bloomberg, Standard Chartered As of 24 September 2014

MSCI Asia ex-Japan Sector and Country breakout

Materials Taiwan Telco 15% 5% China 6% Information 25% Technology Utilities Malaysia 4% 21% 5% Staples Philippines 5% 1% India Industrials Discretionary 9% 9% 10% Indonesia Energy 3% South Korea Healthcare 6% 20% 2% Hong Kong 13% Singapore Thailand Financials 3% 32% 6%

Source: MSCI, Bloomberg, Standard Chartered As of 24 September 2014

This reflects the views of the Wealth Management Group 19

equity strategy – Global Top30 | 26 September 2014

Equity Strategy – Country & Sector Weights

Global equity view by regions Regions View Rationale US OW Q2 earnings ahead of expectations. Valuation fair. Earnings and yield to drive returns. Europe OW Economic data expected to improve, driving earnings growth. Yields remain attractive. Japan N Commitment by BoJ to higher inflation. Further, affirmative policies required to push market higher. Asia ex-Japan N More constructive on reduced political uncertainty and significant downward revisions in growth expectations. Other EM UW Brazil still weak. Russia highly volatile. Too early to bottom fish. Source: Standard Chartered Bank

Global sector views by regions MSCI AC World Sectors Sector Global US EU Asia India Technology OW OW N OW OW Energy OW OW OW N OW Industrials OW N OW OW OW Healthcare N N N N OW Discretionary N N N OW OW Financials N N N UW OW Materials N N N N N Staples UW N N N UW Utilities UW UW UW N OW Telcos UW UW UW UW N

Source: Standard Chartered Bank

Asia ex-Japan country views MSCI Asia ex-Japan (N) Country Rating South Korea OW India OW Taiwan N Hong Kong N China N Thailand N Singapore N Indonesia N Malaysia UW

Source: Standard Chartered Bank

This reflects the views of the Wealth Management Group 20

equity strategy – Global Top30 | 26 September 2014

Equity Strategy – Country & Sector Weights (cont’d)

Global sector views by regions Sectors View Rationale US Energy OW Valuations are supportive. Good hedge against increased geopolitical risk. Technology OW Attractive valuations, strong cash flows and high return on capital employed. Staples N Sector is a good safe-haven play but is fully priced. Healthcare N Sector has re-rated, but, in the longer term, there is still risk of lower government healthcare spending. Discretionary N Focus on the discounters. Valuations fair but may be vulnerable if the economy slows. Materials N Favour copper, iron ore and gold miners LT. Short term, sector impacted by slower growth in China. Industrials N Highly cyclical and sensitive to an economic slowdown. Prefer EU names. Financials N Bank valuations still well below prior averages. Regulatory environment worsening longer term. Telcos UW Stable cash flows. High dividend yield. Faces challenges in customer retention. High valuations. Utilities UW Highly defensive, but low gas prices may continue to drag sector earnings.

EU Energy OW Valuations are supportive. Good hedge against increased geopolitical risk. Industrials OW We are Overweight to reflect our expectation of an improving economic outlook. Utilities OW Benefit from search for yield as ECB extends it loose monetary policies. Benefit from recovery in power prices. Financials N Bank valuation still well below prior averages. Regulatory environment worsening longer term. Healthcare N Sector has had a very good run. Valuations are no longer compelling. Staples N Slow economy and risk of recession makes it a safe-haven play. Local retailers depressed. Technology N Few names to pick from. Focus on areas of growth. Discretionary N Focus on the discounters. Impacted by weak economic growth. Prefer those with strong franchise. Materials N Favour copper, iron ore and gold miners LT. Short term, sector impacted by slower growth in China. Telcos UW Worse-than-anticipated slowdown in Europe. Margins under pressure.

Asia ex-Japan Discretionary OW Backdrop of improving outlook and loose monetary environment positive for discretionary purchases. Industrials OW Should benefit from a recovery in industrial production in Asia. Attractive valuations. Technology OW Prefer the smartphone and content space, which are also a proxy for Emerging Market consumption. Energy N Valuations are supportive. Good hedge against increased geopolitical risk. Healthcare N Ageing population should underpin demand for healthcare. Materials N Stabilising China's growth outlook and cheap valuation warrants a less negative view. Staples N High valuation. Sector tends to lag when growth is improving and inflation is rising. Utilities N China government's focus on clean energy will present opportunities. Attractive yields. Financials UW Valuations are cheap, but government focus on shadow banking creates headwinds. Telcos UW Fair valuations. Past year's outperformance could reverse if the economy improves.

India Healthcare OW Healthy growth outlook and favourable currency are key positives. Industrials OW INR weakness to aid global competitiveness amidst domestic slowdown. Valuations are attractive. Technology OW Improved global outlook, upcoming large deals and weak INR makes the sector attractive. Discretionary N Economic slowdown, high cost of loans and elevated fuel prices to continue to affect demand. Energy N Earnings to improve, as the increase in natural gas prices becomes effective from Q1 15. Financials N Monetary tightening measures, lower credit offtake and asset quality deterioration are key worries. Materials N Sector continues to be impacted by weak demand and cost pressures. Telcos N Uptick in business cycle and improving regulatory situation is positive. Staples UW Lower volume growth is a worry; high valuations provide low margin of safety. Utilities UW Sector impacted by uncertainty of fuel linkage and higher leverage. Source: Standard Chartered Bank

This reflects the views of the Wealth Management Group 21

equity strategy – Global Top30 | 26 September 2014

Valuations & Earnings Revisions

12m Forward P/E – MSCI US Earnings Revisions Ratio – MSCI US

27 2.0 35 25 30 1.5 23 25 21 1.0 20 19 15 17 0.5 10 15 %

13 ERI 0.0 5 12m Forw ard P/Ex 11 0 -0.5 9 -5 7 -1.0 -10 Sep-89 Dec-95 Mar-02 Jun-08 Sep-14 Jan-04 Sep-06 May-09 Jan-12 Sep-14 MSCI US 15.871 P/Ex Median +- 1SD MSCI US ERI 0.1 EPS 11% (RHS)

12m Forward P/E – MSCI Europe Earnings Revisions Ratio – MSCI Europe

25 1.0 40 23 0.8 35 21 0.6 30 19 0.4 25 17 0.2 20 15 0.0 15 ERI 13 -0.2 10 % 11 -0.4 5 12m Forw12m ard P/Ex 9 -0.6 0 7 -0.8 -5 5 -1.0 -10 Sep-89 Dec-95 Mar-02 Jun-08 Sep-14 Jan-04 Sep-06 May-09 Jan-12 Sep-14 MSCI EUROPE 13.932 P/Ex Median +- 1SD MSCI Euro ERI -0.4 EPS 15.2% (RHS)

12m Forward P/E – MSCI Japan Earnings Revisions Ratio – MSCI Japan

80 4.0 140 70 3.0 110 60

50 2.0 80 40 1.0 ERI

30 50 % 0.0

12m Forw12m ard P/Ex 20 20 10 -1.0

0 -2.0 -10 Sep-89 Dec-95 Mar-02 Jun-08 Sep-14 Jan-10 Mar-11 May-12 Jul-13 Sep-14 MSCI JAPAN 13.929 P/Ex Median +- 1SD MSCI Japan ERI 0.4 EPS 9.4% (RHS)

12m Forward P/E – MSCI Asia ex-Japan Earnings Revisions Ratio – MSCI Asia ex-Japan

17 2.0 35 16 30 1.5 15 25 14 1.0 20 13 15 12 0.5 10 11 % ERI 10 0.0 5 12m Forw ardP/Ex 9 0 -0.5 8 -5 7 -1.0 -10 Jan-02 Mar-05 May-08 Jul-11 Sep-14 Jan-04 Sep-06 May-09 Jan-12 Sep-14 MSCI ASIA EX-JAP 11.57 P/Ex Median +- 1SD MSCI AxJ ERI -0.2 EPS 10.9% (RHS)

Source: Datastream, Standard Chartered, data as of 24 September 2014

This reflects the views of the Wealth Management Group 22

equity strategy – Global Top30 | 26 September 2014

Valuations & Earnings Revisions (cont’d)

12m Forward P/E – MSCI India Earnings Revisions Ratio – MSCI India

25 3.5 60 3.0 50 2.5 20 2.0 40 1.5 1.0 30 15 % ERI 0.5 20

12m Forw12m ard P/Ex 0.0 10 -0.5 10 -1.0

5 -1.5 0 Jan-96 Sep-00 May-05 Jan-10 Sep-14 Jan-04 Sep-06 May-09 Jan-12 Sep-14 MSCI INDIA 16.122 P/Ex Median +- 1SD MSCI India ERI -0.1 EPS 15.8% (RHS)

12m Forward P/E – MSCI Singapore Earnings Revisions Ratio – MSCI Singapore

25 6 20 5 15 22 4 10 19 3 5

16 2 0 % ERI 1 -5 13

12m Forw12m ard P/Ex 0 -10 10 -1 -15

7 -2 -20 Sep-89 Dec-95 Mar-02 Jun-08 Sep-14 Jan-04 Sep-06 May-09 Jan-12 Sep-14 MSCI SINGAPORE 13.384 P/Ex Median +- 1SD MSCI SG ERI -0.5 EPS 8% (RHS)

12m Forward P/E – MSCI Thailand Earnings Revisions Ratio – MSCI Thailand

19 9 90 8 80 17 7 70 15 6 60 5 50 13 4

40 % 3 11 ERI 30 2 9 20 12m Forw12m ard P/Ex 1 0 10 7 -1 0 5 -2 -10 Jan-00 Sep-03 May-07 Jan-11 Sep-14 Jan-04 Sep-06 May-09 Jan-12 Sep-14 MSCI THAILAND 13.121 P/Ex Median +- 1SD MSCI Thailand ERI 0 EPS 12.6% (RHS)

12m Forward P/E – Indonesia Earnings Revisions Ratio – Indonesia

40 5 50 35 4 40 30 3 25 30 2 20 20 ERI

1 % 15

12m Forw12m ard P/Ex 10 10 0

5 -1 0

0 -2 -10 Jan-92 Sep-97 May-03 Jan-09 Sep-14 Jan-04 Sep-06 May-09 Jan-12 Sep-14 MSCI INDONESIA 14.387 P/Ex Median +- 1SD MSCI Indo ERI -0.2 EPS 11.9% (RHS)

Source: Datastream, Standard Chartered, data as of 24 September 2014

This reflects the views of the Wealth Management Group 23

equity strategy – Global Top30 | 26 September 2014

Valuations & Earnings Revisions (cont’d)

12m Forward P/E – MSCI China Earnings Revisions Ratio – MSCI China

40 3.5 40 3.0 35 35 2.5 30 30 2.0 1.5 25 25

ERI 1.0 20

20 % 0.5 15

12m Forw12m ard P/Ex 15 0.0 10 -0.5 10 -1.0 5 5 -1.5 0 Jan-96 Sep-00 May-05 Jan-10 Sep-14 Jan-04 Sep-06 May-09 Jan-12 Sep-14 MSCI CHINA 8.906 P/Ex Median +- 1SD MSCI China ERI -0.3 EPS 10.1% (RHS)

12m Forward P/E – MSCI Hong Kong Earnings Revisions Ratio – MSCI Hong Kong

25 6 40

5 30 20 4 20 3 10

15 2 % ERI 0 1 -10 12m Forw ardP/Ex 10 0 -1 -20 5 -2 -30 Sep-89 Dec-95 Mar-02 Jun-08 Sep-14 Jan-04 Sep-06 May-09 Jan-12 Sep-14 MSCI HK ERI -0.2 EPS 8.6% (RHS) MSCI HONGKONG 14.843 P/Ex Median +- 1SD

12m Forward P/E – MSCI Taiwan Earnings Revisions Ratio – MSCI Taiwan

40 3.5 70 3.0 35 50 2.5 30 2.0 30 25 1.5

1.0 10 %

20 ERI 0.5

12m Forw ardP/Ex -10 15 0.0 -0.5 10 -30 -1.0 5 -1.5 -50 Mar-92 Oct-97 Jun-03 Jan-09 Sep-14 Jan-04 Sep-06 May-09 Jan-12 Sep-14 MSCI TAIWAN 13.355 P/Ex Median +- 1SD MSCI Taiwan ERI 0.3 EPS 11.2% (RHS)

12m Forward P/E – South Korea Earnings Revisions Ratio – South Korea

24 1.5 50 45 1.0 20 40 35 0.5 16 30

0.0 25 % ERI 12 20 -0.5 15 12m Forw ardP/Ex 8 10 -1.0 5 4 -1.5 0 Jan-96 Sep-00 May-05 Jan-10 Sep-14 Jan-04 Sep-06 May-09 Jan-12 Sep-14 MSCI KOREA 9.916 P/Ex Median +- 1SD MSCI Korea ERI -0.4 EPS 12.6% (RHS)

Source: Datastream, Standard Chartered, data as of 24 September 2014

This reflects the views of the Wealth Management Group 24

equity strategy – Global Top30 | 26 September 2014

Definitions

YTD: Year to date. ITD: Inception to date. PT: Price Targets (SCB uses an investment horizon of 12 months for its price targets). RSI: Relative Strength Index. Relative Volatility index: A measure of the standard deviation of the daily price change. MA: Moving Average. Basket average performance: Basket average is the un-weighted performance of the shortlisted stocks Consensus rating: A rating provided by Bloomberg which reflects the aggregation of all rating for a particular stock. 1 is a Sell, while 5 is a Strong Buy. P/E: Price/Earnings ratio. The Trailing P/E refers to 12m of trailing earnings, while the forward refers to 12m forecast earnings, against current price. P/B: Price/Book ratio. The book value refers to total shareholder’s equity, while the forward refers to 12m forecast book value, against current price. EV/EBITDA: Enterprise value/Earnings Before Interest, Tax and Depreciation Amortisation. Earnings revision ratio: Net earnings revision (upgrades - downgrades) / Total earnings revision (upgrades + downgrades) ROE and ROA: Return on Equity (book value) and Return on Assets. Dividend Yield: Dividend paid/ current price. Net Interest Margin (NIM): Is a measure of difference between the net interest income generated from lending by financial institutions and the amount of interest paid out to their lenders (for example deposits) Beta: Correlation between a stock and the market. Is based on two years of weekly data, but modified by the assumption that a security's beta moves toward the market average over time. Total return: Capital appreciation + dividend income received. Short term: Time horizon of 1-4 weeks.

Medium term: Time horizon of 3-6 months. Strategy Team: Steve Brice Chief Investment Strategist

Audrey Goh, CFA Investment Strategist

Victor Teo, CFA Investment Strategist

Manpreet Gill Head, FICC Investment Strategy

Aditya Monappa, CFA Head, Asset Allocation & Portfolio Construction

Tariq Ali, CFA Investment Strategist

This reflects the views of the Wealth Management Group 25

equity strategy – Global Top30 | 26 September 2014

List of Equity Market Commentary Publications

Equity Flash 1. Quick update on any major news flow or event that impacts equity markets 2. Provides notification of trade closure or switch (Release: Ad hoc)

Equity Strategy Top30s Thematic and Opportunistic investment ideas globally and in Asia as well as country and sector views (Release: Monthly)

Equity Trade Note 1. Trade ideas that have a short to medium term duration 2. Based on fundamental developments and tech nical an alysis (Release: Ad hoc)

Equity Strategy: India Top Picks Top Equity picks as well as thematic and opportunistic investment ideas in India (Release: Monthly)

This reflects the views of the Wealth Management Group 26

equity strategy – Global Top30 | 26 September 2014

Important Information

This document is not research material and it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. This document does not necessarily represent the views of every function within the Standard Chartered Bank, particularly those of the Global Research function. Standard Chartered Bank is incorporated in England with limited liability by Royal Charter 1853 Reference Number ZC18. The Principal Office of the Company is situated in England at 1 Basinghall Avenue, , EC2V 5DD Standard Chartered Bank is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. In International Financial Centre (“DIFC”), the attached material is circulated by Standard Chartered Bank DIFC on behalf of the product and/or Issuer. 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Accordingly, SCB, its affiliates and/or subsidiaries may have a conflict of interest that could affect the objectivity of this document. This document must not be forwarded or otherwise made available to any other person without the express written consent of SCB. Copyright: Standard Chartered Bank 2014. Copyright in all materials, text, articles and information contained herein is the property of, and may only be reproduced with permission of an authorised signatory of, Standard Chartered Bank. Copyright in materials created by third parties and the rights under copyright of such parties are hereby acknowledged. 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THIS IS NOT A RESEARCH REPORT AND HAS NOT BEEN PRODUCED BY A RESEARCH UNIT.

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