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baml.com/globalresearch research “Bank of America Merrill Lynch” is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional counts Deliver insights that clients value, and everyone wins. Voted Top Global Research Firm 2011 | 2012 | 2013 | 2014 Institutional Investor TYPE BAM <GO> The power of global connectionsTM Clearing Corp., both of which are registered broker-dealers and members of SIPC, and, in other jurisdictions, by locally registered entities. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and are members of the NFA. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed. THE POWER OF GLOBAL CONNECTIONS is a trademark of Bank of America Corporation, registered in the U.S. Patent and Trademark Office. ©2015 Bank of America Corporation March ‘Emerging markets’ economic growth rates in volume 24 / number 03 general continue to be markedly faster than those of developed markets.’ Mark Mobius page 38 54 26 Whiz Kid Four decades ago, Mac McQuown revolutionized the way we invest in stocks. Now, he aims to upend the $8 trillion U.S. corporate bond market. BY EDWARD ROBINSON SPECIAL REPORT: EMERGING MARKETS 38 Defying the Turmoil South Korea, China and the Gulf nations lead our annual ranking of developing markets—amid a rout that has hit two of the BRICs. BY SARMAD KHAN 64 44 The Deal Chaser Michael Kim has built MBK Partners into North Asia’s largest independent private-equity firm. BY CATHY CHAN AND YOOLIM LEE 50 What’s Driving Mexico? The answer is cars. With global automakers rapidly expanding, investors pick the country to outperform. BY BEN BAIN 54 Land of Promise 72 78 Despite Nigeria’s widespread violence and poverty, some money managers say now is the time to take a stake in the country. BY GAVIN SERKIN 60 Africa: Beyond the Clichés Billionaire Mo Ibrahim is compiling the facts he says investors need to make smart choices. BY EDWARD ROBINSON 84 64 Cyprus Calling Two years after a financial crisis, the island’s biggest banks are luring investors from New York and Moscow. BY MARIA PETRAKIS 72 Wang Jianlin Is Ready for His Close-up ON THE COVERS China’s commercial real estate king has it all scripted out: He’s going to be the biggest name in the global movie industry. BY ZIJING WU AND WILLIAM MELLOR John “Mac” McQuown, photographed Nov. 24 in Sonoma, California 78 The Caffeine Fix Photograph by JAB, the investment firm managing the $14 billion fortune of a reclusive Austrian Joe Pugliese family, has launched a major assault on the global coffee market. BY DAVID DE JONG AND MATTHEW BOYLE Michael Kim, photographed Dec. 31 in Seoul 84 The Quiet Raider Photograph by New York activist investor Edward Bramson is shaking up London’s money Yoo Young Kyu managers, one campaign at a time. BY JEREMY KAHN AND KIEL PORTER CLOCKWISE FROM TOP; JASON FLORIO; MICHAL CHELBIN; SAM KAPLAN; COURTESY OF OF COURTESY KAPLAN; MICHAL CHELBIN; SAM FLORIO; JASON TOP; FROM CLOCKWISE JI HAIXIN/IMAGINECHINA SHERBORNE INVESTORS; 2 BLOOMBERG MARKETS MARCH 2015 ! ! " # $$ % TYPE EMBE <GO> March GET OUR iPAD APP. Download at MKTS <Go> or bit.ly/bbmarkets. STRATEGIES 92 Profile Tax-Efficient Investing by JON ASMUNDSSON 95 ETFs How Liquid Is Your ETF? by RYAN KREGER 96 Cheat Sheet Tracking ETFs 97 Commodities AGENDA Smell the Coffee by DEBBIE MASSIELLO and BETH HAUSMANN 10 Crude Oil’s Spillover 98 Foreign Exchange Looking for Clues 12 Economists Debate Stagnation Nation in Saudi Riyal Forwards 14 Goldman: Let’s Break Up JPMorgan by CHRISTOPHER WEISS 16 China’s No. 1 Smartphone Maker 100 What’s New Is Ready for More 18 Investors Flock to Racing Pigeons 20 Japan Gets a Taste for Craft Beer COMMENTARY 6 Editor’s View The Bond Engineer 8 Letters 22 Bloomberg View 92 Capitalizing on Cuba QUICKHONEY THOMAS; JACOB SEAN McCABE; BY: BEN HOFFMANN; ILLUSTRATIONS GARDNER; LAYNE BY: PHOTOS RIGHT: TOP FROM CLOCKWISE 4 BLOOMBERG MARKETS MARCH 2015 What’s missing from your clients’ portfolios? (LCOIX) CLEARBRIDGE INTERNATIONAL SMALL CAP FUND (Among 43 Foreign Small/Mid Value Funds) (SBIYX) CLEARBRIDGE INTERNATIONAL VALUE FUND (Among 650 Foreign Large Blend Funds) Overall Morningstar Ratings, as of 12/31/14. The ratings are based on risk- adjusted returns and are derived from a weighted average of the performance fi gures associated with a fund’s 3-, 5- and 10-year (as applicable) rating metrics. A global market perspective can help put your clients back on track. Discover how ClearBridge Investments can put them on their way. Global equity manager, with over 50 years of experience Favors bottom-up, fundamental stock-picking High active share, with a focus on quality Visit www.clearbridge.com/global for an exclusive look at our global solutions. About LEGG MASON: A leading global investment company, with $709 billion (as of 12/31/14) in assets invested worldwide, focused on long-term, actively managed strategies • A diverse family of specialized investment managers, each with its own independent approach to research and analysis • Over a century of experience in identifying opportunities and delivering astute investment solutions to clients in equities, fi xed income and alternatives Important Information: Equity securities are subject to price fl uctuation and possible loss of principal. International investments are subject to special risks, including currency fl uctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnifi ed in emerging markets. The manager’s investment style may become out of favor and/or the manager’s selection process may prove incorrect, which may have a negative impact on a fund’s performance. Small- and mid-cap stocks involve greater risks and volatility than large-cap stocks. Morningstar ratings are as of December 31, 2014 and are subject to change every month. A 4- or 5-star rating does not necessarily imply that a fund achieved positive results for the period. Past performance is no guarantee of future results. For funds with at least a 3-year history, Morningstar calculates a Morningstar Rating based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund’s monthly performance (including the effects of sales charges, loads and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.) Class I shares of the ClearBridge International Value Fund were rated against 650, 583 and n/a Foreign Large Blend Funds over the 3-, 5- and 10-year periods, respectively. With respect to these Foreign Large Blend Funds, Class I shares of the Fund received Morningstar Ratings of 4, 4 and n/a stars for the 3-, 5- and 10-year periods, respectively. Class I shares of the ClearBridge International Small Cap Fund were rated against 43, n/a and n/a Foreign Small/Mid Value Funds over the 3-, 5- and 10-year periods, respectively. With respect to these Foreign Small/Mid Value Funds, Class I shares of the Fund received Morningstar Ratings of 5, n/a and n/a stars for the 3-, 5- and 10-year periods, respectively. Other classes may have different performance characteristics. Classes have a common portfolio. Prior to January 2, 2014, ClearBridge International Value Fund and ClearBridge International Small Cap Fund were known as ClearBridge International All Cap Opportunity Fund and ClearBridge International Small Cap Opportunity Fund, respectively. At that time, the Funds’ management, objectives and strategy did not change. Active share is a measure of the percentage of stock holdings in a manager’s portfolio that differs from the benchmark index. BEFORE INVESTING, CAREFULLY CONSIDER A FUND’S INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES. YOU CAN FIND THIS AND OTHER INFORMATION IN EACH PROSPECTUS, AND SUMMARY PROSPECTUS, IF AVAILABLE, AT WWW.LEGGMASON.COM/INDIVIDUALINVESTORS. PLEASE READ THE PROSPECTUS CAREFULLY. © 2015 Legg Mason Investor Services, LLC, member FINRA, SIPC. Legg Mason Investor Services, LLC and ClearBridge Investments, LLC are subsidiaries of Legg Mason, Inc. INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE FN1410882 Editor’s View EDITOR-IN-CHIEF, BLOOMBERG NEWS Matthew Winkler The Bond EXECUTIVE EDITOR Ronald Henkoff MANAGING EDITOR Engineer Dan Ferrara CREATIVE DIRECTOR Siung Tjia THE FINANCIAL ENGINEERS who created the investment instru- ASSISTANT MANAGING EDITOR ments that would play such a toxic role in the global economic crisis Michael S. Serrill DIRECTOR OF PHOTOGRAPHY gave both finance and engineering a bad name. The credit-default Brenda Milis swap, originally designed as a kind of insurance for bank loans, mu- SENIOR EDITORS tated into a monster that aggravated risk instead of mitigating it— Robert S. Dieterich William Hawley impelling, among other things, a $182 billion bailout of American Stryker McGuire (London) International Group Inc. by the U.S. government. Gail Connor Roche Joel Weber Well, the CDS is back, and this time, as Edward Robinson reports, ‘We’ve finally EDITOR-AT-LARGE figured out a financial innovator John “Mac” McQuown plans to embed it inside a Robert Friedman corporate bond (“WHIZ KID,” page 26).