The Long Run, the Short Run and the In-Between

STRATEGY

NOMURA INTERNATIONAL (HK) LIMITED The long run, the short run and the in-between

Asia and the rebalancing of the world financial system: inventory restocking, an inflation echo and growth in bilateral emerging market trade

Sean Darby Tel: +852 2252 2182 email: [email protected] January 2010

Any authors named on this report are strategists unless otherwise indicated. See the important disclosures and analyst certifications on pages 76 to 79. ASIA An unbalanced world

Budget deficits C E Cyclical budget Europe o x Asia deficits n Trade p s o + Aging population u r Aging population m t Korea, Taiwan p EM t Under-funding i Baby boomers pension schemes o Vietnam, Indonesia US n and India Impaired banking High saving rate systems

Overvalued Unimpaired exchange rates banking system

Oil dependent Japan Oil dependent

Declining saving Under valuated rate exchange rates

Goldilocks

Undervalued Steep yield curve Exchange rate Asia Deflation G7 + Low nominal Carry Growth interest rates trade EM

Current account Weak US dollar surplus

Low bond long term bond yield

Source: Nomura International (Hong Kong) limited – Investment Strategy © Nomura International (Hong Kong) Limited 3 ASIA Global liquidity and US interest rates

© Nomura International (Hong Kong) Limited 4 ASIA Excess liquidity and US treasury holdings Excess liquidity in Asia Total major foreign holdings of US treasuries % y-o-y, % points Excess liquidity, % points (US$bn) 30 Broad money supply, % y-o-y growth 3500 25 Nominal GDP, % y-o-y growth 20 3000

15 2500 10 2000 5 0 1500

-5 1000 -10 500 -15 China Mal India Thai Sing Twn Phil Kor HK Viet Indo Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Note: The latest data available are mostly for 2Q09 except: for nominal GDP India and Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Korea are 1Q09; for broad money supply Indonesia is April-May and Vietnam is 4Q08. Source: TIP, Nomura International (Hong Kong) Limited – Investment Strategy Source: Bloomberg, CEIC, Thomson Reuters Datastream, Nomura International (Hong Kong) Limited – investment Strategy

Per capita GDP Population (% GDP)Current account (RHS) (US$bn) Average annual 8 Current account as % of GDP (LHS) 800 2003 2008 rate of growth 2008 from 2003 to 2008 7 700 F USD USD % million 6 600 Low to middle incom e group 997 2,285 18.0 2,978 5 500 China 1,269 3,258 20.7 1,328 India 535 1,052 14.5 1,154 4 400 Indonesia 1,100 2,247 15.4 229 Philippines 973 1,845 13.7 90 3 300 Vietnam 489 1,051 16.6 86 2 200 Thailand 2,261 4,299 13.7 63 Malaysia 4,400 8,008 12.7 28 1 100 High income group 17,071 25,967 8.8 105 0 0 South Korea 13,451 19,111 7.3 49 Taiwan 13,546 17,060 4.7 23 (1) (100) Australia 26,371 46,651 12.1 22 (2) (200) Hong Kong 23,559 30,863 5.5 7 Singapore 22,651 37,597 10.7 5 90 92 94 96 98 00 02 04 06 08 10

Note: Asia ex-Japan includes China, India, Taiwan, Korea and ASEAN6. Source: CEIC, Nomura Global Economics. Source: Nomura Global Economics , CEIC, IMF

4.50 % 900 % Per 10,000 JPY Yield curve ratio (10 minus 2 year) 4.50 130 4.00 KLCI index (local currency) RHS 800 120 700 4.00 3.50 110 3.50 600 US$/JPY (RHS) 3.00 100 3.00 500 90 2.50 2.50 400 80 2.00 300 2.00 70 1.50 200 1.50 60 1.00 100 1.00 50 US yield curve spread (LHS) 40 0.50 0 0.50 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 84 86 88 90 92 94 96 98 00 02 04 06 08

Source: Thomson Reuters Datastream; Nomura International (Hong Kong) Limited – Investment Strategy

© Nomura International (Hong Kong) Limited 7 ASIA … leads to familiar problems US yield curve ratio vs Hang Seng US yield curve ratio vs Brazil index Bovespa % 000'S % 000'S 4.50 30 4.50 80 US yield curve ratio (LHS) Brazil Bovespa (RHS) 4.00 US yield curve ratio (LHS) 4.00 70 25 Hang Seng index (RHS) 3.50 3.50 60 20 3.00 3.00 50

2.50 15 2.50 40

2.00 2.00 30 10 1.50 1.50 20 5 1.00 1.00 10

0.50 0 0.50 0 84 86 88 90 92 94 96 98 00 02 04 06 08 84 86 88 90 92 94 96 98 00 02 04 06 08

Source: Thomson Reuters Datastream; Nomura International (Hong Kong) Limited – Investment Strategy

(%y-y) (%y-y) 60 600 40 500 400 20

300 0 200 (20) 100 - (40)

(100) (60) (200) Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09

Tea prices (Mombasa, Kenya aggregate, DRAM Price Index bp1 Best) (index) (US Cent/kg) 5,000 600 4,500 550 500 4,000 450 3,500 400 350 3,000 300 2,500 250 200 2,000 150 Jun-06 Jun-07 Jun-08 Jun-09 Mar-06 Mar-07 Mar-08 Mar-09 Dec-05 Sep-06 Dec-06 Sep-07 Dec-07 Sep-08 Dec-08 Sep-09 Dec-09 Jun-09 Jun-08 Jun-07 Jun-06 Jun-05 Jun-04 Jun-03 Jun-02 Dec-09 Dec-08 Dec-07 Dec-06 Dec-05 Dec-04 Dec-03 Dec-02 De c-01 © Nomura International (Hong Kong) Limited 9

Source: Bloomberg; Nomura International (Hong Kong) Limited – Investment Strategy ASIA Commodities: we prefer softs, coal and steel World corn inventory coverage (days) Rice prices: Thailand White Rice 100% (days) Grade B 180 US D/MT 160 660 140 640 620 120 600 100 580 80 560 540 60 520 40 500 1960 1967 1974 1981 1988 1995 2002 2009 Jul-09 Oct-09 Apr-09 Jun-09 Jan-09 Aug-09 Sep-09 Nov-09 Dec-09 Dec-08 Feb-09 Mar-09 Source: USDA, Nomura May-09 Source: Bloomberg; Nomura International (Hong Kong) Limited – Investment Strategy China average coking coal price Hang Seng Utilities index relative to

(RMB/Ton) FTSE AP Gold index 1200 40,000 1000 35,000 800 30,000 600 25,000

400 20,000

200 15,000

0 10,000

5,000 Nov-01 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 May-02 May-03 May-04 May-05 May-06 Ma y-07 May-08 May-09 Source: CEIC; Nomura International (Hong Kong) Limited – Investment Strategy Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Dec-04 Sep-05 Dec-05 Sep-06 Dec-06 Sep-07 Dec-07 Sep-08 Dec-08 © Nomura International (Hong Kong) Limited Sep-09 Dec-09 10 Source: Bloomberg; Nomura International (Hong Kong) Limited – Investment Strategy ASIA China and Asia: net food imports growing Dairy products and eggs Edible vegetable oils (including palm oil)

(U S $ m n ) 120 (US$mn) 1,200

100 1,000

80 800

60 600

40 400

20 200

0 0 Sep-94 Sep-96 Sep-98 Sep-00 Sep-02 Sep-04 Sep-06 Sep-08 Nov-93 Nov-94 Nov-95 Nov-96 Nov-97 Nov-98 Nov-99 Nov-00 Nov-01 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 China drought monitor (Dec 2009) Soft commodity basket

Name Bloomberg Local price (24 Ratings code Dec 2009)

China Green 904 HK 7.6 Buy

United UNTP IN 165.6 Buy Phosphorous

Noble NOBL SP 3.14 Buy

Olam OLAM SP 2.58 Neutral

© Nomura International (Hong Kong) Limited Source: Bloomberg, Nomura International (Hong Kong) Limited – 11 Investment Strategy Source: Bloomberg, CEIC data, Nomura International (Hong Kong) Limited — Investment Strategy ASIA Asian telecoms Asian telecoms: undervalued

Over(+) / Under(-) Bloomberg Consensus forecast ** Next Dividend Valuation against Country Compan y Code Price* PER (x) PBR (x) Div. yield (%) ROE (%) Declaration ex-dividend Amount Currency the USD, % *** Hong Kong China Telecom 728 HK 3.17 15.7 1.0 2.3 6.7 24-Mar-10 22-Apr-10 0.085 HKD -51.9 Korea SK Telecom 017670 KS 175000 9.6 1.3 5.4 n/a 25-Jan-10 29-Dec-09 8400 KRW -19.6 Taiwan Taiwan Mobile 3045 TT 60.9 14.1 3.7 6.7 26.7 4-Mar-10 6-Jul-10 4 TWD -35.1 Malaysia DiGi.Com DIGI MK 21.66 16.4 9.9 7.5 57.1 7-May-10 3-Jun-10 0.5 MYR -44.7 Philippines Philippine Long TEL PM 2605 12.0 4.5 7.2 38.1 2-Mar-10 15-Mar-10 80 PHP -40.2 Distance Telephone Company

Singapore Singapore Telecom ST SP 3.05 12.8 2.2 4.4 17.5 12-May-10 5-Aug-10 0.072 SGD -16.2

Thailand ADVANCED INFO ADVANC TB 85 14.7 3.5 7.4 23.6 18-Feb-10 16-Apr-10 3 THB -45.7 SERVICE

* price as of 23 December 2009, local currency; ** current fiscal year; ** Local currency valuation based on Big Mac index which measures currency valuation using purchasing power parity Asia ex JP: Telecoms relative to stock exchanges 160 150 140 130 120 110 100 90 80 70 60 Feb-09 Feb-08 Feb-07 Feb-06 Nov-09 Nov-08 Nov-07 Nov-06 Nov-05 Source: Bloomberg; Nomura International (Hong Kong) Limited – Investment Strategy May-09 Aug-09 May-08 Aug-08 May-07 Aug-07 May-06 Aug-06

© Nomura International (Hong Kong) Limited 12 ASIA Asia Pacific: Big Mac index (measured using purchasing power) Country Big Mac Price Exchange Over(+) / Under(-) in local currency in US dollars Implied Rate Valuation against PPP rate + 1 USD = the USD, % ++ US 3.57 3.57 --- 1 --- Australia A$ 4.34 3.84 1.22 1.08 13.40 China Yuan 12.5 1.83 3.5 6.83 -48.73 Hong Kong HK$ 13.3 1.72 3.73 7.75 -51.87 Indonesia Rupiah 20900 2.19 5854 9390.00 -37.66 Malaysia Ringgit 6.77 1.97 1.9 3.37 -43.58 New Zealand NZ$ 4.9 3.59 1.37 1.34 2.23 Philippines Peso 99.39 2.13 27.8 46.76 -40.55 Singapore S$ 4.22 3.01 1.18 1.38 -14.71 South Korea Won 3400 2.91 952 1153.13 -17.44 Taiwan NT$ 75 2.33 21 32.12 -34.62 Thailand Baht 64.49 1.93 18.1 33.16 -45.42 + The Purchasing Power Parity (PPP) rate is the local Big Mac price divided by its price in the United States. Prices and their corresponding implied PPP rates are the latest figures available from The Economist; '++ As of 18 November 2009 © Nomura International (Hong Kong) Limited Source: The Economist, Bloomberg; Nomura International (Hong Kong) limited – Investment Strategy 13 ASIA Chinese renminbi Chinese renminbi NDF premium over RMB denominated Convertible bonds

CB Eqy Px Bond % Premium Yield to Outstanding Currency Eqy spot Px parity (%) Maturity (CNYmn) Ticker Hong Kong (%) CHINA GREEN HOLDINGS 7.55 95.6 62.8 53.1 n/a 1,000 CNY 904 HK 15 LTD 0% 29 Oct 10 SPG LAND 0% 27 Apr 12 4.95 102.2 58.1 76.7 14.14 890 CNY 337 HK 10 HOPSON DEVELOPMENT 11.02 102.7 32.3 218.8 n/a 1,830 CNY 754 HK 0% 02 Feb 10 GREENTOWN 0% 18 May 12 12.46 98.0 50.2 95.9 14.28 2,310 CNY 3900 HK 5 COUNTRY GARDEN 2.88 103.3 31.1 232.5 9.69 4,314 CNY 2007 HK - HOLDINGS CO LTD 2.5% 22 Feb 13 HENGDELI HOLDINGS LTD 2.97 100.9 56.9 78.2 8.48 437 CNY 3389 HK (5) 0% 24 Aug 12 GOME ELECTRICAL 0% 18 2.81 99.8 55.1 81.8 6.36 3,275 CNY 493 HK (10) May 14 SHANGHAI REAL ESTATE 0.82 100.0 78.5 n/a n/a 447 CNY 1207 HK LIMITED 6% 23 Jul 14 (15) NEW WORLD CHINA 0% 11 2.78 99.5 36.0 177.5 6.21 2,550 CNY 917 HK Jun 12 GOME ELECTRICAL 3% 25 2.81 119.1 96.5 23.8 (2.35) 2,357 CNY 493 HK Sep 14 Nov-98 Nov-99 Nov-00 Nov-01 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 CHINA HIGH SPEED 18.56 118.3 105.2 12.9 n/a 1,148 CNY 658 HK Note: as of 19 November 2009 TRANSMISSION EQUIPMENT GROUP CO Source: Bloomberg; Nomura International (Hong Kong) Limited – Investment LTD 0% 14 May 11 Strategy China HOME INNS & HOTELS 34.99 96.6 60.8 59.2 5.38 478 CNY HMIN UQ MANAGEMENT INC 0% 10 Dec 12 Singapore PINE AGRITECH LIMI 0% 27 0.16 95.5 15.8 505.9 27.03 2,000 CNY PAG SP Jul 12

Note: as of 23 December 2009, recommendations are highlighted in pink Country garden holdings: offer best risk-reward profile in teams of yield Shanghai real estate: offers promising potential in teams of a mix of equity sensitivity and yield Source: Bloomberg, Nomura International (Hong Kong) Limited ?CB research, Investment Strategy

Name Bloomberg Price Local Ratings – two-year bond yield) code (%) 3.0 BOC HK 2388 HK 17.56 Buy 2.5 Wing Hang 302 HK 72.8 Buy 2.0 Bank 1.5 1.0 ICBC (Asia) 349 HK 16.8 Buy 0.5 - Yuanta FHC 2885 TT 21.7 Buy (0.5) Apr-07 Jun-07 Oct-07 Apr-08 Jun-08 Oct-08 Apr-09 Jun-09 Oct-09 Feb-07 Feb-08 Feb-09 Dec-06 Aug-07 Dec-07 Aug-08 Dec-08 Aug-09 Dec-09 Fubon FHC 2881 TT 38.05 Buy Asia Banks Bloomberg Nomura

Company Code Pr ic e Rating

Note: Pricing as of 24 Dec 2009 CITIC Bank 998 HK 6.50 BUY Source: Bloomberg, Nomura International (Hong Kong) Limited – Investment Strategy BoC 3988 HK 4.20 BUY ICBC 1398 HK 6.41 BUY

UOB UOB SP 19.42 BUY

PNB PNB IN 909.15 NEUTRA L

CCB 939 HK 6.62 BUY

BoC HK 2388 HK 17.56 BUY

K Bank KBANK TB 84.75 BUY

BCA BBCA IJ 4725 BUY

© Nomura International (Hong Kong) Limited Note: Pricing as of 24 Dec 2009 15 Source: Bloomberg, Nomura International (Hong Kong) Limited – Investment Strategy ASIA Hong Kong Hong Kong real interest rate HK total monetary base before the discount window (% y-y) (y-y%) 160 140 120 100 80 60 40 20 - (20) Nov-00 Nov-01 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 May-01 May-02 May-03 May-04 May-05 May-06 May-07 May-08 May-09 Source: CEIC; Nomura International (Hong Kong) Limited – Investment Strategy Mortgage breakdown Loan to deposit ratio

Prime-based m ortgage Non prime-based mortgage 100 95 90 80 85

60 80 75 40 70 65 20 60 0 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Oct-01 Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Dec-00 Dec-01 De c-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08

Source: Bloomberg, CEIC, Nomura International (Hong Kong) Limited - Investment Strategy Source: Bloomberg, CEIC, Nomura International (Hong Kong) Limited - Investment Strategy © Nomura International (Hong Kong) Limited 16 ASIA Behind the scenes PBOC has begun mopping up excess money … China sterilisation operation China PBOC bills issuance q-q % vs Shanghai composite y-y %

PBOC bills issuance q-q% (LHS) (y-y%) (RMB mn) 400 SHANGHAI SE COMPOSITE y-y% (RHS) 250 350 200 300 250 150 200 100 150 100 50 50 0 0 -50 -50 -100 -100 Jun-09 Jun-08 Jun-07 Jun-06 Jun-05 Jun-04 Mar-09 Mar-08 Mar-07 Mar-06 Mar-05 Mar-04 Sep-09 Sep-08 Dec-08 Sep-07 Dec-07 Sep-06 Dec-06 Sep-05 Dec-05 Sep-04 Dec-04 Dec-03

US$mn 80,000 60,000 40,000 20,000 0 -20,000 -40,000 -60,000 -80,000 Mar-09 Mar-08 Mar-07 Mar-06 Mar-05 Mar-04 Mar-03 Mar-02 Mar-01 Sep-09 Sep-08 Sep-07 Sep-06 Sep-05 Sep-04 Sep-03 Sep-02 Sep-01 Sep-00

Source: CEIC, Nomura International (Hong Kong) Limited - Investment Strategy

US: ECRI weekly leading index y-y % China : OECD leading indicators (% y-y)

Taiwan average call rate Taiwan BoP current account surplus

Source: CEIC, Nomura International (HK) Limited – Quantitative strategy, Investment Strategy © Nomura International (Hong Kong) Limited 22 ASIA Taiwan earnings growth: own technology Taiwan: export orders-on-hand Taiwan: inventory-to-shipment ratio

Taiwan: margin improvement still Taiwan technology basket expected Name Bloomberg Local price (24 Ratings code Dec 2009)

SPIL 2325 TT 42.7 Buy

TSMC 2330 TT 63.6 Buy

Unimicron 3037 TT 44.2 Buy

Note: Pricing as of 24 Dec 2009 © Nomura International (Hong Kong) Limited 23 Source: Bloomberg, Nomura International (Hong Kong) Limited – Investment Strategy ASIA Korea Major export destinations (over the Korea export composition by region (over past one year) the past one year)

Korea exports to emerging markets as % of total

(U S $ m ) (No. of projects) 60,000 700 M iddle East Asia Africa O ther Middle East Asia Africa Other 50,000 600

40,000 500

400 30,000

300 20,000

200 10,000

100

0 0 FY 94 FY95 FY96 FY97 FY98 FY 99 FY00 FY01 FY02 FY03 FY 04 FY05 FY06 FY07 FY08 Jul-09 FY9 4 FY95 FY96 FY 97 FY98 FY99 FY00 FY 01 FY02 FY03 FY 04 FY05 FY06 FY07 FY08 Jul-09 Source: MOCT, ICAK, Nomura International (Hong Kong) Limited – Seoul branch, Investment Source: MOCT, ICAK, Nomura International (Hong Kong) Limited – Seoul branch, Investment Strategy Strategy Korea: outward direct investment (total Korea: the gap between GNI and GDP permitted) (GNI – GDP)

Source: CEIC, Nomura International (HK) Limited – Investment Strategy © Nomura International (Hong Kong) Limited Source: CEIC, Nomura International (HK) Limited – Investment Strategy 25 ASIA Korea Korea vs Japan: trade balance (12- Korea: export to emerging market as % of month rolling sum) total

Korea: exports to LATAM (% of total export)

Source: CEIC, Nomura International (HK) Limited – Investment Strategy

Leading composite index – import of capital goods

Source: CEIC, Nomura International (HK) Limited – Quantitative strategy, Investment Strategy Kosdaq foreign ownership (by value)

Note: as of 11 September, 2009 Source: Bloomberg, Nomura International (Hong Kong) Limited – Investment Strategy

Source: KRX Nomura International (HK) Limited – Quantitative strategy, Investment Strategy © Nomura International (Hong Kong) Limited 28 ASIA Korea: Kosdaq market - Nomura BUYs

Bloomberg Market Cap PriceAbsolute price changes (%) PBR (x) ROE (%) Code (US$mn) (KRW) 1M 3M YTD 2010F 2011F 2010F 2011F Megastudy Co Ltd 072870 KS 1282 243800 -4.3 -5.8 31.5 5.1 4.0 32.6 29.7 Neowiz Games Corp 095660 KS 715 39600 -3.1 -3.6 300 2.7 2.0 32.9 29.9 GS Home Shopping Inc 028150 KS 490 88000 -1.1 31.2 83.7 1.2 1.0 18.2 17.4 Seobu Truck Terminal Co Ltd 006730 KS 426 24350 -0.8 11.5 59.9 1.2 1.2 (0.2) 0.5 Technosemichem Co Ltd 036830 KS 265 21300 16.4 6.8 119.6 1.4 1.2 18.4 17.3 CJ Internet Corp 037150 KS 263 13300 3 4.1 14.5 1.2 1.1 12.0 11.8

Note: Price as of 23 December, 2009; Nomura valuation Source: Bloomberg; Nomura International (Hong Kong) Limited – Investment Strategy

© Nomura International (Hong Kong) Limited 29 ASIA China Internet: a multi-consumer opportunity China: Internet users Nomura BUYs Name Bloomberg code Local price (24 Dec) Ratings Tencent Holdings 700 HK 161.60 Buy Yahoo Japan 4689 JP 28,060.00 Buy Dena 2432 JP 553,000.00 Buy So-Net Entertainment 3789 JP 201,600.00 Neutral NHN Corp 035420 KS 200,000.00 Buy Shanda Interactive Entertainment SNDA US 50.76 Buy Perfect World PWRD US 40.33 Buy

* Price as of 24 Dec 2009 Source: Bloomberg; Nomura International (Hong Kong) Limited – Investment Strategy

Source: CNNIC 2008, Nomura International (Hong Kong) Limited – Equity research, Investment Strategy Cash as a % of market capital

Source: Nomura International (Hong Kong) Limited estimates, Bloomberg. © Nomura International (Hong Kong) Limited 30 ASIA Spice Route and the silk road Spice Route and the Silk Road map & World Muslim population

Economic scale and population trends for Islamic countries on the Spice Route Population Population by age group Net immigration Per capita GDP Nominal GDP Annual growth 0-14 15-24 25-59 60-65 Annual avg. 2008 $ 2008 $bn 2005 (000') 2035E (000') 2005-35E (%) 2005 (%) 05 (%) 05 (%) 05 (%) 05-35E (000') India 1,043 1,237 1,130,618 1,527,879 1 33.1 19.4 40.5 7 -243.3 Indonesia 2,181 497 219,210 278,382 0.8 28.4 19 44.3 8.3 -155 Pakistan 1,000 161 165,816 284,561 1.8 38.5 21 34.5 5.9 -184 Bangladesh 513 83 153,122 209,929 1.1 33.8 21.3 39.2 5.7 -141.2 Egypt 2,109 158 77,154 116,503 1.4 33.3 22 38 6.7 -78 Turkey 11,463 799 71,169 92,917 0.9 28.5 18.8 44.4 8.2 0.2 Iran 5,247 382 70,765 92,441 0.9 26.4 26 40.7 6.9 -45 Malaysia 7,866 215 25,633 36,634 1.2 31.3 19.2 42.8 6.7 14.3 SaudiArabia 21,221 528 23,613 38,644 1.7 34.5 18.5 42.8 4.2 30 UAE 56,667 270 4,089 7,004 1.8 19.6 16.3 62.2 1.8 44.8 Qatar 106,460 117 885 2,051 2.8 18 18.4 61.2 2.4 25.7 (Ref)Japan 37,940 4,844 127,449 113,733 -0.4 13.8 11.1 48.6 26.5 50

© Nomura International (Hong Kong) Limited Source: Universite de Montrea, Wikimedia , IMF, UN, Nomura International (Hong Kong) Limited – Investment Strategy 31 ASIA Vietnam Vietnam: trade balance Vietnam: foreign reserves (US$mn) (US$mn) 30,000 3,000 25,000 2,000 20,000 1,000 15,000 0

(1,000) 10,000 (2,000) 5,000

(3,000) 0 (4,000) Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Nov-97 Nov-98 Nov-99 Nov-00 Nov-01 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09

Source: CEIC, Nomura International (Hong Kong ) Limited – Investment Vietnam: M2 y-y (%) Strategy (% y-y) 80 70 60 50 40 30 20 10 0 Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09

(INR/kg) (%) 70 600 550 60 500 50 450 40 400 350 30 300 20 250 10 200 150 0 Jul-82 Jul-84 Jul-86 Jul-88 Jul-90 Jul-92 Jul-94 Jul-96 Jul-98 Jul-00 Jul-02 Jul-04 Jul-06 Jul-08 Jul-09 Ju l-08 Oct-09 Jan-09 Apr-09 Jun-09 Oct-08 Jun-08 Nov-09 Feb-09 Mar-09 Nov-08 Dec-09 Aug-09 Sep-09 Dec-08 May-09 Aug-08 Sep-08 May-08

Current account balance (BoP) Money multiplier

(LKR mn) 6.5 40,000 6.3 20,000 6.1 0 5.9 -20,000 5.7 -40,000 5.5 -60,000 5.3 -80,000 5.1 -100,000 4.9 -120,000 4.7 -140,000 4.5 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09

Source: Bloomberg, CEIC, Nomura International (HK) Limited – Investment Strategy © Nomura International (Hong Kong) Limited 33 ASIA Asia Pacific ex Japan: P/B vs current account and fiscal balance Current account (% of GDP) Fiscal balance (% of GDP) Country P/BV (x) 2009F 2010F 2011F 2009F 2010F 2011F Australia 1.9 -4.6 -4.6 -3.8 -2.3 -3.4 -2.2 China 2.4 7.2 5 3.5 -3.7 -2.5 -1.3 Hong Kong 1.6 11.7 8.6 7.1 -3.7 -3 -1.1 India 3.3 -0.8 -0.7 -1.3 -6.8 -6.2 -4.9 Indonesia 3.7 0.2 -0.4 -0.1 -2.6 -1.9 -1.5 Malaysia 2 17 15.9 13.9 -8.1 -5.4 -5.3 Philippines 2.3 4.6 3.6 3 -4 -4 -3.3 Singapore 1.5 12.3 12 11 -3.5 -3.2 -2.7 Korea 1.5 5 2 0.5 -2.1 -0.4 0.2 Taiw an 1.8 9.8 7.4 6.1 -3 -2.7 -1.2 Thailand 1.7 6 4 2.3 -5.7 -3.9 -3.6

Note: 1) Price to book value of FTSE country index as of 10 Dec 2009. 2) Fiscal balances are for fiscal years which differ from calendar years for Australia (Jul-Jun), Hong Kong (Apr-Mar), India (Apr-Mar), Singapore (Apr-Mar) and Thailand (Oct-Sep). Fiscal data are for the central government and do not include off-budget Source: FTSE, IBES, Worldscope, Nomura Strategy Insight, Nomura International (Hong Kong) Limited - Economic research, Investment Strategy

Paper China A/B Shares stocks Strong Cashflow China closed end Sri Kosdaq funds Lanka Fair Asset Macau valuation bubbles

Asia Uncorrelated US$ Risk Asset Inexpensive US$ China RMB forwards, Telecoms assets weakness appetite allocation currencies weakness Toll roads high

Strong earnings momentum

Long bond Budget deficit volatility financing Growth surprise Inflation Echo Soft commodities

EM bilateral trade Inventory rebuilding Long bond volatility

Source: Nomura International (Hong Kong) Limited – Investment Strategy

Stocks Ratings Stocks Ratings Stocks Ratings Top BUY Top BUY Top Buy Beijing Enterprises Water (371 HK) Buy Kia Motors (000270 KS) Buy OCBC (OCBC SP) BUY China CITIC Bank (998 HK) Buy LG Display (034220 KS) Buy UOB (UOB SP) BUY China Foods (506 HK) Buy POSCO (005490 KS) Buy Wilmar (WIL SP) BUY CSLR (1766 HK) Buy SEC (005930 KS) Buy Noble (NOBL SP) BUY Focus Media (FMCN US) Buy Top REDUCE ST Engineering (STE SP) BUY Huabao (336 HK) Buy Honam Petrochemical (011170 KS) Reduce Keppel (KEP SP) BUY Maanshan Steel (323 HK) Buy SingTel (ST SP) BUY Petrochina (857 HK) Buy Parkway (PWAY SP) BUY Top REDUCE Taiwan SATS (SATS SP) BUY Brilliance China Automotive (1114 HK) Reduce Top REDUCE Baidu (BIDU US) Reduce Neptune Orient Lines (NOL SP) Reduce Stocks Ratings Top BUY Hong Kong Indonesia Asia Cement (1102 TT) Buy Stocks Ratings Fubon (2881 TT) Buy Stocks Ratings Top BUY SPIL (2325 TT) Buy Top BUY ASM Pacific (522 HK) Buy UMC (2303 TT) Buy Bank Rakyat (BBRI IJ) Buy BOC HK (2388 HK) Buy Yuanta Financial Holdings (2885 TT) Buy BCA (BBCA IJ) Buy Hong Kong Land (HKL SP) Buy Top REDUCE Top REDUCE MTR (66 HK) Buy Formosa Petrochem (6505 TT) Reduce Bank Danamon Indonesia (BDMN IJ) Reduce SJM (880 HK) Buy Top REDUCE Malaysia HK & China Gas (3 HK) Reduce Thailand

Stocks Ratings India Stocks Ratings Top BUY Top BUYs AMMB (AMM MK) Buy Stocks Ratings Bangkok Bank (BBL TB) BUY Gamuda (GAM MK) Buy Top BUY KBANK (KBANK TB) BUY IJM Corp (IJM MK) Buy Mahindra & Mahindra (MM IN) Buy SCB (SCB TB) BUY Maybank (MAY MK) Buy Nagarjuna Construction (NJCC IN) Buy Tata Steel (TATA IN) Buy Tanjong plc (TJN MK) Buy Unitech (UT IN) Buy Top REDUCE Top REDUCE IOI Corporation (IOI MK) Reduce Ranbaxy (RBXY IN) Reduce Tata Motors (TTMT IN) Reduce

Allocated (%) Theme Proxies/examples of baskets Recommended Long-run growth themes 5 Viruses and healthcare Sysmex Mar-03 5 Water investment Guangdong investment Dec-04 5 Nuclear power Toshiba Plant & Engineering Dec-04 5 Railway infrastructure China Railway Construction Jul-05 5 Emerging market productivity gains Komatsu Nov-07 5 Experience economy Bangkok Dusit May-08 5 Asian and Japanese Internet NHN Corp May-08 5 The rebirth of the silk road: Central Asia infrastructure Petrochina Jun-08 5 China/ India consumption Huabao Aug-08 5 Petroldollar recycling GS E&C May-09 5 The return of the spice route: Muslim consumption* Hyundai Motor Jul-09 55

The in-between (Asian interest rate, 5 Arbitrage (Convertible bonds) Yanlord CB Oct-06 bank credit and currency) 5 China currency strength China expressway companies- Shenzhen expressway Feb-07 5 Asian high dividend yield Public Bank Feb-08 15

The short-run/style tilts 5 Greater China Inc ICBC (Asia) Jun-09 5Asset Price Shun Tak Holdings Aug-09 5 Taiwan technology UMC Sep-09 5 Telecom China Mobile Oct-09 5 Soft commodities Noble Nov-09 5 Asia Banks Kasikornbank Dec-09 30

100 •Note: Emerging market bilateral trade launched Aug 2005 and Rural consumption launched Jul 2006 merged into the return of the spice route •Source: Bloomberg; Nomura International (Hong Kong) limited – Investment Strategy

© Nomura International (Hong Kong) Limited 37 ASIA Where are we now? Nomura: suggested asset allocation Market calls Market Nomura stance Australia ↓Bearish China A shares ↓Bearish China B shares Bullish China H shares Bullish Hong Kong Bearish India Bearish Indonesia Bearish Korea Bullish Kosdaq Bullish Malaysia ↑Bullish New Zealand Bearish Pakistan Bearish Philippines Bearish Singapore ↑Bullish Sri Lanka Bullish Taiwan Bullish Thailand Bullish Vietnam Bearish

* Stance changed on 4 January 2010; previously 16 November 2009 Source: Nomura International (Hong Kong) Limited – Investment Strategy

© Nomura International (Hong Kong) Limited 38 ASIA Conviction list STRAIGHT LONGS Name Bloomberg code Inception day Maanshan Iron & Steel 323 HK 9/17/2009 UMC 2303 TT 9/17/2009 Pacific Basin 2343 HK 9/17/2009 NCsoft Corporation 036570 KS 9/17/2009 Kasikornbank KBANK TB 9/17/2009 Taiw an Mobile 3045 TT 10/28/2009 Zhuzhou CSR Times Electric 3898 HK 10/28/2009 Tencent holdings 700 HK 11/10/2009 China Shenhua Energy 1088 HK 12/11/2009 TATA steel TATA IN 12/16/2009 STRAIGHT SHORTS City Developments CIT SP 9/17/2009 Henderson Land 12 HK 10/28/2009 China Oilfield Services 2883 HK 10/28/2009

Source: Nomura International (Hong Kong) Limited – Investment Strategy

120 (Index) 250 100

200

80 ART

EQUITY (S&P) 150 60

100

20 0

0 1963 1971 1979 1987 1995 2003 2009 Nov-88 Nov-89 Nov-90 Nov-91 Nov-92 Nov-93 Nov-94 Nov-95 Nov-96 Nov-97 Nov-98 Nov-99 Nov-00 Nov-01 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Note: Liv-ex 100 Benchmark Source: Bloomberg; Nomura International (Hong Kong) limited – Investment Strategy

500 9,500 9,000 450 8,500 8,000

7,500 400 7,000

6,500 350 6,000 Jul-06 Jul-07 Jul-08 Jul-09 300 Oct-05 Jan-06 Apr-06 Oct-06 Jan-07 Apr-07 Oct-07 Jan-08 Apr-08 Oct-08 Jan-09 Apr-09 Oct-09

250

200 Apr-99 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09

Source: Bloomberg; Nomura International (Hong Kong) limited – Investment Strategy

Many thanks for attending the presentation

ANALYST CERTIFICATIONS Each research analyst identified on page 1 hereof certifies that all of the views expressed in this report by such analyst accurately reflect his or her personal views about the subject securities and issuers. In addition, each research analyst identified on page 1 hereof hereby certifies that no part of his or her compensation was, is, or will be, directly or indirectly related to the specific recommendations or views that he or she has expressed in this research report, nor is it tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.

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Distribution of Ratings: Nomura Global Equity Research has 1724 companies under coverage. 41% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 42% of companies with this rating are investment banking clients of the Nomura Group*. 40% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 50% of companies with this rating are investment banking clients of the Nomura Group*. 19% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 8% of companies with this rating are investment banking clients of the Nomura Group*. As at 30 September 2009.

*The Nomura Group as defined in the Disclaimer section at the end of this report. © Nomura International (Hong Kong) Limited 43 ASIA

Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America for ratings published from 27 October 2008: The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Analysts may also indicate absolute upside to price target defined as (fair value - current price)/current price, subject to limited management discretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple analysis, etc. Stocks: • A rating of "1", or "Buy", indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. • A rating of "2", or "Neutral", indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. • A rating of "3", or "Reduce", indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. • A rating of "RS-Rating Suspended", ” indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company. Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks (accessible through the left hand side of the Nomura Disclosure web page: http://www.nomura.com/research); Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology.. Sectors: A "Bullish" stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A "Neutral" stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A "Bearish" stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX® 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia. Explanation of Nomura's equity research rating system in Japan published prior to 6 January 2009 (and ratings in Europe, Middle East and Africa, US and Latin America published prior to 27 October 2008): Stocks: • A rating of "1", or "Strong buy", indicates that the analyst expects the stock to outperform the Benchmark by 15% or more over the next six months. • A rating of "2", or "Buy", indicates that the analyst expects the stock to outperform the Benchmark by 5% or more but less than 15% over the next six months. • A rating of "3", or "Neutral", indicates that the analyst expects the stock to either outperform or underperform the Benchmark by less than 5% over the next six months. • A rating of "4", or "Reduce", indicates that the analyst expects the stock to underperform the Benchmark by 5% or more but less than 15% over the next six months. • A rating of "5", or "Sell", indicates that the analyst expects the stock to underperform the Benchmark by 15% or more over the next six months. • Stocks labeled "Not rated" or shown as "No rating" are not in Nomura's regular research coverage. Nomura might not publish additional research reports concerning this company, and it undertakes no obligation to update the analysis, estimates, projections, conclusions or other information contained herein. Sectors: A "Bullish" stance, indicates that the analyst expects the sector to outperform the Benchmark during the next six months. A "Neutral" stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next six months. A "Bearish" stance, indicates that the analyst expects the sector to underperform the Benchmark during the next six months. Benchmarks are as follows: Japan: TOPIX; United States: S&P 500, MSCI World Technology Hardware & Equipment; Europe, by sector — Hardware/Semiconductors: FTSE W Europe IT Hardware; Telecoms: FTSE W Europe Business Services; Business Services: FTSE W Europe; Auto & Components: FTSE W Europe Auto & Parts; Communications equipment: FTSE W Europe IT Hardware; Ecology Focus: Bloomberg World Energy Alternate Sources; Global Emerging Markets: MSCI Emerging Markets ex-Asia.

Explanation of Nomura’s equity research rating system for Asian companies under coverage ex Japan published from 30 October 2008 and in Japan from 6 January 2009: Stocks: Stock recommendations are based on absolute valuation upside (downside), which is defined as (Price Target – Current Price) / Current Price, subject to limited management discretion. In most cases, the Price Target will equal the analyst’s 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. •A "Buy" recommendation indicates that potential upside is 15% or more. •A "Neutral" recommendation indicates that potential upside is less than 15% or downside is less than 5%. •A "Reduce" recommendation indicates that potential downside is 5% or more. • A rating of "RS" or "Rating Suspended" indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company. • Stocks labelled as "Not rated" or shown as "No rating" are not in Nomura's regular research coverage. Sectors: A "Bullish" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A "Neutral" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A "Bearish" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.

Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published prior to 30 October 2008: Stocks: Stock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price)/Current Price, subject to limited management discretion. In most cases, the Fair Value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, if the analyst doesn't think the market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ from the intrinsic fair value. In most cases, therefore, our recommendation is an assessment of the difference between current market price and our estimate of current intrinsic fair value. Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly, within this horizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or downside implied by the recommendation. •A "Strong buy" recommendation indicates that upside is more than 20%. •A "Buy" recommendation indicates that upside is between 10% and 20%. •A "Neutral" recommendation indicates that upside or downside is less than 10%. •A "Reduce" recommendation indicates that downside is between 10% and 20%. •A "Sell" recommendation indicates that downside is more than 20%. Sectors: A "Bullish" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A "Neutral" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A "Bearish" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.

Price targets Price targets, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement of any price target may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.

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