EM Equities: Bull Market Remains Intact

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Asia/EM Equities: Bull Market Remains Intact

Unauthorized redistribution of this report is prohibited. This report is intended for [email protected]

Ajay Singh Kapur, CFA >> Equity Strategist Merrill Lynch (Hong Kong) [email protected] +852 3508 7753

22 August 2017

Ritesh Samadhiya, CFA >> Equity Strategist Merrill Lynch (Hong Kong) [email protected] +852 3508 7907 22 August 2017

>> Employed by a non-US affiliate of MLPF&S and is not registered/qualified as a research analyst under the FINRA rules. Refer to "Other Important Disclosures" for information on certain BofA Merrill Lynch entities that take responsibility for this report in particular jurisdictions. BofA Merrill Lynch does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 38-44.

Timestamp: 22 August 2017 02:55AM EDT

11780758

Summary

1. WHY BULLISH ON ASIA/EMERGING MARKETS? 2. IS CHINA OUT OF THE WOODS ? 3. WHY INFLATION GLOBALLY IS SO LOW AND LIKELY TO REMAIN LOWER FOR LONGER?

2

Valuations are reasonable – Asia ex-Japan trading at 1.7x 12-month trailing P/B (42nd percentile of its history since 1975) 4.0

Asia ex-Japan 12m Trailing PB Long Term Average +1S.D. -1S.D.

3.5 3.0

3

4.0 3.5 3.0

2.5

2.5

2.0

2.0

1.5

1.5

1.0

1.0

0.5

0.5

1/73

1/77

1/81

1/85

Source: BofA Merrill Lynch Global Research, MSCI, FactSet

1/89

1/93

1/97

1/01

1/05

1/09

1/13

1/17

Central banks remain accommodative – no contraction expected before 2019 Total central bank assets (Billions, USD) 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0

Dec-15

Dec-16

Latest

Dec-17*

G4 CB Assets $bn Source: BofA Merrill Lynch European Equity Strategy, Bloomberg

4

Jun-18*

Dec-18*

Global economy has pervasive strength - 84% of global PMIs above 50

Percentage of Countries with PMI >= 50

110 100 90 80 70 60 50 40 30 20 10 6/97

Based on 38 countries' PMI

6/99

6/01

6/03

5 Source: BofA Merrill Lynch Global Research, Bloomberg, Haver, Markit

6/05

6/07

6/09

6/11

6/13

6/15

6/17

Global Wave - global growth is strong

Note: The sentiment indicator identified as Global Wave above is an amalgamation of seven indices including Global Industrial Confidence, Global Consumer Confidence, Global Capacity Utilisation, Global Unemployment, Global Producer Prices, Global Credit Spreads, and our Global Earnings Revision Ratio. It is intended to be an indicative metric only and may not be used for reference purposes or as a measure of performance for any financial instrument or contract, or otherwise relied upon by third parties for any other purpose, without the prior written consent of BofA Merrill Lynch Global Research. This sentiment indicator was not created to act as a benchmark.

6 Source: BofA Merrill Lync h Global Quantitative Strategy, MSCI, IBES, Bloomberg, OECD, IMF

World trade growth, which leads Asia earnings growth by two quarters, suggests a pickup in earnings growth to continue

100

25

80

20

60

15

40

10

20

5

0

0

-20

-5

-40

-10

-60

MSCI AxJ trailing EPS (YoY %), LS World trade volume index SA (YoY %), pushed forward by 6m, RS

-80 1/04

7

1/06

1/08

Source: BofA Merrill Lynch Global Research, Bloomberg, FactSet

1/10

1/12

1/14

1/16

1/18

-15 -20

After a six-year earnings downgrade cycle, analysts are revising up their earnings estimates. Consensus expectations for 2017 now at 21% and at 11% for next year.

MSCI Asia ex-Japan earnings growth estimates (% )

20 18 16 14 12 10 8 6 4 2 0

1/11

7/11 2011

8

1/12

7/12 2012

1/13

7/13 2013

Source: BofA Merrill Lynch Global Research, MSCI, IBES, FactSet

1/14

7/14

2014

1/15 2015

7/15

1/16 2016

7/16

1/17 2017

7/17 2018

A large number of Asian/EM markets have curbed their capex/GDP in the past five years – setting up for better margins ahead

6 4 2

Capex/GDP change between 2011 and 2016 (% points)

4.7 3.1

2.9

2.5

1.6

1.3

1.2

1.2

1.0

0 -2 -4 -6 -8 -10

9 Source: BofA Merrill Lynch Global Research, IMF

-0.3 -0.5 -0.8 -1.2

-1.8 -2.0 -2.1 -2.2 -2.6 -2.8 -3.0 -3.1

-3.7 -3.9

-4.4 -4.8

-5.3 -8.2

All together now - capex discipline all around Capex/Sales (ex-financials) 25%

AxJ

US

Australia

Europe

25%

20%

20%

15%

15%

10%

10%

5%

5%

0%

0%

1/90

1/93

1/96

1/99

Note: Financials include real estate. Long Term refers to the period from 1990 to 2016. 10

Japan

Source: BofA Merrill Lynch Global Research, FactSet

1/02

1/05

1/08

1/11

1/14

1/17

Country Examples: Prior Capex restraint likely to boost EBIT margins 25%

90

92

94

96

98

00

02

04

06

08

10

12

14

16

Capex/GDP, 2yma, pushed forward by 4 yrs, inverted, LS EBIT Margin (ex-financials), 2yma, RS

18

20

China

30%

30%

25%

35%

20%

40%

15%

45%

10%

50%

5%

16%

90

92

94

96

98

00

02

04

06

08

10

12

14

16

18

20

Brazil

17%

20%

18% 19%

15%

20% 21%

10%

22% 23%

5%

24%

Capex/GDP, 2yma, pushed forward by 4 yrs, inverted, LS

25%

EBIT Margin (ex-financials), 2yma, RS

11 Source: BofA Merrill Lynch Global Research, IMF, FactSet

25%

0%

Asia ex-Japan operating cash flow projected to hit a record USD757bn in 2018, up by USD92bn from 2017… 800

AxJ Operating Cash Flow (ex-financials & energy) (U$ bn)

700

652 620 594 566 492 456456 391 359 345

600 500 400

200

0

41 50 45 48 51 52 27 21 20 16 13

90

92

94

96

Note: Financials include real estate.

12

664

274 233 183 161 123

300

100

757

AxJ Operating Cash Flow (ex-financials) (U$ bn)

Source: BofA Merrill Lynch Global Research, FactSet

98

00

73

02

04

06

08

10

12

14

16

18

..while capex is projected to decline by USD47bn from USD474bn in 2017 to USD427bn in 2018…

500 450

AxJ Capex (ex-financials & energy) (U$ bn)

400

345

350

251

250

207

200

173

150 100

0

63

78 80

25 29 12 17 23

90

92

94

96

Note: Financials include real estate.

13

360

306

300

50

474 469464 451 427 434418 429

AxJ Capex (ex-financials) (U$ bn)

Source: BofA Merrill Lynch Global Research, FactSet

48 40

98

54 62

00

77

129 101

02

04

06

08

10

12

14

16

18

...translating into a USD139bn RISE in free cash flow, increasing from USD190bn to USD329bn from 2017 to 2018

350

329

AxJ Free Cash Flow (ex-financials) (U$ bn)

300

AxJ Free Cash Flow (ex-financials & energy) (U$ bn)

250

234

200 150 100 50 0

46 1

0 -1 -3 -4 -2

-50 -100

90

92

94

-22 -28

96

Source: BofA Merrill Lynch Global Research, FactSet

12

60 54 60 67

93

84

97

97 27

14

11

130

42

-1 -36

98

Note: Financials include real estate. Free Cash Flow = Operating Cash Flow - Capex

14

190

186

00

02

04

06

08

10

12

14

16

18

Asia ex-Japan’s free cash flow to sales ratio projected to hit 5.8% by 2018, last exceeded at market lows in 2002/2003 8%

8%

6%

6%

4%

4%

2%

2%

0%

0%

-2%

-2%

-4%

-4%

-6%

-6%

-8%

-8%

-10%

90

92

94

96

98

00

02

04

06

08

10

12

14

16

AxJ Free Cash Flow/Sales (ex-financials) AxJ Free Cash Flow/Sales (ex-financials & energy) Note: Financials include real estate.

15

Source: BofA Merrill Lynch Global Research, FactSet

18

-10%

Like in 2002, Asia ex-Japan’s free cash flow/sales is very undervalued by today’s low PB. Quite the opposite of 1993, when the PB was high, but the free cash flow/sales was negative AxJ Free Cash Flow/Sales (ex-financials), LS AxJ Free Cash Flow/Sales (ex-financials & energy), LS AxJ Price/book (ex-financials) (x), RS

8%

4.0

6%

3.5

4% 2%

3.0

0%

2.5

-2% -4%

2.0

-6%

1.5

-8% -10%

90

92

94

96

Note: Financials include real estate.

16

Source: BofA Merrill Lynch Global Research, FactSet

98

00

02

04

06

08

10

12

14

16

18

1.0

US dollar has already strengthened 39% since 2011. In prior periods of USD strength - most of the early 1980s, EMs were in crisis, again in 1997-99 but not this time around

80

1/73

1/78

1/83

1/88

1/93

1/98

1/03

1/08

1/13

960

90 100

480

49%

110

32%

120

39%

130

160

17

240 120

140 150

1/18

60 US real effective exchange rate (narrow), reversed, LS Emerging Market Index, RS

Source: BofA Merrill Lynch Global Research, Bloomberg

30

EM financial vulnerability dropping sharply, now at decadal lows 85

Higher EM financial vulnerability

80%

75 60%

65 55

40%

45 35

20%

25 15 1/90

1/94

1/98

1/02

1/06

1/10

1/14

0% 1/18

Equal-weighted average of financial vulnerbaility of GEMs markets (percent rank compared to history since Jan 1990), LS % of GEMs markets with high financial vulnerability (highest tritile), RS We estimate financial vulnerability in major emerging markets based on 10 factors – excessive real credit growth, the gap between credit growth and economic growth, rising loan-deposit ratios and elevated money multipliers – all signs of credit booms and financial liberalization. Deteriorating current accounts, “over-valued” currencies, rising foreign debt, especially shorter duration debt reflect international illiquidity. Weakening economic growth and falling financial stock prices are canaries in the coalmine.

18 Source: BofA Merrill Lynch Global Research

EMs – Real lending growth boom has subsided 120

Weighted-average Real Loan Growth (% 3yr cumulative, 3mma)

GEMs

GEMs ex-China

100 Higher loan growth

80 60 40 20 0

Lower loan growth

1/92

1/94

1/96

1/98

1/00

1/02

1/04

1/06

1/08

1/10

Note: Country real loan growth rates are weighted according to their GDPs to arrive at the weighted-average loan growth rate. 19 Source: BofA Merrill Lynch Global Research, Narodowy Bank Polski (central bank of Poland), Bloomberg , CEIC, Datastream

1/12

1/14

1/16

1/1

EMs – “bad loan proxy” – has decelerated sharply since 2013 except in the Philippines, S. Africa, Mexico and Korea 150

Weighted-average Loan growth less industrial production growth (% 3yr cumulative, 3mma)

GEMs

GEMs ex-China

120 Higher probability of bad loans

90 60 30 0

Lower probability of bad loans

1/93

1/95

1/97

1/99

1/01

1/03

1/05

1/07

1/09

1/11

1/13

1/15

1/17

Note: Country loan growth rates less industrial production growth rates are weighted according to their GDPs to arrive at the weighted-average loan growth rate less industrial production growth rate. 20 Source: BofA Merrill Lynch Global Research, Narodowy Bank Polski (central bank of Poland), Bloomberg , CEIC, Datastream

EM currencies (ex-China) are to us fairly valued GDP-weighted real effective exchange rate of GEMs ex-China (deviation from average since Jan 1990) (%) 20 15

Expensive currency

Global Financial China nominal Crises growth peak

Asian Financial Crises

10 TMT bust

5 0 -5 -10 -15 1/91

21

Competitive currency 1/93

1/95

1/97

1/99

1/01

1/03

1/05

1/07

1/09

1/11

1/13

1/15

1/17

Note: Real effective exchange rate (deviation from average since Jan 1990) (%) or REER deviation is calculated as the deviation of the current reading of the real effective exchange rate (REER) for a country from its average since January 1990. Country REER deviations are weighted according to their GDPs to arrive at the weighted-average REER deviation. Source: BofA Merrill Lynch Global Research, BIS, Bloomberg

EMs – current account balances better for all except the Philippines and Malaysia since 2013 5

GEMs

Current Account (% of GDP)

4 3

GEMs ex-China

Current Account Surplus: Net exporter of capital

2 1 0 Current Account Deficit: Net importer of capital

-1

Global Financial Crisis

-2 -3

Taper Tantrum

Asian Financial Crisis

1/90

1/92

1/94

1/96

1/98

1/00

1/02

1/04

1/06

1/08

1/10

1/12

1/14

1/16

1/18

Note: Current Account Balance and GDP for the regions (GEMs and GEMs ex-China) are calculated separately as the sum of the individual country quarterly current account balances and GDP respectively. The resulting current account balance is divided by the resulting GDP to arrive at the Current Account (% of GDP) for the region. 22 Source: BofA Merrill Lynch Global Research, Bloomberg, Datastream, FactSet, Haver

Share of cyclicals in MSCI EM index is shrinking – new economy sectors are taking over 50

Weights in the MSCI EM Index (%)

45

45

40

40 35 30 25 20 16

15 10

5/97

5/99

5/01

5/03

5/05

5/07

5/09

19 5/11

5/13

5/15

Cyclicals (Energy, Materials & Industrials) Weight New Economy Sectors (Cons Disc, Healthcare & Tech) Weight

23

Source: BofA Merrill Lynch Global Research, MSCI, FactSet

5/17

WHY INFLATION IS SO LOW AND LIKELY TO REMAIN LOWER FOR LONGER?

24

Falling Inflation + Rising EPS growth estimates => Goldilocks = bullish Equities

Proportion of EM countries with CPI YoY higher than prior 3m highs (%) EM 2017 EPS growth estimate (%)

70 60

22 20

50

18

Goldilocks

40

16

30

14

20

12

10

10

1/15

7/15

1/16

7/16

1/17

7/17

CPI: Based on 25 countries including Hong Kong and Singapore EPS estimate: Based on MSCI EM Index (24 countries as of August 2017)

25 Source: BofA Merrill Lynch Global Research, Bloomberg, Datastream, FactSet, IBES

1/18

US CPI has been over-estimated post-crisis

US inflation forecasts (%) (Bloomberg consensus)

3.3 3.0 2.8 2.5 2.3 2.0 1.8 1.5 1.3 1.0

0.1 1/09

1/10 2010

1/11 2011

26 Source: BofA Merrill Lynch Global Research, Bloomberg

1/12

1/13

2012

2013

1/14 2014

1/15 2015

1/16

1/17 2016

2017

US bond yield forecasts have been consistently too high , even before the 2008 crisis

6.0

US 10 year treasuries yield forecasts (%) (Bloomberg consensus)

5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0

1/05

1/06

1/07

1/08 2006 2010 2014

27 Source: BofA Merrill Lynch Global Research, Bloomberg

1/09

1/10

1/11

2007 2011 2015

1/12

1/13 2008 2012 2016

1/14

1/15 2009 2013 2017

1/16

1/17

EM inflation is plumbing new depths 17%

GDP-weighted average of CPI YoY change for EM countries GDP-weighted average of CPI YoY change for EM ex-China countries

15% 13% 11% 9% 7% 5% 3% 1%

Based on 17 EM countries 1/97

1/99

1/01

1/03

1/05

28 Source: BofA Merrill Lynch Global Research, Bloomberg, Datastream, Haver

1/07

1/09

1/11

1/13

1/15

1/17

Breadth of inflation in DMs is plunging 90

Based on 20 DM countries

80 70 60 50 40 30 20 10 0

1/11

1/12

1/13

1/14

1/15

1/16

1/17

Proportion of DM countries with CPI YoY higher than prior 3m highs (%)

29 Source: BofA Merrill Lynch Global Research, Bloomberg, Datastream, ECRI, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Cleveland

1/18

“Superstar” firms are taking market share in the US and Europe, less so in China % Industries where top 3 are gaining market share 2001-07

80%

2007-16

Rising industry concentration/less competition 69%

70%

59%

60% 50%

39%

40% 30%

23%

42%

26%

20% 10% 0% China

Europe 2016: 56 industries in the US, 54 in Europe and 47 in China 2007: 56 industries in the US, 54 in Europe and 47 in China 2001: 57 industries in the US, 56 in Europe and 40 in China

30 Source: BofA Merrill Lynch Global Research, Bloomberg, Datastream, FactSet, IBES

US

Higher oligopoly power associated with lower wage share – across industries (I) Manufacturing

Services

Wholesale Trade Retail Trade

31 Source: David Autor (The Fall of the Labor Share and the Rise of Superstar Firms, 2 May 2017)

Asia Pacific country recommendations OVERWEIGHT:

Japan

Country

Korea

Japan:

China: Taiwan:

1) Strong macro fundamentals with large current account surplus (10.7% of GDP); 2) Rising 1m earnings revisions ratio; 3) Consensus underweight.

Korea:

Singapore Australia

U/W

O/W

Indonesia Thailand Hong Kong Malaysia India

UNDERWEIGHT: Country

Factors

Hong Kong:

1) Low ROE; 2) Valuations are not cheap (16.6x forward P/E vis-à-vis Asia ex-Japan’s 13.0x); 3) Policy moving away from an accommodative stance as the government looks to contain an overheated property market.

Malaysia:

1) Poor earnings outlook in 2017; 2) Valuations are not cheap (16.9x trailing P/E vis-à-vis Asia exJapan’s 15.8x); 3) Elevated levels of equity risk-love sentiment.

India:

1) Elusive earnings recovery / low 3m earnings revisions ratio; 2) Relatively strong currency; 3) Expensive valuations (22.4x trailing P/E, 80th percentile since 1986); 4) Clogged public sector banks’ balance sheets.

Philippines:

1) Expected slowdown in economic growth in 2017/18; 2) Expected weak EPS growth in 2017; 3) Expensive valuations (22.2x trailing P/E vis-à-vis Asia ex-Japan’s 15.8x); 4) Elevated financial vulnerability given strong currency and high bad loan growth rates.

Philippines

32 Source: BofA Merrill Lynch Global Research

1) Expected acceleration in economic expansion in 2017; 2) Attractive valuations (1.4x trailing P/B, 18th percentile since 1974); 3) Strong 3m earnings revisions ratio; 4) Consensus underweight. 1) Cheap valuations (1.2x trailing P/B, 38th percentile since 1986); 2) Expectations of strong EPS growth and free cash flow generation; 3) Improving operating profit margins; 4) Low financial vulnerability on account of high current account surplus (6.7% of GDP). 1) High and rising 2017 EPS growth estimates; 2) 1m earnings revisions ratio has increased from 0.54 in May ’16 to 1.04 now; 3) Prior capex cuts leading to a torrent of free cash flow; 4) PBoC tightening has likely taken a pause; 5) Focus on growth stabilization before the CPC in November; 6) Consensus underweight.

China Taiwan

Factors

Valuations hovering below long term averages – Thailand trading at 2.0x 12-month trailing P/B (40th percentile of its history since 1986) 5.0

Thailand Trailing P/B

5.0

4.5

Long Term Average

4.5

+1S.D.

4.0 3.5

3.5

3.0

3.0

2.5

2.5

2.0

2.0

1.5

1.5

1.0

1.0

0.5 0.0

33

4.0

-1S.D.

0.5

Currently: 2.0x Trailing P/B (40th lowest percentile since 1986) 1/86

1/90

1/94

Source: BofA Merrill Lynch Global Research, MSCI, FactSet

1/98

1/02

1/06

1/10

1/14

1/18

0.0

Thailand EPS growth estimates for 2017 and 2018 are coming down 25

Thailand EPS growth (%)

20 15 10 5 0

1/11

1/12 2013

34

1/13 2014

Source: BofA Merrill Lynch Global Research, MSCI, IBES, FactSet

1/14 2015

1/15 2016

1/16 2017

1/17 2018

1/18 2019

Thailand – healthy CA surplus, subsiding real loan growth / bad loan growth rates, declining ST external debt to reserves ratio 90

90

Latest value = 13.3%

70

70

50

50

30

30

10

10

-101/80

1/85

1/90

1/95

1/00

1/05

1/10

1/15

-30

100 60

60

20

20

-201/80

-30

15

15

10

10

5

5

0 1/80 -5

1/85

1/90

1/95

1/00

1/05

1/10

1/15

1/95

1/00

1/05

1/10

1/15

-20

-60

-60

250

250

Latest value = 29.3%

200

200

150

150

0

100

100

-5

50

50

-10

-10

-15

-15 Thailand current account/GDP (%)

1/90

Thailand loan growth less industrial production growth (% 3yr cumulative, 3mma)

20

Latest value = 11.4%

1/85

-10

Thailand real loan growth (% 3yr cumulative, 3mma)

20

100

Latest value = 10.2%

0 1/80

1/85

1/90

1/95

1/00

1/05

1/10

1/15

0

Thailand ST external debt/international reserves excl. gold (%)

35 Source: BofA Merrill Lynch Global Research, CEIC, Datastream, FactSet, Haver, Institute of International Finance

Summary

1. WHY BULLISH ON ASIA/EMERGING MARKETS? 2. IS CHINA OUT OF THE WOODS ? 3. WHY INFLATION GLOBALLY IS SO LOW AND LIKELY TO REMAIN LOWER FOR LONGER?

36

World market intelligence table by countries 21-Aug-2017 Region/Country (# Co)

US (637) Europe (446) France (76) Germany (58) UK (109) Japan (320) Australia (70) Asia Pac ex-Japan (715) Asia ex-Japan (638) China (151) Hong Kong (45) India (77) Indonesia (31) Korea (112) Malaysia (41) Philippines (23) Singapore (27) Taiwan (89) Thailand (36) EMEA (163) Poland (22) Qatar (12) Russia (22) South Africa (53) Turkey (25) UAE (10) Latin America (115) Brazil (57) Chile (19) Colombia (9) Mexico (27) Peru (3) Developed Markets (1659) Emerging Markets (844) World (2503)

Mkt cap* (U$bn)

USD perf (%) 2016

YTD

21,810 9.2 8.6 8,912 -3.4 15.0 1,475 2.2 18.6 1,319 0.4 14.8 2,435 -4.2 7.0 3,270 0.5 11.0 1,003 6.7 10.8 5,253 3.7 22.8 4,226 2.9 26.2 1,427 -1.4 35.7 488 -1.1 22.3 428 -2.8 24.2 115 14.8 14.1 728 7.0 27.8 113 -6.7 12.5 55 -7.7 12.5 182 -2.6 19.7 580 14.8 19.9 104 23.0 12.1 730 16.4 9.8 64.1 -2.2 40.4 31.5 2.3 -11.2 154 48.9 -12.4 333 15.1 15.4 59.6 -10.5 39.8 36.1 9.0 4.4 637 27.9 20.7 354 61.3 16.2 60.1 13.2 24.1 21.6 23.9 10.3 182 -10.7 30.2 19.6 53.8 26.5 37,074 5.3 10.3 4,922 8.6 23.4 41,996 5.6 11.7

12m forward 1m

PE (x)

% dev 10Y avg

-1.8 -0.6 1.0 -0.1 -2.5 -0.1 0.2 -0.1 -0.2 3.8 0.4 -1.7 1.5 -6.1 0.3 -1.4 -2.2 -1.2 1.0 0.6 2.2 -5.4 0.8 0.6 2.7 -0.5 3.1 4.9 3.3 1.2 -0.4 8.5 -1.4 0.3 -1.2

17.6 14.8 14.4 12.9 14.3 13.7 15.7 13.5 13.0 13.4 15.9 18.0 16.1 8.8 15.9 18.3 13.7 13.8 14.2 10.7 12.3 11.4 5.7 16.0 8.5 10.8 13.8 11.8 18.6 12.4 17.8 14.2 16.3 12.4 15.7

21.9 20.5 21.3 11.1 19.8 -7.0 15.3 8.7 7.4 20.9 5.2 15.7 18.4 -9.0 8.4 13.7 3.5 -2.1 21.2 18.0 5.7 -12.1 -4.3 29.6 -5.6 -13.4 15.7 12.6 20.6 -14.1 15.3 17.1 19.1 12.6 18.2

PB (x)

2.8 1.8 1.5 1.6 1.8 1.2 1.9 1.6 1.5 1.7 1.3 2.7 2.6 1.0 1.5 2.2 1.2 1.8 1.8 1.2 1.3 1.4 0.6 2.0 1.3 1.4 1.7 1.5 1.7 1.2 2.5 2.1 2.1 1.5 2.1

% dev PB at 2008-0910Y avg lows

28.7 12.7 14.0 9.1 7.2 7.7 1.7 -1.1 -1.2 1.7 -3.5 7.1 -10.6 -10.4 -16.1 -5.9 -14.1 5.7 -0.4 2.4 -3.2 -22.7 -21.6 0.6 -8.0 -7.2 1.9 1.3 -0.7 -49.5 0.1 -13.1 19.9 1.4 17.6

1.4 1.0 0.9 0.9 1.1 0.8 1.3 1.1 1.0 1.1 0.8 1.4 1.4 0.9 1.3 1.3 0.9 1.0 0.9 0.7 0.8 na 0.5 0.9 0.7 na 1.2 1.1 1.1 na 1.5 0.5 1.2 1.0 1.1

EPS growth^ (%) Div yld (%)#

2.1 3.7 3.4 3.2 4.4 2.2 4.6 2.9 2.5 2.1 3.0 1.6 2.6 1.9 3.1 1.6 3.7 4.1 3.1 3.8 2.8 4.4 6.3 3.0 3.6 4.4 3.2 3.7 2.8 3.2 2.5 2.1 2.6 2.7 2.6

% dev 10Y avg ROE (%) 10Y avg

5.0 9.3 15.6 10.6 -2.8 -2.3 5.7 14.2 13.4 33.2 8.4 -2.9 15.0 -14.4 10.8 43.7 4.5 -0.6 18.4 1.0 34.7 0.1 -57.6 19.2 2.0 -10.1 7.7 4.7 17.3 10.1 3.2 17.0 8.9 13.0 9.4

16.1 11.9 10.3 12.2 12.6 9.0 11.8 11.7 11.6 12.6 7.9 14.9 16.3 11.7 9.7 12.3 8.8 12.8 12.5 11.6 10.3 12.5 10.5 12.2 14.7 13.3 12.6 12.9 9.0 10.0 14.1 14.7 13.2 12.3 13.0

15.3 12.9 11.1 12.5 14.4 8.0 13.6 12.8 12.6 14.8 8.5 16.1 21.8 11.9 12.6 14.9 10.6 12.3 15.4 13.5 11.4 14.2 12.5 15.9 15.0 12.5 14.6 14.4 11.0 16.4 16.8 19.8 13.1 13.7 13.2

CY2017 CY2018

10.7 12.7 6.3 13.4 19.1 17.2 10.1 20.8 21.0 18.2 12.7 9.5 16.2 49.9 0.7 3.8 8.2 10.1 5.7 10.5 15.3 7.3 2.2 17.7 33.6 1.6 20.9 24.8 6.8 -10.4 21.1 21.8 12.6 20.3 13.7

11.3 8.5 8.5 7.1 6.9 6.4 4.8 9.6 11.1 14.5 7.3 21.2 14.3 7.9 7.0 11.6 7.3 7.8 8.9 13.6 3.4 12.1 13.4 19.2 11.8 11.3 8.8 6.7 10.2 26.4 11.3 15.0 9.3 11.6 9.6

Source: BofA Merrill Lynch Global Research, MSCI, IBES estimates. Note: numbers in red text indicate that the valuation metric is 2 standard deviations above its 10year average. Numbers in green indicate the valuation metric is 2 standard deviations below its 10-year average. #Positive deviation for dividend yield implies current 37 dividend is LOWER than the 10yr average and vice-versa. *Market caps shown are free float. ^Currency for EPS growth estimates: (a) UK: GBP; (b) Eurozone country and regional indices: EUR; (c) Other regional indices, Russia, Peru: USD; (d) Other individual countries: Local currency.

Important Disclosures

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