Latin America Equity Strategy (Citi)

Strategy Focus 17 November 2008  36 pages

Latin America Strategy Notebook How Are the “Fundamentals?”  Who Cares About “Fundamentals?” — Until late-October, the selling was indiscriminate; no one cared about the “fundamentals”. But, once the selling stops (it may have already), investors will care; and, the fundamentals in Latin America are better today than during any global downturn in recent years.

Geoffrey Dennis +1-212-816-8391 [email protected]

Jason Press  Better “Twin Balances” — Regional fiscal and current account balances, while not “perfect”, are better than in 1999-2002. Foreign exchange reserves of around $400bn are three times late-1990s levels; they may be augmented by the new IMF Special Liquidity Facility (SLF). This creates fiscal flexibility in certain countries.

+1-212-816-5130 [email protected]

 Sound Money — Prudent monetary policy over recent years, including during the early-2008 spike in inflation, creates monetary flexibility in many countries. Rates should fall in Mexico and Colombia before year-end and in Brazil by spring 2009.  The “Micro” Story — Regional banks depend little on wholesale funding; the credit crunch is affecting the region, but should be contained; Mexico seems most at risk. Corporate balance sheets are in much better shape than in the early 2000s.  Trading Range — Our trading range view is intact; we expect much medium-term volatility within this range for several months, with an eventual upside breakout. While a downside break cannot be ruled out, if it occurs, it should not go far.  Strategy — Our sector calls remain fairly defensive. We remain Overweight in Brazil (favoring Materials, Banks, Telecoms) and Chile. Mexico and Colombia are Neutral. Argentina is cut to zero; it should be demoted to Frontier status over time.

Latin America: Current Account/Fiscal Balances (% of GDP, GDP-weighted) 1.0% 0.0% -1.0% -2.0% -3.0% -4.0%

Forecast

-5.0% 96

97 98 99 00 01 Current Balance (% of GDP)

02

03

04

05 06 07 08 Fiscal Balance (% of GDP)

09

Source: CIR

See Appendix A-1 for Analyst Certification and important disclosures. Citi Investment Research is a division of Citigroup Global Markets Inc. (the "Firm"), which does and seeks to do business with companies 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. Non-US research analysts who have prepared this report are not registered/qualified as research analysts with the NYSE and/or NASD. Such research analysts may not be associated persons of the member organization and therefore may not be subject to the NYSE Rule 472 and NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Customers of the Firm in the United States can receive independent third-party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at http://www.smithbarney.com (for retail clients) or http://www.citigroupgeo.com (for institutional clients) or can call (866) 836-9542 to request a copy of this research.

Citigroup Global Markets  Equity Research

Latin America Strategy Notebook 17 November 2008

Contents Volatility Easing

3

CIR Latin America Model Portfolio Forecasted Returns, Valuations, and Performance How are the “Fundamentals?” Much Better Whatever Happened to Decoupling? “Fundamental” Comparisons - Macro “Fundamental” Comparisons - Micro Citi Latin America Economic Forecasts Charts of the Week US Macro Deterioration Oil Price Declines Regional Earnings and Valuations Revisited Survey of Citi Research Global Strategy / Sectors Country Sheets Brazil Mexico Chile Peru Argentina Latin America Equity Research and Sales

Appendix A-1

32

Analyst Certification

2

4 5 8 8 9 12 19 22 24 24 24 24 25 25 26 26 28 29 29 29 31 31

Citigroup Global Markets  Equity Research

Latin America Strategy Notebook 17 November 2008

Volatility has eased in November; our trading rage – with October 27 as the low – is intact.

The tug-of-war between grim economic news and very attractive valuations will continue.

The unwinding of the carry trade has eased, supporting regional currencies and equity markets.

Regional fundamentals are far better than at prior global downturns: i) twin balances; ii) inflation; iii) banking system

Volatility Easing November has not exactly been a “good” month so far for equities; MSCI Latin America, at present, is down by close to 7% this month. However, after the disasters of September (-19.7%) and October (-31.8%), regional markets seem calmer. The extreme volatility of the prior six weeks has eased. The region has not had a “10% day” since October 28, having had (as noted before) a total of eight since mid-September. Our trading range thesis – bounded by the low of October 27 and the “bounce high” in early-November, an astonishing 42% above the low – is holding. But, it is still early days. For sure, the economic news is (and will remain) grim, although less so in Latin America than elsewhere. While we have cut our Mexican GDP forecast to 0.5% in 2009 and the risk to our forecasts for the region are to the downside, Latin America still looks likely to grow next year in the 2-2.5% range. The US looks much weaker. After record weakness in retail sales last month, real consumer spending in October was running 4-5% p.a. below Q3 levels; a Q4 GDP decline of around 4% seems inevitable, with more weakness likely in early 2009. One fundamental support for our trading range view is that regional currencies have bounced and look better supported. In turn, this is related to signs that the “unwinding of the carry trade” has eased; the yen (after a recent high of ¥93) has stopped rising and the dollar has flattened out against the Euro. For sure, this could turn again at any time. We would consider further yen strength and regional FX weakness as a major risk to our trading range view. Meanwhile, as discussed in this report, we see regional fundamentals as being better than at the time of prior global downturns. This will eventually matter when the economic gloom begins to ease. These fundamentals include:

stability; iv corporate balance sheets.

 Better “twin” balances. For 2009, we forecast regional fiscal and current account deficits of 0.6% and 1.6% of GDP respectively;  Lower inflation, with a regional peak around current levels of 6.6% likely in the next few months, should create room for easier monetary policy in time;  Banking systems which are not reliant on wholesale funding; most regional loan/deposit ratios are close to 100%;  Corporate balance sheets that are in better shape than after the last downturn; the regional net debt-to-total capital ratio is now as low as 22%. We stay Overweight in Brazil and Chile and Neutral in Mexico and Colombia. We cut Argentina – likely to become a Frontier market – to zero.

Focus List – We add CCR, Gerdau, CTEEP and Bimbo; Drop CBD (Pão de Açucar) Ternium, and Contal.

Given this, we expect significant medium-term volatility within the current range for several months, with an eventual breakout to the upside. For sure, a break to the downside cannot be ruled out; if it occurs, we doubt the downside would be great. All this calls for fairly defensive portfolios for the short-term, but with an eye to an eventual cyclical breakout. Our top call remains Brazil, where we retain our Overweights in Materials (oversold), Financials (worry over the credit crunch may be overdone) and Telecoms (attractively valued). Our key Underweights are Consumer Discretionary (too early to buy), Energy (still expensive) and Industrials. We are also Overweight in Chile, partly for defense. Mexico is highly vulnerable to further US economic weakness and remains a Neutral; we are Overweight in Consumer Staples (for defense) and Telecoms. Colombia is also a Neutral. We cut our equity exposure in Argentina to zero due to the combination of likely pension fund nationalization and the loss of Tenaris from the MSCI country index; we expect Argentina to be demoted to Frontier market status by MSCI over the next few months.

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Citigroup Global Markets  Equity Research

Latin America Strategy Notebook 17 November 2008

CIR Latin America Model Portfolio Figure 1. Latin America Current MSCI CIR Model Over (+) CIR Weight (%) Weight (%) Under (-) Recom. Brazil Mexico Chile Peru Argentina Colombia Total Cash

61.7 23.5 7.0 2.7 2.3 2.7 100.0

64.7 23.5 8.0 1.1 0.0 2.7 100.0 4.0

3.0 0.0 1.0 -1.6 -2.3 0.0

Change Previous (%)

Adj. MSCI Weight (%)

CIR Model Weight (%)

-1.0 0.2 1.1 -0.2 -0.4 0.2

63.7 23.3 6.1 2.5 2.0 2.5 100.0

65.7 23.3 6.9 1.3 0.4 2.5 100.0

CIR Recom.

Change Previous (%)

MSCI Weight (%)

CIR Model Weight (%)

UNDER NEUTRAL UNDER OVER UNDER UNDER OVER OVER NEUTRAL

0.0 1.0 -2.8 1.8 -0.1 -0.1 -0.6 0.2 0.6

3.0 5.8 26.8 21.1 3.3 1.2 26.9 4.9 7.0 100.0

1.5 5.8 25.8 23.1 1.5 0.5 28.9 5.9 7.0 100.0

CIR Recom.

Change Previous (%)

MSCI Weight (%)

CIR Model Weight (%)

NEUTRAL OVER UNDER UNDER UNDER OVER

-0.4 0.9 0.0 0.5 -1.0 0.0

14.0 21.6 5.3 4.1 10.5 44.5 100.0

14.0 24.1 4.0 2.0 9.0 46.9 100.0

OVER NEUTRAL OVER UNDER ZERO NEUTRAL

Previous Over (+) CIR Under (-) Recom. 2.0 0.0 0.8 -1.2 -1.6 0.0

Out (+)/Under(-) Performance (%)

OVER NEUTRAL OVER UNDER UNDER NEUTRAL

-3.0 0.9 14.7 10.2 18.1 8.7

Source: Citi Investment Research

Figure 2. Brazil MSCI CIR Model Weight (%) Weight (%) Consumer Disc. Cons. Staples Energy Financials Industrials Info. Technology Materials Telecom Utilities Total

2.8 6.8 24.8 22.4 2.9 1.4 26.3 5.1 7.6 100.0

1.5 6.8 23.0 24.9 1.4 0.4 28.3 6.1 7.6 100.0

Current Over (+) Under (-) -1.3 0.0 -1.8 2.5 -1.5 -1.0 2.0 1.0 0.0

Previous Over (+) CIR Out (+)/Under(-) Under (-) Recom. Performance (%) -1.5 0.0 -1.0 2.0 -1.8 -0.7 2.0 1.0 0.0

UNDER NEUTRAL UNDER OVER UNDER UNDER OVER OVER NEUTRAL

-4.3 -2.7 -1.0 -0.6 -5.3 -2.1 4.8 -8.2 1.9

Source: Citi Investment Research

Figure 3. Mexico MSCI CIR Model Weight (%) Weight (%) Consumer Disc. Cons. Staples Financials Industrials Materials Telecom Total

13.6 22.6 5.2 4.1 8.3 46.1 100.0

13.6 25.0 4.0 2.5 8.0 46.9 100.0

Current Over (+) Under (-) 0.0 2.4 -1.2 -1.6 -0.3 0.8

Previous Over (+) CIR Out (+)/Under(-) Under (-) Recom. Performance (%) 0.0 2.5 -1.3 -2.1 -1.5 2.4

NEUTRAL OVER UNDER UNDER UNDER OVER

-2.6 4.6 -2.1 1.2 -19.5 3.3

Source: Citi Investment Research

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Citigroup Global Markets  Equity Research

Latin America Strategy Notebook 17 November 2008

Forecasted Returns, Valuations, and Performance Figure 4. Indices, Targets, and Forecasted Returns

Brazil Mexico Chile Argentina Peru Colombia Latin America

Index 17-Nov-08 35,789 19,562 2,518 1,023 7,476 7,180 2,881

FX 2.22 13.01 639 3.31 3.10 2,309

12m Div. Yield 4.0% 3.0% 2.8% 3.2% 8.1% 2.5% 3.7%

MSCI Free Float Mkt Cap (US$, bn) $231.6 $89.1 $25.1 $8.7 $9.8 $9.9 $374.3

Source: Citi Investment Research

Figure 5. Valuation Summary (Citi Investment Research Coverage Universe and Consensus)

Brazil Mexico Chile Argentina Peru Colombia Latin America

Brazil Mexico Chile Argentina Peru Colombia Latin America

07A 38.2% 20.4% 21.2% 21.6% 10.8% n/a 29.6%

07A 29.4% 21.8% 12.7% -9.7% 13.2% n/a 23.8%

EPS Growth 08E 21.7% -11.1% 4.2% 44.9% -13.9% -16.6% 11.8%

09E -15.0% 16.8% -14.2% -21.9% -20.3% 10.9% -8.7%

EBITDA Growth 08E 28.9% 8.0% 3.0% 30.1% -13.2% n/a 21.0%

09E -16.5% 2.5% -30.1% -16.5% -29.0% n/a -13.2%

07A 7.4x 7.9x 13.9x 5.9x 6.1x 22.5x 7.9x

P/E 08E 6.1x 8.9x 13.4x 4.0x 7.1x 27.0x 7.1x

07A 3.1x 5.5x 4.3x 4.2x 4.1x n/a 3.6x

09E 7.2x 7.6x 15.6x 5.2x 9.0x 24.4x 7.8x

FV/EBITDA 08E 2.4x 5.1x 4.1x 3.2x 3.4x n/a 2.9x

Consensus EPS Growth 08E 09E 10.9% 10.4% -0.1% 11.0% 5.0% 12.0% -14.8% -27.0% 14.5% 2.8% -17.5% 11.4% 12.2% 11.7%

09E 2.3x 5.0x 5.9x 3.9x 3.5x n/a 2.9x

ROE 18.3% 20.7% 12.2% 26.4% 32.9% 11.8% 18.7%

Consensus P/E 08E 09E 6.1x 5.5x 8.0x 7.2x 17.4x 15.5x 6.8x 9.3x 6.2x 6.1x 11.1x 10.0x 7.0x 6.3x

P/BV 1.4x 2.0x 2.1x 1.4x 2.4x 1.5x 1.5x

Div Yld 4.0% 3.0% 2.8% 3.2% 8.1% 2.5% 3.7%

Source: MSCI, IBES, FactSet, Citi Investment Research

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Citigroup Global Markets  Equity Research

Latin America Strategy Notebook 17 November 2008

Figure 6. Performance Update Ticker

Market Data Index 52w High

Global Indices MSCI AC World MXWD 217 S&P 500 Index SPX 873 DJ Euro Stoxx 50 SX5E 2,458 Japan Nikkei 225 NKY 8,462 MSCI Emrg Mkts MXEF 530 MSCI Latin America MXLA 2,023 MSCI EM EMEA MXEE 186 MSCI EM Asia MXMS 217 MSCI Indices - Asia Korea MXKR 171 Taiwan MSEUSTW 145 China MXCN 36 India MEEUSIA 227 Malaysia MXMY 224 Indonesia 242 Thailand MSEUTHF 128 Philippines MSEUSPHF 167 MSCI Indices - CEEMEA South Africa MSEUSSA 251 Russia MSELTRUS 420 Poland MSEUSPO 637 Hungary MSELTHG 372 Czech Republic MSEUSCZ 426 Turkey MSEUSTK 248 Israel MSEUSIS 184 Egypt MSILEG 602 MSCI Indices - Latin America Brazil MXBR 1,617 Mexico MXMX 3,129 Chile MXCL 1,230 Argentina MXAR 1,519 Peru MXPE 568 Colombia MXCO 401 Local Indices - Latin America Brazil Bovespa IBOV 35,789 Mexico IPC/Bolsa MEXBOL 19,562 Chile IPSA IGPA 2,552 Argentina Merval MERVAL 1,023 Peru BVL General IGBVL 7,582 Colombia IBB Gen IGBC 7,180 Sectors - Latin America MXLA0CD 274 Consumer Discretion Consumer Staples MXLA0CS 218 Energy MXLA0EN 530 Financials MXLA0FN 380 Industrials MXLA0IN 116 Materials MXLA0MT 399 Telecom Services MXLA0TC 228 Utilities MXLA0UT 179

52w Low

Performance (Local Currency, %) 1Wk 1Mo 3Mo YTD 1Yr

1Wk

Performance (USD, %) 1Mo 3Mo YTD

1Yr

416 1,524 4,503 16,108 1,283 5,195 474 534

204 819 2,179 6,995 454 1,675 160 188

(5.5) (6.2) (5.5) (1.4) (4.1) (1.8) (8.0) (3.4)

(12.0) (12.5) (10.8) (10.4) (16.4) (12.8) (16.7) (17.6)

(31.5) (32.5) (26.8) (34.7) (36.4) (31.3) (42.1) (35.6)

(42.3) (40.5) (44.1) (44.7) (49.7) (42.9) (51.5) (51.2)

(42.6) (40.6) (43.3) (45.4) (50.6) (43.2) (51.6) (52.7)

(6.3) (6.2) (6.3) 0.0 (6.1) (5.4) (8.6) (5.3)

(14.7) (12.5) (17.1) (5.2) (21.3) (18.7) (22.8) (21.6)

(36.0) (32.5) (37.7) (26.1) (46.1) (49.1) (50.6) (42.5)

(46.2) (40.5) (51.5) (36.2) (57.4) (54.0) (59.4) (57.8)

(46.9) (40.6) (51.1) (37.2) (58.6) (55.0) (59.7) (59.4)

466 334 92 694 438 737 293 377

146 141 27 205 210 228 110 146

(4.7) (6.7) 1.6 (6.3) (1.2) (8.0) (8.6) 1.7

(20.5) (18.4) (15.7) (18.8) (8.9) (22.1) (14.9) (13.6)

(30.3) (40.7) (36.8) (38.9) (20.3) (42.2) (39.2) (26.4)

(41.5) (49.8) (57.5) (57.8) (40.3) (55.9) (50.5) (44.9)

(43.8) (52.2) (60.4) (55.7) (37.5) (54.6) (50.3) (47.0)

(9.6) (7.4) 1.6 (8.8) (2.3) (13.4) (8.8) 0.7

(31.4) (20.0) (15.5) (20.3) (11.4) (34.4) (17.2) (17.4)

(48.2) (43.9) (36.3) (46.4) (26.2) (54.2) (41.4) (32.9)

(60.9) (50.8) (57.3) (66.1) (45.1) (64.2) (52.3) (53.9)

(63.3) (53.3) (60.2) (64.4) (41.9) (63.9) (51.9) (53.9)

564 1,642 1,628 1,183 929 774 284 1,469

204 337 553 329 344 225 181 579

0.4 (20.1) (5.8) (9.8) (5.4) (4.8) (0.9) (9.0)

(9.6) (26.3) (18.9) (31.8) (17.5) (16.3) (4.4) (21.8)

(24.5) (62.7) (34.4) (48.7) (35.5) (37.4) (21.8) (41.1)

(27.3) (71.8) (49.6) (60.2) (43.7) (54.5) (29.6) (52.9)

(32.4) (70.5) (51.7) (60.8) (42.5) (54.8) (28.5) (46.6)

1.3 (20.3) (7.7) (10.6) (6.7) (9.3) (2.5) (8.9)

(19.4) (27.2) (29.3) (40.1) (25.3) (28.5) (11.1) (21.5)

(41.5) (63.8) (50.0) (61.0) (46.8) (54.3) (27.3) (43.2)

(50.7) (72.6) (57.6) (67.3) (48.6) (67.0) (30.2) (53.1)

(55.6) (71.4) (58.9) (67.9) (47.6) (67.2) (27.9) (46.8)

4,728 6,559 2,036 4,188 1,446 734

1,331 2,640 996 1,079 444 341

(2.1) (1.4) (0.9) 0.7 (4.8) 0.8

(14.8) (12.3) 4.8 (14.4) (13.7) (11.4)

(33.4) (28.8) (10.5) (44.6) (39.7) (18.8)

(46.5) (37.7) (12.6) (45.3) (53.9) (25.7)

(46.5) (37.5) (16.8) (49.2) (56.1) (28.4)

(7.2) (3.2) (1.0) 0.5 (4.9) 0.9

(21.5) (16.5) (1.1) (17.2) (14.2) (14.2)

(52.9) (44.6) (27.9) (49.4) (41.1) (35.3)

(58.2) (47.8) (31.8) (48.0) (54.5) (35.2)

(59.2) (47.9) (34.2) (52.0) (56.7) (37.1)

73,920 32,293 3,294 2,309 19,835 11,439

29,435 16,480 2,101 819 6,039 6,461

(2.4) (1.5) (0.9) (6.7) (6.0) 0.4

(13.9) (12.1) 4.5 (24.2) (17.1) (12.4)

(35.1) (28.2) (11.8) (41.1) (36.3) (19.0)

(44.0) (33.8) (16.4) (52.5) (56.7) (32.9)

(44.6) (34.0) (22.3) (55.7) (61.8) (34.5)

(7.5) (3.2) (1.0) (6.9) (6.2) 0.5

(20.7) (16.3) (1.4) (26.7) (18.1) (15.1)

(54.0) (44.1) (29.0) (46.2) (39.7) (35.5)

(56.2) (44.5) (34.8) (54.8) (58.1) (41.4)

(57.8) (45.0) (38.5) (58.1) (63.0) (42.4)

657 385 1,780 900 313 1,415 446 293

240 178 456 287 102 339 189 146

(4.8) 2.5 (8.3) (0.9) (3.0) (1.6) 1.0 3.9

(11.0) 0.7 (22.9) (14.3) (14.9) (14.6) (11.4) 5.6

(35.0) (16.8) (38.2) (26.8) (34.7) (42.9) (19.5) (9.1)

(41.4) (19.3) (51.8) (40.9) (51.0) (53.7) (32.3) (5.3)

(45.6) (20.6) (46.5) (42.2) (52.6) (55.7) (31.8) (11.7)

(7.6) (0.7) (12.5) (5.2) (5.8) (5.5) (1.5) 0.4

(16.3) (5.5) (28.6) (20.3) (20.5) (20.3) (16.3) (2.0)

(51.4) (37.4) (55.1) (46.3) (51.2) (57.6) (38.6) (32.9)

(52.4) (34.4) (61.5) (52.6) (61.0) (62.6) (44.3) (25.8)

(56.4) (36.1) (58.2) (54.5) (62.6) (64.8) (44.3) (31.7)

Source: FactSet and Citi Investment Research

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Citigroup Global Markets  Equity Research

7

MSCI Industry Company NASD Brazil Cons. StaplesAmbev ABV Financials Itau ITAU4 Materials Vale RIO_p Materials Gerdau GGBR4 Industrials CCR CCRO3 Telecom Vivo PN VIVO4 Utilities EDB ENBR3 Utilities CTEEP TRPL4 Mexico Cons. StaplesWalmex WALMEXV Cons. StaplesCoca-Cola Fe KOF Cons. StaplesBimbo BIMBOA Consumer DisTelevisa TV Industrials ASUR ASURB Chile Cons. StaplesAndina AKOa Industrials Copec COP Peru Financials Credicorp BAP Colombia Energy Ecopetrol ECO Portfolio (Market-Cap Weighted)

Rating

Price 17-Nov

52-wk Low

52-wk High

Price Target

ETR (%)

1M 1M 1M 1H 1M 1H 1M 1M

$47.14 R$25.24 $10.77 R$13.89 R$21.71 R$24.12 R$24.26 R$42.44

$30.71 R$16.91 $9.07 R$10.43 R$13.30 R$18.10 R$19.03 R$35.50

$88.77 R$52.37 $35.96 R$42.65 R$35.98 R$52.80 R$35.50 R$55.99

$64.00 R$44.00 $26.00 R$24.00 R$33.00 R$44.00 R$41.10 R$57.00

40% 79% 146% 82% 59% 83% 77% 50%

$2.90 R$2.82 $2.92 R$5.26 R$1.87 R$0.84 R$3.53 R$5.46

1L 1M 1M 1M 1H

P$32.74 $34.45 P$62.03 $14.35 $30.01

P$26.10 $26.15 P$49.80 $13.00 $27.31

P$47.19 $63.77 P$71.98 $28.11 $63.54

P$43.00 $52.00 P$77.00 $24.00 $65.00

33% 52% 25% 71% 122%

2M 1M

$11.60 C$5,500

$7.25 C$4,500

$21.25 C$9,001

$19.00 C$7,000

73% 31%

1M

$40.16

$30.23

$86.91

$110.00

180%

2H

CP$2,000

CP$1,500

CP$2,980

CP$2,200

21% 73%

NASD

Added

Return US$

MSCI LatAm

Relative Perform.

Cons. StaplesAmbev Financials Itau Materials Vale Materials Gerdau Industrials CCR Telecom Vivo PN Utilities EDB Utilities CTEEP Cons. StaplesWalmex

ABV ITAU4 RIO_p GGBR4 CCRO3 VIVO4 ENBR3 TRPL4 WALMEXV

2/11/08 12/1/06 10/1/07 11/17/08 11/17/08 5/30/08 10/13/08 11/17/08 10/13/08

-38.6% -65.5% -64.9% n/a n/a -60.8% 3.7% n/a -12.3%

-51.6% -27.2% -52.7% n/a n/a -60.7% -14.7% n/a -14.7%

12.9% -38.3% -12.2% n/a n/a -0.1% 18.3% n/a 2.4%

Good operating momentum and hedged protection against grain price/FX fluctuation; strong balance sheet; Macro risk; diluted EM exposure. High and sustainable ROE; Unibanco merger synergies a catalyst; quality management; attractive valuation compensates for likely slowdown in '09. Massive underperformer; we see upside on rising iron ore prices; Underappreciated long-term value; Risk in global economy. Strong earnings growth potential, highly sustainable margin structure, and excellent management team; Risks from political/economic instability. Interesting risk/reward combination with limited currency exposure and high margins; Risks from global demand and government intervention Potential for forecast upgrades, compelling valuation, and timing of entry; Interest rate risk, and price risk from competitors. Compelling valuations with strong cash generation and an attractive FCF yield; Risks from global demand and climate conditions Defensive and predictable; less subject to cost and revenue volatility or to government intervention; Price risk from competitors. High cash generation and liquidity with limited sensitivity to FX changes and seasoned management; Global economic and execution risks

Cons. StaplesCoca-Cola Fe Cons. StaplesBimbo Consumer DisTelevisa

KOF BIMBOA TV

10/13/08 11/17/08 1/28/08

-10.8% n/a -34.0%

-14.7% n/a -49.5%

3.9% n/a 15.5%

Low debt ratios, defensive stock and potential for synergies with other beverage partners; volatility in emerging markets and competitive risks Solid cash generation, pricing power, and limited leverage; Risks from rising prices of raw materials, and execution risks in new ventures. Strong balance sheet, sustainable free cash flow generation, investing more aggressively in new growth opportunities; Execution risk in new ventures.

Industrials ASUR Cons. StaplesAndina Industrials Copec Financials Credicorp Energy Ecopetrol

ASURB AKOa COP BAP ECO

10/25/07 10/13/08 10/13/08 5/19/08 10/13/08

-50.0% 17.2% -4.8% -50.8% -3.7%

-53.9% -14.7% -14.7% -61.1% -14.7%

3.9% 31.8% 9.9% 10.2% 10.9%

Lowest valuation and most resilient traffic growth of the trio, hurricane season turns to holiday season; Risks in global economy, lower maximum rates. Defensive stock, political and economic stability (Chile), with experienced management; liquidity risks Strong cash generation, low price volatility, strong balance sheet; Risk in exposure to pulp prices, holding structure and low share liquidity. One of the most compelling volume growth stories in the emerging markets, anchored on high GDP growth and low banking sector penetration. Strong Growth Outlook; Risks include Emerging market risk, new discovery risks, and low reserve base.

Industry

Company

EPS/EPADR 08E 09E

08E

09E

EV/EBITDA (x) 08E 09E

$2.31 R$3.17 $1.95 R$4.11 R$2.29 R$1.53 R$3.69 R$5.26

16.3 9.0 3.7 2.6 11.6 28.6 6.9 7.8

20.4 8.0 5.5 3.4 9.5 15.8 6.6 8.1

6.6 N/A 3.1 2.6 6.2 2.6 4.7 5.3

P$1.76 $3.02 P$3.36 $1.28 $3.06

P$2.03 $4.31 P$4.45 $1.35 $3.26

18.6 11.4 18.4 11.2 9.8

16.1 8.0 13.9 10.6 9.2

$1.35 C$433

$1.59 C$427

8.6 12.7

NS$

5.75

CP$294

NS$

6.89

CP$208

P/E (x)

P/BV Latest

Div. 08E

Div Yld.

Mkt Cap US$ MN

6.9 N/A 3.5 3.6 5.7 2.0 4.4 5.1

3.41 2.31 1.05 0.65 5.01 1.04 0.95 1.46

$3.1 $1.0 $0.5 R$1.4 R$1.5 R$0.2 R$1.8 R$6.6

4.5% 4.5% 4.6% 9.0% 7.0% 0.4% 7.4% 15.5%

$28,945 $33,660 $54,048 $5,840 $3,936 $3,998 $1,800 $2,849

11.2 5.3 7.8 4.4 1.8

9.8 4.8 6.7 4.1 2.0

3.79 1.28 2.37 2.12 0.79

P$0.6 P$0.5 $0.5 $0.0 $1.6

2.1% 1.3% 1% 3% 5%

$21,278 $6,361 $5,605 $8,059 $900

7.3 12.9

4.1 8.6

3.9 8.4

2.37 1.75

$1.1 C$246

9.6% 3.8%

$1,470 $11,189

7.0

5.8

N/A

N/A

1.62

NS$ 1.77

6.0%

$3,203

6.8 9.9

9.6 10.5

3.0 4.3

3.8 4.4

2.55 2.21

P$115.0

11.1% 5.4%

$35,059

Investment Thesis

Citigroup Global Markets  Equity Research

Past performance is not an indicator of future results. Returns exclude management and transactions fees. Source: Citi Investment Research

Latin America Strategy Notebook 17 November 2008

Citi Investment Research Latin America Focus List

Latin America Strategy Notebook 17 November 2008

How are the “Fundamentals?”  Until late-October, the selling was indiscriminate; no one cared about the “fundamentals”. But, in our view, once the selling stops (it may have already), investors will care; and, the fundamentals in Latin America are better today than during any global downturn in recent years.  Regional fiscal and current account balances, while not “perfect”, are better than in 1999-2002. Foreign exchange reserves of around $400bn are three times late-1990s levels and they may be augmented by the new IMF SLF. This creates flexibility to ease fiscal policy in certain countries.  Prudent monetary policy over recent years, including during the early-2008 spike in inflation, creates monetary flexibility. Rates should fall in Mexico and Colombia before year-end and in Brazil by spring 2009  The region’s micro fundamentals are better than before also. Regional banks have little dependence on wholesale funding; the credit crunch is affecting the region, but should be contained. Mexico seems most at risk. Corporate balance sheets are in much better shape than in the early 2000s.

Much Better We are bullish for the long-term and would look to buy Latin American equities on weakness.

In previous reports, we have analyzed the recent (and worst-ever) bear market in Latin American equity markets in a variety of ways. What caused the 68% drop in MSCI Latin America from May 19 to October 27? Why was the decline so severe? Which were the relative country and sector “winners” and “losers” in the bear market? Most recently, we have argued that valuations at the market trough in late-October were, on one measure, the lowest we have ever seen, at around 6.5x trailing earnings 1. This lies behind our central view that any further declines from the October 27 trough for the region are likely to be very modest and why, despite the likelihood of a prolonged and highly volatile period of range trading, we are bullish for the long-term and are looking to buy on weakness. Here, we look at yet another aspect of the recent bear market. For sure, as markets plunged and then tried to trace out a trough, few investors have had any stomach for comments such as: “the market’s (or a stock’s) fundamentals are sound”, “the fundamentals are undamaged”, etc. 2 As we know, in this sort of environment, no investor cares about fundamentals; the selling is indiscriminate. However, eventually, the fundamentals do “matter” again, and that is when the markets try to rebuild. Therefore, in this report, we turn to those fundamentals. In what sense is the region fundamentally better placed to survive the current turmoil than in the past, and how does key regional fundamentals look compared to other emerging market regions?

1

See “How Far Will Earnings Fall?” in Latin America Strategy Notebook, November 3, 2008.

2

In a recent re-read of J.K. Galbraith’s seminal work “The Great Crash, 1929”, we were interested to see similar quotes from many US businessmen in 1929.

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Citigroup Global Markets  Equity Research

Latin America Strategy Notebook 17 November 2008

Whatever Happened to Decoupling? In the up-cycle in the emerging markets from Autumn 2002 to Spring 2008, the consensus view was the world had changed. Emerging market fundamentals were much better than ever before; an old-fashioned emerging market crisis – as seen on many occasions in the late-1990s – would not happen again. Decoupling was on everyone’s lips. Also, even if decoupling proved to be a myth in financial markets (it did), emerging economies would hold up much better than in any prior global downturn; above all, it was assumed that the source of any major sell-off in financial markets would not be the emerging markets, but somewhere in the developed world. We are surprised at the amount of losses in emerging market equities; fundamentals (thus far) have held up better than in previous downturns.

Much of the above paragraph, in fact, proved to be correct. For example, even though decoupling as a concept to explain the current situation is now largely discredited, our economists still expect GDP growth of 4.5% in the emerging markets in 2009, despite the biggest gap between global growth - forecast at 1.2% - and trend growth seen since 1945; all major areas of the developed world – the US, Japan, the Euro Area and the UK – are forecast to see negative GDP growth next year. That is, emerging markets will not account in 2009 for 50% or 75% of global growth, as in the recent past, but for 100% of the expansion of the world economy. So, emerging economies will, indeed, decouple from developed economies to an extent (just maybe less than hoped for); 4.5% growth in 2009 is impressive in a year that developed economies will actually contract. Despite all of this, what has been so shocking in this global credit crunch – which began in the US, but was closely mimicked in Europe – is how severe the sell-off in financial asset markets (equities, fixed income and currencies) has been in the emerging markets, and how much worse it has been than in many developed markets:  Equity Markets. Figure 7 plots the performance of all emerging markets during the one-year bear market for the MSCI GEMs index (-66.1%) from October 29, 2007 to October 27, 2008, a period when emerging markets underperformed (MSCI AC World fell by 52%).

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Citigroup Global Markets  Equity Research

Latin America Strategy Notebook 17 November 2008

Figure 7. Equity Market Performances During GEMs bear Market (10/29/2007-10/27/08, in Dollars) 0.00% -10.00% -20.00% -30.00% -40.00% -50.00% -60.00% -70.00% -80.00%

Ru ss ia Ch H ina un ga ry Pe ru Ko re Tu a Ar rke ge y nt in a In di Po a M lan SC d IE M B In raz do il So n u t es h ia Af Th rica Ph aila ili nd pp in M es ex Cz i ec Ta co h i Re wan pu P a blic ki st an Ch ile E Co gyp lo t m M bia al ay si a Is ra Jo el r M dan or oc co

-90.00%

Source: MSCI, FactSet and Citi Investment Research

 Currencies. In similar vein, Figure 8 plots the recent performance of emerging market currencies, albeit here we use a different time period, based on the performance of the US dollar from mid-July 2008 (when the US dollar bottomed out at €1.59) to October 27 (when the dollar reached its interim peak of €1.245). Over this period, the dollar rose by 22.1% against the Euro and by 15.5% on a trade-weighted basis. Selling has been fairly indiscriminate.

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Citigroup Global Markets  Equity Research

Latin America Strategy Notebook 17 November 2008

Figure 8. Currency Performances vs US Dollar (July 15, 2008 to October 27, 2008)

Country Poland Hungary South Africa Korea Brazil Turkey Chile Colombia Czech Rep Mexico Euro Morocco Pakistan Russia India Israel Indonesia Malaysia Argentina Taiwan Peru Philippines Thailand China Jordan

Currency Decline -33.8% -33.4% -30.0% -29.8% -29.4% -28.0% -27.4% -26.5% -26.2% -23.3% -22.1% -18.6% -14.4% -14.2% -14.0% -13.7% -11.6% -10.1% -9.5% -9.4% -8.6% -7.0% -3.5% -0.4% 0.0%

Source: MSCI, FactSet and Citi Investment Research

These charts show that the selling of emerging market assets was fairly indiscriminate:  Of the top 10 worst performing equity markets during the bear market year (shockingly, all fell by 66%-77% in dollar terms), four were from EMEA (led by Russia, but also Hungary, Turkey and Poland) and three each were from Asia (China, Korea and India) and Latin America (Argentina, Peru and Brazil). During the bear market, Peru was the 4th worst-performing global emerging market, Argentina 7th and Brazil 10th. All other regional markets outperformed with Mexico ranked as 15th worst (-60%), while Chile fell by 49% and Colombia by 45%. The single best performing market was Morocco, which fell by "just" 18%;

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Citigroup Global Markets  Equity Research

Latin America Strategy Notebook 17 November 2008

 As perhaps should be expected - given that a currency measures the ultimate value of a country’s assets - there was a much wider range of currency performance during the recent rising dollar period. These ranged from falls against the dollar of over 30% for Poland, Hungary and South Africa (interestingly, all in EMEA) to essentially flat exchange rates for China and Jordan. Within Latin America, the major falls against the dollar were recorded by the Brazilian Real (-29.4% from R$1.59 to R$2.25, although the worst of the Real’s fall was from R$1.56 to R$2.40, or -35%) and by the pesos in Chile (-27.4%), Colombia (-26.5%) and Mexico (-23.3%); by contrast, the Argentine peso (-9.5%), supported by a lack of total capital mobility, and the Peruvian sol (-8.6%) were more stable. Asian currencies, apart from the Korean won (-29.8% over this period) were generally less weak. Clearly, the overall data reflect greater concern for underlying fundamentals in EMEA, for example, than in Latin America).

“Fundamental” Comparisons - Macro With the above widespread selling of emerging market assets, it seems that the question of the moment has changed. It is no longer, will emerging markets decouple from developed world events (they haven’t); rather, it is, if they have not decoupled, can emerging markets “survive” the dramatic meltdown of the past year and especially, recent weeks, without those very same fundamentals being materially damaged? This is the subject of the rest of this Strategy Focus, with particular reference to Latin America. Latin American fundamentals are sufficiently better than in previous global downturns, and compared to certain other parts of GEMs.

Our argument for the rest of the report is as follows. Latin American fundamentals are sufficiently better than: i) they have been in earlier global downturns; and than ii) they are in certain other parts of the emerging world. Investors should stay hopeful, even confident, that the region will come out of this downturn intact and ready for the next market upturn; when the latter comes – supported by tested, but unbowed – fundamentals, Latin American equity markets should rebound strongly. In this section, we look at two sets of fundamentals: i) macro and ii) micro (i.e. within the equity asset class).

Twin “Balances” We have argued consistently over recent years that Latin America as a region has, in general, used well the financial largesse built up during the commodity boom of the past 5-6 years. Excepting Argentina, the countries that are part of our equity coverage have not set off unrestrained public spending booms in response to the surge in tax revenues associated with high commodity prices and the above-par GDP growth rates over recent years. In like manner, central banks have generally pursued inflation targeting in a fairly strict manner. This strong policy background has also been underpinned by the flexibility for financial asset prices afforded by floating exchange rates (in contrast to the rigidity of fixed exchange rate systems adopted by many countries in the late1990s).

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Citigroup Global Markets  Equity Research

Latin America Strategy Notebook 17 November 2008

The result has been much better fiscal and current account performances in recent years in Latin America than in the late-1990s. Figure 9 has the details. Following some low fiscal deficit years in the mid/late-1990s, the regional deficit rose sharply to 2.9% of GDP in 1999. After a few years of 2%+ shortfalls, the regional fiscal deficit fell to below 1% of GDP again in 2004 and has remained there since. For sure, our economists’ forecast of a deficit of 0.6% of GDP in 2009 is vulnerable to the upside should the region’s economies slow more than expected, However, Latin America still appears to have more fiscal policy flexibility than during last global downturn in the early-2000s. Figure 9. Current Account/Fiscal Balances (%GDP) 2.0% Forecast 1.0%

0.0%

-1.0%

-2.0%

-3.0%

-4.0%

-5.0% 1996

1997

1998

1999

2000

2001

Current Balance (% of GDP)

2002

2003

2004

2005

2006

2007 2008E 2009E

Fiscal Balance (% of GDP)

Source: Citi Economic & Market Analysis and CIR

The historical comparisons are not quite as favorable for the region’s current account deficit. The regional deficit of over 4% of GDP in 1998 was too wide and contributed to the devaluation of the Brazilian Real in 1999 and the collapse of the Argentine peso in 2001. The collapse of capital inflows into Latin America in the early years of this decade – caused by the fallout from the Argentine collapse and the crises in Brazil and Venezuela in 2002, as well as the general rise in risk aversion after the bursting of the TMT bubble – forced economic adjustment and pushed the regional current account into surplus from 2003 to 2007. Now, however, the deficits have returned (at an estimated 1.4% of GDP in 2008 and slightly wider next year) as economies have boomed, capital has flowed in (and, latterly, commodity prices have collapsed). While a return to external deficits is an unwelcome fundamental deterioration, which does constrain policy, the adoption across the region of floating exchange provides an inbuilt defensive mechanism that facilitates a gradual (not abrupt) adjustment.

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Citigroup Global Markets  Equity Research

Latin America Strategy Notebook 17 November 2008

An equally powerful comparison for Latin America’s “twin balances” is, not just with history, but with other countries and regions today (Figures 10-11). Certainly, there is little evidence, at first blush, that Latin America, as a region, is more comfortable in this respect than the rest of the emerging world; indeed, on the current account, Asia is in the strongest position, while it has a fiscal outlook similar to that in Latin America. However, Emerging Europe has the poorest current account position of any region (with a forecast deficit in 2009 of around 3% of GDP); moreover, if Russia is removed, Emerging Europe looks far more vulnerable, with several countries (such as Turkey, Hungary and Poland) facing external deficits of over 5% of GDP. Fiscal deficits in Emerging Europe are more in line with those in Latin America. Finally, one other observation from these charts is the forecast collapse of the twin surpluses in Africa/Middle East in 2009, which is entirely due to less favorable fiscal and current account balances for the Middle East oil exporters and Egypt.

Asia has the strongest current account balance in GEMs, followed closely by Latin America and, lastly, emerging Europe.

Figure 10. Current Account Balances (%/GDP)

Figure 11. Fiscal Balances (%/GDP)

12.0%

7.0%

10.0%

6.0%

5.0% 8.0% 4.0% 6.0% 3.0% 4.0% 2.0% 2.0% 1.0% 0.0%

0.0%

-2.0%

-1.0%

-2.0%

-4.0% Latin America

Emerging Europe

Africa/ Middle East

2008 Current Account Balance

Asia

GEM

2009 Current Account Balances

Source: Citi Economic & Market Analysis and CIR

Latin America

Emerging Europe

Africa/ Middle East

2008 Fiscal Balances

Asia

GEM 2009 Fiscal Balances

Source: Citi Economic & Market Analysis and CIR

Figures 12 and 13 then take these data one level further by plotting emerging market fiscal and current account balances by country. The above conclusion that Latin American countries generally sit in the middle between Asia’s secure balances and the more risky positions of EMEA comes through here also.

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Citigroup Global Markets  Equity Research

Eg Pa ypt ki s M tan al ay si Jo a rd an In di Tu a rk H ey un g Th ary ai la nd Br a Cz Co zil ec lom h Re bia pu In bli do c n Ph esi ili a pi ne Ta s iw a Po n la nd Pe ru Ch in a Is Ar rae ge l S o nt ut in a h Af r ic a M ex ic Ru o ss ia Ko re a Ch ile al ay si a Ch in a Ta iw Th an ai la nd Ko Ph re ili a p In ine do s n Ar esia ge nt in Ru a ss ia Is re Cz al ec Br h Re azil pu bl ic In di M a ex ic o C Co hile lo m bi a Pe ru Eg Pa ypt ki st a Po n la nd Tu rk H ey u So ng ut ar y h Af ric Jo a rd an

M

Latin America Strategy Notebook 17 November 2008

Figure 12. Current Account Balance 2009e (%/GDP) 15.0%

10.0%

5.0%

0.0%

-5.0%

-10.0%

-15.0%

-20.0%

Source: Citi Economic & Market Analysis and CIR

Figure 13. Fiscal Balance 2009e (%/GDP)

6.0%

4.0%

2.0%

0.0%

-2.0%

-4.0%

-6.0%

-8.0%

Source: Citi Economic & Market Analysis and CIR

15

Citigroup Global Markets  Equity Research

Latin America Strategy Notebook 17 November 2008

The implication of this analysis is that Latin American countries as a group are more secure and, therefore, less vulnerable to bad news during this downturn and so they have more flexibility to react to negative scenarios than in the past. Our economists made the latter point in a recent analysis of the fiscal flexibility of individual countries in Latin America to a “deeper and longer-lasting deceleration of the global economy” 3 This weaker-than-expected global scenario (including a US contraction of 2.8% in 2009 with global GDP growth of just 0.3%) would push the fiscal deficit up by over 100bp to close to 3% of GDP in 2009. Given this, for Latin America, they argued that: Brazil and Peru, within Latin America, seem to have the most "room" to pursue expansionary fiscal policies.

 Countries with some flexibility to ease fiscal policy – and so, unusually for the region, counteract some of the economic weakness implied by the stress scenario – include Brazil and Peru;  Countries that could maintain government spending at pre-stress levels should include Chile (which would suffer from lower copper revenues) and Colombia (which starts off with a bigger deficit in the first place);  Mexico would suffer a loss of oil revenues from the stress scenario and would likely be forced to cut spending as a result;  Finally, Argentina would need to tighten fiscal policy and seek an agreement with the IMF. One result of Latin America’s better fiscal performance in recent years, combined with floating exchange rates and the boom in commodity prices, has been the region’s threefold rise in foreign currency reserves from $100-150bn from 1996 to 2002 to an estimated $400bn by the end of 2008 (Figure 14); this another clear reason why the region should be able to ride through the current global downturn better than in the past. Although, in practice, the actual level of reserves at the end of 2008 may undershoot this forecast (given the amount of currency market intervention in recent weeks by countries such as Brazil and Mexico), the cushion against heavy selling of regional currencies is now far greater than it was just a few years ago; regional central banks should, over time, be able to fight off the speculators.

Latin America has a comfortable cushion in terms of foreign reserves.

3 See “Latin America: Expect Little Fiscal Stimulus in a Global Recession”, Latin American Daily, November 13, 2008.

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Citigroup Global Markets  Equity Research

Latin America Strategy Notebook 17 November 2008

Figure 14. Latin America: Reserves ($bn) (US$, bn) 450

400

350

300

250

200

150

100

50

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008E 2009E

Source: Bloomberg and Citi Investment Research

Further, even this already more comfortable reserve cushion for Latin America could be increased through additional external support. In late-October, the IMF announced the creation of the Short-Term Liquidity Facility (SLF) to provide rapid financial support to countries in need4. Simultaneously, the Fed announced that it would make available swap lines of up to $30bn to each of Brazil, Mexico, Korea and Singapore, all of which have suffered significant currency pressure in recent weeks. The SLF (see Figure 15 for its application for certain Latin American countries) is designed to provide three-month funding of up to five times a country’s quota (see Columns 1-2 below) for countries whose macro economic situation is considered to be “sound”. This funding would neither be subject to the usual IMF conditionality, nor any “traunching” of the money. Our economists also assume that this SLF will only be made available to countries where: i) a negative political change is unlikely as a result of the receipt of this funding; and ii) which are deemed to have systemic importance.

4 See “IMF and Fed Extend Liquidity: Money for Nothing and Swaps for Free”, Latin America Economics, October 30, 2008.

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Citigroup Global Markets  Equity Research

Latin America Strategy Notebook 17 November 2008

Figure 15. Countries Potentially Qualifying for the IMF’s Short-Term Liquidity Facility Country Quota (SDR bn) Clear Qualifiers Brazil 3.0 Mexico 3.0 Chile 0.8

SLF Line Total Aid (5xquota USD bn) (Fed+ SLF USD bn)

Total Int. Reserves (USD bn)

Short-Term Debt (USD bn)

Reserves+Aid ( %ST Debt)

22.5 22.5 6.0

52.5 52.5 6.0

205.0 79.0 24.0

54.4 34.5 8.5

4.7 3.8 3.5

6.0 4.5

6.0 4.5

24.0 35.0

5.8 7.4

5.2 5.3

Uncertain Qualifiers Colombia 0.8 Peru 0.6 Source: Citi Economic & Market Analysis and CIR

In the judgment of our economists, the countries in Latin America that will be eligible to receive such near-term funding are Brazil, Mexico and Chile (Figure 15), although, in their view, all three are unlikely to make use of this facility. Although this total aid is still below the short-term debt levels of Brazil and Chile, full use of this facility would still effectively augment the reserves of the countries in question – thus adding further to their liquidity cushion – by around one-quarter for Brazil and Chile and over 60% for Mexico. However, our economics team sees Colombia and Peru as possible, but uncertain, qualifiers for this aid and Argentina as a clear non-qualifier.

Prudent Monetary Policy/Inflation Control Finally, in this section, the other leg of macro policy – monetary policy – also puts Latin America in a much better situation to survive this global downturn than in the past. If the clock is turned back just six months, our argument was that Latin America was reacting better to the spike in inflation at that time – driven by the surge in commodity prices – than were other emerging market regions. Policy was being tightened across the board (except in Argentina) as central banks strived to keep real interest rates flat or rising. This was in sharp contrast to many countries in Asia and EMEA. At one point in early-2008, Brazil had the lowest inflation in the BRICs and yet its highest interest rates. Figure 16. Regional Inflation (MSCI Constituent Countries, GDP Weighted)

Figure 17. Peaking (?) Inflation (CPI, Y/Y) 18%

14%

16% 12%

14% 12%

10%

10%

Chile, 9.9%

8% Oct-08, 6.6%

Colombia, 7.9%

8%

Peru, 6.5%

6%

6%

Brazil, 6.4% Mexico 5.8%

4% 4% Apr-07, 3.9% 2%

0% 2000

2% 0%

2001

2002

2003

2004

2005

2006

2007

Source: Datastream and Citi Investment Research

2008

-2% 2001

2002

2003

2004

2005

2006

2007

2008

Source: Datastream and Citi Investment Research

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Citigroup Global Markets  Equity Research

Latin America Strategy Notebook 17 November 2008

The result was that, while inflation rose to over 6% for the region earlier this year from 3.9% in April 2007 (Figure 16 above), the rise was controlled; also, inflation then flattened out during the summer before pass-through from the recent sharp decline in regional currencies pushed it higher again in some countries in the past two months (see also Figure 17). Assuming this latest tilt upwards in inflation across the region is also contained, Latin American countries will have another unusual defence mechanism against the current global slowdown: they can actually cut interest rates (Figure 18). Lower rates can reduce the cost of capital, protect economic growth and support equity valuations. On our current forecasts, Mexico and Colombia should begin cutting rates before the end of 2008, with Brazil following around April 2009. The visibility of rate cuts is more opaque in Chile and Peru. Mexico and Colombia may begin cutting rates before the end of this year,

Figure 18. Latin America and the US: Policy Interest Rates

according to our economists. Brazil will 20

likely follow in spring 2009.

(%)

18 16 14

Brazil, 13.75

12 Colombia, 10.00

10 8

Mexico, 8.25 Chile, 8.25

6

Peru, 6.50

4 2 US, 1.00 2004

2005

2006

2007

2008

Source: Bloomberg and Citi Investment Research

“Fundamental” Comparisons - Micro Clearly, “better fundamentals” as a defense against negative developments associated with a global downturn mean more than better macro policy and financial “armor”. A country can have “micro” defense mechanisms also. Here, we look at two of these: i) well-funded and capitalized banking systems; and ii) stable corporate balance sheets. In this section, we look briefly at both.

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Citigroup Global Markets  Equity Research

Latin America Strategy Notebook 17 November 2008

Well-Funded Banking Systems One weakness in banking systems that has been ruthlessly exploited by the markets during the global credit crunch of recent months has been an overdependence on wholesale funding or, alternatively, the paucity of a retail deposit basis. One crude measure of this is Loan/Deposit ratios; the higher this ratio, the more vulnerable a country’s banking system is to a shortage of funding (i.e., a cash crunch). While the data in Figure 19 (from 2007) may be challenged as they do not incorporate the sophisticated products that banks (particularly in the developed world) have used to “lay off” risk (that may be no bad thing currently), they are a useful snapshot. Figure 19. Crude Measure of Banking Systems' Vulnerability: Loan-to-Deposit Ratios

India China Turkey Germany Peru Poland Brazil Argentina Mexico Colombia United States South Africa Chile Spain Hungary Russia United Kingdom

Loan/GDP 53% 111% 32% 94% 22% 40% 36% 18% 21% 31% 59% 102% 69% 147% 61% 37% 149%

Deposit/GDP 81% 155% 41% 115% 25% 45% 39% 19% 22% 33% 58% 93% 60% 126% 47% 23% 73%

Loans/Deposits 0.65 0.71 0.79 0.82 0.88 0.90 0.93 0.94 0.95 0.95 1.02 1.09 1.15 1.17 1.29 1.57 2.04

Source: National Sources and Citi Investment Research

The data are very instructive as they show that, with loan/deposit ratios of close to 100% (Chile at 115% is a minor outlier), Latin American banking systems appear to receive essentially all of their net funding directly from deposits (the retail market); this makes them less vulnerable to a collapse of alternative (wholesale) funding sources than are other banking systems. This data appear to explain why the UK (loan/deposit ratio of 204%) and Russian (157%) banking systems have faced such funding difficulties in recent weeks, while banks in India (65%) and China (71%) look secure on this basis. Interestingly, also, this table indicates that the main problem facing the US banking system at present (102%) is not an over-reliance on wholesale funding. A lack of dependence on wholesale funding does not, of course, provide immunity from the global credit crunch, as is clear from recent events in the region. However it should mitigate its consequences. For example, we continue to believe that:  A combination of local (not multinational) ownership of the major banks, a strong retail deposit base and a series of imaginative and pre-emptive policy moves by the authorities should protect the Brazilian banking system from the worst of the credit crunch, so supporting the growth of the economy; 20

Citigroup Global Markets  Equity Research

Latin America Strategy Notebook 17 November 2008

 The Mexican banking system is more vulnerable than most in Latin America to the global credit crunch, given its dominant foreign ownership and the much weaker domestic economy, closely linked as it is to the US economy;  The banking systems in the rest of the region (Chile, Colombia and Peru) will likely suffer no more than the general “wash" from global credit tightening rather than a full-fledged credit crunch, so allowing these economies to grow at solid, if below-par, rates in 2009.

Unleveraged Balance Sheets In terms of a second micro issue, corporate balance sheets in Latin America are, on balance, in much better shape than after the last global downturn. After reaching a high of 36.5% at the end of 2002, the regional net debt-tototal capital ratio has fallen steadily since then (Figure 20). By the end of the last reported (third) quarter, the overall regional leverage ratio has fallen to 22.1%. Although the operating environment remains highly uncertain, particularly given a lack of visibility with regard to the effects of the ongoing credit crunch, our analysts expect leverage ratios to continue to fall modestly in 2009 to end the year at 20.5%. This may be too optimistic, but gearing is highly unlikely to rise back to 2002 levels. Figure 20. Latin America: Net Debt-to-Total Capital

Figure 21. Net Debt-to-Total Capital 50%

40%

45%

35%

40% 30% 35% 25%

Avg: 24%

Avg: 29%

30% 25%

20%

20% 15%

Avg: 17% 15%

10% 10% 5%

5%

Latin America

Brazil

Source: Company reports and Citi Investment Research

Mexico

09e

07

08e

06

05

04

03

02

01

09e

07

08e

06

05

04

03

02

01

09e

09e

08e

07

07

08e

06

06

05

05

04

04

03

03

02

02

01

01

0%

0%

Chile

Source: Company reports and Citi Investment Research

On a country basis, the improvement in the overall regional balance sheet is attributable to Brazil and Chile, rather than Mexico. Figure 21 shows the leverage ratio coming down in Brazil from a risky 46.9% in 2002 to just 23% at the end of the third quarter of this year. Similarly, the ratio has declined in Chile5 from 24.4% to just 8.6%. In contrast, Mexico's leverage has fluctuated in a wide range between 19% and 28% since 2002 without showing much of a trend either up or downwards. In general, optimal capital structure theory suggests that companies in most industries should have at least some debt to pursue growth, but the fact that Mexico's debt levels have not shown a downward trend from 2001-2 crisis levels is somewhat concerning (relative to the rest of Latin America) and, at the margin, it supports our model portfolio country allocations (Overweight in Brazil and Chile vs. Neutral in Mexico).

5

Excluding Chilean Utilities as these are not currently under CIR coverage.

21

Citigroup Global Markets  Equity Research

1996 Real GDP Growth (%) Brazil 2.7 Mexico 5.1 Chile 7.4 Argentina 5.5 Peru 2.5 Colombia 2.1 Latin America 3.8

22

Citigroup Global Markets  Equity Research

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

3.3 6.8 6.6 8.1 6.8 3.4 5.2

0.1 4.9 3.2 3.9 (0.7) 0.6 2.1

0.8 3.9 (0.8) (3.4) 1.0 (4.2) 0.6

4.4 6.6 4.5 (0.8) 2.9 2.9 4.2

1.3 (0.2) 3.4 (4.4) 0.2 1.5 (0.2)

1.9 0.8 2.2 (10.9) 4.9 1.9 0.7

0.5 1.4 3.9 8.8 4.0 4.3 2.1

5.7 4.2 6.0 9.0 4.8 4.0 6.1

2.9 2.8 5.7 9.2 6.7 5.1 4.3

3.7 4.8 4.0 8.5 7.7 6.8 4.8

5.4 3.2 5.1 8.7 8.5 7.7 5.3

5.2 2.0 4.2 6.7 9.1 3.5 4.4

3.0 0.5 3.0 2.9 5.5 2.5 2.3

9.6 27.7 6.6 0.1 11.8 21.6 12.4

5.2 15.7 6.0 0.3 6.5 17.7 7.7

1.7 18.6 4.7 0.7 6.0 16.7 6.7

8.9 12.3 2.3 0.5 3.7 9.2 8.0

6.0 9.0 4.5 (0.9) 3.7 8.8 5.8

7.7 4.4 2.6 (1.5) (0.1) 7.6 4.4

12.5 5.7 2.8 41.0 1.5 7.0 10.1

9.3 4.0 1.1 3.7 2.5 6.5 5.7

7.6 5.2 2.4 6.1 3.5 5.5 6.7

5.7 3.3 3.7 12.3 1.5 4.9 5.6

3.1 4.1 2.6 9.8 1.1 4.5 4.0

4.5 3.8 7.8 20.7 3.9 5.7 5.9

6.5 5.7 8.5 21.5 6.2 7.0 7.7

5.0 3.5 4.4 19.1 2.7 5.0 5.7

External Debt / GDP Brazil 23.3 Mexico 47.3 Chile 35.4 Argentina 40.8 Peru 60.6 Colombia 32.0 Latin America 33.6

24.8 37.3 37.4 42.1 49.0 32.3 32.4

28.5 38.2 44.8 46.5 53.0 37.3 36.0

42.1 34.7 49.3 51.9 55.3 42.6 42.4

36.0 27.3 49.4 53.8 52.7 43.1 37.5

41.2 25.4 56.2 61.2 50.6 47.7 39.7

45.8 24.6 60.7 162.9 49.3 46.0 45.0

42.3 25.0 59.1 130.1 48.6 47.8 43.8

33.3 24.3 46.4 112.7 45.2 40.7 39.0

19.2 22.5 37.8 62.5 37.2 31.1 28.4

16.2 20.1 33.1 49.9 33.4 29.5 22.6

14.3 18.9 29.9 45.9 26.5 22.0 21.1

11.7 18.3 27.7 40.8 20.6 19.9 18.1

11.7 17.6 32.1 40.0 20.7 23.6 17.8

1.12 8.11 440 1.00 2.74 1,294

1.21 9.90 474 1.00 3.16 1,508

1.79 9.42 530 1.00 3.51 1,874

1.96 9.44 574 1.00 3.53 2,229

2.32 9.17 669 1.00 3.44 2,289

3.53 10.20 704 3.36 3.51 2,865

2.89 11.26 603 2.93 3.46 2,778

2.65 11.21 576 2.98 3.28 2,390

2.34 10.63 514 3.03 3.25 2,284

2.15 10.85 528 3.07 3.24 2,239

1.77 10.85 499 3.15 3.00 2,015

2.15 12.00 610 3.50 3.02 2,300

2.00 11.50 650 3.91 3.10 2,400

Inflation (%) Brazil Mexico Chile Argentina Peru Colombia Latin America

Exchange Rates Brazil Mexico Chile Argentina Peru Colombia

1.04 7.87 425 1.00 2.60 1,005

Source: Citi Investment Research

2008E

2009E

Latin America Strategy Notebook 17 November 2008

Citi Latin America Economic Forecasts

1996 Fiscal Balance (% of GDP) Brazil n/a Mexico 0.0 Chile 1.6 Argentina (2.0) Peru (1.1) Colombia (2.8) Latin America (0.5)

23

Exports (US$, bn) Brazil Mexico Chile Argentina Peru Colombia Latin America

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008E

2009E

n/a (0.7) 0.8 (1.5) 0.1 (4.5) (0.6)

n/a (1.2) (0.6) (1.4) (1.0) (3.5) (0.8)

(5.8) (0.2) (1.5) (1.7) (3.2) (5.5) (2.9)

(3.6) (1.1) (0.6) (2.4) (3.4) (3.3) (2.4)

(3.6) (0.7) (0.6) (3.2) (2.5) (3.2) (2.2)

(4.6) (1.2) (1.6) (1.5) (2.3) (3.6) (2.5)

(5.1) (0.6) (1.7) 0.5 (1.8) (2.7) (2.3)

(2.4) (0.2) 2.1 2.6 (1.0) (1.2) (0.5)

(3.0) (0.1) 4.9 1.8 (0.3) (0.4)

(3.0) 0.1 7.9 1.8 4.9 (0.4) (0.5)

(1.7) 8.6 0.2 (2.8) (0.5)

(1.5) 6.5 1.7 (3.2) (0.4)

(1.2) 4.0 (0.5) (3.2) (0.6)

Citigroup Global Markets  Equity Research

47.7 96.0 16.6 23.8 5.9 10.5 200.6

53.0 110.4 17.9 26.4 6.8 11.5 226.0

51.1 117.5 16.3 26.4 5.8 10.9 228.1

48.0 136.4 17.2 23.3 6.1 11.6 242.5

55.1 166.1 19.2 26.3 7.0 13.1 286.7

58.2 158.8 18.3 27.1 7.0 12.2 281.6

60.4 161.0 18.2 25.7 7.7 11.8 284.8

73.1 164.8 21.5 29.6 9.1 12.9 311.0

96.5 188.0 32.2 34.6 12.6 16.4 380.3

118.3 214.2 40.6 40.1 17.3 20.8 451.4

137.8 250.0 58.1 46.5 23.8 25.2 541.4

160.6 271.9 67.6 55.9 28.0 30.6 614.6

211.0 301.3 72.5 70.3 36.7 36.2 728.1

206.8 296.3 61.7 58.0 38.5 37.8 699.1

International Reserves Brazil 60.1 Mexico 17.6 Chile 14.8 Argentina 18.1 Peru 10.6 Colombia 9.9 Latin America 131.1

52.2 27.8 17.3 22.3 11.0 9.9 140.5

44.6 30.1 15.7 24.8 9.6 8.7 133.4

36.3 30.7 14.4 26.3 8.7 8.1 124.6

33.0 33.6 14.8 25.1 8.4 9.0 123.9

35.9 40.9 14.4 14.9 8.7 10.2 125.0

37.8 48.0 14.9 10.5 9.3 10.8 131.4

49.3 57.4 15.7 14.1 9.8 10.9 157.2

52.9 61.5 16.0 19.3 12.6 13.5 175.9

53.8 68.7 17.0 27.3 14.1 15.0 195.7

85.8 67.7 19.4 32.0 17.3 15.4 237.7

180.3 78.0 16.9 46.2 27.7 21.0 370.1

195.0 77.2 25.9 46.2 27.7 25.3 397.2

180.0 86.3 26.1 26.8 54.4 26.0 399.7

Current Balance (% of GDP) Brazil (3.0) Mexico (0.8) Chile (4.1) Argentina (2.5) Peru (6.5) Colombia (4.6) Latin America (2.1) Source: Citi Investment Research

(3.8) (1.9) (4.4) (4.2) (5.7) (6.1) (3.2)

(4.3) (3.8) (4.9) (4.9) (5.8) (5.4) (4.5)

(4.7) (2.9) 0.1 (4.2) (2.8) 0.9 (3.2)

(4.0) (3.2) (1.2) (3.1) (2.9) 0.9 (2.2)

(4.6) (2.8) (1.6) (1.4) (2.2) (1.5) (2.9)

(1.7) (2.2) (0.9) 8.9 (2.0) (2.0) (0.5)

1.8 (1.4) (1.5) 5.8 (1.7) (1.2) 0.6

1.8 (1.0) 1.7 2.3 (0.0) (1.0) 0.5

1.6 (0.7) 0.6 3.0 1.4 (1.6) 0.6

1.3 (0.3) 3.6 3.8 3.1 (2.2) 1.0

0.1 (0.6) 4.4 2.8 1.5 (2.7) 0.3

(1.7) (1.7) (1.7) 2.0 (2.2) (1.9) (1.4)

(1.0) (2.6) (2.8) 0.5 (3.0) (2.8) (1.6)

Latin America Strategy Notebook 17 November 2008

Latin American Economic Forecasts (continued)

Latin America Strategy Notebook 17 November 2008

Charts of the Week US Macro Deterioration Figure 22. US Macro Indicators (Rebased) Rapid deterioration

110

Late 2007 Rollover

108 106 104 102 100

Soft US retail sales data and rising jobless claims suggest economic activity is slowing rapidly. Retail sales for October fell 2.8%, greater than expected and the first read on November retail sales is also for a decline (albeit a less sharp one than in October). According to our economists, the ongoing consumer retrenchment is, with the exception of the “credit control” period of 1980, the most severe in recorded data since the end of World War II. At the same time, the rise in unemployment appears to be accelerating, with non-farm payrolls falling sharply.

98 96 2006

2007

Retail Sales

2008

Pers. Income

Non-Farm Payrolls

Ind. Production

Source: Datastream and CIR

Our economists lowered Citi's 4Q 2008 and Q1 2009 annualized GDP growth forecasts to -3.8% and +0.2% as recently as October 23. However, these latest data suggest that our economists' new forecasts already may still be too optimistic, especially for Q1 2009, which shows just how quickly the economic environment is deteriorating.

Oil Price Declines Figure 23. Oil Price (Spot, 50- and 200-d MA) US$/barrel (WTI) 150

125

100

75

50

25 Nov-06

May-07

Oil WTI - Spot

Nov-07

May-08

Nov-08

50-day Moving Average

200-day

Source: Datastream and CIR

The worsening global economic outlook and the rising dollar have taken their toll on commodity prices, including oil prices; the latter have now fallen 60% from their mid-July peak of US$145/bbl to US$56. The consequent sharp fall in the share price of Petrobras, just one year ago a "darling" of emerging markets investors due to high oil prices, Brazil exposure, and new discoveries, has been brutal; the ADR is down 71% and the local PN share is down 61%. Citi’s oil analysts reduced (again) their oil price forecasts on November 13. For 2009 and 2010, we now expect $65/bbl and $75/bbl (down from $90/bbl, previously), while our normalized long-term forecast was cut to $85/bbl from $100/bbl. With lower oil prices, the cash generation ability of companies such as Petrobras declines significantly. While our analyst Tereza Mello retains a Buy rating on the stock due to the long-term opportunity afforded by low valuations, she has raised the stock’s risk rating to High and acknowledges that oil price volatility should remain the primary short-term driver of the shares.

Regional Earnings and Valuations Revisited Figure 24. LatAm Trailing P/E and EPS Troughs (x) 25 23 21 19

+1 St Dev

17.1x = -70%

17 15

14.3x = -60%

13 11

11.6x = -45%

Avg. 14.2x

-1 St Dev

10.2x = -35%

9

As we wrote in our November 3 Strategy Notebook, our base case assumption is that Latin American earnings fall by 40-50% (in dollars) in this cycle, in line with 2000-2. With EPS already down by 22%, the end October P/E on trough earnings is 11.6x, an 18% discount to the historical average of 14.2x. We realize that the environment could deteriorate quickly. In Figure 24, we show the regional trailing P/E history with implied trailing P/E levels under four scenarios in which earnings fall 35%, 45%, 60% and, in our worst-case scenario, 70%. According to our calculations, the market is already pricing in a total EPS fall of 60%, which, although plausible, seems too bearish to us.

8.9

7

Source: Datastream and CIR

07

05

03

01

99

97

95

93

91

89

5

Our analysts currently project earnings to rise +11.8% in 2008 and fall of 8.7% in 2009, and these are much more conservative than consensus (EPS growth of +12.2% in 2008 and +11.7% in 2009). Although our analysts' estimates for 2008-9 are well below consensus, the risk is that there is likely still to considerable downside even in these forecasts.

24

Citigroup Global Markets  Equity Research

Latin America Strategy Notebook 17 November 2008

Survey of Citi Research Global Strategy / Sectors Steven Wieting November 17

Robert Buckland et al. November 5

The Speculator Super Cycle Over the past decade it seems as though economic activity has become a side show for financial speculation. Gross financial sector obligations have risen faster than GDP for decades as investors leveraged returns, including the cyclical losses. There was never a clear point at which it could be determined to be “too much.” Consider this speculative backdrop as some try to time an exact bottom in financial asset prices. Global Equity Strategist — No Risk Appetite Investors globally are selling equities and bonds at a fast rate while European and Emerging Markets equities suffered the biggest institutional redemptions in 3Q, and global hedge funds experience outflows for the first time since 1994. Institutional and retail fund flows tend to lag stock market recoveries. During the Asian crisis, flows turned positive 6 months after the markets bottomed.

Stocks Tereza Mello, CFA November 13

Daniel Abut November 10

Alex Hacking, CFA November 7

Carlos Albano November 7

Cecilia Del Castillo November 12

Lower Oil Prices — Does a Lower Oil Price Undermine Long-Term Growth? We are lowering our CIR global oil price forecast to $65/bbl in 2009 (from $90/bbl), $75/bbl in 2010 (from $90/bbl) and $85/bbl in the LT (from $100/bbl). In this scenario we lower our estimates for the LatAm oil companies in our coverage universe and took a closer look at their financing needs. Banorte — Upgraded to Hold; Lowered 2008-10 Estimates and Cut Price Target to P$28.00 We have updated our triangle of bank valuation model to incorporate our lower earnings estimates and the significant increase in cost of equity since our last Banorte model revision. As a result, we have significantly cut our 12-month price target, to P$28.00 per share from P$47.00 per share. Brazil Flat Steel — Incorporating Production Cuts; Downgrading CSN Flat steel production cuts have intensified in Brazil as the global slowdown spreads and auto sales weaken. Mittal is cutting 30% of production in Brazil, announced this week. We have updated our Usiminas and CSN models assuming 15% production cuts for 1H09 – resulting in 6% lower sales for the year. This is conservative relative to consensus +2.5% GDP. CCR — Upgrading to Buy; Reasonable Upside Potential and Very Defensive We believe that CCR is a good investment due to an interesting risk v. reward combination. At the same time that the stock offers a reasonable upside potential (even using very conservative assumptions) it also has very limited downside, in our view. We upgrade CCR to 1M with a lower TP of R$33/share. BR Malls — Downgrading to Hold on Less Auspicious Outlook. We are downgrading BR Malls to Hold, Speculative (2S) from Buy, Speculative (1S) after reducing our estimates and updating our valuation on the stock. This results in a lower target price of R$10 vs. R$22 per share, previously.

25

Citigroup Global Markets  Equity Research

Brazil Industry

Company

Brazil (78) Energy

Tickers NASD Rating

26

Citigroup Global Markets  Equity Research

Petroleo Brasileiro PETR4 Petroleo Brasileiro PETR3 CSAN3 Renewable EnergyCosan Sao Martinho SMTO3 Ecodiesel ECOD3 Financials Bradesco BBDC4 Banco Itaú ITAU4 Unibanco UBBR11 Banco do Brasil BBAS3 Nossa Caixa BNCA3 GP Investments GBIV11 Cons. Staples AmBev ABV G. Pão De Acucar PCAR4 Natura Cosmeticos NATU3 Hypermarcas HYPE3 Perdigao PRGA3 Sadia SDIA4 JBS JBSS3 Marfrig MRFG3 Minerva BEEF3 Consumer Disc. Lojas Americanas LAME4 Lojas Renner LREN3 Guararapes GUAR3 Springs Global SGPS3 Dufry DUFB11 Homebuilding Rodobens RDNI3 Gafisa GFSA3 Cyrela CYRE3 Rossi RSID3 Brascan BISA3 PDG PDGR3 Bldg Materials Duratex DURA4 Satipel SATI3 Real Estate BR Malls BRML3 Media Universo Online UOLL4 Internet Retail B2W BTOW3 Chemicals Braskem BAK Ultrapar Partic UGP Unipar UNIP6

Source: Citi Investment Research

1H 1H 1S 1H 2S 2M 1M 1M 1M 2S 1H 1M 2M 2H 1M 1H 2S 1H 1H 1S 1S 2H 2H 2S 1H 2S 1H 2M 2S 1S 1S 2H 1S 2S 2S 2S 1H 1M 3S

17-Nov Price

Low

52-week High

R$20.13 R$24.26 R$10.90 R$10.50 R$0.80 R$23.24 R$25.24 R$13.73 R$13.80 R$52.31 R$6.21 $47.14 R$35.00 R$20.16 R$13.10 R$33.93 R$3.69 R$3.84 R$8.85 R$2.06 R$5.97 R$13.95 R$17.89 R$3.48 R$14.04 R$8.35 R$8.84 R$6.99 R$3.07 R$2.25 R$9.20 R$15.51 R$3.40 R$6.80 R$5.65 R$26.23 $6.20 $47.62 R$0.70

R$17.80 R$21.30 R$8.00 R$9.00 R$0.56 R$19.14 R$16.91 R$8.90 R$11.50 R$19.60 R$5.40 $30.71 R$24.60 R$14.44 R$9.10 R$25.50 R$3.48 R$2.56 R$8.20 R$1.83 R$4.40 R$13.23 R$16.50 R$2.75 R$9.30 R$5.75 R$8.60 R$6.81 R$2.85 R$2.22 R$7.63 R$13.10 R$3.30 R$4.31 R$4.45 R$19.00 $5.60 $31.16 R$0.66

R$53.68 R$63.90 R$34.15 R$30.29 R$9.25 R$41.63 R$52.37 R$28.00 R$32.78 R$53.50 R$21.30 $88.77 R$41.72 R$21.97 R$24.95 R$54.98 R$14.39 R$10.30 R$24.30 R$14.50 R$18.65 R$46.48 R$68.00 R$23.00 R$55.49 R$25.35 R$42.00 R$32.00 R$27.50 R$12.89 R$28.70 R$49.00 R$12.79 R$25.00 R$13.70 R$84.33 $18.95 $67.77 R$2.24

Total Return 4 Week YTD

4% 4% 5% 1% 41% 10% 36% 20% 6% 65% -8% 3% 22% 21% 24% 20% -9% 16% 0% 19% 2% -25% -6% -1% 16% 31% -31% -29% -21% -24% -14% 0% -1% 26% -8% n/a -27% 19% 3%

-52% -52% -47% -45% -88% -34% -41% -39% -51% 129% -67% -30% 2% 26% n/a -21% -60% -34% -41% -79% -61% -59% -71% -84% -68% -60% -70% -69% -85% -78% -61% -63% -70% -71% -52% -62% -59% -19% -57%

Price Target

ETR (%)

R$28.00 R$34.00 R$26.00 R$26.00 R$1.15 R$33.50 R$44.00 R$24.50 R$28.00 R$48.00 R$15.00 $64.00 R$45.00 R$23.00 R$26.50 R$52.00 R$8.00 R$10.00 R$25.00 R$12.00 R$8.50 R$23.50 R$30.00 R$21.70 R$23.00 R$19.00 R$28.00 R$19.00 R$8.00 R$9.00 R$21.00 R$30.00 R$10.00 R$10.00 R$7.00 R$32.00 $16.00 $83.00 R$1.00

45% 45% 139% 148% 44% 49% 79% 84% 109% -5% 142% 40% 30% 19% 102% 55% 119% 160% 185% 490% 43% 71% 73% 524% 65% 134% 217% 180% 167% 309% 132% 100% 200% 47% 24% 22% 160% 77% 61%

EPS/EPADR 07A 08E

R$2.45 R$2.45 R$2.77 R$0.59 ($0.30) R$2.39 R$2.39 R$2.34 R$2.30 ($0.71) R$1.24 $2.31 R$0.93 R$1.08 R$1.29 R$1.73 R$1.01 ($0.15) R$0.42 R$0.46 R$0.14 R$1.28 R$3.79 ($3.98) R$1.02 R$0.77 R$1.15 R$1.19 R$0.84 R$0.84 R$0.58 R$2.62 R$0.52 ($0.45) R$0.91 R$0.56 $1.21 $1.91 R$0.17

R$3.84 R$3.84 R$0.31 ($0.42) ($0.83) R$2.72 R$2.82 R$2.08 R$2.54 R$0.29 R$0.54 $2.90 R$1.78 R$1.11 R$0.74 R$2.41 ($0.24) R$0.40 R$0.86 R$0.69 R$0.10 R$1.45 R$2.26 ($0.04) R$1.40 R$2.07 R$1.72 R$1.19 R$0.82 R$0.82 R$1.44 R$2.83 R$0.96 ($0.08) R$0.81 R$0.92 $0.21 $3.53 R$0.45

EPS Growth 07A 08E

-17% -17% n/m -73% n/m 12% 9% 93% 54% n/m 307% 16% 23% 0% n/m 145% 82% n/m 30% -35% -16% 57% 7% n/m 95% n/m 149% 60% 15% 210% 0% 18% n/m n/m 18% -68% 122% -45% 60%

57% 57% -89% n/m n/m 14% 18% -11% 10% n/m -56% 25% 93% 3% -42% 39% n/m n/m 106% 50% -28% 13% -40% n/m 37% 167% 49% 0% -3% -2% 147% 8% 84% n/m -11% 64% -83% 85% 159%

P/E (x) 07A 08E

EBITDA Growth 07A 08E

EV/EBITDA (x) P/BV (x) 07A 08E 08A

8.2 5.2 9.9 6.3 3.9 35.1 17.7 NA nmf NA 9.7 8.5 10.5 9.0 5.9 6.6 6.0 5.4 NA 178.6 2.3 5.1 20.4 16.3 37.8 19.6 18.7 18.1 10.2 17.6 19.6 14.1 3.7 NA NA 9.7 21.2 10.3 4.4 3.0 42.2 58.3 10.9 9.6 4.7 7.9 NA NA 6.2 4.5 10.8 4.0 7.7 5.1 5.9 5.9 3.6 3.8 2.7 2.7 15.8 6.4 5.9 5.5 6.5 3.5 NA NA 6.2 6.9 47.0 28.7 5.7 NA 25.0 13.5 4.0 1.6

10% 10% 90% 15% n/m n/m n/m n/m n/m n/m n/m 30% 30% 20% 327% 170% 87% 17% 72% 11% 77% 74% 17% -48% 86% 336% 113% 123% 191% 36% 241% 34% 85% 166% 26% n/m 60% 71% 44%

3.9 4.6 4.4 6.4 nmf NA NA NA NA NA NA 7.5 8.4 12.4 10.8 9.6 3.8 12.7 6.2 3.6 7.2 5.2 2.7 10.3 3.7 11.8 6.8 4.8 3.6 1.0 6.7 3.6 3.5 9.1 1.7 8.8 2.9 9.1 4.9

31% 31% -78% -37% n/m n/m n/m n/m n/m n/m n/m 14% 35% 19% 73% 59% 23% 126% 85% 62% 45% 28% -22% 152% 32% 288% 62% 25% 36% 77% 124% 25% 66% 84% -2% 63% -11% 44% 42%

3.4 4.0 22.9 13.1 65.2 NA NA NA NA NA NA 6.6 7.3 11.4 3.2 7.4 4.2 6.1 3.7 2.9 6.6 4.5 4.2 3.8 2.3 3.8 5.1 4.7 4.7 1.8 3.7 3.6 2.3 6.8 1.5 7.6 4.0 7.3 8.9

1.23 1.48 0.88 0.73 0.47 1.99 2.31 1.42 1.24 1.80 0.56 3.41 1.58 12.31 1.08 2.03 0.96 0.95 0.88 0.27 12.66 2.73 0.84 0.16 0.62 0.65 0.66 1.06 0.39 0.32 0.87 1.14 0.64 0.66 0.94 8.93 0.56 1.31 0.37

Div Yld

Mkt Cap US$, mn

5.5% 4.5% 0.0% 0.0% 0.0% 4.5% 4.5% 5.8% 6.4% 3.4% 0.0% 4.5% 1.2% 5.0% 0.0% 2.1% 2.2% 0.0% 2.3% 7.8% 0.8% 2.2% 5.1% 0.0% 1.5% 6.2% 0.0% 7.7% 6.5% 9.3% 3.9% 6.8% 6.2% 0.0% 0.0% 0.0% 1.6% 2.6% 18.6%

$79,434 $95,732 $1,331 $534 $45 $32,086 $33,660 $8,623 $15,778 $2,518 $508 $28,945 $3,596 $3,887 $936 $3,152 $1,133 $2,450 $811 $69 $1,954 $763 $502 $135 $410 $182 $511 $1,118 $218 $186 $604 $905 $168 $524 $305 $1,303 $1,337 $2,913 $263

Latin America Strategy Notebook 17 November 2008

Country Sheets

Industry

Company

27

Citigroup Global Markets  Equity Research

Metals & Mining Vale (Pref) Vale (Ord) Usiminas CSN Gerdau Paper & Pulp Aracruz Celulose Klabin Suzano Papel VCP Industrials ALL OHL Brasil CCR Log-In Logística Embraer Gol Linhas Aereas Tam Technology Totvs Positivo Telecom TIM Partic. ON TIM Partic. PN Vivo ON Vivo PN Utilities Eletrobrás Cemig Eletropaulo Copel Cesp AES Tietê Coelce CTEEP Tractebel EDB Terna CPFL Equatorial Enviro. Services Sabesp Copasa

Source: Citi Investment Research

Tickers NASD Rating

RIO_p RIO USIM5 CSNA3 GGBR4 ARA KLBN4 SUZB5 VCP ALLL11 OHLB3 CCRO3 LOGN3 ERJ GOL TAM TOTS3 POSI3 TCSL3 TCSL4 VIVO3 VIVO4 ELET6 CMIG4 ELPL6 CPLE6 CESP6 GETI4 COCE5 TRPL4 TBLE3 ENBR3 TRNA11 CPFE3 EQTL3 SBSP3 CSMG3

1M 1M 1H 2H 1H 1S 1H 1H 1H 1M 2S 1M 1S 1S 2S 1H 1H 2S 1H 1H 1M 1H 2H 1M 2M 2M 1M 1M 1M 1M 2M 1M 2M 2M 1M 2H 1H

17-Nov Price

Low

52-week High

$10.77 $11.83 R$21.24 R$23.16 R$13.89 $10.31 R$3.58 R$12.99 $7.28 R$9.91 R$13.30 R$21.71 R$5.06 $15.06 $3.69 $7.29 R$39.00 R$5.01 R$5.27 R$3.26 R$26.01 R$24.12 R$24.73 R$36.70 R$26.50 R$25.60 R$13.68 R$13.90 R$17.31 R$42.44 R$19.05 R$24.26 R$19.09 R$32.55 R$11.20 R$25.30 R$15.45

$9.07 $10.01 R$20.53 R$21.20 R$10.43 $8.46 R$2.77 R$10.10 $6.77 R$6.49 R$9.80 R$13.30 R$3.70 $13.51 $2.93 $6.83 R$33.50 R$3.40 R$4.26 R$2.42 R$19.00 R$18.10 R$18.16 R$27.31 R$18.30 R$19.20 R$8.25 R$11.63 R$14.50 R$35.50 R$14.40 R$19.03 R$14.76 R$26.40 R$8.26 R$17.95 R$12.02

$35.96 $44.10 R$95.80 R$86.30 R$42.65 $92.22 R$7.47 R$31.00 $35.06 R$24.38 R$28.00 R$35.98 R$14.52 $48.78 $27.70 $29.82 R$61.99 R$48.60 R$10.60 R$7.70 R$58.80 R$52.80 R$28.10 R$42.15 R$40.75 R$34.63 R$49.78 R$18.84 R$26.00 R$55.99 R$25.30 R$35.50 R$35.85 R$42.98 R$19.70 R$46.98 R$31.58

Total Return 4 Week YTD

-1% -3% -18% -17% 15% 7% 18% 14% -11% 20% 7% 38% 32% -25% -12% -33% 8% 24% -7% 6% 30% 20% 12% 12% -3% 8% 34% -5% 5% 2% 12% 7% 16% 5% n/a 21% 19%

-60% -63% -57% -52% -42% -83% -42% -55% -75% -56% -39% -15% -61% -67% -87% -69% -30% -87% -39% -45% -53% -35% 10% 18% -18% -1% -68% -9% -7% 21% -5% -16% -36% 1% n/a -36% -32%

Price Target

ETR (%)

$26.00 $31.00 R$56.00 R$29.00 R$24.00 $41.00 R$5.80 R$26.00 $21.00 R$32.00 R$31.00 R$33.00 R$14.00 $47.00 $5.25 $33.00 R$66.00 R$5.00 R$7.70 R$4.65 R$46.40 R$44.00 R$29.10 R$49.60 R$42.00 R$35.00 R$40.50 R$22.70 R$25.00 R$57.00 R$26.70 R$41.10 R$35.20 R$40.40 R$26.80 R$53.50 R$40.00

146% 166% 173% 30% 82% 298% 64% 102% 188% 224% 137% 59% 181% 225% 42% 360% 72% 4% 46% 43% 79% 83% 21% 42% 71% 42% 196% 75% 60% 50% 49% 77% 99% 32% 159% 119% 165%

EPS/EPADR 07E 08E

$2.39 $2.39 R$6.43 R$3.78 R$4.01 $4.09 R$0.68 R$1.72 $2.44 R$0.37 R$1.09 R$1.45 R$0.61 $2.64 $0.26 $1.76 R$1.40 R$2.89 R$0.30 R$0.30 ($0.28) ($0.28) R$1.37 R$3.57 R$4.28 R$4.04 R$0.55 R$1.59 R$3.14 R$5.73 R$1.60 R$2.67 R$2.44 R$3.43 R$2.30 R$4.60 R$2.86

$2.92 $2.92 R$6.86 R$3.88 R$5.26 ($2.72) R$0.11 R$0.59 ($0.36) R$0.79 R$2.11 R$1.87 R$0.75 $2.80 ($0.48) ($0.13) R$1.74 R$2.89 R$0.28 R$0.28 R$0.84 R$0.84 R$2.48 R$3.52 R$3.50 R$3.30 R$1.03 R$1.69 R$2.90 R$5.46 R$1.83 R$3.53 R$2.85 R$2.76 R$2.24 R$6.38 R$3.83

EPS Growth 07E 08E

76% 76% 26% 150% 30% -7% 31% 22% 34% 179% -24% 7% 3% 26% -81% -30% 128% 66% 120% 120% n/m n/m -33% 1% 92% -11% n/m -1% -18% n/m 7% 12% 47% 17% 23% -83% -8%

22% 22% 7% 2% 31% n/m -84% -65% n/m 115% 94% 29% 22% 6% n/m n/m 25% 0% -6% -6% n/m n/m 81% -1% -18% -18% 90% 6% -8% -5% 14% 32% 17% -20% -3% 39% 34%

P/E (x) 07E 08(E)x

4.5 4.9 3.3 6.1 3.5 2.5 5.3 7.6 3.0 27.0 12.2 15.0 8.3 5.7 14.3 4.1 28.0 1.7 17.8 11.0 NA NA 18.0 10.3 6.2 6.3 25.1 8.7 5.5 7.4 11.9 9.1 7.8 9.5 4.9 5.5 5.4

3.7 4.1 3.1 6.0 2.6 NA 34.1 21.9 NA 12.5 6.3 11.6 6.8 5.4 NA N/A 22.4 1.7 18.9 11.7 30.8 28.6 10.0 10.4 7.6 7.8 13.2 8.2 6.0 7.8 10.4 6.9 6.7 11.8 5.0 4.0 4.0

EPS Growth 07E 08E

72% 72% 28% 73% 34% 8% 17% 24% -21% 39% 54% 35% 162% 48% -86% -40% 137% 79% 40% 40% 35% 35% 8% 29% -10% 43% 16% 16% 3% 56% 41% 27% 15% 41% 45% 31% 8%

35% 35% 35% 49% 99% -4% 20% 38% 18% 49% 36% 29% -16% 6% -94% 39% 69% 3% 7% 7% 38% 38% 26% -1% -7% -15% 13% 12% 1% 50% 26% 6% 31% -6% 8% 16% -25%

EV/EBITDA (x) P/BV (x) 07E 08(E)x 08A

4.6 4.9 1.7 4.7 3.7 2.8 6.4 7.1 6.3 7.1 3.3 6.7 3.4 4.1 6.0 6.1 9.3 1.4 4.4 2.9 4.0 3.7 10.1 6.6 3.8 4.0 8.6 5.2 2.9 7.1 7.4 4.7 5.8 5.0 3.9 4.4 2.9

3.0 3.3 1.3 3.4 2.5 3.5 7.0 5.8 5.2 5.1 3.7 6.2 3.2 3.8 n/m 5.1 7.0 1.6 4.6 3.1 2.8 2.6 8.4 7.1 4.1 5.0 7.7 4.9 3.3 5.3 6.5 4.6 4.9 5.8 3.2 4.0 2.7

1.05 1.16 0.68 1.89 0.65 0.97 1.16 0.93 0.60 2.07 1.13 5.01 0.77 1.22 0.66 0.95 2.36 0.69 1.73 1.07 1.12 1.04 0.38 2.02 1.33 0.91 0.42 10.21 1.58 1.46 4.29 0.96 1.21 3.12 0.82 0.54 0.47

Div Yld

Mkt Cap US$ MN

4.6% 4.2% 9.4% 4.3% 9.0% 0.0% 2.2% 1.5% 0.0% 1.4% 3.8% 7.0% 4.2% 12.7% 0.0% 6.9% 2.8% 4.0% 0.1% 0.1% 0.4% 0.4% 2.9% 6.8% 12.6% 5.5% 0.0% 11.7% 16.1% 15.5% 9.2% 7.4% 14.4% 8.0% 19.6% 8.0% 6.2%

$54,048 $59,367 $4,715 $8,377 $5,840 $1,063 $1,478 $1,836 $1,486 $2,570 $412 $3,936 $209 $2,725 $742 $1,098 $468 $197 $5,555 $3,436 $4,311 $3,998 $12,594 $8,029 $1,994 $3,151 $2,015 $2,383 $606 $2,849 $5,592 $1,800 $753 $7,023 $532 $2,592 $800

Latin America Strategy Notebook 17 November 2008

Brazil (cont.)

Industry

Company

Mexico (40) Financials Cons. Staples

Tickers NASD

28

Citigroup Global Markets  Equity Research

G. Financiero Banorte GFNORTEO Alsea SA de CV ALSEA Coca-Cola Femsa KOF Embotelladoras Arca ARCA Femsa FMX Gruma GRUMAB Grupo Bimbo BIMBOA Grupo Continental CONTAL G. Industrial Maseca MASECAB Grupo Modelo GMODELOC Industrias Bachoco IBA Kimberly-Clark Mexico KIMBERA Retail Walmex WALMEXV Comerci COMEUBC Grupo Famsa GFAMSAA Soriana SORIANAB Gigante GIGANTE Elektra ELEKTRA Cement & Const. Consorcio Ara ARA Corporacion Geo GEOB Homex HOMEX Sare Holding SAREB Urbi Des. Urbanos URBI G. Cem Chihuahua GCC Corp Moctezuma CMOCTEZ Cemex CX Empresas ICA ICA Media Televisa TV TV Azteca TVAZTCACPO Grupo Radio Centro RC Telecom America Movil AMX Axtel AXTELCPO Megacable MEGACPO Maxcom MXT Chemicals Mexichem MEXCHEM Industrials Asur (Sureste) ASURB GAP (Pacifico) PAC OMA (Centro Norte) OMAB IDEAL (Impulsora del De IDEAL1 Enviro. Services Promotora Ambiental PASAB

Source: Citi Investment Research

Rating

17-Nov Price

Low

52-week High

2M 1H 1M 1M 1M 3S 1M 2M 3H 2L 3S 1M 1L 3S 2S 2H 2S 3H 3S 1H 1M 2S 1M 3H 1M 2S 2S 1M 3H 2S 2H 2S 2H 2S 1S 1H 2S 1S 3S 2S

P$23.20 P$7.65 $34.45 P$24.90 $27.42 $6.75 P$62.03 P$19.00 P$9.00 $2.90 $15.02 P$44.00 P$32.74 P$2.94 P$8.51 P$25.00 P$12.40 P$418.00 P$4.77 P$13.70 P$39.41 P$2.70 P$19.10 P$31.30 P$17.03 $5.11 $17.40 $14.35 P$5.75 $7.40 $30.95 P$5.51 P$18.51 P$3.56 P$11.20 $30.01 $18.73 $9.03 P$9.51 P$11.00

P$15.00 P$5.19 $26.15 P$24.00 $18.80 $4.25 P$49.80 P$18.50 P$8.00 $2.65 $12.49 P$35.00 P$26.10 P$0.20 P$6.70 P$17.90 P$11.02 P$232.0 P$3.05 P$11.30 P$35.34 P$2.63 P$12.00 P$30.00 P$15.50 $4.78 $12.60 $13.00 P$5.00 $5.00 $23.54 P$5.10 P$11.00 P$2.52 P$8.42 $27.31 $14.64 $6.89 P$7.00 P$10.00

P$51.81 P$15.28 $63.77 P$42.75 $49.83 $37.78 P$71.98 P$29.10 P$10.75 $5.69 $33.50 P$52.94 P$47.19 P$34.00 P$48.51 P$40.00 P$30.00 P$493.7 P$12.98 P$42.00 P$122.00 P$16.80 P$43.21 P$70.00 P$33.00 $32.61 $74.50 $28.11 P$7.20 $14.30 $67.39 P$29.00 P$38.40 P$17.27 P$30.08 $63.54 $49.18 $28.24 P$18.60 P$36.00

Total Return 4 Week YTD

27% 23% 18% -11% 23% -53% 5% -4% 0% -6% -14% 6% -3% -12% 5% 6% -1% 42% 12% -5% -3% -14% 22% -6% 4% -21% 9% -8% -3% 22% 10% -7% 0% -6% 3% -8% 13% 18% 12% -7%

-48% -49% -29% -31% -25% -81% -4% -19% -13% -23% -49% -3% n/m -89% -75% -13% -26% 27% -58% -56% -56% -82% -49% -53% -33% -77% -76% -35% -12% -34% -49% -80% -50% -72% -22% -47% -55% -60% -33% -67%

Price Target

ETR (%)

EPS/EPADR 07A 08E

P$28.00 P$16.50 $52.00 P$48.00 $47.00 $7.60 P$77.00 P$28.50 P$9.50 $4.20 $30.00 P$52.00 P$43.00 P$4.00 P$12.50 P$33.00 P$18.00 P$335.0 P$10.00 P$48.00 P$135.0 P$10.00 P$40.00 P$46.00 P$30.00 $13.00 $25.00 $24.00 P$6.0 $12.50 $35.00 P$7.60 P$23.25 P$7.00 P$25.0 $65.00 $25.00 $18.00 P$13.00 P$32.00

23% 117% 52% 102% 73% 13% 25% 61% 11% 51% 102% 25% 33% 36% 47% 32% 45% -19% 113% 250% 243% 270% 109% 48% 82% 155% 44% 71% 6% 75% 14% 38% 26% 97% 126% 122% 41% 108% 37% 191%

P$3.37 P$3.40 P$0.77 P$0.36 $3.43 $3.02 P$3.10 P$3.49 $2.83 $2.51 $4.49 ($8.24) P$3.23 P$3.36 P$2.14 P$2.24 P$0.60 P$0.88 $0.27 $0.26 $2.46 $0.93 P$3.30 P$3.11 P$1.68 P$1.76 P$2.35 ($7.84) P$1.58 P$1.59 P$1.74 P$1.38 P$4.79 P$2.72 P$27.10 P$16.17 P$1.02 P$1.11 P$2.70 P$3.21 P$6.53 P$8.38 P$1.27 P$1.41 P$1.95 P$2.25 P$5.22 P$2.44 P$1.96 P$2.03 $3.22 $2.25 ($1.94) $0.74 $1.31 $1.28 P$0.35 P$0.27 $0.56 $0.65 $3.06 $3.27 P$0.39 P$0.05 P$1.77 P$2.46 P$0.15 P$0.04 P$1.11 P$1.29 $1.60 $3.06 $2.29 $1.91 $0.06 $1.09 P$0.32 P$0.25 P$0.70 P$0.94

EPS Growth 07A 08E

14% -48% 40% 12% 66% 46% 9% 0% 0% 9% 49% 7% 16% 38% 1% 17% n/m 42% 0% -3% 64% 26% 26% 117% 8% -3% n/m -3% -52% n/m 34% 137% 32% n/m 42% -2% 55% -93% n/m 131%

1% -53% -12% 12% -11% n/m 4% 5% 47% -3% -62% -6% 5% n/m 0% -21% -43% -40% 9% 19% 28% 11% 15% -53% 4% -30% n/m -2% -21% 16% 7% -87% 39% -71% 17% 92% -17% n/m -23% 35%

P/E (x) 07A 08E

6.9 10.0 10.0 8.0 9.7 1.5 19.2 8.9 15.0 10.8 6.1 13.3 19.5 1.2 5.4 14.4 2.6 15.4 4.7 5.1 6.0 2.1 9.8 6.0 8.7 1.6 NA 10.9 16.5 19.3 10.1 14.1 10.4 24.1 10.1 18.8 8.2 157.7 29.8 15.8

6.8 21.2 11.4 7.1 10.9 NA 18.4 8.5 10.2 11.2 16.2 14.2 18.6 NA 5.4 18.2 4.6 25.8 4.3 4.3 4.7 1.9 8.5 12.8 8.4 2.3 23.5 11.2 20.9 16.6 9.5 108.6 7.5 83.6 8.7 9.8 9.8 8.3 38.8 11.7

EBITDA Growth 07A 08E

EV/EBITDA (x) 07A 08E

n/m n/m 17% -6% 17% 5% 11% 8% 9% 16% 3% 26% 11% 8% 6% 8% -4% 44% 25% 0% 8% -38% -1% 3% 15% 7% 15% 2% 9% 5% 16% 22% -19% -4% 4% -8% 8% 5% 17% 19% 29% 18% 26% 9% 27% 16% 15% -11% 7% 0% 11% 2% -7% 27% 8% 10% -5% -2% -36% 12% 41% 10% 83% -2% 33% 48% 51% 21% 81% 26% 28% 9% 18% -8% 19% -3% 47% 9% 61% -2%

NA 4.7 5.8 4.3 5.8 3.5 8.7 4.5 7.7 6.5 2.5 7.9 11.9 1.2 4.5 7.8 8.9 17.7 2.5 2.0 3.8 2.8 5.9 5.4 4.5 6.2 8.0 5.0 5.4 7.5 5.1 3.3 8.8 2.9 5.2 1.7 6.2 -1.6 24.3 3.9

NA 5.5 5.3 3.9 5.1 3.6 7.8 3.8 5.3 6.6 4.5 7.7 11.2 3.1 5.3 7.5 6.3 18.4 2.7 1.9 3.4 2.9 5.1 6.4 4.2 5.2 6.8 4.4 5.5 6.5 4.7 3.3 5.9 2.0 4.6 1.8 7.0 -1.8 26.0 4.3

P/BV (x) Latest

Div Yld

1.25 2.2% 1.52 0.9% 1.28 1.3% 1.46 9.6% 1.44 1.8% 0.30 0.0% 2.37 0.7% 1.57 11.2% 1.24 5.3% 1.53 6.9% 0.51 2.3% 6.29 6.8% 3.79 2.1% 0.22 0.0% 0.42 0.0% 1.52 0.0% 0.70 0.0% 4.04 0.4% 0.65 3.7% 0.78 0.0% 1.09 0.0% 0.27 0.0% 1.23 0.0% 0.92 1.4% 1.50 5.7% 0.21 1.0% 0.58 0.0% 2.12 3.4% 3.79 1.6% 1.23 6.4% 4.40 1.4% 0.80 0.0% 2.05 0.0% 0.30 0.0% 1.88 2.9% 0.79 5.2% nm 7.4% 0.69 8.9% 2.71 0.0% 0.83 0.0%

Mkt Cap US$, mn

$3,596 $366 $6,361 $1,542 $9,812 $292 $5,605 $1,095 $635 $9,398 $751 $3,730 $21,278 $245 $216 $3,458 $942 $7,858 $481 $566 $1,017 $79 $1,433 $787 $1,157 $3,972 $666 $8,059 $1,284 $135 $52,211 $530 $1,222 $134 $1,417 $900 $1,051 $447 $2,193 $113

Latin America Strategy Notebook 17 November 2008

Mexico

Industry

Company

Chile (7) Cons. StaplesEmbot. Andina CCU Materials Masisa Metals & Min Antofagasta Paper & Pulp Empresas CMPC Industrials Empresas Copec LAN Airlines

Tickers NASD Rating

AKOa CU MSS ANTO CAR COP LFL

2M 2L 2H 1M 1M 1M 2H

17-Nov Price

52-week Low

$11.60 $29.25 C$63 £ 3.33 C$12,499 C$5,500 $9.36

High

$7.25 $21.25 $23.36 $39.84 C$46 C$114 £ 2.44 £ 8.68 C$11,350 C$19,500 C$4,500 C$9,001 $6.90 $15.52

Total Return 4 Week YTD

19% 10% 25% 11% 2% 11% -1%

-23% N/A -36% -49% -30% -36% -28%

Price Target

ETR (%)

$19.00 $38.00 C$100 £ 4.05 C$20,000 C$7,000 $14.25

73% 35% 60% 29% 62% 31% 57%

EPS/EPADR 07A 08E

$1.29 $2.50 C$0 $139.89 C$1,211 C$387 $0.91

$1.35 $2.72 C$0 $127.00 C$1,097 C$433 $1.17

EPS Growth 07A 08E

18% 52% 34% 4% 121% 15% 20%

4% 9% 54% -9% -9% 12% 28%

P/E (x) 07A 08E

EBITDA Growth 07A 08E

9.0 11.7 13.6 3.5 10.3 14.2 10.3

24% 29% 15% -4% 61% 20% 25%

8.6 10.8 8.9 3.9 11.4 12.7 8.0

13% 19% 14% -5% 3% 8% 7%

EV/EBITDA (x) 07A 08E

5.0 6.4 6.8 1.4 7.7 9.9 9.8

4.1 5.4 6.5 1.3 7.4 9.0 9.3

P/BV (x) Latest

Div Yld

Mkt Cap US$, mn

2.37 1.95 0.42 0.98 0.85 1.75 2.72

9.6% 4.7% 2.2% 7.5% 1.9% 3.8% 4.8%

$1,470 $1,863 $561 $4,841 $3,912 $11,189 $3,171

P/BV (x) Latest

Div Yld

Mkt Cap US$, mn

1.62 1.82 3.02 2.14 0.85 0.85

6.0% 5.0% 8.1% 3.9% 7.4% 2.7%

$3,203 $894 $10,901 $3,290 $310 $503

Source: Citi Investment Research

29

Peru Industry

Company

Tickers NASD Rating

Peru (6) Financials

Credicorp Intergroup Metals & Mining Southern Copper Buenaventura Cement & Const. Cementos Lima Hochschild

BAP IFS PCU BVN CEL HOC

1M 2M 1H 1S 1S 2M

17-Nov Price

Low

52-week High

$40.16 $9.70 $12.34 $12.93 $7.43 £ 1.11

$30.23 $9.60 $9.14 $9.04 $7.43 £ 0.93

$86.91 $23.00 $41.92 $42.89 $17.48 £ 5.07

Total Return 4 Week YTD

24% -6% 15% 26% -19% 30%

-46% n/a -57% -53% -43% -70%

Price Target

ETR (%)

EPS/EPADR 07A 08E

$110.00 $20.35 $20.00 $27.00 $17.00 £ 1.20

180% 115% 70% 113% 136% 11%

$4.40 NS$ 3.22 $2.52 $1.08 $1.80 $0.29

$5.75 NS$ 3.80 $1.95 $1.89 $1.94 $0.17

EPS Growth 07A 08E

49% 31% 41% 18% 9% -23% -35% 75% 362% 7% 149% -39%

P/E (x) 07A 08E

EBITDA Growth 07A 08E

9.1 9.3 4.9 12.0 4.1 5.7

n/m n/m 15% 1% 27% 43%

7.0 7.9 6.3 6.8 3.8 9.4

n/m n/m -22% 16% 6% 36%

EV/EBITDA (x) 07A 08E

n/a n/a 2.9 2.3 3.0 1.8

n/a n/a 3.7 2.0 2.7 3.3

Citigroup Global Markets  Equity Research

Source: Citi Investment Research

Argentina Industry

Company

Argentina (8) Oil & Gas Tenaris Petrobras Energia Financials Macro Patagonia BBVA Francés Galicia Materials Ternium Utilities Edenor

Source: Citi Investment Research

Tickers NASD Rating

TS PZE BMA BPAT FRA GAL TX EDN

1H 3S 3S 3S 3S 3S 2S 3S

17-Nov Price

Low

52-week High

$23.44 $5.46 A$3.26 A$1.23 A$3.01 A$0.67 $6.55 $3.52

$15.32 $5.00 A$2.12 A$0.85 A$2.20 A$0.57 $6.18 $2.70

$16.79 $5.41 A$2.61 A$0.95 A$2.46 A$0.65 $6.75 $3.45

Total Return 4 Week YTD

19% -14% 26% 33% 25% 11% -27% -1%

-50% -60% -56% -65% -58% -69% -82% -85%

Price Target

ETR (%)

$40.00 $6.00 $4.30 $1.20 $3.55 $0.61 $11.00 $3.50

76% 10% 43% 8% 30% -9% 73% -1%

EPS/EPADR 07A 08E

$3.26 $0.86 $0.72 $0.19 $0.50 $0.04 $1.02 $0.86

$4.64 $1.45 $0.92 $0.27 $0.92 $0.13 $4.91 $0.94

EPS Growth 07A 08E

-1% 42% -47% 68% 10% 27% -61% 41% 31% 85% n/m 240% -74% 381% -59% 10%

P/E (x) 07A 08E

EBITDA Growth 07A 08E

7.2 6.3 4.5 6.5 6.0 18.1 6.4 4.1

14% -17% n/m n/m n/m n/m -41% 80%

5.1 3.8 3.6 4.6 3.3 5.3 1.3 3.7

15% 27% n/m n/m n/m n/m 74% 10%

EV/EBITDA (x) P/BV (x) Div 07A 08E Latest Yld

4.6 4.3 n/a n/a n/a n/a 4.0 3.4

3.8 3.4 n/a n/a n/a n/a 2.7 2.7

1.52 0.55 0.72 0.62 0.62 0.46 0.32 0.25

4.9% 0.0% 11.3% 10.9% 12.3% 0.0% 4.6%

0.0%

Mkt Cap US$, mn

$13,836 $1,165 $661 $278 $429 $251 $1,313 $160

Latin America Strategy Notebook 17 November 2008

Chile

Industry

Company

Latin America (3) Transportation Copa Airlines Energy Ecopetrol

Tickers NASD Rating

CPA ECO

Source: Citi Investment Research

1M 2H

17-Nov Price

Low

52-week High

$23.85 CP$2,000

$19.50 CP$1,500

$43.56 CP$2,980

Total Return 4 Week YTD

-5% 6%

-35% 3%

Price Target

ETR (%)

$57.00 CP$2,200

141% 21%

EPS/EPADR 07A 08E

$3.69 CP$128

$3.27 CP$294

EPS Growth 07A 08E

P/E (x) 07A 08E

EBITDA Growth 07A 08E

19% 53%

6.5 15.6

17% 87%

-11% 129%

7.3 6.8

0% 70%

EV/EBITDA (x) 07A 08E

6.5 5.2

6.9 3.1

P/BV (x) Latest

Div Yld

1.60 1.6% 2.55 11.1%

Mkt Cap US$, mn

$1,037 $35,059

Latin America Strategy Notebook 17 November 2008

Pan-Latin America

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Citigroup Global Markets  Equity Research

Latin America Strategy Notebook 17 November 2008

Latin America Equity Research and Sales Figure 25. Citi Latin America Team

Latin American Equity Research Name Geoffrey Dennis Alonso Rios

Contribution Director of Research/Equity Strategist Director of Accival Research

Office Number 1 212-816-8391 52 (55) 1226-0781

Geographic Location New York Mexico

Email [email protected] [email protected]

New York New York New York New York New York New York New York Brazil Brazil Brazil Mexico Mexico Mexico

[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

1 212-816-2735 1 212-816-6281

New York New York

[email protected] [email protected]

1 212-723-5982 1 212-723-5717 1 212-723-5717 1 212-723-5717 1 212-723-5717 1 212-723-5717 55 (11) 4009 7108 55 (11) 4009 7448 55 (11) 4009 7448 44 (207) 7986 0676 44 (207) 7986 0057 1 212-723-7185 1 212-723-7262 1 212-723-7872 55 (11) 4009-7449 55 (11) 4009-7449

New York New York New York New York New York New York Brazil Brazil Brazil London London New York New York New York Brazil Brazil

[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Daniel A. Abut Banks & Financials 1 212-816-7516 Celso Sanchez Beverages/Home & Personal Care 1 212-816-6910 Stephen Trent Aerospace/Transportation, Cement and Real 1 212-816-6901 Gustavo Oliveira Retail/Media & Technology 1 212-816-2854 Jason Press Equity Strategy 1 212-816-5130 Alexander Hacking Metals & Mining 1 212-816-6232 James Rivett Telecoms 1 212-816-1683 Felipe Mattar Utilities 55 (11) 4009-2608 Tereza Mello Oil, Chemicals & Pulp/Paper 55 (11) 4009-2839 Carlos Albano Food Manufacturers & Concessions 55 (11) 4009-7288 Cecilia del Castillo Construction & Real Estate 52 (55) 1226-0591 Eduardo Estrada Lope Food Manufacturers & Specialized Retail (M 52 (55) 1226-0621 Luis Vallarino Building Products/Chemicals 52 (55) 1226-06-08

Economists Alberto Ades Tania Reif

Chief Economist, Latin America Latin America Equity Economist

Latin America Sales/Trading Hugh Aller Jason Myers Jason A. Villano Helena Ekeus Gerard Watson Alex Green Roberto Serwaczak Roberto Rocha Peter Feddersen Robert Hulme Jose Lueje Michael Vincelli Tom Flannery Susanna Castillo Fabio Giuliano Rodrigo Mcarvalho

Head of Latin America Equities Sales Sales Sales Sales Sales Brazil Head of Sales Sales Sales Sales Sales Trading International Sales Trading Equity Derivatives, Americas Sales Trading Trading

LA102062

31

Citigroup Global Markets  Equity Research

Latin America Strategy Notebook 17 November 2008

Appendix A-1 Analyst Certification Each research analyst(s) principally responsible for the preparation and content of all or any identified portion of this research report hereby certifies that, with respect to each issuer or security or any identified portion of the report with respect to an issuer or security that the research analyst covers in this research report, all of the views expressed in this research report accurately reflect their personal views about those issuer(s) or securities. Each research analyst(s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or view(s) expressed by that research analyst in this research report.

IMPORTANT DISCLOSURES A director of America Movil, S.A. de C.V. is a member of the board of directors of an affiliate of Citigroup Global Makets Inc. A director of Grupo Aeroportuario Del Sureste, S.A. de C.V. is a member of the board of directors of an affilliate of Citigroup Global Markets Inc. A director of Axtel S.A. de C.V. serves as a member of Citi's International Advisory Board and is a member of the board of directors of an affilliate of Citigroup Global Markets Inc. An employee of Citigroup Global Markets Inc. is a director of Axtel S.A. de C.V. and is a member of the board of directors of an affilliate of Citigroup Global Markets Inc. A director of Grupo Bimbo, S.A. de C.V. is a member of the board of directors of an affiliate of Citigroup Global Markets Inc. Citi is acting as financial advisor to Lojas Americanas in the proposed merger with Submarino. Citigroup Global Markets Inc. is acting as a financial advisor and providing firm financing commitments to the private equity group. Citi is also providing equity commitments. Citigroup Global Markets Inc. is advising the State of São Paolo in the proposed sale of its equity interest in Companhia Energética de São Paulo. One or more directors of Cemex, S.A. de C.V. is a member of the board of directors of an affilliate of Citigroup Global Markets Inc. A director of Cemex, S.A de C.V. serves as a director on Citi's International Advisory Board. CEMEX, S.A.B. de C.V. Citigroup Global Markets Inc. is acting as a as financial advisor to Cemex, S.A.B. de C.V. A director of FOMENTO ECONOMICO MEXICANO, S.A. de C.V. is a member of the board of directors of an affilliate of Citigroup Global Markets Inc. A director of GRUPO CEMENTOS DE CHIHUAHUA, S.A. de C.V. is a member of the board of directors of an affilliate of Citigroup Global Markets Inc. A seat on the board of directors of Corporacion GEO is held by a director of an affiliate of Citigroup Global Markets Inc. Citigroup Global Markets Inc. acted as the exclusive financial advisor to the Gerdau Group in the proposed merger with Quanex Corporation. One or more officers or directors of Gigante are members of the board of directors of an affiliate of Citigroup Global Markets Inc. One or more directors of Grupo Modelo, S.A. de C.V. is a member of the board of directors of an affiliate of Citigroup Global Markets Inc. A director of Citi serves as a director of Gruma S.A. de C.V. Citigroup Global Markets Inc. is acting as a financial advisor to Hypermarcas S.A. in its proposed acquisition of Laboratorio Americano de Farmacoterapia S.A. ("Farmasa") A seat on the board of directors of Empresas Ica SA is held by one or more members of the board of directors of Citigroup Global Markets Inc. or its affilliates. One or more directors of KIMBERLY- CLARK DE MEXICO, S.A. de C.V. is a member of the board of directors of an affilliate of Citigroup Global Markets Inc. A director of COCA-COLA FEMSA, S.A. de C.V. is a member of the board of directors of an affilliate of Citigroup Global Markets Inc. One or more directors of MEXICHEM, S.A. de C.V. is a member of the board of directors of an affiliate of Citigroup Global Markets Inc. Heber Longhurst, associate, holds a long position in the shares of Mexichem SAB de CV An officer of Citi is a director of Arcelor Mittal Steel Company. The President and Chief Executive Officer of Arcelor Mittal Steel Company serves as a director on Citi's International Advisory Board. A director of Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. is a member of the board of directors of an affiliate of Citigroup Global Markets Inc. A director of GRUPO AEROPORTUARIO DEL PACIFICO, S.A. de C.V. is a member of the board of directors of an affilliate of Citigroup Global Markets Inc. An officer or director of Grupo Televisa SA serves as a director on Citi's board. A director of Urbi Desarrollos Urbanos, S.A. C.V. is a member of the board of directors of an affilliate of Citigroup Global Markets Inc. Customers of the Firm in the United States can receive independent third-party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at http://www.smithbarney.com (for retail clients) or http://www.citigroupgeo.com (for institutional clients) or can call (866) 836-9542 to request a copy of this research. Citigroup Global Markets Inc. or its affiliates beneficially owns 1% or more of any class of common equity securities of Axtel SAB de CV, Comercial Mexicana, Cemex, Gafisa SA, Gigante, Gruma, PDG Realty SA, Radio Centro, Vale (Preferred), Rossi Residencial SA. This position reflects information available as of the prior business day. Within the past 12 months, Citigroup Global Markets Inc. or its affiliates has acted as manager or co-manager of an offering of securities of América Móvil SA de CV, Banco do Brasil, Minerva SA, Nossa Caixa, Braskem SA, B2W, Cesp, Cemig, Copasa, Cemex, Ecopetrol S.A., Brasil Ecodiesel S.A., Edenor SA, Eletrobras, Eletropaulo, EDP - Energias do Brasil SA, Equatorial Energia SA, Gerdau SA, Hypermarcas, Intergroup, Kimberly-Clark de Mexico SAB de CV, Lojas Americanas SA, Lupatech SA, Megacable Holdings, Mexichem SAB de CV, MARFRIG, Maxcom Telecomunicaciones, Petróleo Brasileiro - Petrobras, Petrobras Energia Participaciones SA, Vale (Preferred), Sabesp, Springs Global, Soriana, Urbi Desarrollos Urbanos SA de CV.

32

Citigroup Global Markets  Equity Research

Latin America Strategy Notebook 17 November 2008

Citigroup Global Markets Inc. or its affiliates has received compensation for investment banking services provided within the past 12 months from AmBev, América Móvil SA de CV, Banco do Brasil, Bradesco, Bimbo, Brascan Residential Properties SA, Nossa Caixa, Patagonia, BR Malls Participacoes SA, Coelce, CPFL Energia SA, Copasa, Companhia Siderurgica Nacional, Cemex, Duratex SA, Ecopetrol S.A., Brasil Ecodiesel S.A., Edenor SA, Eletropaulo, EDP - Energias do Brasil SA, Equatorial Energia SA, BBVA Francés, Gigante, Gol Linhas Aereas Inteligentes, Hypermarcas, Empresas ICA SAB de CV, Itaú, JBS SA, Lupatech SA, Megacable Holdings, Mexichem SAB de CV, Maxcom Telecomunicaciones, OHL Brasil, Southern Copper Company, Sabesp, Soriana, Tractebel Energia SA, Terna Participacoes SA, Tenaris SA, Ternium SA, Unibanco, Urbi Desarrollos Urbanos SA de CV, Votorantim Celulose e Papel SA. Citigroup Global Markets Inc. or its affiliates expects to receive or intends to seek, within the next three months, compensation for investment banking services from Banco do Brasil, Bimbo, Brascan Residential Properties SA, Nossa Caixa, Patagonia, Coelce, Cemex, Ecopetrol S.A., Edenor SA, Eletropaulo, Equatorial Energia SA, BBVA Francés, Gigante, Empresas ICA SAB de CV, Mexichem SAB de CV, Soriana, Tractebel Energia SA, Terna Participacoes SA. Citigroup Global Markets Inc. or an affiliate received compensation for products and services other than investment banking services from AmBev, Embotelladora Andina SA, Alsea, América Móvil SA de CV, Antofagasta PLC, Aracruz Celulose SA, Consorcio Ara SAB de CV, Embotelladoras Arca, Grupo Aeroportuario del Sureste SAB, Axtel SAB de CV, Credicorp, Banco do Brasil, Bradesco, Minerva SA, Bimbo, Brascan Residential Properties SA, Macro, Patagonia, Braskem SA, BR Malls Participacoes SA, B2W, Empresas CMPC SA, Compania Cervecerias Unidas SA, Cementos Lima SA, Cemig, Corporacion Moctezuma SAB de CV, Coelce, Comercial Mexicana, Grupo Continental, Empresas Copec SA, Copa Airlines, CPFL Energia SA, Copel, Copasa, Companhia Siderurgica Nacional, Cemex, Dufry South America Ltd, Duratex SA, Ecopetrol S.A., Edenor SA, Grupo Elektra SA de CV, Eletrobras, Eletropaulo, EDP - Energias do Brasil SA, Equatorial Energia SA, Embraer, FEMSA, BBVA Francés, Grupo Cementos de Chihuahua, Corporacion Geo SAB de CV, Aes Tiete S/A, Grupo Famsa SAB de CV, Galicia, Banorte, Gafisa SA, Gerdau SA, Gigante, Grupo Modelo, Gol Linhas Aereas Inteligentes, GP Investments, Gruma, Hochschild Mining Plc, Desarrolladora Homex SAB de CV, Hypermarcas, Bachoco, Empresas ICA SAB de CV, IDEAL SA de CV, Intergroup, Itaú, JBS SA, Kimberly-Clark de Mexico SAB de CV, Klabin SA, Coca-Cola FEMSA, Lojas Americanas SA, LAN Airlines, Lojas Renner SA, Lupatech SA, Maseca, Megacable Holdings, Mexichem SAB de CV, MARFRIG, Masisa, ArcelorMittal, Maxcom Telecomunicaciones, OHL Brasil, Grupo Aeroportuario del Centro Norte S A B de C V, Grupo Aeroportuario del Pacifico SA de CV, Promotora Ambiental SAB de CV, Grupo Pão De Acucar, Southern Copper Company, Petróleo Brasileiro - Petrobras, Positivo Informatica SA, Perdigao SA, Radio Centro, Vale (Preferred), Sare Holding SAB de CV, Satipel Industrial SA, Sadia SA, Springs Global, Sao Martinho SA, Soriana, Suzano Papel e Celulose SA, Tam SA, Tractebel Energia SA, TIM Participações SA, Terna Participacoes SA, CTEEP, Tenaris SA, Grupo Televisa, TV Azteca SA, Ternium SA, Unibanco, Ultrapar Participacoes SA, Urbi Desarrollos Urbanos SA de CV, Usiminas, Votorantim Celulose e Papel SA, Vivo Participações SA, Walmex in the past 12 months. Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as investment banking client(s): AmBev, América Móvil SA de CV, Banco do Brasil, Bradesco, Minerva SA, Bimbo, Brascan Residential Properties SA, Nossa Caixa, Patagonia, BR Malls Participacoes SA, Coelce, CPFL Energia SA, Copasa, Companhia Siderurgica Nacional, Cemex, Duratex SA, Ecopetrol S.A., Brasil Ecodiesel S.A., Edenor SA, Eletropaulo, EDP - Energias do Brasil SA, Equatorial Energia SA, BBVA Francés, Grupo Famsa SAB de CV, Banorte, Gigante, Gol Linhas Aereas Inteligentes, Hypermarcas, Empresas ICA SAB de CV, Itaú, JBS SA, Kimberly-Clark de Mexico SAB de CV, Lupatech SA, Megacable Holdings, Mexichem SAB de CV, Maxcom Telecomunicaciones, OHL Brasil, Southern Copper Company, Sabesp, Soriana, Tractebel Energia SA, Terna Participacoes SA, Tenaris SA, Grupo Televisa, Ternium SA, Unibanco, Urbi Desarrollos Urbanos SA de CV, Votorantim Celulose e Papel SA. Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as clients, and the services provided were non-investment-banking, securitiesrelated: AmBev, Embotelladora Andina SA, Alsea, América Móvil SA de CV, Aracruz Celulose SA, Consorcio Ara SAB de CV, Embotelladoras Arca, Grupo Aeroportuario del Sureste SAB, Axtel SAB de CV, Credicorp, Banco do Brasil, Bradesco, Minerva SA, Bimbo, Brascan Residential Properties SA, Patagonia, Braskem SA, BR Malls Participacoes SA, Empresas CMPC SA, Compania Cervecerias Unidas SA, Cementos Lima SA, Cemig, Corporacion Moctezuma SAB de CV, Coelce, Comercial Mexicana, Grupo Continental, Empresas Copec SA, Copa Airlines, CPFL Energia SA, Copasa, Companhia Siderurgica Nacional, Cemex, Duratex SA, Ecopetrol S.A., Edenor SA, Grupo Elektra SA de CV, Eletrobras, Eletropaulo, EDP - Energias do Brasil SA, Equatorial Energia SA, Embraer, FEMSA, BBVA Francés, Grupo Cementos de Chihuahua, Corporacion Geo SAB de CV, Aes Tiete S/A, Grupo Famsa SAB de CV, Galicia, Banorte, Gerdau SA, Gigante, Grupo Modelo, Gol Linhas Aereas Inteligentes, Gruma, Hochschild Mining Plc, Desarrolladora Homex SAB de CV, Hypermarcas, Bachoco, Empresas ICA SAB de CV, IDEAL SA de CV, Intergroup, Itaú, JBS SA, Kimberly-Clark de Mexico SAB de CV, Klabin SA, Coca-Cola FEMSA, LAN Airlines, Lupatech SA, Maseca, Megacable Holdings, Mexichem SAB de CV, MARFRIG, Masisa, ArcelorMittal, Maxcom Telecomunicaciones, OHL Brasil, Grupo Aeroportuario del Centro Norte S A B de C V, Grupo Aeroportuario del Pacifico SA de CV, Promotora Ambiental SAB de CV, Southern Copper Company, Petróleo Brasileiro Petrobras, Positivo Informatica SA, Perdigao SA, Radio Centro, Vale (Preferred), Sare Holding SAB de CV, Sadia SA, Springs Global, Sao Martinho SA, Soriana, Suzano Papel e Celulose SA, Tam SA, Tractebel Energia SA, TIM Participações SA, Terna Participacoes SA, CTEEP, Tenaris SA, Grupo Televisa, TV Azteca SA, Ternium SA, Unibanco, Ultrapar Participacoes SA, Urbi Desarrollos Urbanos SA de CV, Usiminas, Votorantim Celulose e Papel SA, Walmex. Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as clients, and the services provided were non-investment-banking, nonsecurities-related: AmBev, Embotelladora Andina SA, Alsea, América Móvil SA de CV, Antofagasta PLC, Aracruz Celulose SA, Consorcio Ara SAB de CV, Embotelladoras Arca, Grupo Aeroportuario del Sureste SAB, Axtel SAB de CV, Credicorp, Banco do Brasil, Bradesco, Minerva SA, Bimbo, Brascan Residential Properties SA, Macro, Patagonia, Braskem SA, BR Malls Participacoes SA, B2W, Empresas CMPC SA, Compania Cervecerias Unidas SA, Cementos Lima SA, Cemig, Corporacion Moctezuma SAB de CV, Coelce, Comercial Mexicana, Grupo Continental, Empresas Copec SA, Copa Airlines, CPFL Energia SA, Copel, Copasa, Companhia Siderurgica Nacional, Cemex, Dufry South America Ltd, Duratex SA, Ecopetrol S.A., Edenor SA, Grupo Elektra SA de CV, Eletrobras, Eletropaulo, EDP - Energias do Brasil SA, Embraer, FEMSA, BBVA Francés, Grupo Cementos de Chihuahua, Corporacion Geo SAB de CV, Aes Tiete S/A, Grupo Famsa SAB de CV, Galicia, Banorte, Gafisa SA, Gerdau SA, Gigante, Grupo Modelo, Gol Linhas Aereas Inteligentes, GP Investments, Gruma, Hochschild Mining Plc, Desarrolladora Homex SAB de CV, Hypermarcas, Bachoco, Empresas ICA SAB de CV, IDEAL SA de CV, Intergroup, Itaú, JBS SA, Kimberly-Clark de Mexico SAB de CV, Klabin SA, Coca-Cola FEMSA, Lojas Americanas SA, LAN Airlines, Lojas Renner SA, Lupatech SA, Maseca, Megacable Holdings, Mexichem SAB de CV, MARFRIG, Masisa, ArcelorMittal, Maxcom Telecomunicaciones, OHL Brasil, Grupo Aeroportuario del Centro Norte S A B de C V, Grupo Aeroportuario del Pacifico SA de CV, Promotora Ambiental SAB de CV, Grupo Pão De Acucar, Southern Copper Company, Petróleo Brasileiro - Petrobras, Positivo Informatica SA, Perdigao SA, Radio Centro, Vale (Preferred), Sare Holding SAB de CV, Satipel Industrial SA, Sadia SA, Springs Global, Sao Martinho SA, Soriana, Suzano Papel e Celulose SA, Tam SA, Tractebel Energia SA, TIM Participações SA, Terna Participacoes SA, CTEEP, Tenaris SA, Grupo Televisa, TV Azteca SA, Ternium SA, Unibanco, Ultrapar Participacoes SA, Urbi Desarrollos Urbanos SA de CV, Usiminas, Votorantim Celulose e Papel SA, Vivo Participações SA, Walmex. Analysts' compensation is determined based upon activities and services intended to benefit the investor clients of Citigroup Global Markets Inc. and its affiliates ("the Firm"). Like all Firm employees, analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the Private Client Division, Institutional Sales and Trading, and Investment Banking. The Firm is a market maker in the publicly traded equity securities of Antofagasta PLC, Companhia Siderurgica Nacional, Eletrobras, Galicia, Kimberly-Clark de Mexico SAB de CV, Grupo Aeroportuario del Centro Norte S A B de C V, Usiminas, Walmex. For important disclosures (including copies of historical disclosures) regarding the companies that are the subject of this Citi Investment Research product ("the Product"), please contact Citi Investment Research, 388 Greenwich Street, 29th Floor, New York, NY, 10013, Attention: Legal/Compliance. In addition, the same important disclosures,

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Citigroup Global Markets  Equity Research

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with the exception of the Valuation and Risk assessments and historical disclosures, are contained on the Firm's disclosure website at www.citigroupgeo.com. Private Client Division clients should refer to www.smithbarney.com/research. Valuation and Risk assessments can be found in the text of the most recent research note/report regarding the subject company. Historical disclosures (for up to the past three years) will be provided upon request. Citi Investment Research Ratings Distribution Data current as of 9 Nov 2008 Buy Hold Sell Citi Investment Research Global Fundamental Coverage 48% 36% 16% % of companies in each rating category that are investment banking clients 48% 46% 37% Guide to Fundamental Research Investment Ratings: Citi Investment Research's stock recommendations include a risk rating and an investment rating. Risk ratings, which take into account both price volatility and fundamental criteria, are: Low (L), Medium (M), High (H), and Speculative (S). Investment ratings are a function of Citi Investment Research's expectation of total return (forecast price appreciation and dividend yield within the next 12 months) and risk rating. For securities in developed markets (US, UK, Europe, Japan, and Australia/New Zealand), investment ratings are:Buy (1) (expected total return of 10% or more for Low-Risk stocks, 15% or more for Medium-Risk stocks, 20% or more for High-Risk stocks, and 35% or more for Speculative stocks); Hold (2) (0%-10% for Low-Risk stocks, 0%-15% for Medium-Risk stocks, 0%-20% for High-Risk stocks, and 0%-35% for Speculative stocks); and Sell (3) (negative total return). For securities in emerging markets (Asia Pacific, Emerging Europe/Middle East/Africa, and Latin America), investment ratings are:Buy (1) (expected total return of 15% or more for Low-Risk stocks, 20% or more for Medium-Risk stocks, 30% or more for High-Risk stocks, and 40% or more for Speculative stocks); Hold (2) (5%-15% for LowRisk stocks, 10%-20% for Medium-Risk stocks, 15%-30% for High-Risk stocks, and 20%-40% for Speculative stocks); and Sell (3) (5% or less for Low-Risk stocks, 10% or less for Medium-Risk stocks, 15% or less for High-Risk stocks, and 20% or less for Speculative stocks). Investment ratings are determined by the ranges described above at the time of initiation of coverage, a change in investment and/or risk rating, or a change in target price (subject to limited management discretion). At other times, the expected total returns may fall outside of these ranges because of market price movements and/or other short-term volatility or trading patterns. 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