CEEMEA Equity Research

05 February 2013

Reiterating OW on Turkey after 10% drop

If you wanted a pull-back, this is it. Re-load banks, real estate and Turkcell
We reiterate our OW on Turkey after the 9% drop last week on MSCI Turkey and 10% on the ISE futures. If you were waiting for a pullback to get in, this is it. Our top picks include banks as key holdings: Yapi Kredi and Vakifbank plus mid-cap Bank Asya. Lower mortgage rates and a rebounding economy make us OW Emlak. Autos and white good could also perform. We think there are significant upside catalysts in Turkcell coming with the possible exit of Alfa and resumption of dividends. We were surprised by the big drop in Turkish stocks given the nonreaction by FX and bond yields we see few if any changes in the macro outlook. We think valuations in Turkey remain fair, not expensive in a historical context on a forward PE basis, stocks remain within 1 standard deviation of the long-term average. Lower bond yields make us believe that valuations should trade expensive. Moreover, we find no compelling OW markets in the rest of MSCI EMEA. We take profit and remove Emaar from the CEEMEA Strategy Top 10 list. We added Emaar on 9 Jan at AED4.1. Now, we are up 15% in 3 weeks. In its place we add Sberbank. Oil prices are rising, the global cycle is accelerating a little more Russia makes a lot of sense. Sberbank is guiding '13 net income well above consensus forecasts, if in line with our own. We are happy to stay OW financial (30% of the index but half our list). It beat the index 14 of the last 15 months and benefits from the lowest-for-longest period of EM rates. The CEEMEA Strategy Top 10 list is up 4.3% YTD and beating the index by 357 bps YTD after outperforming by 22.1% in 2012.
Table 1: CEEMEA Strategy Top 10 Stock Picks
Name Ticker Country Sector Analyst Price 25-Jan Mkt Cap USD m % YTD USD JPM Rating JPM PT EPS 12 E 13E P/E Ratio 12E 13E

CEEMEA Equity Strategy David Aserkoff, CFA

AC

(44-20) 7134-5887 [email protected] J.P. Morgan Securities plc

Saharsh Kumar
(91-22) 6157-3271 [email protected] J.P. Morgan India Private Limited

Magnit Rosneft Sberbak Naspers Ltd MTN Turkcell Yapi Kredi Emlak Konut PZU Samba

MGNT LI ROSN LI SBER RX NPN SJ MTN SJ TCELL TI YKBNK TI EKGYO TI PZU PW SAMBA AB

Russia Russia Russia S.Africa S.Africa Turkey Turkey Turkey Poland Saudi

Staples Energy Financials Cons. Discr Telecoms Telecoms Financials Financials Financials Financials

Jouronova Gromadin Kantarovich Joosub Lemardeley Lemardeley Formanko Hasan Huttner Bilandani

46.1 8.78 108.47 57,810 17,594 10.8 5.3 3.2 407.8 45.2

21,867 92,098 77,573 27,251 37,546 13,659 13,173 4,528 11,461 10,823

15.0 -1.5 18.7 2.1 -5.0 -4.5 3.7 4.8 -5.7 1.1

OW OW OW OW OW OW OW OW OW OW

43.0 10.6 136.4 68630 18500 15.0 5.7 3.1 430 63

1.65 1.29 0.50 1850 1139 0.50 0.44 0.17 36.5 4.88

1.83 1.56 0.56 2141 1420 0.55 0.55 0.13 34.8 5.71

27.9 6.8 6.9 31.2 15.4 12.7 12.0 12.1 11.2 9.3

25.2 5.6 6.1 27.0 12.4 11.7 9.6 11.2 11.7 7.9

Source: J.P. Morgan estimates, Bloomberg, Updated as of cob 1 February 2013.

See page 10 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan 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. www.jpmorganmarkets.com

David Aserkoff, CFA (44-20) 7134-5887 [email protected]

CEEMEA Equity Research 05 February 2013

Stocks moved but FX and bonds did not

We reiterate our OW on Turkey after the 9.4% drop from the intra-day high on 24 Jan to the 31 Jan intra-day low on the ISE 100. The ISE futures were down more than 10%. And MSCI Turkey was -8.9%. If you were waiting for a pullback to get in, we think this is it. We are happy with banks as key holdings: Yapi Kredi and Vakifbank plus mid-cap Bank Asya. Lower mortgage rates and a rebounding economy make us OW Emlak. Autos and white goods could also perform well in 13 as the economy picks up and rates stay low. We think there are significant upside catalysts in Turkcell coming with the possible exit of Alfa and resumption of dividends. We were surprised by the big drop in Turkish stocks given the non-reaction by FX and bond yields we do not see any change in the macro outlook. We think valuations in Turkey remain fair, not expensive in a historical context while lower bond yields make us believe that valuations should trade expensive. Moreover, we find few compelling OWs in the rest of CEEMEA weightings are all relative. We find macro reasons for the big correction, well, hard to find. Turkey went through 2012 without a 10%/3 week drawdown on the ISE futures. We would normally see a big drop in the currency during such a equity pull-back looking at each time we have seen a 8% drop in MSCI Turkey in 3 weeks or less, on average, we have seen a 4.2% weakening in TRY (about 7 points). But now, we have seen a 0.3% weakening, rounding error, really. On average, we would see a 26 bp back up in yields, this time we have see a 3 bp move again rounding error. The two key macro risks that we see facing the stock market are: a) the current account deficit and b) the threat of higher reserve requirement ratios (RRR) on the bank sector. First on the CAD, our economist is forecasting a slightly wider deficit in '13 from '12 (US$60.4b or 6.7% from US$52.9 bn or 6.6%). Bears on Turkey argue that faster GDP growth this year (we forecast 37% from 2.6%) will push the deficit significantly wider. The problem for equity bulls is we can not disprove the bear case until the economy picks up steam.
Figure 1: ISE 100
90,000 85,000 80,000 75,000 70,000 65,000 60,000 55,000 50,000 Jan-12

Apr-12 ISE 100

Jul-12

Oct-12 50 day MA

Jan-13

Source: J.P. Morgan, Bloomberg, cob 1 Feb 2013

Figure 2: Turkey equity vol up v FX vol down

Source: J.P. Morgan, Bloomberg, cob 1 Feb 2013

Figure 3: Lira and 2 year bond yields in the last year

10.5 9.5 8.5 1.8 7.5 6.5 5.5 Feb-12 May-12 Aug-12 Nov-12 TRY Spot (RHS) 1.75 1.7 2 year Benchmark Yield (RHS)
Source: J.P. Morgan, Bloomberg, cob 1 Feb 2013

1.9 1.85

David Aserkoff, CFA (44-20) 7134-5887 [email protected]

CEEMEA Equity Research 05 February 2013

Valuations still reasonable

Second, on the potential for the CBRT to raise RRR. Higher RRRs would be designed to limit loan growth and the CAD and would be done instead of raising rates (which would draw in carry traders and push up the TRY). We think the knee-jerk reaction would be to sell bank stocks their NIMs would be hit by the need to deposit additional reserves yielding zero. But, we think the impact on the lending market would be significantly positive less competition for loans and, at the margin, better asset pricing. We can not argue the stock market is cheap in absolute terms any more. But it doesn't appear very expensive either. PE's are only 17% above the long-term average, less than one standard deviation. Investors could also buy into the macro problems in South Africa on a 15% premium to its historical average. But Turkeys equity yield/bond yield is at a massive 23% discount vs. its long-term average. This reminds us a lot of the mid-90's convergence stock markets in Southern Europe where rates which historically had been 15%ish moved to 5%ish as the region entered EMU. We expect Turkish savers to move from bonds/money markets into equities. This process started in 2006-7 but reversed in the GFC and should resume, aided by Turkeys new pension fund law. Of all the CEEMEA markets, we think Turkey newly low rates, strong GDP and profit growth is the most likely to trade at a significant premium to old notions of fair value. And the lower beta vs. EM (see Figure 4) also supports higher multiples vs. GEMs (see Figure 5).
Figure 4: Turkeys downward trending beta vs. EM
2.0 1.5 1.0 0.5
Source: J.P. Morgan, MSCI, I/B/E/S, Datastream, Bloomberg, cob 1 February 2013

Figure 5: Turkeys re-rating vs. GEMs

4 2 0 -2 -4 -6 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11

Turkey-GEM's 12m Fwd PE

Source: J. P. Morgan research, I/B/E/S, cob 1 February 2013

Figure 6: A long-term look at forward PEs

12M Fwd PE Avg Turkey -1sd +1sd

14 12 10 8 6 4 Jan-03

Jan-05

Jan-07

Jan-09

Jan-11

Jan-13

Source: IBES, Datastream, Bloomberg, cob 1 Feb 2013

Figure 7: Earnings Yield/ Bond Yield stocks still cheap

0.0 Jan-08

Jan-09

Jan-10

Jan-11

Jan-12 Trendline

Jan-13

6M Rolling Beta: Turkey v EM

Source: J.P. Morgan, Bloomberg.

David Aserkoff, CFA (44-20) 7134-5887 [email protected]

CEEMEA Equity Research 05 February 2013

JPM Turkey Coverage and MSCI performance by stock

Table 2: JPM coverage of Turkey stocks
Name Akbank Anadolu Efes Bank Asya BIM Coca-Cola Icecek Emlak Konut Garanti Halkbank Isbank Koza Gold Migros Ticaret Petkim Turk Telekom Turkcell lker Vakifbank Yapi Kredi Share Price (TRY) 9.16 25.8 2.25 87.25 41.5 3.2 9.08 18.15 6.66 44.3 20.8 3.11 7.44 10.8 10.35 5.38 5.28 Price Target (TRY) 8.8 27.0 3.0 54.4 45.0 3.1 9.6 21.2 6.9 58.6 20.5 1.7 9.0 15.0 8.4 5.5 5.7 Upside to Target (%) -3.9 4.7 33.3 -37.7 8.4 -3.1 5.7 16.8 3.6 32.3 -1.6 -45.0 21.0 38.9 -18.8 2.2 8.0 BBG Code AKBNK TI AEFES TI ASYAB TI BIMAS TI CCOLA TI EKGYO TI GARAN TI HALKB TI ISCTR TI KOZAL TI MGROS TI PETKM TI TTKOM TI TCELL TI ULKER TI VAKBN TI YKBNK TI Rating UW N OW N OW OW N OW N OW N UW OW OW N OW OW Mkt Cap, US$ MM 20,870 8,836 1,164 7,609 6,056 4,528 21,818 13,065 17,168 3,909 2,119 1,794 15,112 13,659 1,997 7,804 13,173 P/E (X) 12E 13E 16.1 12.2 22.4 20.7 10.4 8.7 37.4 32.1 27.1 22.5 18.4 24.3 12.4 11.2 10.9 9.8 11.6 10.6 0.0 0.0 14.0 24.8 -105.1 23.5 9.5 9.3 11.5 10.5 19.1 18.7 11.5 9.9 13.0 7.9 EPS (LC) 12E 13E 0.62 0.83 1.15 1.25 0.25 0.29 2.33 2.72 1.53 1.84 0.17 0.13 0.81 0.89 1.83 2.05 0.64 0.70 0.00 0.00 1.49 0.84 -0.03 0.13 0.78 0.80 0.53 0.59 0.54 0.55 0.52 0.60 0.44 0.73 Yield (%) 13E (%) 3.0 2.4 0.0 3.6 1.6 0.0 3.7 4.0 3.5 2.2 0.0 3.3 10.1 0.0 0.0 0.0 0.0 ROE (%) 13E 15.4 22.6 10.5 47.9 25.2 7.7 17.6 21.7 14.7 44.8 0.0 7.7 42.0 0.0 17.9 12.9 14.8

Source: J. P. Morgan research, Bloomberg, Price as cob 1 February

Table 3: MSCI Turkey Performance by stocks

Name Turkcell Akbank Bank Asya Tofas-Turk Otomotiv Turk Hava Yollar Isbank Garanti Bank Halk Bank Koc Hldg Yapi Kredi Emlak Konut Enka Insaat Ford Otomotiv Sabanci Holding Turk Sise Cam Vakifbank Anadolu Efes Eregli Demir Koza Gold Tupras Turk Telekom. BIM Birlesik Coca-Cola Icecek Arcelik TAV Havalimanlar Performance in 2012 37% 54% 47% 86% 212% 97% 66% 87% 81% 104% 69% 53% 48% 92% 21% 99% 19% 13% 81% 36% 4% 76% 73% 102% 20% YTD till 24th Jan 2013 7% 17% 16% 13% 17% 20% 9% 14% 12% 11% 10% 9% 3% 11% 18% 25% 7% 8% 10% 1% 13% 4% 15% 6% 17% Returns since 24th Jan 2013 -11% -10% -10% -9% -9% -9% -8% -7% -6% -6% -5% -5% -5% -5% -5% -5% -4% -4% -4% -3% -3% -2% -1% 0% 4%

Source: J. P. Morgan research, Bloomberg, Price as cob 1 February

David Aserkoff, CFA (44-20) 7134-5887 [email protected]

CEEMEA Equity Research 05 February 2013

IS OW Turkey a dangerously consensus call? No, its our favorite CEEMEA market
One of the other bear points is that being OW Turkey is consensus this is becoming a crowded trade. As 4Q12 began, we would argue strenuously against this notion. Now, we can disagree and change the subject. Foreign equity holdings (see Figure 8) are clearly up from their lows. But, they are still well below their 2011 peaks. And still well below their 2007-8 peaks. Moreover, Turkey generates little interest from global accounts that would feel comfortable trading in BRICs but not the smaller EM markets. We must acknowledge that the EPFR data show Turkey to be one of the most popular EM markets (see our report, Consensus Asset Allocation: EM funds asset allocation and performance dated 27 Jan). Only Russia has a bigger overweight position in terms of asset allocation of the median fund manager and Turkey is the most popular in terms of the number of funds more than 2% OW versus the benchmark. And the monthly inflow data show second straight months in the black. Still, we focus on the complete set of data from the Central Depository of Securities that show foreign ownership, rather than a survey of only a selected group of funds. One key reason that we do not see Turkey as dangerously consensus is that the other CEEMEA markets remain a struggle. The biggest market, South Africa, is hurt by labour strife in the mining sector plus the first round of disappointments from the retailers the market darlings of 2011 and 2012. Russia, the second biggest market, has been the cheapest GEM market since 2008 yet is the biggest consensus OW in terms of the median funds positive versus the benchmark. We see few positive catalysts on the policy front. Poland, the 3rd biggest market, is mired in recession. Turkey offers a) the best long-term growth and demographics of any major market in region; b) the biggest 2013 GDP growth pick up and c) the best EPS revision over the last three months.
Figure 8: Foreign holdings still below 2011 peak
74 72 70 68 66 64 62 60 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Foreign ownership as % of the free float

Source: Central Depository of Securities, 21 January 2013

Figure 9: Foreign ownership of TRY bonds

70 60 50 40 30 20 10 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 3a-TL and FX indexed in USD bn

Source: CBRT, 25 January 2013

Figure 10: Monthly flows to MSCI Turkey and Banks

1,000 800 600 400 200 0 (200) (400) (600) (800) Aug-11 Dec-11 Apr-12 Aug-12 Banks Dec-12 MSCI Turkey
Source: CBRT, 31 December 2012

David Aserkoff, CFA (44-20) 7134-5887 [email protected]

CEEMEA Equity Research 05 February 2013

CEEMEA Strategy Top 10 list

We take profit and remove Emaar from the CEEMEA Strategy Top 10 list. We added Emaar on 9 Jan at AED4.14. Now, we are up 15% in 3 weeks. Our thesis is that the strong Dubai economy and high-quality cash flows in the Dubai Mall are not priced into the stock below book value. Our analyst, Muneez Hasan, has a AED 5.35 target. While it is out of our top 10 list, we would still be very happy to hold it in a broader CEEMEA (or GEM or global) portfolio. In its place we add Sberbank. We have had two Russian stocks in the CEEMEA Strategy Top 10 list since April 12 much less than the 35% weight in MSCI EMEA. Oil prices are rising, the global cycle is accelerating a little more Russia makes a lot of sense. Sberbank is guiding '13 net income well above consensus forecasts, if in line with our own. If our banks analyst, Alex Kantarovich, stays right on Sberbank earnings (and he has been above consensus for 2+ years while consensus has risen), then the stock has upside. Russian financials historically have outperformed oils when crude prices rise. And earnings revisions remain a key theme for us in GEM and CEEMEA strategy for 2013. Swapping out real estate for a bank leaves us still with half the CEEMEA Strategy Top 10 list in financials (30% of the index) we are happy to be OW. It has beat the index 14 of the last 15 months and benefits from the lowest-for-longest period of EM rates. The CEEMEA Strategy Top 10 list is up 4.3% YTD and beating the index by 357 bps YTD after outperforming by 22.1% in 2012.

Table 4: CEEMEA Strategy top 10 - Performance and composition history

Portfolio Performance: Benchmark Performance: Portfolio v Benchmark Start date End date Entrants Exits Period Cumulative Period Cumulative Period Cumulative Portfolio as on 12th Feb 2012 (Top 10 CEEMEA Picks) - Sberbank, Gazprom, Lukoil, AFK Sistema, Halkbank, Yapi Kredi, Woolworths, PZU, SABIC, Emaar 12-Feb-12 23-Mar-12 4.5% 4.5% 1.9% 1.9% 2.6% 2.6% 23-Mar-12 20-Apr-12 Garanti Halkbank, Yapi Kredi -0.5% 3.9% -1.9% 0.0% 1.4% 4.0% 20-Apr-12 11-May-12 ABSA, Aspen, Lukoil, AFK Sistema, -4.3% -0.5% -5.3% -5.3% 1.1% 5.1% Naspers, Mr. Price Emaar 11-May-12 18-Jun-12 Erste Bank PZU -4.9% -5.4% -2.1% -7.3% -2.9% 2.1% 18-Jun-12 3-Aug-12 Halkbank, ABSA 12.3% 6.3% 5.9% -1.9% 6.1% 8.3% Koc Holding SABIC 3 Aug 12 31-Aug-12 MTN Group, Mr Price, Halkbank 3.0% 9.5% -1.4% -3.3% 4.5% 13.2% Yapi Kredi 31-Aug-12 7-Sep-12 Woolworths 3.4% 13.2% 4.6% 1.2% -1.2% 11.9% 7-Sep-12 5-Oct-12 PZU 0.9% 14.2% -0.8% 0.4% 1.7% 13.7% 5-Oct-12 26-Oct-12 Rosneft, Turkcell, Gazprom, Garanti, 1.4% 15.9% -1.0% -0.6% 2.5% 16.6% Samba Aspen 26-Oct-12 13-Nov-12 Sasol MTN 1.8% 18.0% -1.3% -1.9% 3.2% 20.3% 13-Nov-12 31 Dec 12 Emlak, Magnit Sberbank,Koc Holding 10.8% 30.8% 9.1% 7.1% 1.5% 22.1% 2012 Summary 30.8% 7.1% 22.1% 31 Dec 12 11 Jan 13 1.6% 32.9% 0.4% 7.4% 1.3% 23.7% 11 Jan 13 25 Jan 13 MTN, Emaar Sasol, Erste Bank 2.6% 36.4% 0.3% 7.8% 2.3% 26.5% Properties 1 Feb 13 Sberbank Emaar Properties
Source: J.P. Morgan research, Bloomberg, updated cob 1 Feb 2013. Note: Benchmark is MSCI EMEA. Past results cannot and should not be viewed as an indicator of future performance. Transaction and other costs have not been included in these calculations. Full details of the calculation and historical comparisons are available.

David Aserkoff, CFA (44-20) 7134-5887 [email protected]

CEEMEA Equity Research 05 February 2013

Summary: CEEMEA Countries Valuations

1-Feb-13 Hist.** P/ EPS MSCI Index Trough (Trend) EMF EMEA Czech Republic Hungary Poland Russia South Africa Turkey Middle East & Africa Egypt Morocco^ Qatar^ Saudi Arabia UAE^ Nigeria EMF Asia* China India EMF LatAm Mexico Brazil Emerging Markets Japan Europe USA Global Current Trailing P/E (x) 12m Fwd Prospective 2011 2012E 2013E Div. Yield (%) Hist.** Trailing Prospective Hist.** Peak Trailing 2012E 2013E Trough P/BV (x) Current Prospective Trailing 2012E 2013E Earnings growth (%) 2010 2011 2012E 2013E 2011 ROE (%) 2012E 2013E

463 276 1,090 1,725 804 1,007 1,135,120 1,213 290 791 452 259 745 674 66 775 7,622,638 43,068 215,118 47,478 582 1,214 1,446 378

6.3 7.3 3.5 6.5 3.9 9.1 5.1 5.7 12.3 6.8 8.7 -38.6 4.8 10.3 7.2 9.6 8.6 9.0 6.5 10.2 11.5 9.7 11.6 9.4

7.1 5.3 5.3 10.6 3.1 11.7 7.5 4.9 13.8 8.2 15.4 9.9 11.8 7.2 10.6 21.6 10.6 13.7 13.1

8.8 9.4 9.1 10.2 5.6 14.0 11.9 7.3 11.5 12.1 12.6 13.0 10.9 13.0 11.6 16.6 15.6 20.4 13.6 12.6 25.2 12.8 14.9 14.0

8.4 9.7 8.2 11.7 5.7 12.1 10.6 7.3 12.5 10.8 11.4 11.6 9.4 11.3 10.6 14.4 13.0 18.0 11.1 10.9 18.2 11.8 13.7 12.6

8.5 9.3 7.6 9.5 5.1 15.5 13.8 10.9 14.0 13.8 19.0 10.3 12.5 13.2 11.4 18.7 14.2 28.5 11.0 12.8 NM 12.4 16.0 14.6

8.8 9.4 9.2 10.1 5.6 14.3 12.0 7.3 11.5 12.2 12.7 13.1 11.1 13.2 11.7 16.8 15.9 20.7 13.9 12.7 26.1 12.9 15.0 14.1

8.4 9.7 8.3 11.8 5.7 12.2 10.7 7.4 12.0 10.9 11.5 11.7 9.4 11.4 10.7 14.6 13.1 18.2 11.2 11.0 18.8 11.9 13.9 12.8

4.9 10.0 5.3 7.1 4.0 4.7 4.0 9.2 5.8 9.7 7.0 7.5 12.2 3.4 5.7 2.6 5.1 4.1 7.6 3.6 3.0 6.1 4.0 4.1

3.7 7.8 4.0 5.5 3.8 3.3 2.7 3.9 4.7 4.6 4.2 3.1 4.9 2.4 2.8 1.5 2.8 1.6 3.4 2.8 2.1 3.5 2.1 2.7

3.6 7.8 3.9 5.6 3.8 3.3 2.6 3.9 4.8 4.5 4.1 3.0 4.9 2.4 2.8 1.5 2.8 1.6 3.3 2.8 2.0 3.5 2.1 2.6

3.9 7.9 4.5 4.7 4.1 3.8 3.0 4.3 5.0 4.8 4.8 3.4 5.8 2.5 3.0 1.6 3.0 1.7 3.8 2.9 2.2 3.8 2.3 2.8

1.2 0.5 0.6 1.0 0.2 1.4 1.4 1.0 2.8 1.3 1.3 0.5 0.8 1.0 0.5 1.4 0.6 0.7 0.4 1.0 0.9 1.1 1.4 1.3

1.3 1.5 0.9 1.3 0.8 2.3 1.8 0.9 2.1 1.8 1.9 1.1 2.7 1.7 1.7 2.6 1.7 2.1 1.4 1.6 1.2 1.6 2.0 1.7

1.3 1.5 0.9 1.3 0.8 2.3 1.8 0.9 2.4 1.8 1.8 1.1 2.6 1.7 1.7 2.6 1.7 2.1 1.5 1.6 1.2 1.6 2.0 1.7

1.2 1.4 0.8 1.2 0.8 2.1 1.7 0.8 2.5 1.7 1.7 1.0 2.3 1.5 1.5 2.3 1.6 1.9 1.4 1.5 1.1 1.5 2.0 1.7

31.5 -1.3 7.4 34.4 42.7 25.2 18.0 -2.3 -9.4 11.2 51.9 -53.6 -24.4 37.3 34.3 23.0 23.9 -7.9 29.1 33.0 NM 38.9 47.7 33.9

28.0 -12.4 23.6 26.4 39.5 20.5 -5.9 21.3 1.7 4.6 na 53.6 9.7 -4.1 10.8 7.0 -0.9 -0.9 -2.5 3.3 51.1 2.3 15.3 8.0

-3.2 -0.9 -18.1 -6.2 -9.1 9.0 15.1 48.4 -5.9 12.1 67.4 14.5 163.9 4.9 -2.1 11.6 -11.0 37.8 -20.8 0.3 -27.4 -3.8 6.7 3.3

4.1 -2.8 10.7 -14.4 -1.7 16.8 11.5 -1.4 -4.1 12.3 10.3 11.8 17.3 15.0 9.4 14.9 21.3 13.5 24.5 15.6 38.6 8.7 8.0 10.7

18.2 16.9 13.8 15.3 19.0 17.8 16.3 13.6 30.7 12.9 6.8 17.6 14.4 17.7 17.0 13.0 13.7 13.0 14.1 6.3 13.0 15.3 13.2

15.7 16.2 10.0 13.1 15.6 17.3 16.7 14.9 28.1 14.8 14.5 8.1 37.6 13.6 15.5 16.5 10.7 12.4 10.1 12.9 4.5 12.5 14.4 12.7

14.8 15.1 10.2 10.7 14.0 18.2 16.2 11.5 29.0 15.3 14.9 8.4 38.6 14.2 15.2 16.5 12.4 11.1 12.6 14.0 6.0 13.1 14.3 13.1

Source: I/B/E/S, MSCI, Bloomberg, J.P. Morgan estimates.

Updated as of cob 1 Feb 2013

* Market forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using JP Morgan estimates for covered stocks and I/B/E/S estimates for the rest. ^ Market forecast numbers are Bloomberg Estimates for Generic Years (1 and 2) for each MSCI index. For all other markets, forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using I/B/E/S estimates. Hist. ** refers to the historically lowest valuation of the MSCI indices since last 5 years. Trough PE represents the lowest 12 month trailing PE. For dividend yield the highest values are taken to represent the best multiple. USA, Europe and Japan PE are I/B/E/S aggregate estimates. Japan Valuation estimates are for the financial year ending March P / EPS (Trend) uses the trend EPS for the indices calculated by the linear regression on the natural log of trailing EPS. For more, please refer to 'Mayday call for the shorts - Perspectives and Portfolios', 5 May 2009, Mowat et al. P / EPE (Trend)' is NM for indices where the modeled relationship is weak with a less than 0.50 R-square. The start dates China and Singapore models are modified to make them more relevant. Sector indices inputs have not been altered.

David Aserkoff, CFA (44-20) 7134-5887 [email protected]

CEEMEA Equity Research 05 February 2013

CEEMEA Price Earnings (12m forward EPS)

Figure 11: MSCI EM 12m Forward PE
15 14 13 12 11 10 9 8 7 6 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 4 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 12 10 8 6
12M Fwd PE Avg EM -1sd +1sd

Figure 14: MSCI EMEA 12m Forward PE

14
12M Fwd PE Avg EMEA -1sd +1sd

Source: IBES, Datastream, Bloomberg, cob 1 Feb 2013

Source: IBES, Datastream, Bloomberg, cob 1 Feb 2013

Figure 12: MSCI Turkey 12m Forward PE

12M Fwd PE Avg Turkey -1sd +1sd

Figure 15: MSCI Poland 12m Forward PE

18 16 14 12 10 8 6 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13
12M Fwd PE Avg Poland -1sd +1sd

14 12 10 8 6 4 Jan-03

Jan-05

Jan-07

Jan-09

Jan-11

Jan-13

Source: IBES, Datastream, Bloomberg, cob 1 Feb 2013

Source: IBES, Datastream, Bloomberg, cob 1 Feb 2013

Figure 13: MSCI Russia 12m Forward PE

14 12 10 8 6 4 2 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13
12M Fwd PE Avg Russia -1sd +1sd

Figure 16: MSCI South Africa 12m Forward PE

13 12 11 10 9 8 7 6 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13
12M Fwd PE Avg South Africa -1sd +1sd

Source: IBES, Datastream, Bloomberg, cob 1 Feb 2013

Source: IBES, Datastream, Bloomberg, cob 1 Feb 2013

David Aserkoff, CFA (44-20) 7134-5887 [email protected]

CEEMEA Equity Research 05 February 2013

CEEMEA Market Performance: MSCI Performance by Countries and Sectors

EM Eastern Europe EMF Latin America North America EM Europe EMF Asia Europe Mexico
Year To Date

Consumer Discretionary Consumer Staples Energy Financials Healthcare Industrials Information Technology Materials Telecoms Utilities Region / Country Benchmark Change vs dollar

5.8% 5.9% 6.2% 6.5% 7.8% 5.2% 2.5% 2.8% 4.2% 2.4% 5.3%

6.3% 6.3% 7.8% 6.4% 8.2% 7.0% 2.9% 2.3% 4.0% 4.9% 5.9%

7.6% 6.8% 4.9% 9.2% 7.6% 6.6% 10.5% 4.8% 7.2% 0.1% 6.9%

13.3% 12.5% 11.5% 9.2% 16.9% 6.8% 6.3% 9.8% 9.7% -1.9% 9.7%

-1.2% 2.0% 1.9% 4.9% -0.5% 0.7% -1.1% 0.1% 0.6% 3.4% 1.7%

-4.5% -3.1% 2.9% 3.2% -8.1% -0.6% 1.4% -1.4% -0.7% -0.6% 0.7%

3.5% 9.7% 3.1% 7.4% 7.2% 1.4% 3.9% 4.6% -0.6% 4.9%

3.9% 14.2% 3.2% 8.8%

1.4% 3.8% 6.1% -0.6% 5.0%

6.5% 7.0% 0.7% 5.0% 3.5% 7.9% 5.7% 1.7% 10.4% 5.5% 4.8%

-2.0% -1.3% 1.7% 5.4% 1.5% -0.8% -1.2% -0.7% -2.6% 3.3% 0.9% 0.0%

-0.9% 5.0% -3.4% 2.3% 0.3% 4.7% 2.5% -3.1% 3.8% 1.3% 0.6% 3.2%

5.8% 1.5% 0.0% 8.2% -1.0% 4.4% 9.5% 5.0% -4.6% 11.5% 4.4% 0.1%

-3.8% -1.1% 8.1% -1.4% 0.1% -4.0% 13.4% -4.7% 5.6% -3.3% 1.4% 3.4%

-3.2% -6.5% -4.4% 5.3% 0.5% -3.5% -4.6% -3.1% 7.1% 5.5% -2.6% -3.0%

7.7% 3.0% -0.2% 6.6% 3.7% 9.0% 4.7% 2.5%

0.3% -0.2% -0.9% 4.9% -0.6% 4.2% 1.3% 3.1% -0.7% 2.0% -1.9%

EMEA(Europe & Middle East)

Czech Republic

South Africa

Hungary

Poland

Russia

Year To Date

Consumer Discretionary Consumer Staples Energy Financials Healthcare Industrials Information Technology Materials Telecoms Utilities Region / Country Benchmark Change vs dollar
Source: Bloomberg, MSCI.

3.5% 9.7% 3.1% 7.4% 7.2% 1.4% 3.9% 4.6% -0.6% 4.9%

-5.5%

1.6% 2.6%

4.5% 11.7%

2.1% 8.1% 2.1% -6.1% -0.4% -0.5% -1.9% -4.7% -2.8% 1.3%

12.5% 0.8% 15.2%

-0.9% -11.7% 6.1% 1.8% -4.0% -0.4% -0.6% -0.9% -0.4% -4.1%

1.3% 1.8% -3.9% 2.9% 5.1% 2.2% -2.4% 2.1% 2.0%

0.7% -9.7% -6.6% 1.0%

8.5% 3.3% -5.2%

10.4% 8.7% 3.0%

2.7% 4.8% 4.6% 4.5% 2.2%

Updated as of cob 1 February 2013

Note: Local currency movements against the dollar: appreciation / (depreciation).Country and sector cross sections in italic blue have outperformed their indices by more than 2%. Cross sections in red have underperformed their indices by more than 2%. 9

Turkey

Egypt

Taiwan

Global

EMEA

Japan

Korea

China

Brazil

India

EMF

David Aserkoff, CFA (44-20) 7134-5887 [email protected]

CEEMEA Equity Research 05 February 2013

Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.

Important Disclosures

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David Aserkoff, CFA (44-20) 7134-5887 [email protected]

CEEMEA Equity Research 05 February 2013

coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return is compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans research website, www.jpmorganmarkets.com. J.P. Morgan Equity Research Ratings Distribution, as of January 1, 2013
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CEEMEA Equity Research 05 February 2013

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David Aserkoff, CFA (44-20) 7134-5887 [email protected]

CEEMEA Equity Research 05 February 2013

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