FPP Emerging Markets Strategy

Spring 2010

Chinese Whispers
Send Reinforcements, We’re Going To Advance!
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Introduction – High Anxiety

„ Emerging Markets sell for 69 percent of FPP Appraised Value vs. 80 percent for the
Developed Markets

„ Our largest Emerging Markets allocations are to China/Hong Kong (20 percent);
K
Korea (20 percent);
) Russia
R i (12 percent); ) and
d Taiwan
T i (18 percent).
) Thailand
Th il d is
i also
l
favoured with an allocation of 4 percent

„ Anxiety remains prevalent among many investors

FPP remains constructive for EMs in 2010 based on continuing low

interest rates in the Developed Markets; stability in China; and
reasonable valuations in all markets

Send Reinforcements, We’re

We re Going To Advance!

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 2010 YTD Performance – as of 28 February 2010
Performance
February % YTD % 2009 Performance %
FPP Global Emerging Markets Fund ($) -0.1 -5.8 108.0*
MSCI Global EM (Price Index) ($) 0.3 -5.4
5.4 74.5
FPP Yellow Tiger Greater China Fund ($) -0.4 -9.3 148.9
MSCI China US$ 2.2 -6.6 58.8
Shanghai Composite Index US$ 2.1 -6.9 80.0
MSCI Taiwan
T i ($) -3.7
37 -9.9
99 75 1
75.1
FPP Japan Fund ($) -1.0 -2.3 15.1
TOPIX ($) 1.0 2.4 3.3
FPP Emerging Hedge Fund ($) -1.8 -2.9 137.1
MSCI Global EM (Price Index) ($) 0.3 -5.4 74.5
Global Emerging Markets (GEMs) Bond Fund 1.45 5.55 26.0
JPMorgan EMBI+ 1.61 1.47 26.0
FPP Seven Seas Fund (€) -2.0 7.7 115.1
MSCI EM Europe and Mid East (€) -4.5 -3.1 59.6
Three Kingdoms Korea Fund -0.7 -4.4 34.0
MSCI Korea -1.1 -5.9 69.4

Source: Internal Data / Bloomberg, *FPP Emerging Markets long-fund strategy performance

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 Price /Appraised Value
FP Appraised Value ROE/PBK (Earnings Yield) Score STAGE 1 STAGE 2 STAGE 3
Country Hist Est F'cast Hist Est F'cast S‐T Bond  EY/BY wght Index  Recommended 
FY0 FY1 FY2 FY0 FY1 FY2 nadj Wght Ylds Adj Wght Weight Weight
Brazil 65.9% 54.1% 48.3% 8.2 9.6 11.6 17.4 6.4% 8.8 1.3 8.44% 2.85% 16.59% 0.47% 8.47%
Chile 127.2% 104.1% 96.6% 6.1 6.3 6.3 5.7 2.1% 1.3 5.0 10.49% 3.54% 1.52% 0.05% 0.96%
China 95.3% 84.8% 67.9% 9.5 7.9 9.2 10.7 3.9% 1.9 4.8 18.75% 6.32% 17.75% 1.12% 20.12%
Colombia 77.2% 100.6% 92.4% 10.7 5.3 7.9 8.8 3.2% 3.8 2.1 6.72% 2.27% 0.73% 0.02% 0.29%
Czech Republic 111.5% 90.6% 77.2% 10.9 9.7 10.0 10.9 4.0% 1.7 5.7 22.95% 7.74% 0.42% 0.03% 0.59%
Egypt 106.0% 58.6% 67.0% 8.0 7.9 10.2 11.3 4.1% 10.6 1.0 3.97% 1.34% 0.57% 0.01% 0.14%
Hungary 46.6% 49.7% 50.9% 8.6 9.1 11.3 19.7 7.2% 5.7 2.0 14.31% 4.83% 0.55% 0.03% 0.48%
India 94 6% 81.0%
94.6% 81 0% 72.0%
72 0% 95
9.5 60
6.0 74
7.4 92
9.2 3 4%
3.4% 50
5.0 15
1.5 5 04%
5.04% 1 70%
1.70% 7 57%
7.57% 0 13%
0.13% 2 31%
2.31%
Indonesia 114.3% 95.8% 75.1% 8.4 7.9 9.2 8.9 3.3% 7.5 1.2 4.01% 1.35% 1.95% 0.03% 0.47%
Israel  113.7% 101.8% 97.6% 5.8 7.5 8.3 6.9 2.5% 2.0 4.2 10.54% 3.55% 2.99% 0.11% 1.91%
Korea 34.1% 64.0% 53.8% 8.4 11.4 12.4 21.2 7.8% 3.0 4.1 31.78% 10.71% 12.62% 1.35% 24.26%
Malaysia 87.4% 88.5% 83.9% 5.9 6.7 7.6 7.8 2.8% 2.4 3.2 9.05% 3.05% 2.81% 0.09% 1.54%
Mexico 102.4% 87.7% 73.7% 6.2 7.1 8.1 8.1 3.0% 5.0 1.6 4.76% 1.61% 4.47% 0.07% 1.29%
Morocco 123.9% 104.6% 94.7% 6.3 7.6 7.3 6.6 2.4% 3.3 2.3 5.43% 1.83% 0.21% 0.00% 0.07%
Peru 87.1% 90.0% 78.1% 5.2 7.6 9.6 8.8 3.2% 2.2 4.5 14.35% 4.84% 0.58% 0.03% 0.51%
Philippines 94.8% 84.9% 82.1% 6.8 7.5 8.4 8.7 3.2% 4.4 1.9 6.13% 2.07% 0.44% 0.01% 0.16%
Poland 60.7% 70.5% 69.7% 7.4 6.9 8.4 11.3 4.1% 3.3 2.5 10.45% 3.52% 1.25% 0.04% 0.79%
Russia 35.9% 60.2% 43.4% 20.1 11.4 14.3 32.9 12.0% 5.9 2.4 29.09% 9.81% 6.49% 0.64% 11.42%
South Africa 61.1% 58.8% 54.8% 7.5 7.6 10.2 14.5 5.3% 8.0 1.3 6.76% 2.28% 6.88% 0.16% 2.81%
Taiwan 91.1% 93.5% 93.0% 7.0 7.3 8.5 8.2 3.0% 1.0 8.9 26.71% 9.00% 10.81% 0.97% 17.46%
Thailand 62.3% 68.1% 58.3% 7.3 9.3 11.0 14.6 5.4% 1.7 6.5 34.98% 11.79% 1.40% 0.16% 2.95%
Turkey 79.1% 59.3% 49.2% 14.9 11.2 12.6 20.6 7.6% 8.0 1.6 11.88% 4.01% 1.41% 0.06% 1.01%

We have highlighted in GREEN our favoured markets

Source: Internal Data, 15 March 2010

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 Country Scoring Gauge
Economic Liquidity
q y
Domestic Factors International Factors Exchange Rates
Real FX  Mov 
Direction  Trade  Foreign  Current  chg  Exchange  Equity  RSI  Avg? 
Nominal yield  Real  Inflation  of Interest  Balance  Debt as  a/c  since Jan  Rate Chg  market Chg  <30,>70  Below,  RSI  Grand 
1yr instrument % Yield % YoY %  Rates Total $bn % Export Balance % Total 97‐09 2010 36MTD +1/‐1 1m or  Oscillator Total Total
Czech Republic 2 1 1 DOWN 3 5.1 48 ‐1 4 49.8 ‐1.5 ‐17.6 > 55 3 10
Hungary 6 ‐1 6 DOWN 3 0.3 120 ‐5 3 36.6 ‐2.9 ‐2.2 65.66 > 50 3 9
Poland 3 0 4 DOWN 3 ‐20.2 127 ‐5 3 32.2 0.5 ‐25.1 63.78 > 55 3 9
Israel 2 ‐2 4 up 1 ‐9.4 195 2 3 26.5 1.7 43.2 67.79 > 51 3 7
Russia 6 ‐1 7 DOWN 3 147.9 115 8 5 ‐10.8 2.0 ‐16.3 62.47 > 51 4 12
Ukraine 12 1 12 DOWN 3 ‐13.4 132 ‐5 2 ‐25.8 ‐0.2 ‐10.8 82.8 > 37 4 9
South Africa 8 2 6 down 3 ‐6.6 67 ‐6 3 ‐10.9 ‐0.5 9.0 64 > 58 4 10
Turkey 8 ‐2 10 flat 2 ‐47.5 213 ‐3 2 ‐17.9 ‐2.4 15.8 < 65 3 7
Egypt 11 ‐3 14 down 3 ‐9.2 121 2 3 17.7 0.0 16.3 < 44 2 8
Morocco 3 4 ‐1 DOWN 5 ‐10.1 146 1 3 4.9 ‐3.8 48.5 < 47 2 10
Saudi 1 ‐3 4 DOWN 3 178.0 23 5 5 ‐16.0 0.0 ‐24.6 69.63 < 36 3 11
UAE 3 3 0 up 1 66.0 60 0 5 44.5 0.0 ‐4.5 71.22 > 40 2 8
Pakistan 12 ‐1 14 up 1 ‐22.5 96 ‐5 2 17.5 0.2 ‐47.0 > 53 3 6
India 5 ‐11 16 up 1 ‐99.5 96 ‐4 2 ‐1.3 2.1 32.7 64.8 > 54 3 6
China 2 0 2 up 1 263.0 11 10 5 31.6 0.0 32.5 > 46 3 9
Hong Kong 1 0 1 DOWN 3 ‐28.2 37 9 4 0.6 ‐0.1 11.9 > 43 3 10
Indonesia 8 4 4 up 1 26.9 32 1 5 ‐3.5 3.4 51.2 68.1 > 45 4 10
Malaysia 2 1 1 UP 1 35.2 27 12 5 ‐6.8 3.6 16.5 > 43 4 10
Philippines 4 0 4 down 3 ‐5.6 44 3 4 ‐2.7 0.9 7.7 > 52 4 11
South Korea 3 0 3 DOWN 3 14.4 58 2 5 ‐21.7 1.8 ‐4.0 > 45 4 12
Taiwan 1 ‐1 2 FLAT 2 14.8 41 5 5 ‐25.1 0.4 3.2 > 61 4 11
Thailand 2 ‐2 4 flat 2 8.0 41 ‐1 4 ‐13.5 2.5 17.2 61.8 > 43 4 10
Singapore
g p 1 1 0 upp 1 18.1 6 19 5 12.2 0.5 3.9 66.34 > 52 3 9
Argentina 14 6 8 DOWN 5 17.3 181 2 3 ‐6.8 ‐1.6 ‐7.0 < 48 3 11
Brazil 9 4 5 DOWN 4 24.0 115 ‐2 3 5.6 ‐1.4 87.8 64.49 > 52 3 10
Chile 1 3 ‐1 down 3 2.5 98 ‐2 3 ‐12.6 ‐1.7 35.6 < 53 3 9
Mexico 5 1 4 up 1 ‐16.0 62 ‐1 4 20.8 4.1 7.4 68.5 > 66 3 8
Peru 2 1 1 up 1 2.2 112 ‐3 3 1.8 1.7 0.7 < 43 1 5
Colombia 4 2 2 down 3 ‐1.8 107 ‐3 3 35.4 7.4 32.5 67.2 > 45 3 9

Source: Internal Data, 15 March 2010 W have highlighted

We l d the same markets on our scoring gauge
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 The Three Stooges: The Known Knowns

Global
Gl b l anxieties
are well founded

Source: BCA Research, March 1, 2010

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 Financials: Relative Performance

The Achilles Heel

of the Developed
Markets?

Source: The Asian Angle Analysis, 1 March 2010

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The Great Panda Debate Continues
Come off it! Economies are
I’m so worried! I just recovering; deposits rates look
bought
b ught some
s me G
Golden
lden set to rise; and the Dollar is
Pandas rebounding. Chuck ‘em out and
buy the new FPP GEM Fund

Tuantuan and Yuanyuan - whose names together mean “reunion”

– have been welcomed by Taiwan as a gift from China

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 US Dollar – 5 Percent Up YTD vs. Euro

The Dollar has

advanced with
improvedd balance
impro balan
of payments

Source: The Asian Angle Analysis, 13 January 2010

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 A History Lesson – Dow Jones vs. Treasury Yields

Inflection of
interest rates is
pivotal for markets

Source: Bank of America Merrill Lynch, 18 February 2010

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S&P vs. Yield Curve

UST Curve (10y-2y)

S&P

Markets have tended to perform well following a steep yield curve

– which we have today
Source: Bloomberg

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 S&P Futures: Record Shorts Suggest Imminent Fireworks?

Net minus 70,000 contracts

Source: Deutsche Bank, US Equity Strategy, 8 March 2010

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 2010 – A Repeat of 2004?

Stocks to tread water before advancing?

Source: BCA Research, February 19, 2010

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 Bonds Remain the Asset of Choice

Flows into bonds overwhelm equities. When will Bill Gross do up his tie?
Source: The Asian Angle Analysis, 1 March 2010

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Global Bonds: A Warning?

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 US Housing: Underwater

One quarter of mortgagedd homes

are underwater. Fishing for value?

Source: BCA Research, US Investment Strategy, February 17, 2010

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 US Housing: Good News?

New affordability lows

vs. rental costs
Source: BCA Research, US Investment Strategy, February 17, 2010

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 US Unemployment – The Long March I

Unemployment likely to remain elevated…

Source: BCA Research, February 24, 2010

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 US Unemployment – The Long March II

… as temporary
employment continues
to improve

Source: BCA Research, US Investment Strategy, February 8, 2010

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 US Inventories I

These are lower

than they have
b ffor 15 years
been

Source: Nomura Strategy, Asia, 24 February 2010

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 US Inventories II

Are we on the
threshold of a
major capex boom?

Source: BCA Research, February 24, 2010

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 US Cash Flows I

Companies are cash rich –

except
ex ept tthee bank
banks

Source: Nomura Strategy, Asia, 8 March 2010

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 Recovery From Recession

Deep
recessions
prompt strong
recoveries

We think 8
we’re
we re here

Source: BCA Research, February 2, 2010

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 A Commodity Supercycle?

The 1970s
revisited?
(preferably not
the clothes))

Source: BCA Research, January 11, 2010

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 Small Cap vs. Large – We Favour Large Caps Today

After such a period of small

cap outperformance
t f some
caution may be in order

Source: BCA Research, Emerging Markets Strategy, January 5, 2010

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 V-Shaped Recovery

Asian export growth resumes?

Source: Daiwa Research Update, 2 March 2010

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 US Stocks vs. High Yield Bonds

Stocks cheap vs.

High Yield Bonds

Source: BCA Research, January 12, 2010

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 US Valuations – Mid-Range

BCA Value Indicators

are mid-range

Source: BCA Research, February 8, 2010

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 Asian Valuations - Cheap

These
markets seem
very cheap

Source: Credit Suisse, Asian Daily, 8 February 2010

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 EM Valuations

EM valuations seem on
the high side but EPS
forecasts are robust…

Source: RBS, The Asian Angle, 1 March 2010

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EM Valuations

Source: Morgan Stanley Research, Global Emerging Markets Strategy, March 8, 2010
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 OECD Leading Indicators

These look peaky

but…

Source: Macquarie Research, Asia Strategy 15 January 2010

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 EM Performance

EMs have historically

advanced after a peak
in Leading Indicators

Source: Credit Suisse, GEM Strategy, 3 March 2010

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 Asian Markets and Fed Funds

Asian markets have outperformed during periods of Fed Fund rates rising

Source: Macquarie Research

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 EM Equity Flows Have Been Robust

We suspect this
has mainly been
invested in ETFs

Source: Morgan Stanley Equity Research, 5 March 2010

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 BRIC – The Love Affair Continues

The BRIC
acronym has
proven popular

Source: RBS, The Asian Angle, 1 March 2010

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 Equity Markets - What Asian Miracle?

DDespite
t these
th fl flows
w
Asia has been a chronic
underperformer

Source: RBS, The Asian Angle, 1 March 2010

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 China: Long Journey Ahead

Confucius says,
y a jjourneyy of a thousand miles starts with a single step

Source: Basic Elements, Investment View, 10 March 2010

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A new Lang Lang?

“Thirty million
“Thi illi Chinese
Chi children
hild are having
h i piano
i l
lessons. T fif h off all
Two-fifths ll Indian
I di secondary
d school
h l
boys have regular after-school tuition. When you have two and a quarter billion people living in
countries whose economies are booming in that way, you are living on a planet with a whole new
economic outlook”
Wh E
Why Everyone OOwes Everyone
E And
A dNNo OOne C
Can P Pay, by
b JJohn
h LLancaster

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 China: A Rural Boom to Come?

Source: UOB KayHianChina Strategy 2010

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 Chinese Anxieties

Another reason for

higher rates in China

Source: BCA Research, Emerging Markets Strategy, January 12, 2010

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 Chinese Inflation

Tightening
T ht hhadd
to happen

Source: BCA Research, March 5, 2010

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 Chinese Brakes

Chinese tightening started in 2009

Source: RBS, Real Estate, 13 January 2010

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 Chinese Relative Performance – An Epicentre of Anxiety

MSCI China has been underperforming for eight months –

we believe this is set to reverse
Source: Bloomberg

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 China Equity Risk Premium

T is still elevated.
This a d
It is close to 2003
highs which was an
excellent entry point
into Chinese stocks

Source: Macquarie Research, Asia Strategy, 8 March 2010

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 Chinese Valuations – Looking Better

MSCI China
seems cheap
relative to
the region

Source: Credit Suisse, Asian Daily, 2 March 2010

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 Chinese Market Performance – Spring Fever

China tends to perform well in Q2!

Source: Macquarie Research, Asia Strategy, 8 March 2010

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 Chinese Property in Perspective

Mid-range for a fast

growing economy.
China is not Ireland

Source: BCA Research, February 12, 2010

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 Chinese Banking – Myths Debunked I

Loan-to-deposit
L t d p it ratio
ti hhas
strengthened

Source: RBS, China

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 Chinese Banking – Myths Debunked II

Corporate and household deposits have been growing

at up to 40 percent per annum. Have yours?
Source: RBS, China

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 Chinese Banking – Myths Debunked III

Property
p y related loans are stable at 18 ppercent off mix
Source: RBS, China

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 Chinese Banking – Myths Debunked IV

Non-performing loans are currently insignificant

Source: RBS, China

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 Hong Kong Property

No new supply
suggests elevated
prices for the
foreseeable future

Source: CLSA Asia-Pacific Markets, Greed & Fear

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Korea – A Discounted Market

Korea looks cheap

on almost every
measure hence our
m
20% allocation

Source: Macquarie Research

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 Korean Banks

Tier I ratio average 9.3 percent

Source: Macquarie Research, 2 March 2010

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 Korea Won – CHEAP!

We believe the
Won will recover
more off its value
m a

Source: BNP Paribas

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 Korea Trade Balance

The weak Won has boosted the trade balance

Source: Morgan Stanley Research, Korea Economics, March 1, 2010

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 Taiwan Valuations – Lagging Profitability

Price / Book measures have yet to catch up with ROEs

Source: Fubon Research

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Taiwan Foreign Ownership

A rising trend in foreign

ownership is likely

Source: Nomura, Taiwan, 2 February 2010

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 Taiwanese Dollar

Looks
inexpensive
on all
measures

Source: BCA Research, Emerging Markets Strategy, February 9, 2010

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 Chinese Visitors to Taiwan

Cross straits
relations are
definitely
improving

Source: BCA Research, Emerging Markets Strategy, February 9, 2010

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 Taiwan – The Quality Play

Taiwan has been

moving up the
value chain

Source: BCA Research, Emerging Markets Strategy, February 9, 2010

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 Taiwan Financials

Just like
J l k China
Ch
the banking
system
y is under-
leveraged

Source: Asian Economic Monitor, 15 January 2010

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 Taiwan – A Booming Domestic Economy

Domestic
Dom sti motor
moto
vehicle sales more
than double YoY

Source: Asian Economic Monitor, 15 January 2010

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 Indian Inflation – Out of Control!

This is out off control. It ain’t jjust onions!

Source: Credit Suisse, 8 February 2010

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 Indian Valuations vs. Bonds

Earnings Yields have never been lower. Whyy prefer India to China?!
Source: RBS, The Asian Angle, 3 March 2010

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 Brazil – Interest Rates to Rise

These are set

to rise sharply
according to
forecasts

Source: Goldman Sachs, Latin America Economic Analyst, February 19, 2010

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 Brazil – No Savings Anytime Soon!

We see NO
convergence
between the
US and Brazil
Source: RBS, The Asian Angle, 1 March 2010

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 Brazil – A Premium Market Today

Historical
discount has gone

Source: BCA Research, Emerging Markets Strategy, March 2, 2010

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 South Africa – No Credit Growth Despite Commodity Boom

The domestic
economy has
been left
behind

Source: BCA Research, February 3, 2010

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 South Africa – Under Investment

SA needs to
reverse its under
investment in
capital goods

Source: RCA Research, Emerging Markets Strategy, February 2, 2010

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 Russia – GDP vs. Cargo Shipments

We expect Russian GDP to respond to the recovery in cargo shipments

Source: Bloomberg

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Summary

„ Emerging Markets sell for 69 percent of FPP Appraised Value vs. 80 percent for the
Developed Markets

„ Our largest Emerging Markets allocations are to China/Hong Kong (20 percent);
Korea (20 percent); Russia (12 percent); and Taiwan (18 percent).
percent) Thailand is also
favoured with an allocation of 4 percent

„ Anxiety remains prevalent among many investors

FPP remains constructive for EMs in 2010 based on continuing low

interest rates in the Developed Markets; stability in China; and
reasonable valuations in all markets
Send Three and Fourpence, We’re Going to a Dance

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Disclaimer

FPP GLOBAL EMERGING MARKETS FUND LTD.

LTD (the
(th "F
"Fund")
d")

“This financial promotion is issued by FPP Asset Management LLP which is authorised and regulated
by the Financial Services Authority (“FSA”). The Fund is defined as an “Unregulated Collective
Investment Scheme” (“UCIS”) and the promotion of a UCIS either within the UK or from the UK is
severely restricted by statute. Consequently, this document is only made available to professional
clients and eligible counterparties as defined by the FSA and also to persons of a kind to whom the
Fund may lawfully be promoted by an authorised person by virtue of Section 238(5) of the Financial
Services and Markets Act (“FSMA”) 2000 and COBS 4.12.1R. Shares in the Funds should only be
purchased by persons with experience of participating in unregulated schemes and any other person
who receives this document should not rely upon it. The Fund should be considered high
risk. Performance figures shown reflect the reinvestment of dividends and other earnings. Past
performance is not indicative of future results. An investment in the Fund may be subject to a
potential loss of some or all of the investment. Investors in the Fund are warned that as the Fund is
unregulated, they will lose any protections which may have been available to them under the FSMA
2000 including any right to compensation which they might otherwise have had under the Investors
Compensation Scheme.”
Scheme ”

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