Investing Beyond 2010 Sector and Region Perspective

Regional Market

Gulf Cooperation Council Countries (GCC)

Emerging markets

Underdeveloped/ Developing economies

GCC Economic Outlook

The long economic boom in the GCC came to a shuddering halt during the third quarter of 2008 as the global financial crisis hit home and oil prices collapsed. Capital flows, assets prices, and oil revenues fell steeply, severely denting investor confidence and forcing a substantial scaling back of infrastructure and construction projects in the region. Banks have also had to curb soaring credit growth and rebalance their books

While the phase of huge fiscal and current account surpluses may be coming to an end, GCC governments have saved much of the recent oil price windfall, and are thus much better placed to weather the downturn and run countercyclical policies. Despite this, overall GCC real GDP growth is still projected to fall steeply from 6.5 percent in 2008 to 0.5 percent in 2009, with a pick up possible in 2010 assuming the global economy and oil prices recover

GCC borrowers, including banks, remain vulnerable to continued deleveraging and credit retrenchment in global financial markets, and could struggle to roll over large amounts of existing external debt in the coming years. Lower capital inflows will contribute to continued liquidity constraints in local markets where annual credit growth is expected to slow sharply from around 20-50 percent, to low single digits

GCC Economic Outlook…

Strengths

Strong growth fundamentals

Abundance of wealth and liquidity

Real diversification efforts

Renewed commitment to reforms

Oil prices to remain strong though possibly below recent record levels

Good times for the GCC…

Despite massive spending on projects, GCC governments added almost 0 billion to net foreign assets over the past four years, enough to sustain spending growth for many years

Investment boom with .25 trillion in planned public and private projects will continue to propel growth of the private sector

Purchasing power sharply higher as per capita GDP averages 15% annual growth over four years despite rising inflationary pressures

Build-up in private wealth from recent equity bull-run and buoyant real estate markets, underpinned by rising corporate profitability

Double digit nominal growth continued for a fourth year, albeit short of the 26% high recorded in 2005 and lower in the present scenario of global crisis but still with positive numbers

GCC Key Macro Indicators and Forecasts

Kingdomof Saudi Arabia

Qatar

Kingdomof Bahrain

Sultanate Oman

State of Kuwait

United Arab Emirates

GCC Outlook

Difficult times ahead

Credit growth will slow sharply

Construction will suffer

Inflation will fall back

GCC growth will stall, with contractions in some economies

Oil prices remain the main risks

Emerging Markets

Southeast Asia’s growth eased to 4.3%, from 6.4% in 2007. Indonesia maintained growth of above 6% for the first 3 quarters of 2008, before the global slowdown hit manufacturing and exports in the fourth. All the economies in this sub region slowed in 2008, with particularly weak growth in Singapore and Thailand. GDP growth in Vietnam slowed to 6.2%, after 3 years of 8%-plus expansion. Sub regional inflation more than doubled to 8.8%, but has been easing with the slowing demand and declining commodity prices.

Across emerging markets credit availability, currency movements, and commodity prices are directly affecting growth. Frozen credit markets and plummeting currencies have led to a landslide of risk downgrades of former “growth champions” such as India, Vietnam, and Argentina, among others. In Frontier economies—such as Nigeria, Slovenia, Croatia, Kenya, Romania, Vietnam, and others—where the standard of living had begun to rise, the crisis has cut off needed capital to these countries, thereby slowing growth considerably.

The boom times for emerging market countries helped cover up underlying structural problems and delay necessary reforms across the world, providing opportunity for new growth paths, according to the report. Emerging and Frontier markets can become even more attractive investment targets by grasping the opportunity for reform and fiscal stimulus through infrastructure and social investment

The longer term outlook for the economy is more promising as addressing the crisis of confidence is much needed. As was the case in the early 20thcentury, productive capacity has not been diminished, no physical or human capital has been destroyed, and our potential to increase living standards through innovation and new technology remains as great as ever. This will help underpin long term growth

Emerging Markets – India

The outlook for India is very mixed. There is evidence of economic activity slowing down; real GDP growth has moderated in the first half of fiscal 2008/2009, particularly in the manufacturing and infrastructure sectors. A planned fiscal stimulus is unlikely to reverse the slowdown or help India to achieve growth at 8% for either FY09 or FY10.

India’s growth has slowed significantly, domestic price pressures have subsided, and inflation has sunk almost out of sight. On the policy front, monetary tightening has given way to monetary easing. With little room for further fiscal maneuver and with inflation largely in abeyance, it is monetary policy that will have to revive growth in the short run.

The forecasts for FY2009 and FY2010 are based on five key assumptions:

Monetary conditions will continue to be accommodative;

Domestic food supply position will remain comfortable;

Global oil prices will average a barrel in 2009 and a barrel in 2010;

Non fuel commodity prices will decline in 2009, but rise marginally in 2010;

and a recovery in industrial economies will begin in the second quarter of FY2010.

GDP Growth of Indian market

Indian economy has been witnessing a phenomenal growth since the last decade. The country is still holding its ground in the midst of the current global financial crisis.

Quarterly gross domestic product (GDP) at factor cost at constant (1999-2000) prices for Q3 of 2008-09 is estimated at US$ 171.24 billion, as against US$ 162.57 billion in Q3 of 2007-08, showing a growth rate of 5.3 per cent over the corresponding quarter of previous year.

Despite the global slowdown, the Indian economy is estimated to have grown at close to 6.7 per cent in 2008-09. The Confederation of Indian Industry (CII) pegs the GDP growth at 6.1 per cent in 2009-10. This scenario factors in sectoral growth rates of 2.8-3 per cent, 5-5.5 per cent and 7.5-8 per cent, respectively, for agriculture, industry and services.

Foreign Institutional Investors (FIIs) turned net buyers in the Indian market in 2009. Direct investment inflows also remain strong, prompting official expectations that foreign direct investment (FDI) inflows in 2009 would better the realized inflows of US$ 33 billion in 2008 and touch US$ 40 billion.

Despite the global financial crisis, inflow of foreign capital to the country has increased sharply in 2008-09

India’s foreign exchange reserves increased by US$ 4.2 billion to US$ 255.9 billion for the week ended May 8, 2009, according to figures released in the Reserve Bank of India’s (RBI) weekly statistical supplement

Net inflows through various non-resident Indians (NRIs) deposits surged from US$ 179 million in 2007-08 to US$ 3,999 million in 2008-09, according to the RBI

FDI inflows during April 2008-January 2009 stood at US$ 23.9 billion compared with US$ 14.4 billion in the corresponding period of the previous fiscal, witnessing a growth of 65 per cent, according to the Department of Industrial Policy & Promotion

FIIs have made investments of around US$ 2 billion as of May 14, 2009, including a record single day net purchase of US$ 824.72 million on May 13, 2009, according to the Securities and Exchange Board of India (SEBI)

Inflation for the week ended March 7, 2009, fell to an all time low of 0.44 per cent. The sharp fall in inflation was due to several factors including easing prices of food articles and fuel items along with a high base effect. Currently, the inflation rate stood at 0.7 per cent for the week ended April 25, 2009

The year-on-year (y-o-y) aggregate bank deposits stood at 21.2 per cent as on January 2, 2009. Bank credit touched 24 per cent (y-o-y) on January 2, 2009, as against 21.4 per cent on January 4, 2008

Since October 2008, the RBI has cut the cash reserve ratio (CRR) and the repo rate by 400 basis points each. Also, the reverse repo rate has been lowered by 200 basis points. Till April 7, 2009, the CRR had further been lowered by 50 basis points, while the repo and reverse repo rates have been lowered by 150 basis points each

Exports from special economic zones (SEZs) rose 33 per cent during the year to end-March 2009. Exports from such tax-free manufacturing hubs totalled US$ 18.16 billion last year up from US$ 13.60 billion a year before

With the largest number of listed companies – 10,000 across 23 stock exchanges, India has the third largest investor base in the world.

India’s healthy banking system with a network of 70,000 branches is among the largest in the world.

According to a study by the McKinsey Global Institute (MGI), India’s consumer market will be the world’s fifth largest (from twelfth) in the world by 2025 and India’s middle class will swell by over ten times from its current size of 50 million to 583 million people by 2025.

Special Economic Zones (SEZs) are set to see major investments after the straightening out of certain regulatory tangles. The commerce department expects about 120 SEZs to be operational by 2009-end, up from existing 87

The volume of mergers and acquisitions (M&As) and group restructuring deals in India witnessed a sharp nine times jump at US$ 2.27 billion during March 2009 against the volume of deals in February 2009, according to a Grant Thornton report.

Emerging Markets – Indonesia

Investment put in one of the best performances for many years.

Growth in gross fixed capital formation accelerated to 11.7%, and its ratio to GDP increased to 23.7% after a decade of weakness

Nearly three quarters of the fixed investment went into buildings, although growth in this category eased to 7.3% relative to 2007. In contrast, investment in machinery and equipment rose by about 25.3%.

The dynamics of the Indonesian economy are very closely interlinked with the global and regional economy and influenced by progress improvements in the investment climate, infrastructure, productivity, competitiveness and domestic supply constraints.

Due to the recent global economic crisis, Indonesian government has revised its economic growth target downward to 4.7% from the previous level of 5% under the impact of slackening global demand for Indonesian products

According to foreign investors in the country there is reason to be optimistic about its future growth. A recent survey by the banking and insurance group ING ranked Indonesia third after China and India in terms of investor confidence.

Unlike other Asian powers such as Japan, China and many ASEAN partners who rely heavily on demand for their exports in America and Europe, Indonesia looks more to its domestic market to sustain economic growth.

Economy To outperform Region, But Risks Rising

Indonesia’s growth will inevitably slow in tandem with the other economies in the region

Indonesiahas the advantage of having a large domestic consumption base, making it less reliant on external demand than other Asian economies.

Indonesiaregistered relatively sanguine GDP growth of 5.2 % y-o-y in Q4 08, in stark contrast to several other countries in east Asia, which saw sharp contractions in GDP in the quarter.

Central to its strong performance is Indonesia’s low dependence on exports and robust domestic demand. The government has also approved total stimulus amounting to IDR7 3.3 Trn (US.5 Bn) to cope with the slowing external sector. Currently maintaining the forecast of GDP growth of 3.6% for 2009, followed by a recovery to 4.5 % in 2010.

Emerging Markets – Indonesia

Bank Indonesia (BI) has already reduced its benchmark interest rate by 50bps to 7.75%, mimicking similar monetary easing by central banks around the world.

There is a potential for further rate cuts in 2009, it is expected that additional monetary easing by the central bank will be constrained by the sharply weakening Rupiah.

Should risk adversity towards emerging markets continue to persist, portfolio outflows may weigh heavily on the overall balance of payments, which is already being buffeted by falling exports.

However, its is noted that Indonesia’s financial position has been strengthened by it securing funds from bond issuances and a debt facility with the Asian Development Bank

Indonesia’s business environment is still plagued by poor infrastructure and institutions.

The government has allocated a large amount of the current year’s budget for infrastructure construction and it remains to be seen if the full amount will be disbursed to useful projects which will improve Indonesia’s long-term competitiveness.

Emerging Markets – Malaysia

A strong growth is projected for the Malaysian markets after the sub prime crisis which have led to a present down fall in growth. Strong moves by the government and the growth prospects in various industries will generate positive return in the coming years for the county

A marginal increase in operating expenditure and slower growth in development expenditure, supported by prospects of a strong revenue performance in 2009 will enable the government to resume consolidating its finances. Consequently, the federal government deficit is projected to decline to 3.6 percent of GDP in 2009.

Malaysiais expected to experience mild deflation in 2009 as domestic demand weakens and global prices for oil and industrial raw materials fall sharply.

The merchandise trade surplus will fall to US.1bn in 2009, from an estimated US.2bn in 2008. Although the current-account surplus is also expected to narrow this year, it will remain sizeable.

Underdeveloped economies

The various underdeveloped economies are expected to start developing of the coming years as with the present economic crisis these economies have not been effected, there will be potential growth and developments in the coming years in the industrial, agricultural, power, automotive, research and development, health care, FMCG, bio fuel, Information technology related services and industries, manpower supplies

The various underdeveloped economies such as Syria, North Africa, Yemen, Sudan, Algeria, Morocco, Tunisia, Egypt are a few to name with providing leading prospects in the region

These economies will serve as a potential market to render services and for developments