Strategy ASIA PACIFIC · Strategy | Asia Pacific Sean Darby Nomura 3 3 May 2011 The elastic band of...

3 May 2011 Nomura 1

Any authors named on this report are strategists unless otherwise indicated. See the important disclosures and analyst certifications on pages 41 to 44.

Strategy | A S I A P A C I F I C

Sean Darby +852 2252 2182 [email protected]

Action With export orders climbing on the back of Euro and US demand, double ordering

following the Tohoku earthquake is also likely to boost revenues. But earnings revisions are still undershooting. However, much like 2007-08, growth is masking a huge carry trade related to the US dollar. Asian equities continue to be increasingly correlated to greenback depreciation. Whilst a parabolic move in Asian shares cannot be ruled out aka the recent move in silver, risks are skewed to a correction. MSCI Asia appears overbought relative to the oversold trade weighted US dollar.

Anchor themes Ironically, as the greenback pushes lower, it encourages investment into commodities, which raises the inflation temperature in Asia forcing the central banks to raise rates thereby attracting hot money inflows from the US carry trade. The pressure on the exchange rates is also transmitted to risk assets such as equities.

The elastic band of risk The dollar’s feedback loop onto Asian asset prices

Unfortunately, not only is it hard to ‘measure‘ risk appetite except by looking at the performance of different asset classes and comparing them over time, but also it can be masked by intervention such as in the FX markets or through abnormal monetary policy. The Fed’s easing cycle has allowed both US bond yields to remain low, real interest rates to decline and the US dollar to fall in relative terms. Although growth has improved, the returns garnered through the ‘carry trade’ have once again been more pronounced. While equity returns may appear to be driven by fundamentals such as earnings upgrades or by valuations, the carry trade creates an illusion of strong liquidity as purchases of local currency by foreigners swamp local money markets. This in turn raises the inflation temperature as money is multiplied into the local economy forcing rates to be increased which in turn leads to further hot money or carry trade flows. Equally, flows of money seeking a hedge against a loss of purchasing power force commodity prices higher and ‘borrowed money’ also moves into these asset classes pushing up prices. This in turn is inflationary, which if unchecked, forces real interest rates even lower.

While there is nothing more expensive than a value trap, the cost of insurance for unforeseen risks at the moment is close to historical lows at a time when investor appetite is as insatiable as it was in 2007-8. Equally, equity markets have become increasingly correlated to a weaker dollar but also underlying risks have grown appreciably through hot money flows via the carry trade. This is likely to exacerbate any correction on the downside. Investors are bullishly positioned at present with foreign fund inflows close to record highs in many markets. The same is true in many exchange rates. The markets are setting themselves up for a double whammy if there is any slight sentiment shift on the greenback. We would begin to remove high beta themes from portfolios. We would look to move out of natural resource plays, stock exchanges and small caps. We would continue to abdicate towards quality. Defensiveness failed earlier this year because many of these sectors have to undertake ‘national service’ and provide little insurance during an inflation period.

N O M U R A I N T E R N A T I O N A L ( H K ) L I M I T E D

TOPDOWN

Market calls

While risk appetite is encouraged by a falling dollar, the cost of protection is close to historical lows. We are reinitiating long positions in 90 day VIX versus the Asia basic resources sector and also against the Asian listed stock exchanges. We would prefer to be overweight high ROE and quality such as technology versus Asian small caps and natural resources. We highlight a series of screens including stocks closely correlated to a weak dollar during the last quarter as well as high ROE, quality stocks. We are closing out our energy basket initiated on 7 Oct 2010.

Strategist Sean Darby

+852 2252 2182

[email protected]

Analysts Sandy Lee

+852 2252 2101

[email protected]

Amy Lee, CFA, CAIA

+852 2252 2181

[email protected]

Mixo Das

+852 2252 1424

[email protected]

VIX vs Gold prices

0

10

20

30

40

50

60

70

80

90

Jan-08 Jan-09 Jan-10 Jan-11

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600VIX (LHS)Gold US$/oz (RHS)

Source: Bloomberg; Nomura

Strategy | Asia Pacific Sean Darby

3 May 2011 Nomura 2

Contents

The dollar’s feedback loop on Asia 3

Investible themes and baskets 38


3 May 2011 Nomura 3

The elastic band of risk

The dollar’s feedback loop on Asia asset prices “With continue to prefer high-ROE stocks in 2011 for two reasons. First, the recent relative P/E between high-and low-ROE groups remains quite stable compared with what we saw in 2010, suggesting that the outperformance of high-ROE stocks is supported by positive revisions and high-ROE stocks have not become particularly expensive relative to the low-ROE group. Second, the extremely narrow consensus rating spread between the high-ROE and low-ROE groups has started to turn around, suggesting the speed of analyst rating upgrades is faster for high-ROE stocks than for the low-ROE group”, Quants Factor Dynamics, 14 April, 2011

"The policies of (QE2) have contributed to a strong stock market just as they did in March 2009, when we did the last iteration of this. The S&P 500 is up 20% plus and the Russell 2000, which is about small-cap stocks, is up 30% plus" Federal Reserve Chairman Ben Bernanke

“For the week ended April 19, net shorts in DXY and USD rose by a modest $0.4bn to $31.6bn. However, our real-time estimate suggests that USD net shorts have risen by another $4.5bn since Tuesday. Net longs in MXN yet again broke new highs, increasing by $0.5bn on the week to $5.7bn. Net longs in AUD, CAD, MXN and net shorts in JPY remain in stretched territory”, Nomura FX positioning index, April, 22, 2011

One of the interesting conclusions from ‘Risk’ by John Adams is that while a great deal of effort is made to quantify and measure risk, such exercises tend to be futile because of the counterproductive responses by humans. Ironically, the more things are made safer, the more risks are taken elsewhere to compensate.

The same is true for financial markets. While investors may believe that they have been able to obtain returns higher than history suggests, it is likely due to higher risks being taken somewhere else in the system, presumably without investors necessarily recognizing it. In 2007 to early 2008, equity returns rose as the US shadow financial system expanded credit outside of the formal banking system whilst the commercial banking system decreased credit standards to lend to ‘sub-prime borrowers’. House prices and financial assets initially inflated but subsequently home values floundered as credit spreads widened. However for the best part of 2007 and early 2008, global GDP growth was strong helped by BRICs but this was betraying equity investors as underlying risks were increasing behind the scene.

Unfortunately, not only is it hard to ‘measure ‘risk appetite except by looking at the performance of different asset classes and comparing them over time but also it can be masked by intervention such as in the FX markets or through abnormal monetary policy. The Fed’s easing cycle has allowed both US bond yields to remain low, real interest rates to decline and the US dollar to fall in relative terms. Although growth has improved, the returns garnered through the ‘carry trade’ have once again been more pronounced. While equity returns may appear to be driven by fundamentals such as earnings upgrades or by valuations, the carry trade creates an illusion of strong liquidity as purchases of local currency by foreigners swamp local money markets. This in turn raises the inflation temperature as money is multiplied into the local economy forcing rates to be increased which in turn leads to further hot money or carry trade flows. Equally, flows of money seeking a hedge against a loss of purchasing power, force commodity prices higher and ‘borrowed money’ also moves into these asset classes pushing up prices. This in turn is inflationary, which if unchecked, forces real interest rates even lower.


3 May 2011 Nomura 4

While there is nothing more expensive than a value trap, the cost of insurance for unforeseen risks at the moment is close to historical lows at a time when investor appetite is as insatiable as it was in 2007-8. Equally, equity markets have become increasingly correlated to a weaker dollar but also underlying risks have grown appreciably through hot money flows via the carry trade. This is likely to exacerbate any correction on the downside. Investors are bullishly positioned at present with foreign fund inflows close to record highs in many markets. The same is true in many exchange rates. The markets are setting themselves up for a double whammy if there is any slight sentiment shift on the greenback.

The main apprehension with our view is the fact that under current monetary conditions, it is possible for non-linear returns to happen. This presumably has just occurred in silver where the price has turned ‘parabolic’. Investors may remember that shortly after Paul Volcker was elected as Fed Chairman and commented that he was going to fight inflation, the gold price appreciated dramatically for 3 months before collapsing as he began raising rates. Indeed, the former Fed Chairman, Alan Greenspan noted dryly over the budding technology boom during the late 1990s, that stock prices were exhibiting ‘irrational exuberance’. However, Nasdaq eventually peaked in March 2000.

We would begin to remove high beta themes from portfolios. We would look to move out of natural resource plays, stock exchanges and small caps. We would continue to abdicate towards quality. Defensiveness failed earlier this year because many of these sectors have to undertake ‘national service’ and provide little insurance during an inflation period.

Exhibit 1. MSCI Asia Pacific Ex Japan: 14 day RSI

10

20

30

40

50

60

70

80

Jan

-10

Jan

-10

Feb

-10

Mar

-10

Mar

-10

Ap

r-10

May

-10

Ma y

-10

Jun

-10

Jul-

10

Jul-

10

Au g

-10

Sep

-10

Oct

-10

Oct

-10

No

v-10

Dec

-10

Dec

-10

Jan

-11

Feb

-11

Feb

-11

Mar

-11

Ap

r-11

Overbought

Oversold

Source: Bloomberg, Nomura International (Hong Kong) Limited – Investment Strategy

Exhibit 2. DXY: 14 day RSI

10

20

30

40

50

60

70

80

90

Jan

-10

Feb

-10

Mar

-10

Ap

r-10

May

-10

Jun

-10

Jul-

10

Aug

-10

Sep

-10

Oct

-10

No

v-10

Dec

-10

Jan

-11

Feb

-11

Mar

-11

Ap

r-11

Overbought

Oversold


Asian equity markets appear overbought…

…at the same time the greenback has become very oversold


3 May 2011 Nomura 5

Exhibit 3. Nomura Risk Indicator (Z-score)

-2

0

2

4

6

Ap

r-00

Ap

r-01

Ap

r-02

Ap

r-03

Ap

r-04

Ap

r-05

Ap

r-06

Ap

r-07

Ap

r-08

Ap

r-09

Ap

r-10

Ap

r-11

(Z score)


Exhibit 4. Net Non-Commercial USD Position and DXY index

Source: Nomura, CME, TFX, Bloomberg

Exhibit 5. 1-month correlation between trade weighted USD and Nomura Risk Indicator

-

0.1

0.2

0.3

0.4

0.5

0.6

0.7

Jan

-10

Feb

-10

Mar

-10

Ap

r-10

May

-10

Jun

-10

Jul-

10

Aug

-10

Sep

-10

Oct

-10

No

v-10

Dec

-10

Jan

-11

Feb

-11

Mar

-11

Ap

r-11

Note: correlation of daily returns


Our risk indicator suggests insatiable appetite for financial assets. Almost to the same degree we saw in 2007-08

We expect a short-term correction in equities to be interrupted by a change in sentiment towards the greenback. The fundamentals still appear bleak for the US dollar, but given the negative sentiment, any marginal positive news may be enough to turn direction enough to disrupt markets

A decline in our risk indicator (increasing risk appetite) and a fall in the US dollar have shown a covariance approaching one


3 May 2011 Nomura 6

Exhibit 6. CBOE SKEW index (1m moving average)

110

115

120

125

130

135Ja

n-0

5

Ap

r-05

Jul-

05

Oct

-05

Jan

-06

Ap

r-06

Jul-

06

Oct

-06

Jan

-07

Ap

r-07

Jul-

07

Oct

-07

Jan

-08

Ap

r-08

Jul-

08

Oct

-08

Jan

-09

Ap

r-09

Jul-

09

Oct

-09

Jan

-10

Ap

r-10

Jul-

10

Oct

-10

Jan

-11

Ap

r-11

Note: CBOE SKEW is a global strike-independent measure of the slope of the implied volatility curve that increases as this curve tends to steepen


Exhibit 7. US Equity Put/call ratio (one week moving average)

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

Aug

-05

Dec

-05

Ap

r-06

Aug

-06

Dec

-06

Ap

r-07

Aug

-07

Dec

-07

Ap

r-08

Aug

-08

Dec

-08

Ap

r-09

Aug

-09

Dec

-09

Ap

r-10

Aug

-10

Dec

-10

Ap

r-11

* Note: Put/Call ratio for equity options traded on the Chicago Board of Exchange

Source: Bloomberg; Nomura International (Hong Kong) Limited - Investment Strategy

Exhibit 8. MSCI Far East ex JP vs DXY

73

74

75

76

77

78

79

80

81

82470

480

490

500

510

520

530

540

550

560

570

1-Ja

n

8-Ja

n

15-J

an

22-J

an

29-J

an

5-F

eb

12-F

eb

19-F

eb

26-F

eb

5-M

ar

12-M

ar

19-M

ar

26-M

ar

2-A

pr

9-A

pr

16-A

pr

MSCI Far East ex JP (US$, lhs)

DXY (inverted, rhs)


The CBOE skew highlights the perception of out of the money options on S&P 500 and the degree of wariness to outsized events. While in itself not necessarily a predictive tool it does highlight that the market believes that the probability of a correction is high

There is less ambiguity on where markets are positioned on this measure

During the last month, the Asian equities have become closely correlated to a weakening dollar


3 May 2011 Nomura 7

Exhibit 9. MSCI Far East ex JP vs DXY 1-month correlation

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%1-

Jan

8-Ja

n

15-J

an

22-J

an

29-J

an

5-F

eb

12-F

eb

19-F

eb

26-F

eb

5-M

ar

12-M

ar

19-M

ar

26-M

ar

2-A

pr

9-A

pr

16-A

pr

Note: correlation of daily returns


Exhibit 10. Stocks correlated to the DXY

Negative Correlation

Ticker Name 60-day

Correlation Price

(local) Market Cap

($mn) P/E 1F

(x) ROE 1F

(%) YTD

Return (%) RSI 2347 TT Synnex Technology Intl Corp -40% 73.9 3897 16 18 -6 61 3231 TT Wistron Corp -36% 50 3208 8 20 -16 48 2103 TT TSRC Corp -36% 84.5 1966 11 27 25 64 FGL AU Foster's Group Ltd -35% 5.74 12111 17 24 1 56 1314 TT China Petrochemical Dev -32% 36.5 2302 9 27 26 51 AMP AU AMP Ltd -32% 5.53 16895 14 22 5 54 2308 TT Delta Electronics Inc -32% 132.5 11123 18 20 -7 64 522 HK Asm Pacific Technology -31% 102.3 5047 14 59 5 51 000720 KS Hyundai Engineering & Const -30% 87800 9135 15 18 21 65 762 HK China Unicom Hong Kong Ltd -30% 15.54 46582 55 3 40 62 096770 KS SK Innovation Co Ltd -30% 250000 20765 10 19 29 64 OCBC SP OCBC -30% 9.51 25742 13 13 -4 51 010060 KS OCI Co Ltd -29% 618000 12938 14 39 87 72 1802 TT Taiwan Glass Ind Corp -29% 47.05 3413 n/a n/a 29 75 010140 KS Samsung Heavy Industries -29% 48050 10423 12 22 17 69 PEP MK PPB Group Berhad -29% 16.8 6639 17 9 -3 37 267 HK CITIC Pacific Ltd -28% 23.55 10897 13 9 17 54 RIO AU Rio Tinto Ltd -28% 83.48 147387 9 29 -2 47 1301 TT Formosa Plastics Corp -28% 115.5 24289 13 19 18 69 IVL TB Indorama Ventures Pcl -28% 53.75 8603 19 30 -7 53 Positive Correlation

Ticker Name 60-day

Correlation Price

(local) Market Cap

($mn) P/E 1F

(x) ROE 1F

(%) YTD

Return (%) RSI LICHF IN LIC Housing Finance Ltd 33% 228.3 2435 13 23 17 58 YTLP MK YTL Power International Bhd 28% 2.24 5423 14 16 -8 31 991 HK Datang Intl Power Gen Co-H 24% 2.84 10045 12 8 4 47 KLBF IJ Kalbe Farma Tbk Pt 23% 3550 4208 23 24 9 58 CPIN IJ Charoen Pokphand Indonesia 22% 1950 3693 17 43 6 59 IDFC IN Infrastructure Dev Finance 21% 151.9 5005 17 15 -17 46 981 HK Semiconductor Manufacturing 19% 0.65 2293 84 1 16 61 BJAUT IN Bajaj Auto Ltd 19% 1493 9601 17 71 -3 62 BEC TB BEC World Public Co Ltd 18% 35 2338 19 49 10 54 ABNL IN Aditya Birla Nuvo Ltd 18% 865.8 2232 14 7 3 64 KPLD SP Keppel Land Ltd 17% 4.18 4926 16 8 -11 39 ONGC IN Oil & Natural Gas Corp Ltd 16% 315.45 59950 11 22 -2 71 PTTEP TB PTT Explor & Prod Public Co 15% 189 20726 13 25 13 51 CBK IN Canara Bank 15% 655.75 6544 n/a 29 -1 62 097950 KS CJ Cheiljedang Corp 15% 230500 2804 11 10 6 57 T MK Telekom Malaysia Bhd 14% 4.01 4804 26 8 14 54 AEV PM Aboitiz Equity Ventures Inc 14% 39.45 5367 10 30 6 59 682 HK Chaoda Modern Agriculture 13% 4.84 2103 3 19 -17 49 Z IN Zee Entertainment Enterprise 13% 131.95 2904 20 14 -10 61 BHEL IN Bharat Heavy Electricals 13% 1977.25 22202 17 32 -15 39

Note: 60-day Correlation of daily change in stock price vs change in DXY the previous day. From among 600 largest stocks in Asia Pac ex Japan

Source: Bloomberg, Nomura International (Hong Kong) Limited - Investment Strategy

Indeed it is very pronounced when smoothed over a month


3 May 2011 Nomura 8

Exhibit 11. CME Group daily fx trading volume

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

Jan-

08

Mar

-08

Ma y

-08

Jul-0

8

Sep

-08

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep

-09

Nov

-09

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep

-10

Nov

-10

Jan-

11

Mar

-11

Source: CME; Nomura International (Hong Kong) Limited – Investment Strategy

Exhibit 12. CME FX value traded in major currencies against US dollar (10d avg)

020406080

100120140160180200

Jan

-00

Jun

-00

No

v-00

Ap

r-01

Se p

-01

Feb

-02

Jul-

02D

ec-0

2M

a y-0

3O

ct-0

3M

ar-0

4A

u g-0

4Ja

n-0

5Ju

n-0

5N

ov-

05A

pr-

06S

e p-0

6F

eb-0

7Ju

l-07

Dec

-07

May

-08

Oct

-08

Mar

-09

Au g

-09

Jan

-10

Jun

-10

No

v-10

Ap

r-11

($bn)

Source: CME, Bloomberg, Nomura International (Hong Kong) Limited – Investment Strategy

Exhibit 13. Average global daily turnover of FX instrument vs number of days to trade FX instrument value equivalent to world GDP

0

5

10

15

20

25

30

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1998 2001 2004 2007 2010

DaysUS$bn

# days to trade amount equal to world GDP

FX instrument daily turnover (LHS)

Source: IMF; Nomura International (Hong Kong) Limited – Investment Strategy

Interestingly, there was hardly any change in FX volume during the financial crisis but much greater turnover post crisis

Since the dollar began its descent in 2000, volumes have increased

Indeed, speculation has been far greater than GDP. The carry trade has been quite propitious


3 May 2011 Nomura 9

Exhibit 14. AUD Non-Commercial Position

Source: Bloomberg, Nomura FX research

Exhibit 15. MXN Non-Commercial Position


Exhibit 16. CAD Non-Commercial Position


The carry trade has resulted in extreme currency positions...

…such as the Australian dollar, Mexican peso..

...and Canadian dollar


3 May 2011 Nomura 10

Exhibit 17. Number of times the word ‘protest” appears vs Number of times the word ‘inflation’ appears

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000 Ja

n-0

3

Jun

-03

No

v-03

Ap

r-04

Sep

-04

Feb

-05

Jul-

05

Dec

-05

May

-06

Oct

-06

Mar

-07

Aug

-07

Jan

-08

Jun

-08

No

v-08

Ap

r-09

Sep

-09

Feb

-10

Jul-

10

Dec

-10

Protest (LHS) Inflation (RHS)(x) (x)

Source: Factiva, Nomura International (Hong Kong) Limited – Investment Strategy

Exhibit 18. The number of times the word ‘protest” appears vs VIX

10

20

30

40

50

60

70

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Jan

-03

Jul-

03

Jan

-04

Jul-

04

Jan

-05

Jul-

05

Jan

-06

Jul-

06

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Protest (LHS) VIX (RHS)(x) (index)

Source: Factiva, Bloomberg; Nomura International (Hong Kong) Limited – Investment Strategy

Exhibit 19. VIX futures curve

15

17

19

21

23

25

27

Spot 1M 2M 3M 4M 5M 6M 7M 8M

(Index)

End 2010

Current

Note: as of 25 April 2011

Source: Bloomberg; Nomura International (Hong Kong) Limited – Investment Strategy

There is a growing correlation between the number of times protest appears and inflation

However the VIX index has yet to react

Volatility is inexpensive



Exhibit 20. VIX vs Asian basic resources index

0

10

20

30

40

50

60

70

80

90

0

5000

10000

15000

20000

25000

30000

35000

Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11

FTSE Asian sector basic resources index (LHS)

VIX (RHS)


Exhibit 21. VIX vs NYSE Arca Gold BUGS index

0

10

20

30

40

50

60

70

80

90

0

100

200

300

400

500

600

700

Ap

r-95

Ap

r-96

Ap

r-97

Ap

r-98

Ap

r-99

Ap

r-00

Ap

r-01

Ap

r-02

Ap

r-03

Ap

r-04

Ap

r-05

Ap

r-06

Ap

r-07

Ap

r-08

Ap

r-09

Ap

r-10

Ap

r-11

NYSE Arca Gold BUGS (LHS)

VIX (RHS)

Note: The NYSE Arca Gold BUGS Index is a modified equal-dollar weighted index of companies involved in major gold mining. The index was designed to give investors significant exposure to near term movements in gold prices by including companies that do not hedge their gold production beyond 1 1/2 years. The index was developed with a base value of 200 as of March 15, 1996.


Exhibit 22. VIX vs listed stock exchanges

-

10

20

30

40

50

60

70

80

90

-

500

1,000

1,500

2,000

2,500

3,000

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

AP ex JP: listed stock exchanges (LHS) VIX (RHS)


Indeed, we would seek to reestablish long positions on VIX against resources

…and other dollar beneficiaries…

...as well as stock exchanges



Exhibit 23. VIX vs AP ex JP telecoms

0

10

20

30

40

50

60

70

80

90

0

50

100

150

200

250

300

350

400

450

Ap

r-94

Ap

r-95

Ap

r-96

Ap

r-97

Ap

r-98

Ap

r-99

Ap

r-00

Ap

r-01

Ap

r-02

Ap

r-03

Ap

r-04

Ap

r-05

Ap

r-06

Ap

r-07

Ap

r-08

Ap

r-09

Ap

r-10

Ap

r-11

FTSE AP ex JP telecoms US$ (LHS) VIX (RHS)


Exhibit 24. VIX vs AP Utilities

10

20

30

40

50

60

70

80

90

100

125

150

175

200

225

Aug

-03

Feb

-04

Aug

-04

Feb

-05

Aug

-05

Feb

-06

Aug

-06

Feb

-07

Aug

-07

Feb

-08

Aug

-08

Feb

-09

Aug

-09

Feb

-10

Aug

-10

Feb

-11

Asia Pacific Utilities index (LHS)

VIX (RHS)


Exhibit 25. Asia Pacific ex Japan: telecoms relative to airlines

60.0

80.0

100.0

120.0

140.0

160.0

180.0

Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11

Source: Datastream, Nomura International (Hong Kong) Limited – Investment Strategy

However, against defensive sectors there are less…

…material returns in a trade against VIX

The relative performance between the two sectors appears to be marginally in favour of telecoms



Exhibit 26. Asia Pacific ex Japan: utilities relative to listed stock exchanges : deviation from long term trend line

(25)

(20)

(15)

(10)

(5)

-

5

10

15

20

25

30

Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-1

Source: Datastream, Nomura International (Hong Kong) Limited – Investment Strategy

Exhibit 27. MSCI Asia Pac ex JP small cap relative to MSCI Asia Pac ex JP

80

100

120

140

160

180

200

Apr

-01

Au

g-01

Dec

-01

Apr

-02

Au

g-02

Dec

-02

Apr

-03

Au

g-03

Dec

-03

Apr

-04

Au

g-04

Dec

-04

Apr

-05

Au

g-05

Dec

-05

Apr

-06

Au

g-06

Dec

-06

Apr

-07

Au

g-07

Dec

-07

Apr

-08

Au

g-08

Dec

-08

Apr

-09

Au

g-09

Dec

-09

Apr

-10

Au

g-10

Dec

-10

Apr

-11


Exhibit 28. US FRBs total assets vs VIX index

10

15

20

25

30

35

40

1900

2000

2100

2200

2300

2400

2500

2600

2700

2800

Apr

-09

May

-09

Jun-

09

Jul

-09

Aug

-09

Sep

-09

Oc

t-09

Nov

-09

Dec

-09

Jan-

10

Fe

b-10

Ma

r-10

Apr

-10

May

-10

Jun-

10

Jul

-10

Aug

-10

Sep

-10

Oc

t-10

Nov

-10

Dec

-10

Jan-

11

Fe

b-11

Ma

r-11

Apr

-11

FRBs: Total Assets ($bn, lhs) VIX (rhs)

($bn) (index)

QE1 ends QE2 starts


Interestingly, defensive sectors are outperforming 'flow' sectors such as exchanges

Asian small caps also appear over-extended

The ending of QE1 saw a subsequent rise in VIX



Exhibit 29. Correlation between Fed assets and S&P 500

-60%

-40%

-20%

0%

20%

40%

60%

Dec

-95

Jul-

96

Feb

-97

Sep

-97

Ap

r-98

No

v-98

Jun

-99

Jan

-00

Aug

-00

Mar

-01

Oct

-01

May

-02

Dec

-02

Jul-

03

Feb

-04

Sep

-04

Ap

r-05

No

v-05

Jun

-06

Jan

-07

Au g

-07

Mar

-08

Oct

-08

Ma y

-09

Dec

-09

Jul-

10

Feb

-11

(%)

Note: 26-week correlation of weekly change


Exhibit 30. Correlation between Fed assets and MSCI Far East exJP

-80%

-60%

-40%

-20%

0%

20%

40%

60%

Feb

-95

Sep

-95

Ap

r-96

No

v-96

Jun

-97

Jan

-98

Au g

-98

Mar

-99

Oct

-99

May

-00

Dec

-00

Jul-

01F

eb-0

2S

ep-0

2A

pr-

03N

ov-

03Ju

n-0

4Ja

n-0

5A

u g-0

5M

ar-0

6O

ct-0

6M

a y-0

7D

ec-0

7Ju

l-08

Feb

-09

Se p

-09

Ap

r-10

No

v-10

(%)

Note: 26-week correlation of weekly change


Exhibit 31. Bank of Japan Reserve Balances (5d moving average, JPY tr)

0

5

10

15

20

25

30

35

40

Mar

-00

Aug

-00

Jan

-01

Jun

-01

No

v-01

Ap

r-02

Se p

-02

Feb

-03

Jul-

03D

ec-0

3M

a y-0

4O

ct-0

4M

ar-0

5A

u g-0

5Ja

n-0

6Ju

n-0

6N

ov-

06A

pr-

07S

ep-0

7F

eb-0

8Ju

l-08

Dec

-08

Ma y

-09

Oct

-09

Mar

-10

Aug

-10

Jan

-11


While the US market has seen a close correlation to the Fed balance sheet change….

…it has been less pronounced in Asia. Dollar weakness, a second derivative has been more important

The BoJ has been withdrawing liquidity



Exhibit 32. Total assets of the ECB

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200Ja

n-0

0Ju

n-0

0N

ov-

00A

pr-

01S

e p-0

1F

eb-0

2Ju

l-02

Dec

-02

Ma y

-03

Oct

-03

Mar

-04

Au g

-04

Jan

-05

Jun

-05

No

v-05

Ap

r-06

Se p

-06

Feb

-07

Jul-

07D

ec-0

7M

ay-0

8O

ct-0

8M

ar-0

9A

ug-0

9Ja

n-1

0Ju

n-1

0N

ov-

10

(Eur bn)

Source: CEIC, Nomura International (Hong Kong) Limited – Investment Strategy

Exhibit 33. US: Commercial Banking Assets / FRB total assets (%)

400

500

600

700

800

900

1,000

1,100

1,200

1,300

Jan

-60

Jan

-62

Jan

-64

Jan

-66

Jan

-68

Jan

-70

Jan

-72

Jan

-74

Jan

-76

Jan

-78

Jan

-80

Jan

-82

Jan

-84

Jan

-86

Jan

-88

Jan

-90

Jan

-92

Jan

-94

Jan

-96

Jan

-98

Jan

-00

Jan

-02

Jan

-04

Jan

-06

Jan

-08

Jan

-10

Source: CEIC, Bloomberg, Nomura International (Hong Kong) Limited – Investment Strategy

Exhibit 34. US FRBs: Reverse Repo Liabilities ($bn)

0102030405060708090

100

Jan

-03

May

-03

Se p

-03

Jan

-04

May

-04

Se p

-04

Jan

-05

May

-05

Se p

-05

Jan

-06

May

-06

Se p

-06

Jan

-07

Ma y

-07

Sep

-07

Jan

-08

May

-08

Sep

-08

Jan

-09

Ma y

-09

Sep

-09

Jan

-10

Ma y

-10

Se p

-10

Jan

-11

($bn)


The ECB balance sheet has been static

Overall US banking multipliers remain invisible…

…although the repo market is active



Exhibit 35. US: Treasury International Capital: Net 12m inflows % GDP

-4%

-2%

0%

2%

4%

6%

8%

10%Ja

n-8

0

Jan

-82

Jan

-84

Jan

-86

Jan

-88

Jan

-90

Jan

-92

Jan

-94

Jan

-96

Jan

-98

Jan

-00

Jan

-02

Jan

-04

Jan

-06

Jan

-08

Jan

-10


Exhibit 36. China: Foreign Reserve growth (%q-q)

0 2 4 6 8

10 12 14 16 18 20

Jun

-95

Jun

-96

Jun

-97

Jun

-98

Jun

-99

Jun

-00

Jun

-01

Jun

-02

Jun

-03

Jun

-04

Jun

-05

Jun

-06

Jun

-07

Jun

-08

Jun

-09

Jun

-10

(% q-q)


Exhibit 37. US Federal debt as % of total GDP vs Net interest payment as % of total outlays

5%

7%

9%

11%

13%

15%

17%

19%

30%

40%

50%

60%

70%

80%

90%

100%

Dec

-80

Dec

-82

Dec

-84

Dec

-86

Dec

-88

Dec

-90

Dec

-92

Dec

-94

Dec

-96

Dec

-98

Dec

-00

Dec

-02

Dec

-04

Dec

-06

Dec

-08

Dec

-10

Federal debt as % of total GDP (LHS)

Net interest payment as % of total outlays (RHS)


Fortunately, the US bond market still sees aggregate inflows...

…provided China continues to recycle

Although US net interest payments are bound to rise, once the Fed starts to hike rates



Exhibit 38. World total foreign exchange holdings vs reserves allocated to US dollar (% of total)

60%

62%

64%

66%

68%

70%

72%

74%

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Dec

-99

Jun-

00

Dec

-00

Jun-

01

Dec

-01

Jun-

02

Dec

-02

Jun-

03

Dec

-03

Jun-

04

Dec

-04

Jun-

05

Dec

-05

Jun-

06

Dec

-06

Jun-

07

Dec

-07

Jun-

08

Dec

-08

Jun-

09

Dec

-09

Jun-

10

Dec

-10

$bn Total foreign exchange holdings $bn (LHS)

Allocated to US dollar as % of total allocated reserves (RHS)


Exhibit 39. World foreign exchange reserves allocated to US dollar (% of total)

56%58%60%62%64%66%68%70%72%74%76%78%

Dec

-99

Jun-

00

Dec

-00

Jun-

01

Dec

-01

Jun-

02

Dec

-02

Jun-

03

Dec

-03

Jun-

04

Dec

-04

Jun-

05

Dec

-05

Jun-

06

Dec

-06

Jun-

07

Dec

-07

Jun-

08

Dec

-08

Jun-

09

Dec

-09

Jun-

10

Dec

-10

Emerging and developing economies

Advanced economies


Exhibit 40. US CPI vs Billion Prices Project (BPP) index for US

Note: The Billion Prices Project is an academic initiative that collects prices from hundreds of online retailers around the world on a daily basis to conduct economic research. These indexes are designed to provide real-time information on major inflation trends, not to forecast official inflation announcements.

Source: The Billion prices project @ MIT

Indeed, the paradox is that as the US imbalances grow, there are less flows into the dollar…

....even as emerging economies expand

Furthermore, current US inflation rates appear understated...



Exhibit 41. US Ceridian-UCLA Pulse of Commerce Index (PCI) vs Industrial production

75

80

85

90

95

100

105

Mar-99 Mar-01 Mar-03 Mar-05 Mar-07 Mar-09 Mar-11

PCI workday and seasonally adjusted

Industrial Production seasonally adjusted


Exhibit 42. US architecture billing

30

35

40

45

50

55

60

65

70

75

Feb

-96

Feb

-97

Feb

-98

Feb

-99

Feb

-00

Feb

-01

Feb

-02

Feb

-03

Feb

-04

Feb

-05

Feb

-06

Feb

-07

Feb

-08

Feb

-09

Feb

-10

Feb

-11

Billings Enquiries

Note: diffusion index;


Exhibit 43. US Farmland rental yield vs inflation adjusted land prices

250

300

350

400

450

500

550

600

0.03

0.04

0.05

0.06

0.07

0.08

0.09

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

Rental yield (LHS)Inflation adjusted agricultural land prices (RHS)

Source: USDA; Nomura International (Hong Kong) Limited – Investment Strategy

...while growth is understated

Equally, there maybe some signs of green shoots in the housing market

US farmland has been in a tremendous bull run



Exhibit 44. Diesel prices (EU27 Exc. Tax E/kL)

300

400

500

600

700

800

900A

pr-

05

Aug

-05

Dec

-05

Ap

r-06

Aug

-06

Dec

-06

Ap

r-07

Aug

-07

Dec

-07

Ap

r-08

Aug

-08

Dec

-08

Ap

r-09

Aug

-09

Dec

-09

Ap

r-10

Aug

-10

Dec

-10

Ap

r-11

Source: Datasteam; Nomura International (Hong Kong) Limited – Investment Strategy

Exhibit 45. OECD lead indicator

90

92

94

96

98

100

102

104

106

108

Fe

b-61

Sep

-62

Apr

-64

Nov

-65

Jun

-67

Jan

-69

Aug

-70

Ma

r-72

Oc

t-7

3

Ma

y-75

Nov

-76

Jun

-78

Jan

-80

Aug

-81

Ma

r-83

Oc

t-8

4

Ma

y-86

Nov

-87

Jun

-89

Jan

-91

Aug

-92

Ma

r-94

Oc

t-9

5

Ma

y-97

Nov

-98

Jun

-00

Jan

-02

Aug

-03

Ma

r-05

Oc

t-0

6

Ma

y-08

Nov

-09

(Long term trend = 100)


Exhibit 46. Taiwan: export orders-on-hand (US$)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Mar

-91

Mar

-93

Mar

-95

Mar

-97

Mar

-99

Mar

-01

Mar

-03

Mar

-05

Mar

-07

Mar

-09

Mar

-11

(US$mn)

Source: CEIC; Nomura International (Hong Kong) Limited – Investment Strategy

While fuel prices are close to record highs. Inflation pressures don't seem to be abating

Growth is still climbing

Asian growth is safely surprising on the upside



Exhibit 47. Asia Pacific ex Japan: Earnings momentum index

0.0

0.5

1.0

1.5

2.0

2.5M

ar-9

9

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

AP Total

Note: Earnings momentum index is defined as: % of companies with +ve Revi,t / % of companies with -ve Revi,t Source: MSCI, I/B/E/S, Nomura International (Hong Kong) Limited - Equity Quantitative Strategies

Exhibit 48. Earnings momentum indices by market Market Earnings momentum index

Best

Thailand 1.38

Malaysia 1.31

Taiwan 1.22

Hong Kong 1.17

Korea 1.14

China 0.91

Australia 0.76

Singapore 0.72

Worst India 0.43 Total 0.94

Source: MSCI, I/B/E/S, Nomura International (Hong Kong) Limited - Equity Quantitative Strategies

Exhibit 49. Earnings momentum indices by regional sector

Regional sector Earnings momentum index Previous month rank

Best

Energy 2.75 1

Materials 1.12 4

Financials 1.07 3

Industrials 0.95 2

Information Technology 0.90 6

Consumer Discretionary 0.83 8

Telecom Services 0.75 9

Utilities 0.59 10

Consumer Staples 0.52 7

Worst Health Care 0.36 5 Source: MSCI, I/B/E/S, Nomura International (Hong Kong) Limited - Equity Quantitative Strategies

However, while revenues are growing, earnings are slipping

India net upgrades to downgrades is simply abysmal

The only sector showing earnings promise is energy



Exhibit 50. Median ROE in Asia Pacific ex Japan

Note: Charts show median ROE in MSCI AC Asia-Pacific ex Japan universe.

Source: Worldscope, I/B/E/S, MSCI, Nomura Quantitative Strategies

Exhibit 51. Daily factor return of ROE since 2009

Note: Performance is calculated by cumulating the return spread between high and low ROE groups (#1 and #3).


Exhibit 52. Performance of composite productivity factor

(30)

(20)

(10)

0

10

20

30

De

c-9

8

No

v-9

9

No

v-0

0

No

v-0

1

No

v-0

2

No

v-0

3

No

v-0

4

No

v-0

5

No

v-0

6

No

v-0

7

No

v-0

8

No

v-0

9

No

v-1

0

(%) Composite productivity factor (capex/sales + ROE)

ROE

Capex/sales

Note: Composite productivity measure is sorting good ROE companies with high capex/sales.


Fortunately, ROEs continue to climb helped by asset sweating

It is ROE that is determining performance

…set against other measures



Exhibit 53. Quantitative screen on companies with good productivity/profitability, positive earnings and price momentum, and high growth potential

Bloomberg Composite Composite earnings/ Composite Forecast

Market code Name Sector productivity price momentum growth earnings yield (%)

Australia GMG AU Goodman International Financials 2.4 0.9 -0.9 8.6

Australia NAB AU National Australia Bank Financials -0.6 0.1 -1.0 9.7

Australia BXB AU Brambles Industrials 0.9 0.6 1.6 5.7

Australia FMG AU Fortescue Metals Group Materials 3.4 1.4 2.7 10.9

China 682 HK Chaoda Modern Agri. Consumer Staples 2.2 -0.6 1.9 37.7

China 1068 HK China Yurun Food Group Consumer Staples 1.1 3.0 1.2 7.0

China 2899 HK Zijin Mining Group H Materials 1.2 0.3 0.5 8.9

Hong Kong 1128 HK Wynn Macau Consumer Discretionary 3.4 4.4 0.3 5.0

Hong Kong 522 HK Asm Pacific Technology Information Technology 1.3 1.7 -0.5 7.6

India ITC IN Itc Consumer Staples 0.5 2.9 -0.7 4.2

India CAIR IN Cairn India Energy 1.1 1.9 4.4 13.2

India AXSB IN Axis Bank Financials -0.4 1.2 -0.2 7.0

India IIB IN Indusind Bank Financials -0.2 5.1 1.5 5.8

India UNTP IN United Phosphorus Materials -0.4 0.3 -0.6 11.0

Korea 078930 KS Gs Holdings Corp Energy 0.0 5.3 -0.9 10.7

Korea 005830 KS Dongbu Insurance Co Financials -0.2 1.5 0.9 10.9

Korea 000660 KS Hynix Semiconductor Information Technology 1.8 0.7 1.0 10.4

Malaysia KLK MK Kuala Lumpur Kepong Consumer Staples 0.1 1.5 -1.5 6.2

Malaysia HLFG MK Hong Leong Financial Grp Financials -0.3 2.8 1.1 10.0

Malaysia SPSB MK Sp Setia Financials 0.5 0.0 3.8 4.2

Philippines EDC PM Energy Development Corp Utilities -0.1 0.3 3.4 7.6

Singapore OLAM SP Olam International Consumer Staples -0.8 1.3 2.0 6.4

Taiwan 2201 TT Yulon Motor Co Consumer Discretionary 0.0 3.2 0.0 4.7

Taiwan 2884 TT E.Sun Financial Holdings Financials -1.0 2.5 0.9 8.2

Taiwan 6008 TT Kgi Securities Co Financials -1.2 1.7 0.5 10.2

Taiwan 2885 TT Yuanta Financial Holding Financials -1.0 1.7 2.0 7.2

Taiwan 6244 TT Motech Industries Information Technology 2.7 -0.6 0.3 8.9

Taiwan 5483 TT Sinoamerican Silicon Pro Information Technology 2.7 2.0 0.4 9.5

Taiwan 3044 TT Tripod Technology Corp Information Technology 0.7 0.7 0.1 9.5

Taiwan 2384 TT Wintek Information Technology 0.6 1.9 6.0 9.2

Taiwan 2103 TT Tsrc Corp Materials 0.8 2.5 0.5 9.8

Taiwan 2006 TT Tung Ho Steel Enterprise Materials 1.2 2.3 0.9 7.8

Taiwan 3045 TT Taiwan Mobile Telecom Services 1.3 0.6 -1.4 6.8

Thailand KBANK TB Kasikornbank Financials -0.4 0.1 0.8 8.4

Note: Data as of 31 March, 2011.

Selection of stocks screened from the MSCI Asia-Pacific ex-Japan.

Stocks that fall in the top two quintiles of each market and sector on composite productivity, and those that are in the first half by composite momentum and composite growth are highlighted.

We also consider value factor E/P in our screening process to avoid picking stocks at expensive prices and hence excludes the bottom two quintiles stocks by forecast E/P.

Composite productivity is a normalised score of capex/sales and ROE.

Composite momentum is a normalised score of revision index, StarMine predicted surprise, and price momentum (12M-1M).

Composite growth is a normalised score of forecast sales growth (FY2) and forecast EPS growth (FY2).

Source: Worldscope, StarMine, I/B/E/S, MSCI, Nomura Quantitative Strategies



Exhibit 54. Philadelphia Semiconductor index vs CRB index

80

90

100

110

120

130

1404-

Jan

-10

25-J

an-1

0

15-F

eb-1

0

8-M

ar-1

0

29-M

ar-1

0

19-A

pr-

10

10-M

ay-1

0

31-M

a y-1

0

21-J

un-1

0

12-J

ul-1

0

2-A

ug-1

0

23-A

ug-1

0

13-S

ep-1

0

4-O

ct-1

0

25-O

ct-1

0

15-N

ov-

10

6-D

ec-1

0

27-D

ec-1

0

17-J

an-1

1

7-F

eb-1

1

28-F

eb-1

1

21-M

ar-1

1

11-A

pr-

11

Philadelphia Semiconductor Index CRB


Exhibit 55. Rolling correlation of Philadelphia Semiconductor index vs MSCI Far east excl. Japan

-40%

-20%

0%

20%

40%

60%

80%

10-J

an-1

0

31-J

an-1

0

21-F

eb-1

0

14-M

ar-1

0

4-A

pr-

10

25-A

pr-

10

16-M

ay-1

0

6-Ju

n-1

0

27-J

un-1

0

18-J

ul-1

0

8-A

ug-1

0

29-A

ug-1

0

19-S

ep-1

0

10-O

ct-1

0

31-O

ct-1

0

21-N

ov-

10

12-D

ec-1

0

2-Ja

n-1

1

23-J

an-1

1

13-F

eb-1

1

6-M

ar-1

1

27-M

ar-1

1

17-A

pr-

11

(%)

Note: 30-day rolling correlation of daily returns


Exhibit 56. ML Luxury and Lifestyle Index

40

60

80

100

120

140

160

180

200

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11


There is still some catch-up for technology…

…while it has yet to demonstrate exuberance

This barometer of luxury good sentiment has attained new highs



Exhibit 57. ML Luxury and Lifestyle index vs MSCI Far east excl. Japan

0

50

100

150

200

250

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

ML Luxury and Lifestyle Index MSCI Far East ex JP


Exhibit 58. Swiss watch data – value (CHF)

Source: Federation of the Swiss Watch Industry FH, Nomura research

Exhibit 59. Swiss watch data – volume (units)

Source: Federation of the Swiss Watch Industry FH, Nomura research

However, we wonder whether it is related to growth and earnings or is a by-product of wealth effects and asset price inflation

Another indicator of the dramatic change in demand for luxury items can be seen through Swiss watch sales both by value…

…and volume



Exhibit 60. Non-commercial net long positions in Silver (% of total)

0102030405060708090

100

Jan

-05

Ap

r-05

Jul-

05

Oct

-05

Jan

-06

Ap

r-06

Jul-

06

Oct

-06

Jan

-07

Ap

r-07

Jul-

07

Oct

-07

Jan

-08

Ap

r-08

Jul-

08

Oct

-08

Jan

-09

Ap

r-09

Jul-

09

Oct

-09

Jan

-10

Ap

r-10

Jul-

10

Oct

-10

Jan

-11

Ap

r-11

(%)


Exhibit 61. Non-commercial net long positions in Gold (% of total)

0102030405060708090

100

Jan

-05

Ap

r-05

Jul-

05

Oct

-05

Jan

-06

Ap

r-06

Jul-

06

Oct

-06

Jan

-07

Ap

r-07

Jul-

07

Oct

-07

Jan

-08

Ap

r-08

Jul-

08

Oct

-08

Jan

-09

Ap

r-09

Jul-

09

Oct

-09

Jan

-10

Ap

r-10

Jul-

10

Oct

-10

Jan

-11

Ap

r-11

(%)


Exhibit 62. Bubble index vs Silver

(7)

3

13

23

33

43

53

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

D -1

096

D -7

31

D -3

66

D -1

D +

364

D +

729

D +

1094

Bubble index (LHS) Silver (RHS)


On this measure, the degree of speculation is high but not necessarily…

…as pronounced as most investors would expect. This is probably due to the dramatic growth of ETF money flows which have become an alternative route for retail investing in commodities

When we compare the recent moves in silver against a profile of past bubbles including Nasdaq, the recent moves…



Exhibit 63. Bubble index vs Gold

500

700

900

1,100

1,300

1,500

1,700

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000 D

-109

6

D -7

31

D -3

66

D -1

D +

364

D +

729

D +

1094

Bubble index (LHS) Gold (RHS)


Exhibit 64. Asia ex-Japan: fund / foreign investors buying

Source: Datastream, EPFR, Nomura

Exhibit 65. Investment flows at a glance

Mutual Fund Investors Net Buying Foreign Investors Net Buying

(US$mn) 4-week YTD FY2010 FY2009 FY2008 4-week YTD FY2010 FY2009 FY2008

Asia ex Japan 174 (7,006) 19,609 19,109 (19,513) 10,033 2,434 62,304 59,985 (64,614)

Developed Europe 1,893 6,679 (10,256) 2,506 (41,422) - - - - -

EMEA 1,983 3,957 6,567 2,017 (5,216) - - - - -

Japan (425) 2,930 (840) (5,461) (8,612) 18,840 42,019 41,854 17,668 (36,049)

Latin America (681) (1,943) 1,842 8,786 (5,873) - - - - -

Pacific (295) (817) 1,520 1,801 (4,031) - - - - -

US 3,114 29,761 (5,403) (44,349) 10,137 - - - - -

Australia (48) (603) 2,202 2,640 (1,840) - - - - -

China 156 (2,353) 6,647 7,802 (514) - - - - -

Hong Kong (46) (672) 2,049 1,447 (3,919) - - - - -

India (299) (1,574) 3,248 3,506 (3,920) 2,536 1,495 29,390 17,591 (12,173)

Indonesia (35) (549) 1,174 450 (443) 460 (81) 2,095 1,382 1,756

Korea 533 273 2,008 1,904 (3,960) 4,148 (370) 18,518 24,816 (33,339)

Malaysia (3) (202) 452 204 (1,050) - - - - -

New Zealand 1 19 76 15 (5) - - - - -

Philippines 5 (35) 178 75 (214) 307 241 1,245 137 (1,112)

Singapore (145) (997) 748 827 (2,151) - - - - -

Taiwan (54) (247) 809 1,422 (2,506) 1,516 575 9,176 14,922 (14,934)

Thailand (50) (639) 1,103 561 (1,015) 1,066 574 1,881 1,136 (4,812)

Note: Data on Mutual Fund is for the latest week ended on Wed; Data on Foreign Buying is the same except for Japan which is for the week ended last Fri.

Source: EPFR, Nomura International (HK) Ltd Quantitative Strategies

..appear very toppish

Foreign ownerships on this score is a record high

Asia has been supported by equity, fixed income and carry trade flows



Exhibit 66. Factor return ranking table (March 2011)

Past 6 months factor return For the month of March-11

Country Top performer Worse performer Top performer Factor

return (%) ChgBottom performer

Factor return (%) Chg

Australia Price momentum (1M)

Volume turnover ratio

StarMine predicted surprise

4.42 Market cap * (2.90)

Sales growth (FY2) B/P Default probability * 4.17 Volume turnover ratio

(2.82)

Dividend yield Shareholders’ equity ratio

Pretax profit margin 2.92 EPS growth (FY2)

(2.45)

China Revision index Default probability *

Price momentum (12M -1M)

4.46 B/P (2.64)

Change in earnings yield

Volatility Sales growth (FY2) 4.15 Default probability *

(2.63)


Price momentum (1M)

Pretax profit margin 3.91 Estimate dispersion

(2.47)

Hong Kong Change in earnings yield

Volatility Cashflow yield 6.34 Price momentum (1M)

(4.95)


Default probability *


6.00 Default probability *

(3.54)

Return on equity Estimate dispersion

Normalised E/P 5.75 Pretax profit margin

(2.08)

India Default probability * Market cap * Shareholders’ equity ratio

3.01 Price momentum (1M)

(4.95)

Pretax profit margin

Volatility Change in earnings yield

1.96 Revision index (1.81)

Dividend yield Volume turnover ratio

Default probability * 1.81 B/P (1.28)

Korea Earnings yield Market cap * Pretax profit margin 4.37 B/P (4.04)


Cashflow yield Price momentum (12M -1M)

4.04 Cashflow yield (3.12)

Return on equity EPS growth (FY2) Return on equity 4.03 EBITDA/EV (2.65)

Malaysia Volume turnover ratio

Estimate dispersion

Revision index 2.57 Shareholders’ equity ratio

(2.75)

Revision index EPS growth (FY2) StarMine predicted surprise


(2.32)


Return on equity Volume turnover ratio

2.42 Normalised E/P (2.02)

Singapore Return on equity Shareholders’ equity ratio


3.05 Volume turnover ratio

(3.01)

Volatility B/P Volatility 1.90 Normalised E/P (2.94)


Sales growth (FY2)

Return on equity 1.67 Market cap * (2.48)

Taiwan Revision index Volatility StarMine predicted surprise

3.24 Volatility (2.31)

Shareholders’ equity ratio

Market cap * Pretax profit margin 2.92 Volume turnover ratio

(2.25)


Sales growth (FY2)

Default probability * 1.72 Earnings yield (2.19)

Thailand Dividend yield Revision index StarMine predicted surprise

7.77 EPS growth (FY2)

(7.04)

Cashflow yield EPS growth (FY2) Price momentum (12M -1M)

6.72 Shareholders’ equity ratio

(6.46)

Volatility Return on equity Volume turnover ratio

3.21 Market cap * (5.38)

Asia StarMine predicted surprise

Market cap * Price momentum (12M -1M)

2.68 B/P (1.50)

Revision index EPS growth (FY2) Sales growth (FY2) 2.12 Estimate dispersion

(1.24)

Earnings yield Price momentum (1M)



(1.23)

Asia-Pacific Revision index Market cap * Price momentum (12M -1M)

2.45 B/P (1.34)

Earnings yield EPS growth (FY2) StarMine predicted surprise

1.87 Estimate dispersion

(1.13)


Price momentum (1M)

Sales growth (FY2) 1.76 Price momentum (1M)

(0.72)

China A StarMine predicted surprise

Price momentum (1M)

EBITDA/EV 4.90 Sales growth (FY2)

(1.03)

(CSI300) Normalised E/P Shareholders’ equity ratio

Earnings yield 3.68 Pretax profit margin

(0.99)


EPS growth (FY2) B/P 3.14 Default probability *

(0.63)

Note: "" in column "Chg" denotes that factor return of the month surged more than 0.5pp from previous month, "" denotes that factor return declined more than 0.5pp, and "" denotes that factor return is within +/- 0.5pp.

Source: Worldscope, I/B/E/S, Nomura International (HK) Limited

In March, high ROE outstripped the rest



Recommendations

Exhibit 67. IT Corporate Spending basket constituent : price changes

Absolute change in USD (%)

Name Ticker Inception 1D 1W 1M 3M 6M 1Y YTD Since inception

ASE 2311 TT 13-May-10 0.6 (1.1) (7.0) (19.9) 27.9 16.9 (11.5) 22.2

ASM Pacific 522 HK 13-May-10 3.8 (1.9) 5.9 (3.5) 36.4 31.0 (0.7) 45.7

LG Display 034220 KS 13-May-10 4.5 10.3 18.6 9.9 1.4 (1.7) 5.4 (6.7)

Samsung Electronics 005930 KS 13-May-10 5.4 2.6 6.7 (2.9) 23.2 14.3 1.1 18.1

SEMCO 009150 KS 13-May-10 2.4 2.2 7.3 (0.1) (1.7) (1.6) 0.5 (16.0)

Venture Corp VMS SP 13-May-10 1.3 0.3 5.6 (0.9) 8.1 7.0 5.2 15.4

Canon Inc 7751 JP 19-Jul-10 0.4 (0.2) (0.6) (12.5) (6.8) (5.0) (15.9) 11.0

O-Net 877 HK 7-Feb-11 3.2 (2.9) (8.7) 1.2 (17.9) - (9.0) (2.4)

ASE 2311 TT 13-May-10 0.6 (1.1) (7.0) (19.9) 27.9 16.9 (11.5) 22.2


Source: Bloomberg; Nomura International (HK) Limited – Investment Strategy

Exhibit 68. IT Corporate Spending basket constituent : consensus valuation

Price PER (x) PBR (x) Dividend yield (%) ROE (%)

Name Ticker (local) FY1F FY2F FY1F FY2F FY1F FY2F FY1F FY2F

ASE 2311 TT 31.0 9.6 8.2 1.7 1.5 3.4 4.0 18.6 19.2

ASM Pacific 522 HK 98.6 13.8 12.4 6.8 5.7 5.0 5.3 57.1 53.7

LG Display 034220 KS 40,050.0 14.6 10.5 1.2 1.1 1.3 1.4 8.6 11.0

Samsung Electronics 005930 KS 927,000.0 9.5 8.3 1.5 1.3 1.2 1.2 16.6 16.4

SEMCO 009150 KS 117,000.0 15.8 13.4 2.4 2.0 0.8 0.9 15.8 16.3

Venture Corp VMS SP 9.5 11.9 10.7 1.3 1.3 5.6 5.7 11.1 11.6

Canon Inc 7751 JP 3,545.0 15.0 12.1 1.5 1.4 3.4 3.5 10.9 12.7

O-Net 877 HK 4.9 16.2 13.1 2.8 2.3 0.1 0.2 19.5 19.3



Exhibit 69. Energy basket constituent : price changes

Absolute change in USD (%)

Name Ticker Inception 1D 1W 1M 3M 6M 1Y YTD Since inception

PetroChina 857 HK 7-Oct-10 2.6 (1.1) 9.8 8.8 19.4 26.1 14.8 21.8

PTT E&P PTTEP TB 7-Oct-10 2.0 0.4 6.7 20.0 11.7 39.0 14.5 14.8

Woodside WPL AU 7-Oct-10 2.6 1.6 9.4 17.6 16.5 15.3 14.1 13.5

CNOOC 883 HK 7-Oct-10 3.1 (1.7) 9.3 2.5 22.0 42.3 5.6 19.7

Formosa Plastics 1301 TT 18-Oct-10 2.2 1.0 7.5 12.2 34.7 67.4 10.3 42.1

Xstrata XTA LN 14-Jan-11 5.4 5.0 10.4 13.7 24.0 34.3 6.9 5.7



Exhibit 70. Energy basket constituent : consensus valuation

Price PER (x) PBR (x) Dividend yield (%) ROE (%)

Name Ticker (local) FY1F FY2F FY1F FY2F FY1F FY2F FY1F FY2F

PetroChina 857 HK 11.9 10.9 10.5 1.7 1.6 4.0 4.1 16.2 15.8

PTT E&P PTTEP TB 191.5 13.3 10.7 3.1 2.6 3.0 3.6 25.3 26.1

Woodside WPL AU 47.7 23.7 16.4 3.1 2.8 2.3 3.0 14.0 18.7

CNOOC 883 HK 19.7 11.0 10.8 2.8 2.4 3.3 3.3 28.4 24.3

Formosa Plastics 1301 TT 114.0 12.7 12.2 2.2 2.0 6.4 7.0 20.4 21.3

Xstrata XTA LN 1,530.0 9.1 8.5 1.5 1.3 1.2 1.3 19.3 17.4



We launched our corporate IT spending basket on 13 May 2010

We are closing energy basket initiated on 7 Oct 2010



Exhibit 71. Suggested asset allocation

Category Allocated (%)

Theme Proxies/examples of baskets

Recommended

Long-run growth themes

5 Viruses and healthcare Sysmex Mar-03

5 Water investment Guangdong investment Dec-04

5 Nuclear power Toshiba Plant & Engineering

Dec-04

5 Railway infrastructure China Railway Construction

Jul-05

5 Emerging market productivity gains/ Machinery

Komatsu Nov-07

5 Experience economy Bangkok Dusit May-08

5 Asian and Japanese Internet NHN Corp May-08

5 The rebirth of the silk road: Central Asia infrastructure

Petrochina Jun-08

5 The return of the spice route: Muslim consumption*

Hyundai Motor Jul-09

45

The in-between (Asian interest rate, bank credit and currency)

5 Greater China Inc (RMB liberalisation theme)

BOC HK Jun-09

5 ASEAN Banks Kasikornbank Dec-09

5 REITs CapitaCommercial Trust Oct-10

15

The short-run/style tilts

5 Soft commodities China agri Nov-09

5 Corporate spending beneficiaries Canon Inc May-10

5 M&A basket M1 Sep-10

5 Asian oil companies/ Energy Basket

CNOOC Oct-10

5 China property China overseas Land & Inv

Oct-10

5 Blue chip basket Samsung Electronics Nov-10

5 Productivity basket KPS Dec-10

2.5 Container shipping and port NOL Mar-11

2.5 Holding Companies UOL Apr-11

40

100

* Note: Emerging market bilateral trade launched Aug 2005 and Rural consumption launched Jul 2006 merged into the return of the spice route; China/India consumption closed on 7 Dec 2010; Vice fund closed on 7 Dec 2010; Rare Earth metals closed on 10 Nov 2010; Asian high dividend yield closed on 18 Oct 2010; RMB appreciation beneficiaries basket closed on 7 Oct 2010; Shipping and port basket closed on 30 Sep 2010; China Steel companies closed 27 Sep 2010; Petrodollar recycling closed on 23 February 2011

Source: Nomura

Exhibit 72. AP ex JP: Telecom relative to Airlines (since inception)

90

95

100

105

110

115

Sep

-10

Oct

-10

No

v-10

Dec

-10

Jan

-11

Feb

-11

Mar

-11

Ap

r-11

(13 Sept 10 = 100)




Exhibit 73. AP ex JP: Listed stock exchanges relative to telecom (since inception)

95

97

99

101

103

105

107

1-F

eb-1

1

8-F

eb-1

1

15-F

eb-1

1

22-F

eb-1

1

1-M

ar-1

1

8-M

ar-1

1

15-M

ar-1

1

22-M

ar-1

1

29-M

ar-1

1

5-A

pr-

11

12-A

pr-

11

19-A

pr-

11

(1 Feb 11 = 100)


Exhibit 74. AP ex Japan telecom and utilities relative to Singapore real estate

95

96

97

98

99

100

101

102

23-F

eb

2-M

ar

9-M

ar

16-M

ar

23-M

ar

30-M

ar

6-A

pr

13-A

pr

20-A

pr

APexJP telecom

APexJP Utilities




Quant screen

Exhibit 75. Top 10 companies by Nomura composite score

Country Ticker Name

Good value+

laggard

Good value+

PM

Re-rated+

laggard

Re-rated+

PM

By Good value + laggard

China 1186 HK CHINA RAILWAY CONSTRUCTION-H 10.82 7.66 0.07 (3.09)

China 390 HK CHINA RAILWAY GROUP LTD-H 10.61 7.57 0.04 (3.00)

Taiwan 2353 TT ACER INC 10.60 6.04 0.70 (3.86)

Korea 004940 KS KOREA EXCHANGE BANK 10.23 7.17 1.64 (1.41)

Korea 030200 KS KT CORP 9.99 7.35 1.14 (1.50)

Korea 117930 KS HANJIN SHIPPING CO LTD 9.96 6.64 1.32 (1.99)

Korea 053000 KS WOORI FINANCE HOLDINGS 9.77 7.54 1.46 (0.77)

Taiwan 3037 TT UNIMICRON TECHNOLOGY 9.70 7.19 0.58 (1.93)

China 2877 HK CHINA SHINEWAY PHARMACEUTICA 9.69 7.31 0.62 (1.76)

Hong Kong 494 HK LI & FUNG LTD 9.69 6.95 (0.78) (3.52)

By Good value + PM (price momentum)

Singapore AREIT SP ASCENDAS REAL ESTATE INV TRT 8.50 9.47 (0.70) 0.26

Singapore DBS SP DBS GROUP HOLDINGS LTD 8.20 9.42 0.11 1.33

India BJAUT IN BAJAJ AUTO LTD 7.61 9.38 (0.07) 1.71

Hong Kong 6 HK POWER ASSETS HOLDINGS 7.65 9.35 (0.45) 1.25

Hong Kong 2 HK CLP HOLDINGS LTD 8.41 9.35 0.22 1.15

India GAIL IN GAIL INDIA LTD 8.15 9.29 0.24 1.38

India WPRO IN WIPRO LTD 8.20 9.29 0.28 1.37

Singapore UOB SP UNITED OVERSEAS BANK LTD 7.75 9.27 (0.23) 1.29

India RIL IN RELIANCE INDUSTRIES LTD 7.77 9.25 0.06 1.54

China 1988 HK CHINA MINSHENG BANKING-H 6.91 9.24 0.07 2.40

By Re-rated + laggard

Singapore GENS SP GENTING SINGAPORE PLC 5.74 7.51 2.08 3.85

China 682 HK CHAODA MODERN AGRICULTURE 7.32 7.93 1.75 2.35

Korea 105560 KS KB FINANCIAL GROUP INC 8.58 6.33 1.68 (0.57)

Hong Kong 2038 HK FOXCONN INTERNATIONAL HLDGS 5.92 3.17 1.65 (1.10)

Korea 004940 KS KOREA EXCHANGE BANK 10.23 7.17 1.64 (1.41)

Korea 053000 KS WOORI FINANCE HOLDINGS 9.77 7.54 1.46 (0.77)

China 883 HK CNOOC LTD 6.82 7.85 1.36 2.39

Korea 117930 KS HANJIN SHIPPING CO LTD 9.96 6.64 1.32 (1.99)

Korea 012630 KS HYUNDAI DEVELOPMENT COMPANY 9.05 6.70 1.32 (1.03)

Taiwan 1303 TT NAN YA PLASTICS CORP 6.10 7.99 1.31 3.20

By Re-rated + PM (price momentum)

Korea 010950 KS S-OIL CORPORATION 2.30 6.52 (0.20) 4.02

China 3800 HK GCL-POLY ENERGY HOLDINGS 3.76 7.15 0.47 3.86

Korea 051910 KS LG CHEM LTD 3.46 7.37 (0.04) 3.86

Taiwan 2474 TT CATCHER TECHNOLOGY CO 1.16 6.09 (1.07) 3.86

Singapore GENS SP GENTING SINGAPORE PLC 5.74 7.51 2.08 3.85

Hong Kong 1128 HK WYNN MACAU LTD 2.43 6.34 (0.11) 3.80

China 3339 HK LONKING HOLDINGS LTD 3.97 6.73 0.79 3.55

China 1114 HK BRILLIANCE CHINA AUTOMOTIVE 2.00 6.30 (0.76) 3.55

Korea 011170 KS HONAM PETROCHEMICAL 2.51 4.97 1.05 3.51

Taiwan 1301 TT FORMOSA PLASTICS CORP 6.07 8.61 0.96 3.50

Source: Bloomberg; Nomura International (Hong Kong) Limited – Quantitative Research


Universe - MSCI AC Asia ex Japan universe, covered by Nomura fundamental research, Minimum market cap (over US$2bn), Minimum turnover (above US$5mn ADV)

Definition of screen category:

Good Value: screen based on latest 12M forward-looking PE & PB compared with the low-end of 1Y range

Laggards: screen based on past 1M relative return & 3M relative return (against local market index)

Positive Momentum companies: screen based on Quant team's short-term price momentum (4.5 to -4.5) and volume momentum models (1 to -1)

Re-Rated: screen based on 1W EPS revision (EPSR), 1M EPS revision, 1W target price revision (TPR) & 1M target price revision



Exhibit 76. Bottom 10 companies by Nomura composite score

Country Ticker Name

Good value+

laggard

Good value+

PM

Re-rated+

laggard

Re-rated+

PM

By Good value + laggard

Korea 009830 KS HANWHA CHEMICAL CORP 0.83 4.31 (0.33) 3.15

Taiwan 2474 TT CATCHER TECHNOLOGY CO LTD 1.16 6.09 (1.07) 3.86

China 1114 HK BRILLIANCE CHINA AUTOMOTIVE 2.00 6.30 (0.76) 3.55

Korea 000660 KS HYNIX SEMICONDUCTOR INC 2.00 5.42 (0.39) 3.03

Korea 010950 KS S-OIL CORPORATION 2.30 6.52 (0.20) 4.02

Korea 078930 KS GS HOLDINGS 2.31 4.59 0.22 2.49

Hong Kong 880 HK SJM HOLDINGS LTD 2.33 5.22 (0.87) 2.02

Hong Kong 1128 HK WYNN MACAU LTD 2.43 6.34 (0.11) 3.80

Korea 011170 KS HONAM PETROCHEMICAL CORP 2.51 4.97 1.05 3.51

Korea 000270 KS KIA MOTORS CORPORATION 2.71 6.13 (0.44) 2.98

By Good value + PM (price momentum)

Hong Kong 2038 HK FOXCONN INTERNATIONAL HLDGS 5.92 3.17 1.65 (1.10)

Taiwan 2357 TT ASUSTEK COMPUTER INC 5.14 4.29 0.36 (0.49)

Korea 009830 KS HANWHA CHEMICAL CORP 0.83 4.31 (0.33) 3.15

Hong Kong 316 HK ORIENT OVERSEAS INTL LTD 8.27 4.54 0.76 (2.97)

Korea 078930 KS GS HOLDINGS 2.31 4.59 0.22 2.49

Taiwan 2384 TT WINTEK CORP 6.62 4.79 (0.18) (2.00)

Korea 011170 KS HONAM PETROCHEMICAL CORP 2.51 4.97 1.05 3.51

Korea 000720 KS HYUNDAI ENGINEERING & CONST 6.80 5.03 0.59 (1.18)

India UTCEM IN ULTRATECH CEMENT LTD 7.39 5.14 0.81 (1.45)

China 2883 HK CHINA OILFIELD SERVICES-H 5.72 5.16 0.40 (0.16)

By Re-rated + laggard

China 762 HK CHINA UNICOM HONG KONG LTD 2.75 6.00 (2.72) 0.53

Taiwan 2618 TT EVA AIRWAYS CORP 6.10 6.81 (2.34) (1.64)

Korea 034220 KS LG DISPLAY CO LTD 4.86 6.78 (2.31) (0.40)

China 2319 HK CHINA MENGNIU DAIRY CO 5.47 8.34 (2.30) 0.57

India SUEL IN SUZLON ENERGY LTD 4.85 7.24 (2.19) 0.20

India GMRI IN GMR INFRASTRUCTURE LTD 6.78 5.32 (2.08) (3.55)

China 175 HK GEELY AUTOMOBILE HOLDINGS LT 7.55 8.24 (2.00) (1.32)

Korea 012450 KS SAMSUNG TECHWIN CO LTD 7.23 8.16 (1.92) (0.99)

Taiwan 2603 TT EVERGREEN MARINE 7.74 8.64 (1.90) (1.00)

Hong Kong 1928 HK SANDS CHINA LTD 4.02 7.15 (1.86) 1.27

By Re-rated + PM (price momentum)

Taiwan 2409 TT AU OPTRONICS CORP 7.86 5.61 (1.62) (3.86)

Taiwan 2353 TT ACER INC 10.60 6.04 0.70 (3.86)

China 2331 HK LI NING CO LTD 8.34 6.29 (1.62) (3.68)

India GMRI IN GMR INFRASTRUCTURE LTD 6.78 5.32 (2.08) (3.55)

China 297 HK SINOFERT HOLDINGS LTD 9.65 6.48 (0.38) (3.55)

Korea 003490 KS KOREAN AIR LINES CO LTD 8.85 5.71 (0.40) (3.53)

Hong Kong 494 HK LI & FUNG LTD 9.69 6.95 (0.78) (3.52)

China 1186 HK CHINA RAILWAY CONSTRUCTION-H 10.82 7.66 0.07 (3.09)

India INFO IN INFOSYS TECHNOLOGIES LTD 9.56 7.02 (0.49) (3.03)

China 390 HK CHINA RAILWAY GROUP LTD-H 10.61 7.57 0.04 (3.00)

Source: Bloomberg; Nomura International (Hong Kong) Limited – Quantitative Research


Universe - MSCI AC Asia ex Japan universe, covered by Nomura fundamental research, Minimum market cap (over US$2bn), Minimum turnover (above US$5mn ADV)

Definition of screen category:

Good Value: screen based on latest 12M forward-looking PE & PB compared with the low-end of 1Y range

Laggards: screen based on past 1M relative return & 3M relative return (against local market index)

Positive Momentum companies: screen based on Quant team's short-term price momentum (4.5 to -4.5) and volume momentum models (1 to -1)

Re-Rated: screen based on 1W EPS revision (EPSR), 1M EPS revision, 1W target price revision (TPR) & 1M target price revision



Market breadth vs equity index

Exhibit 77. Australia (ASX)

0

20

40

60

80

100

120

0

500

1000

1500

2000

2500

3000

3500

4000

Jan

-02

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-02

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-04

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-06

Ap

r-07

No

v-07

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-08

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-09

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-09

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-10

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-10

Index (LHS)

% of members above 200 ma (RHS)


Exhibit 78. China (CSI300)

0

20

40

60

80

100

120

0

1000

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5000

6000

7000

Jan

-05

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-06

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-07

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Dec

-07

May

-08

Oct

-08

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-09

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-09

Jan

-10

Jun

-10

No

v-10

Ap

r-11

Index (LHS)



Exhibit 79. Hong Kong (HSI)

0

20

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60

80

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120

0

5000

10000

15000

20000

25000

30000

35000

Jan

-01

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-04

Jan

-05

Jan

-06

Jan

-07

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-09

Jan

-10

Jan

-11

Index (LHS)



Exhibit 80. India (SENSEX index)

0

20

40

60

80

100

120

0

5000

10000

15000

20000

25000Ja

n-0

1

Jan

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-06

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-07

Jan

-08

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-09

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-10

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-11

Index (LHS)% of members above 200 ma (RHS)


Exhibit 81. Indonesia (JCI)

0

10

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90

0

500

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-04

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-04

Jul-

05

Feb

-06

Sep

-06

Ap

r-07

No

v-07

Jun

-08

Jan

-09

Au g

-09

Mar

-10

Oct

-10

Index (LHS)



Exhibit 82. Korea (KOSPI)

0102030405060708090100

0

500

1000

1500

2000

2500

Jan

-02

Aug

-02

Mar

-03

Oct

-03

May

-04

Dec

-04

Jul-

05

Feb

-06

Se p

-06

Ap

r-07

No

v-07

Jun

-08

Jan

-09

Aug

-09

Mar

-10

Oct

-10

Index (LHS)% of members above 200 ma (RHS)




Exhibit 83. New Zealand (NZSE50FG)

0

20

40

60

80

100

120

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Jan

-03

Jul-

03Ja

n-0

4Ju

l-04

Jan

-05

Jul-

05Ja

n-0

6Ju

l-06

Jan

-07

Jul-

07Ja

n-0

8Ju

l-08

Jan

-09

Jul-

09Ja

n-1

0Ju

l-10

Jan

-11

Index (LHS)



Exhibit 84. Pakistan (KSE100)

0

20

40

60

80

100

120

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

Index (LHS)



Exhibit 85. Singapore (FSSTI)

0

20

40

60

80

100

120

0

500

1000

1500

2000

2500

3000

3500

4000

4500

Jan

-08

Ap

r-08

Jul-

08

Oct

-08

Jan

-09

Ap

r-09

Jul-

09

Oct

-09

Jan

-10

Ap

r-10

Jul-

10

Oct

-10

Jan

-11

Ap

r-11

Index (LHS)



Exhibit 86. Taiwan (TWSE)

0

20

40

60

80

100

120

0

2000

4000

6000

8000

10000

12000

14000

Jan

-02

Au g

-02

Mar

-03

Oct

-03

May

-04

Dec

-04

Jul-

05F

eb-0

6S

e p-0

6A

pr-

07N

ov-

07Ju

n-0

8Ja

n-0

9A

ug-0

9M

ar-1

0O

ct-1

0

Index (LHS)



Exhibit 87. Thailand (SET)

0102030405060708090100

0200400600800

100012001400160018002000

Jan

-02

Aug

-02

Mar

-03

Oct

-03

May

-04

Dec

-04

Jul-

05

Feb

-06

Se p

-06

Ap

r-07

No

v-07

Jun

-08

Jan

-09

Aug

-09

Mar

-10

Oct

-10

Index (LHS)



Exhibit 88. Malaysia (KLCI)

60

65

70

75

80

85

90

95

100

105

1000

1100

1200

1300

1400

1500

1600

1700

Jul-

09

Se p

-09

No

v-09

Jan

-10

Mar

-10

Ma y

-10

Jul-

10

Sep

-10

No

v-10

Jan

-11

Mar

-11

Index (LHS)





Cumulative advance/decline ratio vs equity index

Exhibit 89. Australia

2,5003,0003,5004,0004,5005,0005,5006,0006,5007,0007,500

(16,000)(14,000)(12,000)(10,000)(8,000)(6,000)(4,000)(2,000)

0 2,000 4,000

Dec

-05

Ap

r-06

Aug

-06

Dec

-06

Ap

r-07

Aug

-07

Dec

-07

Ap

r-08

Aug

-08

Dec

-08

Ap

r-09

Aug

-09

Dec

-09

Ap

r-10

Aug

-10

Dec

-10

Cumulative breadth (AU)

AUAOI IndexAUAOI

Source: Bloomberg; Nomura International (HK) Limited – Quantitative research

Exhibit 90. Hong Kong (HSI)

5,000

10,000

15,000

20,000

25,000

30,000

35,000

(180,000)(160,000)(140,000)(120,000)(100,000)(80,000)(60,000)(40,000)(20,000)

0 20,000

Dec

-05

Ap

r-06

Aug

-06

Dec

-06

Ap

r-07

Aug

-07

Dec

-07

Ap

r-08

Aug

-08

Dec

-08

Ap

r-09

Aug

-09

Dec

-09

Ap

r-10

Aug

-10

Dec

-10

Cumulative breadth (HK)

HSI Index

HSI


Exhibit 91. Korea

6008001,0001,2001,4001,6001,8002,0002,2002,400

(80,000)(70,000)(60,000)(50,000)(40,000)(30,000)(20,000)(10,000)

0 10,000 20,000

Dec

-05

Ap

r-06

Aug

-06

Dec

-06

Ap

r-07

Aug

-07

Dec

-07

Ap

r-08

Aug

-08

Dec

-08

Ap

r-09

Aug

-09

Dec

-09

Ap

r-10

Aug

-10

Dec

-10

Cumulative breadth (KO)

KOSPI Index

KOSPI


Exhibit 92. Taiwan

2,0003,0004,0005,0006,0007,0008,0009,00010,00011,000

(120,000)

(100,000)

(80,000)

(60,000)

(40,000)

(20,000)

0

20,000

Dec

-05

Ap

r-06

Aug

-06

Dec

-06

Ap

r-07

Aug

-07

Dec

-07

Ap

r-08

Aug

-08

Dec

-08

Ap

r-09

Aug

-09

Dec

-09

Ap

r-10

Aug

-10

Dec

-10

Cumulative breadth (TW)

TWSE IndexTWSE


Exhibit 93. Malaysia

400

600

800

1,000

1,200

1,400

1,600

1,800

(40,000)(35,000)(30,000)(25,000)(20,000)(15,000)(10,000)(5,000)

0 5,000

Dec

-05

Ap

r-06

Aug

-06

Dec

-06

Ap

r-07

Aug

-07

Dec

-07

Ap

r-08

Aug

-08

Dec

-08

Ap

r-09

Aug

-09

Dec

-09

Ap

r-10

Aug

-10

Dec

-10

Cumulative breadth (MA)

KLCI IndexKLCI


Exhibit 94. Singapore

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

(32,000)(28,000)(24,000)(20,000)(16,000)(12,000)(8,000)(4,000)

0 4,000

Dec

-05

Ap

r-06

Aug

-06

Dec

-06

Ap

r-07

Aug

-07

Dec

-07

Ap

r-08

Aug

-08

Dec

-08

Ap

r-09

Aug

-09

Dec

-09

Ap

r-10

Aug

-10

Dec

-10

Cumulative breadth (SI)

STI IndexSTI




Exhibit 95. Thailand

2003004005006007008009001,0001,1001,200

(18,000)(16,000)(14,000)(12,000)(10,000)(8,000)(6,000)(4,000)(2,000)

0 2,000

Dec

-05

Ap

r-06

Aug

-06

Dec

-06

Ap

r-07

Aug

-07

Dec

-07

Ap

r-08

Aug

-08

Dec

-08

Ap

r-09

Aug

-09

Dec

-09

Ap

r-10

Aug

-10

Dec

-10

Cumulative breadth (TH)

SET IndexSET


Exhibit 96. India

0

2,000

4,000

6,000

8,000

10,000

(70,000)

(60,000)

(50,000)

(40,000)

(30,000)

(20,000)

(10,000)

0

10,000

Oct

-05

Jan

-06

Ap

r-06

Jul-

06O

ct-0

6Ja

n-0

7A

pr-

07Ju

l-07

Oct

-07

Jan

-08

Ap

r-08

Jul-

08O

ct-0

8Ja

n-0

9A

pr-

09Ju

l-09

Oct

-09

Jan

-10

Ap

r-10

Jul-

10O

ct-1

0Ja

n-1

1

Cumulative breadth (India)

BSE500 Index

BSE500


Exhibit 97. Indonesia

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

(8,000)(7,000)(6,000)(5,000)(4,000)(3,000)(2,000)(1,000)

0 1,000 2,000 3,000

Dec

-05

Ap

r-06

Aug

-06

Dec

-06

Ap

r-07

Aug

-07

Dec

-07

Ap

r-08

Aug

-08

Dec

-08

Ap

r-09

Aug

-09

Dec

-09

Ap

r-10

Aug

-10

Dec

-10

Cumulative breadth (ID)

JCI Index

JCI


Exhibit 98. Philippines

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

(2,500)

(2,000)

(1,500)

(1,000)

(500)

0

500

1,000

Oct

-05

Jan

-06

Ap

r-06

Jul-

06O

ct-0

6Ja

n-0

7A

pr-

07Ju

l-07

Oct

-07

Jan

-08

Ap

r-08

Jul-

08O

ct-0

8Ja

n-0

9A

pr-

09Ju

l-09

Oct

-09

Jan

-10

Ap

r-10

Jul-

10O

ct-1

0Ja

n-1

1

Cumulative breadth (PH)

PCOMP Index

PCOMP


Exhibit 99. Hong Kong (HSCEI)

4,0006,0008,00010,00012,00014,00016,00018,00020,00022,000

(1,100)

(600)

(100)

400

900

1,400

Oct

-05

Jan

-06

Ap

r-06

Jul-

06O

ct-0

6Ja

n-0

7A

pr-

07Ju

l-07

Oct

-07

Jan

-08

Ap

r-08

Jul-

08O

ct-0

8Ja

n-0

9A

pr-

09Ju

l-09

Oct

-09

Jan

-10

Ap

r-10

Jul-

10O

ct-1

0Ja

n-1

1

Cumulative breadth (HSCEI)

HSCEI Index

HSCEI


Exhibit 100. China (CSI300)

0

1,000

2,000

3,000

4,000

5,000

6,000

0 20,000 40,000 60,000 80,000

100,000 120,000 140,000 160,000 180,000

Oct

-05

Jan

-06

Ap

r-06

Jul-

06O

ct-0

6Ja

n-0

7A

pr-

07Ju

l-07

Oct

-07

Jan

-08

Ap

r-08

Jul-

08O

ct-0

8Ja

n-0

9A

pr-

09Ju

l-09

Oct

-09

Jan

-10

Ap

r-10

Jul-

10O

ct-1

0Ja

n-1

1

Cumulative breadth (China A-shares)

SHSZ300 IndexSHSZ300




Exhibit 101. Recent strategy reports

Date Title

19-Apr-2011 Accident and emergency or just rest and recuperation? http://www.nomura.com/research/GetPub.aspx?pid=430707

13-Apr-2011 Taiwan: a little inflation would help http://www.nomura.com/research/GetPub.aspx?pid=429657

12-Apr-2011 Dollar dolour, NAV galore! (II) http://www.nomura.com/research/GetPub.aspx?pid=429430

7-Apr-2011 China: an inflationary surprise (XI) http://www.nomura.com/research/GetPub.aspx?pid=428630

7-Apr-2011 Dollar dolour, NAV galore! http://www.nomura.com/research/GetPub.aspx?pid=428629

5-Apr-2011 Ship ahoy (XX) http://www.nomura.com/research/GetPub.aspx?pid=428225

4- Apr-2011 Asia’s soft commodity crunch (XXIV) and tiiiimmmmmmbeeeeeer (II) http://www.nomura.com/research/GetPub.aspx?pid=427942

1- Apr-2011 Never sell a dull market short http://www.nomura.com/research/GetPub.aspx?pid=427586

30- Mar-2011 Ferro-alloys: China’s double metal advantage over Australia http://www.nomura.com/research/GetPub.aspx?pid=427130

25- Mar-2011 The power of compounding http://www.nomura.com/research/GetPub.aspx?pid=426337

21- Mar-2011 HK: A bubble in taxi licences, Tobin Q ratios and QE2 ½ http://www.nomura.com/research/GetPub.aspx?pid=425535

18- Mar-2011 Memo to HR department (II): sell accountants, buy engineers http://www.nomura.com/research/GetPub.aspx?pid=425231

16- Mar-2011 Fat tails, thin tails and the cat's whiskers (II) http://www.nomura.com/research/GetPub.aspx?pid=424745

14- Mar-2011 The Sendai earthquake and its impact on Asian equities http://www.nomura.com/research/GetPub.aspx?pid=424229

11- Mar-2011 Fat tails, thin tails and the cat's whiskers http://www.nomura.com/research/GetPub.aspx?pid=423945

7- Mar-2011 Ship ahoy! (XIX) and the Danish-Korean Triple E class http://www.nomura.com/research/GetPub.aspx?pid=423075

3- Mar-2011 Reverberations http://www.nomura.com/research/GetPub.aspx?pid=422578

23- Feb-2011 Asia: A terms-of-trade shock awaiting http://www.nomura.com/research/GetPub.aspx?pid=420898

22- Feb-2011 Vietnam: a juggling act http://www.nomura.com/research/GetPub.aspx?pid=420672

18-Feb-2011 Shouldn’t Hong Kong issue inflation index bonds? http://www.nomura.com/research/GetPub.aspx?pid=420134

15-Feb-2011 China: the silent Big Bang (II) http://www.nomura.com/research/GetPub.aspx?pid=419337

12-Feb-2011 Manners maketh a man, margins maketh a CEO! http://www.nomura.com/research/GetPub.aspx?pid=418871

9-Feb-2011 China: an inflationary surprise (X) http://www.nomura.com/research/GetPub.aspx?spid=7480

1-Feb-2011 The Monte Carlo simulation: why we can only approximate a definitive outcome http://www.nomura.com/research/GetPub.aspx?spid=7457

31-Jan-2011 From China to Korea the machines rule http://www.nomura.com/research/GetPub.aspx?spid=7448

26-Jan-2011 New Zealand: an agriculture-led rebalancing act (II) http://www.nomura.com/research/GetPub.aspx?spid=7425

24-Jan-2011 Ambivalent returns http://www.nomura.com/research/GetPub.aspx?pid=413804

20-Jan-2011 Memo to HR department: Sell humans, buy robots http://www.nomura.com/research/GetPub.aspx?spid=7388

19-Jan-2011 Asia’s soft commodity crunch (XXIII) http://www.nomura.com/research/GetPub.aspx?pid=413028

Source: Nomura International (Hong Kong) Limited – Investment Strategy



Investible themes and baskets Nomura’s investible themes and baskets are listed on Bloomberg at NMST<Go> for global ideas and NMCS<Go> for Asian recommendations. We show live tradable prices for these themes.

For further details of these products and how to trade them, contact Quantitative Solutions Group (+44 (0) 20 7103 9988 / [email protected]).



Any Authors named on this report are Research Analysts unless otherwise indicated

Analyst Certification I, Sean Darby, hereby certify (1) that the views expressed in this Research report accurately reflect my personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of my compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company. Important Disclosures Conflict-of-interest disclosures Important disclosures may be accessed through the following website: http://www.nomura.com/research/pages/disclosures/disclosures.aspx . If you have difficulty with this site or you do not have a password, please contact your Nomura Securities International, Inc. salesperson (1-877-865-5752) or email [email protected] for assistance. Online availability of research and additional conflict-of-interest disclosures Nomura Japanese Equity Research is available electronically for clients in the US on NOMURA.COM, REUTERS, BLOOMBERG and THOMSON ONE ANALYTICS. For clients in Europe, Japan and elsewhere in Asia it is available on NOMURA.COM, REUTERS and BLOOMBERG. Important disclosures may be accessed through the left hand side of the Nomura Disclosure web page http://www.nomura.com/research or requested from Nomura Securities International, Inc., on 1-877-865-5752. If you have any difficulties with the website, please email [email protected] for technical assistance. The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by Investment Banking activities. Industry Specialists identified in some Nomura International plc research reports are employees within the Firm who are responsible for the sales and trading effort in the sector for which they have coverage. Industry Specialists do not contribute in any manner to the content of research reports in which their names appear. Marketing Analysts identified in some Nomura research reports are research analysts employed by Nomura International plc who are primarily responsible for marketing Nomura’s Equity Research product in the sector for which they have coverage. Marketing Analysts may also contribute to research reports in which their names appear and publish research on their sector. Distribution of ratings (Global) The distribution of all ratings published by Nomura Global Equity Research is as follows: 49% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 37% of companies with this rating are investment banking clients of the Nomura Group*. 40% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 46% of companies with this rating are investment banking clients of the Nomura Group*. 11% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 16% of companies with this rating are investment banking clients of the Nomura Group*. As at 31 March 2011. *The Nomura Group as defined in the Disclaimer section at the end of this report.



Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America for ratings published from 27 October 2008 The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Analysts may also indicate absolute upside to target price defined as (fair value - current price)/current price, subject to limited management discretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple analysis, etc. STOCKS A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company. Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks (accessible through the left hand side of the Nomura Disclosure web page: http://www.nomura.com/research);Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia. Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published from 30 October 2008 and in Japan from 6 January 2009 STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price, subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A 'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.



Explanation of Nomura's equity research rating system in Japan published prior to 6 January 2009 (and ratings in Europe, Middle East and Africa, US and Latin America published prior to 27 October 2008) STOCKS A rating of '1' or 'Strong buy', indicates that the analyst expects the stock to outperform the Benchmark by 15% or more over the next six months. A rating of '2' or 'Buy', indicates that the analyst expects the stock to outperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '3' or 'Neutral', indicates that the analyst expects the stock to either outperform or underperform the Benchmark by less than 5% over the next six months. A rating of '4' or 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '5' or 'Sell', indicates that the analyst expects the stock to underperform the Benchmark by 15% or more over the next six months. Stocks labeled 'Not rated' or shown as 'No rating' are not in Nomura's regular research coverage. Nomura might not publish additional research reports concerning this company, and it undertakes no obligation to update the analysis, estimates, projections, conclusions or other information contained herein. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next six months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next six months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next six months. Benchmarks are as follows: Japan: TOPIX; United States: S&P 500, MSCI World Technology Hardware & Equipment; Europe, by sector - Hardware/Semiconductors: FTSE W Europe IT Hardware; Telecoms: FTSE W Europe Business Services; Business Services: FTSE W Europe; Auto & Components: FTSE W Europe Auto & Parts; Communications equipment: FTSE W Europe IT Hardware; Ecology Focus: Bloomberg World Energy Alternate Sources; Global Emerging Markets: MSCI Emerging Markets ex-Asia. Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published prior to 30 October 2008 STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price)/Current Price, subject to limited management discretion. In most cases, the Fair Value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, if the analyst doesn't think the market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ from the intrinsic fair value. In most cases, therefore, our recommendation is an assessment of the difference between current market price and our estimate of current intrinsic fair value. Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly, within this horizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or downside implied by the recommendation. A 'Strong buy' recommendation indicates that upside is more than 20%. A 'Buy' recommendation indicates that upside is between 10% and 20%. A 'Neutral' recommendation indicates that upside or downside is less than 10%. A 'Reduce' recommendation indicates that downside is between 10% and 20%. A 'Sell' recommendation indicates that downside is more than 20%. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation. Target Price A Target Price, if discussed, reflect in part the analyst's estimates for the company's earnings. 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Strategy ASIA PACIFIC · Strategy | Asia Pacific Sean Darby Nomura 3 3 May 2011 The elastic band of...

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