Exhibit 67: Japanese Profit Margins Exhibit 68: Japanese Equity Valuations Near-peak profit margins could be a headwind for Valuations are near the median level of Japan's deflationary Japanese equities. period since 1999. Trailing 12-Month Net Income (% of Sales} Percentile 8 80 69 5 a 65 60 4a Average: 52% 50 47 34 43 40 38 24 30 14 20 0 | - 414 0 2 Price to 10-Year — Price-to-Peak Price-to-Book Price to 10-Year — Price-to-Peak 1980 1985 1990 1298 2000 2005 2010 2018 Average Earnings Earnings Value Average Cash Cash Flow Flow Data through November 30, 2016. Data as of December 31, 2016. Source: Investment Strategy Group, Datastream. Note: Based on data since 1999. Source: Investment Strategy Group, Datastream, MSCI. interplay of these inputs should still lead to positive Emerging Market Equities: Finally in Gear, earnings growth of 6% in 2017. but Potholes Ahead The direction of valuation multiples is equally important. As shown in Exhibit 68, Japanese Emerging market equities as a whole finally moved valuations are middling based on their history forward in 2016 after three years in reverse: since 1999, which we believe is the relevant multiples expanded, earnings estimates improved evaluation period given the deflationary headwinds and currencies appreciated, generating a 12% that emerged thereafter. For equity multiples total return. Politics and commodity prices were to move significantly higher from here would key performance differentiators among emerging require sustainable above-trend earnings growth markets last year, leading Brazil and Russia to the or a sizable increase in direct equity purchases winners’ podium while leaving Turkey and Mexico by the Japanese central bank. But with the BOJ in last place. already holding a remarkable 60% of Japanese We expect emerging market equities to remain ETF market assets’ and profit margins near on track in 2017. Our central case calls for their peak levels, neither of these upside catalysts earnings growth of 5%