e e e Emerging market equities Preference: overweight ) MSCI EM (27 June); 913 (last month: 907) | "ecommendations UBS View MSCI EM 6-month target: 1,000 Tactical (6 months) e Currency weakness hurt emerging market (EM) equity performance in US-dollar terms year-to-date. We _— * In Asia, we expect Chinese equities to expect EM FX to appreciate against the USD from current levels over a six-month horizon. benefit as the Chinese economy avoids a e As expected, China has started to ease monetary policy. We believe there is also room to do more on the hard landing. In Latin America, we prefer fiscal side, helping to support China's economic growth outlook for the second half of 2012 and into 2013. Brazil and Mexico. The 2Q GDP numbers are expected to represent the low point in the current cycle. Strategic (1 to 2 years) ¢ Given the above, in our base case, we see scope for some multiple expansion for the MSCI EM Index, ° Structural factors (e.g. stronger fiscal from the current 10.3x realized price-to-earnings ratio to closer to 11x over the next six months. We expect position, more favorable demographics) earnings growth of around 10% over the next 12 months. should continue to support stronger ¢ Within EM, we believe that Asia is best positioned for economic growth in the second half of 2012. In economic growth than in the developed emerging Asia, we prefer China. In Latin America, we prefer Brazil and Mexico. Central and Eastern agaremiss. Europe remains the most vulnerable region, and we remain neutral on Russia. ° Strategically, we would advise a tilt in EM J Positive scenario MSCI EM (6-month target): 1,190 portiolios toward cash-rich and taster- : ; ariR . growing Asia. ¢ The outlook for the global economy improves, boosting EM's ability to grow more strongly in 2013. Stronger economic growth leads to earnings growth of 15%. Investor confidence improves, leading to a better P/E multiple of 12.5x trailing earnings. More cyclical Korea and Taiwan would benefit. & N