e e e Emerging market equities Preference: overweight MSCI EM (24 Oct.): 995 (last publication: 990) Recommendations UBS View MSCI EM 6-month target: 1,040 Tactical (6 months) ¢ The downward revisions to the emerging market GDP growth forecasts appear to be coming to an end. e Within emerging markets, we have a We expect emerging market GDP growth to accelerate to 5.3% in 2013 from this year's 4.7%. preference over six months for the large ¢ Monetary policy in the US, the Eurozone, and Japan remains supportive. One implication of these low equity markets, Brazil, China and South interest rate policies, we believe, will be to enhance emerging market (EM) equity returns in USD by Korea. We expect an acceleration of supporting EM currencies more broadly against the USD over the next six months. growth into 2013 in Brazil and South e In our base case, we see the P/E multiple of the MSCI EM Index staying around the current level of 11x Korea, and a stabilization in the case of trailing (i.e. realized) earnings over the next six months. Over the next 12 months, we expect EM earnings China. We see relatively less upside for growth of around 11% (slightly below consensus). more defensive Malaysia. We believe that e Over the past month, structural reforms that will have longer-term benefits were announced in India South Africa and Indonesia are expensive. (retail sector), Russia (energy sector) and Mexico (labor market). This highlights that the emerging The ECB's announcement that it stands economies have options to improve the competitiveness of their economies, if they choose to do so. ready to buy the bonds of compliant Eurozone governments has lessened the A Positive scenario MSCI EM (6-month target): 1,325 tail risks for the smaller European ¢ The outlook for the global economy improves, boosting EM's ability to grow more strongly in 2013. This emerging equity markets (Turkey, stronger economic growth leads to earnings growth of 15%. Investor confidence improves, leadi