Etf March 2010 Dbs

Regional ETF Focus
2Q outlook for Asia equities
DBS Group Research Equity 17 March 2010
Sideways
• Given market valuations which are neither cheap nor • We look for markets where growth will surprise on the
expensive, equity market direction is determined by the upside, including Taiwan and Singapore. Uncertainty in
perceived level of risks in the market. The inevitable monetary policy moves make us neutral on Korea and
normalization of interest rates and liquidity should be India, although growth may continue to surprise if policy
considered when making asset allocation decisions. The moves were delayed. We are less enthusiastic about
timing of a policy move is a wild card. Sooner than Indonesia and Thailand due to domestic politics.
expected policy moves may prove nasty for Asian equities, Indonesia's growth momentum is slow relative to the
but may provide opportunities if investors start pricing that more cyclical markets. Thailand's prospects for a domestic
in. economic upturn may have been overly priced in
anticipation of a stable political environment.
• Meanwhile our baseline expectation of global economic
recovery is still intact and has the possibility to surprise on • Malaysia deserves an upgrade in our view, after the
the upside. Asia's growth has continued to surprise, while unexpected policy moves which suggest that underlying
US data continues to be mixed, but remains moderately growth may be stronger than expected. However we view
positive. Low expectations for Japan may turn out to be a the rally in banks in the last few days as excessive. We are
positive wildcard. The lower euro brought about by the overweight in Hong Kong / China and view pull back in
debt crisis may be a lift for EU's growth. the major index as an opportunity to accumulate for a
stronger second half.
• Equities have moved sideways in recent weeks while
global credit spreads have narrowed on the easing of
Greece' sovereign risks in the expectation that there will Fig. 1: Asia ex-Japan 12-month forward PE
be a bailout. We expect the Asian equity markets to trade
sideways in a tight range in the second quarter. We (x)
17
recommend investors to stay invested as the risks to both
the upside and downside are quite balanced. It is also a 16
great time to look for undervalued growth stocks during 15
this period of low volatility.
14
• Three wild card scenarios may swing markets in 2Q. One, 13
a one-off RMB revaluation, which will be positive for
equities; two, a sovereign bankruptcy which will cause a 12
major sell off in Asia equities; and three, an earlier than 11
expected policy move by US, which will cause equities to 10
correct, but valuation support will see that markets do
9
recover swiftly. Strong growth is associated with policy
moves on the margin, and we think markets may have 8
already started to discount a sharp downward correction 7
soon after China’s and US’ policy moves in Q1. 01 02 03 04 05 06 07 08 09 10
Source: Datastream
Regional Equity Strategist: Joanne Goh (65) 6878-5233 joannegohsc@dbs.com
www.dbs.com
Refer to important disclosures at the end of this report
\ed: LM / sa: TW
Regional ETF Guide
The next leg (Joanne Goh, joannegohsc@dbs.com)

Correction brought forward to Q1 Longer term risks persist
Asia markets spent the first fifteen days of the year playing The longer term issues worth considering in downside risk
catch-up to the strength of the domestic economy. This was protection are myriad. Points to ponder are the kind of rescue
immediately followed by an intense correction reflecting the efforts we are left with if another crisis comes about. Cheap
expectation that rising interest rates would ultimately take its money, if governments print money relentlessly, will lead to a
toll on liquidity. Meanwhile business conditions across Asia superinflationary environment. The thought of the pain that
remained robust with positive momentum in virtually all global markets have to go through on financial reform which
markets. The pricing in of interest rate fears were soon are needed for long term sustainability makes one think that
balanced by expectations of strong growth. equities markets may never recover.
Sideways in Q2 Fig. 2: Asia equity risk premium
We expect Asia markets to trade sideways in the second
quarter. The uncertainty surrounding possible market reactions 10
to policy moves are high in our view. While most investors 9
would agree that interest rate normalization is accompanied by

8
evidence of sustainability in growth, the liquidity impact on
stock markets is hard to assess. This, in conjunction with an 7 Low risk appetite
asset class which has been driven by liquidity, current low cash 6
levels among equity funds, and volatility in forex markets, are

5
keeping investors sidelined.
4
Interest rate normalization, not tightening
The fear is an over-tightening — this is not in our central 3
scenario. We believe most central banks recognize the fragile 2 High risk appetite
growth amid the financial risks which still remain unresolved

1
from last year's crisis. Meanwhile consumer price indexes are
rising from a low base last year and are mainly from cost 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
pushed factors such as higher oil, housing and food prices, Source: Datastream. Long term average from 2001to current = 4%
where administrative policies are available to tackle the
problem areas. An accommodative monetary policy is still Fig. 3: Drivers for ERP
needed to support growth which is still below potential, in our
Positive Negative
view. Corporate earnings and ROEs should continue to recover
¾ Low interest rates ¾ China hard-landing fears
amid this monetary backdrop.
¾ Earnings growth surprise ¾ If anticipated recovery faces
Risk aversion eases in expectation of a bailout in Greece, on the upside strong headwinds
but fiscal position has weakened in many governments ¾ Abundant liquidity ¾ Liquidity crunch
Equities have moved sideways in recent weeks while global ¾ Loose monetary policy ¾ Rapid increase in inflation
credit spreads have narrowed on the easing of Greece' ¾ Rolling of fiscal stimulus ¾ Europe sovereign debt crisis
sovereign risks on the expectation that there will be a bailout. ¾ Asian currency appreciation ¾ US financial sector reform
The fact is that fiscal stimulus last year has weakened the fiscal ¾ USD weakness ¾ Rising bond yields
position of many governments. The fears are multifaceted. ¾ US improving growth data ¾ Uncertainty in forex
One, a sooner than expected exit stimulus may be needed. ¾ Supportive valuations markets
Two, the crowding out of private borrowings from public ¾ Uncertainty in policy
actions
borrowings leading to a delay in business investments and
¾ Low cash levels
recovery. Three, vast supply of government bonds will
Source: DBS
eventually drive yields up.
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Regional ETF Guide
ETF Investment ideas correct, but valuation support will see that markets do recover
swiftly. Strong growth is associated with policy moves on the
We are positive on Asia equities and forecast that Asia markets
margin, and we think markets may have already started to
should return on average about 12% by year end. We set
discount a sharp downward correction soon after China’s and
yearend index targets at mid cycle valuations (average P/Es) and
US’ policy moves in Q1. (Fig. 2&3)
2011 growth, with the assumption that equity risk premium
stays at average levels. Most markets are forecast to deliver ETF investing provides diversification and yet quick entry / exit
returns of between 7-32% by year end, without stretching on macro risks
valuations to the limit. (Fig. 4) Markets are obviously waiting for forthcoming policy actions
Barring any changes to equity risk premium which is now and investors are being kept at the sidelines. The assessment of
currently at neutral levels, markets could swing to both sides. impact on policy actions are complicated by liquidity and flow
Our assessment of risk is that most negative factors which positions while the balance between interest rate outlook and
were in place in Q1 are fading. Three wild card scenarios may growth is also weighing on sector selections. We recommend
swing markets in 2Q. One, a one-off RMB revaluation, which staying invested via ETFs which provide diversification as well as
will be positive for equities; two, a sovereign bankruptcy which easy market access and exit. Uncertainty on policy actions is
will cause a major sell off in Asia equities; and three, an earlier the biggest macro risk in our view. Our best bets in Asia are in
than expected policy move by US, which will cause equities to Hong Kong / China, Taiwan and Singapore.
Fig. 4: Index targets

2011
Current level 12-mth Average earnings 3-month 2010 yr-end Upside (%) Market
3/5/2010 fwd PE P/E growth (%) target Index target 3m Yr-end recommendations
HSI 20788 12.6 14.4 17.3 22975 27349 11 32 Overweight
Taiwan 7666 13.8 14.6 17.0 8238 9380 7 22 Overweight
H-share 11927 12.7 12.8 16.4 12632 14041 6 18 Overweight
Thailand 724 10.4 10.3 17.9 766 849 6 17 Underweight
Singapore 2790 14.1 14.7 10.2 2923 3187 5 14 Overweight
Asia ex-Japan 550 12.3 12.2 13.5 573 618 4 12 Neutral vs developed market
China 'A' 3178 15.9 14.4 21.3 3301 3547 4 12 Neutral
MSCI HK 10061 15.7 15.8 10.6 10442 11203 4 11 Neutral
Malaysia 1300 14.5 14.0 13.7 1346 1438 4 11 Underweight
India 16994 16.1 13.9 21.0 17423 18280 3 8 Neutral
Korea 1635 9.4 9.2 9.6 1672 1747 2 7 Neutral
Indonesia 2579 13.1 9.4 18.4 2492 2318 -3 -10 Underweight
Source: Datastream, DBS
HSI, Taiwan, Singapore still below historical average P/E downside from current levels. We recommend adding position
We believe that markets which are still trading below average on any pull backs from unexpected policy moves. MSCI Hong
valuations are attractive and should possess multiple stock Kong is a Neutral, to reflect our preference for Chinese over
picking opportunities. These include Hong Kong, Taiwan, and Hong Kong stocks listed in Hong Kong. China ‘A’ is also a
Singapore. We are overweight in Singapore and Taiwan as we Neutral given the domestic liquidity squeeze from imminent
believe these two markets still have room to surprise on tightening moves will dampen risk appetite for equities in the
growth given their strong cyclicality. (Fig. 5) near term.
Overweight HSI, China ‘H’; Neutral MSCI Hong Kong, Upside risk for Korea
China ‘A’ Conviction on Korea and India is low as market direction
The Hong Kong market may possess the best upside but we depends highly on interest rate movements. This reflects a
believe volatility in this market will be higher than other general reluctance of Asia central banks to move rates at the
markets as it will be affected by US and China policy moves expense of growth. We are maintaining the two markets at
directly. We are keeping HSI and H-shares as Overweight, Neutral, and recommend investors watch rate hike
however, as we believe that volatility adds to buying expectations closely. Our economist expects a rate hike in
opportunity amid a tight ranging market during the quarter Korea from 2Q while majority of other forecasters are
and that its attractive valuation should protect market considering 3Q. The strategy team views the rate hike as pre-
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Regional ETF Guide
emptive rather than reactive to high inflationary pressure and a Fig. 5: Asia markets 12-month forward P/E, % deviation
delay is highly possible, which means upside risks for the from respective long term average
market.
Downside risk for India 40%
For the case of India, consensus is mixed on the magnitude of
rate hikes, ranging from 150 to 300bps. In any case the 30%
magnitude is big enough to exercise caution in this market and
20%
there is an urgency for interest rate hikes as inflation rate is
high. Moreover given the market's scrutiny on budget deficits
10%
over Greece's case, a potential ratings downgrade cannot be
ruled out completely. Valuations in India are expensive. Risk in 0%
India is to the downside in our view, after the rally following
the budget release, which essentially opens door for interest -10%
rate hikes.
-20%
Underweight Malaysia, Thailand and Indonesia
We are keeping Malaysia as an underweight. Being the first
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Asia country (outside Australia) to raise rates, the motive
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behind such a move is unclear. Meanwhile markets seem to
give it the benefit of doubt. We view the rally in the banking
sector in the few days post the rate hike as excessive. If the Source: Datastream. Long term average from 2001 - current
government is serious about reform, it may need to follow up
Highlights
with the long delayed reform in the subsidy structure to reduce
budget deficit. Such a move would dampen consumer Included in this report are the following highlights: -
sentiments in our view. Our currency strategist believes it’s “possible, yet improbable”
on the prospects of CNY revaluation in 2Q:. (See “Chinese
We are maintaining Thailand and Indonesia at Underweight. It
Yuan – ending stable currency in 2Q is ....”, Philip Wee).
may be over punishing to expect Indonesia to trade towards its
average valuations as the market has re-rated during the last Markets are also concerned about China’s exit strategy and the
few years on a stable political and economic environment sustainability of the strong growth in FAI last year to drive the
under the current president. That said, the lingering effects of economy ahead. Our economist, Chris Leung, explores the
the court ruling on the bailout of Bank Century may be an stimulus benefits the high-speed railway system will bring to
overhang for the market in 2Q. the economy upon completion. (See “China: the high-speed
railway – real stimulus at work”, Chris Leung).
A long term re-rating in the Thai market remains unlikely in our
view with politics as a major overhang. Exports have been the Meanwhile David Carbon, our chief economist, believes that
main driver for economic rebound in the last few quarters and the US recovery is on track and by 3Q10, the US will have 5
we continue to see that being so under a global recovery quarters of solid GDP growth averaging about 3.5% (vs
scenario. There may be an over optimism for a sustainable potential 2.5% to 3%). The unemployment rate will have
domestic demand recovery on perceived positive political fallen steadily and convincingly for 9 months. Under these
developments. However there may be opportunity for the Thai conditions, the Fed will deliver two 25bps hikes by year end.
market to trade higher on these developments in 2Q. (See “US: On the verge of job growth”, David Carbon).
We also assess the twin deficits situation in India and Vietnam,
and sovereign risks in Europe.
Page 4
Regional ETF Guide
World’s first new ETF exposed to Indonesia equities Fig. 6: MSCI Indonesia 12-month forward P/E bands
Deutsche Bank listed the world’s first ETF tracking the MSCI MSCI INDONESIA - AGGREGATE PRICE
A12PE BANDS 17, 14, 11, 8, 4
5000 5000
Indonesia in SGX on March 8. This should be of interest for 4500 4500
4000 4000
investors who wish to tap on the Indonesia market but have 3500 3500
difficulty accessing it due to liquidity constraint. Indonesia is 3000 3000
2500 2500
one of the smallest markets in Asia ex-Japan with a market cap
2000 2000
of US$240bil and US$350mil daily turnover. It has been a
primarily local market with local investors contributing to about 1500 1500
80% of daily turnover.

1000 1000
Indonesia has been a consistent winner among Asia markets,

beating the MSCI Asia ex-Japan by 180% since the Asia
financial crisis in 1997. In particular since the current president 500 500
Susilo Bambang Yudhoyono (SBY) took office in 2004, the

market P/E has re-rated from 8x to 14x. The political, economic
300 300
and market reforms pushed forward by SBY were instrumental 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
in driving the re-rating as investors’ confidence strengthened Source: DATASTREAM

under a conducive investment environment following his Source: Datastream
leadership. This is evident in the improvement in FDI and
Fig. 7: Top 10 stocks in MSCI Indonesia
portfolio flows in the last few years.
The Indonesia market also benefited from the commodity Stock Weighting
boom in the last few years. MSCI Indonesia is heavily exposed Telekomunikasi Indonesia 14%
to the resource sector like coal, mining and palm oil. These 3 Astra International 13%
sectors constitute about 18% of the index. Banks form the Bank Central Asia 11%
Perusahaan Gas Negara 8%
largest sector in the index, constituting about 27% of the
Bumi Resources 7%
index.
Bank Rakyat Indonesia 7%
Despite its favourable fundamentals, we are less positive on the Bank Mandiri 6%
outlook for Indonesia in the near term as we see risks that the United Tractors 4%
re-rating in the last few years could have run its course. Firstly, Ict.Tunggal Prakarsa 3%
Unilever Indonesia 3%
Indonesia is now one of the most expensive markets in terms
of P/E and P/B. Secondly concerns surrounding the court Source: Datastream
judgement and investigation on the Bank Century bailout case
may linger for some time. This could possibly undermine SBY’s Fig. 8: Sector weightings in MSCI Indonesia
political leadership which was the driving factor for the re-
Sector Weighting
rating in the last few years. Thirdly investor surveys suggest
Banks 27%
that most are already overweight in Indonesia. Fourthly our less
Telcos 16%
sanguine outlook for commodities suggests that the index may
Coal 14%
not do as well as before. Consumer Discr 13%
Investors in the Indonesia ETF should also be mindful that they Utilities 8%
are exposed to the volatility in rupiah. Consumer Staples 6%
Building Mat.& Fix. 5%
For further details in Indonesia, please see “Indonesia: Steady Industrials 4%
as she goes”, and USD/IDR outlook on pages 26 to27. Mining 3%
Plantations 2%
Property 1%
Source: Datastream
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Regional ETF Guide
Fig. 9: Singapore listed ETF
ETF Ticker Mkt Cap Style Country/ Underlying Bid NAV/ Premium/ Avg Daily Avg Daily
(US$ m) Region Index Price INAV Discount Volume Value (US$m)
Tracker 17-Mar (latest) (20 day) (20 day)
EQUITIES
Global / Regional Funds - Ex Asia
Lyxor World WLD SP Equity 25 Global Fund Global MXWO 1.22 1.15 5.6% 250 0.000
DBXT MSCI World XMWO SP Equity 11 Global Fund Global NDDUWI 2.89 2.85 1.2% 792 0.002
DBXT MSCI Europe XMEU SP Equity 1298 Region Fund Europe NDDUE15 42.38 42.64 -0.6% 2,567 0.103
Lyxor MSCI Europe MEU SP Equity 6 Region Fund Europe MXEU 12.61 12.48 0.7% 12,104 0.144
DBXT DJ Euro Stoxx XESX SP Equity 2622 Region Fund Europe SX5E 42.26 40.51 4.1% 1,307 0.052
Lyxor Emerg.Markets LEM SP Equity 48 Region Fund Emerg. Mkt MXEF 10.10 9.54 5.7% 298 0.003
DBXT Emerg. Mkts XMEM SP Equity 11 Region Fund Emerg. Mkt NDUEEGF 3.69 3.67 0.9% 93 0.000
Lyxor Eastern Europe CEC SP Equity 11 Region Fund East Europe CECEEUR 5.60 5.09 9.7% 8,815 0.044
Lyxor Latin America LTM SP Equity 13 Region Fund Latin America MXLA 8.66 8.05 7.5% 600 0.005
Country Funds - OECD
Lyxor NASDAQ-100 NDX SP Equity 25 Growth US NDX 7.77 7.34 5.8% 340 0.003
DBXT S&P Short XSPS SP Equity 185 Contrarian US SPXTS 51.50 51.92 -0.8% 1,437 0.077
Lyxor DJIA DJI SP Equity 6 Country Fund US INDU 10.87 10.78 0.7% 145 0
DBXT MSCI USA XMUS SP Equity N/A Country Fund US NDDLUS 26.75 27.12 -1.5% N/A N/A
Lyxor Japan JPN SP Equity 24 Country Fund Japan TPX 1.05 1.01 3.5% 83,603 0.085
Country Funds - Emerging (Non-Asia)
DBXT MSCI Brazil XMBR SP Equity 11 Country Fund Brazil NDUEBRAF 6.95 6.79 2.3% 101 0.001
Lyxor Russia RUS SP Equity 31 Country Fund Russia RU10D 3.97 3.84 3.0% 55,618 0
DBXT Russia Capped XMRC SP Equity 11 Country Fund Russia MXRUC25P 3.08 3.02 2.0% 176 0.001
Regional Funds - Asia x Japan
CIMBFTASEAN40 ASEAN SP Equity 175 Region Fund ASEAN ASEAN40 8.60 8.50 1.1% 99,390 0.819
Lyxor APEX50 APEX SP Equity 11 Region Fund Asia ex-Jap MXAPEXA 3.83 3.68 3.9% 12,438 0.046
Lyxor Asia AEJ SP Equity 87 Region Fund Asia Pac ex-Jap MXAPJ 4.25 4.04 5.1% 24,275 0.101
DBXT MS Asia X-JP XAXJ SP Equity 310 Region Fund Asia ex-Jap NDUECAXJ 27.62 28.10 -1.7% 1,611 0.000
DBXT MSCI EM Asia XMAS SP Equity 11 Region Fund Asia Pac ex-Jap NDUEEGFA 3.32 3.28 1.1% 79 0.000
DBXT MSCI Pacific ex Japan XPXJ SP Equity 11 Region Fund Pac ex-Jap NDDUPXJ 3.91 3.88 0.8% 70 0.000
Country Funds - North Asia
Lyxor China H ASI SP Equity 71 Country Fund China HSCEI 15.76 15.40 2.2% 27,404 0.415
DBXT FTChina25 XX25 SP Equity 363 Country Fund China TXINOU 29.66 29.23 1.3% 14,606 0.414
United SSE 50 China USSE50 SP Equity 48 Country Fund China SSE50 2.25 2.18 2.7% 554,690 0.858
DBXT CSI300 Index XCSI SP Equity 35 Country Fund China SHSZ300 9.56 9.32 2.5% N/A N/A
Lyxor HangSeng HSI SP Equity 30 Country Fund Hong Kong HSI 2.79 2.73 2.0% 6,619 0.018
Lyxor Korea KRW SP Equity 54 Country Fund South Korea MXKR 4.21 3.90 7.8% 43,413 0.174
DBXT MSCI Korea XMKO SP Equity 127 Country Fund South Korea MXKR 47.36 46.85 1.1% 1,043 0.049
DBXT MSTaiwan XMTW SP Equity 150 Country Fund Taiwan NDEUSTW 15.57 15.75 -1.2% 7,296 0.114
Lyxor Taiwan TWN SP Equity 57 Country Fund Taiwan TAMSCI 0.90 0.87 3.2% 139,334 0.123
Country Funds - South Asia
IS MSCI INDIA INDIA SP Equity 736 Country Fund India MXIN 7.13 7.10 0.2% 276,355 1.857
Lyxor MS India INR SP Equity 195 Country Fund India MXIN N/A 14.59 N/A 39 0.001
DBXT Nifty XNIF SP Equity 295 Country Fund India NIFTY 114.45 116.42 -1.7% 1,000 0.110
Lyxor India Nifty S$ LNFU SP Equity 40 Country Fund India NIFTY 16.37 15.07 7.7% 1,590 0.016
Country Funds - South East Asia
Streetracks STI ETF S$ STTF SP Equity 139 Country Fund Singapore FSSTI 2.94 2.92 0.2% 163,850 0.321
DBS STI ETF S$ DBSSTI SP Equity 28 Country Fund Singapore FSSTI 2.97 2.89 1.6% 6,965 0.014
Lyxor Malaysia MAL SP Equity 11 Country Fund Malaysia MXMY 7.33 7.03 4.1% 2,085 0.015
DBXT MSCI Indonesia XMIN SP Equity 45 Country Fund Indonesia NDEUINF 11.27 10.97 2.8% N/A N/A
DBXT FTSE Vietnam XFVT SP Equity 154 Country Fund Vietnam FVTTE 45.33 44.05 2.0% 966 0.043
FIXED INCOME
ABF SG BOND S$ SBIF SP Equity 215 Total Return Singapore N/A 1.12 1.10 0.5% 1,000 0.001
DBXT USD My Mkt XUSD SP Equity N/A Money Market US DBMMFED1 170.86 170.84 0.0% - N/A
DBXT Inflation linked TreasurieXUIT SP Equity N/A Sovereign US DBLNUSD 225.95 225.24 0.0% - N/A
DBXT IBOXX Treasuries XUTD SP Equity N/A Sovereign US ITRROV 179.79 179.17 0.1% - N/A
COMMODITIES
SPDR Gold Trust GLD SP Equity 27645 Commodities Global GOLDLNPM 110.58 110.41 0.2% 7,292 0.795
Lyxor CRB Non Energy CRN SP Equity 24 Commodities Global CRYNETR 2.27 2.31 -1.9% 1,482 0.003
Lyxor Commodity CRB SP Equity 98 Commodities Global CRYTR 2.66 2.67 -0.6% 13,263 0.035
Source: Bloomberg. Price and NAV in SGD unless indicated otherwise in ETF column
Page 6
Regional ETF Guide
Fig. 10: Hong Kong listed ETFs

(US$ m) Region Index Price INAV Discount Volume Value
('000) (US$m)
EQUITIES
Global / Regional Funds - Ex Asia
Lyxor World 2812 HK Equity 2.9 Global Fund Global MXWO 9.41 8.96 5.2% 11 0.013
DBXT MSCI World 3019 HK Equity N/A Global Fund Global NDDUWI 22.30 22.13 1.3% N/A N/A
Lyxor Emerging Mkts 2820 HK Equity 48.1 Emerg. Mkt Int'l MXEF 78.25 77.57 1.0% 5 0.050
DBXT Emerging Mkts 3009 HK Equity N/A Emerg. Mkt Int'l NDUEEGF 28.90 28.50 1.8% N/A N/A
Country Funds - OECD
Lyxor NASDAQ-100 2826 HK Equity 25.0 Growth Fund US NDX 60.10 60.13 0.0% 2 0.013
Lyxor RAFI Europe 2806 HK Equity 12.3 Growth & Inc. EZ FREU 48.25 48.12 0.6% 9 0.054
Lyxor RAFI US 2803 HK Equity 12.7 Growth & Inc. US FR10 40.95 40.69 0.8% 3 0.017
DBXT USA 3020 HK Equity 1723.6 Country Fund US NDDLUS 211.40 210.56 0.6% 0 0.002
Lyxor Japan Topix 2814 HK Equity 23.9 Country Fund Japan TPX 8.09 8.12 -0.2% 14 0.014
Country Funds - Emerging (Non-Asia)
DBXT MSCI Brazil 3048 HK Equity 11.4 Country Fund Brazil NDUEBRAF 54.55 52.73 3.7% N/A N/A
Lyxor Russia 2831 HK Equity 31.7 Country Fund Russia RU10D 30.55 28.60 7.1% 38 0.145
DBXT MSCI Russia 3027 HK Equity N/A Country Fund Russia MXRUC25P 24.05 23.43 3.1% N/A N/A
Regional Funds - Asia x Japan
iShares APEX50 3010 HK Equity 60.1 Growth Fund APAC ex-J MXAPEXA 34.65 34.71 0.2% 4 0.019
iShares APEX Mid Cap 3032 HK Equity 29.1 Growth Fund APAC ex-J MXAPEXAM 40.65 40.70 0.2% 40 0.202
Ishares APEX Small Cap 3004 HK Equity 16.8 Growth Fund APAC ex-J MXAPEXAS 41.20 41.14 0.4% 2 0.010
Lyxor MSCI Asia ex-Japan 2815 HK Equity 87.7 Country Fund APAC ex-J MXAPJ 33.05 32.72 1.1% 8 0.032
iShares Emerging Asia 2802 HK Equity 31.4 Emerg. Mkt Asia MXMS 37.80 37.74 0.5% 2 0.011
DBXT Emerging Mkts Asia 3035 HK Equity 10.6 Region Fund Asia NDUEEGFA 26.15 25.49 3.1% N/A N/A
DBXT Pacific ex Japan 3043 HK Equity 11.0 Region Fund Pac x Jap NDDUPXJ 30.70 30.10 2.3% N/A N/A
Country Funds - North Asia
Hang Seng H-Share IDX 2828 HK Equity 2748.5 Growth Fund China HSCEI 121.70 121.63 0.1% 1,455 22.114
Hang Seng FTChina 25 2838 HK Equity 31.3 Growth Fund China XIN0I 182.90 182.67 0.3% 2 0.041
iShares A50 China Tracker 2823 HK Equity 5566.3 Growth Fund China XIN50 13.22 13.06 1.3% 73,368 124.265
iShares MSCI China 2801 HK Equity 160.3 Value Sector China MXCN 20.95 21.00 0.0% 141 0.371
WISE CSI 300 China 2827 HK Equity 786.0 Country Fund China SHSZ300 33.20 32.62 1.9% 1,045 4.458
WISE SSE 50 China 3024 HK Equity 62.9 Growth Fund China SSE50 21.80 21.53 1.6% 114 0.320
DBXT FT Xin China 25 3007 HK Equity 358.4 Country Fund China TXINOU 229.20 226.87 1.2% 0 0.013
VALUE CHINA ETF 3046 HK Equity 46.5 Country Fund China GPVP002 36.25 36.37 -0.2% 15 0.069
ISHARES CSI 300 A-SH INDEX 2846 HK Equity 176.5 Country Fund China CSIR0300 27.85 27.67 0.8% 177 0.637
CICC-SZSE 100 INDEX TRACKE 3051 HK Equity 20.8 Growth Fund China SI100 38.20 37.61 1.8% 63 0.317
Lyxor MSCI Korea 2813 HK Equity 53.7 Country Fund S. Korea MXKR 32.50 32.27 0.9% 35 0.145
DBXT MSCI Korea 2848 HK Equity 126.3 Country Fund S. Korea MXKR 369.60 363.66 1.9% 1 0.026
Lyxor MSCI Taiwan 2837 HK Equity 57.9 Country Fund Taiwan TAMSCI 6.96 6.75 3.3% 272 0.237
DBXT MSCI Taiwan 3036 HK Equity 151.7 Country Fund Taiwan NDEUSTW 123.30 122.29 1.1% 1 0.009
POLARIS TAIWAN TOP50 3002 HK Equity 25.5 Growth Fund Taiwan TW50 11.28 11.19 1.1% 113 0.161
Hang Seng Index ETF 2833 HK Equity 3218.9 Growth Fund HK HSI 214.80 214.34 0.3% 22 0.597
WISE CSI HK Tracker 2825 HK Equity 17.8 Growth Fund HK CSIHHK 17.50 17.62 -0.3% 0 0.001
Tracker Fund of HK 2800 HK Equity 5650.2 Growth Fund HK HSI 21.55 21.49 0.4% 7,377 19.990
Country Funds - South Asia
iShares Sensex Tracker 2836 HK Equity 238.9 Growth Fund India SENSEX 16.90 16.86 0.4% 341 0.707
Lyxor MSCI India 2810 HK Equity 204.6 Country Fund India MXIN 122.70 120.10 2.3% 6 0.093
DBXT S&P CNX Nifty 3015 HK Equity 294.9 Country Fund India NIFTY 903.50 903.75 0.1% 0 0.013
Country Funds - South East Asia
DBXT FTSE Vietnam 3087 HK Equity 151.7 Country Fund Vietnam FVTTE 347.20 341.94 1.7% 3 0.128
FIXED INCOME
ABF HK Bond Index Fund 2819 HK Equity 304.8 Total Return N/A N/A 102.00 102.14 -0.1% 1 0.007
ABFPan-Asia Bd Idx Fd US$ 2821 HK Equity 1989.2 Total Return N/A ABTRPAUH 116.20 115.51 0.6% 4 0.507
DB X-TRACKERS USD MONEY M 3011 HK Equity 59.9 Global Fund N/A DBMMFED1 170.80 170.84 0.0% - N/A
COMMODITIES
Lyxor Commodity CRB 2809 HK Equity 98.4 Commodities Global CRYTR 20.65 20.57 0.5% 22 0.060
SPDR Gold Trust 2840 HK Equity 40571.4 Commodities Global GOLDLNPM 857.50 856.96 0.1% 13 1.448
Source: Bloomberg. Price and NAV in HKD unless indicated otherwise in ETF column
Page 7
Regional ETF Guide
Fig. 10 cont’d: Hong Kong listed ETFs

('000) (US$m)
Sector Funds
C-TRACKS Bldg/ Constr. 10800 HK Equity 0.1 Growth Fund Taiwan TWSECON N/A 2.71 N/A - N/A
C-TRACKS Hang Seng ChinaH 10828 HK Equity N/A Growth Fund China H-FIN N/A 15.75 N/A - N/A
C-TRACKS Hang Seng Property 10829 HK Equity N/A Growth Fund HK HSP 2.94 2.59 14.5% - N/A
C-TRACKS S&P Financials 10816 HK Equity N/A Growth Fund US SP5TFINL 0.03 2.74 N/A - N/A
C-TRACKS TAIEX Electronics 10801 HK Equity 0.0 Growth Fund Taiwan TWSEELEC N/A 3.22 N/A - N/A
C-TRACKS TAIEX Finance 10802 HK Equity 0.1 Growth Fund Taiwan TWSEBKI N/A 7.80 N/A - N/A
ISHARES CSI A-SH MATERIALS 3039 HK Equity 66.8 Sector Fund China CSIR0909 13.58 13.47 1.2% 209 0.372
ISHARES CSI A-SH FINANCIALS 2829 HK Equity 162.8 Sector Fund China CSIR0914 13.32 13.25 0.8% 281 0.474
ISHARES CSI A-SH INFRA INDEX3006 HK Equity 35.0 Sector Fund China CSIR0950 14.30 14.22 0.9% 132 0.245
ISHARES CSI A-SH ENERGY IND3050 HK Equity 49.1 Sector Fund China CSIR0908 12.74 12.67 0.9% 177 0.296
Source: Bloomberg. Price and NAV in HKD unless indicated otherwise in ETF column
Page 8
Regional ETF Guide
Table of Contents
Joanne Goh (65) 6878 5233 ETF Investment Idea 3

joannegohsc@dbs.com
Singapore-listed ETFs at a glance 6
Hong Kong-listed ETFs at a glance 7-8
Singapore market outlook 10
Hong Kong / China market outlook 13
Chinese yuan: ending stable policy in 2Q is

“possible, yet improbable“ 16
China: The high-speed railway – real stimulus at

work 17
Hong Kong: Glorious madness 19
India market outlook: 21
Korea market outlook 23
Taiwan market outlook 24
Thailand / Indonesia / Malaysia market outlook 25
Indonesia: Steady as she goes 26
India: Counting on tax reform 28
Vietnam: Deja-vu 29
EZ: The ultimate test 31
US: On the verge of job growth 32
Page 9
Regional ETF Guide
Singapore (Maintain Overweight)

Near-term outlook markets in the event of a sharp pull-back. A prudent
government policy stands out amid fears of sovereign risk
We believe market sentiments will be affected by global risk
scrutiny among developed markets.
aversion in the near term. Downside risks persist in view of the
uncertainty over China policy risks, sovereign risks over Greece Key domestic issues to watch this quarter
and other European countries, liquidity squeeze on USD as a
First quarter GDP announcement will be made in April. We
funding currency, and the potential US interest rate hikes
expect the economy to register strong growth of 10% QoQ
bringing about global synchronized interest rate tightening in
annualized. In year on year terms, it will be the strongest
the second half of the year. A US$20bil rights issue by
growth in a year, and a return to the pre-crisis peak levels in
Prudential for the acquisition of AIA could also sap market
1Q08 in absolute GDP terms. While newspaper headlines may
liquidity. Singapore's open market and economy makes it
cheer on the highly expected outcome (owing to the very low
sensitive to global market developments.
base in 1Q09), the figure will also mark the end of the V-
We expect global risk appetite to remain low in the first half of shaped recovery we had so far. We do not expect the
the year. Singapore should outperform the regional markets Singapore equities market to react positively to the event as a
given its leverage to global growth and domestic structural lot of the good economic news has been priced- in our view.
reform which is underway. A cheaper valuation vis-à-vis the (Fig. 1)
region also makes it more defensive than other major Asia
Fig. 1: Singapore year-on-year GDP growth vs year-on-year % change in STI
(%) (%)
100 15
80
10
60
5
40
20 0
0
-5
-20
-10
-40
-60 -15
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
STI %YoY (L) %YoY Real GDP growth (R)
Source: Datastream
The semi-annual monetary policy statement by MAS on the The much delayed Marina Bay Sands Integrated Resort will
same day should warrant more attention. We expect MAS to open on April 27. Since the launch of the Sentosa Resorts
maintain its neutral stance on Singapore's exchange rate World Integrated Resort in February, reviews were mixed on
policy. In view of the higher inflationary pressure, strong the success of the IR and tourist arrivals numbers are being
growth registered so far, and amid global concerns on the closely watched. The consensus forecasts, including ours, were
timing of stimulus strategies, the strategy team remains open for a +20% increase in tourist arrivals and retail receipts in
to the possibility that MAS may tilt the SGD NEER currency 2010. Seasonally adjusted tourist numbers have already
band. Equities market will react positively if MAS tilts the band reached 20% growth. If the momentum can be kept, we
to an appreciation bias. (Fig. 2) believe 20% is achievable, considering the heavy schedule of
tourist events this year including the subsequent opening of
Page 10
Regional ETF Guide
Universal studios, the many conventions which has already Valuation

been lined up prior to the opening of Marina Bay Sands, and
We view STI as attractively valued as it currently trades below
the Youth Olympics Games in August. (Fig. 3).
average 12-month forward P/E valuations. (Fig. 5). We arrive at
Fig. 2: Singapore equities vs USD/SGD our index target of 3187 for yearend based on historical
average valuations and a consensus earnings growth of 10%
(index) (USD/SGD) for 2011.
4000 1.9
We believe Singapore possesses upside to earnings as the
market earnings integer is still 10% below pre-crisis levels. We
3500 1.8
believe that the earnings integer should return to pre-crisis
levels as the nominal GDP level has returned to pre-crisis levels.
3000 1.7
For Singapore, many have argued that the dilutive effects of
Singapore corporate earnings from the massive fund raising
2500 1.6
last year (we estimate at 15% dilutive overall) will be difficult
for market earnings to return to pre-crisis levels. That said
2000 1.5
earnings of the cyclical sectors are still way below peak.
1500 1.4 Fig. 4: MSCI Singapore 12-month forward PE
1000 1.3 (x)

00 01 02 03 04 05 06 07 08 09 10 23
STI (L) USD/SGD (R) 21

Source: Datastream
19
Fig. 3: Tourist arrivals
17
('000s) (%) 15
950 20
13
900 15
10 11
850
5 9
800
0 7
750 01 02 03 04 05 06 07 08 09 10
-5
700 Source: Datastream
-10
650 Drivers:
-15
• The economy is highly cyclical and should expand in tandem
600 -20
with the global recovery this year. There is upside bias to our
05 06 07 08 09 10
growth forecast should the global recovery be stronger than
Tourist arrival, sa (L) %YoY (R)
expected.
Source: Datastream
• Structural transformation is underway for the economy from
On a side note, it remains to be seen how the Singapore exports oriented to domestic demand driven. Government
Tourism Board attempts to capture the increase in Malaysian initiatives to boost population growth and tourism are
tourists travelling to Singapore via the Singapore-Johor expected to bear fruits with the delivery of the Integrated
Causeway to visit Resorts World. These statistics are not Resorts this year.
included in Tourists Arrivals data historically.
Page 11
Regional ETF Guide
• Singapore's exports recovery is expected to be sustainable. • STI is heavily exposed to the financials sectors (Banks 21%,
With free trade agreements (FTA) already in place with US property 17%), which are sensitive to interest rate
and China, 90% of products are tariff-free beginning 2010. movements. A potential increase in interest rates will hurt
With FTA negotiations with EU beginning soon, major sentiments in these sectors. Moreover the rapid rise in
opportunities are opening up for Singapore to strengthen property prices and transactions suggests more government
trade links with major trading partners. intervention may be on the cards to control speculative
activities, which will act as a further damper.
• Prudent government finances. Sovereign risk is very low
among the developed markets. • GDP growth is expected to peak in 1Q10. With the sharp
rise in the market last year, we believe the market has priced
Risks:
in a V-shaped economic recovery. Growth momentum is
• The market is highly correlated to the global markets and is expected to moderate from now onwards and markets are
sensitive to global risk events. unlikely to be lifted by economic news.
Fig. 5: Singapore and Hong Kong listed ETFs exposed to the Singapore market
Singapore listed
Streetracks STI ETF S$ STTF SP Equity 139 Country Fund Singapore FSSTI 2.94 2.92 0.2% 163,850 0.321
DBS STI ETF S$ DBSSTI SP Equity 28 Country Fund Singapore FSSTI 2.97 2.89 1.6% 6,965 0.014
Source: Bloomberg. Price and NAV in S$.
Page 12
Regional ETF Guide
Hong Kong / China (Overweight) Meanwhile valuations for the HSI at 12.6x, is below historical
average of 14.4x. H-shares trade at 12.7x which is nearer the
Near term outlook
historical mean.
We believe investors will remain very concerned on China's
We are keeping HSI and H-share as Overweight, as we believe
policy risks in the coming months. This is not withstanding the
that volatility represents a buying opportunity amid a tight
National People's Congress (NPC), on-going at the time of
ranging market during the quarter. Furthermore its attractive
writing, which is widely expected to reiterate its "suitably
valuation should buffer against downside from current levels.
accommodative" monetary policy. It is only a matter of time
We recommend adding positions on any pull backs from
that the aggressive pro-growth policies need to be unwound,
unexpected policy moves. MSCI Hong Kong is a Neutral, to
in our view. Our economist expects a strong 1Q10 GDP growth
reflect our preference for Chinese over Hong Kong stocks listed
at c.11% for China, which opens the door for aggressive
in Hong Kong. China ‘A’ is also a Neutral given the domestic
monetary tightening sooner than expected.
liquidity squeeze from imminent tightening moves will dampen
That said, the hard landing risks are minimal in our view and risk appetite for equities in the near term.
China should be able to achieve growth rate of 9.5% this year
Fig. 1: Hang Seng Index: 2004 vs current
in view of increased exports growth contribution to overall
growth under a global economic recovery scenario and robust 0 0 0 'S
35
domestic demand supported by fiscal stimulus.
30
During the NPC, China is maintaining its growth forecast at 25

8% and inflation at 3%. Areas of surprise may be found in the
opening up of the economy to encourage more foreign direct 20
investments which was announced during the meeting. This (3)
comes on the heels of FDI shrinking 2.6% in 2009, the need to 15
rebalance the economy - over reliance on FAI, lack of (2)

productivity growth and corporate restructuring, uneven (5)
growth nationwide, and growth sustainability. Premier Wen 10 (3)

(1)
(4)
said that a security review system for mergers and acquisitions (2)
involving foreign investment will be set up as soon as possible.
(1)
On this we expect market M&A to be buoyant.
Risks 5
2003 2004 2005 2006 2007 2008 2009 2010
The downside risk to us is a sharp near term correction driven
by China hard-landing fears. The current scenario resembles S o u rce : DA TA S TRE A M
Source: Datastream, DBS. Periods denoted by (1) recession correction,

2004 -the year after Asia's recession from the Tech bubble and (2) recovery rally (3) correction due to China’s hardlanding fears (4)
SARS. China was poised to raise rates after aggressive easing consolidation (5) multi-year rally
to support anaemic economic growth. At the same time global
economic data was rolling over, and China's hard landing fears
stoked a sell-off in commodities and emerging markets. MSCI
Asia ex-Japan's retracement from high to low in 2004 was
25%. In the scale of things a 25% correction for a market
which has run up 100% may not be meaningful. The upside
risk is a RMB revaluation which will stoke a rally in Asia
equities. After the correction in 2004, Asia equities recovered
once the hard landing fears faded, and as RMB revaluation
speculation, powered a strong multi-year rally.
To hedge against both risks, we stay positively disposed to the

market, and would be buyers into any meaningful correction.
Our fear is that if the anticipated correction does not
materialise, the major market indices will be left in limbo.
Page 13
Regional ETF Guide
Fig. 2: HSI 12-month forward PE Fig. 3: H-share 12-month forward PE
(x) (x)
21 24
22
19
20
17
18
15 16
13 14
12
11
10
9
8
7 6
01 02 03 04 05 06 07 08 09 10 01 02 03 04 05 06 07 08 09 10
Source: Datastream, Source: Datastream,
Fig. 4: Singapore and Hong Kong listed ETFs exposed to the Hong Kong / China market (Hong Kong listed stocks)
('000) (US$m)
Hong Kong listed ETFs
Hang Seng H-Share IDX 2828 HK Equity 2748.5 Growth Fund China HSCEI 121.70 121.63 0.1% 1,455 22.114
Hang Seng FTChina 25 2838 HK Equity 31.3 Growth Fund China XIN0I 182.90 182.67 0.3% 2 0.041
iShares MSCI China 2801 HK Equity 160.3 Value Sector China MXCN 20.95 21.00 0.0% 141 0.371
DBXT FT Xin China 25 3007 HK Equity 358.4 Country Fund China TXINOU 229.20 226.87 1.2% 0 0.013
VALUE CHINA ETF 3046 HK Equity 46.5 Country Fund China GPVP002 36.25 36.37 -0.2% 15 0.069
Hang Seng Index ETF 2833 HK Equity 3218.9 Growth Fund HK HSI 214.80 214.34 0.3% 22 0.597
WISE CSI HK Tracker 2825 HK Equity 17.8 Growth Fund HK CSIHHK 17.50 17.62 -0.3% 0 0.001
Tracker Fund of HK 2800 HK Equity 5650.2 Growth Fund HK HSI 21.55 21.49 0.4% 7,377 19.990
C-TRACKS Hang Seng ChinaH 10828 HK Equity N/A Growth Fund China H-FIN N/A 15.75 N/A - N/A
C-TRACKS Hang Seng Property 10829 HK Equity N/A Growth Fund HK HSP 2.94 2.59 14.5% - N/A
Singapore listed ETFs
Lyxor China H ASI SP Equity 71 Country Fund China HSCEI 15.76 15.40 2.2% 27,404 0.415
DBXT FTChina25 XX25 SP Equity 363 Country Fund China TXINOU 29.66 29.23 1.3% 14,606 0.414
Lyxor HangSeng HSI SP Equity 30 Country Fund Hong Kong HSI 2.79 2.73 2.0% 6,619 0.018
Source: Bloomberg. Notes: HK-listed ETFs - Vol in ‘000s, Price and NAV are in HKD unless otherwise stated. SG-listed ETFs – Actual vol traded, Price
and NAV are in US$ unless otherwise indicated.
Page 14
Regional ETF Guide
Fig. 5: Singapore and Hong Kong listed ETFs exposed to the China ‘A’ share market
('000) (US$m)
iShares A50 China Tracker 2823 HK Equity 5566.3 Growth Fund China XIN50 13.22 13.06 1.3% 73,368 124.265
WISE CSI 300 China 2827 HK Equity 786.0 Country Fund China SHSZ300 33.20 32.62 1.9% 1,045 4.458
WISE SSE 50 China 3024 HK Equity 62.9 Growth Fund China SSE50 21.80 21.53 1.6% 114 0.320
ISHARES CSI 300 A-SH INDEX 2846 HK Equity 176.5 Country Fund China CSIR0300 27.85 27.67 0.8% 177 0.637
CICC-SZSE 100 INDEX TRACKE 3051 HK Equity 20.8 Growth Fund China SI100 38.20 37.61 1.8% 63 0.317
ISHARES CSI A-SH MATERIALS 3039 HK Equity 66.8 Sector Fund China CSIR0909 13.58 13.47 1.2% 209 0.372
ISHARES CSI A-SH FINANCIALS 2829 HK Equity 162.8 Sector Fund China CSIR0914 13.32 13.25 0.8% 281 0.474
ISHARES CSI A-SH INFRA INDEX3006 HK Equity 35.0 Sector Fund China CSIR0950 14.30 14.22 0.9% 132 0.245
ISHARES CSI A-SH ENERGY IND3050 HK Equity 49.1 Sector Fund China CSIR0908 12.74 12.67 0.9% 177 0.296
United SSE 50 China USSE50 SP Equity 48 Country Fund China SSE50 2.25 2.18 2.7% 554,690 0.858
DBXT CSI300 Index XCSI SP Equity 35 Country Fund China SHSZ300 9.56 9.32 2.5% N/A N/A
Page 15
Regional ETF Guide
Chinese yuan – ending stable policy in 2Q is “possible, yet improbable“(Philip

Wee, philipwee@dbs.com, extracted from “FX: Asia vs Europe, Economics – Markets – Strategy, 2Q 2010”, 11 March 2010)
As far as the world is concerned, it is a question of “not if, but pre-crisis levels in 2008. Worried about bubbles, especially in
when” China lets the CNY appreciate again. At the National the property sector, the government wants to withdraw
People’s Congress (NPC) in early March, the People’s Bank of stimulus without hurting confidence, even as it seeks a stable
China (PBOC) indicated that Beijing would eventually abandon transition away from an export- and investment-led economy
its “basically stable” CNY policy. The central bank classified this towards one that relies more on domestic demand.
“special” CNY policy as part of the emergency measures
Exports recovery slower than imports
adopted to cushion China against the global crisis. Even so, this
does not suggest that a move is imminent. 1600 $ billion
Exports
12m mov ave
As always, it is difficult to time the CNY move because any 1400
decision on the exchange rate ultimately rests with the political
leadership. Effectively, our forecast does not discount a move 1200
in 2Q10, though we think the odds are higher for the
1000
appreciation to begin in 3Q10 when the export cycle
traditionally starts swinging into full gear for the year-end 800 Imports
demand.
600
Not one to bow to US-led international pressures, Beijing is
unlikely to free the CNY ahead of the next US Treasury CNY
400 appreciation
Currency Report scheduled for release in mid-April. Since period
January, when US President Obama formalized his goal to 200
double US exports in five years, US lawmakers have been 02 03 04 05 06 07 08 09 10
clamoring for China to be labelled a currency manipulator on
CNY inaction, which has already increased trade tensions CNY has appreciated
pp on a trade-weighted
g basis
between the two countries. In fact, the CNY does not appear 20 15.9
to be the only issue that Washington and Beijing have agreed 15
% change vs USD
to disagree this year. Other issues included the US arms sales to 15 Jul 08 to 8 Mar 09
10
Taiwan, Obama’s meeting with the Dalai Lama, and sanctions
on Iran. 5 2.4
0
China takes the view that global foreign exchange policies -0.1
-5 -2.6
should not be politicized and should be instead be discussed -3.6 -3.6
-10 Ave: -6.3% -6.8
under the G20 framework. The next G20 meeting is scheduled
-10.9
to be held in June in Toronto, Canada. As far as China is -15
-14.1
concerned, the CNY has appreciated on a trade-weighted -20
basis. While the CNY has hardly moved against the USD since -25 -22.0
Reference currencies for CNY -24.3
July 2008, most of China’s trading partners have witnessed -30
depreciations in their currencies.
CAD
SGD
AUD
GBP
THB
MYR
KRW
EUR
RUB
JPY
CNY
The PBOC took the opportunity at the NPC to reject calls for a
one-off revaluation to address the trade surplus, which had
been narrowing instead of widening since October 2009. USD/CNY and PBOC 1Y policy lending rate forecast
Based on 12-month moving average trade data, two trends Close 2Q10 3Q10 4Q10 1Q11
USD/CNY 6.83 6.81 6.74 6.68 6.60
were clear. First, imports were clearly outpacing exports during Policy rate (%) 5.31 5.58 5.85 6.12 6.39
this recovery. Second, one could see why the Commerce
Ministry expected exports to take 2-3 years to return to their
Page 16
Regional ETF Guide
China: The high-speed railway — the real stimulus at work (Chris Leung,
chrisleung@dbs.com, re-published from “Economics – Markets – Strategy, 2Q 2010”, 11 March 2010)
• The warnings on property prices and the latent risks in the This is especially when the central part of China still has
banking sector by Premier Wen reinforce our view that immense potential to unleash. The population in the central
monetary tightening is far from over part of China, primarily consisting of provinces such as Anhui,
Hubei, Hunan, Henan, and Hebei, is around 350mn or one-
• Although inflation will likely be around 2.5% YoY in 1Q10,
thirds of total population. Most of the inner provinces
we expect it will average 4% in 2010. This is considerably
managed to maintain rapid growth in 2009 despite the global
higher than consensus and tilts the risks towards more rate
credit crisis (Chart 1). This was due to their low dependency
hikes, not less
on exports and steady domestic demand growth. For instance,
• The current macroeconomic policy mix will probably slow Hubei's GDP surged 13.2% YoY in 2009, far exceeding the
the volume of property-related transactions for a while, but nation average GDP of 8.7% YoY.
not prices
The high-speed rail will link these central provinces with major
• We look for 9% GDP in 2010 and 9.5% growth in 2011 economic hubs such as Chongqing, Pearl River Delta, Yangtze
• In this quarterly, we focus on China’s high-speed railway and Chart 1: Inner provinces performed better than coastal
the stimulus it brings to the economy areas
The global credit crisis has unexpectedly sped up China's % YoY

economic development. The scheduled completion of the 17
16 Real GDP Growth
high-speed rail network in 2012- eight years ahead of
15
schedule- will likely be a major cornerstone for mobility of
14
labor and capital in China. Over the next three years, the
13
government will expand the railway network by a total of 12
20,000km, of which 13,000 km will be designed for high- 11
speed trains capable of traveling up to 350kph. The high- 10
speed rail network will primarily consist of four main routes 9
running from North to South and four other routes running 8
Zhejiang
Nationwide
Tianjin
Chongqing
Hunan
Jiangsu
Fujian
Henan
Beijing
Guangdong
Hubei
Anhui
Hebei
Shanghai
from East to West (Table 1).
China is a big country with a big population. It makes sense to

invest heavily in a high-speed rail network to improve mobility
of labor and capital.
Table 1: The major routes of high speed rail network

North to South Geographical Areas Coverage Completion
Date
Beijing to Harbin NE China: Shenyeng, Harbin, Dailian 2014
Beijing to Shanghai Beijing, Jinan, Tai'an, Xuzhou, Bengbu, Nanjing & Shanghai 2012
Beijing to Hong Kong Beijing, Shijiazhuang, Wuhan, Guangzhou, and Hong Kong 2012
Hangzhou to Shenzhen Ningbao, Taizhou, Wenzhou, Fuzhou 2012
East to West
Qingdao to Taiyuan Taiyuan, Shijiazhuang, Jinan and Qingdao 2012
Xuzhou to Lanzhou Xuzhou, Zhengzhou, Xian, Baoji and Lanzhou 2012
Shanghai-Wuhan-Chengdu Shanghai, Nanjing, Hefei, Wuhan, Yichang, Lichuan, Chongqing, 2012

Suining & Chengdu
Shanghai - Kumming Shanghai, Hangzhou, Changsha and Kunming 2014
Page 17
Regional ETF Guide
River Delta (YRD) and the Beijing-Tianjin area. By then, foreign The high-speed rail concept has already generated enormous
investors will have more geographical options to choose from. optimism in the real estate market. In 2009, China property
Given the huge potential, foreign investors will likely sales jumped 76% to CNY4.4trn, led by eastern cities of
concentrate on domestic sales. In fact, growth of actual Zhejiang and Shanghai. Average property prices of 70 cities
utilized FDI in inner provinces has been more rapid than that of across China rose 7.8% YoY in Dec09, the fastest pace in 18
coastal regions (Chart 2). As suggested in the 1990s, the rise months.
of Southern China was primarily attributed to FDI. Not only
The high-speed rail concept has also led to a rapid surge of
was the region richer, it also gained invaluable
property prices in the second-tier and third-tier Chinese cities.
management/technology knowhow. There is no reason not to
Property prices in Suzhou (has no airport) for example, rose by
assume that other provinces will benefit in similar ways upon
18% on average in 2009 after the completion of a high-speed
the completion of the high-speed rail networks.
railway- which linked it to Shanghai within a short 30 minutes.
Chart 2: More FDI going into central part of China Going forward, investors will probably focus on Wuhan, the
% YoY capital of Hubei province, because it is located at the
45 intersection point of the high-speed rail network.
40
Actual Utilized FDI
35 Going forward, asset inflation will be a daunting challenge for
30
25 China. Gradual tightening of monetary policy may help slow
20 down transaction volume and the speed of price appreciation,
15 but this is only in the short-term, in my view. The medium-
10
5 term impact on property demand following the high speed
0 railways should not be underestimated.
-5
-10 Some critics argue that China is placing too much emphasis on
railway investments. Fixed asset investment (FAI) in railways
Fujian
Henan
Hunan
Guangdong
Zhejiang
Hebei
Hubei
Anhui
grew beyond 80% YoY in 2009, far exceeding the headline FAI
growth of 33%. As FAI accounted for more than 90% of
China's headline GDP growth in 2009 (8.7% YoY), it is
arguable that this investment-led strategy is not sustainable.
Moreover, given rapid urbanization in China, the sense of
urgency to build railways to alleviate traffic conditions has However, although such high rate of investment growth will
risen. Cargo transport is often suspended to make way for unlikely be sustainable in the long-run, whether these
passenger trains during peak seasons. In particular, the rail investments are productive or not can only be judged in the
capacity in the Yangtze River Delta region (YRD) has reached a future. In fact, given China's present stage of economic
saturation point. Fast growing cities such as Shanghai, development, their rail density clearly lags behind many other
Hangzhou and Nanjing in the YRD has generated huge countries (Chart 3). Moreover, in many ways, China's rail
demand for passenger and cargo transportation. Once the revolution is comparable to the development of America's
railway system connecting these cities is completed in 2011, transcontinental railway in the 19th century or the opening of
travelling time between these cities will all be within an hour. the US interstate highway system in the 1950s and 1960s.
This will be a huge improvement, as it takes eight hours to Given the size and population of China, the advent of high-
travel from Hangzhou to Nanjing currently. Economic speed trains is likely to have even greater implications for the
integration in the delta area will certainly speed up. Chinese economy. By improving mobility and accessibility,
economic development can spread more evenly within the
Let's look at another example. Wenzhou (southeastern
country. Moreover, there will likely be a narrowing of the
Zhejiang), home to many of China's biggest private enterprises
income/wealth gaps between the west and the east over time.
and real estate investors, was geographically isolated in a
mountainous coastal area. This was until the development of a Compared to the rest of the world, many of which are
high-speed track, which connected Wenzhou to Ningbo (a burdened by high public debt, China is much more flexible
major port), and to its neighboring province Fujian (major when it comes to public spending. China is in the position to
Taiwanese investment hub). The new connection will likely focus on strengthening its economy through transforming its
enhance Wenzhou's entrepreneurial spirit by allowing transportation infrastructure without heavy reliance on external
enterprises to have easier access to nearby cities. financing.
Page 18
Regional ETF Guide
Hong Kong: Glorious madness (Chris Leung, chrisleung@dbs.com, re-published from “Economics – Markets
– Strategy, 2Q 2010”, 11 March 2010)
• Surging prices have prompted renewed fears of a property To compare, the HK economy was sucked into a deflationary
bubble. Persistent low interest rates and inflation spiral a decade ago as property prices plunged from 1998 to
expectations have continued to spur demand 2003. Household balance sheets at the time were over-
leveraged and the domestic economy was vulnerable to almost
• The government has recently introduced measures to calm
any external shocks. The subsequent deleveraging process was
the property market. But if the elevation of the down
painful. Private consumption was extremely weak due to rising
payment to 40% from 30% failed to cool luxury property
unemployment. The unemployment rate rose all the way from
prices last year, it is doubtful the recent increase in the
2.5% before the crisis in 1997 to 8.7% during the summer of
stamp duty will have much impact.
2003.
• Unless US rates rise soon and/or China steps up monetary
Thankfully, the situation in 1998 did not repeat in 2009 due to
tightening, property prices seem unlikely to correct in a
the completion of the almost a decade-long deleveraging
meaningful way
process. The loan-to-deposit ratio before the crisis in 1997 was
• GDP is projected to grow 5.5% YoY in 2010. General around 120 compared to only 69 as of end-2009. Right now,
wage/salary increases will continue to be subdued, mostly there is simply too much idle cash earning next to nothing in
matching an inflation rate of 3% the banking system. The desire for higher yielding investments
to hedge against inflation risk has naturally accentuated the
During the beginning of the credit crisis, the HK government
demand for real assets. This cash is unlikely to go away
expected unemployment to exceed the historical high of 8.7%.
anytime soon because the balance of global economic power is
Experience from 2009 taught us a great deal about the HK
tilting towards China and Asia in general. Such long-term
economy. In particular, as long as the property market remains
optimism in China will continue to act as a powerful catalyst to
resilient, domestic demand will hold. Hence, the labor market
property investments.
recovered quickly from the recent crisis. Unemployment even
improved from 5.4% in Aug09 to 4.9% in Jan10. There was a
brief period of disinflation, but attention quickly turned back to Mainland investors have played a prominent role in driving up
inflation. The shock from the credit crisis on the domestic property prices in the luxury sector in HK. In the eyes of
economy, comparable to the Great Depression in the 1930s, mainland investors, HK's medical, legal and education system is
turned out to be relatively short-lived. Merchandise trade took much more advanced than that of mainland China. To them,
the brunt of the shock (Chart 1). The real economy contracted they don't mind paying a large premium on property prices just
2.7% for the year as a whole, much better than earlier to enjoy these economic intangibles. Let's not forget that many
forecasts of -5.0% to -7.0% at the beginning of 2009. mainland investors have budgeted at least 15% to 20% on
CNY appreciation in the next 3 to 5 years. Even at the current
Chart 1: Domestic demand fared much better than spot rate, the CNY is stronger than the HKD by around 12%.
external trade
% YoY
Most of the property transactions involving mainland Chinese
15
investors were carried out without the need for leverage. From
10 this perspective, it is technically difficult to label the current
5 situation as a bubble. As a result, even in the event of any
0 unforeseen exogenous shocks, their holding power will likely
-5 remain strong and property price will unlikely correct easily.
-10
-15 Domestic Demand

Export of Goods
-20
Export of Services
-25
Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09
Page 19
Regional ETF Guide
As the price of luxury properties (defined as more than is windfall money. To the government, a vibrant property
HK$10mn) become out of reach for a lot of local HK market will help secure a safe fiscal income stream as
professionals, the demand has shifted down to the next lower developers will soon have to replenish their land banks. But to
segment in the price range between HK$5mn and HK$10mn. the middle class, high property prices have become a burden.
Consequently, property prices in this category have also It is increasingly difficult for the middle class to upgrade their
surged. People who cannot afford this category have to existing home. To the young people (especially those without
cascade down to the next lower price segment. In the end, financial support from parents), the ownership of any property
prices in all categories are likely to go up (Chart 2). In the end, in HK has become a remote dream. HK the highest Gini
the demand for mortgage (mid-end properties) also Coefficient of 0.53 amongst all Asian cities. It is much higher
skyrocketed. It is this segment that the HKMA worries a than the average reading of 0.39 in Asia, and more than
bubble could be forming fast. double that of Beijing (0.22).
Chart 2: Property
p yp
pricesg of all categories are on the rise Make no mistake. Without a buoyant property market, the HK
economy could not have recovered as quickly as it did from the
HK: Property price index: domestic
credit crisis. The flood of capital from mainland China was a
250
major catalyst to HK's property market and hence the overall
economy at large. Going forward, the strength of the Chinese
200
Class A Class B Class C economy will bring more and more business opportunities to
Class D Class E
HK. Against such backdrop, the trend GDP growth rate in real
150
terms of 4% per annum from 2011 to 2014 projected by the
HK government looks reasonable, though it do not reveal the
100
structural challenges ahead.
50
Latest: Dec09
Chart 3: Salary growth in real terms likely to remain
subdued in 10
0
Dec-96 May-98 Oct-99 Mar-01 Aug-02 Jan-04 Jun-05 Nov-06 Apr-08 Sep-09 % YoY
7.0
In the 1990s, property prices were mainly driven by Real Salary Index of Middle level
conventional economic factors such as high income growth, 6.0
negative real interest rates and high leverage. At that time, 5.0
China's influence on the global economic landscape was not 4.0
nearly as prominent. This round, the dominant factors driving 3.0
property prices are mostly structural and long-term in nature.
2.0
These factors include: (1) the shift in the balance of economic
1.0
powers; (2) the deeper economic integration between HK and
mainland China, especially at a time when the Chinese 0.0
economy is growing strong alongside a strengthening CNY; (3) -1.0
the urge to increase exposure on the property market and -2.0
other real assets after the burst of the credit crisis; (4) HK has -3.0
completed a decade long process of de-leveraging; (5)
2005 2006 2007 2008 2009
persistent low interest rates. The combinations of all these
factors are extremely powerful in pushing up property prices,
even in the absence of income growth (Chart 3).
When property prices remain high, inflation expectations

remain high. This is turn helps sustain the demand for
property as there will always be purchasers willing to buy now
under the fear of higher prices tomorrow. Is this good or bad?
It really depends on who you are. To property developers, this
Page 20
Regional ETF Guide
India (Maintain Neutral) Fig. 1: MSCI India 12-month forward P/E

Near-term outlook:
(x)
We believe growth in India can continue to surprise on the 25
upside and we are expecting further upgrades in GDP growth 23
by the street. We have upgraded our 2010/11 growth forecasts 21
to 8.3% from 7.9%. Consensus forecast of 29% earnings
19
growth in 2010 looks achievable, in our view, considering this
is a recovery year, and the negative factors from last year's 17
financial crisis are set to fade. More importantly the easing 15
monetary and credit conditions, government market reforms
13
and stimulus programmes for private sectors to participate,
should see the India corporate scene buzzing again. 11
Inflation risk in India is probably understated. On this front, the 9

government has to get its act together on fuel price subsidy 7
reforms and implementation of various social programs, which
5
has been addressed in the current budget. We believe the pro-
01 02 03 04 05 06 07 08 09 10
growth budget opens the door to interest rate hikes. Our
economist expects it at 150bps for this year. However this is Source: Datastream,
still less than the monetary easing during the crisis and real
Fig. 2: India WPI vs policy rate
rates will still be negative with the forecast hikes and inflation.
This should still keep market watchers very concerned on the
(%)
timing and magnitude of the coming rate hikes, and how this 14
will derail growth.
12 Repo rate
We expect volatility for the Indian market to continue on fears WPI
of interest rate tightening. Despite a more prudent budget this 10
year, risks at a downgrade from investment to speculative
8
grade by major ratings agencies on budget deficit concerns
remain an overhang. We are maintaining our Neutral 6
weighting on India.
4
The Indian market is considered expensive from a valuation
point of view, with the Sensex trading at above average 12- 2
month forward P/E valuations.
0
-2
01 02 03 04 05 06 07 08 09 10
Source: Datastream,
Drivers:
• The economy is primarily driven by domestic consumption.
Long term infrastructure development and the need to
improve living conditions (reduce slum areas, improve
education and reduce poverty) imply a long term potential
growth of 7.5%. The growth rate may be understated
considering the huge population and the government's
recent reform efforts.
Page 21
Regional ETF Guide
• Post the re-election of the ruling UPA government last year, aggressively. This is true in the context of rates being cut
we expect the government to step up in its reform effort, aggressively during crisis years but there has not been any
which implies a better quality growth can be achieved. significant slowdown in growth. Rates thus need to be
normalized soon enough to avoid overheating risks.
• We believe growth can surprise on the upside following the
2010/11 budget which is thought to be well-balanced. • Inflation in India is also seen as highly dependent on food
Government forecasts 9% growth this year and double-digit prices considering the huge population and agricultural
growth rates in the coming years. This will put India in the sector's contribution to growth. India market is thus very
same range as China's growth. sensitive to food prices which have been very volatile with
global warming and unpredictable weather patterns.
• Relaxation in FDI rules and capital flows should encourage
more investor flows in India. Stock market reforms like • Fuel subsidy reform is a sensitive social issue in India, but is
privatisation and increase in foreign ownership are improving necessary to reduce the budget deficit meaningfully. The
market efficiency. government may face challenges in tackling this issue.
• A strong domestic savers' pool contributes to the long-term • India valuations trade towards the higher side of the range
growth potential of the market. and do not provide enough cushion should risk aversion
persist. The market is more volatile than most Asia markets.
Risks:
• Consensus believes that interest rates in India are too low
and inflation rate is understated, thus the need to raise rates
Fig. 3: Singapore and Hong Kong listed ETFs exposed to the India market
IS MSCI INDIA INDIA SP Equity 736 Country Fund India MXIN 7.13 7.10 0.2% 276,355 1.857
Lyxor MS India INR SP Equity 195 Country Fund India MXIN N/A 14.59 N/A 39 0.001
DBXT Nifty XNIF SP Equity 295 Country Fund India NIFTY 114.45 116.42 -1.7% 1,000 0.110
Lyxor India Nifty S$ LNFU SP Equity 40 Country Fund India NIFTY 16.37 15.07 7.7% 1,590 0.016
iShares Sensex Tracker 2836 HK Equity 239 Growth Fund India SENSEX 16.90 16.86 0.4% 341 0.707
Lyxor MSCI India 2810 HK Equity 205 Country Fund India MXIN 122.70 120.10 2.3% 6 0.093
DBXT S&P CNX Nifty 3015 HK Equity 295 Country Fund India NIFTY 903.50 903.75 0.1% 0 0.013
Page 22
Regional ETF Guide
Korea (Neutral) • Global economic recovery should keep the growth

momentum intact.
Market outlook
• After continuous net sell by foreign investors in the last two
We continue to expect KOSPI to be driven by domestic
years, cumulative net buy has come off to 1998 level. This
concerns, including 1) the timing of interest rate hikes and
implies a very low base to start with and we expect foreign
stimulus exit, 2) Hynix's capital raising, 3) direction of the won,
buying to return, providing support for the market.
4) insecurity from North Korea, 5) Samsung Life and other
insurance companies' IPOs, 6) housing market bubble, 7) Risks:
foreign debt and won's vulnerability in a crisis environment
• Market sentiment is affected by potential supply of IPOs and
It is however sensitive to global growth recovery prospects capital raising needs by SMEs. Our estimates are c.1% of
considering its high exports exposure. However, the cheaper market cap which should not pose as a big threat to the
won and the stimulus programmes by the government played overall market. However the financial sector will be affected
an important role in its exports recovery last year. In this by potential IPOs of large insurance companies and capital
respect we do not expect the economy to benefit as much this raising from specific manufacturers is going to dampen
year, unless the global recovery is a lot stronger than expected, sentiment in this sector.
or the government maintains its stimulus policy longer than
• Stimulus exit strategy can potentially derail growth, which
expected.
should otherwise benefit from a global synchronized upturn.
Earnings growth expectations may be too optimistic and Government stimulus has been more than most Asian
provide no upside surprise in our view. The forward earnings countries
integer has surpassed pre-crisis levels and is above pre-crisis
• SMEs are always a major concern in Korea as government
levels by 15%.
assistance in this sector is substantial. The sector holds a key
We have pushed out our interest rate forecasts to 2Q, but to social and economic stability as it hires a big labour force
consensus remains split due to a very pro-growth finance and the banks are highly leveraged to this sector. SMEs
ministry and inflation has come off in the latest reading. A reform has been slow and remains a sensitive issue to banks'
delay in rate hike expectations will be positive for the market. NPLs and the labour union. The Korean discount will be
We are maintaining our Neutral stance on Korea, pending there as long as the overhang remains and SMEs reform gets
changes in rate hike expectations, and if won is presumed to delayed.
be stable at current levels.
• Korea is sensitive to oil price movements. Net oil import is
Drivers: 5.3% of the economy which is the highest in the region.
• The Korean market remains largely a macro story on the • Government intervention in the private sector is large when
direction of interest rates, exit strategies and won direction. compared to other countries. This could be due to the
As uncertainties surrounding the outlook remain large, we country having been hit hard and driven to several crises in
do not expect upside in the market driven by macro inputs. the past decade.
Positive surprises can come in the form of a delay in rate
• Korea valuations are deemed cheap when compared on a
hike, a stable won, and the extension of the pro-growth
regional basis.
strategies.
Fig. 1: Singapore and Hong Kong listed ETFs exposed to South Korea market
Lyxor Korea KRW SP Equity 54 Country Fund South Korea MXKR 4.21 3.90 7.8% 43,413 0.174
DBXT MSCI Korea XMKO SP Equity 127 Country Fund South Korea MXKR 47.36 46.85 1.1% 1,043 0.049
Lyxor MSCI Korea 2813 HK Equity 54 Country Fund S. Korea MXKR 32.50 32.27 0.9% 35 0.145
DBXT MSCI Korea 2848 HK Equity 126 Country Fund S. Korea MXKR 369.60 363.66 1.9% 1 0.026
Page 23
Regional ETF Guide
Taiwan (Maintain Overweight) • Domestic demand is poised to pick up following the

improved economic conditions after ECFA.
Near term outlook
• More positive news flow from the financial MOU and ECFA
We are maintaining our positive outlook for Taiwan equities.
The Taiex was the worst performing market in Asia quarter to • Taiwan's tech sector is benefiting from a global recovery and
date, after hitting a high of 8356 in the middle of January. The new product launches like LED, 3D-TV, touch screen panels,
index gave in to profit taking on fears of a China hard-landing Windows 7.
risk. We believe the benefits to be reaped off from the ECFA
• Favourable interest rate environment and pre-elections
remain underappreciated and expect upgrades in both the
positive market sentiments to persist.
earnings and economic growth forecasts by the street.
• Attractive valuations
The popularity of Taiwan's Ma Ying-Jeou has dipped to a post
election low. This suggests that the government has an urgent Risks
agenda to ensure the success of its economic reform process
• Domestic political noise could slow down the progress of Ma
before the next presidential election. We believe there will be
Ying-Jeou's economic reform process
more positive news from ECFA by the first half of this year. On
politics, cross-strait relationship remains the key focus. The • Central bank tightening in the second half of the year
special municipal mayor and councilman election in December
• High leverage on G3's growth if growth recovery disappoints
remains closely watched. We expect domestic market
sentiments to remain positive prior to the elections.
Drivers
• Strong GDP growth of 6.3% in 2010. We expect consensus
to upgrade forecasts following the strong 4Q09 growth.
Fig. 1: Singapore and Hong Kong listed ETFs exposed to Taiwan market
Lyxor Taiwan TWN SP Equity 57 Country Fund Taiwan TAMSCI 0.90 0.87 3.2% 139,334 0.123
DBXT MSTaiwan XMTW SP Equity 150 Country Fund Taiwan NDEUSTW 15.57 15.75 -1.2% 7,296 0.114
Lyxor MSCI Taiwan 2837 HK Equity 58 Country Fund Taiwan TAMSCI 6.96 6.75 3.3% 272 0.237
DBXT MSCI Taiwan 3036 HK Equity 152 Country Fund Taiwan NDEUSTW 123.30 122.29 1.1% 1 0.009
POLARIS TAIWAN TOP50 3002 HK Equity 25 Growth Fund Taiwan TW50 11.28 11.19 1.1% 113 0.161
C-TRACKS Bldg/ Constr. 10800 HK Equity 0 Growth Fund Taiwan TWSECON N/A 2.71 N/A - N/A
C-TRACKS TAIEX Electron10801 HK Equity 0 Growth Fund Taiwan TWSEELEC N/A 3.22 N/A - N/A
C-TRACKS TAIEX Finance 10802 HK Equity 0 Growth Fund Taiwan TWSEBKI N/A 7.80 N/A - N/A
Page 24
Regional ETF Guide
Thailand / Indonesia / Malaysia (Underweight) outcome remains fluid at this stage but SBY’s political
leadership is definitely undermined. A further re-rating in the
Near term outlook
market is not possible in our view.
We remain negative on Thailand, Indonesia and Malaysia.
Bank Negara surprised the market with a rate hike and became
These are the three best performing markets this quarter in
the first Asia country to do so. The reasons for such a move
Asia. As the global recovery gains traction, we expect that
remain unclear, but if it is all about reform and demonstating
markets with cyclical upside will benefit the most.
political will, more policy moves should follow. These include a
Politics took centrestage n Q1 for these markets but still remain reform to the subsidy structure in Malaysia, where alot of
largely unresolved and hence risks still linger in our view. In consumer staples, utilities, fuel, toll fees are on subsidised
Thailand the court ruling on Thaksin’s assets to be consficated rates. Then there wll be more reasons to cheer when
partially (more than half) is still subject to appeal and protest. privatisatons, land sales, and market reform can take place as
Meanwhile Thailand’s valuations are now near average levels - well. For now we view the bank rally after the rate hikes as
the “political: discount is no more available to Thailand. We do excessive and will want to see further evidence of reform
not expect growth to keep on surprising on the upside as before making any changes to our underweight
domestic recovery may have been fullypriced in an anticipation recommendations.
of a stable political environment. Exit strategy and interest rate
All these three markets trade above average valuations, which
hikes are expected in the second half.
make them vulnerable in the event of a spike in global risk
In Indonesia, the court ruling on the bailout of Bank Century is aversion.
deemed negative for SBY’s administration. The possible
Fig. 1: Singapore and Hong Kong listed ETFs exposed to Thailand / Indonesia / Malaysia / Vietnam markets
Lyxor Malaysia MAL SP Equity 11 Country Fund Malaysia MXMY 7.33 7.03 4.1% 2,085 0.015
DBXT MSCI Indonesia XMIN SP Equity 45 Country Fund Indonesia NDEUINF 11.27 10.97 2.8% N/A N/A
DBXT FTSE Vietnam XFVT SP Equity 154 Country Fund Vietnam FVTTE 45.33 44.05 2.0% 966 0.043
DBXT FTSE Vietnam 3087 HK Equity 152 Country Fund Vietnam FVTTE 347.20 341.94 1.7% 3 0.128
Page 25
Regional ETF Guide
Indonesia – Steady as she goes (Lim Su Sian, limsusian@dbs.com, re-published from “Economics – Markets
– Strategy, 2Q 2010, 11 March 2010)
• We continue to look for GDP growth of 5.5% this year. start to peter off. Nevertheless the extremely low level of
With the economy operating near maximum capacity, exports in 2009 will make Indonesia’s 2010 export growth
investment – and in turn, consumption – will drive growth as number appear strong – based on our projection that
external demand normalizes sequential export growth will slow from around 6% QoQ sa to
2% by the year-end, exports will still be up a huge 22% on the
• Despite the central bank’s guidance, we caution against
year. However, coupled with strong domestically driven import
taking too lax a view on inflation. Though mild now, it will
growth of nearly 28%, on a net basis we expect exports to
rise in 2H09 on demand-pull pressures. This will necessitate
contribute just 0.4%-pts to the growth headline, compared to
a hike in the policy rate to 8% from 6.50% currently
1.2%-pts in 2009.
• The Bank Century saga continues. For this reason, we
Keep an eye on inflation…
remain hesitant to lift our growth forecasts
So far this year, Bank Indonesia (BI) has taken a very relaxed
Investment driving
view on inflation, at times even sounding outright dovish. But
We are upbeat on the investment outlook, owing to evidence we caution against complacency.
the economy is operating near the limits of its productive
Although hikes in electricity tariffs and subsidized fuel prices
constraints. Capacity utilization at end-2009 stood at a high
appear to be off the agenda this year owing to the political
74.2%, corroborating with our estimates of the output gap, or
environment, risks to inflation appear tilted to the upside,
the economy’s distance from the level of output potentially
particularly over the second half. First, on the demand side, as
achievable. The crisis-induced lull in growth in 4Q08 did take
explained earlier we expect the output gap to turn positive. As
output to sub-potential levels, but with sequential growth
producers come up against production constraints, general
having come in faster and faster every quarter since, the gap
prices will have to rise. Second, with regards to the supply side,
between actual and potential output has narrowed. Indeed,
upside pressure on food prices cannot be discounted, given
assuming growth pans out as we expect, this output gap
reports that El Nino is now starting to affect rice output in
should turn positive in 2Q or 3Q10. What this means is that as
places like Thailand. Last, but definitely not least, inflation
businesses rub against capacity constraints, they will have to
expectations have refused to die down (Chart 3), and have in
invest in additional plant and equipment – not to mention
fact been creeping higher every month since early 2009. This,
labour – in order to meet demand over the next few quarters.
even as the likelihood of fuel/electricity price hikes has clearly
Further supporting the investment outlook is the likelihood of a diminished. This is significant, because if people expect prices
rebound in foreign direct investment (FDI). Since the peak of to rise tomorrow, chances are they will go out to purchase
the global financial crisis in Sep08, FDI into Indonesia has goods today, in turn pushing prices higher in a self-fulfilling
dwindled, as flows from key investors like Japan, Singapore way.
and Malaysia – countries much worse-hit by the crisis – froze.
Rising inflation expectations
These economies have since enjoyed two to three quarters of
% YoY Index
recovery, and it will not be long before they start looking
14 190
further afield again for investment opportunities. Indonesia C'ser px
expectations, 185
should benefit from this, being one of the region’s largest 12
6mths fwd 180
markets, as well as offering a gradually improving investment (RHS)
10 175
environment and significant opportunities in areas such as
170
infrastructure. 8
? 165
External demand to normalize 6 160
CPI 155
Even as investment momentum picks up, however, external 4
demand is likely to normalize in the coming quarters. Such will 150
2
mirror the growth patterns of Indonesia’s key markets, Latest: Feb10
145
particularly those in Asia where the sharpness of the economic 0 140
rebound – following the one-off shock from the crisis – will Jan-07 Jan-08 Jan-09 Jan-10
Page 26
Regional ETF Guide
So while the central bank may talk about YoY inflation to raise interest rates from their abnormally low levels, amidst
meeting its end-year target of 4%-6% - which it will - we are signs of a broadening US recovery. Hopefully by then,
more concerned with the month-to-month readings. Based on Indonesia would have addressed the divisions within its ruling
our estimates, MoM inflation should pick up to 0.5% in 2H10, coalition and return focus to reforms.
from the very low 0.3% average we have seen so far this year.
US rate hike cycle remains a challenge for post-Asian
This inflation projection is in line with historical norms, and is crisis IDR
likely to warrant a similar move on the policy front – we
13000
continue to look for the overnight reference rate to be lifted
150bps over 2H10, taking the policy rate to 8.00% by the 12000
year-end.
11000
… and politics
10000
A key assumption behind our forecasts is political stability.
There are increasing risks to this view, however, as the 9000
politicization of the Bank Century bailout continues. Following
8000
a three-month inquiry, parliament decided on March 3 by a
vote of 325 to 212 that the government’s IDR 6.76trn bailout 7000 USD/IDR Fed hike cycle
of Bank Century in Nov08 was illegal. The decision could lead
to further investigations of members of the Yudhoyono 6000
administration by the anti-graft agency and the police. 99 00 01 02 03 04 05 06 07 08 09 10
For this reason, we remain hesitant to raise our growth IDR resilience will improve if foreign reserves rise keep
forecast despite a pickup in bank lending. Following relatively outpacing domestic money supply
muted growth post-crisis, bank lending growth finally picked 50 % YoY
up in 4Q09 amid pressure from the central bank, with banks Foreign reserves
40
extending more loans for investment and working capital
(Chart 4). The risk is that this comes to naught should the 30
political environment deteriorate further.
20
Indonesian rupiah – bullish but not immune to US hike risks (by M1
Philip Wee) 10 money
Looking ahead, the government and the central bank have set 0
the ambitious goal for Indonesia to achieve an investment-
grade credit rating in three years. Based on the government’s -10
forecast for 2010-2014 released by the planning ministry on
-20
February 2, this will be achieved by boosting GDP growth to
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
7.0%-7.7% by 2014. The goal to accumulate foreign reserves
to more than $100bn, the benign inflation forecasts and lower
targets for the budget deficit and public debt together Indonesia: Key data forecast
suggested that the high growth strategy would be led by 1Q10F 2Q10F 3Q10F 4Q10F 1Q11F
private sector investment facilitated by an accommodative GDP (%) 5.8 5.9 5.5 5.0 5.0
Inflation (%) 3.8 4.5 4.8 5.2 5.7
monetary policy.
USD/IDR 9190 9300 9200 9100 9000
As for the USD/IDR, we have decided to keep our forecasts Policy rate (%) 6.50 6.50 7.25 8.00 8.00
above 9000 this year. While we like Indonesia’s fundamentals,
we are also mindful that the IDR has yet to successfully avoid
pressures from a US rate hike cycle after the 1997/98 Asian
financial crisis. Like it or not, the US Fed is paving the ground
Page 27
Regional ETF Guide
India – Counting on tax reform (Ramya Suryanarayanan, ramya@dbs.com, extracted from “India: Counting
on tax reform”, Economics – Markets – Strategy, 2Q 2010, 11 March 2010)
Government stimulus, and not resilient consumption supported (INR 0.16mn per annum) [2]. At the same time, according to
growth human resources consultancy Hewitt Associates, salaries are
expected to increase by over 10% in 2010 after rising 6.5% in
Contrary to common perception, resilient domestic
2009. This will be the fastest rise in the Asia-Pacific region. This
consumption is not behind the better-than-expected growth
and higher government salaries should help offset the hit to
outcome, in our view. We think the government stimulus
real incomes from rising inflation (Chart 3).
measures have been highly effective in propping up both
consumption and overall growth. Consumer spending growth Business investment spending growth too should improve to
halved to 4% in 2009-10 (estimated) from 8% average in 10% (QoQ, saar) through 2010 driven by the pick up in
2003-07. On the other hand, government spending grew by consumer spending, as well as expectations of tax and
20% in 2008-09 and supported growth directly, while in 2009- governance reforms in the course of 2010 and 2011. To be
10, fiscal and monetary stimulus measures such as excise duty sure, sentiment is
cuts (8 percentage points), government wage and pension
The twin deficit outlook
increases (over 20%) and rate cuts (400bps) supported private
consumer spending. In fact, GDP ex-government halved in There have been concerns in some quarters on take-aways
2008-09 from 8% average in 2003-07 and is probably not from Greece’s debt woes for India given that India also runs
much better in 2009-10 if adjusted for the indirect stimulus twin deficits. Although India runs a current account deficit, this
measures. It is important to appreciate the extent of support is to finance the large and rising investment (as opposed to
government spending lent to the economy. This will determine consumption) expenditure. Further, strong growth prospects
the strength of future growth in the absence of a pick up in should imply India attracts enough capital (5% of GDP) to
domestic reform momentum. cover the current account deficit (2.5% of GDP). The excess of
capital flows over the current account deficit should imply
Domestic outlook far better contingent on tax reforms
pressure on the currency to appreciate, in contrast to Greek
Although we note that consumption has been weaker than deficits that have put downward pressure on the euro. On the
thought in the past two years, we think the outlook is brighter fiscal deficit front, while there is no cause for alarm, inefficient
going forward, especially from 2011-12. While the growth spending continues to crowd out private sector and hurt the
rate in 2010-11 is still expected to ride on the stimulus from manufacturing sector. We expect the government’s deficit
direct income tax cuts introduced in the latest budget, reforms target of 5.5% of GDP for 2010-11 to be exceeded by at least
in direct and indirect taxes in 2011-12 should help sustain the 0.5% of GDP assuming oil pricing reform are not undertaken
momentum from a multi-year perspective [1]. [4]. It would be challenging to bring down the deficit by 0.7%
of GDP in each of the following two years, in line with the
Consumer spending growth could pick up to 6% in 2010-11
multi-year rolling deficit targets set in the budget, unless both
from an estimated 4% in 2009-10. The budget raised the tax
tax and expenditure reforms are undertaken (Table 2).
slabs for personal income taxes and significantly lowered the
tax burden on those earning above INR 1.6 lakh per annum
Table 2: Medium-term fiscal policy statement (% of GDP)

Table 2: Medium term fiscal policy statement (% of GDP)
% of GDP 2009-10 2010-11 2011-12 2012-13
Gross tax revenue 10.3 10.8 11.5 11.8
Expenditure 16.6 16.0 15.2 14.6
Fiscal deficit 6.7 5.5 4.8 4.1
Source: Budget documents, 2010-11; 2009-10 is revised estimate
Page 28
Regional ETF Guide
Vietnam: Deja-vu (Irvin Seah, irvinseah@dbs.com, re-published from “Economics – Markets – Strategy, 2Q 2010”, 11
March 2010)
• The State Bank of Vietnam (SBV) was forced to devalue its Chart1: Dong devaluation
currency by 3.4% in Feb USD/VND
19500
• Beneath the rosy GDP numbers, the economy is still Feb 2010 - 3.4% devaluation
struggling with current account deficits and rising inflation
19000
• Trade and current account deficits are now expected to rise
Nov 2009 - 5.4% devaluation
to 14.3% and 8.5% of nominal GDP in 2010
18500
• Our full year inflation forecast has been revised up to 13%,
from 9% previously USD/VND
18000
• The State Bank of Vietnam (SBV) is likely to lift the
benchmark policy rate by 300bps to 11% by end-10 17500
• We expect GDP growth of 6.2% in 2010 and 6.9% in 2011 Latest: 8 Mar 2010
17000
Dong devaluation
Jan-09 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10
The State Bank of Vietnam (SBV) was forced to devalue its
currency on 11 Feb, just three months after the previous Trade deficit problem
devaluation. This time, the dong was devalued by 3.4% (after The trade deficit problem continues to hoard the headlines in
devaluations totalling 5.4% since Jun08 (Chart 1). recent months after a brief spell of surplus back in 1Q09 (Chart
The dong has been under tremendous pressure since 2008 2). A 22.4% YoY contraction in export sales in February
despite the rosy GDP numbers. The economy has managed to coupled with a sharp moderation in import growth to 12.2%,
register a full year GDP growth of 5.3% despite the downside down from 79% in the preceding month, have brought about
impact of the global recession, which is the highest amongst its a marginal improvement in the trade balance. Specifically, the
ASEAN neighbours. Indeed, Vietnam has weathered the recent latest trade figures in Feb10 showed a smaller deficit of USD
global recession far better than many regional countries. But 800mn as compared to a shortfall of USD 945mn in Jan10.
while most regional economies were struggling to prevent their Chart 2: Trade deficit improving
currencies from strengthening too quickly vis-a-vis the dollar, USD mn USD mn
Trade balance (RHS)
Vietnam was actually scrambling to defend against the 9500 1500
Exports
depreciative pressure on its currency. 8500 1000
Import
Beneath the robust economic performance masks serious 7500 500
underlying structural problems. A ballooning trade deficit and 6500 0
risk of a runaway inflation has kept investors on their toes and 5500 -500
caused many Vietnamese to hoard dollars out of fear the dong
4500 -1000
will become even “cheaper”. As a result, depreciative pressure
builds up as confidence in the local currency continues to 3500 -1500
dilute. 2500 -2000
1500 -2500
Considering the above factors and factoring in the underlying
expectation by the market on further devaluation of the dong, 500 Latest: Feb10 -3000
we continue to look forward to more weakness in the local -500 -3500
currency. We expect the Vietnamese Dong to hit 19,450 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10
against the greenback by the end of this year.
Page 29
Regional ETF Guide
Chart 3: Trade & current account deficit likely to widen in Mar10. And judging from the buoyant domestic economic
% of nom. GDP conditions as well as a higher imported inflation brought along
5 Current account balance by the weakness in the local currency, inflation will most likely
2.1 2.0
Trade balance become a problem again and will remain above the 10% level
DBSf
0 in the coming months. In fact, we now expect inflation to
average 13.1% for the year, up from 7.0% in 2009 (Chart 5).
-0.9 -0.3
-1.9 For 2011, inflation is expected to average 10.5%.
-5 -3.4
-4.9 Better control needed
-7.4
-10 -8.5 With the strong buildup in inflationary pressure as well as the
-9.9 -10.2 unhealthy level of trade and current account deficits, there is a
strong need for the central government to exercise more
-15
-14.3 control in terms of its ambitious expansionary policies. A
“growth at all costs” economic policy is unsustainable and will
-20 usually come with a high price at certain point in time. Similar
2000 2002 2004 2006 2008 2010f to the period between late 2007 and 2008, signs of the
downside risks associated with a balance of payment problem
While the devaluation in the Vietnamese dong may have
and high inflation are re-emerging again. A feeling of Deja Vu
played an instrumental role in reining in the trade deficit, it
is in the air and sadly, the government appears set to achieve
remains to be seen whether the exchange rate effect is enough
its high growth target. The central bank’s reluctant to hike the
to hold off the risk of a ballooning trade and current account
base rate in the most recent episode of devaluation probably
deficits. In our opinion, as long as the government continues
reflects that. Yet, the longer the central bank drags its feet on
with its expansionary fiscal policy and maintains its present
monetary tightening, the more it will have to hike in order to
loose monetary policy in order to achieve its ambitious growth
anchor inflation expectation. Thus, on top of 100bps hike in
target of 6.5-7.0%, risks of fallout in the trade balance and
January, we now expect the SBV to hike the benchmark base
current account balance will surely resurface at some point in
rate by another 300bps to 11.00% by the end of this year. This
time. We expect overall trade deficit to register about 14.3%
is essentially an addition of another 100bps to our earlier rates
of nominal GDP this year and current account deficit to rise to
call.
about 8.5% of GDP, from 7.4% in 2009. With the twin deficits
likely to continue to remain a concern in the economic Growth forecast unchanged
landscape in the coming quarters, expectation of further
Apart from the inflation and trade/current account worries, the
devaluation in the currency will continue to weigh on the
Vietnam economy has otherwise performed exceptionally well
dong.
from the GDP growth perspective. The economy registered a
Inflation creeping up again solid growth of 7.7% in 4Q09, up from 5.2% in the preceding
quarter. Growth was largely driven by the recovery on the
After a year of relatively modest inflation (7.0% in 2009),
external front, a resilient domestic demand as well as support
inflation is once again at the brink of getting out of control.
from the accommodative government policies.
The MoM sa number in Feb10 posted a strong 2.0% rise, up
from an average monthly rise of 0.53% in 2009 (Chart 4). The Going forward, we expect the global recovery to continue to
increase was largely driven by a 3.1% hike in food inflation, on fuel growth in sectors such as the manufacturing, agriculture,
the back of stronger festive season demand due to the Tet financial intermediation and tourism related services. Domestic
New Year and the better economic conditions. While this may oriented sectors such as the construction sector, health services
be considered relatively mild in comparison to the high and education services should also do well on the back of the
inflation period between late 2007 and Aug08, experience and strong domestic demand. However, as inflation will likely pose
a check on the historical MoM series shows that inflation (in a threat to private consumption and the consequent monetary
YoY terms) will usually rise very quickly to above 10% tightening may also moderate the growth momentum, we are
whenever the MoM inflation exceed the 1.5% mark. Indeed, maintaining our full year GDP growth forecast of 6.2%, which
although the latest YoY inflation reading for Feb10 remains at is below the government’s target of 6.5-7.0%. In 2011, we
8.5%, we expect the same reading to burst pass the 10% level expect the economy to grow by 6.9%.
Page 30
Regional ETF Guide
Eurozone – The ultimate test (Ramya Suryanarayanan, ramya@dbs.com, extracted from “EZ: The ultimate
test”, Economics – Markets – Strategy, 2Q 2010, 11 March 2010)
Debt woes government has decided to hike the VAT by 2%-pts to 21%
and slash public sector allowances and bonuses by 30%. These
The fiscal crisis in Greece has been a major setback to the
measures are expected to cut the deficit by EUR 4.8bn (USD
currency union. Since Greece is only 2% of the Eurozone
6.5bn or 2.0% of GDP), according to the government. This
economy, the economic impact can still be contained if fiscal
would help Greece in its aim to cut its deficit from an
risks are perceived to be not as high in other (Southern)
estimated 12.7% of GDP in 2009 to 8.7% in 2010. While the
European economies. However, we can hardly be assured of
latest austerity measures show a willingness on the part of the
such a perception given that many of the Eurozone economies
government to bite the bullet, the greater challenge will lie in
have elevated debt ratios and large twin deficits. Portugal, Italy,
the implementation, especially given the apparent lack of
Ireland, Greece and Spain together make up more than a third
public support for such measures. For now, government bonds
of the Eurozone economy. All five economies have at least two
and credit default swaps have reacted positively to the
of four weaknesses: a high government debt-to-GDP ratio, a
announcement
high fiscal deficit, a high current account deficit or an asset
bubble. Portugal, for example, stands out with its high In early March, the government has also been able to
dependence on external funding and a large fiscal deficit. A successfully place EUR 5bn of 10yr debt, having attracted bids
high current account deficit is usually an important indicator of worth EUR 16bn. The developments on the fiscal front will
vulnerability, as it implies a greater dependence on foreign have to be watched closely and would have a big bearing on
capital to fund the nation’s spending (Chart 2 & 3). the Eurozone’s growth prospects.
Greece recently (and after much delay) announced tough

measures to cut its spending and deficit. The Greek
Chart 2: General government balance vs advanced economies (% of GDP)
% of GDP, 2009 estimate
10
-5
-10
-15
FIN
ITA
HKG
NLD
DEU
TWN
CAN
SVN
FRA
JPN
USA
DNK
LUX
SVK
NOR
KOR
ISR
GBR
GRC
SGP
CHE
SWE
CYP
AUT
MLT
CZE
PRT
ESP
IRL
ISL
NZL
AUS
BEL
Source: IMF World Economic Outlook
Chart 3: Current account balance vs advanced economies (% of GDP)

% of GDP, 2009 estimate
15
10
-5
-10
FIN
HKG
DEU
JPN
USA
SVN
LUX
NOR
KOR
SWE
CYP
IRL
CZE
ESP
PRT
BEL
NZL
Source: IMF World Economic Outlook
Page 31
Regional ETF Guide
US: On the verge of job growth(David Carbon, davidcarbon@dbs.com, re-published from “Economics –
Markets – Strategy, 2Q 2010”, 11 March 2010)
• As of 1Q10, GDP is back at pre-crisis levels. But jobs US-services ISM (LABOR) and non-farm payrolls
continue to be shed
Services ISM (employment, sa) NFP x1000, sa
• Pre-crisis output is being produced with 8.4mn fewer 60 400
workers 55
NFP Feb10
200
• But job growth should finally turn positive in March and the 50 0
unemployment should fall to 8% by year-end Feb
45 move -200
• The Fed will hike rates by 25bps in each of 3Q10 and 4Q10.
40 ISM Services -400
The Treasury will do some of the Fed’s mopping up, (Labor)
beginning with $200bn over the next two months 35 -600
• That is not chump change – $200bn is equal to 1/6th of the 30 -800

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
amount by which the Fed expanded its balance sheet over
the past 16 months Consumption is driving recovery, not inventories
Not only has the economy grown for 2 quarters (3 if you
• Autos and housing are the key risks to the outlook consider that Q1 is nearly over), but the expansion has been
GDP is back at pre-crisis levels as of 1Q10 well-rounded. Real consumption is growing at a 2.5% (saar)
rate. That’s slow compared to long-run average (3% since
Recovery continues to take a firmer hold as the months go by. 1990) but not terribly so and it’s much faster than what most
The economy has now grown for two quarters at a rate envisioned a year ago. Much of this is due to strong retail
exceeding 4% (QoQ, saar) and appears set to grow by another sales, which bottomed a year ago and have grown at a
4% in 1Q10. That’s well above potential (which most analysts nominal rate of 6% (saar) ever since. That’s faster than in the
would put between 2.75% and 3%) and would put economic years leading up to the downturn, not slower, (chart above),
output back at pre-crisis levels as of 1Q10. and that’s with 8.4mn workers out of work. For now at least,
That’s not to say the economy will be back at capacity. Or the fear that US consumer retrenchment would drag down
back to where it might be had there been no recession. In global is not being borne out.
particular, jobs are, as of Feb10, still being shed. Output may US-retail sales (control group)
be back at pre-crisis levels but it is being produced with 8.4mn
g p
(6%) fewer workers. That’s great for productivity and profits US$bn/mth, sa, total less auto dealers and bldg mtrls
but unless / until those 8.4mn workers are back on the 295
rebate
1H08 tax-rebate unwinds
payrolls, the recovery to date will remain both academic and 290 upward distortion
vulnerable. 285 Feb10(f)

280 Nov09
Job growth should come soon. The unfortunate fact of life in 275 5.2% (saar)
Oct08
Feb09
any recession is that labor markets are always the last to 270
trend growth since
2004 Nov08
recover. It’s easy to see why. Balance sheets have been 265
Fin mkt
hammered and laying off workers is barely more pleasant for 260 crash Dec08 Grinding north
again at a 6%
managers than for those being shown the door. For both 255 saar pace
reasons, managers don’t rehire until they absolutely need to. 250
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
In most recessions, that means jobs don’t start to come back
until the economy has grown for at least a couple of quarters. With consumption solid, business investment and inventories
Mercifully, that is where the US now sits. are making comebacks too. Like retail sales, durable goods
orders hit bottom more than a year ago (Dec09, chart below).
Orders have now surpassed shipments and, with the “book-to-
bill” ratio now above par, shipments should start to accelerate
in the months ahead. Real business investment in the GDP
accounts turned positive in 4Q09 with growth of 6.5% (QoQ,
saar) and should rise to 10% or 11% in 1Q10. Inventories are
Page 32
Regional ETF Guide
now growing and contributing to GDP as well. And while it’s The reasoning is straightforward. By 3Q10, the US will have 5
true that the boost from inventories will be a temporary one quarters of solid GDP growth under its belt on its way to a 6th
(they have a zero-sum impact on GDP growth over several quarter in 4Q10. Growth will have averaged more than 3.5%
quarters) that is no reason to belittle the fact that managers over those six quarters (vs potential of 2.75% to 3%) and the
are now stocking the shelves. They are doing so because they unemployment rate will have fallen steadily and convincingly
are seeing the underlying demand flow and believe it will for 9 months. Under these conditions, we believe the Fed will
continue. That is the bigger message beneath today’s decide that the current policy rate of zero to 1/4 percent is no
inventory accumulation. longer appropriate and will deliver two 25bps hikes by year-
end.
External trade is growing faster than any other part of
the economy The Fed and the Treasury: passing the buck
Finally, exports and imports are now growing – indeed faster
The Fed could well deliver more than two hikes by year-end
than any other part of the economy. Imports, for example, hit
and indeed we had expected 100bps of hikes by year-end just
bottom in May09 and have grown at a 40% (saar) pace ever
a month ago. Do we now simply think monetary policy will
since (chart below). Exports are growing only slightly less fast
stay looser-for-longer?
(36% saar).
The Treasury will do $200bn of the Fed’s mopping up over the
US-core capital goods orders and shipments
next two months
US$bn/month, seas adj, non-def ex-aircraft Not really. What is happening is that the Fed is handing some
64 of its monetary tightening work over to the Treasury. On
62
February 23, the Treasury announced that over the next two
60
58
Shipments
"Book-to-bill" months it will issue $200bn of 56-day notes and place the
56 back above par,
i.e., (O>S)
proceeds on deposit with the Fed, in an extension of its
54
Supplementary Financing Program initiated back in Oct08.
52
50 That $200bn is equivalent to about 1/6 of the amount by
48 which the Fed expanded its balance sheet over the past 18
46
44
Orders months and it is $200bn of work that the Fed itself no longer
42 has to take care of. In short, the Treasury is sharing some of
07 08 09 10 the burden of “mopping up” and there is less pressure on /
The bottom line is that growth is well rounded and should need for the Fed to be hiking policy rates.
persist through the remaining quarters of 2010 and on into
Risks
2011. As of Feb10, jobs are now within a whisker of crossing
the hash marks into positive growth territory (chart on p126) What could go wrong with our baseline growth / Fed scenario?
and we expect they will indeed do just that in March. At the Two things. First, the housing market has turned south again
current pace of improvement, job growth should be running at in recent months. Both prices and sales have fallen after rising
250k / 300k per month by midyear and the unemployment steadily throughout much of 2009. Not only is this a concern
rate, which surprised markets in February when it stayed at in its own right but the Fed has purchased $1.2trn of housing
9.7% (most thought the sharp improvement to 9.7% in assets over the past year and will cease such purchases in
January was statistical noise) should be approaching 9% on its March. How housing fares when the Fed is no longer
way to 8% by year end. underwriting it is an open question and will need to be
monitored closely. Second, auto sales have turned south too,
Inflation and the Fed
and just when their government subsidies also are about to
Core inflation continues to run steady and we do not envision expire. Housing and autos each directly account for about
an inflation problem in 2010 or 2011 (see fcast table across). 2.5%-2.6% of GDP and while this is small, the recovery
Nevertheless, we do expect the Fed to begin raising interest remains fragile. Plainly, the housing sector continues to be a
rates in the third quarter of this year. We look for one 25bps key determinant of banking sector health and, by extension, of
hike then followed by another 25bps hike in 4Q10, which economic health overall.
would take the Fed funds rate to something between 0.50%
and 0.75% (the current policy target is “between zero and 1/4
percent”).
Page 33
Regional ETF Guide
Disclaimer:
The information herein is published by DBS Bank Ltd (the “Company”). It is based on information obtained from sources
believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy,
completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice.
Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the
particular needs of any specific addressee. The information herein is published for the information of addressees only and is
not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial
advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any
direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of
the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further
communication thereof, even if the Company or any other person has been advised of the possibility thereof. The
information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options
or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors,
officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein
and may also perform or seek to perform broking, investment banking and other banking or financial services for these
companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or
country where such distribution or use would be contrary to law or regulation.
Licence No.: MICA (P) 073/11/2009
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Regional ETF Focus

2Q outlook for Asia equities

DBS Group Research Equity 17 March 2010

Regional Equity Strategist: Joanne Goh (65) 6878-5233 joannegohsc@dbs.com

The next leg (Joanne Goh, joannegohsc@dbs.com)

to policy moves are high in our view. While most investors 9

would agree that interest rate normalization is accompanied by

levels among equity funds, and volatility in forex markets, are

growth amid the financial risks which still remain unresolved

Fig. 4: Index targets

difficulty accessing it due to liquidity constraint. Indonesia is 3000 3000

80% of daily turnover.

Indonesia has been a consistent winner among Asia markets,

Susilo Bambang Yudhoyono (SBY) took office in 2004, the

in driving the re-rating as investors’ confidence strengthened Source: DATASTREAM

Fig. 9: Singapore listed ETF

Fig. 10: Hong Kong listed ETFs

Fig. 10 cont’d: Hong Kong listed ETFs

Joanne Goh (65) 6878 5233 ETF Investment Idea 3

Hong Kong-listed ETFs at a glance 7-8

Singapore market outlook 10

Hong Kong / China market outlook 13

Chinese yuan: ending stable policy in 2Q is

China: The high-speed railway – real stimulus at

Hong Kong: Glorious madness 19

India market outlook: 21

Korea market outlook 23

Taiwan market outlook 24

Thailand / Indonesia / Malaysia market outlook 25

Indonesia: Steady as she goes 26

India: Counting on tax reform 28

EZ: The ultimate test 31

US: On the verge of job growth 32

Singapore (Maintain Overweight)

Fig. 1: Singapore year-on-year GDP growth vs year-on-year % change in STI

Universal studios, the many conventions which has already Valuation

1000 1.3 (x)

STI (L) USD/SGD (R) 21

During the NPC, China is maintaining its growth forecast at 25

investments which was announced during the meeting. This (3)

comes on the heels of FDI shrinking 2.6% in 2009, the need to 15

rebalance the economy - over reliance on FAI, lack of (2)

growth nationwide, and growth sustainability. Premier Wen 10 (3)

Source: Datastream, DBS. Periods denoted by (1) recession correction,

To hedge against both risks, we stay positively disposed to the

Fig. 2: HSI 12-month forward PE Fig. 3: H-share 12-month forward PE

Source: Datastream, Source: Datastream,

Chinese yuan – ending stable policy in 2Q is “possible, yet improbable“(Philip

The global credit crisis has unexpectedly sped up China's % YoY

China is a big country with a big population. It makes sense to

Table 1: The major routes of high speed rail network

Hangzhou to Shenzhen Ningbao, Taizhou, Wenzhou, Fuzhou 2012

Xuzhou to Lanzhou Xuzhou, Zhengzhou, Xian, Baoji and Lanzhou 2012

Shanghai-Wuhan-Chengdu Shanghai, Nanjing, Hefei, Wuhan, Yichang, Lichuan, Chongqing, 2012

-15 Domestic Demand

When property prices remain high, inflation expectations

India (Maintain Neutral) Fig. 1: MSCI India 12-month forward P/E

Inflation risk in India is probably understated. On this front, the 9

Korea (Neutral) • Global economic recovery should keep the growth

Taiwan (Maintain Overweight) • Domestic demand is poised to pick up following the

Table 2: Medium-term fiscal policy statement (% of GDP)

Greece recently (and after much delay) announced tough

Source: IMF World Economic Outlook