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  • Emerging Asia: The Next Frontier

    Matthews Asia | September 2015

    For institutional use only. Do not give, show or quote to any other person. Not to be used with retail investors. Do not duplicate or reproduce ©2015 Matthews International Capital Management, LLC PT472

    The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews International Capital Management, LLC (Matthews Asia) does not accept any liability for losses either direct or consequential caused by the use of this information.

    The information contained in this presentation is for informational purposes only and does not, in any way, constitute investment advice or an offer to sell or a solicitation of an offer to buy any security or product mentioned herein. No representation is given that shares, products or services mentioned herein are suitable for any investor.

    Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Fixed income investments are subject to additional risks, including, but not limited to, interest rate, credit and inflation risks. In addition, single-country and sector strategies may be subject to a higher degree of market risk than diversified strategies because of concentration in a specific industry, sector or geographic location. Investing in small companies is more risky and more volatile than investing in large companies.

  • 2 For institutional use only. Do not give, show or quote to any other person. Not to be used with retail investors. Do not duplicate or reproduce.

    © 2015 Matthews International Capital Management, LLC PT472

    There are more people living inside this circle than outside of it

    Source: Washington Post, May 7, 2013

    Asia’s Global Relevance

  • 3 For institutional use only. Do not give, show or quote to any other person. Not to be used with retail investors. Do not duplicate or reproduce.

    © 2015 Matthews International Capital Management, LLC PT472

  • 4 For institutional use only. Do not give, show or quote to any other person. Not to be used with retail investors. Do not duplicate or reproduce.

    © 2015 Matthews International Capital Management, LLC PT472

    Things to Consider Not all emerging markets are created equal—Emerging Asia is growing faster

    *Note: G7 countries includes Canada, France, Germany, Italy, Japan, U.K. and U.S. Source: World Bank, 2014

    • Asia is currently ~ 69% • Up from 55% 1/29/2010

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    Emerging Asia Global Emerging Emerging Europe Emerging Latin America G7*

    EMERGING GDP GROWTH %

    10 Year Average 5 Year Forecast

  • 5 For institutional use only. Do not give, show or quote to any other person. Not to be used with retail investors. Do not duplicate or reproduce.

    © 2015 Matthews International Capital Management, LLC PT472

    Asian Economies Can be on a Path Towards Greater Prosperity

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    Europe

    U.S. and Canada

    Latin America

    Asia

    Middle East/Africa

    TAIWAN SOUTH KOREA

    HONG KONG

    SINGAPORE

    CHINA

    INDIA

    MALAYSIA THAILAND

    JAPAN

    U.S.

    Asia is the only region that has achieved “Economic Take Off”

    GDP per capita relative to the U.S. (1980)

    GDP per capita relative to the U.S. (2010)

    Source: Angus Maddison, MICM

  • 6 For institutional use only. Do not give, show or quote to any other person. Not to be used with retail investors. Do not duplicate or reproduce.

    © 2015 Matthews International Capital Management, LLC PT472

    Asia’s Consumption Still Has a Long Way To Go… Asia per capita GDP in historical context to the U.S.

    Sources: Maddison Historic GDP, IMF, MICM calculations; Data as of 2012

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    1 1600 1806 1818 1830 1842 1854 1866 1878 1890 1902 1914 1926 1938 1950 1962 1974 1986 1998 2010

    U.S. Asia Countries

    Hong Kong

    Singapore

    Taiwan

    Laos Bangladesh

    South Korea

    Malaysia Thailand

    China

    Sri Lanka

    Indonesia

    Burma Pakistan, Cambodia

    Mongolia, North Korea, Nepal

    India, Vietnam, Philippines

    GDP per capita (US$)

  • 7 For institutional use only. Do not give, show or quote to any other person. Not to be used with retail investors. Do not duplicate or reproduce.

    © 2015 Matthews International Capital Management, LLC PT472

    Pillars of Sustainable Growth

     Manufacturing capacity migration to Frontier Asia

     Remittances

     Foreign Direct Investment (FDI)

     Urbanization/Demographics

     Rising Wealth

     Technology/ Pace of Change

    India

    Vietnam Myanmar

    Malaysia

    Cambodia

    Bangladesh

    Thailand

    Indonesia

    CHINA

  • 8 For institutional use only. Do not give, show or quote to any other person. Not to be used with retail investors. Do not duplicate or reproduce.

    © 2015 Matthews International Capital Management, LLC PT472

    EM Consumption is an Asia Story Global middle class consumption (2000 – 2050)*

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    2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

    Sub-Saharan Africa

    Asia Pacific

    Central and South America

    North America

    Europe

    *Data represented beyond November 2011 are estimates only. Notes: Global middle class consumption is defined here as household consumption between USD 10 and USD 100 Purchasing Power Parity (PPP)/day. Projections hold most recent distribution constant (from PovcalNet database) and assume consumption equals income growth (projected by a Cobb- Douglas production function, a model of Real Exchange Rate (RER) convergence based on the Balassa-Samuelson model, and UN population projections). Source: Organisation for Economic Co-operation and Development (OECD) 2011, Perspectives on Global Development 2012: Social Cohesion in a Shifting World; Data as of November 2011

    Middle East and Northern Africa

  • 9 For institutional use only. Do not give, show or quote to any other person. Not to be used with retail investors. Do not duplicate or reproduce.

    © 2015 Matthews International Capital Management, LLC PT472

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    Evolution on Consumption

    Source: BEA Credit Suisse Research, MICM estimates, 2013

    Rising per Capita Income

    Unit volume consumed per capita

    Recreation

    Health Care

    Food and Beverage

    Real household consumption vs. GDP per capita

  • 10 For institutional use only. Do not give, show or quote to any other person. Not to be used with retail investors. Do not duplicate or reproduce.

    © 2015 Matthews International Capital Management, LLC PT472

    Speed of Change in Frontier Markets

    CAMBODIA 2015 CAMBODIA 2011

  • 11 For institutional use only. Do not give, show or quote to any other person. Not to be used with retail investors. Do not duplicate or reproduce.

    © 2015 Matthews International Capital Management, LLC PT472

    How You Invest in Growth Matters

    Argentina

    Nigeria

    MSCI EM INDEX

     MSCI Frontier Index is over 50% Kuwait, Argentina and Nigeria  Over 45% of the countries within the MSCI Frontier Index are forecasted to grow at less than 3% per annum  The MSCI Frontier Index is over 50% Financials and only 8.1% Consumer Staples and Health Care  The MSCI EM Index is now 69% Asia calling for increased specialization

    Asia ex Japan Latin America Middle East and Africa Europe

    Note: The MSCI Frontier Index is represented by the iShare MSCI Frontier ETF (FM), and the MSCI EM Index is represented by the iShare MSCI EM Equity Index (EEM). All country and sector weights are shown as of 9/9/15.

    Source: IMF World Economic Outlook 2015, Bloomberg, BlackRock Inc., MSCI, CLSA

    MSCI FRONTIER INDEX Kuwait 26% Argentina 13% Nigeria 13% Pakistan 11% Kenya 6% Oman 5% Morocco 5% Romania 5% Bangladesh 3% Vietnam 3% Kazakhstan 3% Sri Lanka 2% Mauritius 1% Jordan 1% Other 1%

    Kuwait

    Argentina

    Nigeria 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

    100%

    Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14

  • 12 For institutional use only. Do not give, show or quote to any other person. Not to be used with retail investors. Do not duplicate or reproduce.

    © 2015 Matthews International Capital Management, LLC PT472

    CONTACT THE MATTHEWS ASIA CLIENT SERVICES TEAM

    Phone 888.289.7988

    Email clientservices@matthewsasia.com

    Web