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Morgan Stanley - ASEAN Equity Strategy

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					                                                              MORGAN                STANLEY                 RESEARCH
                                                              ASIA/PACIFIC


                                                              Morgan Stanley Asia (Singapore)          Hozefa Topiwalla
                                                              Pte.+
                                                                                                       Hozefa.Topiwalla@morganstanley.com
                                                                                                       +65 6834 6439

                                                                                                       Trong Tri Tran
                                                                                                       Trong.Tri.Tran@morganstanley.com
                                                                                                       +65 6834 6317


September 20, 2012


ASEAN Equity Strategy
Asia Insight: Volatile Markets;
                                                              MS Index Target Revision
Indonesia at Risk in CRIC                                                                                                                    Change
                                                              Change in MS 2012 Forecast                     Old              New
                                                                                                                                              (% )
Cycle’s Complacency Phase                                           MSCI     Target Index
                                                                                                             865               884             2.2%
                                                                  Indonesia     (USD)
                                                                             Target Index
                                                               MSCI Thailand                                 393               415             5.4%
We think ASEAN equity markets are likely to                                     (USD)
                                                                  MSCI       Target Index
continue recent underperformance of AxJ in Q4C12,               Singapore       (USD)
                                                                                                           3,813             4,039             5.9%
with volatility also likely to continue. In this report, we                  Target Index
                                                                MSCI SEA                                     817               872             6.8%
study the experience of South Africa, Turkey, India and                         (USD)
Brazil (EM4) with current account deficits (CAD) since
2000. Notwithstanding stimulus-led rallies, we conclude       Change in Scenario Probability Weightings
that Indonesia’s equity markets will be the most                     Scenario Probability
                                                                                                            Bear             Base             Bull
vulnerable during the next risk-off-led sell-down.                       Weightings
                                                                                         Old                20%               75%              5%
                                                                 Indonesia
                                                                                         New                10%               70%              20%
Investors question why they should be concerned                                          Old                20%               65%              15%
                                                                  Thailand
about Indonesia’s CAD when EM4 equities had                                              New                15%               60%              25%
                                                                                         Old                20%               75%              5%
limited impact during CAD? We think the key                      Singapore
                                                                                         New                10%               70%              20%
difference with Indonesia and other EM is the impact of                                  Old                25%               70%              5%
                                                                     SEA
CAD on the balance of payments (BoP). Indonesia’s                                        New                10%               70%              20%

CAD is always accompanied by a BoP deficit, whereas
other countries have faced a BoP deficit during only one-                  How to Play the Tactical Risk-On Rally ?
                                                                                       MSCI Singapore Consumer Staples
third of the CAD quarters since 2000. When other EM                  OW                     MSCI Thailand Materials
countries have faced a CAD-led BoP deficit, both                                             MSCI Indonesia Banks
currency and equity markets have fallen 20%.                       How to Play Indonesia's Potential Risk-Off-led Sell-Down ?
                                                                                            MSCI Indonesia Energy
                                                                     UW
Investors argue that Indonesia’s investment-led                                             MSCI Indonsia Materials
growth (ILG)-led CAD should be rewarded, as it
improves the growth outlook. We believe that
although ILG-led CAD is not as bad as consumption-led
CAD, our study of EM4 since 2000 suggests that
markets tend to ignore the benefits of ILG in periods of
CAD, resulting in currency and equity market
underperformance.
Investors are aware of Indonesia’s CAD and BoP
deficits; what would trigger underperformance?
                                                              Morgan Stanley does and seeks to do business with
Back-testing suggests risk-off-led foreign outflows from      companies covered in Morgan Stanley Research. As
the bond market would trigger equity underperformance.        a result, investors should be aware that the firm may
Any potential shortfall in the estimated high hurdle of       have a conflict of interest that could affect the
US$1.8bn/month portfolio inflows to achieve BoP               objectivity of Morgan Stanley Research. Investors
                                                              should consider Morgan Stanley Research as only a
balance would cap equity market performance.
                                                              single factor in making their investment decision.
We lower our Bear Scenario probability and add                For analyst certification and other important
PT Astra Agro Lestari, IRPC PCL and First Resources to        disclosures, refer to the Disclosure Section,
our Focus List.                                               located at the end of this report.
                                                              += Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be
                                                              associated persons of the member and may not be subject to NASD/NYSE restrictions on
                                                              communications with a subject company, public appearances and trading securities held by a
                                                              research analyst account.
                                                                                        MORGAN           STANLEY           RESEARCH

                                                                                        September 20, 2012
                                                                                        ASEAN Equity Strategy




Key Issues
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Debate 1: Why should Investors be concerned about Indonesia’s CAD                                             Exhibit 1
                                                                                                                             Annualized Currency Performance Against USD and Index
when other EM countries have witnessed prolonged periods of CAD                                                           Performance During Simultaneous CAD and BoP Deficit for S.
                                                                                                                                              Africa, Turkey, India and Brazil
with limited impact on equity markets?                                                                             0%

Our view: We think the key difference Indonesia and the experience of Brazil,
                                                                                                                  -5%
India, Turkey and South Africa since 2000 is the impact of CAD on BoP.
                                                                                                                 -10%
Indonesia’s CAD is always accompanied by BoP deficit, whereas other
countries have faced a BoP deficit only during a third of the CAD quarters                                       -15%
                                                                                                                                                                                               -15.1%

since 2000. When other EM countries have faced a CAD-led BoP deficit,                                            -20%
                                                                                                                                   -19.9%                        -20.5%

both currency and equity markets have fallen 20% (annualized).                                                   -25%
                                                                                                                           Currency Performance        Asbolute Index Performance      Relative To Respective
Where could we go wrong? If Indonesia’s CAD is fully funded by portfolio and                                                                                                               Regional Index


FDI flows, then a balanced BoP status would have less impact on equities.                                     Source: DataStream, Morgan Stanley Research

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Debate 2: Investors argue that Indonesia’s CAD is driven by ILG and                                           Exhibit 2
                                                                                                                               MSCI Index Annualized CAGR Performance Relative To
that markets should reward Indonesia’s ILG-driven potential to                                                   20%
                                                                                                                               Respective Regional Indices During Periods of ILG CAD


improve long-term growth.                                                                                        15%

                                                                                                                 10%                                                                8.4%
Our view: We believe that although ILG-led CAD is not as bad as                                                    5%

consumption-led CAD, our study of other EMs since 2000 suggests markets                                            0%

                                                                                                                  -5%                                                                                        -3.5%
tend to ignore benefits of ILG in periods of CAD.                                                                -10%
                                                                                                                                                                                  Average
Where could we go wrong? A narrowing of CAD, led by a recovery in                                                -15%
                                                                                                                                                          -15.2%
                                                                                                                                                                                  -10.3%
                                                                                                                 -20%            -17.8%

commodity prices, a slowdown in domestic growth, and/or a depreciation of                                                        S. Africa                Turkey                    India                    Brazil



currency would force the market to focus on ILG rather than on CAD.                                           Source: DataStream, Morgan Stanley Research

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Debate 3: Investors are aware of Indonesia’s CAD and BoP deficits;                                            Exhibit 3
                                                                                                                                 Indonesia Monthly Bond Flow and MSCI Indonesia
what would trigger underperformance?                                                                                                       Performance Relative To MSCI AxJ
                                                                                                                  2,000                                                                                     12%
Our View: Risk-off-led outflows from the bond market will trigger a reversal in                                   1,500
                                                                                                                                                                                                            10%
                                                                                                                                                                                                            8%
equity market performance. Indonesia has witnessed portfolio inflows of                                           1,000                        4.8%
                                                                                                                                                                                     3.4%
                                                                                                                                                                                                            6%
                                                                                                                                                                                                            4%
                                                                                                                    500                                                  1.9%
US$2.3bn per quarter since Q4 last year, which has supported market                                                   0
                                                                                                                                                                                                            2%
                                                                                                                                                                                                            0%

performance. Our economist, Deyi Tan, estimates that Indonesia would                                               -500
                                                                                                                                                       -0.8%
                                                                                                                                                                    -2.0%                  -2.8%
                                                                                                                                                                                                     0.0%   -2%
                                                                                                                                                                                                            -4%

require monthly US$1.8bn portfolio inflow to balance BoP.                                                        -1,000
                                                                                                                            -6.6%    -7.2%
                                                                                                                                              Monthly Bond Flow (USD mn) (LHS)
                                                                                                                                                                                                            -6%
                                                                                                                                                                                                            -8%
                                                                                                                -1,500
                                                                                                                                                 MSCI Indonesia Monthly Performance Relative To MSCI AxJ                -10%
                                                                                                                -2,000                                                                                                  -12%
                                                                                                                             J n1




                                                                                                                                         F b1




                                                                                                                                                  Mr 1




                                                                                                                                                            Ar 1




                                                                                                                                                                    My1




                                                                                                                                                                            J n1




                                                                                                                                                                                            J l- 2




                                                                                                                                                                                                     A g1




                                                                                                                                                                                                                S p1
Where could we go wrong? If Indonesia witnesses sustained foreign inflows
                                                                                                                              a- 2




                                                                                                                                                                             u- 2




                                                                                                                                                                                             u1
                                                                                                                                          e- 2




                                                                                                                                                             p- 2




                                                                                                                                                                                                      u- 2




                                                                                                                                                                                                                 e- 2
                                                                                                                                                                     a- 2
                                                                                                                                                   a- 2




in government bonds, even during a risk-off environment, markets will
                                                                                                              Source: Indonesia DMO, DataStream, Morgan Stanley Research
continue to do well.

                                                                                                                                                                                            2
                                                                    MORGAN            STANLEY            RESEARCH

                                                                    September 20, 2012
                                                                    ASEAN Equity Strategy




Lower Tail Risk Probability – Maintain Positive View on Thailand – Neutral
Stance on Indonesia and Negative Outlook for Singapore

Swings from “Fear of Tail Risk” to “Hope of Policy                  Exhibit 4

Panacea”                                                            MSCI Index Target Revision
Risk assets globally have rallied during this summer on the                                                                                   Change
                                                                    Change in MS 2012 Forecast                  Old              New
back European Central Bank (ECB) President Draghi’s                                                                                            (% )
commitment to “do whatever it takes” to preserve the EUR and              MSCI     Target Index
                                                                                                                865               884           2.2%
the announcement of QE3 by the US Federal Reserve. Our                  Indonesia     (USD)
global economist Joachim Fels, is gradually becoming more            MSCI Thailand
                                                                                   Target Index
                                                                                                                393               415           5.4%
optimistic about the euro’s long-term viability. Why? First, the                      (USD)
internal rebalancing of the euro economy is progressing, as the         MSCI       Target Index
                                                                                                               3,813            4,039           5.9%
                                                                      Singapore       (USD)
south has pushed through labour market, product market and
                                                                                   Target Index
social security reforms that were previously unthinkable and is       MSCI SEA                                  817               872           6.8%
                                                                                      (USD)
starting to regain competitiveness through cost restraint and       Source: DataStream, Morgan Stanley Research
productivity increases. Second, governments are starting to
build the institutional underpinnings of a viable monetary union.   Exhibit 5
The current focus is on banking union, where the Commission         MS Outlook for ASEAN Markets
detailed its ambitious plans this past week. The next focus will                                       MSCI               MSCI              MSCI
be on fiscal union, which will likely be discussed in more detail                                     Thailand         Indonesia          Singapore
at the next two European summits in October and December.                                             Positive           Neutral           Negative
Third reason to be more optimistic is the ECB’s increasing
                                                                     Trading Currency                    USD               USD                USD
willingness to step up as a lender of last resort for
governments.                                                         Bull Case Value                          500              1,136             4,930
                                                                     Upside (%)                             27.6%              28.5%             19.5%
However, our global cross asset strategy team’s view is that
                                                                     Bear Case Value                          222                536             2,790
the risk rally is unlikely to be sustained without global growth     Downside (%)                          -43.3%             -39.4%            -32.4%
improving, which looks doubtful near term. With a US fiscal cliff
looming and policy yet to gain traction in China, any reversal in    Price Target                               415               884            4,039
                                                                     Up/Downside (5)                           5.8%              0.0%            -2.1%
global growth is likely to be modest at best.
                                                                     MS Target PER on consensus earnings
The recent policy actions also give rise to new investor             2012 PE                 12.7x                        14.2x             13.3x
debates:                                                             2013 PE                 10.7x                        12.7x             12.6x

                                                                     Price Performance
1. Will the recent policy response be followed by                    1 Month                            4.0%               0.9%              2.8%
   Complacency and another Crisis? and                               3 Month                            7.0%               8.2%             11.0%
                                                                     1 Year                            19.0%               3.5%             13.6%
                                                                     YTD                               21.9%               2.4%             23.9%
2. Will these central bank measures alter the underlying
   lackluster global growth trajectory?                             Source: DataStream, IBES, Morgan Stanley Research. Closing prices 18 Sep 2012.



We reduce probability of tail risk in ASEAN markets On the          ASEAN likely to underperform MSCI AxJ in Q4 Although
back of these recent big announcements by the ECB and Fed,          ASEAN’s medium-term structural ILG story remains probable,
we think tail risk for ASEAN markets have clearly been reduced.     we believe that high relative ownership levels, trailing
We are adjusting our 2012 target indices to incorporate the         outperformance and high expectations increase the potential
recent policy action by reducing the bear scenario probability      relative vulnerability of ASEAN markets for the remainder of
from 25% to 10% for MSCI SEA, from 20% to 10% for MSCI              H2C12. We believe that ASEAN markets will likely remain
Indonesia, from 20% to 10% for MSCI Singapore and from 20%          range-bound during the balance of the year. Our Asia ex Japan
to 15% for MSCI Thailand.                                           strategist, Jonathan Garner, expects the MSCI APxJ index to




                                                                                                                                                         3
                                                                                                                                                                                                      MORGAN        STANLEY        RESEARCH

                                                                                                                                                                                                      September 20, 2012
                                                                                                                                                                                                      ASEAN Equity Strategy




rise 13.8% versus our revised expectation of 3.5% upside for                                                                                                                                          We add PT Astra Agro Lestari, First Resources and IRPC
MSCI SEA.                                                                                                                                                                                             PCL to our Focus List (please see page 22 for our detailed
                                                                                                                                                                                                      Focus List).
Exhibit 6
MSCI SEA Underperforming MSCI AxJ since the                                                                                                                                                           Singapore continues to be our least-preferred market, and
First Euro Policy Action                                                                                                                                                                              we maintain our relatively sanguine view on Thailand. We
                  MSCI SEA Performance Relative To MSCI AxJ Since Jan                                                                                                                                 maintain our neutral view on Indonesia, due to a potential rise
   124
                                        2011                                                                                                                                                          in currency volatility, which could impact valuations negatively.
   120
                                                                                                                                                                                                      Thailand remains our most-preferred market within
   116
                                                                                                                                                                                                      ASEAN3: In our scenario-weighted index target, we now
   112                                                                                                                                                                                                assign a probability to our Bear scenario of 15%, versus 25%
   108
                                                                                                                                                                                                      for our Bull scenario (fatter tail risk compared with other
                                                                                                                                                                  Spainish Bank
                                                                                                                                                                  Bailout on                          ASEAN 3 markets). Our scenario-weighted index target implies
   104                                                                                                                                                            Jul 20, 2012
                                                                                                                                                                                                      5.8% upside from the current level. Thailand is likely to be
   100                                                                                                                                                                                                relatively immune to global growth shocks as the government
    96
                                                                                                                                                                                                      executes its fiscal stimulus-led growth. However, fat tail
                                                                                                                                                                                                      political outcomes could increase market volatility in Q4.
         Jan-11
                  Feb-11
                           Mar-11
                                    Apr-11
                                             May-11
                                                      Jun-11
                                                               Jul-11
                                                                        Aug-11
                                                                                 Sep-11
                                                                                          Oct-11
                                                                                                   Nov-11
                                                                                                            Dec-11
                                                                                                                     Jan-12
                                                                                                                              Feb-12
                                                                                                                                       Mar-12
                                                                                                                                                Apr-12
                                                                                                                                                         May-12
                                                                                                                                                                  Jun-12
                                                                                                                                                                           Jul-12
                                                                                                                                                                                    Aug-12
                                                                                                                                                                                             Sep-12




                                                                                                                                                                                                      Indonesia at Most Risk in CRIC Cycle’s Complacency
Source: DataStream, Morgan Stanley Research
                                                                                                                                                                                                      Phase: Its structural story will continue to be driven by strong
                                                                                                                                                                                                      demographic-led domestic demand combined with
Impact of Current Monetary Stimulus May Be Muted
                                                                                                                                                                                                      infrastructure and capacity-expansion-led investment cycle.
ASEAN markets’ outperformance during QE1 was driven by a
                                                                                                                                                                                                      Although Indonesia’s earnings are likely to be relatively
V-shaped recovery in growth and improved portfolio flows.
                                                                                                                                                                                                      defensive, our earlier constructive view on Indonesian equity
However, the impact of QE2 was relatively muted and mixed as
                                                                                                                                                                                                      markets was driven by a combination of sustainable high RoE,
Singapore and Thailand underperformed MSCI AxJ, albeit
                                                                                                                                                                                                      ILG and falling equity risk premiums. Reduction in currency
marginally. Indonesia was the clear winner in both of the
                                                                                                                                                                                                      volatility has been one of the important drivers for a reduction in
previous QE cycles, whereas Malaysia’s performance was
                                                                                                                                                                                                      Indonesia’s equity risk premiums during the last few years.
relatively muted (please see pages 17-21 for detailed ASEAN
                                                                                                                                                                                                      However, high commodity and external capital linkages could
market performance during the previous QE periods). We
                                                                                                                                                                                                      increase the volatility of IDR, thus increasing equity risk
believe that the current monetary easing announced by the
                                                                                                                                                                                                      premiums and affecting valuations negatively. In our
ECB and the Fed may have an even more muted impact on the
                                                                                                                                                                                                      scenario-weighted index target, we now assign a higher
market. While QE3 could provide scope for a tactical rally, its
                                                                                                                                                                                                      probability of 10% to Bear scenario versus 20% for the Bull
sustainability would depend on an improving economic growth
                                                                                                                                                                                                      scenario. Our scenario-weighted index target implies 0.0%
outlook. Further, traditionally, the Fed has increased monetary
                                                                                                                                                                                                      upside from current levels.
stimulus when equities have been falling. In this regard, the
timing of QE3 is quite different, as it comes after a period of
                                                                                                                                                                                                      Lower global growth environment puts Singapore
sharply rising equity prices. For example, MSCI SEA fell by an
                                                                                                                                                                                                      earnings at risk We continue to recommend a defensive
average of 11.7% in the three months prior to the previous two
                                                                                                                                                                                                      strategy for Singapore. Singapore has been one of the
QE periods, but it is up 9.6% in the past three months.
                                                                                                                                                                                                      best-performing ASEAN 3 markets YTD, following a -11.7%
                                                                                                                                                                                                      performance versus MSCI SEA in 2011. Investors consider
We are OW MSCI Singapore Consumer Staples, MSCI
                                                                                                                                                                                                      Singapore as a relatively safe haven (despite its high earnings
Thailand Materials and MSCI Indonesia Financials, and we
                                                                                                                                                                                                      volatility), due to its dividend protection, excellent corporate
view this as the best strategy to play a tactical risk-on rally
                                                                                                                                                                                                      governance, relatively low political and policy risk, healthy
led by monetary easing.
                                                                                                                                                                                                      banking system and well-managed cash-generating
                                                                                                                                                                                                      global/regional businesses through various economic cycles.
We maintain our UW call on MSCI Indonesia Energy and
                                                                                                                                                                                                      We agree with the relative defensive nature of Singapore, and
Materials to avoid the Indonesian equity market’s
                                                                                                                                                                                                      hence it would be our most-preferred market in a bear scenario.
vulnerability to a potential risk-off-led sell-down.
                                                                                                                                                                                                      However, considering the less constructive outlook for global
                                                                                                                                                                                                      GDP growth for both H2 C12 and C13, it is likely that Singapore



                                                                                                                                                                                                                                                                            4
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                                                                                                                                                                                                                                     September 20, 2012
                                                                                                                                                                                                                                     ASEAN Equity Strategy




may witness a cycle of earnings downgrades in H2C12                                                                                                                                                                                  Exhibit 8

(earnings have been revised downward by 2.6% since July 25,                                                                                                                                                                          Deep Into “Improvement” Stage, Moving Into
2012). Potential earnings downgrades, combined with strong                                                                                                                                                                           “Complacency”?
                                                                                                                                                                                                                                                                  Financial Stability
trailing performance, drive our cautious view on the market. We
recommend that investors book profits in Singapore and
continue to play defensively. In our scenario-weighted index
target, we now assign a 10% probability to Bear scenario
versus 20% to our Bull scenario. Our scenario-weighted index
target implies 2.1% downside from current levels.                                                                                                                                                                                                    Complacency              Improvement      Reform

Exhibit 7                                                                                                                                                                                                                                                Crisis               Response
YTD Earnings Revisions
 106                                                  Consensus 2012 Earnings Revision YTD
 104                                                            (Local Currency)

 102

 100                                                                                                                                                                                                                                 Source: Morgan Stanley Research

  98
                                                                                                                                                                                                                                     According to Joachim Fels, we are currently deeply in the
  96
                                MSCI Indonesia                                                                                                                                                                                       Improvement phase of the CRIC cycle, which follows the latest
  94
                                MSCI Thailand                                                                                                                                                                                        bout of Crisis during 2Q and the Response by governments –
  92
                                MSCI Singapore                                                                                                                                                                                       with their banking union plan – and the ECB – with its OMT
  90
                                                                                                                                                                                                                                     more recently. Experience suggests that just as day gives way
       1-Jan-12

                  15-Jan-12

                              29-Jan-12

                                          12-Feb-12

                                                      26-Feb-12

                                                                  11-Mar-12

                                                                              25-Mar-12

                                                                                          8-Apr-12

                                                                                                     22-Apr-12

                                                                                                                 6-May-12

                                                                                                                            20-May-12

                                                                                                                                        3-Jun-12

                                                                                                                                                   17-Jun-12

                                                                                                                                                               1-Jul-12

                                                                                                                                                                          15-Jul-12

                                                                                                                                                                                      29-Jul-12

                                                                                                                                                                                                  12-Aug-12

                                                                                                                                                                                                              26-Aug-12

                                                                                                                                                                                                                          9-Sep-12




                                                                                                                                                                                                                                     to night, Improvement gives way to policy Complacency, which
                                                                                                                                                                                                                                     is then followed by renewed Crisis.
Source: FactSet, Morgan Stanley Research
                                                                                                                                                                                                                                     Indonesian equity markets at most risk in the next
Assessing the risk of moving toward fourth stage of CRIC                                                                                                                                                                             Complacency-led Crisis Cycle
cycle on ASEAN 3                                                                                                                                                                                                                     We downgraded our view on Indonesia Equities to neutral on
The key investor question is how much longer markets will                                                                                                                                                                            August 3, 2012 (see ASEAN Equity Strategy: Downgrading H2
continue to grind higher on potential central bank action and                                                                                                                                                                        Outlook). We think potentially higher currency volatility due to a
downplay disappointing growth is unclear. However, our global                                                                                                                                                                        widening current account deficit is likely to cap valuations,
team believes that it seems that we may enter the fourth stage                                                                                                                                                                       despite the relatively resilient domestic earnings.
of the CRIC (Crisis-Response-Improvement-Complacency)
cycle as soon as a sharp decline in European bond yields could                                                                                                                                                                       Widening CAD to impact Indonesia negatively
take away the urgency to take remedial action in the region.                                                                                                                                                                         Our economist, Deyi Tan, recently increased her CAD as a
                                                                                                                                                                                                                                     percentage of GDP estimates for Indonesia to 2.8% and 2.8%
                                                                                                                                                                                                                                     for C2012 and C2013, respectively. A combination of softening
                                                                                                                                                                                                                                     commodity prices, slowing global demand and still resilient
                                                                                                                                                                                                                                     domestic demand have contributed to the widening CAD in
                                                                                                                                                                                                                                     Indonesia. With 2012 annual current account deficit expected
                                                                                                                                                                                                                                     at 2.8% of GDP and assuming that certain segments, such as
                                                                                                                                                                                                                                     FDI and other investment, stay at the latest 4Q trailing sum (%
                                                                                                                                                                                                                                     of GDP) as of 2Q12, she estimates that net portfolio inflows
                                                                                                                                                                                                                                     need to average US$1.8bn each month to keep balance of
                                                                                                                                                                                                                                     payments at zero.

                                                                                                                                                                                                                                     Data shows that investors remain sanguine on Indonesia
                                                                                                                                                                                                                                     Although investors acknowledge the CAD problem in
                                                                                                                                                                                                                                     Indonesia, they seem to have remained quite sanguine on
                                                                                                                                                                                                                                     Indonesia’s capital markets. Investors argue that CAD reflects
                                                                                                                                                                                                                                     a low level of national savings relative to investment or a high




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                                                                                                                                                                                                                                                September 20, 2012
                                                                                                                                                                                                                                                ASEAN Equity Strategy




rate of investment – or both. For capital-poor developing                                                                                                                                                                                       Exhibit 10

countries that have more investment opportunities they can                                                                                                                                                                                      Indonesia Outperformed AxJ since Mar 2012
                                                                                                                                                                                                                                                  115
afford to undertake because of low levels of domestic savings,                                                                                                                                                                                                      MSCI Indonesia Indexed Performance Relative To MSCI AxJ
a CAD may be natural.                                                                                                                                                                                                                             110

                                                                                                                                                                                                                                                  105
                                                                                                                                                                                                                                                                                                                                                                                                                                                                      +4.6%
Based on EPFR data, foreigners are around 181 bps OW the                                                                                                                                                                                          100
equity markets, which is only 40 bps below its all-time high.                                                                                                                                                                                      95
                                                                                                                                                                                                                                                                                             -12.5%                                        - Absolute performance from 1
                                                                                                                                                                                                                                                                                                                                           Jan 2012 to 29 Feb 2012: +2.5%
                                                                                                                                                                                                                                                                                                                                                                                                                                               Relative
                                                                                                                                                                                                                                                                                                                                                                                                                                               performance
Although foreign ownership of government bonds (which                                                                                                                                                                                                                                                                                                                                                                                          from 1 Jan 2012
                                                                                                                                                                                                                                                   90                                                                                      - Absolute performance from 1                                                                       to 29 Feb 2012
include both SBN and SBI) has declined from a peak of 35.1%                                                                                                                                                                                                                                                                                Mar 2012 to Now: +1.2%.                                                                             Relative
                                                                                                                                                                                                                                                   85                                                                                                                                                                                          performance
to 26.5% as of August 2012, it remains at elevated levels                                                                                                                                                                                                                                                                                                                                                                                      from 1 Mar 2012
                                                                                                                                                                                                                                                                                                                                                                                                                                               to Now
relative to history. Interestingly, despite CAD being                                                                                                                                                                                              80




                                                                                                                                                                                                                                                        30-Dec-11

                                                                                                                                                                                                                                                                    13-Jan-12

                                                                                                                                                                                                                                                                                27-Jan-12

                                                                                                                                                                                                                                                                                            10-Feb-12

                                                                                                                                                                                                                                                                                                        24-Feb-12

                                                                                                                                                                                                                                                                                                                    9-Mar-12

                                                                                                                                                                                                                                                                                                                               23-Mar-12

                                                                                                                                                                                                                                                                                                                                            6-Apr-12

                                                                                                                                                                                                                                                                                                                                                       20-Apr-12

                                                                                                                                                                                                                                                                                                                                                                   4-May-12

                                                                                                                                                                                                                                                                                                                                                                              18-May-12

                                                                                                                                                                                                                                                                                                                                                                                          1-Jun-12

                                                                                                                                                                                                                                                                                                                                                                                                     15-Jun-12

                                                                                                                                                                                                                                                                                                                                                                                                                 29-Jun-12

                                                                                                                                                                                                                                                                                                                                                                                                                             13-Jul-12

                                                                                                                                                                                                                                                                                                                                                                                                                                         27-Jul-12

                                                                                                                                                                                                                                                                                                                                                                                                                                                     10-Aug-12

                                                                                                                                                                                                                                                                                                                                                                                                                                                                 24-Aug-12

                                                                                                                                                                                                                                                                                                                                                                                                                                                                             7-Sep-12
experienced by Indonesia during the three quarters ending
June 2012, its average quarterly portfolio inflows was
US$2.3bn, driven by a combination of foreign inflows both in
                                                                                                                                                                                                                                                Source: DataStream, Morgan Stanley Research
the bond and equity markets.

Exhibit 9
High Ownership Levels in Bonds and Equity                                                                                                                                                                                                       In this report, we do a deep dive study of the experience of
Increase Vulnerability                                                                                                                                                                                                                          South Africa, Turkey, India and Brazil (EM4) during CAD
                                                                                                                                                                                                                                                since 2000.
  40%              Foreign Ownership Level of Govt Bond and Investors' OWUW                                                                                                                                                              3.0%
                        Position In MSCI Indonesia Compared To MSCI AxJ
  35%                                       Benchmark                                                                                                                                                                                    2.5%   We conclude that Indonesian equity markets are most
                                                                                                                                                                                                                                                vulnerable during the next ‘risk-off’-led sell-down.
  30%                                                                                                                                                                                                                                    2.0%


  25%            Average                                                                                                                                                                                                                 1.5%


  20%                                                                                                                                                                                                         Average                    1.0%

                                                                                                  Foreign Ownership Level of Govt Bond (LHS)
  15%                                                                                                                                                                                                                                    0.5%
                                                                                                  Investor's OW/UW Position in Indonesia Compared
                                                                                                  To MSCI AxJ Benchmark
  10%                                                                                                                                                                                                                                    0.0%
        Aug-08
                 Oct-08
                          Dec-08
                                   Feb-09
                                            Apr-09
                                                     Jun-09
                                                              Aug-09
                                                                       Oct-09
                                                                                Dec-09
                                                                                         Feb-10
                                                                                                  Apr-10
                                                                                                           Jun-10
                                                                                                                    Aug-10
                                                                                                                             Oct-10
                                                                                                                                      Dec-10
                                                                                                                                               Feb-11
                                                                                                                                                        Apr-11
                                                                                                                                                                 Jun-11
                                                                                                                                                                          Aug-11
                                                                                                                                                                                   Oct-11
                                                                                                                                                                                            Dec-11
                                                                                                                                                                                                     Feb-12
                                                                                                                                                                                                              Apr-12
                                                                                                                                                                                                                       Jun-12
                                                                                                                                                                                                                                Aug-12




Source: EPFR, CEIC, Morgan Stanley Research




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        6
                                                                    MORGAN             STANLEY            RESEARCH

                                                                    September 20, 2012
                                                                    ASEAN Equity Strategy




Debate 1: Why should investors be concerned about Indonesia’s CAD when
other EM countries have witnessed prolonged periods of CAD with limited
impact on equity markets?
                                                                    Exhibit 11
    •    Combined relative underperformance of identified
                                                                    Prolonged Period of CAD for EM4
         countries such as Turkey, India, South Africa and
         Brazil (EM4) during periods of CAD and BoP since                        Annual CAD As Percentage of GDP: Average of South Africa,
                                                                       1.0%                      Turkey, India and Brazil
         2000 is 5.0% and 7.8% annualized, respectively
                                                                       0.0%

    •    Indonesia’s CAD is always accompanied by a BoP               -1.0%

         deficit, whereas other countries have faced a BoP
                                                                      -2.0%
         deficit only during a third of the CAD quarters since
                                                                      -3.0%
         2000.
                                                                      -4.0%

    •    During periods of CAD-led BoP deficit for other EMs,         -5.0%
         both currency and equity markets have fallen 20%.
                                                                      -6.0%
                                                                              2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1Q12


                                                                    Source CEIC, South African Reserve Bank, Morgan Stanley Research

Investors argue that CAD is good for emerging markets               EM4 Delivered Positive Returns in Local Currency during
Investors argue that current account deficit reflects a low level   CAD
of national savings relative to investment or a high rate of        Since 2000, EM4 have delivered positive time-weighted
investment – or both. For capital-poor developing countries,        annualized returns in local currency during periods of CAD.
which have more investment opportunities than they can afford       Markets such as South Africa, Turkey and India demonstrated
to undertake because of low levels of domestic savings, a           15%, 9% and 13.9% returns, respectively, while Brazil was the
current account deficit may be natural. They also argue that        only market that delivered a negative 5.4% return. It appears
countries such as Turkey, India, Brazil and South Africa (EM4)      that investors at large seem to be referring to absolute returns
have run prolonged periods of CAD without any material              in local currency generated by EM4, while ignoring risks
impact on their equity markets.                                     associated with Indonesian equity markets.
                                                                    Exhibit 12
Deep dive into the experience of EM4: We have studied the           Positive Absolute Local Currency Returns for EM4
experience of South Africa, Turkey, India and Brazil during         during Periods of CAD since 2000
CAD since 2000. We carried out a detailed study of CAD, BoP                      MSCI Index Annualized CAGR Performance During Periods
and Basic Balance impact on currency and equity performance            20%
                                                                                                         of CAD
during this period.                                                                 15.4%
                                                                       15%                                                13.9%
                                                                                                                                   Time-weighted
Prolonged Period of CAD: The simple average CAD as                     10%                             9.0%                        Average +8.9%

percentage of GDP of Turkey, South Africa, India and Brazil
since 2000 has expanded from just over 2% to over 5% in                 5%

Q1C12. More importantly, their average current account has              0%
remained in deficit since 2002 for just under 10 years.
                                                                       -5%
                                                                                                                                             -5.4%
                                                                      -10%
                                                                                   S. Africa          Turkey              India              Brazil


                                                                    Source: DataStream, Morgan Stanley Research.

                                                                    Note: The periods are as follows: South Africa Apr 2000-Sep 2000 and Apr 2003-Sep 2012;

                                                                    Turkey Jan 2000-Mar-2001, Jan 2002-Jun 2002, Oct 2002-Jun 2003 and Oct 2003-Sep 2012;

                                                                    India Jan 2000-Sep 2000, Jul 2004-Dec 2004, Apr 2005-Dec 2005, Apr 2006-Dec 2006 and

                                                                    Apr 2007-Sep 2012; Brazil Jan 2000-Jun 2002 and Oct 2007-Sep 2012.




                                                                                                                                                              7
                                                                                          MORGAN              STANLEY                  RESEARCH

                                                                                          September 20, 2012
                                                                                          ASEAN Equity Strategy




However, the above chart reveals only a part of the story.                                market-oriented capital cost would creep up, which would in
                                                                                          turn hurt domestic demand.
EM4 Currency and Relative Performance Were Poor                                           Exhibit 14
during CAD                                                                                EM4 BoP Still In Good Shape Despite CAD
First, although EM4 delivered positive time-weighted
                                                                                                              Annual CAD and BoP Balance As Percentage of GDP:
annualized returns of 8.9% in local currency during periods of                               6.0%               Average of South Africa, Turkey, India and Brazil
CAD, currencies actually fell 4.3% versus USD on an
                                                                                             4.0%
annualized CAGR basis, and relative to their regional indices,
the equity markets underperformed 5% on an annualized                                        2.0%
CAGR basis. More interestingly, during periods of BoP deficits,
                                                                                             0.0%
the currencies depreciated by 11.1% versus the USD, and the
equity market underperformance was 7.8% on a similar basis.                                 -2.0%

                                                                                                                              CAD
Exhibit 13                                                                                  -4.0%                             BoP
EM4 Currencies and Market Underperformance
                                                                                            -6.0%
Increases during Period of BoP Deficit                                                              2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1Q12

                Currency and Index Annualized CAGR Performance During
                CAD and BoP Deficit for S. Africa, Turkey, India and Brazil               Source: CEIC, South African Reserve Bank, Morgan Stanley Research
   14%
                                                                                          EM4 Suffers Badly During Periods of CAD-led BoP
   10%                                     8.9%
                 During CAD                                                               Although, EM4 seem to generate positive equity market returns
    6%           During BoP Deficit                                                       in local currency during periods of CAD, performance of
                                                  1.7%
    2%                                                                                    currency and equity markets during period of CAD-led BoP
   -2%
                                                                                          deficit reveals a completely different picture. During periods of
                                                                                          CAD-led BoP deficit in EM4, the average annualized time-
   -6%           -4.3%                                               -5.0%                weighted currency depreciation versus USD of EM4 during
  -10%                                                                       -7.8%
                                                                                          period of BoP shortfall driven by CAD is 19.9%. Similarly, the
                         -11.1%
  -14%                                                                                    average annualized absolute and relative performance of
             Currency Performance        Asbolute Index          Relative To Respective
                                          Performance                Regional Index
                                                                                          equity indices of EM4 during CAD-led BoP is -20.5% and
                                                                                          -15.1%, respectively.
Source: DataStream, Morgan Stanley Research
                                                                                          Exhibit 15
Note: The CAD and BoP deficits are aggregate for all 4 countries. CAD periods are South
                                                                                          EM Markets Currency Underperformed Against the
Africa Apr 2000-Sep 2000 and Apr 2003-Sep 2012; Turkey Jan 2000-Mar-2001, Jan 2002-Jun
                                                                                          USD during CAD-led BoP Deficit
2002, Oct 2002-Jun 2003 and Oct 2003-Sep 2012; India Jan 2000-Sep 2000, Jul 2004-Dec
                                                                                                     Annualized Currency Performance Against USD and Index
2004, Apr 2005-Dec 2005, Apr 2006-Dec 2006 and Apr 2007-Sep 2012; Brazil Jan 2000-Jun
                                                                                                    Performance During Simultaneous CAD and BoP Deficit for S.
2002 and Oct 2007-Sep 2012. BoP Deficit periods are South Africa Apr 2001-Sep 2001, Apr                          Africa, Turkey, India and Brazil:
2002-Dec 2002, Apr 2003-Sep 2003 and Jul 2011-Dec2011; Turkey Oct 2000-Jun2002, Oct           0%
2008-Jun 2009 and Jul 2009-Dec 2011; India Jul 2008-Dec 2008 and Oct 2011-Mar 2011;
                                                                                             -5%
Brazil Jul 2002-Dec 2002, Apr 2004-Sep 2004, Apr 2005-Dec 2005 and Oct 2008-Mar 2009.

                                                                                            -10%


                                                                                            -15%
EM4 CAD Not Accompanied by BoP Deficit                                                                                                                                  -15.1%
Second, although EM4 witnessed prolonged periods of CAD,                                    -20%
                                                                                                              -19.9%
since 2000, their BoP was in surplus due to either high levels of                                                                            -20.5%

                                                                                            -25%
FDI or portfolio flows or both. In our view, we think the key                                          Currency Performance         Asbolute Index Performance   Relative To Respective
difference between Indonesia and EM4 is the relatively strong                                                                                                        Regional Index

BoP position of EM4 despite CAD (Exhibit 14), and the
                                                                                          Source: DataStream, Morgan Stanley Research
relatively weak BoP position of Indonesia driven by CAD. Our
                                                                                          Note: The periods are as follow: South Africa Apr 2003-Sep 2003 and Jul 2011-Dec 2011;
economist, Deyi Tan, believes that when commodity prices
                                                                                          Turkey Oct 2000-Mar 2001, Jan 2002-Jun 2002, Oct 2008-30 Jun 2009 and Jul 2011-Dec
soften and risk aversion takes hold amid a CAD, the resultant
                                                                                          2011; India Apr 2000-Sep 2000, Jul 2008-Dec 2008 and Oct 2011-Mar 2012; Brazil Oct
BoP pressures would affect Indonesia’s macro stability as
                                                                                          2008-Mar 2009.
currency depreciates, domestic liquidity would tighten and




                                                                                                                                                                                          8
                                                                      MORGAN           STANLEY              RESEARCH

                                                                      September 20, 2012
                                                                      ASEAN Equity Strategy




Indonesia’s BoP Tolerance to CAD Lower than EM4’s                     Indonesia has witnessed portfolio inflows averaging US$0.6bn
Indonesia’s tolerance of CAD is low. Our economist, Deyi Tan,         per month during the last five years.
believes a widening current account deficit in this global macro
environment means that policymakers are effectively ceding            Indonesia’s Own History Points to Poor Performance
control of Indonesia’s macro stability to global risk factors. She    During CAD
finds the tolerance level for CAD in Indonesia lower than in          Indonesia’s own historical performance during periods of CAD
other EM economies. This is because Indonesia’s capital               reveals a discouraging story. IDR depreciated by 14.9% on an
account is more open relative to other EM economies and               average versus USD during the previous periods of CAD and
hence, is more vulnerable to capital volatility. This is why we       equity markets underperformed by 10% versus MSCI AxJ
believe policymakers should ideally keep the current account          during previous periods of CAD.
balance closer to zero to maintain a buffer against capital
volatility.

Exhibit 16                                                            Exhibit 17
Indonesia Has Lower CAD Tolerance than EM4                            Indonesia Currency and Market Unperformed During
             Percentage of Times The Country Also Experienced BoP     CAD
                     Deficit During Current Account Deficit                        Annualized CAGR Performance of IDR Against USD and
                         100%                                                      MSCI Indonesia Relative To MSCI AxJ During Periods of
  100%                                                                                                      CAD
                                                                          0%
   90%
   80%
                                                                         -5%
   70%                                                                                                       Average
   60%                                                                                                       -10.0%
   50%                                                                  -10%
                                                                                                                                      -10.2%
   40%                                                        32%                                   -9.8%                  -9.2%
   30%                                                                  -15%
   20%
                                                                                                             Average
                                                                                                             -14.9%
   10%                                                                  -20%                                                IDR vs. USD
    0%                                                                                  -20.7%                              Relative Performance
                       Indonesia                             Others
                                                                        -25%
                                                                                    01-Apr-2008 to 31-Dec-2008         01-Oct-2011 to 30-Jun-2012
Source: CEIC, South African Reserve Bank, Morgan Stanley Research
                                                                      Source: DataStream, Morgan Stanley Research

Indonesia has witnessed a BoP shortfall in all of the eight
quarters of CAD since 2000. On the other hand, EM4
combined witnessed 148 quarters of CAD, of which only                 We conclude that Indonesian equity and currency markets
47 quarters were in BoP shortfall.                                    will likely be quite vulnerable during periods of CAD.

Deyi Tan estimates that Indonesia may require portfolio flows
averaging US$1.8bn over the next 1.5 years to neutralize its
BoP status if it maintains CAD of 2.8% of GDP. Interestingly,




                                                                                                                                                    9
                                                                  MORGAN                      STANLEY                             RESEARCH

                                                                  September 20, 2012
                                                                  ASEAN Equity Strategy




Debate 2: Investors argue that Indonesia’s CAD is driven by ILG, and that
markets should reward for ILG’s potential to improve long-term growth
                                                                  Exhibit 18
    •    Indonesia’s medium-term structural-investment-led
                                                                  Indonesia’s Investment to GDP versus Indonesia
         growth story remains probable and will likely be the
                                                                  Weight in MSCI AxJ
         key driver for increasing its weight within MSCI AxJ
                                                                    34                  Indonesia Investment As Percentage of GDP (%) and                                                                                8.0
                                                                                                 Indonesia Weight in MSCI AxJ (%)
    •    Despite ILG, EM4 currencies depreciated 4.3%               32                                                                                                                                                   7.0

         during their periods of CAD, and equity markets            30                                                                                                                                                   6.0
         underperformed by 10.3%.
                                                                                                                                               Investment as Percentage of
                                                                    28                                                                                                                                                   5.0
                                                                                                                                               GDP

    •    Indonesia’s currency has depreciated by 14.4% vs           26                                                                         Weight in MSCI AxJ (RHS)                                                  4.0

         the USD and equity markets have underperformed
                                                                    24                                                                                                                                                   3.0
         MSCI AxJ by 14.9% on an annualized CAGR basis
         during periods of ILG-driven CAD (see footnote to          22                                                                                                                                                   2.0

         Exhibit 21).                                               20                                                                                                                                                   1.0


                                                                    18   1993                                                                                                                                            0.0

                                                                                1994
                                                                                       1995
                                                                                              1996
                                                                                                     1997
                                                                                                            1998
                                                                                                                   1999
                                                                                                                          2000
                                                                                                                                 2001
                                                                                                                                        2002
                                                                                                                                                2003
                                                                                                                                                       2004
                                                                                                                                                              2005
                                                                                                                                                                      2006
                                                                                                                                                                             2007
                                                                                                                                                                                    2008
                                                                                                                                                                                           2009
                                                                                                                                                                                                  2010
                                                                                                                                                                                                           2011
                                                                                                                                                                                                                  1H12
No Change to Indonesia’s Medium-term ILG-driven                   Source: MSCI, CEIC, Morgan Stanley Research
Constructive Outlook
We have been highlighting that ILG will continue to drive         EM4 have performed poorly during ILG-led CAD
Indonesia/ASEAN markets in the medium term, despite               Investors argue that running an ILG-led CAD allows Indonesia
frequent policy/political noise.                                  to build medium- and long-term productive capacity without
                                                                  putting the short term in danger, and that this should be
Relatively strong government and corporate balance sheets,        considered natural for a capital-starved economy. However
historical underinvestment, governments’ renewed thrust to        intuitive and true this may sound, the EM4 experience of
drive investment and relatively resilient domestic demand are     currency and equity markets during periods their periods of
factors that are likely to drive investment-led growth demand     ILG-led CAD has been poor.
for Indonesia/ASEAN countries, in our view.                       Exhibit 19
                                                                  EM4 Currencies Depreciated during ILG CAD
We believe that countries such as Indonesia that are able to                           Currency Annualized CAGR Performance During Periods
                                                                                                            of ILG CAD
sustain a higher level of investment growth are likely to be
                                                                      0%
winners in the medium term. Higher investment would                                                                                                              -0.5%
positively influence both the level of growth rates and              -2%

medium-term visibility, which are a good concoction for driving      -4%                 -3.0%

equity markets. We also believe that equity markets tend to
                                                                     -6%
                                                                                                                            -5.7%
respond favorably to investment cycles.                                                                                                         Average Annualized
                                                                     -8%                                                                        CAGR -4.3%
Although we continue to believe that Indonesia’s importance         -10%
within the region will be driven by its investment cycle, its                                                                                                                                        -10.4%
                                                                    -12%
current BoP imbalance and CAD will likely affect the markets                           S. Africa                           Turkey                                    India                               Brazil
negatively.
                                                                  Source: DataStream, Morgan Stanley Research
                                                                  Note: The periods are as follow: South Africa Apr 2000-Sep 2000, Jul 2001-Sep 2001, Jul
                                                                  2002-Sep 2002, Apr 2003-Sep 2009, Oct 2010-Dec 2010 and Apr 2011-31 Mar 2012; Turkey
                                                                  Jan 2000-Dec 2000, Apr 2002-Jun 2002, Oct 2002-Jun 2003, Oct 2003-Dec 2006, Oct
                                                                  2007-Mar 2008 and Jan 2010-Sep 2011; India Apr 2003-Jun 2003, Jul 2004-Dec 2004, Apr
                                                                  2005-Dec 2005, Apr 2006-Dec 2006, Apr 2007-Dec 2008, Jan 2010-Mar 2010, Oct 2010-Dec
                                                                  2010 and Apr 2011-Jun 2011; Brazil Apr 2000-Mar 2001, Oct 2007-Dec 2008 and Oct
                                                                  2009-Dec 2011.




                                                                                                                                                                                                                               10
                                                                      MORGAN            STANLEY            RESEARCH

                                                                      September 20, 2012
                                                                      ASEAN Equity Strategy




EM4 currencies have depreciated at a 4.3% annualized CAGR             Exhibit 21

during periods of ILG-led CAD since 2000. The relative                ILG Could Not Prevent Indonesia’s
performance of the markets has also been poor, as they have           Underperformance during CAD
underperformed their respective regional indices by 10.3%                          Annualized CAGR IDR Performance Versus USD and MSCI
                                                                                           Indonesia Performance During ILG CAD
during ILG-led CAD since 2000.
                                                                         10%

Exhibit 20                                                                5%
Relative Performance of Each EM4 Market during
                                                                          0%
ILG CAD
             MSCI Index Annualized CAGR Performance Relative To          -5%
             Respective Regional Indices During Periods of ILG CAD
   20%                                                                  -10%

   15%
                                                                        -15%
                                              8.4%                                      -14.4%                                           -14.9%
   10%                                                                                                          -15.3%
                                                                        -20%
    5%
                                                                                       Currency           Asbolute Performance       Relative To AxJ
    0%

   -5%                                                                Source: DataStream, Morgan Stanley Research
                                                             -3.5%
  -10%                                                                Note: The periods are Jan 2004-Mar 2004, Jul 2005-Sep 2—5, Apr 2008-Dec 2008 and Oct
                                                Average Annualized    2011-Jun 2012.
  -15%
                                -15.2%          CAGR -10.3%
  -20%       -17.8%
             S. Africa           Turkey       India          Brazil

                                                                      We conclude that even during periods of ILG-led CAD,
Source: DataStream, Morgan Stanley Research
                                                                      Indonesian equity and currency markets are likely to
                                                                      remain vulnerable and could underperform.
Indonesia’s track record during ILG-led CAD is worse
Although investors are focused on Indonesia’s investment-led
growth prospects, the relatively higher sensitivity of Indonesia’s
CAD on BoP means that despite investment-led growth,
Indonesia tends to underperform as CAD becomes the more
overwhelming factor impacting the markets. IDR has
depreciated by 14.4% during ILG-led CAD since 2000.
Absolute and relative performance of the equity markets was
also poor during ILG-led CAD, as equity markets declined
15.3% and underperformed by 14.9% on an annualized CAGR
basis during these periods. In fact, in each of the previous four
occasions of ILG-led CAD, IDR has depreciated and MSCI
Indonesia has underperformed MSCI AxJ.




                                                                                                                                                             11
                                                                    MORGAN                                                                          STANLEY                                                                                             RESEARCH

                                                                    September 20, 2012
                                                                    ASEAN Equity Strategy




Debate 3: What would trigger underperformance for Indonesia?
                                                                    Exhibit 22
    •    Sustained foreign outflows from the bond markets
                                                                    High Correlation between Foreign Flows in Bonds
         would reverse Indonesian equity outperformance.
                                                                    and Equity Performance
    •    Foreign bond flows are very well correlated with risk       15%
                                                                                                                       Indonesia Weekly Bond Flow (USD mn) and MSCI Indonesia Index
                                                                                                                                           Weekly Change (IDR)
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    1,400
         markets, such as USD/EUR.
                                                                     10%
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    900

    •    Back-testing suggests that equity market vulnerability       5%
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    400
         to foreign outflow from bond markets has increased           0%
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    -100
         since CAD in Q4C11.
                                                                      -5%                                                                                                                                           Inflows                                                                                                                                                                                                                                                         -600

                                                                     -10%                                                                                                                                           Outflows
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    -1,100
                                                                                                                                                                                                                    MSCI Indonesia Weekly Change
                                                                     -15%                                                                                                                                           (LHS)                                                                                                                                                                                                                                                           -1,600




                                                                            22-09-2010
                                                                                               20-10-2010
                                                                                                                 18-11-2010
                                                                                                                                   17-12-2010
                                                                                                                                                    20-01-2011
                                                                                                                                                                     21-02-2011
                                                                                                                                                                                     22-03-2011
                                                                                                                                                                                                     20-04-2011
                                                                                                                                                                                                                    20-05-2011
                                                                                                                                                                                                                                   20-06-2011
                                                                                                                                                                                                                                                 19-07-2011
                                                                                                                                                                                                                                                              16-08-2011
                                                                                                                                                                                                                                                                           22-09-2011
                                                                                                                                                                                                                                                                                        20-10-2011
                                                                                                                                                                                                                                                                                                      17-11-2011
                                                                                                                                                                                                                                                                                                                    15-12-2011
                                                                                                                                                                                                                                                                                                                                   13-01-2012
                                                                                                                                                                                                                                                                                                                                                  13-02-2012
                                                                                                                                                                                                                                                                                                                                                                  12-03-2012
                                                                                                                                                                                                                                                                                                                                                                                  11-04-2012
                                                                                                                                                                                                                                                                                                                                                                                                   09-05-2012
                                                                                                                                                                                                                                                                                                                                                                                                                     08-06-2012
                                                                                                                                                                                                                                                                                                                                                                                                                                       06-07-2012
                                                                                                                                                                                                                                                                                                                                                                                                                                                          03-08-2012
Sudden reversal in flows likely to be disruptive
When a country runs a CAD, it is building up liabilities to the
rest of the world by being partly financed by portfolio flows.
Eventually, these need to be paid back. Economies can               Source: Indonesia DMO, DataStream, Morgan Stanley Research
experience sharp reversals of their CAD after portfolio flows
are withdrawn during a financial crisis. Such reversals can be      Bond flows highly volatile and linked to global assets
highly disruptive, because private consumption, investment          USD/EUR has been a very good indicator for global risk on
and government expenditure must be curtailed abruptly when          risk-off environment recently. Interestingly, as can be seen
foreign financing is no longer available. Although the risk of      from the chart below, Indonesia’s foreign flows into
financial crises has waned after the recent central bank actions,   government bonds have correlated well with USD/EUR. During
we believe that a sudden reversal in Indonesia’s foreign bond       periods when the EUR appreciates against the USD, Indonesia
flows, if the Complacency phase of the CRIC cycle sets in,          witnesses foreign inflows into government bonds and vice
could trigger a further disruption in its BoP status and thus       versa. We believe that foreign flows into Indonesia’s
affect equity markets negatively.                                   government bonds will remain highly volatile and driven by
                                                                    global risk-on/risk-off environment.
Bond flows will likely drive the markets
                                                                    Exhibit 23
After the recent constructive announcements by the ECB and
the Fed, Indonesian equity markets clearly appear to be             USD/EUR versus cumulative portfolio bond flows in
rallying on the “Hope of Policy Panacea”. We continue to            Indonesia
believe that market volatility is likely to remain high because                                                     YTD Cumulative Inflow of Indonesia Bonds and USD-EUR
investor sentiment will likely alternate between “Hope of Policy                                                                  Exchange Rate Movement
                                                                      1,800                                                                                                                                                                                                                                                                                                                                                                                                           1.36
Panacea” and “Fear of Tail Risk” during the rest of the year.         1,600
                                                                      1,400
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      1.34
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      1.32
Our economist, Deyi Tan, estimates Indonesia would require            1,200
                                                                      1,000                                                                                                                                                                                                                                                                                                                                                                                                           1.30
US$1.8bn in monthly portfolio inflows to maintain its BoP.              800                                                                                                                                                                                                                                                                                                                                                                                                           1.28
                                                                        600
Interestingly, Indonesia has witnessed portfolio inflows                400                                                                                                                                                                                                                                                                                                                                                                                                           1.26
                                                                        200                                                                                                                                                                                                                                                                                                                                                                                                           1.24
averaging US$0.58bn per month during the last five years.                 0                                                                                                                                                                                                                                                                                                                                                                                                           1.22
During the same period, foreign equity inflows have contributed        -200                                                                                          YTD Cumulative Inflow for Indonesia Govt Bond (USD
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      1.20
                                                                       -400                                                                                          mn)
only 10.7% of total portfolio inflows, with the balance                -600
                                                                                                                                                                     USD/EUR Rate (RHS)
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      1.18
                                                                                  02-01-2012
                                                                                                    11-01-2012
                                                                                                                      20-01-2012
                                                                                                                                       01-02-2012
                                                                                                                                                        10-02-2012
                                                                                                                                                                        21-02-2012
                                                                                                                                                                                        01-03-2012
                                                                                                                                                                                                       12-03-2012
                                                                                                                                                                                                                      21-03-2012
                                                                                                                                                                                                                                    02-04-2012
                                                                                                                                                                                                                                                 12-04-2012
                                                                                                                                                                                                                                                              23-04-2012
                                                                                                                                                                                                                                                                           02-05-2012
                                                                                                                                                                                                                                                                                        11-05-2012
                                                                                                                                                                                                                                                                                                     24-05-2012
                                                                                                                                                                                                                                                                                                                   04-06-2012
                                                                                                                                                                                                                                                                                                                                 13-06-2012
                                                                                                                                                                                                                                                                                                                                                22-06-2012
                                                                                                                                                                                                                                                                                                                                                               03-07-2012
                                                                                                                                                                                                                                                                                                                                                                               12-07-2012
                                                                                                                                                                                                                                                                                                                                                                                               23-07-2012
                                                                                                                                                                                                                                                                                                                                                                                                                01-08-2012
                                                                                                                                                                                                                                                                                                                                                                                                                                  10-08-2012
                                                                                                                                                                                                                                                                                                                                                                                                                                                    27-08-2012
                                                                                                                                                                                                                                                                                                                                                                                                                                                                       05-09-2012




contributed largely by bond inflows. Foreign inflows into the
bond markets will be critical in driving Indonesia’s BoP and
hence currency stability. Hence, we believe that bond flows
driven by risk-on and risk-off trades will likely drive equity      Source: CEIC, DataStream, Morgan Stanley Research

markets.
                                                                    Equity markets more sensitive to foreign bond outflows
                                                                    We back-tested performance of equity markets during bond
                                                                    inflow/outflow of US$150 mn since January 2010. Interestingly,




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             12
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                                                                                               September 20, 2012
                                                                                               ASEAN Equity Strategy




Indonesian markets underperformed MSCI AxJ on 58%                                              … whereas sensitivity of market outperformance to bond
occasions when the bond markets witnessed foreign outflows                                     inflows has diminished during CAD
in excess of US$150 mn. On the other hand, sensitivity of the                                  On the other hand, during the period of CAD (i.e., since
equity market to foreign inflow in the bond market is limited,                                 Q4C11), the sensitivity of equity market performance to foreign
with the equity markets outperforming on 46% of the                                            inflows in the bond market has declined. Since Q4C11, a
occasions when foreign inflow in the bond markets was                                          period of CAD for Indonesia, equity markets have
above US$150 mn.                                                                               outperformed only on 39% of the occasions when foreigners
                                                                                               were net buyers of government bonds exceeding US$150 mn.
Exhibit 24                                                                                     Whereas during the period prior to Q4C11, the number of
Equity Markets More Sensitive to Foreign Bond                                                  occasions of outperformance was higher at 53%. The market is
Outflows than Inflows                                                                          clearly more sensitive to bond outflows compared to inflows
                Average Percentage of The Times Market Outperformance /                        during periods of CAD.
                    Underperformance Against AxJ During Periods of
  70%                   Bond Inflow / Outflows Over USD 150 mn
                                                                                               Exhibit 26
                         58%
  60%                                                                                          Equity Markets Less Sensitive to Foreign Bond
  50%                                                               46%                        Inflows during CAD
  40%                                                                                                                Percentage of The Times of Market Outperformance Against
                                                                                                                        AxJ During Periods of Bond Inflow Over USD 150 mn
  30%
                                                                                                 60%
                                                                                                                                                                                       53%
  20%
                                                                                                 50%
  10%
                                                                                                                                  39%
                                                                                                 40%
   0%
        Percentage of Times of Underperformance     Percentage of Times of Outperformance        30%
                     During Outflow                             During Inflow
                                                                                                 20%

Source: Indonesia DMO, DataStream, Morgan Stanley Research                                       10%

                                                                                                  0%
Sensitivity of market underperformance to bond outflows                                                         During Inflows and CAD Period                    During inflows before Indonesia Witnessed
                                                                                                                                                                                    CAD
has risen during CAD …
Interestingly, during the period CAD deficit (i.e., since Q4C11)                               Source: Indonesia DMO, DataStream, Morgan Stanley Research
the sensitivity of equity market performance to outflows to bond
market increased. Since Q4C11, a period of CAD for Indonesia,                                  Monthly Market Performance well correlated to Bond
equity markets have underperformed on 63% of the occasions                                     flows
when bond outflows exceeded US$150 mn, whereas during                                          Interestingly, analyzing the impact of Bond flows on the
the non-CAD period prior to Q4C11, the number of occasions                                     monthly performance of the equity markets also conveys the
of underperformance was limited to 54%.                                                        same message. We conclude that bond flows will trigger
                                                                                               the Indonesian market’s equity performance.
Exhibit 25
Equity Markets More Sensitive to Foreign Bond                                                  Exhibit 27
Outflows during CAD                                                                            Market Monthly Relative Performance Correlated to
             Percentage of The Times of Market Underperformance Against
                                                                                               Bond Flow
                AxJ During Periods of Bond Outflows Over USD 150 mn
  70%                                                                                                                Indonesia Monthly Bond Flow and MSCI Indonesia
                         63%                                                                                                Performance Relative To MSCI AxJ
  60%                                                                                             2,000                                                                                      12%
                                                                    54%
                                                                                                                                                                                             10%
  50%                                                                                             1,500
                                                                                                                                                                                             8%
                                                                                                  1,000                            4.8%                                                      6%
  40%                                                                                                                                                                   3.4%
                                                                                                                                                                                             4%
                                                                                                   500                                                       1.9%
  30%                                                                                                                                                                                        2%
                                                                                                       0                                                                                     0%
  20%                                                                                                                                                                                   0.0% -2%
                                                                                                                                            -0.8%
                                                                                                   -500                                                 -2.0%
  10%                                                                                                                                                                          -2.8%         -4%
                                                                                                 -1,000                                                                                      -6%
   0%                                                                                                                              Monthly Bond Flow (USD mn) (LHS)
                                                                                                            -6.6%       -7.2%                                                                -8%
             During Outlfows and CAD Period       During Outlfows Before Indonesia Witnessed     -1,500
                                                                                                                                   MSCI Indonesia Monthly Performance Relative To MSCI AxJ   -10%
                                                                     CAD
                                                                                                 -2,000                                                                                      -12%
                                                                                                                                                        May-12
                                                                                                            Jan-12



                                                                                                                         Feb-12



                                                                                                                                    Mar-12



                                                                                                                                             Apr-12




                                                                                                                                                                     Jun-12



                                                                                                                                                                              Jul-12



                                                                                                                                                                                         Aug-12



                                                                                                                                                                                                  Sep-12




Source: DataStream, Morgan Stanley Research


                                                                                               Source: Indonesia DMO, DataStream, Morgan Stanley Research




                                                                                                                                                                                                             13
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                                                                   September 20, 2012                                               MORGAN STANLEY RESEARCH
                                                                   ASEAN Equity Strategy                                                          ASEAN EQUITY STRATEGY
                                                                                                                                                          September 20, 2012

MSCI Indonesia Energy Key Underperformer During Commodity Price Shock, Currency
Depreciation, Current Account Deficits and Balance of Payment Stress
Sector Performance During Commodity Price Shocks                                       Sector Performance During Sharp Currency Depreciation
                                       Commodity Price Decline                                                  Lehman Crisis      Greek 1 Crisis    Greek 2 Crisis
 Sector Performance                                                                     MSCI Indonesia Sector
                                             During
  Relative To MSCI                                                                                                 Currency          Currency          Currency
                                                                                       Performance Relative To
      Indonesia                       Jul 2008 to           Apr 2011 To                                        Depreciation from Depreciation from Depreciation from
                                                                                              MSCI AxJ
                                       Dec 2008              Current*                                           Peak To Trough    Peak To Trough    Peak To Trough
     Health Care                          55%                    7%
  Consumer Staples                         5%                   21%                      Consumer Staples            10.5%                10.4%                 6.0%
       Telecom                           27%                    18%                          Materials               -0.8%                 1.6%                14.7%
      Financials                          22%                    2%                          Telecom                 14.9%                 3.4%                -1.9%
        Utilities                         20%                   -7%                         Financials                9.0%                 1.7%                -3.1%
Consumer Discretionary                    -4%                   20%                         Industrials             -18.9%                -6.2%                 8.2%
       Materials                         -10%                    2%                    Consumer Discretionary       -10.0%                -4.9%                11.2%
      Industrials                        -19%                   -2%                           Utilities             15.9%                 -6.8%               -12.2%
        Energy                           -33%                  -51%                           Energy                -22.7%                -2.7%               -16.3%

Sector Performance During Current Account Deficits                                     Sector Performance During Balance of Payment Stress
                                     Current Account Deficit During                                                       Balance of Payment Deficit During
  Sector Performance                                                                       Sector Performance
   Relative To MSCI             Jan 2004 To Apr 2008 To Oct 2011 To                         Relative To MSCI    Jan 2001 To Apr 2004 To Jul 2008 To Jul 2011 To
       Indonesia                 Dec 2005    Mar 2009    Current*                               Indonesia        Mar 2002    Dec 2005    Mar 2009    Current*

Financials                          11.7%             15.7%            -0.9%          Consumer Discretionary         8%              6%             11%            9%
Utilities                             N.A.           13.5%            34.2%           Utilities                     15%             21%             17%           -3%
Telecom                             -11.7%            16.3%             7.0%          Health Care                   53%             -3%             52%           18%
Consumer Staples                    -29.3%            10.1%             4.4%          Financials                   22%              -5%             26%            1%
Health Care                         -20.6%            52.7%            14.8%          Consumer Staples               7%             -5%              6%          16%
Consumer Discretionary               -5.7%             2.2%             0.7%          Telecom                      30%              -8%             31%           21%
Industrials                         86.4%            -10.9%           -10.2%          Materials                     -8%             14%             -8%            7%
Materials                            -6.7%           -12.2%           23.8%           Industrials                  -14%             32%            -12%           -9%
Energy                             -135.7%           -33.2%           -36.2%          Energy                       -36%             -8%            -38%          -44%

Source: DataStream, Morgan Stanley Research. *: Closing price as of Sep 18, 2012.




                                                                                                                               14
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                                                               September 20, 2012                                          MORGAN STANLEY RESEARCH
                                                               ASEAN Equity Strategy                                                ASEAN EQUITY STRATEGY
                                                                                                                                           September 20, 2012




ASEAN’s Experience During Previous QE Cycles
ASEAN                                                                                                                                 Singapore
 • MSCI SEA markets performed well during both of the
   previous QE cycles as they outperformed MSCI AxJ by 16.1%                           • Singapore market’s performance was most muted relative to
   and 3.3%, respectively. Indonesia was the best performing                             the other ASEAN markets. During QE1, MSCI Singapore
   market within ASEAN4, whereas performance of Singapore                                outperformed MSCI AxJ by 5.7%, and during QE2, it
   and Malaysia was relatively muted.                                                    underperformed by 0.4%.
 • ASEAN4 currencies performed quite strongly, as they all
   outperformed during both QE cycles. IDR was amongst the                             • In line with the performance of other currencies within ASEAN,
   best performing currencies, whereas MYR performance was                               SGD appreciated versus USD during both previous QE cycles.
   relatively muted.
 • Despite portfolio flows, 10-year government Bond yields rose
   across most markets except Indonesia during QE1.                                    • Impact on inflation from QE was mixed. During QE1, inflation
                                                                                         levels dropped, but during QE2, inflation pressures increased.
 • Inflationary pressures were quite mixed within ASEAN.
                                                              Market
   Thailand witnessed rising inflationary pressures during the QE
   cycles while Indonesia witnessed declining inflation levels.
                                                          outperformance
                                                            and strong
                                                           currency, but
                                                          mixed impact on
Indonesia                                                  inflation and                                                                Thailand
 • Indonesian equity market was the best performing ASEAN   bond yields
                                                                                          • During both previous cycles of QE, Thailand witnessed
   market in the previous two QE cycles as it outperformed MSCI                             increase in inflationary pressures from the beginning of
   AxJ by 82.1% and 10.0%, respectively.                                                    QE to the end. In fact, it was the only country within ASEAN4
 • Further, despite the commodity price pressure and contrary to                            which witnessed an increase in inflationary pressure during
   investor perception, inflation in Indonesia fell during both                             QE. 10-year government bond yields also rose, by 11 and
   previous QE cycles, by 825 bps and 79 bps, respectively.                                 29 bps, during the two QE cycles.
 • IDR appreciated in both QE cycles due to improvement in
   portfolio flows.                                                                       • Equity market performance for Thailand was rather mixed.
                                                                                            It outperformed AxJ in QE1 and underperformed during
 • However, the performance of government bonds was mixed.
                                                                                            QE2, albeit marginally.
   During QE1, 10-year government bond yields dropped by 649
   bps whereas in QE2 they rose, albeit marginally, by 9 bps.
                                                                                          • Thai baht, like all other ASEAN currencies, appreciated
                                                                                            relative to the USD, driven by rise in portfolio flows.
   Source: CEIC, FactSet, Bloomberg, Morgan Stanley Research



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                                                     September 20, 2012                               MORGAN STANLEY RESEARCH
                                                     ASEAN Equity Strategy                                  ASEAN EQUITY STRATEGY
                                                                                                                  September 20, 2012




Sectors With Consistent Performance Relative to AxJ During Previous QE Cycles
                                                                               Performance vs.
                                   Sector Outperforming AxJ During                MSCI AxJ
                                                 QE
                                                                               QE1       QE2
                                  Indonesia    Financials                      35%        0%
                                  Indonesia    Consumer Discretionary          180%       3%
                                  Indonesia    Industrials                     283%       8%
                                  Malaysia     Financials                      10%        1%
                                  Malaysia     Materials                       40%       13%
                                  Singapore    Industrials                      8%        2%
                                  Thailand     Energy                          13%        3%
                                  Thailand     Consumer Staples                97%        5%
                                  Thailand     Materials                       42%        7%


                                                                               Performance vs.
                                       Sector Underperforming AxJ                 MSCI AxJ
                                               During QE
                                                                               QE1       QE2
                                  Malaysia     Utilities                       -21%       -2%
                                  Malaysia     Industrials                     -14%       -3%
                                  Singapore    Financials                       -3%       -2%
                                  Thailand     Consumer Discretionary          -11%       -8%
                                  Thailand     Utilities                       -10%      -10%

Source: FactSet, Morgan Stanley Research




                                                                                                 16
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                                                                     September 20, 2012                                                   MORGAN STANLEY RESEARCH
                                                                     ASEAN Equity Strategy                                                              ASEAN EQUITY STRATEGY
                                                                                                                                                              September 20, 2012




ASEAN’s Experience During Previous QE Cycles – Indonesia, Biggest Winner
100%                                                                                         35%
                MSCI Index Performance Relative to AxJ During QE                                                   Currency Movement During QE
90%
               10.0%
                                                                                             30%
80%                                                                                                     4.4%                                     QE2
70%
                                                                                             25%
                                                                                                                                                 QE1
60%                                               QE2
50%
                                                  QE1
                                                                                             20%
40%            82.1%

30%                                                                                          15%
                                                                                                       26.0%
20%
                                                                           31.6%             10%                                                                  5.3%
                                                    -0.4%                                                                2.9%
10%                              6.9%                                                                                                        0.4%
                                 2.4%                5.7%
 0%
                                                                                             5%
                                                                           -1.0%                                         7.9%                7.9%                 7.6%
-10%                                                                               Asia Insight
-20%                                                                                         0%
           MSCI Indonesia    MSCI Malaysia      MSCI Singapore          MSCI Thailand                 USDIDR           USDTHB               USDMYR               USDSGD

                Change in Monthly YoY Inflation (bps) from the Beginning                             Change in 10Yr Bond Yield (bps) from the Beginning to the
                    to the End of QE (+ve: Increase, -ve: Decrease)                                          End of QE (+ve: Increase, -ve: Decrease)
  400
                                                                                             100                        49                  54
                                                         159                                                   9                14                               11   29
  200                          124 127                                          144                                                                 2
                                                                                               0
       0                                                                                     -100
                       -79                                                                   -200
 -200
                                                                                             -300
 -400
                                                  -423                   -390                -400
 -600
                                                                                             -500
 -800                                                          QE1
                                                                                             -600
              -825                                             QE2
-1,000                                                                                       -700     -649
              Indonesia         Thailand           Malaysia              Singapore                    Indonesia         Malaysia           Singapore             Thailand


Source: FactSet, Morgan Stanley Research
QE1 is the period Nov 2008 – Mar 2010. QE2 is the period Nov 2010 – Jun 2011.



                                                                                                                                     17
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                                                                                  September 20, 2012                                                                   MORGAN STANLEY RESEARCH
                                                                                  ASEAN Equity Strategy                                                                             ASEAN EQUITY STRATEGY
                                                                                                                                                                                             September 20, 2012




Indonesian Equity Performed Well, Whereas Singapore’s Performance Was Muted
170                                                                                                       160
                       MSCI Indonesia Index Performance Relative to AxJ                                                           MSCI Thailand Index Performance Relative to AxJ
                                                                                                          150
                                                                                            9 mth                                                                                        9 mth
150
                                                                                                          140
                                                                                                                                                 QE 1
                           QE 1
130                                                                                                       130                                    QE 2
                           QE 2

                                                                                                          120
110
                                                                                                          110
                                                                                    6 mth
 90                                                                                                       100
                                                                                                                                                                                             6 mth
                                                                                                          90
                                                                           3 mth                                            Start
 70                   Start                                                                                                                                                          3 mth
                                                                  End                                     80
                                                                                                                            of QE                                           End
                      of QE                                       of QE                                                                                                     of QE
 50                                                                                                       70
      1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29                             1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

120                                                                                                       150
                       MSCI Singapore Index Performance Relative to AxJ                                                          MSCI Malaysia Index Performance Relative to AxJ
115                                                                                                                                                                                      9 mth
                                                                               9 mth                      140

110
                                                                                                          130
105

                                                                                                          120                            QE 1
100
                                                                                                                                         QE 2
 95                                                                                                       110                                                                        6 mth
 90                                                                                                                             Start
                                                                                                          100                   of QE
                                            QE 1                                   6 mth
 85
                      Start                 QE 2
                      of QE                                       End     3 mth                           90                                                                End
 80                                                                                                                                                                                  3 mth
                                                                  of QE                                                                                                     of QE
 75                                                                                                       80
      1   2   3   4    5   6   7   8   9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29            1   2   3   4    5   6   7   8   9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

Source: FactSet, Morgan Stanley Research




                                                                                                                                                                  18
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                                                                             September 20, 2012                                                        MORGAN STANLEY RESEARCH
                                                                             ASEAN Equity Strategy                                                               ASEAN EQUITY STRATEGY
                                                                                                                                                                            September 20, 2012




Indonesia’s Inflation Decelerated Whereas Thailand’s Accelerated During Previous QE
14                                                                                              7.5   8                                                                                    4.4
                            Indonesia Monthly YoY Inflation (%)                                                                Thailand Monthly YoY Inflation (%)
                                                                                                7.0                                                                                        4.2
                                                                                                      6
                                                                                                                     Start
12                                                                               9 mth
                                                                                                                     of QE                                                                 4.0
                                                                                                6.5
10                                                                                                    4                                                                                    3.8
                                                                          6 mth                 6.0
                                                                                                                                    QE 1                                                   3.6
 8                                                                                              5.5   2                                                                   9 mth
                                                                                                                                    QE 2
                                           QE 1                                                                                                                                            3.4
 6                                         QE 2                                                 5.0   0
                                                                                                                                                                                           3.2
                                                                                                4.5                                                                       6 mth
 4                  Start                                                                             -2                                                                                   3.0
                    of QE                                                                       4.0                                                               3 mth                    2.8
 2                                                        End        3 mth                            -4                                                 End
                                                                                                3.5                                                                                        2.6
                                                          of QE                                                                                          of QE
 0                                                                                              3.0   -6                                                                                   2.4
     1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29                         1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

8                                                                                               6.0   10                                                                                   3.6
                            Singapore Monthly YoY Inflation (%)                                                               Malaysia Monthly YoY Inflation (%)
7                                                                                                                                                                                          3.4
                  Start                                                                                8                                                                          9 mth
                  of QE                                                                         5.5                  Start
6                                                                                                                                                                                          3.2
                                                                                                                     of QE
                                                                                     9 mth             6
5
                                                                                                5.0                                                                                        3.0
                                                                                                                                                                    6 mth
4                                                                                                                                               QE 1
                                                                                                       4                                                                                   2.8
                                                                                                                                                QE 2
3                                                                                               4.5
                                                                             6 mth                     2                                                                                   2.6
                                              QE 1
2
                                              QE 2                                              4.0                                                                                        2.4
1
                                                                     3 mth
                                                                                                       0
                                                                                                                                                                   3 mth                   2.2
0                                                                                                                                                        End
                                                           End                                  3.5   -2
-1                                                         of QE                                                                                         of QE                             2.0

-2                                                                                              3.0   -4                                                                                   1.8
     1   2   3   4 5 6    7 8   9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29              1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29


 Source: FactSet, Morgan Stanley Research




                                                                                                                                                  19
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                                                                                September 20, 2012                                                                   MORGAN STANLEY RESEARCH
                                                                                ASEAN Equity Strategy                                                                            ASEAN EQUITY STRATEGY
                                                                                                                                                                                             September 20, 2012




Indonesia’s 10-Year Government Bond Yields Declined During Previous QE Cycles
18                                                                                                      4.6
                                       Indonesia 10Yr Bond Yield (%)                                                                           Thailand 10Yr Bond Yield (%)
                                                                                                                                                                                                      9 mth
                                                                                                        4.4
16                                                                                           9 mth      4.2
                                                                                                                          Start
                                                                                                        4.0               of QE                                                              6 mth
                                               QE 1
14
                                               QE 2                                 6 mth               3.8

                                                                   End                                  3.6
12
                                                                   of QE      3 mth                     3.4

                                                                                                        3.2                                                 QE 1
10
                          Start                                                                                                                             QE 2                     3 mth
                                                                                                        3.0
                          of QE
 8                                                                                                      2.8                                                                End
                                                                                                        2.6                                                                of QE

 6                                                                                                      2.4
      1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29                           1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

3.4                                                                                                     5.0
                                       Singapore 10Yr Bond Yield (%)                                                                           Malaysia 10Yr Bond Yield (%)
                                                                                                                                                                                                      9 mth
3.2                                                                                                     4.8
                                                                                            9 mth
3.0                                                                                                     4.6                                                  QE 1
                                                                                                                               Start                                                          6 mth
                                                                                                        4.4                                                  QE 2
2.8                                                                                                                            of QE
                                                                                    6 mth
2.6                                                                                                     4.2

2.4                                                                                                     4.0

2.2                                                                                                     3.8

                                                   QE 1                                                 3.6
2.0                                                                         3 mth                                                                                                    3 mth
                                                   QE 2
1.8                   Start                                                                             3.4                                                                  End
                      of QE                                       End                                                                                                        of QE
1.6                                                               of QE                                 3.2

1.4                                                                                                     3.0
      1   2   3   4   5    6   7   8   9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29          1   2   3    4   5   6   7   8   9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29


Source: FactSet, Morgan Stanley Research




                                                                                                                                                                20
                                                                                MORGAN              STANLEY        RESEARCH

                                                                                September 20, 2012                                                              MORGAN STANLEY RESEARCH
                                                                                ASEAN Equity Strategy                                                                      ASEAN EQUITY STRATEGY
                                                                                                                                                                                    September 20, 2012




ASEAN Currencies Appreciated Versus USD During Previous QE
105                                                                                                     116
                                                  USDIDR                                                                                             USDTHB
                                                                                                        114
100                                                                                                     112
                                                                                                        110
 95                                                                                                                                                QE 1
                                                                                                        108
                                                                                                                             Start                 QE 2
                                                                                            9 mth       106
 90                                                                                                                          of QE
                                                                                                        104                                                                                     9 mth
                                                      QE 1
                                                                                                        102
 85                                                   QE 2                                                                                                                              6 mth
                                                                                     6 mth              100
                                                                                                         98
 80                                                                                                                                                                             3 mth
                                                                             3 mth                       96
                                                                  End                                    94
 75                            Start                                                                                                                                 End
                                                                  of QE
                               of QE                                                                     92                                                          of QE
 70                                                                                                      90
      1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29                            1   2 3   4 5 6     7 8   9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

110                                                                                                      110
                                                  USDSGD                                                                                            USDMYR
108
                                                                                                         108
106
                                                                                                         106
104                                               QE 1
                                                  QE 2                                                   104
102
                                                                                                                             Start                  QE 1
                          Start                                                         9 mth            102
                                                                                                                                                                                           9 mth
100                                                                                                                          of QE                  QE 2
                          of QE
 98                                                                                                      100
 96                                                                                 6 mth                 98                                                                           6 mth
 94
                                                                                                          96
 92                                                                         3 mth
                                                                                                          94
 90                                                                                                                                                                            3 mth
                                                                   End                                                                                     End
 88                                                                of QE                                  92
                                                                                                                                                           of QE
 86                                                                                                       90
      1   2   3   4   5    6   7   8   9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29           1   2 3   4   5 6   7   8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29


Source: FactSet, Morgan Stanley Research




                                                                                                                                                           21
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                                                                                  September 20, 2012                                                        MORGAN STANLEY RESEARCH
                                                                                  ASEAN Equity Strategy                                                                   ASEAN EQUITY STRATEGY
                                                                                                                                                                                        September 20, 2012




Morgan Stanley ASEAN Focus List
                                                                                                                                       Target   C0212E         MS PE
                                                                                                          Mkt Cap    Latest   Target
  Ticker                Company name                      Rating               GICS Sector                                              Price   Dividend                                    Analyst
                                                                                                         (USD mn)    Price    Price
                                                                                                                                       Upside     Yield     2012E      2013E
                                                                                                           INDONESIA
BBRI.JK     PT Ban k Rakyat In d o n esia              Over w eigh t           Fin an cials                 18,583   7,200     8,080   12.2%    1.9%   e    10.7   e    9.4   e   Lo r d , Nick
BMRI.JK     PT Ban k Man d ir i                        Over w eigh t           Fin an cials                 19,652   8,050     8,771    9.0%    1.6%   e    12.6   e   10.9   e   Lo r d , Nick
KLBF.JK     PT Kalb e Far m a Tb k                     Over w eigh t          Healt h Car e                   4,615  4,300     4,350    1.2%    2.5%   e    23.9   e   20.7   e   Gan gah ar Ko t h iyal, Divya
TLKM.JK     PT Teleko m un ikasi                       Over w eigh t Teleco m m un icat io n Ser vices      20,027   9,400     9,600    2.1%    4.6%   e    12.9   e   11.6   e   Killa, Navin
SMGR.JK     PT Sem en Gr esik                          Over w eigh t            Mat er ials                   8,588 13,700    14,000    2.2%    2.4%   e    18.3   e   14.7   e   Ch o n g , Mean Ph il
CPIN.JK     PT Ch ar o en Po kp h an d In d o n esia   Over w eigh t      Co n sum er St ap les               4,896  2,825     3,330   17.9%    2.3%   e    15.4   e   13.8   e   Gan gah ar Ko t h iyal, Divya
PGAS.JK     PT Per usah aan Gas Negar a (Per se        Over w eigh t            Ut ilit ies                 10,504   4,100     4,550   11.0%    4.5%   e    13.4   e   11.7   e   Mah esh w ar i, Mayan k
AALI.JK     Ast r a Ag r o Lest ar i                   Over w eigh t      Co n sum er St ap les               3,711 22,300    26,000   16.6%    3.9%   e    16.5   e   12.6   e   Sp en cer , Ch ar les
                                                                                                            THAILAND
PTT.BK      PTT Pub lic Co m p an y                 Over w eigh t                 En er gy                  31,355   338.0    420.00   24.3%    5.0%   e     7.1   e    6.5   e   Mah esh w ar i, Mayan k
CPALL.BK    C P All                                Eq u al-Weigh t         Co n sum er St ap les              9,920   34.0     38.00   11.8%    2.9%   e    29.0   e   24.2   e   Gan gah ar Ko t h iyal, Divya
BBL.BK      Ban g ko k Ban k Pub lic Co m p an y Li Over w eigh t               Fin an cials                11,965   193.0    220.01   14.0%    3.6%   e    11.1   e    9.7   e   Go h , Ed w ar d
KBAN.BK     Kasiko r n Ban k Pub lic Co m p an y    Over w eigh t               Fin an cials                14,069   181.0    182.02    0.6%    2.2%   e    12.8   e   10.6   e   Go h , Ed w ar d
MINT.BK     Min o r In t er n at io n al            Over w eigh t      Co n sum er Discr et io n ar y         1,815   15.3     17.00   11.1%    2.2%   e    17.5   e   15.0   e   Gan gah ar Ko t h iyal, Divya
PTTGC.BK    PTT Glo b al Ch em icals               Eq u al-Weigh t               Mat er ials                  9,369   64.0     62.00   -3.1%    4.5%   e     9.9   e    9.1   e   Mah esh w ar i, Mayan k
IRPC.BK     IRPC PCL                                Over w eigh t                 En er gy                    2,867     4.3     4.90   13.4%    4.2%   e    46.8   e   11.7   e   Mah esh w ar i, Mayan k
                                                                                                           SINGAPORE
STEL.SI     Sin gap o r e Teleco m                     Over w eigh t Teleco m m un icat io n Ser vices      43,249    3.32      3.80   14.5%    6.0%   e    12.3 e     12.5   e   Killa, Navin
CMAL.SI     Cap it aMalls Asia                         Over w eigh t            Fin an cials                  5,194   1.63      2.00   22.3%    1.8%   e    29.3 e     25.4   e   Gar d in er , Sean
CDLT.SI     CDL Ho sp it alit y Tr ust                 Over w eigh t            Fin an cials                  1,545   1.96      2.30   17.6%    6.2%   e    17.3 e     16.3   e   Ng, Wilso n
OLAM.SI     Olam In t er n at io n al                  Over w eigh t      Co n sum er St ap les               4,151   2.08      2.50   20.2%    2.5%   e    13.5 e     11.8   e   Gan gah ar Ko t h iyal, Divya
GLPL.SI     Glo b al Lo g ist ic Pr o p er t ies       Over w eigh t            Fin an cials                  9,728   2.59      2.60    0.4%    0.5%   e      24.6     28.9   e   Gar d in er , Sean
SCIL.SI     Sem b Co r p In d ust r ies                Over w eigh t           In d u st r ials               8,310   5.69      6.00    5.4%    3.0%   e    14.3 e     13.5   e   Lin g , Xin Jin
FRLD.SI     Fir st Reso u r ces                        Over w eigh t      Co n sum er St ap les               2,767   2.14      2.60   21.5%    1.3%   e    13.8 e     10.8   e   Sp en cer , Ch ar les


Changes: Adding Astra PT Agro Lestari, IRPC PCL and First Resources.

 Source: DataStream, Morgan Stanley Research, closing price Sep 18, 2012
 For valuation methodology and risks associated with any price targets above, please email morganstanley.research@morganstanley.com with a request for valuation methodology and
 risks on a particular stock. Except for those stocks in the above table, please note that all important disclosures including personal holding disclosures and Morgan Stanley disclosures
 for stocks under coverage appear on the Morgan Stanley public website at www.morganstanley.com/researchdisclosures.




                                                                                                                                                       22
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                                                                            September 20, 2012                                                              MORGAN STANLEY RESEARCH
                                                                            ASEAN Equity Strategy                                                                          ASEAN EQUITY STRATEGY
                                                                                                                                                                                    September 20, 2012




Morgan Stanley Five Factor Sector Model – Overall Rankings and Scores
                                      Valuations         Profitability           Earnings           Technicals                Performance
                                                                                                                                                              Total
                                                                            MoM         YTD             Earnings                                                            Qualitative   Final Sector
         MSCI Indonesia                        Div       Return on                                                      1Mth Price       12Mth Price       Quantitative
                                      PER                                 Earnings    Earnings          Revision                                                              Rank           Rank
                                              Yield       Equity                                                       Performance       Performance          Rank
                                                                          Revision    Revision          Breadth

             Weight                   6%       7%             7%            11%          14%              7%               11%               7%               70.0%           30.0%         100.0%
           Healthcare                  7        3              1             4            3                3                2                 6                 2               1              1
           Financials                  1        9              2             1            1                2                6                 4                 1               3              2
             Utilities                 4        5              8             2            4                3                4                 8                 3               4              3
        Consumer Staples               6        7              7             7            5                3                3                 5                 6               2              4
     Consumer Discretionary            5        4              3             5            6                3                7                 3                 5               6              5
   Telecommunication Services          9        8              9             3            2                3                1                 9                 4               5              6
           Industrials                 2        2              6             8            8                9                5                 2                 8               8              7
            Materials                  8        6              5             6            7                3                8                 7                 9               7              8
             Energy                    3        1              4             9            9                1                9                 1                 7               9              9

                                           Valuations          Profitability         Earnings              Technicals              Performance

                                                                                                                                                               Total
                                                                                              MoM           Earnings                                                        Qualitative   Final Sector
         MSCI Thailand                                 Div      Return on        Earnings                                  1Mth Price     12Mth Price       Quantitative
                                    PER      P/B                                            Earnings        Revision                                                          Rank           Rank
                                                      Yield      Equity           Growth                                  Performance     Performance          Rank
                                                                                            Revision        Breadth

            Weight                  6.9%    10.4%     4.9%          6.9%          6.9%           6.9%          6.9%           11.1%            9.0%            70.0%            30%          100%
       Consumer Staples               1       3         3             2             5              4             2              5                4               1               1             1
           Materials                  7       2         2             7             6              6             2              2                1               3               4             2
   Telecommunication Services         6       4         6             3             2              2             2              1                7               2               7             3
          Financials                  3       5         7             4             1              3             1              6                5               5               2             4
            Energy                    2       1         1             6             7              5             7              4                2               4               5             5
    Consumer Discretionary            4       7         5             1             4              1             2              7                6               7               3             6
           Utilities                  5       6         4             5             3              7             2              3                3               6               6             7

                                              Valuations             Profitability           Earnings                 Technicals      Performance

                                                                                                                                                          Total
                                                                                                          MoM         Earnings                                             Qualitative    Final Sector
         MSCI Singapore                                      Div         Return on    Earnings                                         1Mth Price      Quantitative
                                       PER         P/B                                                  Earnings      Revision                                               Rank            Rank
                                                            Yield         Equity       Growth                                         Performance         Rank
                                                                                                        Revision      Breadth

            Weight                      15%        16%       13%            3%              4%            4%             4%              11%                 70%              30%            100%
       Consumer Staples                  1          1         1              8               5             8              7               5                   1                4               1
     Consumer Discretionary              3          3         3              4               7             7              4               4                   2                6               2
          Real Estate                    6          5         4              5               1             4              3               3                   4                2               3
         Capital Goods                   5          6         7              3               2             2              2               2                   5                3               4
         Transportation                  4          2         2              7               3             6              6               6                   3                8               5
   Telecommunication Services            7          8         6              2               4             5              4               8                   8                1               6
       Diversified Finance               8          4         5              6               8             3              0               1                   6                7               7
             Banks                       2          7         8              1               6             1              1               7                   7                5               8


Source: IBES, DataStream, Morgan Stanley Research
Note: Back testing is done only for Top and Bottom 2 sectors, respectively, for Indonesia and Thailand, and Top and Bottom sector for Singapore; hence, we ignore the other sectors.
Rank 1 is the most favored sector, whereas Ranks 7, 8 and 9 are least favored in Thailand & Singapore and Indonesia, respectively.



                                                                                                                                                      23
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                                                                        September 20, 2012                                                                                                                                 MORGAN STANLEY RESEARCH
                                                                        ASEAN Equity Strategy                                                                                                                                                         ASEAN EQUITY STRATEGY
                                                                                                                                                                                                                                                                            September 20, 2012




Morgan Stanley Sector Model for September 2012
We recommend the following sector model for September 2012:                                                              Morgan Stanley Indonesia Sector Model
                                                                                                    250
                                                                                                            200          MS OW/UW Relative To MSCI Weight: MSCI Indonesia
Indonesia: OW Health Care and Financials (No change from last month)
Indonesia UW Energy and Materials (Replacing Industrials with                                       150
                                                                                                                           100
Materials).
                                                                                                     50
                                                                                                                                                        0                           0                           0                            0                    0
Thailand OW Consumer Staples and Materials (Closing Utilities and
                                                                                                     -50
Financials)
Thailand UW Utilities and Consumer Discretionary (Closing Materials                                                                                                                                                                                                            -100
and Consumer Staples)                                                                               -150

                                                                                                                                                                                                                                                                                             -200
                                                                                                    -250
Singapore OW Consumer Staples (No change from last month)




                                                                                                            Healthcare




                                                                                                                           Financials



                                                                                                                                                   Discretionary




                                                                                                                                                                                 Consumer



                                                                                                                                                                                                             Industrials




                                                                                                                                                                                                                                            Telecom




                                                                                                                                                                                                                                                                                 Materials
                                                                                                                                                                                                                                                                Utilities




                                                                                                                                                                                                                                                                                             Energy
                                                                                                                                                    Consumer


                                                                                                                                                                                  Staples
Singapore UW Banks (No change from last month)



              Morgan Stanley Thailand Sector Model                                                                          Morgan Stanley Singapore Sector Model

250
                  MS OW/UW Relative To MSCI Weight: MSCI Thailand                                    250                 MS OW/UW Relative To MSCI Weight: MSCI Singapore
        200                                                                                                      200
200                                                                                                  200
150                                                                                                  150
                       100
100                                                                                                  100
 50                                                                                                   50
                                    0         0           0                                                                             0                             0                         0                              0                        0                       0
  0                                                                                                    0

 -50                                                                                                  -50

-100                                                                                                 -100
                                                                   -100                              -150
-150
-200                                                                                                 -200
                                                                                   -200                                                                                                                                                                                                      -200
-250                                                                                                 -250
                                                                                                             Consumer



                                                                                                                                   Discretionary




                                                                                                                                                                   Real Estate




                                                                                                                                                                                            Transportation




                                                                                                                                                                                                                            Capital Goods




                                                                                                                                                                                                                                                                            Diversified
                                                                                                                                                                                                                                                      Telecom




                                                                                                                                                                                                                                                                                              Banks
                                                                                                                                                                                                                                                                            Financials
       Consumer




                       Materials




                                            Financials




                                                         Telecom




                                                                   Discretionary
                                   Energy




                                                                                    Utilities




                                                                                                                                    Consumer
                                                                                                              Staples
                                                                    Consumer
        Staples




 Source: Morgan Stanley Research




                                                                                                                                                                                                             24
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                                                                                 September 20, 2012                                                          MORGAN STANLEY RESEARCH
                                                                                 ASEAN Equity Strategy                                                                  ASEAN EQUITY STRATEGY
                                                                                                                                                                                 September 20, 2012




Historical Focus List Since Inception
                                                                                                                                                                          Performance Since Addition
                                                                                                       Price (Local Ccy)              Country MSCI Index (Local Ccy)
                                                                                                                                                                            To Current or Removal
                                                                                Date
  Ticker                    Company name                      Date Added
                                                                              Removed                                                                                                      Relative To
                                                                                               When        When                       When        When
                                                                                                                           Current                            Current       Absolute        Country
                                                                                               Added      Removed                     Added      Removed
                                                                                                                                                                                             MSCI
                                                                                                   INDONESIA
BBRI.JK      PT Bank Rakyat Indonesia                           24-Jan -11                        4,875                       7,200     4,039                    4,534            47.7%         31.6%
BMRI.JK      PT Bank Mandiri                                    14-Ju n -11                       6,950                       8,050     4,648                    4,534            15.8%         18.8%
KLBF.JK      PT Kalbe Farma Tbk                                 16-Ju n -11                       3,325                       4,300     4,613                    4,534            29.3%         31.6%
TLKM.JK      PT Telekomunikasi                                   11-Ju l-11                       7,050                       9,400     4,977                    4,534            33.3%         46.4%
SMGR.JK      PT Semen Gresik                                    16-Oct-11                         8,950                      13,700     4,574                    4,534            53.1%         54.4%
CPIN.JK      PT Charoen Pokphand Indonesia Tbk                  16-Oct-11                         2,625                       2,825     4,574                    4,534              7.6%          8.6%
PGAS.JK      PT Perusahaan Gas Negara (Persero) Tbk             31-Oct-11                         2,950                       4,100     4,774                    4,534            39.0%         46.3%
AALI.JK      PT Astra Agro Lestari Tbk                          18-Sep-12                        22,300                      22,300     4,534                    4,534              0.0%          0.0%
INTP.JK      PT Indocement Tunggal Prakarsa                    16-Dec-10       3-Sep -12         15,700      20,100          20,350     4,376        4,534       4,534            28.0%         23.6%
BBNI.JK      PT Bank Negara Indonesia (Persero) Tbk            14-Ju n -11    16-Jan -12          3,700       3,700           3,900     4,648        4,854       4,534              0.0%         -4.2%
ASII.JK      PT Astra International Tbk                        14-Ju n -11    27-Ap r -12         5,735       7,070           7,450     4,648        4,960       4,534            23.3%         15.5%
UNTR.JK      PT United Tractor Tbk                             28-Oct -10     27-Ap r -12        21,055      29,750          22,450     4,675        4,960       4,534            41.3%         33.2%
ADRO.JK      PT Adaro Energy Tbk.                              18-Au g -11    27-Ap r -12         2,400       1,810           1,550     5,007        4,960       4,534           -24.6%        -23.9%
ANTM.JK      PT Aneka Tambang Persero Tbk                       29-Aug-11     27-Ap r -12         1,880       1,720           1,360     4,720        4,960       4,534             -8.5%       -12.9%
ICBP.JK      Indofood CBP Sukses Makmur                        28-Oct -10     31-Oct -11          5,750       5,300           6,250     4,675        4,774       4,534             -7.8%         -9.7%
ITMG.JK      PT Indo Tambangraya Megah Tbk                     28-Oct -10     18-Au g -11        46,400      45,650          40,400     4,675        5,007       4,534             -1.6%         -8.1%
BORN.JK      PT Borneo Lumbung Energi & Metal                    5-Jan -11    18-Au g -11         1,700       1,280             510     4,648        5,007       4,534           -24.7%        -30.1%
ISAT.JK      PT Indosat                                        14-Ju n -11     11-Ju l-11         5,100       5,200           6,050     4,648        4,977       4,534              2.0%         -4.8%
TLKM.JK      PT Telekomunikasi                                 28-Oct -10     14-Ju n -11         9,250       7,300           9,400     4,675        4,648       4,534           -21.1%        -20.6%
PGAS.JK      PT Perusahaan Gas Negara (Persero) Tbk            28-Oct -10     14-Ju n -11         4,075       3,975           4,100     4,675        4,648       4,534             -2.5%         -1.9%
INCO.JK      Vale Indonesia Tbk                                28-Oct -10     14-Ju n -11         4,850       4,575           2,750     4,675        4,648       4,534             -5.7%         -5.1%
                                                                                                    THAILAND
PTT.BK       PTT Public Company                                25-May -11                         348.0                       338.0       426                      433             -2.9%         -4.4%
CPALL.BK     C P All                                           25-May -11                           23.3                       34.0       426                      433            46.2%         43.9%
BBL.BK       Bangkok Bank Public Company Limited               25-May -11                         161.0                       193.0       426                      433            19.9%         18.0%
MINT.BK      Minor International                               27-Ap r -12                         13.9                        15.3       479                      433            10.1%         21.7%
KBAN.BK      Kasikorn Bank Public Company                      27-Ap r -12                        155.0                       181.0       479                      433            16.8%         29.2%
PTTGC.BK     PTT Global Chemical PCL                             3-Sep-12                           61.3                       64.0       433                      433              4.5%          4.5%
IRPC.BK      PTT Global Chemical PCL                            18-Sep-12                           4.32                        4.3       433                      433              0.0%          0.0%
TRUE.BK      True Corporation                                  27-Ap r -12      5-Ju n -12          3.70       3.44             5.5       479         425          433             -7.0%          4.7%
BIGC.BK      Big C Supercenter PCL                              29-Aug-11      27-Apr-12          127.5       190.0           183.0       414         479          433            49.0%         28.8%
SCC.BK       Siam Cement PCL                                    16-Jan-12       27-Apr-12         318.0       346.0           351.0       407         479          433              8.8%         -7.5%
TOP.BK       Thai Oil PCL                                      25-May -11      16-Jan-12            75.5       59.3            68.0       426         407          433           -21.5%        -17.9%
PTTGC.BK     PTT Global Chemical PCL                            21-Oct-11      16-Jan-12            54.0       60.8            64.0       369         407          433            12.5%           1.9%
PTTAR.BK     PTT Ar o m at ics & Ref in in g PCL               25-May -11      21-Oct -11          37.0         26.5           N.A.        426        369           410          -28.4%        -17.2%

 Source: DataStream, Morgan Stanley Research, closing price Sep 18, 2012
 Past performance is no guarantee of future results. Results shown do not include transaction costs.




                                                                                                                                                      25
                                                                                 MORGAN           STANLEY        RESEARCH

                                                                                 September 20, 2012                                                         MORGAN STANLEY RESEARCH
                                                                                 ASEAN Equity Strategy                                                                 ASEAN EQUITY STRATEGY
                                                                                                                                                                                September 20, 2012




Historical Focus List Since Inception (cont.)
                                                                                                                                                                         Performance Since Addition
                                                                                                       Price (Local Ccy)              Country MSCI Index (Local Ccy)
                                                                                                                                                                           To Current or Removal
                                                                                 Date
  Ticker                    Company name                        Date Added
                                                                               Removed                                                                                                    Relative To
                                                                                               When        When                       When       When
                                                                                                                           Current                           Current       Absolute        Country
                                                                                               Added      Removed                     Added     Removed
                                                                                                                                                                                            MSCI
                                                                                                  SINGAPORE
SCIL.SI      SembCorp Industries                                 27-Ap r -12                       5.14                        5.69     1,599                    1,470           10.7%         20.4%
CDLT.SI      CDL Ho sp it alit y Tr ust                          27-Ap r -12                       1.86                        1.96     1,599                    1,470             4.8%        14.0%
CMAL.SI      Cap it aMalls Asia                                  27-Ap r -12                       1.53                        1.63     1,599                    1,470             6.5%        15.8%
GLPL.SI      Glo b al Lo g ist ic Pr o p er t ies                 5-Ju n -12                       2.03                        2.59     1,448                    1,470           27.6%         25.6%
STEL.SI      Singapore Telecom                                    7-Mar -11                        2.93                        3.32     1,678                    1,470           13.3%         29.3%
OLAM.SI      Olam International                                   1-Au g -12                       1.88                        2.08     1,470                    1,470           10.9%         10.9%
FRLD.SI      First Resources                                     18-Sep -12                        2.14                        2.14     1,470                    1,470             0.0%          0.0%
WLIL.SI      Wilmar International                                27-Ap r -12    1-Aug -12          4.86      3.26              3.26     1,599       1,470        1,470          -32.9%        -27.1%
DBSM.SI      DBS Group Holdings                                   7-Mar -11     1-Aug -12         14.34     14.81             14.45     1,678       1,470        1,470             3.3%        17.8%
OCBC.SI      Oversea-Chinese Banking Corp                        27-Ap r -12    5-Ju n -12         8.95      8.20              9.31     1,599       1,448        1,470            -8.4%          1.2%
SCMN.SI      SembCorp Marine                                     27-Ap r -12    5-Ju n -12         5.10      4.22              5.08     1,599       1,448        1,470          -17.3%          -8.6%
CMLT.SI      Cap it aMall Tr u st                                22-Dec-11     27-Ap r -12         1.71      1.82              1.96     1,413       1,599        1,470             6.1%         -6.2%
MONE.SI      M1 Lim it ed                                         7-Mar -11    27-Ap r -12         2.41      2.44              2.70     1,678       1,599        1,470             1.2%          6.2%
AEMN.SI      Ascen d as Real Est at e In v est m en t Tr u st    18-Au g -11   22-Dec-11           2.05      1.86              2.40     1,513       1,413        1,470            -9.0%         -2.6%
OLAM.SI      Olam In t er n at io n al                            7-Mar -11     1-No v-11          2.72      2.47              2.08     1,678       1,479        1,470            -9.3%          2.9%
SIAL.SI      Sin gap o r e Air lin es                             7-Mar -11     1-Aug -11         13.50     14.32             10.57     1,678       1,740        1,470             6.1%          2.3%
OCBC.SI      Ov er sea-Ch in ese Ban kin g Co r p                 7-Mar -11    18-Aug -11          9.29      8.85              9.31     1,678       1,513        1,470            -4.7%          5.6%
KLAN.SI      Kep p el Lan d                                       7-Mar -11    18-Aug -11          4.25      3.17              3.52     1,678       1,513        1,470          -25.4%        -17.3%
CDLT.SI      CDL Ho sp it alit y Tr ust                           7-Mar -11    18-Aug -11          2.00      1.73              1.96     1,678       1,513        1,470          -13.5%          -4.1%
KPLM.SI      Kep p el Co r p                                      7-Mar -11    18-Aug -11         10.64      9.04             11.40     1,678       1,513        1,470          -15.0%          -5.8%
NEPS.SI      Nep t un e Or ien t Lin es                           7-Mar -11    18-Aug -11          2.06      1.09              1.14     1,678       1,513        1,470          -47.1%        -41.3%




 Source: DataStream, Morgan Stanley Research, closing price Sep 18, 2012
 Past performance is no guarantee of future results. Results shown do not include transaction costs.




                                                                                                                                                      26
                                                                       MORGAN         STANLEY      RESEARCH

                                                                       September 20, 2012                                                      MORGAN STANLEY RESEARCH
                                                                       ASEAN Equity Strategy                                                              ASEAN EQUITY STRATEGY
                                                                                                                                                                    September 20, 2012



Valuation Summary
                  18-Sep-12                                PE                             EPS Growth                          EV/EBITDA                   Performance in USD
                                                12M                                                         12-14
      Regional/Country/Industry Group                  2012E 2013E 2014E      2012E     2013E     2014E               2012E     2013E     2014E   1W        4W       52W       YTD
                                                Fwd                                                         CAGR
MSCI AC Asia ex JP                              11.3    12.4    10.8    9.6     5.8%      14.1%    13.0%     10.9%      8.2       7.2       6.4   4.1%      3.3%       8.2%     12.3%
MSCI South East Asia                            13.5    14.5    13.1   11.8     6.7%      11.0%    11.3%      9.6%      9.8       8.9       8.3   2.7%      2.2%      13.5%     15.2%
MSCI Indonesia                                  13.7    15.0    13.1   11.5     7.9%      13.8%    14.5%     12.0%      8.8       8.1       7.3   2.8%      0.9%       3.5%      2.1%
MSCI Malaysia -EM                               14.3    15.4    13.9   12.9    10.8%      11.0%     7.5%      9.7%      9.3       8.6       8.4   2.9%      1.4%      15.4%      8.1%
MSCI Philippines                                16.4    17.8    15.9   14.5     8.1%      12.3%     9.5%      9.9%     11.2      10.1       9.4   2.6%      4.6%      30.0%     27.9%
MSCI Singapore                                  13.5    14.2    13.2   11.8     1.8%       7.2%    11.8%      6.8%     11.2      10.3       9.4   2.2%      2.3%      13.6%     23.9%
MSCI Thailand                                   11.4    12.7    10.9    9.8    12.8%      16.7%    10.8%     13.4%      8.3       7.3       6.8   3.4%      3.8%      19.0%     21.9%
MSCI India                                      13.8    15.0    13.3   11.6    11.4%      12.3%    14.7%     12.8%     10.0       8.9       7.9   6.3%      6.1%      -4.5%     18.2%
MSCI China                                       9.0     9.7     8.8    7.9     0.6%      10.7%    11.3%      7.4%      6.4       5.4       4.9   3.1%      0.4%       2.7%      3.9%
MSCI South East Asia Industry Group
Automobiles & Components                        14.1    15.4    13.5   12.0     12.4%     13.9%    12.7%     13.0%     12.5      10.7       9.6    3.5%      2.1%      9.0%     -0.4%
Banks                                           11.7    12.5    11.4   10.2     13.3%      9.8%    11.7%     11.6%      n.a       n.a       n.a    2.3%      1.4%     16.3%     21.6%
Capital Goods                                   13.1    13.6    12.9   11.9      7.4%      5.1%     8.2%      6.9%      9.8       9.2       8.4    3.0%      3.1%     22.2%     20.8%
Consumer Services                               15.5    16.6    15.1   13.7    -10.6%     10.0%    10.3%      2.8%      7.5       6.9       6.5    2.1%      4.0%     -4.5%     -5.9%
Diversified Financials                          16.6    17.8    16.2   14.4      8.9%     10.0%    12.1%     10.3%     16.2      14.7      13.1    3.3%      3.9%     12.9%     20.6%
Energy                                          10.3    11.0     9.9    8.9     -6.0%     10.8%    12.2%      5.3%      6.3       6.0       5.5    5.6%      2.4%    -12.7%     -5.7%
Food & Staples Retailing                        17.7    20.8    16.5   13.0     11.3%     26.0%    27.2%     21.3%     12.3      10.2       8.7    0.8%      2.7%     12.4%     22.4%
Food Beverage & Tobacco                         14.4    15.8    13.9   12.6     -5.0%     13.3%    10.4%      5.9%     12.2      10.6      10.0    1.9%     -0.7%     -5.9%     -6.0%
Household & Personal Products                   40.7    45.9    38.7   34.3     11.1%     18.6%    12.7%     14.1%     32.2      27.8      24.7   -0.2%      8.3%     60.6%     40.6%
Materials                                       13.0    14.6    12.4   11.3     -3.1%     18.5%     9.6%      8.0%     10.0       8.8       8.1    5.4%      3.7%     14.9%      8.4%
Media                                           17.3    18.0    17.1   n.a.      6.3%      5.1%      n.a.      n.a.    13.1      12.7       n.a    2.6%      2.7%     17.3%     18.0%
Pharmaceuticals Biotechnology & Life Sciences   22.1    24.7    21.0   18.6     12.0%     17.5%    13.1%     14.2%     17.0      14.7      12.7   -0.3%      9.4%     15.9%     20.7%
Real Estate                                     18.7    20.4    18.0   15.9    -17.5%     13.1%    13.6%      2.0%     19.3      17.6      16.1    3.5%      5.8%     27.0%     41.4%
Retailing                                       11.3    12.6    10.8    9.6     11.6%     16.0%    13.3%     13.6%      6.7       5.6       5.0    4.6%      1.1%     12.3%      2.4%
Telecommunication Services                      15.7    16.5    15.3   14.2      7.5%      7.6%     8.2%      7.8%      8.6       8.2       7.9    0.8%      1.2%     26.0%     23.7%
Transportation                                  17.8    22.1    16.1   13.5     53.8%     37.0%    19.8%     36.2%      7.3       6.4       5.6    2.3%     -0.5%      1.7%      8.9%
Utilities                                       13.5    14.7    13.0   13.0     30.5%     12.6%     0.0%     13.7%      8.2       7.6       8.5    3.5%      3.5%     30.8%     19.8%




  Source: FactSet , Morgan Stanley Research




                                                                                                                                          27
                                                                 MORGAN        STANLEY       RESEARCH

                                                                 September 20, 2012                                              MORGAN STANLEY RESEARCH
                                                                 ASEAN Equity Strategy                                                    ASEAN EQUITY STRATEGY
                                                                                                                                                  September 20, 2012



Valuation Summary
                  18-Sep-12                                 PBV                                  ROE                      DY                      Payout
                                                12M
      Regional/Country/Industry Group                   2012E      2013E     2014E       2012E   2013E   2014E   2012E   2013E   2014E    2012E   2013E    2014E
                                                Fwd
MSCI AC Asia ex JP                              1.44      1.5          1.4       1.3     12.4%   12.9%   13.2%   2.6%    2.8%     3.1%    32.3%   30.7%    29.7%
MSCI South East Asia                            1.86      2.0          1.8       1.7     13.6%   13.9%   14.3%   3.2%    3.5%     3.7%    46.6%   45.3%    44.1%
MSCI Indonesia                                  3.04      3.4          2.9       2.5     22.6%   22.1%   22.0%   2.6%    2.9%     3.3%    39.4%   38.6%    38.4%
MSCI Malaysia -EM                               1.96      2.1          1.9       1.8     13.4%   13.7%   14.2%   3.3%    3.5%     3.7%    51.7%   49.2%    48.1%
MSCI Philippines                                2.52      2.7          2.4       2.3     15.2%   15.4%   15.9%   2.4%    2.5%     2.7%    42.2%   39.8%    39.8%
MSCI Singapore                                  1.43      1.5          1.4       1.3     10.5%   10.6%   10.9%   3.5%    3.6%     3.9%    49.3%   48.2%    46.4%
MSCI Thailand                                   2.01      2.2          1.9       1.7     17.3%   17.9%   17.7%   3.4%    3.9%     4.3%    42.7%   42.6%    42.0%
MSCI India                                      2.18      2.4          2.1       1.9     15.9%   15.8%   16.0%   1.5%    1.7%     1.9%    23.0%   22.6%    22.1%
MSCI China                                      1.33      1.4          1.3       1.2     14.8%   14.7%   14.8%   3.3%    3.6%     3.9%    32.0%   31.3%    31.0%
MSCI South East Asia Industry Group
Automobiles & Components                        3.56      4.0          3.4       2.9     25.6% 25.1% 24.5%       3.0%    3.4%     3.9%    46.4%   46.0%    47.0%
Banks                                           1.63      1.7          1.6       1.4     13.9% 13.9% 14.1%       3.1%    3.4%     3.7%    38.7%   38.2%    37.8%
Capital Goods                                   2.00      2.1          1.9       1.8     15.7% 15.1% 15.4%       3.2%    3.3%     3.6%    43.2%   42.3%    42.4%
Consumer Services                               1.91      2.1          1.9       1.7     12.5% 12.3% 12.3%       1.4%    1.4%     1.5%    22.8%   21.2%    20.1%
Diversified Financials                          2.69      2.8          2.6       2.5     15.9% 16.3% 17.0%       3.3%    3.6%     3.8%    58.8%   57.6%    55.2%
Energy                                          1.72      1.9          1.7       1.5     16.9% 16.7% 17.0%       3.8%    3.8%     3.8%    41.4%   37.8%    33.7%
Food & Staples Retailing                        3.28      3.5          3.2       2.8     16.7% 19.4% 21.9%       2.5%    3.2%     3.7%    51.3%   52.1%    48.6%
Food Beverage & Tobacco                         1.82       1.9         1.8       1.6     12.3% 12.8% 12.4%       2.6%    2.9%     3.1%    40.7%   40.4%    39.1%
Household & Personal Products                   40.56    43.7         39.3      35.9     95.3% 101.7% 104.7%     1.9%    2.2%     2.6%    87.5%   84.3%    87.6%
Materials                                       2.30      2.5          2.2       2.0     17.0% 18.0% 17.8%       3.2%    3.6%     3.9%    46.4%   44.7%    43.5%
Media                                           3.62      3.6          3.6      n.a.     20.2% 21.1%     n.a.    5.4%    5.7%      n.a.   97.9%   96.8%     n.a.
Pharmaceuticals Biotechnology & Life Sciences   5.48      6.0          5.3       4.7     24.1% 25.2% 25.0%       2.0%    2.4%     2.7%    48.9%   49.5%    50.1%
Real Estate                                     1.20       1.2         1.2       1.1      6.0%   6.6%   7.1%     2.4%    2.5%     2.6%    48.1%   45.2%    41.8%
Retailing                                        n.a.     n.a.        n.a.      n.a.       n.a.   n.a.   n.a.    3.2%    3.7%     4.4%    40.8%   40.2%    42.0%
Telecommunication Services                      3.27      3.4          3.2       3.1     20.5% 21.1% 21.6%       4.8%    5.1%     5.5%    79.1%   78.5%    78.3%
Transportation                                  1.09       1.1         1.1       1.1      5.1%   6.7%   7.8%     3.7%    4.0%     4.5%    81.3%   63.8%    61.2%
Utilities                                       1.84      2.0          1.8       2.3     13.4% 13.7% 17.5%       2.9%    3.2%     3.4%    42.0%   42.0%    44.7%




 Source: FactSet, Morgan Stanley Research




                                                                                                                            28
           MORGAN STANLEY RESEARCH


                                                             September 20, 2012
                                     ASEAN EQUITY STRATEGY




                                                                                                                                                                                                  Aug-12                                                                                                   Aug-12
                                                                                                                                                                                                  Apr-12                                                                                                   Apr-12
                                                                                                                                                                                                  Dec-11                                                                                                   Dec-11
                                                                                                                                                                                                                                             15.9




                                                                                                                                                                                                                                                                               13.0
                                                                                                                                                    11.9




                                                                                                                                                                            9.2




                                                                                                                                                                                                                                                                                                           Aug-11
                                                                                                                                                                   10.6




                                                                                                                                                                                                  Aug-11
                                                                                                                                                                                                  Apr-11                                                                                                   Apr-11
                                                                                                                                                                                                  Dec-10                                                                                                   Dec-10
                                                                                                                                                                                                           MSCI Malaysia 12M Fwd PE
                                                                                                               MSCI Thailand 12M Fwd PE




                                                                                                                                                                                                  Aug-10                                                                                                   Aug-10
                                                                                                                                                                                                  Apr-10                                                                                                   Apr-10
                                                                                                                                                                                                  Dec-09                                                                                                   Dec-09
                                                                                                                                                                                                                                                                                                                                                               29
                                                                                                                                                                                                  Aug-09                                                                                                   Aug-09
                                                                                                                                                                                                  Apr-09                                                                                                   Apr-09
                                                                                                                                                                                                  Dec-08                                                                                                   Dec-08
                                                                                                                                                                                                  Aug-08                                                                                                   Aug-08
                                                                                                                                                                                                  Apr-08                                                                                                   Apr-08
                                                                                                                                                                                                  Dec-07                                                                                                   Dec-07
RESEARCH




                                                                                                                                                                                                  Aug-07                                                                                                   Aug-07
                                                                                                                                                                                                                                                                   14.5




                                                                                                                                                                                                  Apr-07                                                                                                   Apr-07
                                                                                                                                                                                                  Dec-06                                                                                                   Dec-06
                                                                                                                                                                                                  Aug-06                                                                                                   Aug-06
STANLEY




                                                                                                                                                                                                  Apr-06                                                                                                   Apr-06
                                                                                                               14
                                                                                                                                               13
                                                                                                                                                       12
                                                                                                                                                             11
                                                                                                                                                                   10
                                                                                                                                                                          9
                                                                                                                                                                                  8
                                                                                                                                                                                      7
                                                                                                                                                                                          6
                                                                                                                                                                                              5




                                                                                                                                                                                                           18
                                                                                                                                                                                                                                        17
                                                                                                                                                                                                                                                16
                                                                                                                                                                                                                                                           15
                                                                                                                                                                                                                                                                   14
                                                                                                                                                                                                                                                                          13
                                                                                                                                                                                                                                                                                  12
                                                                                                                                                                                                                                                                                             11
                                                                                                                                                                                                                                                                                                  10
                                                                                                                                                                                                                                                                                                       9
                 ASEAN Equity Strategy
                 September 20, 2012




                                                                                                                                                                                                  Aug-12                                                                                                   Aug-12
MORGAN




                                                                                                                                                                                                  Apr-12                                                                                                   Apr-12
                                                                                                                                                                                                  Dec-11                                                                                                   Dec-11



                                                                                                                                                                                                                                                    15.7

                                                                                                                                                                                                                                                            13.8
                                                                                                                                                    14.8




                                                                                                                                                                                                                                                                                 12.0
                                                                                                                                                                          10.9




                                                                                                                                                                                                  Aug-11                                                                                                   Aug-11
                                                                                                                                                                                                  Apr-11                                                                                                   Apr-11
                                                                                                                                                                                                  Dec-10                                                                                                   Dec-10




                                                                                                                                                                                                            MSCI Singapore 12M Fwd PE
                                                                                                                   MSCI Indonesia 12M Fwd PE




                                                                                                                                                                                                  Aug-10                                                                                                   Aug-10
                                                                                  12-Month Forward P/E Trend




                                                                                                                                                                                                  Apr-10                                                                                                   Apr-10
                                                                                                                                                                                                  Dec-09                                                                                                   Dec-09
                                                                                                                                                                                                  Aug-09                                                                                                   Aug-09




                                                                                                                                                                                                                                                                                                                    Source: FactSet, Morgan Stanley Research
                                                                                                                                                                                                  Apr-09                                                                                                   Apr-09
                                                                                                                                                                                                  Dec-08                                                                                                   Dec-08
                                                                                                                                                                                                  Aug-08                                                                                                   Aug-08
                                                                                                                                                                                                  Apr-08                                                                                                   Apr-08
                                                                                                                                                                                                  Dec-07                                                                                                   Dec-07
                                                                                                                                                                                                  Aug-07                                                                                                   Aug-07
                                                                                                                                                                                                  Apr-07                                                                                                   Apr-07
                                                                                                                                                                                                  Dec-06                                                                                                   Dec-06




                                                                                                                                                            12.8
                                                                                                                                                                                                  Aug-06                                                                                                   Aug-06
                                                                                                                                                                                                  Apr-06                                                                                                   Apr-06




                                                                                                               18

                                                                                                                                                16

                                                                                                                                                            14

                                                                                                                                                                   12

                                                                                                                                                                           10

                                                                                                                                                                                  8

                                                                                                                                                                                          6

                                                                                                                                                                                              4




                                                                                                                                                                                                           20

                                                                                                                                                                                                                                         18

                                                                                                                                                                                                                                                      16

                                                                                                                                                                                                                                                                14

                                                                                                                                                                                                                                                                          12

                                                                                                                                                                                                                                                                                        10

                                                                                                                                                                                                                                                                                                  8

                                                                                                                                                                                                                                                                                                       6
           MORGAN STANLEY RESEARCH


                                                             September 20, 2012
                                     ASEAN EQUITY STRATEGY




                                                                                                                                                                                                                       Aug-12                                                                                            Aug-12
                                                                                                                                                                                                                       Apr-12                                                                                            Apr-12
                                                                                                                                                                                                                       Dec-11                                                                                            Dec-11
                                                                                                                                                 2.0




                                                                                                                                                                                        1.5




                                                                                                                                                                                                                                                                     2.2
                                                                                                                                                                           1.7




                                                                                                                                                                                                                       Aug-11                                                                                            Aug-11
                                                                                                                                                                                                                                                                                                1.7
                                                                                                                                                                                                                                                                                        2.0




                                                                                                                                                                                                                       Apr-11                                                                                            Apr-11
                                                                                                                                                                                                                       Dec-10                                                                                            Dec-10
                                                                                                                MSCI Thailand 12M Fwd PB




                                                                                                                                                                                                                                   MSCI Malaysia 12M Fwd PB




                                                                                                                                                                                                                       Aug-10                                                                                            Aug-10
                                                                                                                                                                                                                       Apr-10                                                                                            Apr-10
                                                                                                                                                                                                                       Dec-09                                                                                            Dec-09
                                                                                                                                                                                                                                                                                                                                                                             30
                                                                                                                                                                                                                       Aug-09                                                                                            Aug-09
                                                                                                                                                                                                                       Apr-09                                                                                            Apr-09
                                                                                                                                                                                                                       Dec-08                                                                                            Dec-08
                                                                                                                                                                                                                       Aug-08                                                                                            Aug-08
                                                                                                                                                                                                                       Apr-08                                                                                            Apr-08
                                                                                                                                                                                                                       Dec-07                                                                                            Dec-07
RESEARCH




                                                                                                                                                                                                                       Aug-07                                                                                            Aug-07
                                                                                                                                                                                                                       Apr-07                                                                                            Apr-07
                                                                                                                                                                                                                       Dec-06                                                                                            Dec-06
                                                                                                                                                                                                                       Aug-06                                                                                            Aug-06
                                                                                                                                                                                                                       Apr-06                                                                                            Apr-06
STANLEY




                                                                                                                                                                                                                                2.8
                                                                                                                                                                                                                                                              2.6
                                                                                                                                                                                                                                                                    2.4
                                                                                                                                                                                                                                                                            2.2
                                                                                                                                                                                                                                                                                  2.0
                                                                                                                                                                                                                                                                                          1.8
                                                                                                                                                                                                                                                                                                1.6
                                                                                                                                                                                                                                                                                                       1.4
                                                                                                                                                                                                                                                                                                             1.2
                                                                                                                                                                                                                                                                                                                   1.0
                                                                                                               2.4
                                                                                                                                                 2.2
                                                                                                                                                         2.0
                                                                                                                                                                     1.8
                                                                                                                                                                             1.6
                                                                                                                                                                                        1.4
                                                                                                                                                                                                1.2
                                                                                                                                                                                                          1.0
                                                                                                                                                                                                                 0.8
                 ASEAN Equity Strategy
                 September 20, 2012




                                                                                                                                                                                                                       Aug-12                                                                                            Aug-12
                                                                                                                                                                                                                       Apr-12                                                                                            Apr-12
MORGAN




                                                                                                                                                                                                                       Dec-11                                                                                            Dec-11


                                                                                                                                                                                                                                                                          2.0

                                                                                                                                                                                                                                                                                   1.6
                                                                                                                                                             3.7




                                                                                                                                                                                                                                                                                                                         Aug-11
                                                                                                                                                                                         2.6




                                                                                                                                                                                                                       Aug-11
                                                                                                                                                                                 3.1




                                                                                                                                                                                                                       Apr-11                                                                                            Apr-11




                                                                                                                                                                                                                                                                                                      1.3
                                                                                                                                                                                                                       Dec-10                                                                                            Dec-10



                                                                                                                                                                                                                                 MSCI Singapore 12M Fwd PB
                                                                                                                     MSCI Indonesia 12M Fwd PB




                                                                                                                                                                                                                       Aug-10                                                                                            Aug-10
                                                                                  12-Month Forward P/B Trend




                                                                                                                                                                                                                       Apr-10                                                                                            Apr-10
                                                                                                                                                                                                                       Dec-09                                                                                            Dec-09
                                                                                                                                                                                                                       Aug-09                                                                                            Aug-09
                                                                                                                                                                                                                       Apr-09                                                                                            Apr-09




                                                                                                                                                                                                                                                                                                                                  Source: FactSet, Morgan Stanley Research
                                                                                                                                                                                                                       Dec-08                                                                                            Dec-08
                                                                                                                                                                                                                       Aug-08                                                                                            Aug-08
                                                                                                                                                                                                                       Apr-08                                                                                            Apr-08
                                                                                                                                                                                                                       Dec-07                                                                                            Dec-07
                                                                                                                                                                                                                       Aug-07                                                                                            Aug-07
                                                                                                                                                                                                                       Apr-07                                                                                            Apr-07
                                                                                                                                                                                                                       Dec-06                                                                                            Dec-06
                                                                                                                                                                                                                       Aug-06                                                                                            Aug-06
                                                                                                                                                                                                                       Apr-06                                                                                            Apr-06




                                                                                                                                                                                                                                2.6
                                                                                                                                                                                                                                                              2.4
                                                                                                                                                                                                                                                                    2.2
                                                                                                                                                                                                                                                                            2.0
                                                                                                                                                                                                                                                                                  1.8
                                                                                                                                                                                                                                                                                          1.6
                                                                                                                                                                                                                                                                                                1.4
                                                                                                                                                                                                                                                                                                       1.2
                                                                                                                                                                                                                                                                                                             1.0
                                                                                                                                                                                                                                                                                                                   0.8
                                                                                                               5.0
                                                                                                                                                 4.6
                                                                                                                                                       4.2
                                                                                                                                                               3.8
                                                                                                                                                                      3.4
                                                                                                                                                                                 3.0
                                                                                                                                                                                       2.6
                                                                                                                                                                                              2.2
                                                                                                                                                                                                    1.8
                                                                                                                                                                                                           1.4
                                                                                                                                                                                                                 1.0
                                                                                                           MORGAN                STANLEY   RESEARCH

                                                                                                           September 20, 2012                                                                                        MORGAN STANLEY RESEARCH
                                                                                                           ASEAN Equity Strategy                                                                                                             ASEAN EQUITY STRATEGY
                                                                                                                                                                                                                                                        September 20, 2012




Valuations Relative Against Region
 40%               MSCI Indonesia 12M Fwd PE Premium/Discount Against                                                                  20%                 MSCI Thailand 12M Fwd PE Premium/Discount Against
 30%                                    MSCI AxJ                                                                                                                               MSCI AxJ
                                                                                                                                       10%
 20%
                                                                                                                                        0%
 10%
  0%                                                                                                                                   -10%

 -10%                                                                                                                                  -20%
 -20%
                                                                                                                                       -30%
 -30%
                                                                                                                                       -40%
 -40%
 -50%                                                                                                                                  -50%




                                                                                                                                              Jan-06



                                                                                                                                                                Jan-07



                                                                                                                                                                                  Jan-08



                                                                                                                                                                                                    Jan-09



                                                                                                                                                                                                                           Jan-10



                                                                                                                                                                                                                                               Jan-11



                                                                                                                                                                                                                                                                 Jan-12
                                                                                                                                                       Jul-06



                                                                                                                                                                         Jul-07



                                                                                                                                                                                           Jul-08



                                                                                                                                                                                                              Jul-09



                                                                                                                                                                                                                                    Jul-10



                                                                                                                                                                                                                                                        Jul-11



                                                                                                                                                                                                                                                                          Jul-12
        Jan-06



                          Jan-07



                                            Jan-08



                                                              Jan-09



                                                                                Jan-10



                                                                                                  Jan-11



                                                                                                                     Jan-12
                 Jul-06



                                   Jul-07



                                                     Jul-08



                                                                       Jul-09



                                                                                         Jul-10



                                                                                                            Jul-11



                                                                                                                              Jul-12
 30%              MSCI Singapore 12M Fwd PE Premium/Discount Against                                                                   50%                 MSCI Malaysia 12M Fwd PE Premium/Discount Against
 25%                                  MSCI AxJ                                                                                                                                 MSCI AxJ
 20%                                                                                                                                   40%

 15%
                                                                                                                                       30%
 10%
  5%                                                                                                                                   20%
  0%
                                                                                                                                       10%
  -5%
 -10%
                                                                                                                                        0%
 -15%
 -20%                                                                                                                                  -10%
        Jan-06



                          Jan-07



                                            Jan-08



                                                              Jan-09



                                                                                Jan-10



                                                                                                  Jan-11



                                                                                                                     Jan-12
                 Jul-06



                                   Jul-07



                                                     Jul-08



                                                                       Jul-09



                                                                                         Jul-10



                                                                                                            Jul-11



                                                                                                                              Jul-12




                                                                                                                                              Jan-06



                                                                                                                                                                Jan-07



                                                                                                                                                                                  Jan-08



                                                                                                                                                                                                    Jan-09



                                                                                                                                                                                                                           Jan-10



                                                                                                                                                                                                                                               Jan-11



                                                                                                                                                                                                                                                                 Jan-12
                                                                                                                                                       Jul-06



                                                                                                                                                                         Jul-07



                                                                                                                                                                                           Jul-08



                                                                                                                                                                                                                  Jul-09



                                                                                                                                                                                                                                    Jul-10



                                                                                                                                                                                                                                                        Jul-11



                                                                                                                                                                                                                                                                          Jul-12
Source: FactSet, Morgan Stanley Research




                                                                                                                                                                                                             31
                                                                                                                    MORGAN                     STANLEY            RESEARCH

                                                                                                                    September 20, 2012                                                                                            MORGAN STANLEY RESEARCH
                                                                                                                    ASEAN Equity Strategy                                                                                                           ASEAN EQUITY STRATEGY
                                                                                                                                                                                                                                                                      September 20, 2012




Valuations Relative Against Region
140%              MSCI Indonesia 12M Fwd PB Premium/Discount Against                                                                              60%                  MSCI Thailand 12M Fwd PB Premium/Discount Against
                                       MSCI AxJ                                                                                                   50%                                      MSCI AxJ
120%
                                                                                                                                                  40%
100%                                                                                                                                              30%
                                                                                                                                                  20%
 80%
                                                                                                                                                  10%
 60%                                                                                                                                               0%
                                                                                                                                                  -10%
 40%
                                                                                                                                                  -20%
 20%                                                                                                                                              -30%
        Jan-06



                            Jan-07



                                                Jan-08



                                                                    Jan-09



                                                                                        Jan-10



                                                                                                           Jan-11



                                                                                                                             Jan-12
                  Jul-06



                                      Jul-07



                                                          Jul-08



                                                                              Jul-09



                                                                                                  Jul-10



                                                                                                                    Jul-11



                                                                                                                                      Jul-12




                                                                                                                                                         Jan-06



                                                                                                                                                                            Jan-07



                                                                                                                                                                                              Jan-08



                                                                                                                                                                                                                Jan-09



                                                                                                                                                                                                                                  Jan-10



                                                                                                                                                                                                                                                    Jan-11



                                                                                                                                                                                                                                                                        Jan-12
                                                                                                                                                                   Jul-06



                                                                                                                                                                                     Jul-07



                                                                                                                                                                                                       Jul-08



                                                                                                                                                                                                                         Jul-09



                                                                                                                                                                                                                                           Jul-10



                                                                                                                                                                                                                                                             Jul-11



                                                                                                                                                                                                                                                                                 Jul-12
15%               MSCI Singapore 12M Fwd PB Premium/Discount Against                                                                               50%                 MSCI Malaysia 12M Fwd PB Premium/Discount Against
                                      MSCI AxJ                                                                                                                                             MSCI AxJ
10%                                                                                                                                                40%

 5%                                                                                                                                                30%

 0%                                                                                                                                                20%

 -5%                                                                                                                                               10%

-10%                                                                                                                                               0%

-15%                                                                                                                                              -10%

-20%                                                                                                                                              -20%
                                                                                                                                                         Jan-06



                                                                                                                                                                            Jan-07



                                                                                                                                                                                              Jan-08



                                                                                                                                                                                                                Jan-09



                                                                                                                                                                                                                                  Jan-10



                                                                                                                                                                                                                                                    Jan-11



                                                                                                                                                                                                                                                                        Jan-12
       Jan-06



                           Jan-07



                                               Jan-08



                                                                   Jan-09



                                                                                       Jan-10



                                                                                                           Jan-11



                                                                                                                             Jan-12




                                                                                                                                                                   Jul-06



                                                                                                                                                                                     Jul-07



                                                                                                                                                                                                       Jul-08



                                                                                                                                                                                                                         Jul-09



                                                                                                                                                                                                                                           Jul-10



                                                                                                                                                                                                                                                             Jul-11



                                                                                                                                                                                                                                                                                 Jul-12
                 Jul-06



                                     Jul-07



                                                         Jul-08



                                                                             Jul-09



                                                                                                 Jul-10



                                                                                                                    Jul-11



                                                                                                                                      Jul-12




Source: FactSet, Morgan Stanley Research




                                                                                                                                                                                                                         32
                                                                                                MORGAN              STANLEY             RESEARCH

                                                                                                September 20, 2012                                                                                     MORGAN STANLEY RESEARCH
                                                                                                ASEAN Equity Strategy                                                                                                  ASEAN EQUITY STRATEGY
                                                                                                                                                                                                                                September 20, 2012




Valuation – Morgan Stanley Coverage Universe
                                                                                                                                            Avg Daily
                                                                                                                                             Traded
                                                                                                                                    Price                          MW EPS                         PE                    PB                   EV/EBITDA
                                                                                                                                             Vol. in
   Bbrg Ticker                       Name                           GICS Sector                   Analyst            MS Rating     (Local
                                                                                                                                              6mth
                                                                                                                                    Ccy)
                                                                                                                                            USD mn      2011        2012      2013       2011    2012    2013   2011    2012   2013   2011     2012      2013

Indonesia
AALI IJ Equity     Astra Agro Lestari                       Consumer Staples             Spencer, Charles           Overweight     22,300        2.6    1,527.6    1,350.4    1,769.6     14.2    16.5   12.6    4.2     4.0    3.5    9.5      10.8      8.3
ADRO IJ Equity     PT Adaro Energy Tbk.                     Energy                       Tan, Wee-Kiat              Overweight      1,550        6.8      163.5      182.9      244.5     11.2     8.5    6.3    2.5     1.9    1.6    5.0       3.5      2.5
ANTM IJ Equity     Aneka Tambang                            Materials                    Spencer, Charles           Equal-Weight    1,360        2.8      202.4      110.3      119.6      8.0    12.3   11.4    1.4     1.2    1.1    4.6       4.9      4.1
BBCA IJ Equity     PT Bank Central Asia                     Financials                   Lord, Nick                 Equal-Weight    7,900        9.9      443.9      471.9      529.5     18.0    16.7   14.9    4.6     3.8    3.2   15.7      14.1     12.8
BBRI IJ Equity     PT Bank Rakyat Indonesia                 Financials                   Lord, Nick                 Overweight      7,200       24.2      622.5      672.6      766.1     10.7    10.6    9.3    3.3     2.8    2.2    9.5       9.3      7.9
BDMN IJ Equity     PT Bank Danamon Indonesia                Financials                   Lord, Nick                 ++              6,150        4.9      350.2      444.4      496.4     11.7    13.8   12.4    1.5     2.0    1.8    7.8       9.4      8.6
BBNI IJ Equity     PT Bank Negara Indonesia (Persero) Tbk   Financials                   Lord, Nick                 Equal-Weight    3,900        7.0      312.2      331.8      399.5     12.2    11.7    9.8    1.9     1.7    1.4   13.0      11.8      9.8
BMRI IJ Equity     PT Bank Mandiri                          Financials                   Lord, Nick                 Overweight      8,050       17.5      527.7      640.7      737.4     12.8    12.5   10.9    2.5     2.4    2.0   10.2      10.6      9.4
BORN IJ Equity     PT Borneo Lumbung Energi & Metal         Materials                    Tan, Wee-Kiat              Underweight       510        1.2       94.0       94.9      114.8      8.8     5.4    4.4    1.8     0.9    0.8    4.1       1.3      0.8
BUMI IJ Equity     Bumi Resources                           Energy                       Tan, Wee-Kiat              Underweight       840       10.5      210.8      217.4      258.8     10.3     3.9    3.2    2.3     0.7    0.6    4.5       3.2      3.1
EXCL IJ Equity     PT XL Axiata                             Telecommunication Services   Killa, Navin               Overweight      6,600        1.9      374.1      391.5      474.9     13.6    17.3   14.2    2.8     3.5    3.0    5.0       6.5      5.8
ICBP IJ Equity     Indofood CBP Sukses Makmur               Consumer Staples             Gangahar Kothiyal, Divya   Equal-Weight    6,250        2.0      338.8      399.8      434.2     15.3    15.6   14.4    3.0     3.1    2.8    9.5       9.5      8.4
INCO IJ Equity     Vale Indonesia Tbk                       Materials                    Chong, Mean Phil           Equal-Weight    2,750        2.4      308.2      100.8      238.9     10.4    27.3   11.5    2.0     1.7    1.5    6.1      11.3      5.9
INDF IJ Equity     Indofood Sukses Makmur                   Consumer Staples             Gangahar Kothiyal, Divya   Equal-Weight    5,450        6.7      350.5      401.7      466.8     13.1    13.6   11.7    2.1     2.2    2.0    6.7       7.1      6.1
INTP IJ Equity     PT Indocement Tunggal Prakarsa           Materials                    Spencer, Charles           Overweight     20,350        5.6      977.1    1,221.7    1,429.8     17.4    16.7   14.2    4.0     3.9    3.4   11.0      10.4      8.6
ISAT IJ Equity     PT Indosat                               Telecommunication Services   Killa, Navin               Overweight      6,050        1.1      220.5      166.9      206.6     36.8    11.8   21.3    1.4     1.4    1.3    5.2       5.1      4.7
ITMG IJ Equity     PT Indo Tambangraya Megah Tbk            Energy                       Tan, Wee-Kiat              Equal-Weight   40,400        6.3    4,434.2    4,548.8    4,912.1      8.7     8.9    8.2    4.4     3.7    3.1    5.4       5.3      4.6
PGAS IJ Equity     PT Perusahaan Gas Negara (Persero) Tbk   Utilities                    Maheshwari, Mayank         Overweight      4,100       10.3      257.5      306.0      351.8     12.8    13.4   11.7    4.8     4.9    4.1    8.2       8.3      6.8
PTBA IJ Equity     PT Tambang Batubara Bukit Asam           Energy                       Tan, Wee-Kiat              Underweight    16,200        4.8    1,338.8    1,552.0    1,846.3     13.0    10.4    8.8    5.3     4.2    3.5    9.2       6.4      5.1
SMGR IJ Equity     PT Semen Gresik                          Materials                    Chong, Mean Phil           Overweight     13,700        8.5      661.7      746.8      934.1     17.3    18.3   14.7    4.7     4.8    4.0   12.3      12.4      9.9
TLKM IJ Equity     PT Telekomunikasi                        Telecommunication Services   Killa, Navin               Overweight      9,400       17.4      654.5      727.2      807.1     12.5    14.1   11.8    2.4     2.9    2.7    4.1       4.9      4.4
UNVR IJ Equity     Unilever Indonesia                       Consumer Staples             Gangahar Kothiyal, Divya   Equal-Weight   27,700        3.7      534.5      619.4      707.3     34.5    44.7   39.2   39.0    48.2   42.9   25.3      32.0     28.0
KLBF IJ Equity     PT Kalbe Farma Tbk                       Health Care                  Gangahar Kothiyal, Divya   Overweight      4,300        6.5      158.1      179.9      208.0     21.5    23.9   20.7    5.1     5.9    5.3   13.8      15.5     13.4
BTPN IJ Equity     PT Bank Tabungan Pensiunan Tbk           Financials                   Lord, Nick                 Overweight      5,100        0.1      252.7      296.0      327.2     13.4    17.2   15.6    3.4     4.0    3.2   10.7      13.2     12.0
CPIN IJ Equity     PT Charoen Pokphand Indonesia            Consumer Staples             Gangahar Kothiyal, Divya   Overweight      2,825        3.2      143.6      183.0      205.2     15.0    15.4   13.8    5.7     5.7    4.6   11.0      11.1      9.7
ASRI IJ Equity     PT Alam Sutera Realty Tbk                Financials                   Gardiner, Sean             Overweight        480        4.6       33.8       54.6       69.5     13.6     8.8    6.9    3.0     2.2    1.7   11.0       7.5      5.7
BSDE IJ Equity     PT Bumi Serpong Damai Tbk                Financials                   Gardiner, Sean             Equal-Weight    1,030        4.9       48.1       68.0       72.9     20.4    15.1   14.1    2.5     2.3    2.0   14.5      13.0     12.2
CTRA IJ Equity     PT Ciputra Development Tbk               Financials                   Gardiner, Sean             Equal-Weight      660        1.3       21.4       26.9       61.9     25.2    24.6   10.7    1.6     1.9    1.6   14.9      15.5      8.5
LPKR IJ Equity     PT Lippo Karawaci Tbk                    Financials                   Gardiner, Sean             Overweight        920        4.3       31.6       36.7       40.9     20.9    25.1   22.5    1.7     2.2    2.0   13.4      14.8     13.7
SMRA IJ Equity     PT Summarecon Agung Tbk                  Financials                   Gardiner, Sean             Overweight      1,590        1.7       56.1       80.1       97.2     22.1    19.9   16.4    3.5     3.9    3.3   12.2      13.1     10.8
TBIG IJ Equity     PT Tower Bersama Infrastructure Tbk      Telecommunication Services   Killa, Navin               Overweight      3,975        1.7       86.5      152.9      226.8     22.8    26.0   16.6    4.3     5.6    4.2   18.4      19.0     13.1
MSKY IJ Equity     PT MNC Sky Vision Tbk                    Consumer Discretionary       Killa, Navin               Overweight      1,820        2.8       14.9       38.3       53.2    146.5    90.4   31.4   10.0     5.6    4.8   15.2      13.5      9.4
TOWR IJ Equity     PT Sarana Menara Nusantara Tbk           Telecommunication Services   Killa, Navin               Overweight     16,650        0.0      313.9      530.5      783.2     35.9    49.0   17.8    6.7     9.1    6.0   11.1      13.0     10.6
Malaysia
AIRA MK Equity     Air Asia                                 Industrials                  Xu, Edward                 Equal-Weight        3        7.9        0.2        0.3        0.4     18.5    11.3    8.6    2.5     1.7    1.4    9.1       8.4      6.8
AXIATA MK Equity   Axiata Group Berhad                      Telecommunication Services   Chandna, Surabhi           Overweight          6       23.8        0.3        0.3        0.3     18.5    19.3   17.5    2.3     2.6    2.5    7.1       7.8      7.2
DIGI Mk Equity     DiGi.com                                 Telecommunication Services   Chandna, Surabhi           Equal-Weight        5       11.8        0.2        0.2        0.2     24.1    28.8   21.4   21.4    28.6   26.7   10.9      12.4     11.4
GENM MK Equity     Genting Malaysia                         Consumer Discretionary       Ling, Xin Jin              Equal-Weight        4        4.1        0.3        0.3        0.3     15.2    13.6   12.7    1.8     1.6    1.4    9.3       8.0      7.3
IOI MK Equity      IOI Corporation                          Consumer Staples             Spencer, Charles           Underweight         5        5.4        0.3        0.2        0.3     15.3    18.6   16.9    2.9     2.6    2.4   12.2      13.9     12.1
KLK MK Equity      Kuala Lumpur Kepong                      Consumer Staples             Spencer, Charles           Equal-Weight       22        7.4        1.3        1.1        1.4     14.3    19.1   16.1    3.2     3.2    2.9   10.5      12.8     10.0
MAS MK Equity      Malaysia Airlines                        Industrials                  Xu, Edward                 Underweight         1        0.8       (0.6)      (0.3)      (0.1)     NM      NM    16.9    4.5     NM     NM    24.3       9.2      7.3
MISC MK Equity     MISC Berhad                              Industrials                  Lee, Chin Ser              Equal-Weight        4        1.9       (0.0)       0.1        0.2      NM     24.7   14.8    1.3     1.0    0.9   17.6      11.2      9.2
SIME MK Equity     Sime Darby                               Industrials                  Spencer, Charles           Equal-Weight       10       24.3        0.6        0.7        0.7     15.1    14.3   15.0    2.3     2.2    2.1    8.7       9.0      9.0
T MK Equity        Telekom Malaysia                         Telecommunication Services   Chandna, Surabhi           Overweight          6       13.6        0.2        0.2        0.2     14.2    27.4   24.2    2.2     3.3    3.2    6.5       7.9      7.0
MAXIS MK Equity    Maxis Berhad                             Telecommunication Services   Chandna, Surabhi           Equal-Weight        7       11.0        0.3        0.3        0.3     16.2    21.6   19.8    5.1     6.8    7.3   10.1      11.9     11.2
PCHEM MK Equity    Petronas Chemicals Group Berhad          Materials                    Maheshwari, Mayank         Equal-Weight        6        9.6        0.3        0.5        0.5     18.7    13.2   14.2    2.5     2.3    2.1   10.3       7.0      7.4
CIMB MK Equity     CIMB Group                               Financials                   Goh, Edward                Equal-Weight        8       21.8        0.5        0.6        0.7     13.7    13.5   11.7    2.1     2.0    1.8   15.8      16.0     13.8
MAY MK Equity      Maybank                                  Financials                   Goh, Edward                Equal-Weight        9       25.6        0.7        0.7        0.7     13.1    13.8   13.2    2.0     2.0    2.0   11.5      12.4     11.4
PBK MK Equity      Public Bank                              Financials                   Goh, Edward                Equal-Weight       14       12.1        1.0        1.1        1.2     13.3    13.0   11.6    3.1     2.8    2.5   12.0      11.8     10.5
GENP MK Equity     Genting Plantations                      Consumer Staples             Spencer, Charles           Overweight          9        2.1        0.6        0.6        0.8     14.8    15.9   11.9    2.0     2.0    1.7    9.6      10.0      7.1
FGV MK Equity      Felda Global Ventures Holdings Bhd       Consumer Staples             Spencer, Charles           Equal-Weight        5       26.0        0.4        0.3        0.4     15.0    15.1   13.8   11.9     2.7    2.5    8.7       8.9      6.9



++ Indicates the data for this company has been removed from consideration in this report because, under applicable law and/or Morgan Stanley policy, Morgan Stanley may be precluded
from issuing such information with respect to this company at this time.
Source: FactSet, Bloomberg, Morgan Stanley Research Estimates. Closing prices on Sep 18, 2012.




                                                                                                                                                                                                 33
                                                                                                  MORGAN              STANLEY             RESEARCH

                                                                                                  September 20, 2012                                                                                  MORGAN STANLEY RESEARCH
                                                                                                  ASEAN Equity Strategy                                                                                                ASEAN EQUITY STRATEGY
                                                                                                                                                                                                                                 September 20, 2012




Valuation – Morgan Stanley Coverage Universe
                                                                                                                                              Avg Daily
                                                                                                                                               Traded
                                                                                                                                      Price                         MW EPS                       PE                     PB                    EV/EBITDA
                                                                                                                                               Vol. in
   Bbrg Ticker                        Name                            GICS Sector                   Analyst            MS Rating     (Local
                                                                                                                                                6mth
                                                                                                                                      Ccy)
                                                                                                                                              USD mn      2011       2012      2013      2011   2012    2013   2011     2012    2013   2011     2012      2013

Singapore
AREIT SP Equity    Ascendas Real Estate Investment Trust      Financials                   Ng, Wilson                 Overweight       2.40        8.9      0.12       0.12      0.13     6.6     8.5   16.4     1.2      1.1    1.3   19.4      20.4     20.6
ART SP Equity      Ascott Residence Trust                     Financials                   Ng, Wilson                 Equal-Weight     1.25        1.1      0.05       0.05      0.06     5.9     5.1   20.3     0.7      0.8    0.9   14.4      15.6     15.5
CCT SP Equity      CapitaCommercial Trust                     Financials                   Ng, Wilson                 Equal-Weight     1.39        6.1      0.06       0.07      0.06     6.3    15.6   20.0     0.7      0.9    1.0   18.5      21.8     21.9
CAPL SP Equity     CapitaLand                                 Financials                   Gardiner, Sean             Equal-Weight     3.21       24.5      0.23       0.10      0.19     8.9    30.8   15.5     0.7      1.0    1.0    8.8      19.7     12.2
CT SP Equity       CapitaMall Trust                           Financials                   Ng, Wilson                 Equal-Weight     1.97       10.1      0.08       0.08      0.09    14.2    13.9   20.9     1.2      1.3    1.3   22.8      22.9     22.3
CDREIT SP Equity   CDL Hospitality Trust                      Financials                   Ng, Wilson                 Overweight       1.96        2.4      0.11       0.11      0.12     8.4    17.3   16.3     1.0      1.2    1.2   16.2      18.0     17.0
CMA SP Equity      CapitaMalls Asia                           Financials                   Gardiner, Sean             Overweight       1.64        6.9      0.12       0.06      0.06     9.6    29.2   25.3     0.7      1.0    1.0   (0.8)     19.3     15.0
CIT SP Equity      City Developments                          Financials                   Gardiner, Sean             Underweight     11.64        7.8      0.84       0.55      0.70    10.1    20.1   15.9     1.2      1.5    1.5    8.7      14.1     11.3
COS SP Equity      COSCO Corporation                          Industrials                  Meng, Andy                 Underweight      0.99        4.9      0.06       0.05      0.03    14.0    21.6   29.5     1.5      1.6    1.6    5.7       7.8      7.0
GENS SP Equity     Genting Singapore PLC                      Consumer Discretionary       Choudhary, Praveen         Underweight      1.39       49.0      0.08       0.06      0.07    18.0    23.6   19.3     3.0      2.5    2.3   11.1      11.9      9.7
KEP SP Equity      Keppel Corporation                         Industrials                  Ling, Xin Jin              Overweight      11.40       35.1      0.83       0.93      0.90     9.0    12.1   12.5     2.3      2.5    2.3    9.2       9.3      9.2
KPLD SP Equity     Keppel Land                                Financials                   Gardiner, Sean             Equal-Weight     3.52        8.0      0.16       0.27      0.24     2.4    13.2   14.8     0.6      1.0    0.9   10.1      12.0     13.9
M1 SP Equity       M1 Limited                                 Telecommunication Services   Killa, Navin               Overweight       2.70        2.2      0.18       0.20      0.21    13.1    13.1   12.3     6.9      6.7    6.1    8.1       8.2      7.8
NOL SP Equity      Neptune Orient Lines                       Industrials                  Xu, Edward                 Equal-Weight     1.15        8.0     (0.30)     (0.14)    (0.00)    NM    NM      20.9     0.8      1.0    1.0   11.6       8.0      7.3
OLAM SP Equity     Olam International                         Consumer Staples             Gangahar Kothiyal, Divya   Overweight       2.08       24.0      0.17       0.13      0.18    12.8    11.7   11.1     2.9      1.8    1.7   15.4      13.2     10.4
OCBC SP Equity     Oversea-Chinese Banking Corp               Financials                   Lord, Nick                 Equal-Weight     9.31       25.8      0.67       1.08      0.76    11.9     8.8   12.6     1.3      1.4    1.3   14.8      11.6     16.2
OUE SP Equity      Overseas Union Enterprise Limited          Consumer Discretionary       Gardiner, Sean             Overweight       2.62        2.3      0.12       0.10      0.14     6.1    24.6   19.2     0.7      0.8    0.8   18.2      18.0     16.2
SCI SP Equity      SembCorp Industries                        Industrials                  Ling, Xin Jin              Overweight       5.69       11.1      0.45       0.40      0.42     8.9    14.1   13.4     1.8      2.3    2.1    5.0       6.4      6.3
SMM SP Equity      SembCorp Marine                            Industrials                  Ling, Xin Jin              Equal-Weight     5.08       21.5      0.35       0.30      0.36    11.0    16.7   14.3     3.3      4.2    3.7    6.9      10.7      7.6
SIA SP Equity      Singapore Airlines                         Industrials                  Xu, Edward                 Equal-Weight    10.57        8.6      0.34       0.41      0.75    29.4    22.9   13.0     0.9      0.9    0.9    4.0       3.5      2.8
ST SP Equity       Singapore Telecom                          Telecommunication Services   Killa, Navin               Overweight       3.32       45.8      0.24       0.26      0.27    12.6    12.2   12.5     1.9      2.0    2.0    7.2       7.2      7.4
STE SP Equity      ST Engineering                             Industrials                  Ling, Xin Jin              Overweight       3.47        5.3      0.16       0.18      0.20    15.6    18.9   17.3     4.8      5.7    5.3   11.0      13.1     12.1
STH SP Equity      StarHub                                    Telecommunication Services   Killa, Navin               Equal-Weight     3.76        5.0      0.18       0.18      0.19    16.5    20.5   19.3    13.9     17.6   16.4    8.5      10.1      9.7
TGR SP Equity      Tiger Airways Holdings                     Industrials                  Xu, Edward                 Equal-Weight     0.76        1.0     (0.13)     (0.00)     0.01     NM     32.2   18.4     4.3      3.3    3.1   84.4      13.7     11.6
UOB SP Equity      United Overseas Bank                       Financials                   Lord, Nick                 Equal-Weight    19.63       30.3      1.42       1.59      1.64    10.7    12.4   12.0     1.2      1.4    1.3   13.6      14.1     13.9
WIL SP Equity      Wilmar International                       Consumer Staples             Spencer, Charles           Overweight       3.26       29.4      0.27       0.19      0.26    15.4    16.9   12.6     1.8      1.2    1.1   15.0      12.7     11.1
DBS SP Equity      DBS Group Holdings                         Financials                   Lord, Nick                 ++              14.45       45.9      1.25       1.38      1.40     8.8     9.9    9.6     1.0      1.2    1.1   13.1      14.6     14.2
AMTK SP Equity     Amtek Engineering Ltd                      Industrials                  Lu, Jasmine                Overweight       0.61        0.5      0.10       0.09      0.13     9.7     7.1    4.8     2.8      1.5    1.3    5.6       4.0      2.8
IFAR SP Equity     Indofood Agri-Resources Limited            Consumer Staples             Spencer, Charles           Overweight       1.42        3.0      0.13       0.13      0.16     8.7    11.2    8.9     1.0      1.1    1.0    6.1       7.0      5.7
YZJ SP Equity      Yangzijiang Shipbuilding (Holdings) Ltd.   Industrials                  Meng, Andy                 Equal-Weight     1.01       13.7      0.21       0.19      0.12     4.3     5.4    8.2     1.3      1.2    1.1    4.7       5.0      6.9
HPHT SP Equity     Hutchison Port Holdings Trust              Industrials                  He, Lin                    Equal-Weight     0.74        9.3      0.04       0.04      0.04    21.3    23.4   21.9     0.6      0.6    0.6   13.4      12.3     11.3
BIG SP Equity      Biosensors International                   Health Care                  Li, Bin                    Overweight       1.23        7.1      0.05       0.09      0.09    23.5     5.0   15.6     3.4      1.9    1.5   25.0      15.7      4.0
GLP SP Equity      Global Logistic Properties                 Financials                   Gardiner, Sean             Overweight       2.59       13.9      0.10       0.09      0.09     6.3    15.4   28.9     1.0      1.1    1.3   22.7      23.0     26.0
SOH SP Equity      STX OSV Holdings                           Industrials                  Ling, Xin Jin              Equal-Weight     1.64        8.2      0.29       0.18      0.17     4.0     9.1    9.6     1.8      2.2    1.9    2.5       5.2      5.2
JM SP Equity       Jardine Matheson Holdings Limited          Industrials                  Ling, Xin Jin              Equal-Weight    54.72       10.2      5.34       5.57      6.15     4.9    12.0   10.9     1.0      1.1    0.9    7.5       9.6      8.6
JS SP Equity       Jardine Strategic Holdings Limited         Industrials                  Ling, Xin Jin              Equal-Weight    33.45        5.1      3.31       3.36      3.70     4.4    12.2   11.1     0.9      1.1    1.1    7.4      10.2      9.3
HKL SP Equity      Hongkong Land                              Financials                   Chan, Corey                Equal-Weight     6.03       10.6      0.39       0.35      0.42     2.0    20.9   17.2     0.4      0.6    0.6   11.2      18.8     15.7
FR SP Equity       First Resources                            Consumer Staples             Spencer, Charles           Overweight       6.03       10.6      0.13       0.15      0.20     8.7    13.3   10.8     2.1      2.5    2.0    7.2       9.2      7.2




++ Indicates the data for this company have been removed from consideration in this report because, under applicable law and/or Morgan Stanley policy, Morgan Stanley may be
precluded from issuing such information with respect to this company at this time.
Source: FactSet, Bloomberg, Morgan Stanley Research Estimates . Closing prices on Sep 18, 2012.




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                                                                                               ASEAN Equity Strategy                                                                                                 ASEAN EQUITY STRATEGY
                                                                                                                                                                                                                               September 20, 2012




Valuation – Morgan Stanley Coverage Universe
                                                                                                                                           Avg Daily
                                                                                                                                            Traded
                                                                                                                                   Price                         MW EPS                       PE                      PB                    EV/EBITDA
                                                                                                                                            Vol. in
   Bbrg Ticker                      Name                           GICS Sector                   Analyst            MS Rating     (Local
                                                                                                                                             6mth
                                                                                                                                   Ccy)
                                                                                                                                           USD mn      2011       2012      2013     2011    2012    2013    2011     2012    2013   2011     2012      2013

Thailand
ADVANC TB Equity   Advanced Info Service                   Telecommunication Services   Chandna, Surabhi           Underweight       210       29.6       8.6       10.7      11.4   18.8  19.7  18.4          7.8    10.8    10.6    7.3      10.2     10.0
BIGC TB Equity     Big C Supercenter                       Consumer Staples             Gangahar Kothiyal, Divya   Equal-Weight      183        6.9       6.8        7.6       9.3   18.3  24.0  19.8          4.1     4.8     4.2   10.6      13.2     11.5
CPALL TB Equity    C P All                                 Consumer Staples             Gangahar Kothiyal, Divya   Equal-Weight       34       27.1       0.9        1.2       1.4   29.0  29.0  24.2         10.8    13.2    12.2   15.2      16.6     14.3
ESSO TB Equity     Esso (Thailand) Plc.                    Energy                       Maheshwari, Mayank         Underweight        11        6.8       0.3        1.1       0.8   39.8   9.8  13.2          1.5     1.4     1.3   16.7       8.7      9.4
IVL TB Equity      Indorama Ventures PCL                   Materials                    Maheshwari, Mayank         Equal-Weight       31       22.6       2.2        2.7       3.2    8.9  10.7   9.6          2.4     2.2     1.9   12.0      11.0      9.7
MINT TB Equity     Minor International                     Consumer Discretionary       Gangahar Kothiyal, Divya   Overweight         15        3.8       0.6        0.9       1.0   11.6  15.8  13.6          2.6     3.4     2.9   10.4      10.2      9.0
PTTEP TB Equity    PTT Exploration & Production            Energy                       Maheshwari, Mayank         Equal-Weight      158       20.4      13.5       16.5      15.5   12.5   9.5  10.2          2.8     1.5     1.7    5.5       5.2      4.7
PTT TB Equity      PTT Public Company                      Energy                       Maheshwari, Mayank         Overweight        338       40.9      36.9       47.9      51.9    8.6   7.1   6.5          1.6     1.5     1.3    6.1       6.0      5.7
SCC TB Equity      Siam Cement                             Materials                    Maheshwari, Mayank         Underweight       351       23.0      21.1       21.0      26.8   13.8  16.7  13.1          2.7     2.7     2.5   13.7      12.5     10.4
THAI TB Equity     Thai Airways Int'l                      Industrials                  Xu, Edward                 Overweight         21        4.7     (10.3)      (3.2)     (2.3)   NM   10.5   6.6          0.8     1.0     1.1   12.4       9.0      8.2
TOP TB Equity      Thai Oil Public Company                 Energy                       Maheshwari, Mayank         Underweight        68       20.0       7.3        6.2       5.6    8.0  11.0  12.1          1.5     1.6     1.5    5.6       6.8      7.0
DTAC TB Equity     Total Access Comm.                      Telecommunication Services   Chandna, Surabhi           Underweight        85       19.3       5.0        4.2       4.6   13.9  20.5  18.5          4.7     5.8     5.2    6.7       8.6      8.1
TRUE TB Equity     True Corporation                        Telecommunication Services   Chandna, Surabhi           Underweight         6       15.4      (0.3)      (0.1)     (0.1) NM    NM    NM             1.9     3.7     4.0    7.2       9.2      8.5
PTTGC TB Equity    PTT Global Chemical PCL                 Materials                    Maheshwari, Mayank         Equal-Weight       64       36.0       7.4        9.0       9.2    7.2   5.9   5.7          1.0     0.9     0.8    5.1       3.9      3.5
KBANK TB Equity    Kasikorn Bank Public Company            Financials                   Goh, Edward                Overweight        181       37.9      10.1       14.1      17.1   12.1  12.8  10.6          1.9     2.4     2.0    7.6       9.7      8.3
BBL TB Equity      Bangkok Bank Public Company Limited     Financials                   Goh, Edward                Overweight        193       29.3      14.3       17.4      19.8   10.7  11.1   9.7          1.2     1.4     1.3    8.6       8.5      7.7
KTB TB Equity      Krung Thai Bank Public Company          Financials                   Goh, Edward                Equal-Weight       17       19.1       1.5        1.8       1.9    9.2   9.4   9.0          1.2     1.4     1.2    6.9       6.2      5.8
SCB TB Equity      The Siam Commercial Bank Public Company Financials                   Goh, Edward                Equal-Weight      160       32.4      10.7       11.8      13.8   10.9  13.5  11.6          2.1     2.6     2.2    8.4      10.4      9.3
CPF TB Equity      Charoen Pokphand Foods                  Consumer Staples             Gangahar Kothiyal, Divya   Equal-Weight       33       33.0       2.2        1.9       2.8   14.0  10.1  11.9          3.5     2.3     2.1   12.7      14.6     10.9
INTUCH TB Equity   Shin Corporation Public Company         Telecommunication Services   Chandna, Surabhi           Underweight        68       26.5       2.8        3.8       4.2    8.6  18.1  16.4          6.5     9.5     9.2   11.6      15.2     13.7
IRPC TB Equity     IRPC PCL                                Energy                       Maheshwari, Mayank         Overweight          4        7.3       0.2        0.1       0.4   20.2  46.8  11.7          1.1     1.2     1.1   13.3      16.1      8.4



Philippines
CEB PM Equity      Cebu Air Inc                            Industrials                  Xu, Edward                 Overweight         59        0.7       6.1        6.2       7.7    10.9     9.0     7.6     2.1      1.6    1.3    6.7       5.4      5.1
TEL PM Equity      PLDT                                    Telecommunication Services   Chandna, Surabhi           Overweight      2,864        9.3     170.8      179.1     200.8    15.3    16.1    14.3     3.7      5.3    7.4    7.9       8.7      8.0
GLO PM Equity      Globe Telecom Inc.                      Telecommunication Services   Chandna, Surabhi           Overweight      1,180        1.6      75.8       35.3      44.5    15.3    33.4    26.5     3.1      3.4    3.7    5.5       6.0      5.6




Source: FactSet, Bloomberg, Morgan Stanley Research Estimates. Closing prices on Sep 18, 2012.




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                                                                                ASEAN Equity Strategy




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                                                                                                                                                           36
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                                                                                              ASEAN Equity Strategy




                              Coverage Universe    Investment Banking Clients (IBC)
                                             % of                   % of % of Rating
    Stock Rating Category        Count       Total     Count Total IBC Category
Overweight/Buy                    1108          37%           445          41%           40%
Equal-weight/Hold                 1283          43%           499          46%           39%
Not-Rated/Hold                     109           4%            34           3%           31%
Underweight/Sell                   469          16%           115          11%           25%
Total                            2,969                       1093
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