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					                                                                              professional investors - July/August
                                                                          ForFor professional investors - JANUARY             2011


CONTENTS                                     To the rescue
Economic Outlook                        2    Cyclical momentum in the US economy remains fragile: it was virtually impossible to
US economy: not so bad                       find a single positive element in the labour market report released on 8 July. This means
                                             that investors will approach the early August release with even more trepidation than
Risk & Asset allocation                  3   before. Another truly bad number and there will be a further surge in “double dip”
Allocation in the current market turmoil     articles on media websites.
Money Market                            4
How will new fund categories affect          As one would expect, Fed chairman Ben Bernanke is more than aware that the US
European money market funds?                 economy has now arrived at a crossroads and he took the opportunity of his recent
                                             testimony to Congress to make it clear that he is ready to come to the rescue yet again.
Emerging Markets                        6    Despite ultra low rates, QE1 and QE2, he still sees ways to use monetary policy to try
Will China experience a soft or hard         to push the economy into a higher gear. This decisiveness is hard to find on the fiscal
                                             policy front where there seem to be endless discussions on increasing the debt ceiling.
Global Fixed Income                     8    Fortunately, markets are rather complacent about it. It’s like the patient traveller:
Globalisation’s impact on developed          traffic jams don’t matter if there is confidence one will arrive at the destination.
market inflation                             In contrast, the road towards stability in the eurozone looks increasingly long and
                                             winding and travellers are becoming increasingly impatient. Spreads have widened in
Developed Equities                      9    countries which thus far had remained insulated from contagion - Italy in particular
Japan: after the pain, the healing
                                             has been making headlines. Fortunately, the Italian government has reacted swiftly
                                             and measures have been taken to reduce the budget deficit.
                                             Nevertheless, investors are very much aware that for the eurozone as a whole
Expert’s View                          10    “something” needs to be done to bring interest rates back to more sustainable levels.
Demystifying risk-based strategies           The complexity of the task is huge but the rewards warrant the effort.
for equity portfolios

Interview                              12    As always, do not hesitate to contact your Client Relashionship Manager for further
THEAM: flexibility, innovation and           discussion.
                                             Written 15 July 2011

                                                                                                      William De Vijlder
                                                                                              CIO Strategy and Partners
2 - BNP Paribas Investment Partners - PERSPECTIVES - July/August 2011

                                                                                                                                                                                                  ECONOMIC OUTLOOK
                                                                                                                                                 Nathalie Benatia
                                                                                                                                             Strategist - BNPP AM

     US economy: not so bad
     It may be because the holiday season is getting near, but the                              Forget the data for a while
     plethora of economic indicators published in the United States                             The former Fed chairman, Alan Greenspan, reputedly consulted
     each month is becoming oppressive. The US statistical system                               numerous economic indicators while taking his bath. Although
     includes an impressive number of varied surveys, in addition to                            he left the top post at the Fed in early 2006 with plaudits, in the
     the data actually measured (e.g. sales and output). Since these                            autumn of 2008 he had a less comfortable time explaining to
     surveys mostly concern the very cyclical manufacturing sector                              Congress why he had not taken the necessary measures to prevent
     (which now only accounts for about 15% of GDP), the resulting view                         the sub-prime crisis. This misfortune leads us to take an objective
     of the economy becomes even more blurred, arousing erratic mood                            view to draw up our scenario for the US economy in the second
     swings in investors and analysts, neither of whom have any need,                           half. The first half was marked by a slowdown in business activity
     to be encouraged down this path.                                                           due to two factors: firstly the difficulties of the automotive sector
                                                                                                − and to a lesser extent the technology sector − related to breaks
     Economic data overload                                                                     in production in Japan following the earthquake; and secondly
     In June, the various surveys conducted by the regional Federal                             spiralling oil prices until the end of April. The first factor is fading
     Reserves (Feds) on industry sources - often purchasing managers -                          with improved economic activity in Japan, the second factor
     blew cold and then hot. This aroused fears, in light of the results in                     weighed on household purchasing power via petrol prices. Between
     New York and the Philadelphia region, of a collapse in the national                        the end of December 2010 and the end of May 2011, spending
     ISM , whereas surveys carried out around Chicago and Richmond,                             allocated to the “petrol and other energy products” item increased
     for example, moderated these fears. The verdict fell on 1 July and,                        by USD 60 billion on an annual basis, or the equivalent of 0.5% of
     contrary to all expectations, the ISM1 Index rose from 53.5 to 55.3,                       household income, i.e. an amount comparable to the reduction in
     showing that industrial activity was regaining some vigour.                                employee contributions in December 2010 as part of the stimulus
                                                                                                plan. The slight decline in prices seen since May should therefore
     Too much attention paid to the data                                                        rapidly restore purchasing power to households. Now that the two
     It is not the quality of these surveys that is at fault but the fact                       disrupting factors have left the scene, the US cycle should resume
     that economists endeavour to “predict” the results of a survey and                         its normal course. The “realignment” of productive investment
     because these indices were not designed to be scrutinised month                            should continue for two years after the end of the recession and
     after month but to provide data to feed into the econometric                               employment should continue to improve very gradually. Together
     models of the regional Feds. It is not insignificant that the FOMC2                        with the real estate market, employment remains the weak link in
     uses the Beige Book, a collection of qualitative data for each                             an economic growth which is disappointing in absolute terms, but
     region, to support its decisions rather than the “figures” which                           which should accelerate in the second half. Until then, forget the
     attract more attention from investors. In this regard, one of the                          data and have a great summer.
     economic indicators that generally sets the market tone for the
     month , namely the creation of jobs, is now known by some as
     the “employment lottery”. For various reasons related to their
     collection, the data are frequently revised, often quite significantly,
     but will be commented on down to the slightest detail on the first                         1 ISM Manufacturing Index, published by the Institute for Supply Management
     Friday of each month4 at 8.30 am precisely, New York time. For                             2 FOMC: Federal Open Market Committee
                                                                                                3 Note that the fashion regarding indicators reputed to influence the markets (“market movers“)
     some time now, there has been heavy criticism not only of the                                fluctuates. The oldest market economists probably still remember how the US trade balance
     extreme variability of the data, but also its objectiveness. The jobs                        report was able to influence the USD on publication, whereas it is now received with more or
     figures in particular are being attacked at present with Bureau of                           less widespread indifference.
                                                                                                4 In July, the employment report was published on the eighth of the month for calendar reasons.
     Labor Statistics (BLS) statisticians being suspected of “inventing”
                                                                                                5 The scale of long-term unemployment explains why the subject has become so sensitive, and
     jobs that do not exist when openly making the customary essential                            the 6.2 million people unemployed for more than six months may legitimately wonder where is
     corrections to the raw data5.                                                                the slight improvement noted in the BLS figures.

     Consensus forecasts: Growth & Inflation
      July 2011                                                          GDP YoY %                                                            Inflation YoY %
      M= Mean; H= High; L=Low                2010                2011                          2012                2010                    2011                              2012
      Developed Economies                            M     H       L       -1M       M   H        L      -1M                  M       H       L      -1M        M       H       L      -1M
      USA                                      2.9   2.5   2.9     2.2     [2.7]   3.1   4.4     2.4     [3.2]       1.6      3.0    3.4     2.7     [3.0]     2.1     3.3     1.4     [2.1]
      Canada                                   3.1   2.8   3.2     2.4     [2.9]   2.6   3.1     1.5     [2.7]       1.8      2.8    3.4     2.2     [2.7]     2.1     2.6     1.6     [2.1]
      Eurozone                                 1.7   2.0   2.3     1.6     [1.7]   1.7   2.2     1.2     [1.7]       1.6      2.6    2.9     2.4     [2.5]     1.9     2.2     1.4     [1.9]
      UK                                       1.3   1.6   1.9     1.2     [1.6]   2.1   3.1     1.5     [2.2]       3.3      4.3    4.6     3.8     [4.1]     2.5     3.6     1.7     [2.3]
      Switzerland                              2.6   2.3   3.1     1.8     [2.4]   2.1   2.4     1.6     [2.0]       0.7      0.9    1.5     0.4     [1.0]     1.2     1.8     0.5     [1.4]
      Japan                                    3.9   -0.7 0.3 -1.5         [0.0]   3.2   5.0     2.2     [2.8]      -0.7      0.3    1.0     0.0     [0.4]     0.2     0.7 -0.6        [0.2]
      Australia                                2.7   2.0   2.8     1.0     [2.7]   4.0   4.8     2.9     [3.8]       2.8      3.4    3.7     3.0     [3.3]     2.8     3.4     1.9     [2.9]
     Source: Consensus Forecasts as of 09/05/2011

                                                                                                                                                              For professional investors
3 - BNP Paribas Investment Partners - PERSPECTIVES - July/August 2011

                                                                                                                                                                                                          RISK & ASSET ALLOCATION
                                                                                                                                                        Vincent Treulet
                                                                                                                                         Head of Strategy - BNPP AM

     Allocation in the current market turmoil
     Markets are being buffeted both by fears regarding                                                     What allocation do you recommend at present, then?
     global growth and by the eurozone sovereign debt                                                       We did not reduce our allocation risk in early July; on the contrary,
     crisis. How should we react?                                                                           we even slightly increased it to developed market equities. This
     After a short upturn in early July following a favourable vote                                         is because we were in a wait-and-see position after “trimming
     by the Greek parliament and better US economic figures, there                                          our sails” in May to ride out a period of less favourable economic
     has been a very significant deterioration in investor sentiment,                                       data. We believe that this phase is nearing an end and that the
     mainly due to the eurozone situation. The worries have spread                                          dynamics of the US economy should provide reassurance in the
     to major economies such as Spain and Italy – not because these                                         coming months, given that companies are still in very good health.
     countries are not meeting their deficit reduction targets, but                                         There remains the sovereign crisis: it is extremely difficult to give
     because there is a risk that they might fail.                                                          a time frame for the end of the crisis and to measure the economic
                                                                                                            and financial implications of what is happening currently. However,
     This attitude undoubtedly encompasses several concerns: the                                            counting on a response from the eurozone to this crisis and bearing
     unsettling situation of the smallest peripheral countries, the                                         in mind that the rest of the market picture is far more favourable
     unpredictable impact of the rating agencies as crisis catalysts                                        (strong global growth, rising corporate profits, inflation which
     and the apparent inability of the Europeans to agree on the                                            should cool somewhat in the second half, etc.), we remain “long
     decisions to be taken or to evaluate the scale of the challenge                                        on risk”, mainly via equities, high yield bonds, emerging debt and
     they face.                                                                                             industrial commodities (oil and metals).

     It is at such times that one must keep calm and ask oneself                                            What position have you adopted regarding government
     where the solvency problems lie, what the possible tools are                                           bonds?
     to halt the crisis, and what the next steps could be. Regarding                                        We remain close to neutral. The main factor determining long
     Spain and Italy, we think the current problem is more one of                                           yields in Europe and the United States in the near future will
     liquidity or risk aversion than of solvency.                                                           probably be risk aversion, rather than economic fundamentals
                                                                                                            alone. In the short term, even though their valuations appear
     Moreover, the Europeans can fight back, by enlarging the                                               strained, US Treasuries and German Bunds should benefit further
     European Financial Stability Fund (EFSF), or by ensuring that                                          from any additional tension because of their safe haven status.
     the European Central Bank (ECB) takes on a role as lender of                                           Subsequently, however, should the sovereign debt crisis be
     last resort and “monetises” public debt. So panic will not help                                        resolved and growth prove to be resilient, long yields could rise
     matters.                                                                                               sharply in both these countries.

     Asset allocation
                         MULTI-ASSET CLASS                                         EQUITIES DEVELOPED COUNTRIES                                       EQUITIES EMERGING COUNTRIES
                                       CURRENT          PREVIOUS                                           CURRENT          PREVIOUS                                          CURRENT          PREVIOUS
      EQUITIES                                                           US                                      +                +          Brazil                                  -               -
      Developed Equities                      +                =         Canada                                  -                -          China                                   +               +
      Emerging Equities                       +                +         Euroland                                =                -          India                                   =               -
      FIXED INCOME                                                       Japan                                   +                +          South-Korea                             +               +
      Government Bonds                        =                =         UK                                      +                +          Taiwan                                  =               =
      Corporate Bonds                         =                =         Switzerland                             -                -          Russia                                  +               +
      High Yield                              +                +         Australia                               -                -          South Africa                            =               =
      Emerging Debt (ext.)                    =                =                                                                             Turkey                                  -                -
      Emerging Debt (local)                   +                +                    BONDS COUNTRIES SOVEREIGN
      COMMODITIES                                                                                          CURRENT          PREVIOUS
      Brent Oil                               +                =         US                                      -                +
      Base Metals                             +                +         Euroland                                =                -
      Gold                                    -                =         Japan                                   =                =
      Agricultural                            =                =         UK                                      +                +
      CASH                                    -                -         Switzerland                             =                =
     Notes: The indications in the tables reflect views not weights, whereby the “+”, “-” and “=” signs respectively represent positive, negative and neutral views. Two different types of views are expressed
     in the tables. Those in the Multi-Asset Class Module are absolute returns views, or more precisely views on excess returns versus cash. Those in the equities and bond modules are relative return
     views. Here we assess relative excess returns amongst different countries. These views can of course be translated into portfolio weights. Their size will heavily depend on portfolio constraints and
     the specific risk budgets.
     Source: BNPP AM - July 2011

                                                                                                                                                                            For professional investors
4 - BNP Paribas Investment Partners - PERSPECTIVES - July/August 2011

                                                                                                                                                                                         MONEY MARKET
                                                                                                                                                Xavier Gandon
                                                                                                                      Investment Specialist – Money market

     How will new fund categories affect
     European money market funds?
     The European Securities and Markets Authority (ESMA)1, the                                  The table below summarises the differences between the two
     institution that oversees regulatory reform in Europe’s financial                           new types of money market funds.
     markets, published a common definition of European money
     market funds in May 2010. This reform, which Europe’s financial                             What does this mean for euro-denominated money
     community had been awaiting, was adopted by the main leading                                market funds?
     financial authorities (France, Luxembourg and Ireland) in the                               The turmoil in the financial markets over the past four years has
     first half of 2011. The new rules aim to tighten requirements                               obliged money managers to narrow their investment universe,
     on money market funds and enhance investor information and                                  for example by shunning long-term securitisation instruments.
     protection.                                                                                 The new European regulations that came into effect on 1 July
                                                                                                 2011 will encourage this trend, since money market funds will
     In detail: the new funds’ classification and the main                                       no longer be able to invest in A-3/P-3/F-3 rated securities. Debt
     rules that apply                                                                            issuers with this short-term credit rating should be impacted by
     EMSA guidelines set out a two-tiered approach with two sub-                                 this decision.
     categories:                                                                                 Over the past few years, rising risk aversion and the announcement
     • The ‘short-term money market’ funds                                                       of regulatory changes in European money market funds have
     • The ‘money market’ funds                                                                  encouraged the emergence of new financial instruments, such
                                                                                                 as putable bonds2 and certificates of deposit. Although these
     These two new categories became compulsory on 1 July 2011.                                  instruments are mainly used by money market fund managers
     Money market funds created after this date must comply with                                 to increase diversification, they also meet the stricter fund
     the new rules, while those in existence prior to 1 July 2011 have                           regulation criteria regarding maximum maturity, interest rate
     six months to achieve compliance.                                                           risk exposure and of course liquidity. In contrast, money market
                                                                                                 fund managers have been gradually reducing or even eliminating
     Short-term money market funds are subject to stricter                                       exposure to floating rate notes, a market which they traditionally
     requirements than other money market funds in terms of:                                     added liquidity to.
     • The maximum residual maturity of portfolio securities                                     Beyond these factors, we believe the impact of the new money
     • Their exposure to interest rate risk                                                      market fund classification will be relatively limited, since most
     • The credit ratings of portfolio securities                                                of this industry’s participants have quickly adapted to the new
     • The funds’ exposure to credit risk.                                                       rules after their official announcement in May 2010. Investment
                                                                                                 management companies have also been careful to offer a range
     A money market fund’s exposure to interest rate risk is measured by                         of financial products that are compatible and consistent with the
     its weighted average maturity (or WAM). This is the fund’s average                          new regulations. For example, some money market funds with
     modified duration expressed in number of days. The portfolio’s                              higher levels of credit risk exposure (i.e. in the ‘money market’
     exposure to credit risk is measured by working out the weighted                             fund category) have added more defensive ‘short-term money
     average life (or WAL) of the fund. Calculated by taking into account                        market’ funds to their offering. Among the latter category it
     the maturity dates, it is also expressed in number of days.                                 should be noted that AAA-rated funds have been very successful.

                     CRITERIA                             SHORT-TERM MONEY MARKET FUND                                               MONEY MARKET FUND

     Investment objective                      To preserve principal and provide returns in line with money market rates.
     Permitted instruments                     Money market instruments and deposits with financial institutions. Other financial instruments are also permitted provided that they
                                               comply with the investment objective and are consistent with all aspects of the risk profile.
     Forbidden exposure                        The funds may have no exposure to equity markets or commodities
     Currencies                                Currency instruments may only be used for hedging purposes
     Maximum residual maturity                 397 days                                                    Two years, provided the interest rate is reset within no more than 397 days
     Portfolio’s weighted average maturity     60 days                                                     6 months
     Portfolio’s weighted average life (WAL)   120 days                                                    12 months
     Net Asset Value (NAV)                     Calculated daily, stable and/or fluctuating NAV             Calculated daily, fluctuating NAV only
     Permitted funds                           Can only invest in ”short-term money                        Can only invest in ”short-term money market” funds and /or ”money
                                               market” funds                                               market” funds
     Instrument ratings                        The fund must invest in financial instruments of            The fund must invest in financial instruments of ”high quality” (i.e. at
                                               ”high quality” (i.e. at least A-2/P-2/F-2, or, if not       least A-2/P-2/F-2, or rated internally). Sovereign debt must be at least
                                               rated, internal rating)                                     investment grade.

                                                                                                                                                         For professional investors
5 - BNP Paribas Investment Partners - PERSPECTIVES - July/August 2011

     These AAA money market funds meet even stricter investment                                   The EONIA is likely to remain volatile over the coming months as
     criteria than the short-term money market funds, particularly in                             it varies with the ebb and tide of excess liquidity in the interbank
     terms of the minimum credit rating requirement: A-1/P-1/F-1.                                 market. This excess liquidity will depend on such factors as
     Rising inflationary pressures in the eurozone since December                                 how quickly banks will be meeting their reserve requirements
     20103 have led the European Central Bank (ECB) to raise its                                  and how thirsty for liquidity they will be during the ECB’s
     refi rate by 25 basis points twice so far in 2011: once in early                             weekly refinancing operations. However, the recent flattening
     April and again on 7 July, thus bringing the refi rate to 1.50%.                             of the EONIA curve could over the short term gradually whet
     In response to these successive rate rises and the still high                                the appetites of money market funds for fixed rate investments,
     volatility of overnight interest rates (as measured by the EONIA                             mainly on short maturities (i.e. 3-month) initially. Thus, after
     index)4, money market portfolio managers have been maintaining                               heavily favouring variable rate securities indexed to EONIA, we
     cautious interest rate exposure. Even though the ECB’s president                             expect money market portfolio managers to slightly increase
     Jean-Claude Trichet signalled in early July a possible pause in                              their exposure to interest rate risk (or “WAM”). However, we do
     interest rate increases in the eurozone, inflation will continue                             not think that the additional leeway for interest rate exposure
     to be closely watched. Whereas on 7 July the market was still                                that the ‘money market’ category funds have will give them a
     anticipating overnight interest rates to increase significantly over                         substantial advantage over ‘short-term money market’ funds in
     the rest of 2011, such expectations rapidly dissolved especially                             the near term.
     after the lowering of credit ratings on peripheral countries. Thus,
     even as the prospect of the ECB raising its policy rate a third
     time in 2011 began to fade, the 1-month EONIA futures curve
     flattened sharply from 7 to 13 July, as shown in the chart below.

     Contrats futures Eonia 1 mois

                           courbe au 07/07/2011

                                                                  courbe au 13/07/2011


                                                                                                  1 The European Securities and Markets Authority superseded the Committee of European
                                                                                                    Securities Regulators (CESR) on 1 January 2011.
                                                                                                  2 These give the debt-holder the option (generally each quarter) of either keeping the security
                                                                                                    and earning an increasingly high rate of return or cashing it in for par value.
          Jul 11 Aug 11 Sept 11 Oct 11 Nov 11 Dec 11 Jan 12 feb 12 Mar 12 Apr 12 May 12 June 12   3 Eurozone inflation was estimated at an annualised 2.7% in June 2011; in line with the
                                                                                                    confirmed rate of 2.7% in May 2011. Rising energy and commodity prices account for the bulk
                                                                                                    of this inflation.
           On 13 July 2011, the market was expecting the EONIA rate                               4 Since the ECB’s termination of its six and twelve-month refinancing operations in 2010 and
           to average only 1.41% in December 2011, vs. 1.585% a                                     the gradual evaporation of excess liquidity in the interbank market, the rebuilding of minimum
           week earlier.                                                                            bank reserves and bank participation in the ECB’s weekly refinancing operations have had a
                                                                                                    regular impact on interbank liquidity and EONIA fixings.

                                                                                                                                                                For professional investors
6 - BNP Paribas Investment Partners - PERSPECTIVES - July/August 2011

                                                                                                                                                       EMERGING MARKETS
                                                                                                                   Simon Godfrey
                                                                                           Investment Specialist – Emerging Markets

     Will China experience a soft or hard landing?
     Despite continued concerns over China’s economic outlook, its economy is still rampant, with GDP of some 9%
     projected for 2011. Nevertheless, the country is going through a complex transition from export-led growth
     to more sustainable, domestic consumption-led growth. The question on most investors’ lips is whether the
     Chinese government will succeed in engineering a soft landing for the economy and keeping growth on track.

     Three trends worrying the market                                       In fact, we believe the Chinese authorities intend to engineer
     Currently, the market is focusing on three interrelated factors:       a ‘soft landing’ for the economy, which we would define as
     inflation, which has generally been higher and more persistent         slowing the GDP growth to a rate of around 8% over the medium
     in emerging markets than was expected at the beginning of              term, reducing energy-intensive and polluting industries and
     2011; the level of economic activity; and recent concerns over         moving up the value chain from low-value exports to high-value
     corporate governance and local government funding vehicles             technology and domestic consumption. Whether the government
     (China’s ‘sub-prime’). Our view is that negative factors, such as      can achieve this soft landing, outlined in its 12th five-year plan,
     food price inflation, are partly offset by positive points. The last   is unclear, but China has a good track record of managing such
     PMI release was above the consensus, and property construction         shifts. Naturally, investors are interpreting this environment
     remains strong despite administrative counter-measures. The            as risky, which has been contributing to the current volatility.
     trade surplus has also surprised on the upside, with more robust       However, if China were to fail in this steady transformation over
     export growth to the US and Asia. Imports have been lower as           the next 10 years and grow at a rate below 7%, then we would
     well, but this may be due to inventory readjustment and the            consider this a ‘hard landing’. In any case, exports are still highly
     disruption of supply chains with Japan.                                competitive and could compensate for weakness elsewhere if the
                                                                            current policies do not succeed.
     Hard or soft landing?
     Recent data points to the Chinese economy going through a ‘soft        In the short-term, despite some risks to the downside, we believe
     patch’, creating fears of a ‘hard landing’, should government          a peaking of inflationary pressures would enable the authorities
     policy not address this adequately. The market’s view is that,         to somewhat relax policies by the year end, leading to a potential
     in an environment of slowing growth and sustained inflation,           GDP growth of 9% for 2011.
     the government will pursue tighter monetary policies and other
     administrative measures that could seriously dampen an already         Inflation is key
     slowing economy.                                                       The inflation problem in China is primarily related to food prices
                                                                            – they account for 70% of the CPI increase1 – and both long-term
     However, it is worth remembering that interest rates and reserve       structural factors (wealth effects) and weather-related ones can
     requirement ratios (RRR) in China are used, in part, to exert          influence this. We would expect food inflation to peak at some
     pressure on the banking sector and sterilise foreign inflows -         stage soon, notwithstanding weather effects. On a sequential
     rather than as ‘whole economy’ measures. Loan creation is              basis (MoM), we are already seeing flat to negative food price
     expected to continue apace this year, with up to RMB 7 trn of new      inflation, and there is also a base effect that should improve
     loans created. Monetary expansion is still higher than nominal         going into the third quarter: CPI inflation started accelerating
     GDP growth, so there is little problem with credit growth in the       sharply in Q3 and Q4 of last year.
     Chinese economy, and we expect investments to resume by Q4,            Few central banks in emerging markets are in an enviable
     especially in areas such as high-speed railways.                       position today, as inflation and rising costs are putting pressure on

     HFT Investment Management’s economic forecasts for 2011

                               2007 A 2008 A 2009 A 2010 A 2011 E                                       2007 A 2008 A 2009 A 2010 A 2011 E

      Real GDP y-y%             11.9    9.6     9.1     10.3     9.4          Total Loan y-y%             16.1    18.8     31.7       19.9    15.5
      Fixed asset invesment     21.1   15.8     33.7    24.5     19.8         Increase in new            3,632    4,910   9,590       7,920   7,420
      y-y%                                                                    lending (bn Rmb)
      Retail sales (nominal)    16.8   21.6     15.5    18.4     17.6         M2 y-y%                     16.7    17.8     27.7       19.7    16.1
                                                                              1-yr lerding rate %         7.47    5.31     5.31       5.81    6.55
      Export growth y-y%        25.7   17.2    -16.0    31.3     19.9
                                                                              1-yr deposite rate %        4.14    2.25     2.25       2.75    3.50
      Import growth y-y%        20.8   18.5    -11.2    38.7     25.5
                                                                              RMB/US$ (year-end)          7.30    6.85     6.83       6.62    6.34
      Trade surplus (bn$)      262.2   295.5   196.1    183.1   139.5
      CPI y-y%                  4.8     5.9     -0.7     3.3     4.7
                                                                             source: HFT IM, May 2011

                                                                                                                          For professional investors
7 - BNP Paribas Investment Partners - PERSPECTIVES - July/August 2011

     domestic consumption just when the post-crisis recovery remains        20% - we do not believe this would constitute a ‘crash’ or
     fragile and exports remain under pressure. China’s economic            lead to a downward spiral. Chinese property investors are not
     growth remains robust, supported by domestic spending, but             over-leveraged and have been subject to strict administrative
     there remains some slack between current projected growth              measures when buying property – more so than in other large
     rates and the stated medium-term target. Thus, we believe the          economies - even before the latest round of measures took hold.
     authorities will continue squeezing inflation, even at the cost of     Property construction and its impact on GDP remain positive,
     lower growth.                                                          especially due to the social housing programme, supported by
                                                                            local government. However, if residential property prices were to
     Although MoM inflation is very hard to predict and most market         fall by 15%-20%, as projected, then property investment growth
     observers have underestimated its resilience so far this year, we      could slow from 30% to 20%, which would have a 1% impact on
     expect it to peak in Q4 but believe it may well exceed its current     GDP. To some extent, this is already factored in to the equity
     5%-5.5% rate on a year-on-year basis.                                  valuations of property companies and we continue to favour the
                                                                            sector on a selective basis.
     Is policy tightening effective?
     As mentioned, China has used a mix of administrative measures          Equity market outlook
     to fight inflation, targeting different parts of the economy. The      Most recently the market has taken solace from Premier Wen’s
     authorities, particularly concerned with property price increases,     upbeat comments, predicting that the battle on inflation had
     have used such measures to reduce speculation in the residential       largely been fought and won. This may remain the ‘swing factor’
     property sector while encouraging the development of housing           for market sentiment for the time being. We remain cautious on
     stock (10 mn social housing units), thereby safeguarding its           the Chinese equity market this year as the above macro-economic
     contribution to overall economic growth and supporting the             factors have definitely weighed on sentiment and we do not
     building materials sector so far this year. Real interest rates in     predict a significant rebound as long as interest rates continue
     China, as elsewhere, remain negative, which means that further         to rise – this is in line with past behaviour observed in the China
     rises in lending rates are likely – at least another two 0.25% rises   A share market. Our long-term view is however positive at these
     are widely expected before year-end. Lastly, with the trade surplus    levels of valuation. Over the long term, equities should be driven
     continuing to surprise on the upside, increasing the RRR to above      by earnings as corporate profitability for Chinese companies has
     record levels, this may be used to control foreign inflows.            been very strong. Lastly, the demand/supply balance continues
                                                                            to be a negative factor for the market, with record issuance,
     The question here is whether there is a bubble in the property         especially IPOs, and an overhang from the banking sector due to
     market and whether prices will deflate rapidly. Firstly, we do not     more stringent capital requirements. In this environment we are
     believe the Chinese property market is comparable to markets           looking for visibility in areas such as building materials, which
     such as in the US. Prices have risen sharply in the last two years,    is supported by the government’s social housing programme
     but recent administrative controls seem to have been successful        and remain very positive on the healthcare sector (medical
     in lowering demand and average sale prices. The authorities’           equipment and pharmaceuticals), which should continue to
     objective is to reduce average selling prices by around 15%-           benefit from government reform.

     1 According to UBS Research

                                                                                                                       For professional investors
8 - BNP Paribas Investment Partners - PERSPECTIVES - July/August 2011

                                                                                                                                                      GLOBAL FIXED INCOME
                                                                                                                        Jenny Yiu
                                                                                          Portfolio Manager - Global Rates, FFTW

     Globalisation’s impact on developed market
     Developed markets are now importing inflation instead of disinflation from emerging markets. This trend of
     rising global inflation, combined with highly accommodative money policies, will create an environment that
     supports inflation-linked bonds. We illustrate our case using the UK as an example.

     Low-cost era comes to an end                                         True, the higher-than-target inflation can be attributed to a
     About a year ago, the risks of deflation were significant enough     VAT increase at the beginning of this year, the on-going pass-
     that, in the US, the Fed re-engaged in quantitative easing (QE2).    through effects of depreciation in the pound in 2007 and 2008
     One of the goals, if not the only goal, of QE2 was to shock          on imported goods, and the recent rise in energy and food prices,
     inflation expectations higher. On 30 June 2011, QE2 ended and        which can arguably be categorised as transitory. This enabled the
     both market-based indicators (such as inflation option prices)       BoE to focus its policy communication on the lack of evidence of
     and survey-based inflation expectation measures suggest that         ‘second-round’ effects (as real wage growth remains negative),
     the Fed has successfully averted deflation. Some argue that          on domestically-generated inflation (which remains low), and on
     the Fed not only lifted domestic inflation expectations higher,      inflation expectations (which remain relatively well anchored).
     but also exported monetary policy accommodation to emerging
     economies via their exchange rate regimes, encouraging inflation     Asymmetric reaction to inflation
     there.                                                               The BoE’s inaction in the face of recent inflation data showed
                                                                          that its reaction towards inflation is asymmetric: its focus is
     Monetary policy is not the only link between developed market        tilted towards domestic inflation, and it will allow inflation to
     (DM) inflation and emerging market (EM) inflation. Over the last     deviate from its target quite a lot, both in terms of magnitude
     few decades, the vast supply of cheap labour from EM countries       and duration.
     lowered imported consumer good prices in DM countries. Core
     goods inflation fell from around 4% in the early 1990s, to around    EMs, as we noted above, are transitioning from exporting
     0% in the US and around -2% in the UK in 2000-2010. Now that         disinflation to exporting inflation. The shift in this structural
     so much global manufacturing is concentrated in EM, especially       trend, combined with struggling labour markets in the developed
     in China, the cost savings from shifting production to lower-cost    world, suggest an increased likelihood of rising overall price
     EM countries are diminishing.                                        levels while domestically-generated inflation stays low. In the
                                                                          face of austere fiscal policies, and financial markets’ fragility, it is
     Not only are wages rising in EMs, but the gradual rebalancing        reasonable to expect the BoE to stay accommodative, as long as
     within EM countries from a heavy export bias to greater domestic     domestically-generated inflation remains moderate and provides
     consumption is also driving commodity and food prices higher.        the BoE with the cover to do so. We may even be witnessing a
     It is perhaps not surprising to hear warnings from Wal-Mart, or      regime shift in the way the BoE approaches its price stability
     the biggest sourcing agent, Li & Fung, that the era of low-cost is   mandate…
     coming to an end. In fact, these structural transitions suggest
     that the rise in commodity, food and manufactured goods prices       Investment solutions
     could signal an upward trend rather than a one-off relative          Some economists are sceptical about the BoE’s approach and
     price adjustment. Thus, globalisation is shifting from being         are beginning to question its inflation credibility. Inflation is no
     disinflationary to increasingly inflationary for DMs.                doubt a significant worry for fixed income investors. Fortunately
                                                                          though, the current environment is favourable for developed
     Implication for inflation targeting                                  market inflation-linked bonds which will ensure their investors’
     The disinflationary benefits from globalisation in the last two      purchasing power is not eroded over time. Above-target headline
     decades helped DM central banks achieve stable inflation. The        inflation rates will enhance returns via inflation accretion and
     Bank of England (BoE) Governor dubbed this period as “NICE”–         accommodative money policy biases will likely limit the rise in
     non-inflationary consistent expansion. There is evidence that        the level of real yields, especially relative to that of nominal
     the NICE period is over: despite weak economic growth, UK            yields.
     inflation has overshot the bank’s 2% target since December 2009,     So by taking some exposure to inflation-linked bonds investors
     exceeding the 3% upper target-band for the fifteenth consecutive     can protect themselves from the threat or rising inflation which
     month and is forecast to reach 5% in the next few months.            we believe is likely over the next few years.

                                                                                                                         For professional investors
9 - BNP Paribas Investment Partners - PERSPECTIVES - July/August 2011

                                                                                                                                             DEVELOPED EQUITIES
                                                                                                            Hubert Goyé
                                                                                  Head of International Equity Investments

     Japan: after the pain, the healing
     After a dramatic reaction to the 11 March disaster, Japanese economic indicators have recently started to
     normalise and look generally reassuring for the underlying trend in activity. June turned out to be the market’s
     first positive month since the earthquake.

     Economic indicators gradually improving                               This improvement allowed the Japanese market to do a little
     Japan’s trade balance continues to suffer on both sides: exports,     better (in local currency terms) than its peers in June. Our large
     due to the strong yen and the damage to production facilities,        cap strategy continued to stabilise after the strong performance
     and imports, boosted by the need for energy as coal or oil-fired      recorded in March. As in April and May, our June performance
     power plants are being used to replace the missing nuclear            was very close to that of the index.
     generation capacity.
                                                                           Marginal portfolio adjustments in recent months
     Outside of this, many of the indicators are rather positive. Of       Our portfolio has remained rather stable, but we sold a carmaker
     course, the capacity utilisation rate remains low and inventories     (to take profits) and a shipping company (due to a less favourable
     high, but this was not unexpected given the supply chain issues       environment in Asia and excess capacity in the industry). Both
     in vehicle production and other industries. The quarterly TanKan      of these holdings were replaced by financials. One of these
     survey was roughly unchanged, however there were the first            reinforced our exposure to the favourable pricing conditions
     positive signs of a reconstruction-related recovery in capital        expected in the insurance industry. The other one is a bank
     expenditure. The Small Business Confidence index (still off its       involved in major restructuring to better leverage the favourable
     pre-quake levels, but much closer) and the Economy Watchers           lending environment and better risk visibility.
     survey, as well as Industrial Production and the All Industry
     Activity index, are also trending better.                             End of deflation a catalyst to buy Japan’s cheap equity
     Unemployment is down to 4.5%, with labour cash earnings again         We do not expect economic activity to accelerate dramatically
     up year-on-year. Consumer confidence remains weak but has             in Japan in the foreseeable future, despite the benefits of the
     started to rebound slightly, and the most recent retail indicators    post-quake reconstruction. The government’s support will take
     suggest that sales are close to pre-quake levels.                     too much time and the strong yen remains an obstacle.

     Of all the positive points, the moderation in deflation is probably   However, we view the recent indicators as a sign that underlying
     the most important. While wholesale price variations returned         activity remains as resilient as could reasonably be expected.
     to positive territory for a while, even the CPI ex-food and energy    Given the gradual resolution of production issues, and the fact
     (which excludes two of the components which had been the most         that oil prices have fallen, things should continue to improve in
     subject to inflation recently) now points to a very slight rise in    the future.
     prices on an annual basis.
                                                                           We also believe that the stabilisation of the CPI ex-food and
     It is also increasingly clear that reconstruction is progressing      energy is great news. This price index has been declining almost
     well, thanks to companies’ proactive response to the disaster.        every month for more than 10 years, with the exception of a
     The efforts to save energy have helped avoid any massive power        short-lived, mild inflationary period in summer 2008. A durable
     outages so far, damages are being repaired and alternative            return to positive territory could be a catalyst to unlock domestic
     solutions found to resume production as soon as possible. In          spending, which has remained depressed for so long in Japan.
     addition, companies are now focusing their communication on
     how soon they expect things to be back to normal.                     Finally, at hardly more than 13 times forward earnings, the
                                                                           Japanese market remains quite cheap and may be considered
     This, unfortunately, remains in sharp contrast to the politicians’    an attractive option for investors seeking to reallocate assets
     inability to agree on a decent plan to support reconstruction.        towards an asset class with higher-potential.

                                                                                                                       For professional investors
10 - BNP Paribas Investment Partners - PERSPECTIVES - July/August 2011

                                         EXPERT’S VIEW

                                                                                                        Raul Leote de Carvalho
                                                          Financial Engineering – Head of Quantitative Strategies and Research

     Demystifying risk-based strategies for equity
     Risk-based approaches for equity portfolios have been outperforming the market capitalisation index for
     many years. And if that wasn’t enough, they have been doing it with lower volatility - enough to raise any
     investor’s eyebrow. In this article we introduce you to these systematic quantitative strategies and explain
     where the risks lie and where performance comes from.

     What are risk-based strategies?
     Equity risk-based strategies are systematic quantitative                   However, there is evidence that CAPM has been violated. Haugen3
     approaches to stock allocation which rely only on risk views. The          showed that low volatility stocks can have higher returns than
     portfolios are periodically rebalanced to reflect a change in views.       expected by CAPM, and Fama and French4 showed that small cap
     The simplest of these strategies is based on the equally-weighed           stocks and value stocks also have abnormally high performance.
     portfolio (EW) which simply follows the principle of not putting           These violations of CAPM are known as pricing anomalies. Active
     all your eggs in one basket. The portfolio invests the same amount         management thrives on the idea that CAPM is not valid and that
     in each stock and makes sense if we believe that neither stock             active managers can outperform the market cap index.
     returns nor risk can be forecast.
                                                                                How have they behaved in the past?
     The equal-risk budget (ERB) strategy invests in portfolios with the        We have run simulations using weekly returns for all stocks in
     same risk budget for each stock (which is defined as the product of        the developed world going back to 1995 and avoiding survivorship
     the stock’s weight to its volatility). Risk is equally distributed among   bias. We simulated the performance of the strategies with
     the stocks and hence riskier stocks get smaller weights. This can be       quarterly rebalancing. At each rebalancing we estimate the
     seen as an extension of EW if we trust volatility forecasts.               covariance matrix from a standard statistical risk model based
                                                                                on principal components, which uses two years of historical
     If correlations are also taken into account, then we can think in          returns. EW and ERB are long-only by construction. We keep the
     terms of equal-risk contribution1 (ERC), where the contribution            ERC solution with positive weights. For MV and MD we imposed
     to risk from each stock is the same. Unlike the risk budget,               a long-only constraint.
     the contribution to risk (defined as the product of the stock’s
     weight to its marginal risk) also takes into account the impact            The results in table 1 show that since 1995 all strategies
     of correlations. The contribution to portfolio risk from two stocks        outperformed the market cap index and all, bar EW, have lower
     of the same volatility but different correlations is higher for            volatility. MV had the lowest ex-post volatility while MV and MD
     the stock with higher correlations and hence it gets a smaller             had a high tracking error against the market cap index and only
     weight in ERC. These three strategies assume diversification               invested in about 120 stocks out of 1700. The other three invested
     can be achieved by equally allocating wealth or risk across the            in the entire investment universe and had a lower tracking error.
     investment universe.                                                       Turnover of MV and MD was comparable and much higher than
                                                                                for the other strategies. MV and MD are defensive strategies with
     Minimum variance2 (MV) invests in the portfolio with the lowest            a small beta of only 0.4 and 0.5.
     ex-ante volatility. The MV is the least risky approach to investing
     in equities and is expected to deliver the lowest volatility over          MV and MD have the smallest drawdown. However, and even if
     time. It uses volatilities and correlations as inputs and invests in       they seem to outperform the market cap index in the long-term,
     stocks with the lowest volatility and low correlations.                    they can underperform in shorter periods by as much as 50% and
                                                                                40%, respectively. This was the case in the late 1990s when it
     The maximum diversification 3 (MD) strategy invests in the                 would have been difficult to beat the bull market. All risk-based
     portfolio which maximises a diversification ratio. This ratio              strategies would have generated positive returns over that period
     measures the amount of diversification in a portfolio by comparing         but would have failed to outperform the market cap index.
     the sum of each stock’s risk budget to the actual portfolio
     volatility. This strategy invests in stocks with low correlations.         In table 2 we show the correlations of weekly excess returns
                                                                                over market cap for these strategies. Excess returns for EW were
     What does financial theory tell us?                                        88% correlated with those from ERB, which in turn were 97%
     According to the Capital Asset Pricing Model (CAPM), where stock           correlated with ERC. The correlation between excess returns of
     returns are proportional to stock beta, the market cap portfolio           MV and MD was 96%. This clearly confirms that much is shared
     is the most diversified and should have the highest risk-adjusted          among EW, ERB and ERC, and similarly between MV and MD.
     return. None of the approaches above would make sense as an
     alternative to the market cap index if we believe in CAPM.

                                                                                                                           For professional investors
11 - BNP Paribas Investment Partners - PERSPECTIVES - July/August 2011

     Where does performance/risk originate?                                                         Table 1: Results from the back-tests of the different strategies.
     The Fama and French4 approach regresses a strategy’s excess
     returns over the market cap index based on the returns of three                                Jan-95 through Dec-10               MC          EW       ERB     ERC       MD           MV
     factors: the market cap index over cash, the SMB factor (a portfolio                           Excess return over Cash            3.2%     6.2%         6.5%    6.5%      5.4%        5.8%
     long small caps and short large caps) and the HML factor (a                                    Volatility (ex-post)               17.3%    17.3%        15.7%   14.8%     11.0%       9.5%
     portfolio long high book-to-market stocks and short low book-to-
                                                                                                    Sharpe ratio                       0.19         0.36     0.42    0.44      0.49        0.62
     market stocks).
                                                                                                    Excess return over Market Cap               3.0%         3.3%    3.2%      2.2%        2.6%
     Fama-French factors are not sufficient to explain these strategies                             Tracking error (ex-post)                    4.9%         5.1%    5.8%      11.5%    12.5%
     that focus on diversification and invest in stocks with low volatility                         Information ratio                               0.61     0.65    0.56      0.19        0.21
     or correlations. Thus, we added two new factors: LBMHB (a portfolio
                                                                                                    Max drawdown                       -56%     -58%         -55%    -53%      -39%        -29%
     long low beta stocks and short high beta stocks and LVMHV (a
     portfolio long low residual volatility stocks and short high residual                          Max drawdown vs Market Cap                  -23%         -28%    -28%      -38%        -41%
     volatility stocks). The beta in LBMHB and LVMHV is neutralised by                              Beta                                            0.96     0.87    0.81      0.48        0.39
     reducing the size of the short leg.                                                            Average annual turnover                         39%      37%     42%       162%        152%
                                                                                                    Average number of stocks           1746     1746         1745    1740      134          111
     The regression results in table 3 show that all strategies can be
     explained by exposure to these factors. R-squares are in excess of
     80% and intercepts are near zero. EW is explained by an exposure                               Table 2: Correlations of excess returns over the market cap index
     to small cap stocks. ERB is less exposed to small cap stocks but is
     also exposed to low beta stocks. ERC is even more exposed to low                                                      EW            ERB               ERC        MD              MV
     beta stocks and less to small cap stocks. ERB is a defensive strategy
                                                                                                     EW                    100%          88%               79%        33%            25%
     with beta less than 1. ERC is even more defensive. MV and MD are
     both very exposed to low beta stocks and are both defensive with                                ERB                   88%           100%              97%        61%            57%
     very low beta. They differ only in their exposure to low residual                               ERC                   79%           97%               100%       75%            71%
     volatility stocks, higher in MV than in MD.                                                     MD                    33%           61%               75%       100%            96%
                                                                                                     MV                    25%           57%               71%        96%         100%
     What to expect in the future
     Risk-based strategies are defensive active strategies which have
     outperformed the market cap index with lower volatility. Their                                 Table 3: Regression coefficients and R-square from the regression
     future performance and risk will depend on how the factors behind                              of the excess returns over market cap index against the five
     the variation of their excess returns behave. We see no reason why                             factors mentioned in the text. Jan 1997 to Dec 2010.
     they should behave differently in the future.

                                                                                                                               EW             ERB           ERC        MD             MV
                                                                                                     (Intercept)               0.000      0.000             0.000     0.000       0.000
                                                                                                     Market Cap - Cash        -0.013      -0.119           -0.200     -0.629      -0.708
                                                                                                     SMB                       0.373      0.315             0.260     0.059       0.025
                                                                                                     HML                       0.135      0.155             0.149    -0.040       -0.020
     1. S. Maillard, Th. Roncalli and J. Teilietche, Journal of Portfolio Management 36, 4 (2010)    LBMHB                     0.060      0.160             0.241     0.567       0.543
     2. R. A. Haugen and N. L. Baker, Journal of Portfolio Management 19, 3 (1991)
                                                                                                     LVMHV                    -0.019      0.090             0.053     0.044       0.124
     3. Y. Choueifaty and Y. Coignard, Journal of Portfolio Management 35, 1 (2008)
                                                                                                     R-square                  75%            79%           84%       78%             84%
     4. E. F. Fama and K. R. French, Journal of Finance 47, 2 (1992)
12 - BNP Paribas Investment Partners - PERSPECTIVES - July/August 2011


                                                                                               Gilles Guérin              Denis Panel
                                                                                               CEO, THEAM                 CIO, THEAM

     THEAM: Flexibility, innovation and simplicity
     THEAM, our latest partner, offers investors faced with volatile markets and changing regulations, a single
     entry point for access to four areas of expertise: index-based management, active systematic management,
     guaranteed and protected management, and alternative management. Gilles Guérin and Denis Panel, the
     THEAM CEO and CIO respectively, answer our questions on how they can help clients in turbulent times.

     PERSPECTIVES (P): Can you describe THEAM to us in a few words?        P: What, in your opinion, are the future growth areas?

     Gilles Guérin (GG): THEAM results from the convergence of             DP: We believe that guaranteed and protected asset management
     two complementary universes, Investment Banking and Asset             are a major growth area, and with our expertise covering a broad
     Management, a merger that provides unique opportunity for             range of asset classes, we feel equipped to meet the varied needs
     investors to access a vast range of investment solutions. In recent   of our clients : from formula funds for banks’ retail clients to
     years, with the changing economic and regulatory environment,         customised solutions for institutionals, such as our ‘Solvency II’
     investors’ expectations have evolved: they expect us to bring them    offer which helps insurers optimise their market exposure while
     innovative solutions, in terms of both investment strategies and      limiting the use of their capital. We think innovation will bring
     vehicles.                                                             some answers to tomorrow’s challenges and we work closely with
                                                                           our clients to design these solutions.
     THEAM was established by combining the SIGMA teams of BNPP
     AM and the teams of Harewood AM. This new partner, with a             GG: Another growth area is alternative multi-management.
     staff of 120 people, is supported by the research capability of       Investors want alternative management solutions that are
     BNP Paribas CIB and benefits from the sales forces of BNPP IP         transparent and liquid, and more generally, in line with their
     and BNPP CIB. At present we have about EUR 50 billion in assets       constraints: we offer them a ‘managed account’ which can be
     under management1. The main challenge, in our opinion, is to          valued on a daily, weekly or monthly basis depending on clients’
     provide our clients with turnkey solutions to allow them to focus     constraints or wishes. As a reminder, managed accounts are
     their efforts on their strategic allocation.                          designed to replicate hedge-fund strategies, while providing
                                                                           investors with greater liquidity, transparency and increased risk
     P: In concrete terms, what solutions do you offer investors?          control. From this viewpoint, our partnership with INNOCAP - the
                                                                           managed account platform of our Canadian partner- enables us
     Denis Panel (DP): The THEAM offer is organised around the             to precisely tailor solutions to fit investors’ needs. For example,
     four management pillars of index-based management, active             investors can choose to exclude from the selected investment
     systematic management, guaranteed and protected management,           universe one or more funds which do not meet their requirements
     and alternative management.                                           or constraints.

     In index-based management, our selective offer is focused on          P: To conclude, what are the advantages of THEAM for an
     a few leading indices such as the Euro Stoxx 50 and the Epra          institutional investor?
     Eurozone (real estate). We also build customised solutions, in
     various formats - ETFs, funds, mandates -, to meet specific           GG: THEAM is primarily a single entry point for our clients
     needs: socially responsible or Sharia-compliant investments,          enabling them to obtain exposure to all types of assets, from the
     etc. Regarding index replication techniques, our approach is          most conventional to the most sophisticated. We use all types
     pragmatic: we select the replication method most appropriate for      of investment strategies - beta, discretionary and systematic
     the underlying index, taking into account cost constraints.           alpha, assemblies of external alternative strategies - in a very
                                                                           transparent approach. We also provide our clients with cutting-
     Through active systematic management our clients benefit from         edge expertise, notably in the areas of guarantee/protection and
     our significant quantitative research capabilities, especially        quantitative strategies. This customised approach also extends
     research by our investment banking teams. Our expertise,              to risk management, which we adapt to the requirements of
     namely in developing trend follower and mean reversion                each investor. Clients can also benefit from great flexibility in
     algorithms, enables us to provide our clients with exposure both      terms of investment vehicle format and from our recognised
     to conventional shares and bonds and to less traditional asset        expertise. Accordingly we have a large number of tools to meet the
     classes such as volatility, commodities and correlation. Our          requirements of the most demanding and innovative investors.
     investment management, which involves a discretionary aspect,
     is characterised by a strong quantitative dominant, thus adding
     value for clients in a different way to fundamental management.       1. Source: THEAM. Data as at end March 2011.

                                                                                                                             For professional investors
13 - BNP Paribas Investment Partners - PERSPECTIVES - July/August 2011
14 - BNP Paribas Investment Partners - PERSPECTIVES - July/August 2011


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15 - BNP Paribas Investment Partners - PERSPECTIVES - July/August 2011

                This material is issued and has been prepared by BNP Paribas Asset Management S.A.S. (“BNPP AM”)* a member of BNP Paribas Investment
                Partners (BNPP IP)**.
                This material is produced for information purposes only and does not constitute:
                1 an offer to buy nor a solicitation to sell, nor shall it form the basis of or be relied upon in connection with any contract or commitment
                whatsoever or
                2 any investment advice.
                Opinions included in this material constitute the judgment of BNPP AM at the time specified and may be subject to change without notice.
                BNPP AM is not obliged to update or alter the information or opinions contained within this material. Investors should consult their own legal
                and tax advisors in respect of legal, accounting, domicile and tax advice prior to investing in the Financial Instrument(s) in order to make
                an independent determination of the suitability and consequences of an investment therein, if permitted. Please note that different types of
                investments, if contained within this material, involve varying degrees of risk and there can be no assurance that any specific investment
                may either be suitable, appropriate or profitable for a client or prospective client’s investment portfolio.
                Given the economic and market risks, there can be no assurance that any investment strategy or strategies mentioned herein will achieve
                its/their investment objectives. Returns may be affected by, amongst other things, investment strategies or objectives of the Financial
                Instrument(s) and material market and economic conditions, including interest rates, market terms and general market conditions. The
                different strategies applied to the Financial Instruments may have a significant effect on the results portrayed in this material. The value of
                an investment account may decline as well as rise. Investors may not get back the amount they originally invested.
                The performance data, as applicable, reflected in this material, do not take into account the commissions, costs incurred on the issue and
                redemption and taxes.
                *BNPP AM is an investment manager registered with the “Autorité des marchés financiers” in France under number 96-02, a simplified
                joint stock company with a capital of 64,931,168 euros with its registered office at 1, boulevard Haussmann 75009 Paris, France, RCS Paris
                319 378 832.
                ** “BNP Paribas Investment Partners” is the global brand name of the BNP Paribas group’s asset management services. The individual asset
                management entities within BNP Paribas Investment Partners if specified herein, are specified for information only and do not necessarily
                carry on business in your jurisdiction. For further information, please contact your locally licensed Investment Partner.

                 Publisher: Philippe Marchessaux
                 Editor in Chief: Anthony Finan
                 Deputy Editor: Maryelle Ouvrard
                 Publication coordinator: Sandrine Bensussen
                 Graphic design: Studio Graphique BNPP IP
                 Translations: Tectrad, CPW Willemetz

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