Havesting value emd citywire wealth manager conference - march 2013

Harvesting Value in thgof Emerging

A if T JArif T. JoPortfolio Manager,

For ProfessionalFor Professional

he Multiple Segmentsp gMarket Debt

hi CFAoshi, CFAManaging Director

l Investors Onlyl Investors Only

Global Market CapitalisationEmerging Market Debt is a Significant a

Total Emerging Market Og g(17% of Global Debt M

Local Debt Markets = $9.7T

Corporate2.2

Sovereign5.1

Quasi-sovereign

2.5

For Professional

All data as of 31 December 2011Data does not include debentures, mortgages, credit cards and other household debt.Source: ING, BIS, Lazard

and Growing Segment of the Market

utstanding Debt = $14.8T gMarket Capitalization)

External Debt Markets = $5.1T

Sovereign/Quasi-sovereign

Bonds0.7

Corporate Loans1.7

Sovereign Loans (Lateral)

0.8

1.7

Sovereign Loans (Other)

1.2

Corporate Bonds0.8

l Investors Only 2 Lazard Asset Management

I di d C F ll OEvolving Universe

Hard Currency Universe (70+ Countries)*

Indices do not Capture Full Oppo

Hard Currency Universe (70+ Countries)Latin America Argentina Aruba Bahamas

B b d

Asia China Fiji India

I d i

Eastern Europe Albania Azerbaijan Belarus

B i

Africa/M.E. Algeria Angola Bahrain

Côt d’I i Barbados Belize Bolivia Brazil Cayman Islands Chile

C l bi

Indonesia Hong Kong Malaysia Mongolia Pakistan Philippines

S h ll

Bosnia Bulgaria Croatia Czech Republic Georgia Hungary

K kh t

Côte d’Ivoire Congo Egypt Gabon Ghana Iraq

I l Colombia Costa Rica Dominican

Republic Ecuador El Salvador

G d

Seychelles South Korea Sri Lanka Thailand Vietnam

Kazakhstan Latvia Lithuania Macedonia Poland Romania

R i

Israel Jordan Kuwait Lebanon Morocco Namibia

Ni i Grenada Guatemala Jamaica Mexico Panama Peru

T i id d

Russia Serbia Turkey Ukraine

Nigeria Oman Qatar Senegal South Africa Tunisia

U A E Trinidad Uruguay Venezuela

U.A.E. Zambia

As of 31 December 2012

Corporates, Inflation Linked Bonds, and ma

For Professional

* Red highlighted countries represent those in the JPM EMBI Global Diversified Index (55 countries) for Hard CurLocal MarketsSource: J.P. Morgan

i S

Local Market Universe (45+ Countries)*

ortunity Set

Local Market Universe (45+ Countries)Latin America Argentina Brazil Chile

C l bi

Asia China India Indonesia

H K

Eastern Europe Belarus Czech Republic Georgia

H

Africa/M.E. Angola Botswana Egypt

Gh Colombia Costa Rica Dominican Republic Mexico Peru Uruguay

Hong Kong Malaysia Mongolia Pakistan Philippines Singapore

S th K

Hungary Kazakhstan Poland Romania Russia Serbia

T k

Ghana Kenya Israel Malawi Mauritius Namibia

Ni i South Korea Sri Lanka Thailand Vietnam

Turkey Ukraine

Nigeria South Africa Tanzania Uganda U.A.E. Zambia

any countries are not represented in indices


rrency and JPM GBI-EM Global Diversified Index (15 countries) for

D fi i H d C & LDefining Hard Currency & Loc

Denomination

Duration

Yield (%)

# of countries

A R tiAverage Rating

% Sovereign

% Quasi-Sovereigng

% Corporate

Annualized return* (%)

Annualized standard deviation* (%)

Worst monthly loss* (%)

Data as of 31 December 2012Hard Currency = JPM EMBI Global Diversified; Local Currency = JPM GBI-EM Global Diversified.* The return and risk characteristics presented for Hard Currency and Local Currency represent the period betwe

Sharpe Ratio*

For Professional

Shown for illustrative purposes only, not a product managed by Lazard.Past performance is not a reliable indicator of future results. Source: Lazard, JPMorgan

l C I dical Currency Indices

Hard Currency Local Currency

USD EM currencies

7.7 years 4.4 years

4.5 6.1

55 15

BBB BBB+BBB- BBB+

77.7 100

22.3 0

0 0

11.0 12.3

8.9 11.9

-16.0 -14.1

een January 2003 to September 2010.

1.0 0.9


Fiscal Position and Debt/GDPD l d W ldDeveloped World

Emerging Market fiscal deficits much lower than the le

Emerging Market Debt/GDP ratios exhibit long-term

Strong Fiscal Indicators in EM(Fiscal Deficit as % GDP)(Fiscal Deficit as % GDP)

0

4

-4

0

-12

-8

-162001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E2013F2014F

United Kingdom

Data through October 2012

United States

Eurozone

Emerging Markets

For Professional

gForecasted or estimated results do not represent a promise or guarantee of future results and are subject to chanSource: IMF

P Ratios Much Better than

evels of developed markets

m stability

Lower Debt / GDP Ratios in EM(Debt as % GDP)(Debt as % GDP)

100

120

60

80

20

40

02001 2003 2005 2007 2009 2011 2013F

United Kingdom

United States

Eurozone

Emerging Markets


nge.

Th Hi t f E i M kThe History of Emerging MarkEMBIGD

1600Asian Financial

1200

1400

Asian Financial Crisis

Russian Default LTCM Blowup

1000

1200

Mexico Upgraded to Investment Grade

Argentina Default

Brazil Election Turmoil

600

800 Russia UpInvestmen

LSD

200

400

D

0

Dec

-97

Dec

-98

Dec

-99

Dec

-00

Dec

-01

Dec

-02

Dec

-03

Dec

-04

Sovereign Spread represented by stripped spread (in bps) of JPMorgan EAverage credit rating of the JPMorgan EMBI Global Diversified Index [RH

Improved credit quality has led to

For ProfessionalAs of 31 December 2012Source: JP Morgan

k t S i S dket Sovereign SpreadsSpread

BB+

BBB-

BBGlobal Financial Crisis

US Downgraded

BB-

pgrade to nt Grade

Local Debt Issuance Surpasses External Debt Issuance

Greek Debt Crisis

B+

Debt IssuanceBrazil Upgraded to Investment Grade

BD

ec-0

5

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

EMBI Global Diversified Index [LHS]HS]

lower spreads and lower volatility


C Diff i i i h KWide and Diverse OpportunityCountry Differentiation is the Key

2000

1600BBBA & AA B

800

1200

EMBIG Spread (162 bps) June 1, 2007

EMBIGJanuary

400

0

Chi

naC

hile

Mal

aysi

aP

olan

dB

razi

lB

ulga

riaC

olom

bia

Kaza

khst

anLi

thua

nia

Mex

ico

Pan

ama

Per

uR

ussi

aou

th A

frica

Uru

guay

Cro

atia

El S

alva

dor

Hun

gary

Gab

onG

eorg

ia

K So E

31-Jan-13

1-Jun-07

As of 31 January 2013

Credit re-rating st

For Professional

yFor Belarus, Croatia, Gabon, Georgia, Ghana, Jamaica, Jordan, Kazakhstan, Lithuania, Nigeria, Sri Lanka there historical spread. S&P does not rate Côte d’Ivoire and Iraq. Source: JPM and S&P.

y Set within Sovereign Credity

BB B N/A

Spread (262 bps) y 31, 2013

Geo

rgia

Indo

nesi

aJo

rdan

Nig

eria

Phili

ppin

esS

erbi

aTu

rkey

Arg

entin

aB

elar

usin

ican

Rep

Ecu

ador

Egy

ptG

hana

Jam

aica

Leba

non

Paki

stan

Sri

Lank

aU

krai

neVe

nezu

ela

ote

DIv

oire

Iraq

Bel

ize

P

Dom

VC

o

tories still persist


is no available data on June 1, 2007. We used instead the tightest

Corporate Analysis:O i f E i M k COverview of Emerging Markets C

Deep and Diverse Market Over 750 emerging market corporate issuers from 40+

Issue sizes range from <$100 million to over $2.5 billio

Maturities range from one year to perpetualsMaturities range from one year to perpetuals

Growing Percentage of EM Debt Stock Since 2005, emerging market corporates have issued m

Emerging market corporates are expected to represent

Future development: liquid, tradeable EM corporate bof CDS (currently only 15 euroclearable local currency

Strong Fundamentals and Resilience During C Credit ratings of most EM corporates are restricted by

Balance sheet indicators tend to be much stronger in E

During 2008-2009 crisis, EM corporates exhibited lowof stronger balance sheets and liquidity support from s

EM corporates aggressively bought-back debt during c

Important that EM corporates manage balance sheets

For ProfessionalAs of 31 December 2012 and is subject to change.Source: JP Morgan, Lazard

C D b M kCorporate Debt Market

+ emerging market countries

on

more debt than emerging market sovereigns

t 75% of all new issuance 2011-2013

onds denominated in local currency and expanded use y corporates from 5 countries)

Crisisy sovereign ceiling

EM when compared to similarly rated global comparables

wer default rates than their global market peers as a result sovereigns via discounted loans

crisis in order to monetize lower value of bonds

when looking to expand globally (organic or acquisition)


EM Off V lEmerging Markets Corporate EM Offers Value

EM Corporate Spread vs. US Corporate Spread(Investment Grade)

300

200

250IG = + 85 bps

150

50

100

0Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12

CEMBI Diversified IG - IG U.S. Corporates

For ProfessionalAs of 31 January 2013Source: JP Morgan and Barclays Capital

Debt vs Developed Markets

EM Corporate Spread vs. US Corporate Spreadp p p p(Non-Investment Grade)

2000

1500 BB = +93 bpsB = +271 bps

500

1000

0

-500Dec-05 Dec-07 Dec-09 Dec-11

CEMBI Diversified BB - U.S. Corporates (BB)

CEMBI Diversified B - U.S. Corporates (B)


EM Off M Th % Pi kEM Local Yields Versus US YEM Offers More Than a 5% Pick-

800800

600

400

200

0Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec

— EM Yield minus 5-year UST yield

Room for EM rates to com

y y

For ProfessionalAs of 31 January 2013Source: Lazard, JP Morgan

V US T iYields-up Versus US Treasuries

c-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12

e down relative to US rates


We believe EM Real Interest R l ti t D l d W ldRelative to Developed World

Real Interest Rates

4.0

5.0(%)

3.0

4.0

1.0

2.0

0.0

-2.0

-1.0

an es ny es ia nd na es ia ey ea

As of 31 January 2013

Japa

Phi

lippi

ne

Ger

man

Uni

ted

Sta

te

Ind

Thai

lan

Chi

n

Phi

lippi

ne

Indo

nes

Turk

e

Kor

e

For Professional

yReal interest rates are estimated as the difference between the current nominal 10-year rate and consensus inflaSource: Lazard, JP Morgan, Haver Analytics

Rates Remain Attractive

ia ia ia ca co ru nd ia le ia ry zil

Nig

er

Mal

ays

Rus

s

Sou

th A

fric

Mex

ic

Per

Pol

an

Col

omb

Chi

Rom

an

Hun

gar

Bra

z


ation forecast 2 years ahead

V l 2008 P C i i L lEM Currencies Have Room toValues at 2008 Pre-Crisis Levels

REER Changes Since Pre-Crisis

115

120

110

115

105

100

90

95

Dec 07 Dec 08 Dec 09Dec-07 Dec-08 Dec-09

EM

For ProfessionalAs of 31 January 2013Source: Lazard, JP Morgan, Haver Analytics

o Appreciate

Dec 10 Dec 11 Dec 12Dec-10 Dec-11 Dec-12

M REER


D i f R t i E iDrivers of Returns in Emergin

Emerging Market Local Debt Returns

23 030

40

(%)

7 79.7

11.2

6.7 11.411.7

4.33.1

6.3

7.3

6.7 6.9 7.1

8.0

7.5

6.7

6.7

6.0

16.9

23.0

6.3

15.218.1

22.0

15.716.8

0.7

10

20

0.9

4.4 4.4 1.6-0.4

2.8 2.8 4.71.7

7.7-0.1

-4.8

-16.0

-10.2

0.40.5 -5.2 -1.8

0.7

20

-10

0

-40

-30

-20

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20132003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Return from CarryReturn from F/XReturn from Rate MovementsLocal Debt Total Return

As of 31 January 2013External debt returns reflect the JPM EMBI Global Diversified Index.Local debt returns reflect the JPM GBI-EM Global Diversified Index.

Yields Plus Potential FX Appreciatio

For Professional

This is not intended to reflect the performance of any product or strategy managed by Lazard.Past performance is not a reliable indicator of future results.Source: J.P. Morgan

M k t D btng Markets Debt

Emerging Market External Debt Returns

8.0

22 2

29.840

(%)

16.28 8

30.7

11.0

9.1

8.0

7.36.7

8 1 6 0

4.40.45.5

10.45.3 10.6

2.1

22.2

11.610.2

9.9 6.2 12.2

7.4

17.420

3.38.8

4.9

-6.0 1.0

-9.1

11.0

-0.46.6 8.1 6.0 5.8 4.6

-3.1-5.9 -1.7 -8.9 -5.6

-12.0

7.4

-1.3

0

-30.5

-40

-20

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20132003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Return from USTReturn from CarryReturn from Spread CompressionExternal Debt Total Return

on & Spread Compression Attractive


E i M k t D bt HEmerging Markets Debt Has a

Risk/Return Chart for 10 Years Ended 31 December 2

12

14Return (%)

8

10

EM

Hard C

4

6

Global Aggregate Hedged

US Aggregate Global A

EM

US Credit

US Treasury

2

4 gg g g

3-Month LIBOR

00 2 4 6

Emerging Market Debt has outperformed other ass

Hard Currency EMD = JPM EMBI Global Diversified; Local Debt EMD = JPM GBI-EM Global Diversified ; EM CuBC US High Yield; Global Agg Hedged = BC Global Agg USD Hedged; Global Agg Unhedged = BC Global Agg UBC US Long Treasury Index ; US Credit = BC US Credit IndexThis is not intended to reflect the performance of any product or strategy managed by Lazard. All data as of 31 December 2012;Time period represents the longest shared history of all the asset classes. (the

Emerging Market Debt has outperformed other ass

For Professional

; p p g y (January 2002.)Past performance is not a reliable indicator of future results. For illustrative purposes only.Source: Lazard, Bloomberg

Di bl P fila Discernable Profile

2012

Local Debt EMD

Currency

Currency EMD US High Yield

US Long Treasury

Aggregate Unhedged

CurrencyGlobal Aggregate ex-US Unhedged

8 10 12 14

set classes on an absolute and risk-adjusted basis

Standard Deviation

urrency = JPM ELMI+; US Aggregate = BC US Aggregate; US High Yield = Unhedged; 3-Month LIBOR = ML 3-Mo USD LIBOR ; US Long Treasury =

Local Debt EMD benchmark, JPM EMBI Global Diversified, launched in

set classes on an absolute and risk adjusted basis


, ,

Ri k Di lRisk Disclosures

All data contained herein is sourced by Lazard Asset Management unless otherwis

Certain information included herein is derived by Lazard in part from an MSCI indor report, and does not endorse or express any opinion regarding this product or rsource of any such information or analysis. MSCI makes no express or implied waany Index Data or data derived therefrom. The MSCI Index Data may not be furthproducts.

This is a financial promotion and is not intended to be investment advice. In the Uto professional investors and advisers authorised to carry out business under the F

References to Director and other titles of employees of Lazard Asset Management

Securities identified in this document should not be considered as a recommendatassumed that any investment in these securities were or will be profitableassumed that any investment in these securities were, or will be, profitable.

Past performance is not a reliable indicator of future results. Fluctuations in the racurrency of investment may have the effect of causing the value of your investmenand the income from them is not guaranteed and can fall as well as rise due to marless than you originally invested.

Yields from bonds reflect in part the risk rating of the bond issuer. Investment in lcapital of the fund. High yielding assets may carry a greater risk of capital values fa

Investments in emerging markets carry an above-average degree of risk due to the should consider carefully whether or not investment in emerging markets investminvestments should be.

This financial promotion is issued and approved by Lazard Asset Management Limincorporated in England and Wales with registered number 525667. It is authorise

The contents of this document are confidential and should not be disclosed other

For Professional

se noted.

dex or indices (the “Index Data”). However, MSCI has not reviewed this product report or any analysis or other information contained herein or the author or arranties or representations and shall have no liability whatsoever with respect to her redistributed or used as a basis for other indices or any securities or financial

UK this document, which is supplied for information only, is for distribution only Financial Services and Markets Act 2000.

t are internal titles and do not necessarily imply any legal status or responsibility.

tion or solicitation to purchase, sell or hold these securities. It should also not be

ate of exchange between the currency in which shares are denominated and the nt to diminish or increase. Investors are reminded that the value of investments rket and currency movements. When you sell your investment you may get back

lower rated bonds increases the risk of default on repayment and the risk to alling or have limited prospects of capital growth or recovery.

undeveloped nature of the securities markets in those countries. Investors ents is suitable for them and, if so, how substantial a part of their portfolio such

mited, 50 Stratton Street, London W1J 8LL Lazard Asset Management Limited is ed and regulated by the Financial Services Authority.

than to the person or persons for whom it is intended.


Havesting value emd citywire wealth manager conference - march 2013

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