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23 June 2010

Allianz Global Investors provide an update on the BRIC markets, highlighting strong consumer demand and growth in the financial sector as two of the current drivers of returns in the region, whilst dismissing concerns around inflation. Guido Stiel, Asian Equities expert within the award-winning Allianz RCM BRIC Stars team, comments: Inflation “The export numbers for China are rising, with growth in May at 48.5% year on year. The Chinese government is aware of the threat of inflation and is taking action to combat it. For example we are likely to see a wage increase of only 7% to 8% this year, much lower than the average of 15%. Government policy is therefore good for the consumer and good for consumption, fuelling the increasing domestic demand trend we are seeing. We do not think that inflation is a huge threat as we expect good productivity gains. There is still huge over capacity in almost all the sectors in China which is pressuring margins and prices. “With regard to rising property prices in China, the government is doing the right thing by focusing on the speculators who want to buy second, third and even fourth homes in large cities such as Beijing and Shanghai. In second and third tier cities, we see the exact opposite, and demand comes from first time buyers because there is still a lot of city migration creating a need for homes. Prices in these cities are manageable and first time buyers are able to buy. “There was some concern about India’s inflation, however this has started to ease off. Our thinking is that until the end of the year we will see one or two slight increases in the interest rate from the central bank in India. We remain confident that we will see a GDP growth rate of around 7% to 8% in India. Domestic demand is still prevalent “Looking at recent performance, it is interesting to see that whenever emerging markets become shaky, China tends to outperform, largely because of the two dominant sectors: telecoms and banking. We are overweight in China Mobile because they have continued strong performance. In the banking sector, we are at a point where capital raising in the West is purely about surviving, whereas in China it means going for growth and we are therefore overweight in this sector as well. “Brazil is also showing strong domestic demand and continues to grow. We hold several stocks which focus on this trend including Anhanguera, Banco Bradesco, and Banco Itau, which are all good consumer plays, as well as Localiza, a car rental company. Likewise, we are interested in Brazil’s commodities and large caps. Although commodity prices came down slightly, we believe that in the long run, this is a sector that we need to be in. “Turning to India, we are positioned strongly in the banking sector as it is a good proposition for the consumer story. On the more defensive side, we are invested in healthcare stocks, for example Dr Reddy’s, Piramal Healthcare and Infosys, which benefits from the outsourcing trend. Infosys in particular is one of the best managed outsourcing companies not only in India but in the emerging markets world and is a core holding for us.” Fact file: Allianz RCM BRIC Stars Fund Investment remit The Fund’s aim is to achieve long-term capital growth by investing predominantly in the equity markets of Brazil, Russia, India and China. Up to one third of the Fund’s assets may be invested outside the BRIC countries including developed countries and/or other emerging markets. Launch date: 24th February 2006 Managed by: Michael Konstantinov, RCM (since launch) Benchmark: 25% MSCI Brazil, 25% MSCI Russia, 25% MSCI India, 25% MSCI China, Total return net rebased annually Structure: UK-registered OEIC -Ends-

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