 Pause — Since the October 14 cycle high, MSCI GEMs has fallen back by 1.9%;still, the asset class registered a full-month increase of 2.8%, respectable following the best eptember on record (+10.9%) and flat returns for October on average over the past 20 years. AC World rose by 3.5% last month; the expectation of QE2 led GEMs to underperform for the first month since Feb 2010.

 Neck-and-Neck Performances — EMEA led in October (+3.2%), followed closely by Latam (+3.1%) and Asia (+2.6%). The three best-performing EM countries were Latin American: Peru (+16.6%), Mexico (+8.1%) and Colombia (+5.9%). Only Egypt saw negative returns (-0.7%). Among the largest 7 markets, Russia (+4.9%) and China (+3.9%) rose the most while Brazil (+1.2%) underperformed.

 Domestic Cyclicals Push On — In terms of sectors, Consumer Disc (+4.7%) and Financials (+3.9%) performed best, while defensive Utilities (+0.6%) and Info Tech (+0.7%) lagged. Materials and Energy rose by 2.7% and 2.6%, respectively; Industrials outperformed (+3.8%), while Telecom underperformed (+1.8%).

 Curbing Inflows — Regional currencies rose by just 0.6% in October, according to our FX proxy, down from +3.4% the prior month, as the dollar’s fall slowed and on measures by several EM economies to curb FX appreciation. EM bond prices rose by less in October than previous months (EMBI+ yields fell 16bps to another record low of 5.28%). Flows into EM equity funds eased back by end-month.

 Strategy — We maintain our bullish view of emerging market equities for the next 12-15 months; liquidity will likely continue to flow into emerging markets, and our view is that GEMs trading at 11.4x forward earnings and 2.06x P/B are not in bubble territory. We remain Overweight



contents
Global Emerging Markets 3
Regions 6
Asia 7
Latin America 8
EMEA 9
Countries 10
China 11
Brazil 13
India 15
Russia 17
Korea 20
Taiwan 22
South Africa 24
Appendix 26
Regional, Country and Sector Allocations 27
Macro Outlook 28
Appendix A-1 30