…/ continued

� We maintain equities Overweight on 12m basis; favoring Asia and

Emerging Markets over Developed Markets.

� Equity-Bond yields widening, making stocks more compelling over

corporate bonds.

� Weak USD coupled with our base case scenario of 1% US GDP

growth and 8.5% for China in 2011 provides support for commodity

prices.

� While gold continues to shine over medium term, some

consolidation would not be surprising. We expect a modest

increase in crude oil prices in 2011.

Maintain Overweight positions in equities.

Since the start of the correction in equities in Q2-10, SCB analysts believe

that the correction is a mid-cycle pause, rather than the end of the rally.

Stocks markets have recently broken higher, boosted by evidence that the

Chinese economic growth is bottoming, reducing fears of a “double-dip”

recession in the US and resilience of the rest of the world (RoW).

Recent data from China have confirmed that the economic downturn is

stabilizing and the economy could accelerate in coming months (see

Exhibit 1). The correction in property prices in China has not been as deep as

some had initially feared. In fact, transaction volumes, particularly in Tier 2

cities have started to pick up again. Furthermore, tightening by the People’s

Bank of China and the Monetary Authority of Singapore this month is a

reflection of the central banks’ confidence in the domestic economy and their

outlook on the global economy.

Pessimism with regards to the US economy has reduced after recent better-

than-expected economy data. The RoW, led by Asia, continues to be resilient

on strong domestic consumption. We continue to remain Overweight on

12-month basis for equities.

Favor Asia and Emerging Markets over Developed Markets.

We continue to favor Asia ex-Japan (AxJ) and Emerging Markets (EM) over

DM due to strong structural and cyclical factors. EM benefits from broad USD

weakness. Asian governments have relatively lower fiscal deficits than some

of the DMs like the US, UK and Japan. Also, the losses suffered by the Asian

banking sector in the aftermath of the US subprime-mortgage crisis were a lot

smaller than the US and EU. Cyclically, the Asian consumer continues to be

Summary

Monthly Market Outlook

2 November 2010

Exhibit 1: China Growth May Have Bottomed

Source: SCB Global Research

Content Market Outlook Pg 1- 3 Country Views Pg 4- 6 SCB Forecasts Pg 7-10 Disclaimer Pg 11-13

2 November 2010

…/ continued

the driving force for the region. Despite slight moderation recently, retail sales

growth continues to be robust, especially when compared with growth rates

of the current decade. The spectacular growth in Asian exports seen earlier

this year has also moderated, but it is still around the pre-crisis growth rates.

Part of the reason for the resilience in Asian exports, despite the slowdown in

the US, is because intraregional trade has gained momentum in recent years.

Excluding China and Philippines, exports to US and EU account for less than

20% of total Asian exports. We continue to remain Overweight on 3-

month and 12-month basis on AxJ.

Equities favored over corporate bonds.

The gap between the US equities earnings yield and the investment grade

bond yield continues to widen, making the argument for stocks even more

compelling (see Exhibit 2). This is associated with record low interest rates in

the developed world. As a result, share buybacks in the US have surged this

year. US companies have announced $258 billion buybacks so far this year,

compared with $125 billion in 2009.

Outlook on the US dollar continues to be weak, supportive for

commodities

The US dollar continues to be weighed by the burden of twin deficits -- a

budget deficit and a current account deficit -- and prospects of additional

quantitative easing (the so-called QE2) by the US Federal Reserve, and

ongoing central banks’ diversification away from US assets. QE by US

Federal Reserve will result in USD weakness which in turn is bullish for

commodities that are priced in USD. Our base case scenario in 2011 that

forecast US GDP growth of 1% and China’s growth of 8.5% will further

translate into rising demand for commodities.

Furthermore, the US economy continues to underperform RoW (see Exhibit

3), while Asian central banks are in tightening mode, leading to wider yield

differentials Vs the US dollar, further increasing Asian currencies’ attraction

amongst investors. We remain particularly bullish on AxJ currencies over

the medium-term.

Over the near term, a USD technical rebound scenario is possible. This may

partially reverse the liquidity flood that buoyed Asian markets since

September. Hence outlook is more encouraging for US equities in the near

term as liquidity flows back to the US markets.

Gold continues to shine but…

Gold hit a record high of $1,387 an ounce earlier this month on a combination

of factors, including broad US dollar weakness, elevated sovereign risk,

ample liquidity, low real interest rates and inflation fears (see Exhibit 4). We

continue to remain bullish on gold from a medium-term perspective, but

wouldn’t chase the rally in the yellow metal. We would prefer to buy on

EXHIBIT 2: Equity-Bond Yield Gap Compelling, Making Equities More Attractive

Source: Thomson Datastream

EXHIBIT 3: Outperformance of G10 Economies vs. US Economy

Source: Bloomberg

…/ continued

dips. The rally in gold since August has been too sharp and some

consolidation wouldn’t be surprising. Overall, there is scope for gold to rise

further next year, possibly towards $1,475/oz by Q3-11.

Crude oil has potential to rise.

Crude oil has underperformed the commodities space in the most recent

rally. The demand picture continues to be mixed. Despite the moderation in

the Chinese economy, crude oil imports are still higher than in recent years

(see Exhibit 5). In contrast, US oil demand is well below historical averages.

Crude oil inventories in the US are still running above historical averages,

which have capped oil prices. But broad US dollar weakness and gradually

improving risk appetite should support oil. We expect a modest increase in

market tightness as Q4 progresses, due to seasonal demand strength. We

expect crude oil to rise towards $93/barrel by the end of Q1-11.

Table 1: Tactical Asset Allocation for November

Nov 10: 3M Oct 10: 3M Nov 10: 12M Oct 10: 12M

Cash Neutral Neutral Underweight Underweight Equities Neutral Neutral Overweight Overweight North America Neutral Underweight Neutral Neutral Europe Neutral Neutral Neutral Neutral

Japan Underweight Underweight Underweight Underweight Emerging Markets Neutral Overweight Overweight Overweight Asia Ex-Japan Overweight Overweight Overweight Overweight Bonds Neutral Neutral Neutral Neutral Global Neutral Neutral Underweight Underweight Emerging Neutral Neutral Neutral Neutral Asia Neutral Neutral Overweight Overweight Alternatives Neutral Neutral Neutral Neutral Hedge Funds Neutral Neutral Neutral Neutral Commodities Neutral Neutral Overweight Overweight Property Neutral Neutral Underweight Underweight

EXHIBIT 4: Liquidity Supporting Gold

Source: Bloomberg

EXHIBIT 5: China Oil Imports At Historic Highs

Source: Bloomberg

…/ continued

HONG KONG 3M: Remain Overweight 12M: Remain Overweight

� Economy: The authority’s temporary removal of real estates from the investment class for eligible mainland investors may impact

short term appetite. But recent economic data on resilient domestic consumption and decent capital market inflows indicates

recovery is on a firmer footing.

� Equity: HSI 2011 consensus forward P/E is trading close to historical average of 12.9x. Equity valuation remains below the one

standard deviation deviation band (implying 17.6x), the level at which the HSI has traded in previous market upcycles. SCB analysts

remain over-weight Hong Kong on 3m and 12m view and continue to recommend well-capitalized conglomerates, banks and utilities

but are cautious on property developers following the recent cooling off measures.

� Currency: Speculation surfaced on a possible change of the Hong Kong dollar (HKD) peg. SCB analysts expect the HKD peg

against the USD to be maintained for the foreseeable future. Mainland China’s capital account is still largely closed and it remains

inappropriate for fully convertible currency like HKD to be pegged to the CNY at this point.

TAIWAN 3M: Remain Overweight 12M: Remain Overweight

� Economy: Taiwan’s Leading Indicator Index slipped for the fourth consecutive month. It is marked by weakness in export orders and

the semiconductor book-to-bill ratio. But with unemployment slipping to two years lows and rising tourist arrivals, the domestic

consumption growth would be well supported to cushion external uncertainty. Spillover effects from excessive global liquidity

coupled with a gradual rise in interest rate may continue to keep local asset price buoyant. This would fuel the positive wealth effects

and support domestic recovery.

� Equity: On a forward PE basis of 11x, MSCI Taiwan has a very attractive PE valuation, which stands near historic low. Taiwan’s

average dividend yield of 4% pa is also among the highest in AXJ. The impending elections for five metropolitan cities in November

would remove potential overhang of challenge to the ruling KMT. This may pave way for further ‘cross straits’ improvement with

China; a potential catalyst for upward equity re-rating. GIC remains over-weight Taiwan on 3m and 12m views.

� Currency: Central bank is expected the hike rates by 12.5bps per quarter over the next five quarters. SCB analysts expect the

Taiwan dollar (TWD) to catch up to regional peers after lagging during the first nine months.

SINGAPORE 3M: Remain Neutral 12M: Remain Overweight

� Economy: While the rest of Asia is managing the risk of excessive capital inflows by introducing regulations, Singapore is expected

to focus efforts using a stronger SGD and administrative measures. Aside from managing inflows and curbing asset bubble risks,

non regulatory measures also avoid doing harm to their offshore financial center status.

� Equity: The MAS tightened monetary policy on 14 October on concerns of rising inflation and probably also reflects Central Bank’s

assessment that the exchange rate remains effective in tackling wage inflation pressures. The band widening (from +/-2 to +/-3%)

allowed for an additional 100bps upside to SGD NEER. SCB analysts expect full year 2011 inflation to moderate to 2.5% (from 2.9%

in this year).

� Currency: The surprise MAS tightening in mid October caused the SGD to strengthen against the USD, EUR, JPY, AUD and GBP.

SCB analysts expect a gradual downwards movement of USD-SGD towards 1.32 by end first half next year. Albeit near-term

Country View

…/ continued

pressure on the SGD should be upward, the strength of the SGD leaves it vulnerable to downside growth surprises. We expect GDP

to moderate to 4% in 2011; from 12.3% forecast for 2010.

INDIA 3M: Remain Neutral 12M: Remain Overweight

� Economics: Recent August Industrial Output turned in weaker than expected as manufacturing sector growth slowed to +5.9%

(from 16.7% in July). Notwithstanding that 2010 inflation forecast remained above trend rate of 5.5%, any further moderation in

manufacturing growth suggests that the RBI may have room to halt further rate hikes. SCB analysts kept FY10 and FY11 GDP

estimates at 8.1% and 8.5%, respectively. September trade deficit provided an encouraging surprise, narrowing USD 3.9bn to USD

9.12bn versus August driven by higher exports and slower imports.

� Equity: India is likely to face heavy new IPOs in the months ahead. While the public listing of state owned coal company may bring

fresh hope of privatizations and excitement to capital markets, big new issuance is a risk to stock prices if capital flows into Asia

slow. With industrial output providing uneven monthly signals recently and potential of stock issuance overhang, we are Neutral on

Indian Equities in the short term. But with impressive equities earnings growth outlook of 23% (almost double MSCI EM Asia

average) and mid teens PE multiple, India remains overweight over 12 months.

� Currency: SCB analysts maintain INR appreciation view, given that capital inflows are more than sufficient to finance the current

account deficit and growth and interest rate differentials. A significant improvement in the trade deficit, as witnessed in September, is

not priced into SCB forecasts. If the deficit improvement trend persists, it may provide a positive surprise to current year-end forecast

of 45.50. In the immediate future, USD-INR is likely to trade on global cues.

KOREA 3M: Remain Neutral 12M: Remain Overweight

� Economics: Economic growth has moderated mainly led by deteriorating export growth. While manufacturing remained key engine

of growth, the pace of growth has decelerated rather than a scenario of shrinking exports. Domestic consumption and investments

would likely continue to take the slack to provide an offset to growth. SCB analysts believe GDP slowdown is one of the key reasons

for BoK to pause its rate hiking cycle until 1Q 2011.

� Equity: MSCI Korea equity valuations are the most attractive among EM Asian markets. Forward Price Earnings multiple is still

under the 12 year average and below 10x on absolute basis. Price-to-Book multiple of 1.4x is also attractive relative to EM Asia peer

(2x) and historical average (1.3x). GIC remains neutral Korea on a 3-month view, and overweight on a 12-month view, given the

attractive valuations.

� Currency: Korea has permitted its interest rates to stay low (in real terms) by historical standards, and its exchange rate is weak

relative to regional peers. This drew criticism from Japanese officials ahead of the recent G20 summit. SCB analysts expect the

Korean Won (KRW) to gradually catch up to regional peers after lagging during the first nine months. With possible rate hike in early

2011, SCB analysts revised USD/KRW forecast for 1Q 2011 to 1,050 (from 1,100). Abundant liquidity in Asia, relatively favorable

yields of Korean sovereign compared to sovereign risk and China’s diversification of foreign reserves may further fuel KRW to

strengthen against USD over the medium term.

CHINA 3M: Remain Overweight 12M: Remain Overweight

� Economy: The 3Q data has confirmed the trend of slower growth alongside rising inflationary pressure. 3Q GDP growth decelerated

to 9.6% yoy, from 10.3% in 2Q. Inflation picked up to 3.5% in 3Q; from 2.9% in 2Q. Food price inflation remains a risk next year

alongside the effects of excess liquidity and wage inflation next year. CPI inflation in 2011 could exceed 4%. In the near term, the

government is expected to gradually hike policy rates without greatly hurting growth momentum.

…/ continued

� Equity: China's 12th Five-Year Plan (FYP) will focus on shifting from the export-led sectors to increasing domestic consumer

demand by raising Chinese labors' incomes to allow all Chinese residents (particularly rural) to prosper in the new era. Income

increase obviously will lead to labor cost increase, which is possible to impact export-led sectors as well as encourage high inflation.

Hence an important task for China is to balance the inflation threats with increasing domestic demand while maintaining export-led

sectors. MSCI China’s Forward PE multiple of 12x is trading at parity with EM Asia peer average but with more superior forward

earnings growth rates (14.9% vs. 12.5%). Follow up policies from FYP may provide catalyst for market re-rating as current earnings

forecast does not reflect growth potential from the 12th FYP. With further upward consensus EPS revision expected, GIC remains

over-weight China on 3-month and 12-month basis.

� Currency: Our view is for continued USD-CNY appreciation, as continued concerns about quantitative easing should be bearish for

the USD. SCB analysts believe the PBoC will allow very gradual CNY appreciation, with USDCNY to reach 6.64 by the end of 2010

and 6.57 by end 1Q 2011. The widening interest rate gap between China and the US could attract further inflows and add fresh

pressure on RMB appreciation.

MALAYSIA 3M: Remain Neutral 12M: Remain Neutral

� Economy: Fiscal consolidation that started in Budget 2010 appears to have halted with Budget 2011 announcements. The Budget

2011 was a flashback to the pump-priming days of the mid 90s era via a flurry of megaprojects. The 2011 expansionary stance

reinforces Malaysia’s true commitment towards fiscal consolidation. Fiscal deficit is -5.6% of 2010 GDP. The Budget appears to lack

specific measures to tackle fundamental issues notably household debt which is 75% of GDP (among the highest in Asia). Close to

a quarter of total household borrowings (at end Aug 2010) were for non-productive consumption loans like car and credit cards.

� Equity: As analysts factor in the impact of Budget 2011, forward corporate earnings growth may continue to head north from existing

levels. However MSCI Malaysia Forward Price-Earnings multiple is already trading at 20% premium to regional EM Asia average.

After the YTD market run-up we are neutral over 12 months, given Malaysia’s higher average dividend yield and defensive low beta

market features.

� Currency: SCB analyst believe BNM has made subtle change in its FX policy since mid-September, which may suggest that the

central bank has become more concerned that sharp MYR appreciation is out of line with economic fundamentals. We expect USD-

MYR to grind lower into year-end on broad USD weakness and seasonality, but USD-MYR should bounce in H1-2011 on Malaysia’s

economic slowdown.

…/ continued

Forecasts – Economics and FX Rates

As of 29 October 2010

…/ continued

Forecasts – Policy Rates, Market Rates, Yields

As of 29 October 2010

…/ continued

Forecasts – Policy Rates, Market Rates, Yields

As of 29 October 2010

…/ continued

Forecasts – Commodities

As of 29 October 2010

…/ continued

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