F IVE COMPELL ING REASONS

TO ALLOCATE TO

EMERGING MARKETS

Many investors are hesitant to allocate a portion of their portfolio to emerging markets, in part due to perceived high risks. Although historically these risks may have presented a barrier, the situation has changed dramatically over the past decade. Emerging markets are no longer the uncharted markets they were in the past—they are advancing economies with growth opportunities and continually improving economic and political conditions.

Emerging markets may be an attractive investment opportunity now for fi ve compelling reasons:

1. ECONOMIC GROWTH. Emerging markets are growing at a faster rate than developed markets.

2. CORPORATE STRENGTH. Corporations are becoming stronger and more competitive.

3. WEALTHY CONSUMERS. Middle-class consumers are becoming richer and spending more.

4. IMPROVED POLICIES. Infl ation and government debt are manageable; corporate governance is improving.

5. A WINDOW OF OPPORTUNITY. Valuations appear attractive.

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FOR INSTITUTIONAL USE ONLY

Exhibit 1: Emerging markets now represent more than a third of global GDP

Global market share of GDP

Source: IMF as of 11/1/2011, using nominal GDP. There is no assurance that a forecast will be accurate. Because of the many variables involved, an investor should not rely on forecasts without realizing their limitations.

1. ECONOMIC GROWTHEMERGING MARKETS ARE GROWING AT A FASTER RATE THAN DEVELOPED MARKETS.

Twenty years ago, emerging markets represented only 19% of global gross domestic product (GDP); today they account for 36%1—and are expected to increase even more in the next few years, as shown in Exhibit 1. Exhibit 2 shows how quickly GDP is growing in emerging markets, and it is expected to continue to grow at a faster rate than advanced economies.

Th is growth in GDP has lift ed the market cap for emerging markets from approximately 6% of the world’s total to 13%2 since 2004. If GDP continues to grow as expected, the market cap for emerging markets is likely to grow as well, potentially opening up even more investment opportunities.

0%

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Emerging and Developing Economies Advanced Economies

IMFForecast

Exhibit 2: GDP is growing faster in emerging-market economiesPercentage growth of GDP

Source: IMF as of 11/1/2011

IMFForecast

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PAGE 2

GDP in emerging

markets is expected to

grow at a faster rate than

in developed markets.

COMPANIES ARE BECOMING STRONGER AND MORE COMPETITIVE.

Companies in emerging markets are becoming stronger and better able to compete with companies in developed regions.

• Industrial production growth for companies in emerging markets has outpaced developed companies every year for the past decade.3

• Corporate balance sheets and profi tability have been improving, and growth in shareholders’ equity has signifi cantly outpaced net debt. And year-over-year earnings growth has been close to or greater than 20% every year in the past decade (except for the two recessions in 2002 and 2008).4

2. CORPORATE STRENGTH

emerging markkets

Th ere are many large companies in emerging markets with successful track records and a broad client base.

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You may not be familiar with companies in emerging markets, but there are many large companies

there with successful track records and a broad client base. China Mobile, for example, is the

largest telecommunications company in emerging markets, and has more than 600 million clients

worldwide—six times the number of Verizon mobile customers!5 Businesses like China Mobile may

not be as well-known as Verizon here at home, but there are many well-established companies

across emerging markets with a vast—and growing—client base.

MIDDLE-CLASS CONSUMERS ARE BECOMING RICHER AND SPENDING MORE.

Consumer spending in emerging markets is expected to continue to grow because:

• Emerging markets represent a large percentage of the global population. Consumers in emerging markets account for 86% of the world’s population, and emerging-market populations are growing at a faster rate than developed nations.6

• Individuals have become wealthier. In the past decade alone, wealth has improved over fi ve-fold, leading to increased spending.7

• Consumers have excess cash. Emerging-market consumers have a large portion of their wealth in savings,8 leaving signifi cant room for discretionary spending.

Th is expected increase in spending will likely fuel growth of the companies in emerging markets (and for companies in developed regions that market to emerging-market consumers), potentially leading to increased investment opportunities. Th e automobile industry is one example: consumers in emerging countries are now purchasing more vehicles than consumers in developed nations, as illustrated in Exhibit 3.

3. WEALTHY CONSUMERS

Source: Haver, IMF, CEIC, UBS estimates. Data as of 10/2011

00 01 02 03 04 05 06 07 08 09 10 11

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

Developed

Emerging (Top 25)

Exhibit 3: Accelerating auto sales Monthly motor vehicle sales since 2000 (MM of units)

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INFLATION AND GOVERNMENT DEBT LEVELS ARE MANAGEABLE;

CORPORATE GOVERNANCE IS IMPROVING.

Emerging-market countries are catching up with—and in some instances surpassing—the rest of the world, reining in infl ation, government debt and enhancing corporate governance.

Infl ation

Infl ation has historically been a major deterrent to investing in emerging markets; memories of triple-digit infl ation still haunt some wary investors.

But the majority of emerging-market countries have made remarkable progress in recent years, and may no longer merit the reputation of uncontrolled infl ation. Average infl ation rates have declined to close to 6%, and infl ation rates have tended to mirror those in developed markets over the past decade, as indicated in Exhibit 4. Decreased debt levels, fl exible policy rates, and more stringent monetary controls may continue to help minimize infl ation going forward.

Declining sovereign debt levels

While many developed nations (United States, Spain, Italy, France, etc.) have received credit-rating downgrades, ratings in emerging markets have been improving. As a percentage of GDP, aggregate government debt for emerging countries is less than 40% while for developed nations it is more than 100%.9

Improving corporate governance and disclosure

Companies in emerging markets are becoming more transparent, and accountability to the public is improving. In December 2000, fi nancial reporting for companies representing less than 5% of emerging-market total market capitalization conformed to IFRS or GAAP standards—10 years later that has grown to more than 40%.10 Th is means easier access to reliable fi nancial information on companies.

4. IMPROVED POLICIES

Exhibit 4: Infl ation has declinedEmerging versus developed infl ation rates

Source: IMF as of 1/24/2012 based on CPI Infl ation (% y/y, average consumer prices). There is no assurance that a forecast will be accurate. Because of the many variables involved, an investor should not rely on forecasts without realizing their limitations.

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Advanced EconomiesIMF Forecast

PAGE 5

Infl ation rates have tended to mirror those in developed markets over the past decade.

VALUATIONS APPEAR ATTRACTIVE.

Emerging-market stock prices appear attractive when compared to estimates of what companies are actually worth (based on measurements like earnings and cash fl ow)—both compared to a year ago, and compared to home markets and global developed markets. And, the MSCI Emerging Markets Index is yielding a higher dividend yield than 12 months ago—and higher than the S&P 500 Index and MSCI World Index!

Source: MSCI and S&P *As of December 31, 2011 **As of December 31, 2010

5. A WINDOW OF OPPORTUNITY

Valuations

MSCI Emerging

Markets Index

TODAY*

MSCI Emerging

Markets Index

ONE YEAR AGO** S&P 500 Index* MSCI World Index*

Price-to-book (x) 1.6 2.1 2.0 1.6

Price-to-earnings (x) 10.2 14.0 13.6 12.4

Price-to-cash fl ow (x) 6.9 9.0 7.7 7.8

Dividend yield (%) 3.0 2.1 2.2 2.9

Understanding valuations: what are price ratios?

Price ratios are one of the ways investment managers and industry professionals measure how

cheaply (or expensively) a stock is trading compared to fundamental characteristics of the

company, such as earnings, book value and cash fl ow.

For example, the price-to-earnings ratio (P/E) is the current stock price divided by earnings

per share. A lower P/E (compared to the index or another stock) means a stock may be

affordable relative to its earnings.

merging marketsem

PAGE 6

Current valuations may off er

an attractive entry point

for investors.

CHOOSE YOUR INVESTMENT CAREFULLY SO YOU CAN ALLOCATE TO EMERGING

MARKETS WITH CONFIDENCE

When selecting your emerging-market manager, look for:

• A fl exible portfolio that allows for diversifi cation across many countries, industries and market caps: many attractive opportunities in emerging markets may be found in frontier markets and smaller companies

• An investment team with a wealth of experience in emerging markets

• Proven long-term track record with a clearly defi ned, repeatable investment process

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50005 INST 0612

DISCLOSURES AND FOOTNOTES1 Source: MSCI ACWI via FactSet

2 Source: MSCI ACWI via FactSet

3 Sources: IMF, Haver, CEIC, UBS as of 8/3/2011

4 Sources: GEM Inc., UBS estimates as of 7/31/11 and MSCI, UBS Estimates as of 8/3/11

5 Sources: China Mobile and Verizon Wireless as of 1/31/2012

6 Source: OECD as of 11/28/2011

7 Sources: World Bank, IMF, BIS, Haver, CEIC, UBS as of 8/31/2011

8 Sources: Bank of America, Merrill Lynch Global Equity Strategy, Haver, IMF

9 Source: IMF as of November 1, 2011

10 Source: MSCI via Factset as of 12/31/2011

Price/Book: Price per share divided by book value per share.

Price/Earn: Price per share divided by earnings per share.

Price/CF: Price per share divided by cash fl ow per share.

Price/Sales: A company’s market capitalization divided by its total sales over the past 12 months.

The MSCI Emerging Markets Index with gross dividends is an unmanaged, free fl oat-adjusted market capitalization index that is designed to measure equity

market performance of emerging markets. The MSCI Emerging Markets Index consists of 21 emerging market country indices. This index includes dividends

and distributions, but does not refl ect fees, brokerage commissions, withholding taxes, or other expenses of investing. One cannot invest directly in an index.

The S&P 500 Index with gross dividends is an unmanaged, market capitalization weighted index that measures the equity performance of 500 leading

companies in leading industries of the U.S. economy. The index includes 500 leading companies in leading industries of the U.S. economy, capturing 75%

coverage of U.S. equities. This index includes dividends and distributions, but does not refl ect fees, brokerage commissions, withholding taxes, or other

expenses of investing.

The MSCI World Index with net dividends is an unmanaged, free fl oat-adjusted market capitalization weighted index that is designed to measure the equity

market performance of developed markets. The MSCI World Index consists of 24 developed market country indices. This index includes dividends and

distributions net of withholding taxes, but does not refl ect fees, brokerage commissions, or other expenses of investing.

The foregoing refl ects the thoughts and opinions of Brandes Investment Partners® exclusively and is subject to change without notice. The information

provided in this material should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any security

transactions, holdings, or sectors discussed were or will be profi table, or that the investment recommendations or decisions we make in the future will

be profi table or will equal the investment performance discussed herein. Portfolio holdings and allocations are subject to change at any time. Strategies

discussed herein are subject to change at any time by the investment manager in its discretion due to market conditions or opportunities. Indices are

unmanaged and are not available for direct investment. Market conditions may impact performance. Diversifi cation does not assure a profi t or protect

against a loss in a declining market. International and emerging markets investing is subject to certain risks such as currency fl uctuation and social and

political changes; such risks may result in greater share price volatility.

Brandes Investment Partners® is a registered trademark of Brandes Investment Partners, L.P. in the United States and Canada.

FOR INSTITUTIONAL USE ONLY

Brandes Investment Partners, L.P. c/o rue du Rhône 291204 GenevaSwitzerland+41.22.810.2000Fax +41.22.810.2200info@brandes.ch

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