Oil in 2012 Equity market outlook Property Market Outlook Bond markets Investment Insights Foreign currency markets Opportunity to Invest Foreign Currency Citibank Mortgage Plus Citibank Plus Investment Insights Corporate Earnings and the Emerging Market Equity Cycle After being beaten down in 2011, valuations of emerging market equities have come off to attractive levels - be it from a price-to-book or price-to-earnings perspective. Yet, investors remain seemingly unimpressed, which is not surprising as many question the sustainability of corporate earnings in the face of the ongoing European sovereign debt crisis and prospects of lacklustre global economic growth. MSCI Global Emerging Market (GEMs) Index and Trailing Earnings-Per-Share (EPS) Corporate earnings in emerging markets as a whole have been falling. Trailing earnings-per-share (EPS) on the MSCI GEMs index peaked in August 2011 and by the end of December had fallen by 7% from that peak. This is a relatively modest decline compared to the 18% drop in EPS in the 2001 recession and the much sharper fall of 42% in the global financial crisis of 2008-9. Historical data shows that there is a clear pattern on six separate occasions since 1997 of turning points in the MSCI GEMs index leading those in EPS. The most recent example is that the market peak in early-May 2011 portended the peak in corporate earnings in August. The average lag between the turning points in the two series has been eleven months since 1997. However in the very volatile period since 2007 (with dramatic peaks and troughs in the markets), the lags have been shorter - seven months, on average. This implies that if we were to assume that the MSCI GEMs index bottomed in early-October 2011 (after a 31% fall since May), the average historical record suggests that the corporate earnings recession may only end sometime in the Australian winter. But this does not necessarily have to be a negative for markets in the meantime. For example, in 2009, MSCI GEMs index rose by 75%, despite corporate earnings falling virtually all year (they bottomed out in November 2009) and despite the world economy having its worst year since the 1930s.

General Disclosure "Citi analysts" refers to investment professionals within Citi Investment Research and Analysis ("CIRA"), Citi Global Markets Inc. ("CGMI") and voting members of the Citi Global Investment Committee. Citibank N.A. and its affiliates / subsidiaries provide no independent research or analysis in the substance or preparation of this document. The information in this document has been obtained from reports issued by CGMI. Such information is based on sources CGMI believes to be reliable. CGMI, however, does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute CGMI's judgment as of the date of the report and are subject to change without notice. This document is for general information purposes only and is not intended as a recommendation or an offer or solicitation for the purchase or sale of any security or currency. No part of this document may be reproduced in any manner without the written consent of Citibank N.A. Information in this document has been prepared without taking account of the objectives, financial situation, or needs of any particular investor. Any person considering an investment should consider the appropriateness of the investment having regard to their objectives, financial situation, or needs, and should seek independent advice on the suitability or otherwise of a particular investment. Investments are not deposits, are not obligations of, or guaranteed or insured by Citibank N.A., Citigroup Inc., or any of their affiliates or subsidiaries, or by any local government or insurance agency, and are subject to investment risk, including the possible loss of the principal amount invested. Investors investing in funds denominated in non-local currency should be aware of the risk of exchange rate fluctuations that may cause a loss of principal. Past performance is not indicative of future performance; prices can go up or down. Some investment products (including managed funds) are not available to US persons and may not be available in all jurisdictions. Investors should be aware that it is his/her responsibility to seek legal and/or tax advice regarding the legal and tax consequences of his/her investment transactions. If an investor changes residence, citizenship, nationality, or place of work, it is his/her responsibility to understand how his/her investment transactions are affected by such change and comply with all applicable laws and regulations as and when such becomes applicable. Citibank does not provide legal and/or tax advice and is not responsible for advising an investor on the laws pertaining to his/her transaction. citigroup.com Terms & Conditions Privacy Security Careers Contact Us Site Map Citi.com is the global source of information about and access to financial services provided by the Citigroup family of companies. Copyright © 2012 Citigroup Inc.