’SLIONJan - Mar 2013

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2nd Quarter 3rd Quarter 4th Quarter1st Quarter

A quarterly newsletter byLion Global Investors

CONTENTS

First Quarter Outlook

Lion’s Selects

Charts & Indicators

Sector Focus:Singapore Property

and REITs

LION’Sthoughts

What We Expect• Global economy is expected to strengthen from the weakness seen in 2012. However,

trend growth rate will be constrained by the impact of fiscal austerity measures to rein in US and European debt levels

• US and Chinese economies to maintain cyclical recovery, while European economies continue to face growth challenges, in particular, severe austerity measures in the periphery and challenges to political stability as European Union structural reforms crawl into place

• Positive US equities stemming from improving fundamentals supported by recovering housing market and easy monetary policy

• European systemic risk contained, with sovereign bond yields in the periphery falling considerably. Economic conditions remain weak and underlying structural issues remain unresolved

• The European Central Bank’s Outright Market Transactions programme will likely be tested by significant European debt redemption needs from April 2013. EU leaders’ political resolve will also come under pressure as they manage the politics of general elections in Italy and Germany

• Optimistic Asia ex-Japan stemming from improving Chinese economy, capital expenditure programmes benefitting Asian corporates, bottoming earnings revisions, and potential for earnings upgrades with moderate growth recovery

• Asian credit market remains positive with attractive return for risk

• Risks to global economic growth in 2013 include possibility of global growth failing to meet heightened expectations, rising inflation in Asia, spending cuts in the US, and European political risks

First Quarter Outlook

2013

LION’S Selects

LION’Sthoughts

LION’S Selects

End This Depression Now!

by Paul Krugman

Paul Krugman, Nobel Prize-winning economist and today’s leading interpreter of John Maynard Keynes, walks us through the global financial crisis that triggered the greatest downturn since the Great Depression and outlines the efforts that have been made so far to resuscitate the economy. But almost five years since the ‘07 financial meltdown, the US economy remains fragile. Krugman offers his unique solution to end this downturn – through spending - on the belief that the US government should up spending during the downturn to create more jobs and shore up the economy, and not stop until the private sector is ready to carry the economy forward again. But don’t we have to worry about long-run budget deficit and credit rating downgrades?

Review by Kenneth Ong, Analyst, Asian Equities

Thinking Strategically: The Competitive Edgein Business, Politics, and Everyday Life

by Avinash K. Dixit and Barry J. Nalebuff

This book introduces the main concepts of Game Theory in an accessible manner with ample case studies, without the difficult mathematical models that generally follow this subject. The theories are useful for analysis and systematically identify how best to counter attack your competitor. The concepts are also applicable to many areas in life and would help you become a better business negotiator, sportsman, or parent.

Review by Lim Yuin, Analyst, Japanese Equities

Asian Godfathers: Money and Power inHong Kong and Southeast Asia

by Joe Studwell

Studwell describes the activities of powerful Asian tycoons (the likes of Li Ka-Shing, Robert Kuok, Stanley Ho) who are politically beholden for their commercial successes and have had to cut politicians and the military higher-ups a share of the profits. He debunks some of the myths surrounding these businessmen, suggesting instead that they are really “parasites” creating little value. Asian Godfathers describes how these tycoons’ wealth has been unfairly gained through the exploitation of political connections at the expense of the man-on-the-street. This is recommended reading for those investing in Asia.

Review by Chu Toh Chieh, Fund Manager, Fixed Income �

Lords of Finance: The Bankers Who Broke the World

by Liaquat Ahamed

Lords of Finance gives an account of the world’s economic history and is also a biography of the four most powerful but all too human central bankers following World War I. Ahamed describes a series of blunders that ultimately led to economic catastrophe. Two themes running through the book are that strict ideological adherence to the gold standard “straight-jacket” even during periods of stagnation and falling prices, and demands by the Allies for excessive war reparations from Germany destabilised the global economy. This is a highly worthwhile read and provides some valuable insights into the current economic turmoil.

Review by Daniel Thomson, CFA, Analyst, Fixed Income

Co-Opetition: A Revolution Mindset That Combines Competition and Cooperation: The Game Theory Strategy that's Changing the Game of Business

by Adam M. Brandenburger and Barry J. Nalebuff

Co-Opetition resonates with my experience investing in Asian technology companies - that players often think win-lose, and in the end, everyone in the sector ends up in a lose-lose state, with the bulk of cost-cutting benefits going to the end customers. The book discusses the ways to create greater value-add and retention through modifying PARTS which is acronym for: P - players in the game, A - added values, R - rules to be changed, T - tactics and S - scope in terms of making the game bigger. In explaining game theory, the authors use it as a theoretical construct, and this simplistically means putting one in others’ shoes. As I reflect about some of the investment ideas that have generated above-average returns, I realise that they come from industries where at least one major player has embarked on co-opetition strategy.

Review by Yong Meow Seen, Analyst, Asian EquitiesStudwell describes the activities of powerful Asian tycoons (the likes of Li Ka-Shing, Robert Kuok, Stanley Ho) who are politically beholden for their commercial successes and have had to cut politicians and the military higher-ups a share of the profits. He debunks some of the myths surrounding these businessmen, suggesting instead that they are really

Asian Godfathers

man-on-the-street. This is recommended reading for

Review by Yong Meow Seen, Analyst, Asian Equities

All data quarterly annualised and correct as at 31 December 2012* Data quarterly annualised and correct as at 30 September 2012

*2008 & 2009 data excluded

All data correct as at 31 December 2012* Data correct as at 30 September 2012

Last 5 Years

LION’Sthoughts

Charts & Indicators

Australia*Thailand*

Taiwan*Malaysia*

South KoreaIndonesia*

India*Hong Kong*

SingaporeChinaJapan

US*

(2.0) 0.0 2.0 4.0 6.0 8.0 10.0

Real GDP

Australia Thailand Taiwan

Malaysia South Korea Indonesia

India*Hong KongSingapore

ChinaJapan*

US

CPI

(2.0)

Equity Indices

as at 28 Dec 201216.015.222.515.215.716.416.712.012.111.027.414.3

High35.219.5

29.0*21.325.818.631.422.716.619.430.521.2

Price-Earnings

Bonds

End 4Q 20123.273.51 1.173.503.165.198.050.601.303.590.791.76

End 3Q 20122.993.511.193.553.025.978.150.741.473.450.781.63

10 Year Govt Bond YieldsCommodities

End 4Q 20121,675.35111.9492.2730.35

1,539.257,907.00

16,998.00205.37582.50

2,231.0090.65

16,850.00

End 3Q 20121,772.10113.2592.1934.54

1,662.008,211.5018,426.00

214.95575.00

2,394.5084.25

17,275.00

Equity Indices

End 4Q 2012945 516 277 598 580

5,181 764

11,330 1,679

63 531

1,362

High1,201 523 357 600 640

5,395 839

11,929 1,876

77909

1,428

IndicesLast 5 Years

Forex End 4Q 2012

0.9630.5929.033.061064979355.007.756.2386.751.22

End 3Q 20120.96

30.8329.313.061111959152.867.756.28

77.961.23

Against USDForex

End 4Q 20120.79

25.0523.772.50872

801645.026.345.10

71.030.82

End 3Q 20120.7925.1223.882.50906783043.116.325.1263.490.81

Against SGD

Low11.89.7

11.712.111.59.5

11.27.18.58.3

14.412.5

Low 650 154 152 301 261

1,490 315

4,855 817 27 427 645

All data from Bloomberg

0.0 2.0 4.0 6.0 8.0 10.0

GoldOil (Brent)Oil (WTI)SilverPlatiniumCopperNickelSugarSteelPalm OilCoalRice

AustraliaThailandTaiwanMalaysiaSouth KoreaIndonesiaIndiaHong KongSingaporeChinaJapanUS

AustraliaThailandTaiwanMalaysiaSouth KoreaIndonesiaIndiaHong KongSingaporeChinaJapanUS

AustraliaThailandTaiwanMalaysiaSouth KoreaIndonesiaIndiaHong KongSingaporeChinaJapanUS

AustraliaThailandTaiwanMalaysiaSouth KoreaIndonesiaIndiaHong KongChinaJapanSingapore

AustraliaThailandTaiwanMalaysiaSouth KoreaIndonesiaIndiaHong KongChinaJapanUS

Recent Developments:• On 11 January 2013, the Singapore Government announced multiple measures to curb the rise in property prices amidst a low

interest rate, high inflation environment with measures extended to the private and public residential markets and the strata-industrial space, making this the seventh and most comprehensive round of measures since the 2008 financial crisis

• The Singapore real estate investment trust (REIT) market performed well in 2012, with the FTSE Singapore REIT index returning 30%

Key Observations:• The URA price index rose 1.8% in 4Q 2012 despite measures to curb mortgage loan-to-value ratios announced in October 2012

• Underlying demand remains strong in the mass market and HDB segments, in part due to under-building of HDB flats in the past, and in part due to the ongoing process of expatriates seeking more modest rental options amidst corporate cutbacks on expenses

• Developers’ balance sheets are well-capitalised and developers have been consistently replenishing their land banks, with the price of suburban land bids rising by more than 20%

• New supply of both private residential and HDB units are expected to increase from 2013 and peak in 2015

Our Views:• Government policy appears to be strongly biased towards price stability amidst strong underlying demand in the mass market.

However, prices may cool if demand lags the large supply of completed properties moving into 2014/15

• Global demand for corporate bonds remains strong as economic conditions improve. While the REIT market did well in 2012, the global thirst for yield should continue to create the tailwinds for REIT inflows. There is potential for yields to compress further, as dividend yield spreads against the 10-year government bond are still above historical mean. Moving ahead, REIT selection is key to differentiating performance in this sector

Important Notice

All information correct at time of printing.

Lion Global Investors Limited (“Lion Global Investors”) is a company incorporated in Singapore and a member of the OCBC group.

This publication is for information only. It is not an offer or solicitation for the purchase or sale of any securities/investments and does not have regard to your specific investment objectives, financial situation or particular needs. Any opinion or estimate provided in the publication is made on a general basis and is not to be relied on by investors as advice. The information provided herein may contain projections or other forward-looking statements regarding future events or future financial performance of countries, markets or companies. Investors must make their own assessment of the relevance, accuracy, adequacy and reliability of the information provided and make such independent investigations as they may consider necessary or appropriate for the purpose of such assessment. Lion Global Investors reserves the right to make changes and corrections to its opinions expressed here at any time, without notice. Accordingly, no warranty is given and no liability is accepted for any loss arising directly or indirectly as a result of investors acting on any information, opinion, forecast, or estimate contained herein. You may wish to seek advice from a financial adviser before making a commitment to undertake any investment. In the event that you choose not to seek advice from a financial adviser, you should consider carefully whether the investment is suitable for you.

© Lion Global Investors Limited. All rights reserved. Lion Global Investors Limited is a Singapore incorporated company, and is not related to any corporation or trading entity that is domiciled in Europe or the United States (other than entities owned by its holdings companies).

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Sector Focus: Singapore Property and REITsby Kenneth Ong, Analyst, Asian Equities

LION’Sthoughts

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