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Chart 45: Saudi 12m fwd. P/E vs. EM Chart 46: Saudi 12m fwd. P/B vs. EM Chart 47: Saudi 12m fwd. EV/EBITDA MSCI Saudi 12m Fwd PB EM 12m Fwd PB 22 MSCI Saudi 12m Fwd PE 27 EM 12m Fwd PE 25 Average 23 eoccccce Average 2.1 1.9 nhs 15 1.3 14 09 07 08 09 10 11 12 13 14 15 16 0 10 41 «(12:18 8H Source: DataStream, |/B/E/S, Bloomberg, BofA Merrill Lynch Global Source: DataStream, |/B/E/S, Bloomberg, BofA Merrill Lynch Global Research Research Interestingly, not all sectors within the Saudi market trade at a premium to GEM peers, with both consumer discretionary and consumer staples trading at a material discount. The remaining sectors all trade at a modest premium to their GEM counterparts, with the industrial and utility sectors trading at a substantial premium on 12mth FWD P/E Chart 48: Consumer sectors trade at a discount relative to GEM averages. Industrials and Utilities are relatively expensive vs. GEM peers, other sectors trade at small premium 30.0 25.0 20.0 15.0 10.0 5.0 0.0 saninn aed Yes sjeujsnpu| 09/8 | s|djs sawinsuog s|euayey\| "posq Jawnsuop sjeloueul4 @ Saudi Arabia 12m fwd P/E } == GEM 12m fwd P/E Source: DataStream, |/B/E/S, Bloomberg, BofA Merrill Lynch Global Research Weaker economic outlook largely priced in as ERR shows inflection A further consequence of the weakening economic outlook for Saudi Arabia has been the collapse in market expectations, with earnings estimates having posted their longest sustained period of downgrades on record. We note however, the Saudi Earnings Revision Ratio (ERR) has reached an inflection point, with a slowdown in the rate of earnings downgrades. (ERR is a ratio of number of companies enjoying earnings upgrades vs number of companies suffering downgrades. A ratio above one, therefore, indicates more upgrades than downgrades). Consequently, we believe the relatively un- testing valuations of the Saudi market indicate that a high level of negativity is already being priced in. MSCI Saudi 12m Fwd EV-EBITDA 16 7 —seeeqeeee Average 06 07 08 09 10 11 12 13 14 15 16 Source: DataStream, I/B/E/S, Bloomberg, BofA Merrill Lynch Global Research 2S Merrill Lynch GEMs Paper #26| 30 June 2016 43 HOUSE_OVERSIGHT_016153