HOUSE_OVERSIGHT_024167.jpg

EM currencies UBS View For current exchange rates and CIO forecasts see table Recommendations Tactical (6 months) e Several EM currencies look attractive at current levels; we advise investors to gradually increase their exposure to our preferred EM currencies, using the yen and the USD as funding currencies. Our preferred EM currencies are CNY, IDR, KRW, SGD, MXN, ZAR, CZK, and PLN. Strategic (1 to 2 years) A Positive scenario > 7% outperformance of EM FX against G4 currencies over a 6-month horizon ° We recommend EM currencies backed by stable fundamentals as a strategy to diversify currency exposure. e Our favorites include the Chilean peso, Czech koruna, Polish zloty, Chinese ¢ Global growth prospects suffer a prolonged deterioration and the European debt crisis intensifies renminbi, Korean won, Malaysian ringgit further. EM exchange rates could see a significant, although likely temporary, sell-off across regions. and Singapore dollar. Should growth concerns return to the fore, we expect export-oriented EM countries (e.g. most Asian economies) to welcome currency weakness in order to cushion economic growth. Note: Scenarios refer to global economic scenarios (see slide 7) ¢ With the risk of a Greek Eurozone exit subsiding, we think selected emerging market (EM) currencies look attractive over the medium term against the USD and JPY and some even against the EUR. ¢ Global growth prospects remain intact, also due to recent policy easing in China, and the risk of a broader European crisis remains contained, in our view. Over the medium term, this will likely support EM currencies. However, further bouts of volatility remain likely in the months ahead, since negative headlines from Europe will likely continue to weigh on investor sentiment. ¢ Our tactical and strategic recommendations list our preferred currencies. For now, we remain cautious on the Brazilian real, Hungarian forint, Indian rupee, and Turkish lira. ¢ Macroeconomic data comes in stronger than expected and contagion risks in Europe subside further. EM exchange rates could appreciate swiftly against G4 currencies (USD, EUR, JPY, GBP). & Negative scenario > 4% depreciation of EM FX across regions against USD over a 6-month horizon UBS CIO EM FX forecasts 27.06.2012 3-month 6-month 12-month Americas What we're watching Why it matters coma ae Inflation dynamics Inflation dynamics are important to forecast central bank policy rate decisions. Asia in EM Monetary easing typically weighs on EM currencies, while rate hikes tend to be UaLCNS Bal aan 62a 613 supportive. Key policy rate announcement dates: 29 June, Colombia; 4 July en a sa son — Poland; 5 July, Malaysia; 11 July, Brazil; 12 July, Indonesia; 19 July, Turkey Ta 7157 7130 7410 T"D50 European sovereign Setbacks in sentiment will likely lead to bouts of EM currency depreciation and USDSGD 1.28 1.24 1.23 1.22 crisis elevated volatility across regions, providing attractive entry points for investors. EMEA FURPLN 4.25 4.35 4.15 4.00 US growth Growth in the US is key for risk sentiment, growth prospects in EM, and US FURHUF 286 305 785 310 monetary policy decisions. Positive surprises tend to support EM currencies. Key EURCZK 25.9 26.0 25.0 243 dates: 1 August, US ISM & FOMC rate decision USDTRY 1.81 1.75 1.78 1.78 USDZAR 8.43 7.90 7.75 7.50 USDRUB 32.9 33.5 32.0 31.0 Source: Bloomberg, UBS CIO, as of 27 June 2012 4 ‘ UBS Note: Past performance is not an indication of future returns.1 32 For further information please contact CIO's asset class specialists Michael Bolliger, michael.bolliger@ubs.com or Teck-Leng Tan, teck-leng.tan@ubs.com Please see important disclaimer and disclosures at the end of the document. HOUSE_OVERSIGHT_024167