Emerging markets outlook

Emerging markets analysis 7 April 2014

Major challenges but high carry provides support

Emerging market currencies fluctuated turbulently during the first quarter, with a number of currencies appreciating significantly against the euro in March. We see these gains as temporary, since the underlying drivers in the form of the Feds tapered bond buying, weak growth in China and uncertainty associated with upcoming national elections persist. The developments in Ukraine and speed with which Russia annexed the Crimean peninsula kept the markets on edge in early March. The markets worst fears of a military escalation have eased somewhat, but geopolitical uncertainty remains high. We remain negative on the ruble, since economic sanctions and a deteriorating investment climate will certainly impact an already weak Russian economy. There have been growing signs from China that economic activity is slowing. Moreover, its leadership has clearly demonstrated a willingness to reform by refusing to take action when companies recently fell behind on their bond payments. The yuan has weakened this year, probably because the central bank wants to reduce speculative currency flows, which have grown and are being used in part to finance the shadow banking sector.

We remain positive on the Indian rupee based on expectations of a change in government in the upcoming election, a rapid improvement in the current account balance and high shortterm rates. Hopes of more growth-oriented policies have sprung up in Indonesia as well ahead of the presidential election in July, providing some support for the rupiah. Brazil saw S&P cut its credit rating in March, which, together with slow growth, highlights the challenges facing President Rousseff leading into this falls presidential election. We are negative on the Brazilian real, which is being weighed down by a growing current accounts deficit, deteriorating government finances and weak demand from China. In Turkey, the central bank was forced to raise its benchmark rates in January to stop a dramatic slide in the currency. The current account deficit is high, as is political uncertainty after corruption allegations at a top level. Although Prime Minister Erdogans party won the recent municipal elections, his authoritarianism could affect the investment climate, because of which we anticipate a weaker Turkish lira. The US central bank has signaled that it may have to raise interest rates slightly earlier than expected next year. Given this and the underlying strength of the US economy, we expect a stronger dollar vs. the euro in the next quarter. Emerging Markets FX Provides advice, analysis and foreign exchange products to clients within emerging markets. For further information, call +46 8 700 90 20 Analyst: Hans Gustafson +46 8 700 91 47

Emerging markets outlook Is published four times a year and is forecasting currency developments for selected emerging market countries with a time horizon of 3 months.

Emerging markets outlook

Russia
High geopolitical risk Weak growth and falling investment Currency forecast vs. the euro Geopolitical developments in Ukraine and Russias actions dominated the news in March. The ruble plunged, reaching a new low in early March after President Putin received permission from the Russian parliament to send troops to Crimea. Interventions by the Russian central bank and a rate increase of 150 bps put an end to the rubles slide. Concern over an expanded conflict has eased and diplomatic negotiations have begun between Russia and leaders in the West. The Russian economy was weak even before events unraveled in Ukraine, and domestically Putins popularity dipped to a record low in autumn 2013. Slow growth and high inflation, which is undermining disposable income, have impacted consumer confidence. After the annexation of the Crimean peninsula, Putins popularity hit a three-year high. Export growth has stood still since spring 2012, and economic sanctions from the US and Europe could further reduce growth and worsen an already dismal investment climate. Although Russia can withstand economic sanctions in the short term, since its currency reserves are still high, government debt is low and the budget is balanced, long-term growth prospects have diminished.

Poland
Strong economic recovery Low short-term rates Currency forecast vs. the euro The Polish zloty has remained stable against the euro despite turbulence in most emerging market currencies during the year. The reason is the strong recovery in Polands economy, with low inflation and a shrinking current account deficit. Many other currencies havent stabilized before substantially raising short-term rates, while the zloty is stable thanks to strong fundamentals. GDP rose by 2.7% at an annualized rate during the fourth quarter of 2013. The recovery in the Polish economy is continuing at a good pace, led by stronger demand from Germany in particular. Industrial production has strongly rebounded since early 2013 and the Purchasing Managers Index is nearing its 2010 peak. The inflation rate has stayed below the central banks tolerance band in the last 13 months and the central bank has signaled that monetary policy will remain unchanged, at least until the third quarter. The low inflation rate has improved household buying power and real wages are rising by about 3% at an annualized rate. Together with stronger job growth, this has led to a significant recovery in domestic demand. The uncertainty in Ukraine could affect manufacturing sentiment, even though direct exports to Ukraine are limited. Exports are affected more by slower activity in Russia through exports to Germany. This is the biggest growth risk for Poland.

Forecast EUR/RUB in 3 months 51.32 (today 48.62)

The ruble has been the poorest performing currency this year with the exception of the Argentine peso. The ruble has strengthened slightly since diplomatic discussions began and has short-term support from higher short term rates. Due to Russias weak growth and higher geopolitical risk premium, we remain negative on the ruble.

Forecast EUR/PLN in 3 months 4.15 (today 4.17)

The Polish zloty has been the second strongest performer against the euro (after the South Korean won) if we look at the last 12 months. This year the trend has been neutral and we expect continued stability against the euro in the next quarter, but a better performance relative to Polands neighbors in Eastern Europe.

Russia Spot Rate EUR/RUB

50 48
EUR/RUB

Poland Spot Rate EUR/PLN

50 48
EUR/RUB EUR/PLN

4,45 4,40 4,35 4,30 4,25 4,20 4,15 4,10 4,05 4,00 maj aug nov 12 feb maj aug 13 nov feb 14

4,45 4,40 4,35 4,30 4,20 4,15 4,10 4,05 4,00

EUR/PLN

46 44 42 40 38 maj jul sep nov jan mar maj 12 jul 13 sep nov jan mar 14

46 44 42 40 38

4,25

Source: Reuters EcoWin

Source: Reuters EcoWin

FX/FI research Swedbank Large Corporates & Institutions

Page 2 of 8

Emerging markets outlook

Turkey
Weak confidence in economic policy Large current account deficit Currency forecast vs. the euro The Turkish lira started the year by dropping to its lowest level ever against the dollar, forcing the central bank, against its will, to raise all benchmark rates on January 29. The overnight lending rate, which has the biggest impact on the market at this point, was raised by 200 bps to 12%. Inflation is high and reached 7.9% in February. There is little room for rate cuts as long as inflation exceeds the central banks target of 6%. High interest rates will slow already weak domestic spending. The real effective exchange rate has fallen to the lowest level since 2006. This hasnt had an appreciable effect on exports as of yet, however. Industrial production has trended strongly since the start of 2013, but sentiment among purchasing managers has worsened in recent months. Political uncertainty is very high since a top-level corruption scandal was uncovered in December. Prime Minister Erdogan has reacted by blaming a conspiracy led by the so-called Glen movement, while also firing thousands of police officers and putting further constraints on freedom of the media by blocking Internet service. Although Erdogans party, AKP, triumphed in recent municipal elections, his authoritarianism will probably affect the investment climate and exchange rates negatively.

South Africa
Positive export trend Weak current account Currency forecast vs. the euro Pressure on the rand was similar to what several other emerging market currencies faced in January. As in Turkey, the central bank in South Africa was forced to quickly raise its benchmark rate, by 50 bps in late January to 5.5%, to stop the currencys slide. We consider the likelihood of additional rate hikes to be high. The inflation rate was 5.9 % in February and is expected to soon exceed the central banks tolerance level of 6 % as a result of the currencys earlier decline. Households are feeling the effects of tighter conditions as evidenced by record-low consumer confidence and weak auto sales, among other things. On the other hand, the weak rand is giving support to exports, which are developing strongly, primarily to Europe and Asia. Unfortunately, the trade balance is not improving, since imports are also rising quickly. As a result, we do not expect an improvement anytime soon in the current account deficit, which was about 5.8% in relation to GDP at year-end 2013. Sentiment among purchasing managers hasnt improved much, either. Pressure on President Zuma has grown since the public prosecutor launched an investigation of accusations that the president renovated one of his homes with government funds. Political uncertainty has increased and there are questions whether Mr. Zuma will retain the presidency after the election in May.

Forecast EUR/TRY in 3 months 3.08 (today 2.90)

The Turkish lira is trading at a record low in both absolute and real terms. This should eventually improve the trade balance. On the other hand, the current account deficit still poses a major risk, and the maturity of the countrys foreign debt is becoming ever shorter. The lira has short-term support from the high policy rate, but is being weighed down by political uncertainty.

Forecast EUR/ZAR in 3months 15.14 (today 14.45)

The real effective exchange rate is the lowest since 2009, which has helped exporters to compete. However, terms of trade is deteriorating and the current account deficit is still high. We are negative on the South African rand ahead of parliamentary elections in May.

Turkey, Spot Rate, EUR/TRY

3,2 3,1 3,0 2,9 2,8 2,7 2,6 2,5 2,4 2,3 2,2 2,1 maj 3,2 3,1 3,0 2,9 2,8 2,7 2,6 2,5 2,4 2,3 2,2 2,1 16 15 14
EUR/TRY EUR/ZAR

South Africa, Spot Rate, EUR/ZAR

16 15 14
EUR/ZAR

EUR/TRY

13 12 11 10 9 maj jul sep nov jan mar maj 12 jul 13 sep nov jan mar 14

13 12 11 10 9

aug nov 12

feb

maj

aug 13

nov

Source: Reuters EcoWin

feb 14

Source: Reuters EcoWin

FX/FI research Swedbank Large Corporates & Institutions

Page 3 of 8

Emerging markets outlook

Mexico
Large foreign investments Weak economic growth Currency forecast vs. the euro Weak economic development since 2013 shows no signs of abating. GDP rose by only 0.7% in last quarter of 2013 and the index of economic activity dropped to 0.8% in January from 1.1% in December. Auto production has stagnated and industrial production continued to report negative annual growth in January. The Purchasing Managers Index fell in February, but at 52 still indicates growth. Exports have performed weakly in recent months. One likely reason is the bad weather in the US, which has led to stagnation in manufacturing and order bookings. Retail sales have been weak since the end of 2012 and the consumer confidence indicator is closing in on historical lows. Domestic demand is being kept in check by tax hikes adopted in late 2013, which are part of Mexicos most recent financial reform. Foreign direct investment was very strong in 2013, however. New investment amounted to USD 17.5 billion, the highest level since 2007. We expect the economy to gradually recover as demand from the US accelerates.

Brazil
High policy rate Weak growth and lower credit rating Currency forecast vs. the euro Brazils growth model, which has been based on consumption financed by subsidized credit, appears to have reached the end of the line. Standard & Poors (S&P) lowered its rating on Brazil to BBB- on March 24, only one step above junk status. The combination of lax fiscal policy, a constrained ability to improve the governments finances ahead of the presidential election in October and declining external surpluses were the main factors behind Brazils recent ratings cut. In addition to these factors, S&P mentioned that loans from stateowned banks have undermined fiscal policy credibility and transparency. Growth prospects are weak ahead of this falls election. Earlier declines in the currency have not yet helped exports, and growth in manufacturing is negative. The inflation rate has declined since the interest rate hikes started 12 months ago, but inflation expectations are the highest since 2004, which explains why the central bank has remained hawkish. The benchmark rate has been raised twice this year to 10.75%. The rate hikes, coupled with slower growth, have been hurting consumer confidence since mid-2012. In other words, President Rousseff faces major challenges ahead of the election.

Forecast EUR/MXN in 3 months 17.42 (today 17.86)

We are neutral on the Mexican peso vs. the US dollar in the next quarter. We need to see stronger signs that the US is picking up the pace before the peso appreciates significantly against the euro. In the meantime we are looking for buying opportunities if the peso temporarily weakens. However, the peso is expected to appreciate vs. the euro on dollar strength.

Forecast EUR/BRL in 3 months 3.18 (today 3.07)

The Brazilian real has recovered substantially during the year, in line with many other emerging economy currencies. Fundamentally, the real is being weighed down by a growing current account deficit, deteriorating government finances and weak demand from China. These negative factors are counterbalanced by the high benchmark rate, because of which we are slightly negative on the real.

Mexico, Spot Rate, EUR/MXN

18,5 18,0 17,5
EUR/MXN

Brazil, Spot Rate, EUR/BRL

18,5 18,0 17,5
EUR/MXN EUR/BRL

3,4 3,3 3,2 3,1 3,0 2,9 2,8 2,7 2,6 2,5 2,4 maj aug nov 12 feb maj aug 13 nov feb 14

3,4 3,3 3,2 3,1 2,9 2,8 2,7 2,6 2,5 2,4
EUR/BRL

3,0

17,0 16,5 16,0 15,5 maj aug nov 12 feb maj aug 13 nov feb 14

17,0 16,5 16,0 15,5

Source: Reuters EcoWin

Source: Reuters EcoWin

FX/FI research Swedbank Large Corporates & Institutions

Page 4 of 8

Emerging markets outlook

Indonesia
Hopes of policy shift after the election Weak growth and high inflation Currency forecast vs. the euro The Indonesian rupiah has been the strongest performer this year among the emerging market currencies we follow, appreciating by 7% against the Swedish krona. A significant depreciation of the currency in 2013, high benchmark rates and a lack of negative news may help explain the rupiahs current strength. Another factor is that Jakartas very popular governor, Joko Widodo, has been selected as a candidate in the presidential election in July by the opposition Democratic Party of Struggle. Surveys show he has a very good chance of winning. Mr. Widodo is expected to push for marketoriented policies and major investments in the countrys neglected infrastructure. The political climate has been highly fragmented, unstable and disjointedly since 1998, which has hurt investment. GDP rose unexpectedly to 5.7% in the fourth quarter, against 5.6% in the previous quarter. The year has begun weakly, however, with falling exports and weak manufacturing. The PMI fell in March and is now just above 50. Inflation is still high, but has eased slightly from a peak of over 8% last year. The central bank has therefore kept its benchmark rate unchanged at 7.5% since November. The current account deficit improved in the fourth quarter to about 3.3% of GDP.

South Korea
Large reserves and strong current account Weak economic momentum Currency forecast vs. the euro The government has recently announced a reform package to increase long-term growth to over 4%. The economy has grown by an average of 2.9% since 2011. The package essentially gives the private sector a bigger role in driving growth and shifts the emphasis from manufacturing to services. Service businesses have faced considerable problems trying to grow. If put into action, this package would improve the chances of higher, more sustainable growth. This is vital given South Koreas demographics, with a rapidly aging population that will strain the governments budget down the line. The economic recovery continued in the fourth quarter of 2013, with GDP growth of 3.9%. This year has been more mixed, with weak industrial production and exports. Orders have been strong for the engineering industry, but confidence within the industry weakened in March. Consumer prices rose by only 1% at an annualized rate in February. Inflation has stayed below the central banks lower tolerance limit for the last 14 months, so we could see a rate cut if growth in China continues to surprise on the negative side.

Forecast EUR/IDR in 3 months 15410 (today 15495)

We are neutral on the Indonesian rupiah, which has strengthened this year partly on hopes of political change in the upcoming presidential election. Further appreciation of the currency would require an election that paves the way for growth friendly policies, lower inflation and higher exports. The rupiah has support from high short-term rates as long as the global risk climate is stable.

Forecast EUR/KRW in 3 months 1433.80 (today 1446.61)

The Korean won has support from strong surpluses. The current account surplus amounts to about 6.5% as a share of GDP and currency reserves have increased to a new record level of over USD 350 billion. The won also has support from stronger demand from the West. The biggest risk is disappointing growth in China, which is why we are neutral to the won in the months ahead.

Indonesia Spot Rate EUR/IDR

17000 16000 15000
EUR/IDR

South Korea Spot Rate EUR/KRW

17000 16000 15000 14000 13000 12000
EUR/KRW EUR/IDR

1525 1500 1475 1450 1425 1400 1375 maj aug nov 12 feb maj aug 13 nov feb 14

1525 1500 1475 1450 1425 1400 1375

EUR/KRW

14000 13000 12000 11000 maj aug nov 12 feb maj aug 13 nov feb 14

11000

Source: Reuters EcoWin

Source: Reuters EcoWin

FX/FI research Swedbank Large Corporates & Institutions

Page 5 of 8

Emerging markets outlook

India
Low valuation and stronger trade balance Weak domestic spending Currency forecast vs. the euro The Indian rupee is trading at its lowest level in over 17 years, measured by the real effective exchange rate. This means that many of Indias problems are discounted in the current exchange rate. Parliamentary elections begin shortly, and surveys point to a new government with hopes of more growth-oriented policies. India is in enormous need of investment in infrastructure and energy, among other things. The current government has been far too passive in recent years, and corruption is widespread. We expect the weak rupee to soon spark a reversal in declining exports. The trade balance and current account balance, on the other hand, have improved rapidly since last fall. So far the improvement has mainly been due to weak domestic spending, which has resulted in a decline in imports. As a whole, India is less vulnerable financially since the current account deficit has been quickly cut in half to about 2.5% of GDP. The central bank unexpectedly raised the benchmark rate by 25 bps in late January to 8%. We expect rate cuts this fall if the recent drop in inflation continues and the upcoming election creates a government willing to address economic reforms.

China
New reforms facilitate more sustainable growth Weaker yuan allowed to reduce speculative flows Currency forecast vs. the euro In China, the yuan has weakened this year and the central bank has doubled the daily trading band to +/- 2%. The decision to allow greater currency fluctuations aligns with previous signals that market forces would be given a bigger role in the economy. The economy has weakened, but the main reason we feel that the central bank has allowed the yuan to fall is to reduce speculation-driven currency flows, which have grown substantially in recent years as a way of circumventing currency regulations, e.g., through over-invoicing by exporters to borrow in dollars or other currencies with low interest rates. Lately borrowers have used raw materials as collateral for loans in foreign currency, which they then invest in real estate or reinject into the shadow banking sector. There have been more signs during the month that economic activity in China has slowed, in line with our GDP forecast of 6.9% for 2014. The PMI has been a negative surprise, exports are at their weakest level since the financial crisis and investments have dipped to a 10-year low. One of the main reasons for the slower activity is the ongoing economic reforms, which are slowing credit growth and cooling an overheated real estate market. The authorities have demonstrated their seriousness by recently allowing three major bankruptcies without stepping in.

Forecast EUR/INR in 3 months 77.72 (today 82.24)

We remain positive on the rupee. Large currency reserves, a rapid improvement in external balances and high short term rates have made the rupee less sensitive to any disruptions in the financial market. The biggest risk for the rupee is if the upcoming parliamentary election leads to a weak government.

Forecast EUR/CNY in 3 months 8.29 (today 8.52)

In the short term the exchange rate forecast is very uncertain. While we expect the central bank to let the yuan to return to stronger levels against the dollar, we also see continued volatility to counteract speculation-driven flows. Most of our expected apprecation vs. the euro comes from a stronger dollar forecast.

India, Spot Rate, EUR/INR

92,5 90,0 87,5 85,0 82,5 80,0 77,5 75,0 72,5 70,0 67,5 65,0 maj 92,5 90,0 87,5 85,0 82,5 80,0 77,5 75,0 72,5 70,0 67,5 65,0
8,7 8,6 8,5 8,4
EUR/CNY EUR/INR

China, Spot Rate, EUR/CNY

8,7 8,6 8,5 8,4 8,2 8,1 8,0 7,9 7,8 aug nov 12 feb maj aug 13 nov feb 14 7,7
EUR/CNY

EUR/INR

8,3 8,2 8,1 8,0 7,9 7,8 7,7 maj

8,3

aug nov 12

feb

maj

aug 13

nov

Source: Reuters EcoWin

feb 14

Source: Reuters EcoWin

FX/FI research Swedbank Large Corporates & Institutions

Page 6 of 8

Emerging markets outlook

Contact information
Swedbank Markets
Regeringsgatan 13 105 34 Stockholm https://research.swedbank.se

Fixed income and foreign exchange

Head Jan Peter Larsson Tel: +46 8 585 97736 e-mail: jan.peter.larsson@swedbank.se

Research
Macro Chief economist Anna Fellnder Tel: +46 8 700 99 64 e-mail: anna.fellander@swedbank.se Magnus AlvessonTel: +46 8 5859 3341 e-mail: magnus.alvesson@swedbank.se Anna Breman Tel: +46 70 314 95 87 e-mail: anna.breman@swedbank.se Cathrine Danin Tel: +46 8 5859 3492 e-mail: cathrine.danin@swedbank.se ke Gustafsson Tel: +46 8 700 91 45 e-mail: ake.gustafsson@swedbank.se Knut Hallberg Tel: 46 8 700 93 17 e-mail: knut.hallberg@swedbank.se Jrgen Kennemar Tel: 46 8 700 98 04 e-mail: jorgen.kennemar@swedbank.se FX Anders Eklf Tel: 46 8 700 91 38 e-mail: anders.eklof@swedbank.se Emerging markets Hans Gustafson Tel: 46 8 700 9147 e-mail: hans.gustafson@swedbank.se Fixed Income Jerk Matero Tel: 46 8 700 99 76 e-mail: jerk.matero@swedbank.se

Sales
FX Emerging markets Martin Sderlund Tel: +46 8 700 90 20 e-mail: martin.soderlund@swedbank.s Peter Granqvist Tel: +46 8 700 97 86 e-mail: peter.granqvist@swedbank.se FX and Fixed Income Gothenburg Hans Boman Tel: +46 31 739 88 44 e-mail: hans.boman@swedbank.se FX and Fixed Income Malm Zandra Trulsson Tel: +46 40 24 21 91 e-mail: zandra.trulsson@swedbank.se FX and Fixed Income Stockholm Lena Jonnerberg Tel: +46 8 700 94 30 e-post : lena.jonnerberg@swedbank.se FX and Fixed Income Helsinki Jan-Peter Laaksonen Tel: +358 207 469164 e-mail: jan-peter.laaksonen@swedbank.fi FX and Fixed Income Oslo Mattis Lund Tel: +47 23116278 e-mail: mattis.lund@swedbank.se FX and Fixed Income Tallinn Maarika Liivapuu Tel: +372 6133042 e-mail: maarika.liivapuu@swedbank.ee FX and Fixed Income Riga Imants Svilns Tel: +371 67444134 e-mail: imants.svilans@swedbank.lv FX and Fixed Income Vilnius Andrius Bakanas Tel: +370 85 2582535 e-mail: andrius.bakanas@swedbank.lt

Global Corporate Sales

Acting head Klas Sandesj Tel: +46 73 094 50 07 e-mail: klas,sandesjo@swedbank.se

Global Institutional Sales

Head Eindride Stien Tel: +47 2311 6248 e-mail: eindride.stien@swedbank.se

Research
Head Angelique Angervall Tel: +46 70343 5506 e-post: angelique.angervall@swedbank.se

Research Macro
Head Olof Manner Tel: +46 70 567 93 12 e-mail: olof.manner@swedbank.se

Strategy
Head Ott Jalakas Tel: +46 8 700 99 12 e-mail: ott.jalakas@swedbank.se

Pictures from Stock.XCHNG, iStockphoto and Getty Images.

This research report has been compiled by Swedbank Large Corporations & Institutions, a division of Swedbank AB (publ). The document is not advisory and is merely intended to serve as information to a limited amount of qualified investors. The information in this document has been compiled from sources believed to be reliable. We accept however no responsibility for correctness or completeness. It is recommended that recipients of this document supplement the basis for their decision-making with any material that might be considered necessary. Opinions and recommendations contained in this document represent our present opinions but may change. Swedbank Large Corporations & Institutions accepts no liability whatsoever for any direct or consequential loss or injury of any kind arising from the use of this document. Recipients should be aware that Swedbank AB and its subsidiaries from time to time may have positions or holdings in securities of such companies or issuers directly or indirectly referred to herein or may be providing or seeking to provide corporate finance and dept capital markets services to such companies or issuers. This document must not be published or distributed in the United States or to other countries or persons to which publication or distribution is prohibited. The material may not be reproduced without the consent of Swedbank AB. Reproduced by Swedbank Large Corporations & Institutions, Swedbank AB (publ), Stockholm 2009.

FX/FI research Swedbank Large Corporates & Institutions

Page 7 of 8

Emerging markets outlook

Information to the customer

Analysts certification The analyst(s) responsible for the content of this report hereby confirm that notwithstanding the existence of any such potential conflicts of interest referred to herein, the views expressed in this report accurately reflect their personal views about the market covered. The analyst(s) further confirm not to have been, nor are or will be, receiving direct or indirect compensation in exchange for expressing any of the views or the specific recommendation contained in the report. Issuer, distribution & recipients This report by Swedbank Large Corporates & Institutions FX Fixed Income Research, is issued by the Swedbank Large Corporates & Institutions business area within Swedbank AB (publ) (Swedbank). Swedbank is under the supervision of the Swedish Financial Supervisory Authority (Finansinspektionen) and other financial supervisory bodies where Swedbank and Large Corporates & Institutions have branches. This report is distributed by Swedbanks branches. In no instance is this report altered by the distributor before distribution. In Estonia this report is distributed by Swedbank AS, which is under the supervision of the Estonian Financial Supervisory Authority (Finantsinspektsioon). In Lithuania this report is distributed by Swedbank AB, which is under the supervision of the Central Bank of the Republic of Lithuania (Lietuvos Respublikos centrinis bankas). In Latvia this report is distributed by Swedbank AS, which is under the supervision of The Financial and Capital Market Commission (Finanu un kapitla tirgus komisija). Limitation of liability All information, including statements of fact, contained in this research report has been obtained and compiled in good faith from sources believed to be reliable. However, no representation or warranty, express or implied, is made by Swedbank with respect to the completeness or accuracy of its contents, and it is not to be relied upon as authoritative and should not be taken in substitution for the exercise of reasoned, independent judgment by you. Be aware that investments in capital markets - such as in this document - carry economic risks and that statements regarding future assessments are comprehended with uncertainty. You are responsible for such risks alone and we recommend that you supplement your decision-making with that material which is assessed to be necessary, including (but not limited to) knowledge of the financial instruments in question and the prevailing requirements as regards trading in financial instruments. Opinions contained in the report represent the analysts present opinion only and may be subject to change. In the event that the analysts opinion should change or a new analyst with a different opinion becomes responsible for our coverage of the market covered, we shall endeavour (but do not undertake) to disseminate any such change, within the constraints of any regulations, applicable laws, internal procedures within Swedbank, or other circumstances This research report is produced for general distribution to eligible recipients and Swedbank is not advising nor soliciting any action based upon it. If you are not a client of ours, you are not entitled to this research report. This report is not, and should not be construed as, an offer to sell or as a solicitation of an offer to buy any securities. To the extent permitted by applicable law, no liability whatsoever is accepted by Swedbank for any direct or consequential loss arising from the use of this report. Conflict of interest In Swedbank Large Corporates & Institutions, internal guidelines are implemented in order to ensure the integrity and independence of the research analysts. The guidelines include rules regarding, but not limited to: contacts with the companies covered; personal involvement in the companies covered; participation in investment banking activities and supervision and review of research reports. For example: The Research department is separated from the rest of Swedbanks activities by a Chinese wall. Research reports are independent and based solely on publicly available information. The remuneration of staff within the Research department may include discretionary awards based on the firms total earnings, including investment banking income. However, no such staff shall receive remuneration based upon specific investment banking transactions. Swedbank AB shall not receive compensation from the company being analysed for making an investment recommendation or enter into an agreement with the said company to make an investment recommendation.

Company-specific disclosures & potential conflicts of interest You should note that it may happen that Swedbank, its directors, its employees or its subsidiary companies at various times have had, or have sought, positions; advisory assignments in connection with corporate finance transactions; investment or merchant banking assignments and/or lending as regards companies and/or financial instruments covered by this report. It may also occur that Swedbank Large Corporates & Institutions may act as a sponsor in trading with financial instruments covered by this report. Reproduction & dissemination This material may not be reproduced without permission from Swedbank Large Corporates & Institutions. The report may not be disseminated to physical or legal persons who are citizens of, or have domicile in, a country in which dissemination is not permitted according to applicable legislation or other decisions. Reproduced by Swedbank Large Corporates & Institutions, Stockholm 2011. Address Swedbank LC&I, Swedbank AB (publ), SE-105 34 Stockholm. Visiting address: Regeringsgatan 13, Stockholm.

FX/FI research Swedbank Large Corporates & Institutions

Page 8 of 8