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19 | 2023 Investment Outlook | December 12, 2022 EMERGING MARKETS EQUITY After a Tough Decade, Emerging Markets Are Ready to Shine KEY POINTS 1 It’s time for emerging markets to shine in the next decade. Vishal Gupta Portfolio Manager, Emerging Markets Growth expectations have been reset and appear to be priced in. Leaders 2 3 Opportunities await, even with risks ahead What We Are Seeing ƒ 2022 capped a difficult decade-plus period of underperformance for emerging markets (EM). ƒ Many wonder, for example, whether some markets like China is investable at all, after a series of regulatory overhangs, political developments and strict COVID policies. ƒ Last year saw a reset of growth expectations, irrespective of the earnings growth potential and managements’ execution ability, while U.S. dollar strength seems to have peaked. ƒ EM economies should benefit from not having to counteract the short-term “sugar high” of COVID stimulus, as is the case in many developed market countries. ƒ Despite global worries over the war in Ukraine, China-U.S. tensions and an impending recession in the U.S., EM seems to be well-positioned for a constructive 2023—and beyond. What We Are Doing ƒ While EM Leaders is primarily focused on bottom-up, structural opportunities, we are also adapting to higher global interest rates which are unlikely to drop significantly in the years ahead. ƒ EM Leaders was slow to respond to the sharp jump in rates and the massive derating of companies that are not yet profitable. We have addressed this by shifting the portfolio in recent quarters. ƒ Since the derating of strong compounders (defined as companies with high quality, franchise businesses, recurring revenues and pricing power, among other things), we have deployed capital into industry leaders with clear earnings visibility, while finding new investment themes such as the rise of domestic manufacturing and brands. ƒ While the market focuses on the near-term path of inflation rates, we are spending more time on the road with the company management teams of existing holdings, always on the lookout for new ideas.

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