20 | 2023 Investment Outlook | December 12, 2022 What We Are Watching ƒ We have an eye on China, which has been negatively impacted by COVID-19 lockdowns. Political developments could heighten policy risk, but given economic pressures and government support measures, we expect economic activities will eventually normalize—and provide surprises on the upside. ƒ The market has yet to differentiate between winners and losers, but we believe that will be evident in the next cycle. For example, Indian IT services with a much lower growth outlook are trading at the same multiples as niche, digital IT services companies with twice the likely growth rate. ƒ The seasoned management teams of our portfolio companies are reassessing and recalibrating their growth strategies to drive profitability and increase their market share. ƒ Geopolitical tensions between the U.S. and China will likely provide entry points for other EM supply-chain capabilities, like iPhone production shifting to India. ƒ For the first time in a decade, we are seeing high-quality EM growth companies offering 15 to 20 times PEs, coupled with 20% return on invested capital (ROIC) and 20% earnings growth—a great investment backdrop for the next three to five years. ƒ We feel that some of the larger continental-sized markets within EM are well-positioned for the coming decade. “We expect emerging markets to benefit from the shift in growth for the decade ahead, with entry prices looking attractive.” Risk Considerations: The value of equity securities can fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, market and liquidity risks. The risks of investing in emerging market countries are greater than the risks generally associated with investments in foreign developed countries.