Accessing consumption trends in Asia

Amsterdam, April 2012

For Professional Clients OnlyAsset Management

Justin Wells, Equity Strategist

Table of Contents

Section 1 The Opportunity 2

Section 2 Investment Universe and Process 6

Section 3 UBS Asian Consumption Fund Update 11

Section 4 Outlook & Strategy 13

Appendix A Miscellaneous 20

Appendix B Biographies 31

Section 1

The Opportunity

Growing consumption in AsiaConsumption in Asia has been growing – and will continue to do so

Source: CLSA as of April 2011

Young population

More wealth

Urbanization More consumption

Increasing debt levels

Low penetration of consumer goods

Asia Consumption Potential

Did you know?

One in four billionaires are now in Asia, up from one in ten in 2005

Greater China consumers will account for 44% of global luxury sales by 2020

Wine sales in Hong Kong rose 268% in 2010, making it arguably the world’s largest wine market

In India, only 2% of households own an air-conditioner

In Indonesia, only 8% of households own a personal computer

Asia: Largest consumer base in the worldAsia accounts for 60% of world population

% of population aged 25 years and less (2010)

Source: World Bank, Euromonitor, US Census Bureau, CLSA Asia Pacific Markets as of Apr 2011

Expected addition (m) to workforce during 2010 – 2020

Source: United Nations Population Division, UBS IB research and estimates as of Aug 2011

0

10

20

30

40

50

Asia US France UK Spain Germany Japan

11

15

-8

-9

-21

21

136

23

-50 0 50 100 150

India

China

Indonesia

Brazil

US

Japan

Russia

Europe

IN, CH and ID adds 180 mn to the

labor force over 2010-2020

16x that of US

Young population Increasingly wealthy (Forecasts)

C:\Program Files\UBS\Pres\Templates\PresPrintOnScreen.pot

Economic rebalancing in play: boost domestic consumption

India National Rural Employment Guarantee Scheme

Higher minimum support prices for key agri-produce have helped drive rural incomes

China Nationwide increase in minimum wage

Social housing to provide affordable housing

Thailand New rice pricing scheme - guarantee paddy rice prices

(50% higher than current price)

Nationwide increase in daily minimum wages by 40%

Government policies stimulate mass market consumption

… results in increased disposable income for the masses and therefore, greater consumption by middle- and low-income households

Source: UBS Global Asset Management

Section 2

Investment Universe and Process

UBS Asian Consumption FundPlaying the strong Asian consumption theme

Includes:

Tobacco: e.g. British American Tobacco

Beverages: e.g. China Mengniu Dairy, Uni President

Consumables: e.g. Unilever

Food: e.g. ITC, Lotte

Agriculture: e.g. Olam

Includes

Retail: e.g. Parkson Retail

Autos: e.g. Honda, Tata Motors

Media: e.g. Clear Media, Focus Media

Gaming and hotels: e.g. Genting International

Apparel: e.g. Giordano, Esprit, Ports Design

Includes

Medical services: e.g. Mindray Medical International

Hospitals: e.g. Apollo hospital

Pharmaceuticals: e.g. Sun Pharma

Note: This information should not be considered as a recommendation to purchase or sell any security.

Consumerstaples

(basic consumption)

Consumerdiscretionary

(“good to have”with more wealth)

Healthcare

Asian consumption companies with substantial business exposure to Asia

Non-Asian consumption companies with substantial business exposure to Asia

Non-Asian consumption companies with substantial business exposure outside Asia

Asian consumption companies with substantial business exposure outside Asia

How is UBS Asian Consumption Fund managed?A theme product rather than sector product

Note: Asia refers to Asia ex Japan

Business Exposure

Outside AsiaAsia

Do

mic

ile

Ou

tsid

e A

sia

Asi

a

Investment process

ACF portfolio

40-80 stocks

Portfolio Construction

Fundamental researchAssess: 1. Industry outlook 2. Company model 3. Valuation

Risk system

Accurately quantifyall portfolio risks

Investment Universe ~400-500 stocks

Screen: Valuation based metrics (e.g. P/E, P/B) ~100 - 150 stocks

Note: Valuation primarily based on the Price/Intrinsic Value PhilosophyInvestment universe of investible stocks (i.e. at least USD 500 mn market capitalisation)

Sao Paulo / Chicago

Emerging Markets Equities Team

Source: UBS Global Asset ManagementAs at January 2012 1 Member of Emerging Markets Equity Strategy Committee

A stable and experienced team

Geoffrey Wong1

Head Global Emerging Markets & Asia Pacific Equities

Hong Kong / Singapore

Manish Modi1

Portfolio ManagerAsia ex Japan

Cheah Yit Mee1

Portfolio ManagerAsia ex Japan

Bin ShiPortfolio ManagerChina

Projit Chatterjee1

Equity StrategistPortfolio Manager

Sophia TangEquity Strategist

Namit NayegandhiAnalystPortfolio Manager

Chan Chee SengAnalyst

Choo Shou PinAnalyst

Sanjeev JoshiAnalyst

Joanna MakAnalyst

Leslie ChowAnalyst

Matthew AdamsAnalyst

Hai HuangAnalyst

Roger LumAnalyst

Han Yaw JuanTrader

Jimmy ChuaHead Trader

Paul HillmanTrader

Reginald OhTrader

Dorothy LekTrader

Gabriel Csendes1

Portfolio ManagerAnalyst

Michael AbelleraTrader Latin America

Zurich / London

Urs Antonioli1Head of EM EMEA/Latin America Equities

Mark RoggensingerAnalyst

Gabriella AbderhaldenAnalyst

Irina BudnikovaAnalyst

Benita MikolajewiczAnalyst

Steve HerbertTrader EMEA

Macrina OtienoTrader EMEA

Justin WellsEquity Strategist

Yu ZhangAnalyst

Section 3

UBS Asian Consumption Fund Performance

Strong performance since inception

Asian Consumption: Performance

Source: UBS Global Asset Management, Factset. Strategy was incepted in 29 February 2008. Past performance is not a reliable indicator of future results. The performance shown does not take account of any commissions and costs charged when subscribing to and redeeming units. Commissions and costs have a negative impact on performance.* There was no representative benchmark up to 31 March 2010. Since 1 April 2010, the MSCI Asia ex Japan Consumer and Health Care Sectors Index (i.e. comprising of the consumer staples, consumer discretionary and healthcare sectors of MSCI Asia ex Japan) has been used as the benchmark. Returns are gross of fees. The Asian Consumption Strategy was launched in February 2008 with the UBS (Lux) Institutional Sicav – Asian Consumption (USD)/(SGD) RA. This institutional vehicle was subsequently terminated after it was moved into the retail vehicle – the UBS (Lux) Equity Fund - Asian Consumption (USD) P-acc (valor 1041161) in Jul 2009.** From inception 29 February 2008 to Dec 2008

-38.3

93.2

22.2

-6.6

12.5

(47.8)

72.1

19.6

(17.3)

13.7

-44.5

88.6

29.2

-6.1

10.6

-60

-40

-20

0

20

40

60

80

100

120

2008** 2009 2010 2011 YTD Mar 2012

(%)

UBS Asian Consumption CompositeMSCI Asia ex JapanBenchmark *

0

10

20

30

40

50

60

Mar '08 - Mar '12

(%)

Calendar year returns

Since Inception Cumulative returns

Section 4

Outlook & Strategy

1.7%

0.9%

1.7%

3.7%

4.0%

5.7%

8.4%

14.3%

18.0%

18.8%

22.8%

0.0%

0.8%

2.3%

6.9%

7.2%

5.9%

7.4%

9.6%

18.8%

12.2%

29.0%

0% 5% 10% 15% 20% 25% 30% 35%

Cash

Philippines

Thailand

Malaysia

Indonesia

Taiwan

Singapore

Hong Kong

China

India

Korea

Fund BM

Asian Consumption: PositioningPositioning as of end March 2012 Investment objective: Stocks of companies

that are engaged in business activities of providing goods/services to Asian consumers.

Number of stocks: Concentrated portfolio with 30-60 stocks

Universe: Asia (ex Japan) stocks and other equity rights.

Benchmark: MSCI Asia ex Japan Consumer and Healthcare sectors*

* There was no representative benchmark up to 31 March 2010. Since 1 April 2010, the MSCI Asia ex Japan Consumer and Health Care Sectors Index (i.e. comprising of the consumer staples, consumer discretionary and healthcare sectors of MSCI Asia ex Japan) has been used as the benchmark. Source: UBS Global Asset Management

Sector allocation

Country allocation

5.6%

1.7%

3.7%

51.4%

37.7%

0.0%

0.0%

5.3%

61.1%

33.6%

0% 10% 20% 30% 40% 50% 60% 70%

Others

Cash

Health Care

Consumer Discretionary

Consumer Staples

UBS Asian Consumption (%) Benchmark (%)

Mass convenience stock example: Hengan

Strong structural growth driven by:– Accelerating urbanisation

– Increasing awareness of personal hygiene

– Low penetration

– “Premiumisation”/product upgrades

Potential margin expansion as raw-material prices have started to decline and the company is running at low inventory levels

Leading player in Chinese personal hygiene products*

Source: Euromonitor, CLSA Asia Pacific Markets as of Sep 2011

Low penetration level in China (tissue and toilet paper)

3.75.0

6.38.1

9.09.39.610.0

13.3

2.8

02

468

10

1214

USA

Ge

rma

n

Au

stra

lia UK

Fran

ce

Jap

an

Ho

ngK

ong

,

Tai

wa

n

Kor

ea

Chi

na

(KG

- P

rodu

ct)

Diaper usage per capita (population aged 0-4) per year

From cloth to disposable diapers

*Hengan’s key products include sanitary napkins, disposable diapers and tissue paper

497657665710765

912951957

1,4481,451

207

0200400600800

1,0001,2001,4001,600

Japa

n

Ho

ng

Ko

ng,

USA U

K

Ger

ma

ny

Tai

wa

n

Au

stra

lia

Fra

nce

Ko

rea

Ru

ssia

Ch

ina

Easing inflationary pressures give room for more accommodative monetary stance

Note: data is based on % Y/Y (2007 Nominal GDP weighted)Source: CEIC, UBS IB research as of December 2011

Asia inflation

Food inflation

Headline inflation

Coreinflation

Asia ex Japan Policy rate (%)

(2)

0

2

4

6

8

10

12

14

16

Oct

-97

Oct

-98

Oct

-99

Oct

-00

Oct

-01

Oct

-02

Oct

-03

Oct

-04

Oct

-05

Oct

-06

Oct

-07

Oct

-08

Oct

-09

Oct

-10

Oct

-11

%y/y

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Oct

-97

Oct

-98

Oct

-99

Oct

-00

Oct

-01

Oct

-02

Oct

-03

Oct

-04

Oct

-05

Oct

-06

Oct

-07

Oct

-08

Oct

-09

Oct

-10

Oct

-11

%y/y

Nominal policy rates

Real policy rates

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Asia ex Japan consumer sector valuations

Data on the forward P/E of the Asia ex Japan consumer staples, consumer discretionary and healthcare sectors. SD refers to standard deviation (based on 5Y data) Source: J.P.Morgan Quant Strategy

PE Fwd to March 2012

0.002.004.006.008.00

10.0012.0014.0016.0018.0020.00

Jul/0

2

Jul/0

3

Jul/0

4

Jul/0

5

Jul/0

6

Jul/0

7

Jul/0

8

Jul/0

9

Jul/1

0

Jul/1

1

AsiaEx - CD-CS-HC All Mean 1SD Upper 1SD Low er

Below its historical averages

Outlook on Asian Consumption Amidst uncertain, volatile markets, Asian Consumption is well positioned given focus on domestic consumer

Fund’s focus on domestic consumer should help outperformance amidst weak global macro conditions

– Exposure to some sub-segments (e.g. tobacco) which are relatively more defensive and resilient to growth worries

Inflationary pressures look to have peaked – monetary policy likely to ease

– positive for consumer spending and rate sensitive stocks

Valuations for many stocks still look attractive

Structural growth drivers remain intact -demographics, urbanisation, productivity. Favourable government policies in key markets further boost consumption

Contagion risks from sovereign debt issues in Europe/US

Weakening consumer confidence– There has been some moderation in consumer

spending across Asia

India’s fiscal condition remains a concern– Sharp currency depreciation

– High current and fiscal deficits

Opportunities Risks

As of January 2012

In a nutshell…UBS Asian Consumption Fund

A multi – decade opportunity

• Demographics - greater propensity for credit

Urbanisation - growing disposable income

Government policies - low debt levels

Buy Asian companies with focus on domestic consumer

- Undiluted exposure to booming Asian consumer market

Credible team and track record

- Outperformance in different market conditions

Appendix A

Miscellaneous

Key recent portfolio trades

Buys:

Examples of total new buys and complete sales in Oct 2011 – Jan 2012This information should not be considered as a recommendation to purchase or sell any security.Source: UBS Global Asset Management

Sells:

Vinda (China staples)

Vinda is a play on falling pulp prices which should drive strong earnings growth in 2012

Vinda continues to improve its sales mix through higher end tissue paper and has also entered the baby diaper segment through a JV

Valuations are attractive at current prices

Cautiously adding to ‘beaten-down’ higher beta stocks, while exiting companies where earnings growth at risk

ParksonRetail Asia (Singapore

discretionary)

Parkson is a well managed department chain with stores in Indonesia, Vietnam and Malaysia. We expect new store openings to drive earnings growth

Valuations are attractive

Ports Design (HK

discretionary)

Stock disappointed on earnings growth.

Execution has been disappointing as new store openings did not live up to management’s guidance

Competition from international brands had also affected its growth

DongfengMotor

(China auto)

Sold out of the Chinese auto company as slowing auto sales is a key risk

Sands China (Hong Kong

discretionary)

Gaming revenues continue to remain strong and Sands has new properties coming up that can drive stock performance

Reduce underweight in gaming space

Anta Sports(China

sportswear)

Sales slowdown much higher than anticipated

Top 10 stock overweights

This information should not be considered as a recommendation to purchase or sell any securitySource: UBS Global Asset Management. Figures refer to UBS (Lux) Equity Fund – Asian Consumption

As of end March 2012

1.970.001.97HDLF

2.100.502.60British American Tobacco

2.120.002.12LG Fashion

2.153.065.20Li & Fung

2.200.002.20Trinity

2.541.964.49Belle International

2.631.163.79LG Household & Health

2.661.754.41Hengan

2.881.834.71KT&G

3.020.003.02Godrej

Active (%)Benchmark (%)Fund (%)Company

Characteristics

Based on Asian Consumption Fund 00577679 vs MSCI Asia ex Japan Consumer and Health Care Sectors Index (i.e. comprising of the consumer staples, consumer discretionary and healthcare sectors of MSCI Asia ex Japan) Source: Summit, UBS Global Asset Management

As of end Mar 2012

18.4 21.3 RoE

1.0 1.4 Price/Sales

1.7 1.6 Dividend Yield

2.5 3.3 Price/Book

12.9 16.4 PE (FY1)

BenchmarkPortfolio

Industry-leading risk system - GRS

Note: For illustrative purposes only. This information should not be considered a recommendation to purchase or sell any securityTypical active risk data are indicative only. The actual active risk level will vary according to market conditions and our views. Active risk is an ex-ante forecast calculated using BARRA or other suitable system based on the final valuations of the last working day of each month. Active risk levels are reported to clients on a quarterly basisSource: GRS, UBS Global Asset Management as of 30 March 2012.

Asia: Bright spot amidst weak global economic backdrop

Source: CEIC estimates & World Economic Outlook, IMF, UBS IB research and estimates as of Nov 2011

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Asia exJapan

EM World US DM Euroarea

GDP Growth (% y/y)

2006-10

2011-15

World’s export powerhouses will pledge to boost their domestic consumption to keep the global economy churning.“…China, Germany, Korea and Indonesia, where public finances remain relatively strong … agree to take discretionary measures to support domestic demand as appropriate,” - draft statement debated by the G20 (3 Nov 2011)

Domestic demand a key driver of growth

Asia to lead GDP Growth Asia does not face sovereign debt issues

0

20

40

60

80

100

120

140

1950 1959 1968 1977 1986 1995 2004 2013

Government Debt (% of GDP)

Advanced

economies

G7

World

Asia ex

Japan

Rising income levels and 1 billion middle class consumers

Asia ex Japan middle class¹ forecast to grow from 19% to 31% of total population in five years

– From 570 mn (2010) to 1 bn (2015)

– China, India, Indonesia account for ~90% of growth

Asian middle class population

Source: Euromonitor, Morgan Stanley Research as of Aug 20111 Refers to middle income category earning an average per capita disposable income of USD 3,000 annually

Urbanisation trends and low debt support consumption growth

Source: UN Population Statistics, GS Global ECS Research as of April 2011

Urbanisation ratio (%)

Much room for urbanization trend to continue in China, India, Indonesia

0

10

20

30

40

50

60

70

80

90

100

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

China Japan KoreaGermany US IndiaIndonesia

Japan(1962)

Korea(1972)

45%

India(2037E)

China, Indonesia (2010)

0 20 40 60 80 100

US

Australia

UK

Malaysia

Taiwan

Singapore

Korea

Thailand

China

India

Indonesia

Philippines

Consumer loan as % of GDP

Source: Euromonitor, CLSA Asia-Pacific Markets as of Aug 20112010 data

Household debt can grow from its current low base as receptivity to debt increases

Low penetration of consumer goods in Asia

Source: Ashwin Chotai, CEIC, CLSA Asia-Pacific Markets as of Apr 2011

Light vehicle ownership vs GDP per capita

0

100

200

300

400

500

600

700

800

0 20,000 40,000 60,000

Nominal GDP per capita (USD)

Lig

ht

veh

icle

ow

ner

ship

/ 1,

000

po

pu

lati

on

AustraliaNew Zealand

Taiwan

Malaysia

Singapore

Korea

Japan

Thailand

Hong KongIndonesiaChina

Vietnam

IndiaPakistan

Philippines

PC penetration (PCs per 1,000 population)

0

300

600

900

1,200

US WesternEurope

Japan Worldwide AsiaPacific

Source: Gartner Data, Goldman Sachs Research March 2011

C:\Program Files\UBS\Pres\Templates\PresPrintOnScreen.pot

India: faces some challenges

Source: CSO, RBI, CEIC, Morgan Stanley Research as of Dec 2011

Inflation had been persistently high in 2011

-5%

0%

5%

10%

15%

Apr05

Nov05

Jun06

Jan07

Aug07

Mar08

Oct08

May09

Dec09

Jul10

Mar11

Oct11

Headline WPI Non Food Inflation

RBI's Comfort Zone RBI's Comfort Zone

Persistent high fiscal deficit (Fiscal years)

-12%

-10%

-8%

-6%

-4%

-2%

0%

F2000 F2001 F2002 F2003 F2004 F2005 F2006 F2007 F2008 F2009 F2010 F2011

Current account has deteriorated (Fiscal years)

-4%

-3%

-2%

-1%

0%

1%

2%

3%

F2000 F2001 F2002 F2003 F2004 F2005 F2006 F2007 F2008 F2009 F2010 F2011 F2012

India is more vulnerable to capital outflows as it is the only country in AxJ to run a current account deficit

-4% -2% 0% 2% 4% 6% 8% 10%

India

Indonesia

Korea

China

Thailand

Hong Kong

Taiw an

Malaysia

Singapore

Current Account Balance, 4qtr trailing sum, % of GDP

21%

China: rising incomes and moderating food inflation positive fordiscretionary consumption

Source: World Bank, CEIC, Nomura Research as of Jan 2012

China final consumption expenditure as % of GDP

0%

10%

20%

30%

40%

50%

60%

70%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Consumption expected to be an increasingly stronger driver of GDP growth

2.1%3.0%

4.5%

7.5%

9.5%

12.2%

0%

2%

4%

6%

8%

10%

12%

14%

2005 2006 2007 2008 2009 2010

% of urban households with annual net income >CNY 100,000 (Approx. USD 16,000)

Accelerated growth in high income households over past 5 years

Appendix B

Biographies

Namit Nayegandhi

Namit is a member of the Asia (ex-Japan) investment team, located in Singapore. As an analyst, he covers the regional consumer sector and is also Country Analyst for India focusing on Indian stocks in addition to some regional stocks. He is the Portfolio Manager for the Asian Consumption Fund and the India Country Fund.

Prior to joining UBS in February 2006, Namit spent three years in private wealth management with JM Morgan Stanley, one of the largest Investment Banks in India. Prior to that, Namitworked as a research analyst at ICICI Bank and was instrumental in setting up its private wealth investment advisory business. He started his career as a sell side analyst covering the consumer sector in India.

Research Analyst, Global Emerging Markets and Asia Pacific Equities, Executive Director

Years of investment industry experience: 13

Education: St. Xaviers College (India), BA; K J Somaiya Institute of Management Studies and Research (India), MBA

Justin WellsEquity Strategist Director

Justin Wells is an Equity Strategist for Emerging Market Equities, based in Zurich. He is responsible for representing the strategies managed by the EM Equities team in Zurich, including Global Emerging Markets, Latin America, Russia, and Central & Eastern Europe.

Justin joined UBS Global Asset Management in 2007 initially as a Product Development Manager. He was responsible for coordinating the launch of the Global Emerging Market HALO fund and worked with the Equities team on the Long-Short initiative. He moved to his current role in August 2010.

Prior to joining UBS, Justin worked in various roles within Equity Capital Markets, latterly as an Investment Advisor to the CIO of Shinsei Bank, Tokyo. Before pursuing a career in finance, Justin practiced as a Barrister in London for a number of years.

Years of investment industry experience: 7

Education: Queen’s University of Belfast (UK), BA (Hons); Durham University (UK), LL.B (Hons)

Asian Consumption CompositeSchedule of composite performance

The composite's past performance is not necessarily an indication of how it will perform in the future.

DisclaimerFor marketing and information purposes by UBS. For professional investors only. UBS Institutional Funds under Swiss and Luxembourg law. Before investing in a product please read the latest prospectus carefully and thoroughly. This document is for distribution only under such circumstances as may be permitted by applicable law. It was written without reference to any specific or future investment objective, financial or tax situation or requirement on the part of a particular individual or group. The document is for information purposes only and is not intended to be construed as a solicitation or an invitation to make an offer, to conclude a contract, or to buy or sell any securities or related financial instruments. The products or securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. The information and opinions contained in this document have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith, but is not guaranteed as being accurate, nor is it a complete statement or summary of the securities, markets or developments referred to in the document. The details and opinions contained in this document are provided by UBS without any guarantee or warranty and are for the recipient's personal use and information purposes only. Past performance of investments (whether simulated or actual) is not necessarily an indicator of future results. The performance shown does not take account of any commissions and costs charged when subscribing to and redeeming units. Commissions and costs have a negative impact on performance. Should the currency of a financial product or service not match your reference currency, performance may rise or fall due to currency fluctuations. All such information and opinions are subject to change without notice. UBS AG and / or other members of the UBS Group may have a position in and may make a purchase and / or sale of any of the securities or other financial instruments mentioned in this document. This document may not be reproduced, redistributed or republished for any purpose without the written permission of UBS AG. This document contains statements that constitute "forward-looking statements", including, but not limited to, statements relating to our future business development. While these forward-looking statements represent our judgments and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. Source for all data and charts (if not indicated otherwise): UBS Global Asset Management.

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