The world is moving into a new era defined by protectionist nationalist agendas.These will have major economic consequences. It's a Brave New World.

1. Nomura Asset Management U.K. Limited Dubai branch June 6th, 2017
Tarek Fadlallah, CFA
Chief Executive Officer
Nomura Asset Management
Middle East
P.O. Box 506882
Dubai, UAE
Tel: +971 4 428 4587
www.nomura-asset.co.uk
June 6th 2017
The Arabian Markets
Highlights:
 The world is moving into a
new political era defined by
nationalist agendas
 Seismic changes are taking
place in the industrial sectors
led by technological advances
 Accelerating central bank
purchases is continuing to
distort asset markets
 Regional equities are fairly
valued but with no apparent
catalyst to rally
 Stock volatility is particularly
low and likely to rise into the
year-end
 Dependency on oil is high but
reducing it without collateral
shocks to the consumer
economy will be challenging
 Higher plateaus are not new
paradigms and can only be
temporary
Content:
Brave New World 2
Fake Markets 3
Regional Markets 4
Oil Dependency 5
Disruption Autos & Oil 7
Japan Breakout 8
Bottom Line 9
Market Commentary — a product of Sales and Marketing and not Investment Research or Advice
Nomura Asset Management U.K. Limited Dubai branch is regulated by the Dubai Financial Services Authority
Brave New World

2. Nomura Asset Management U.K. Limited Dubai branch June 6th, 2017
Page 2
Brave New World
It is becoming increasingly clear that the world is headed in a new direction with revised national agendas
in the United States, the (still) United Kingdom, India, Turkey and France among others.
Developments in the United States, in particular, have implications well beyond its borders, affecting global
interest rates, currencies and trade, and influencing the wider political debate and geopolitical relationships.
In addition to the swing in the political pendulum there are transformative changes in technology, energy,
transportation and communication that have massive consequences for businesses worldwide.
Exponential advances in Artificial Intelligence, big data, blockchains, FinTech, renewable energy and storage,
electric vehicles and self-driving cars are reshaping lifestyles and disrupting traditional business models.
Amid the excitement, and unfazed by the political theatre, US stocks have gone on a euphoric run buoyed
by the prospect of expansionary fiscal policy, higher earnings and perhaps only limited monetary tightening.
Global stocks have rallied in sympathy
but also in acknowledgement of the
progress on growth and employment in
Europe and the emerging markets.
JP Morgan’s composite global PMI stood
at 53.7 in April indicating sustained
expansion supported by accommodative
monetary policy and plentiful liquidity.
Alas the GCC markets stand out for
their poor performance among the 96
primary indices tracked by Bloomberg.
International stocks, bonds and related assets have implausibly rallied simultaneously, in what appears to be
capitulation, but there is good reason to temper the euphoria with a considered assessment of the risks.
Firstly, the scope for consequential policy errors has increased and is heightened by the fact that both
monetary and fiscal policy is evolving in the US, but also across Europe, Japan and China.
Secondly, it is now evident that there will be unpredictable twists and turns in US domestic policy with no
certainty that the much vaunted budget will pass Congress in its current form. Meanwhile, international
policy, on trade for example, may lead to momentous changes with huge implications for the status quo.
Thirdly, there may be a lack of speculative behaviour associated with bubbles in the broader equity market,
but it can be observed among technology stocks that have played a crucial role in driving indices higher.
Fourthly, general optimism across the capital markets and the extended valuations of most risk assets
provide considerable scope to be wrong on the facts but to suffer minimal opportunity cost.
These uncertainties cannot be calculated precisely or defined numerically in valuation models but leave
highly priced assets vulnerable to a steep sell off.
8.9%
(20) (10) - 10 20 30 40
Qatar Exchange Index
Russian Trading System Cash In
Muscat Securities MSM 30 Index
Dubai Financial Market General
Tadawul All Share Index
Abu Dhabi Securities Market
S&P500 Index
Borsa Istanbul 100 Index
Vienna Stock Exchange
Athens Stock Exchange
Buenos Aires Stock Exchange
Bucharest Stock Exchange
Warsaw WIG20
Primary Equity Indices % Year To Date (US$)
Source: Bloomberg, NAM
91st - 94th ranked primary equity markets
96th ranked primary equity market

3. Nomura Asset Management U.K. Limited Dubai branch June 6th, 2017
Page 3
Rational Exuberance & Fake Markets
There is no shortage of commentators complaining that stock markets, especially in the US, are overvalued
on multiple historic measures. They are not wrong.
A mitigating factor that helps explain
the performance of stocks is that they
remain appealing compared to their
alternatives — cash and bonds.
The difference between the equity
dividend yield and 10 year sovereign
(risk-free) yield appears to have peaked
in the US but remains relatively high,
and in Japan it is still very attractive.
Japanese stock prices could double and
the yield spread would remain positive.
Another supportive factor is the manipulation of asset prices by the central banks whose combined balance
sheets now exceed $18 trillion ($2.7 trillion added just this year) and that have resulted in fake markets.
Asset ownership by these banks has reached epic proportions with the Bank of Japan holding over forty
percent of all outstanding government bonds and a chunk of every company listed in the Nikkei 225 index.
Norway’s oil fund owns, on average, 2.3% of every European stock, while the Swiss National Bank’s $65
billion portfolio includes Apple, which itself is among the largest bond investors in the world.
Moreover, nine years after the global
financial crisis, the pace of balance
sheet expansion has been accelerating
at the European Central Bank, and to a
lesser extent at the Bank of Japan.
In the quarter ending March 2017 the
ECB balance sheet rose by €437 billion
— the largest quarterly increase ever!
The BoJ chipped in with purchases of
$122 billion, down from a peak of $265
billion in the second quarter of 2016.
Who needs widows and orphans?
These investments are creating massive distortions in asset prices that can either be temporary, in which
case the unwinding process may cause an opposite effect, or permanent, in which case the debasement of
fiat money will eventually create any number of unintended and undesirable consequences.
There is chatter that central banks, led by the US Federal Reserve, will taper purchases or even begin to
unwind their holdings by year-end in what could turn out to be a pivotal moment for financial markets.
- € 100
€ 0
€ 100
€ 200
€ 300
€ 400
€ 500
€ 1,500
€ 2,000
€ 2,500
€ 3,000
€ 3,500
€ 4,000
€ 4,500
01/06/2014 01/12/2014 01/06/2015 01/12/2015 01/06/2016 01/12/2016
European Central Bank Balance Sheet
Total Assets € billions Quarterly Change (rh scale)
Source: Bloomberg
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
05/04/1996 05/04/2000 05/04/2004 05/04/2008 05/04/2012 05/04/2016
Equity Dividend Yield - 10 Year Sovereign Bond
US S&P500 Japan Topix
Bonds Cheap / Stocks Expensive
Source: Bloomberg, Nomura Asset Management

4. Nomura Asset Management U.K. Limited Dubai branch June 6th, 2017
Page 4
Regional Market Performance
Since the financial crisis the GCC markets have enjoyed nothing more than a bear market rally and the
outlook remains subdued around a limited trading range tracking oil and corporate profits.
The Saudi TASI has spent most of the
past decade bound between 5,000 and
8,000 and is likely to remain within this
range for the foreseeable future.
A marked improvement in financial
transparency at the national level and
the implementation of critical market
reforms by regulators have yet to
translate into a substantial increase in
interest from international investors.
And domestic investors remain wary
after years of disappointing returns.
An upside surprise from oil prices or Saudi Arabia’s inclusion in the MSCI EM index could spur a rally,
while oil prices below $40, or rising geopolitical tensions may drag the market toward the lower bounds.
Supporting the TASI is the fact that aggregate banking profits will rise modestly and that the petrochemical
sector is benefiting from increasing global demand and stable feedstock prices.
These two gigantic sectors alone
account for over 59% of the total
market capitalization.
Once other defensive sectors are
added, the proportion of resilient
companies in the index rises to
nearly 80%.
Sectors that are highly exposed
to the cyclical downturn, and
whose earnings have been hit
hard, account for around 20% of
the index and have performed
accordingly — most are down by
double-digit percentage points
five months into the new year.
The TASI is therefore not the most sensitive indicator of macro-economic performance and explains the
disconnect between weak sentiment in the private sector and the relative strength of the overall market.
Valuations are not demanding, and arguably attractive on a book basis, but the lack of economic certainty
and earnings visibility has limited buying interest. The contrarian trade needs a positive surprise.
4,000
6,000
8,000
10,000
12,000
05/04/2007 05/04/2009 05/04/2011 05/04/2013 05/04/2015 05/04/2017
Saudi Arabian TASI
80% probability
15% probability
5% probability
Source: Bloomberg
Tadawul Sector Index Weight Price/Earning Price/Book YTD Change
Banks 33.4% 10.5 1.3 -3.1%
Materials (inc Petrochem) 25.9% 17.9 1.6 -4.7%
Food & Beverages 7.0% 83.7 3.2 12.2%
Telecom Services 4.9% 47.0 1.7 -5.3%
Insurance 3.5% 17.3 2.8 -1.7%
Utilities 2.5% 11.5 1.4 0.0%
Healthcare 1.5% 28.0 3.9 -3.2%
Food & Staples Retail 0.6% 21.6 3.0 0.7%
Pharmaceuticals 0.3% 11.4 1.5 -14.0%
Real Estate Development 10.2% 48.2 1.8 -4.3%
Retailing 3.5% 22.3 5.2 15.8%
Capital Goods 2.3% 37.9 1.2 -17.0%
Energy 1.6% 13.4 1.5 -16.0%
Consumer Services 1.1% 10.7 1.4 -17.3%
Transportation 0.8% 15.3 2.0 -22.7%
Commercial Services 0.5% 17.9 3.6 -16.9%
Diversified Financials 0.5% NA 1.1 -12.8%
Consumer Durables 0.3% NA 1.1 -6.9%
Media 0.2% NA 3.0 -15.1%
REITs 0.1% NA NA 15.2%
TASI Index 100.0% 16.4 1.6 -3.4%
Source: Bloomberg
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5. Nomura Asset Management U.K. Limited Dubai branch June 6th, 2017
Page 5
Oil Dependency
The manouver by Saudi Arabia to engineer an OPEC deal last year has helped WTI oil average nearly $51
so far in 2017 — 20% higher than last year’s levels though still a bit lower than might have been expected.
Current levels are insufficient to lift the
regional economy from the tepid IMF
GDP growth forecasts of 0.4% for Saudi
Arabia and 1.5% for the UAE compared
to a relatively robust forecast of 3.5%
for world growth.
Governments have tried to address the
linkage between oil prices and economic
performance for many years, and with
renewed vigour more recently, but the
evidence suggests that the process will
be long and difficult.
Among the GCC countries, the UAE is held up as a model of economic diversification but the reality is
that oil continues to define the performance of every country in the region.
Both the Abu Dhabi Securities Markets Index and the Dubai Financial Market General Index have fallen this
year with Dubai stocks getting severely punished over the past few weeks.
Sentiment appears to have been hit by
poor trading conditions in key sectors
but also a deteriorating outlook for
next year, with the introduction of
VAT in January expected to further
dampen consumer demand.
In an environment of macro-economic
uncertainty and fiscal restraint it is
difficult to identify a catalyst for a pick
up in commercial activity—recovery is
a distant prospect for businesses that
are struggling for survival today.
The need to cut wasteful spending and raise revenues is obvious, and the removal of subsidies fair, but the
economy will stall without deregulation that brings offsetting relief to consumers and businesses.
The reluctance to dismantle certain rent seeking aspects, by breaking-up monopoly practices and reducing
regulatory barriers, is an impediment to the structural reform needed to reshape regional economies.
A balanced approach that resolves not only to raise extra revenues but seeks to introduce supply side
reforms and promote counter cyclical policies, consumption and investment is required to avoid choking
off demand at a time when governments are reigning back spending.
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
02/01/2015 02/06/2015 02/11/2015 02/04/2016 02/09/2016 02/02/2017
Saudi Tadawul WTI Oil Dubai Index
Source: Bloomberg, Nomura Asset Management
4000
4100
4200
4300
4400
4500
4600
4700
4800
4900
3100
3200
3300
3400
3500
3600
3700
3800
3900
31/05/2016 31/08/2016 30/11/2016 28/02/2017 31/05/2017
UAE Stock Markets
DFMGI ADSMI (rh scale)
Source: Bloomberg

6. Nomura Asset Management U.K. Limited Dubai branch June 6th, 2017
Page 6
Global Themes
The correlation between the local and international markets is low (the one year TASI/S&P500 correlation
is -0.03) but the region is neither isolated nor immune from developments in the global capital markets.
Volatility
The drop in global stock market volatility has been a major theme within the financial press but volatility
has also declined in the GCC.
The 90-day volatility on the Saudi TASI
is running at 9.7% and is only slightly
higher than the 7.3% on the S&P500.
TASI volatility has typically ranged
between 15%-25% which is what might
be expected in an emerging market.
Not long ago, when oil prices began
their precipitous declines, volatility on
the TASI was hovering at around 35%
and at nearly 50% on Dubai’s DFMGI.
Current volatility looks too low to be sustainable and regional investors should not get complacent.
Active Management & Corporate Governance
The growth of passive investing in developed markets has been a feature of the asset management industry.
However, active management in the emerging markets has historically added value and remains popular.
Indeed many GCC/MENA managers have historically performed well relative to their benchmarks even if
the past year has proved a bit more challenging.
The S&P Pan Arab Index is among the
most popular reference indexes for
both active and passive managers.
The S&P Hawkamah Pan Arab Index,
which is comprised of the fifty highest
scoring stocks evaluated on the basis of
Environmental, Social and Governance
factors and weighted accordingly, has
performed spectacularly.
It has beaten the underlying benchmark
by a cumulative 75% since 2007.
It’s not clear the extent to which active managers use these criteria but good governance appears to work!
0
10
20
30
40
50
60
24/04/2014 24/10/2014 24/04/2015 24/10/2015 24/04/2016 24/10/2016 24/04/2017
Index Volatility (90 Day)
Saudi TASI DFMGI S&P500
Source: Bloomberg
-60%
-40%
-20%
0%
20%
40%
60%
80%
02/12/2007 02/12/2009 02/12/2011 02/12/2013 02/12/2015
S&P Hawkamah S&P Pan Arab Composite
Source: Bloomberg

7. Nomura Asset Management U.K. Limited Dubai branch June 6th, 2017
Page 7
Disruption in Autos, Oil and Retail
California-based Tesla hit the headlines after its market cap surpassed those of its peers in Detroit but
while attention was focused on the future of the auto industry the implications for oil are equally profound.
Tesla may yet prove to be a fleeting success but its role in bringing Electric Vehicles (EVs) into the
mainstream is undeniable, and it is not wrong to compare Elon Musk to Steve Jobs and Tesla to Apple.
Total Cost Of Ownership calculations, that include fuel and maintenance costs, for high mileage vehicles
such as taxis and buses, suggest that batteries are already competitive with internal combustion engines.
The ongoing electrification of public transportation fleets in Beijing, Singapore and Oslo, as well as the
iconic black taxis in London will reduce demand for diesel and petrol in these trend setting cities.
Only a little extrapolation is needed to imagine how EVs will grow exponentially as technology improves,
output increases, battery prices decline and vehicles become more functionally efficient.
With nearly half the world’s oil used in transportation the implications for hydrocarbon dependent
economies is stark, even if the biggest losers will be high cost producers in Europe and the Americas.
All this will take time, but the blistering pace of scientific advances and the willingness of consumers to
adopt disruptive technologies will guarantee it. The iPhone revolutionised communications in ten years.
In this context it is reassuring to hear the Saudi Minister of Finance talking about plans for an economy in
which oil contributes not a single cent. Lots to do though, and time is not a friend.
The global retail sector is also undergoing enormous change as it reels from the intensifying influence of
e-commerce that has been boosted by big data and improvements in logistics and inventory management.
In the GCC that transformation is in its
embryonic stages but the acquisition of
Souq.com by Amazon and the rising
number of online enterprises suggests
that it will gather pace and spell trouble
for traditional retailers that continue to
rely on a tired business model.
The bricks and mortar format is not
dead but retailers are swimming against
the tide of change, and will need to
redefine their operations and infuse it
with the cutting-edge technology.
Technology is not just about having a website to promote products, and has developed from a skin deep
association to a multifaceted integration into the fabric of businesses and their relationship with customers.
The regional emphasis on innovation is especially encouraging given the digitally talented consumer base
but entrepreneurs should be allowed to disintermediate incumbent businesses across every sector —
including those in which government related entities might operate.
0%
5%
10%
15%
20%
25%
30%
35%
40%
01/01/2002 01/05/2004 01/09/2006 01/01/2009 01/05/2011 01/09/2013 01/01/2016
% of S&P Retail Index
Amazon JCP+Macy's+Nordstrom
Source: Bloomberg, NAM

8. Nomura Asset Management U.K. Limited Dubai branch June 6th, 2017
Page 8
Japan — Breakout or False Dawn?
Frustration with the Japanese stock market among global investors is understandable in the context of the
long bear market that has been punctuated by intermittent rallies that have flattered, only to deceive.
Recent history however is not so bad
with the benchmark indices reaching
multi-year highs in US dollar terms.
The Topix index has also outshone the
MSCI Europe index over the past year
despite the massive investor interest in
a recovering European economy.
Japan may still be a better destination
for capital than a Europe which is mired
in political uncertainties and in need of
deep structural reform.
Japan has its own long term challenges, relating to its public debt and shrinking population, to which there
are few credible answers. However, these are not obstacles for the time being as factory output hits its
highest levels since 2008 and the job-to-applicant ratio signals the tightest labour market in 43 years.
Moreover, the stock market, and the economy more broadly, has performed well under strong leadership,
most notably between 2001-06 during the premiership of Junichiro Koizumi. The current Prime Minister,
Shinzo Abe, remains popular and is expected to lead the government beyond the Olympic games in 2020.
Recurring profits at listed companies are expected to grow by 15.6% in the current fiscal year to an all
time record, even as the economy grinds out GDP growth of 1.3%, due to robust revenues from overseas.
With the Topix index trading at an estimated 14x prospective earnings and a price to book ratio of 1.3x
valuations appear reasonable by historic standards and compared to other developed markets.
A challenge to investing in Japan traditionally has been the relationship among stakeholders, and specifically
the performance and accountability of managers to shareholders.
The JPX-Nikkei 400 Index whose constituents are selected on the basis of basic governance criteria has
unfortunately underperformed the Nikkei 225 Index which has benefited from ETF purchases by the BoJ.
Nonetheless, there is noticeable improvement in observed governance that is leading to better returns.
Shareholder returns, in the form of dividends and share buybacks, are projected to reach a record high of
¥18 trillion ($160 billion) this year, while cash is being increasingly utilised for expansion and M&A activity.
The recently revised stewardship code and proposed changes in the tax treatment for business spin offs is
also expected to encourage corporate restructuring and improved operational efficiencies.
The risks to the rosy outlook include softening overseas (Asian) demand, a sharp appreciation in the Yen,
unexpected developments in the political landscape or a financial shock in the global capital markets.
-40%
-20%
0%
20%
40%
60%
80%
100%
07/01/11 07/01/12 07/01/13 07/01/14 07/01/15 07/01/16 07/01/17
Major Markets in US$
Topix Index S&P500 MSCI Europe
Source: Bloomberg, NAM Middle East

9. Nomura Asset Management U.K. Limited Dubai branch June 6th, 2017
Page 9
The Bottom Line
Global equities, led by the US, are on a tear this year and painful experience suggests that those standing in
front of a steaming train will get crushed. A better strategy is to allow the momentum to slow. And it will.
The tech heavy Nasdaq index has rallied over 21% since the US election (an annualised rate of 43%!) and
now trades on a trailing price/earnings multiple of 33x (forecast 24x) and a price to book ratio of over 4x.
Optimists speak of higher plateaus instead of new paradigms but it’s different this time only because central
banks are involved in an alarming monetary experiment whose consequences are highly unpredictable.
In the meantime, the political landscape is being reshaped by various strands of political nationalism that
challenge globalisation with ideologies whose effects are not yet fully understood.
Even if the world muddles through these potentially seismic developments, how will the post-globalist
world evolve and what are the long term implications for economic architecture and financial markets?
Within the GCC there are equally profound questions about what the regional economy might actually
look like a decade down the road, perhaps in a world less reliant on oil than we can imagine today.
The honest answer is that nobody knows.
Ramadan Kareem
Tarek Fadlallah, CFA
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