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EMERGING MARKETS:NEW ECONOMY OPPORTUNITIESFeng DingDirector, Emerging Markets EquityGlobal Product Management

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Emerging Markets:Why Now?

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Politics and Populismacross Developed Markets

Source: Boris Johnson: http://snappa.static.pressassociation.io/assets/2015/06/17124034/1434541231-dcf7a33bc96928df154a7685e03afadb-600x800.jpgDonald Trump: https://www.donaldjtrump.com/about

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EM Earnings Power And Cash Flows Continue To ImproveCommodity Prices and Exports Supportive of Earnings Turnaround

EM Exports, EM Corporate Earnings and Commodity Prices

Source : ©FactSet Research Systems,MSCI, Bloombergrs. Note: Exports are based on the value of goods exported by developing countries and do not include services. Earnings are based on 12-month fCommodity prices are based on the Bloomberg Commodity Index. Last Updated: Exports numbers are the latest as of 09/29/2017, The rest are updated as of 12/29/2017

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EM Earnings Power And Cash Flows Continue To ImproveFree Cash Flow Growth, EPS Growth

For illustrative and discussion purposes only. Past performance is not an indicator or a guarantee of future results. Source: FactSet, BoA Merrill Lynch Global Research, MSCI, IBES estimates. 12 months forward EPS Growth.

Asia ex-Japan Free Cash Flow2007 – 2018E

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EM ValuationsCheap Relative to DM But Not Historically

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Source : ©FactSet Research Systems,MSCI, Developed Markets as represented by the MSCI World ; EM as represented by MSCI EM;Last Updated:12/29/2017

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12/31/2007 - 12/29/2017MSCI EM (Emerging Markets) - Price to Earnings - Next 12 Months - Monthly (Index)MSCI The World Index - Price to Earnings - Next 12 Months - Monthly (Index)

Source : ©FactSet Research Systems, MSCI, Last Updated: 12/29/2017

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MSCI EM (Emerging Markets) - IBES Aggregates - EPS Growth 12 MonthMSCI World Index - IBES Aggregates - EPS Growth 12 Month

P/E NTM 12 Months EPS Growth


EM Fund Flow Cycles2003 – 2017

EM Equity Fund Flows2013 – 2017

Emerging Markets: FlowsFlows Accelerating but Remain Muted Relative to History

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For illustrative and discussion purposes only. Past performance is not an indicator or a guarantee of future performance.Source: Morgan Stanley Research, Citi Research, EPFR Global. As of December 2017.


MSCI EM Currency IndexJanuary 2015 – December 2017

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Emerging Markets: Fed ImpactImpact on Emerging Markets Currencies Historically Limited

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MSCI EM Currency IndexJune 2003 – June 2007

Jun-07

Fed announces unwinding of QE

For illustrative and discussion purposes only. Past performance is not an indicator or a guarantee of future performance.Source: FactSet, as of December 2017. See www.franklintempletondatasources.com for additional data provider information.

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Emerging Markets May Offer Promising OpportunitiesRising Wealth Expected to Fuel Strong Growth Prospects

Consumption by the Middle Class1

(USD Trillions)

For illustrative and discussion purposes only. 1. Source: Brookings Development Indicators, as of June 2016. There is no assurance that any projection, estimate or forecast will be realised.

Past performance is not an indicator or a guarantee of future performance.

Emerging Markets Emerging Asia Developed Markets

193%Growth Rate

9.513.9

20.1

27.9

2015 2020 2025 2030

343%Growth Rate

4.68.0

13.4

20.4

2015 2020 2025 2030

10%Growth Rate

13.6 14.1 14.6 14.9

2015 2020 2025 2030


Emerging Markets:New Economy Rising


Technology: Secular Long Term GrowthEmerging Markets Most Tech Dominated Index

MSCI EM Index Sector EvolutionJanuary 2007 – December 2017

For illustrative and discussion purposes only. Past performance is not an indicator or a guarantee of future results.Source: FactSet, MSCI, as of December 2016. MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI.

IT Sector Weighting: MSCI IndicesDecember 2011 vs. December 2017

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For distributors/institutional/professional investors use only. The content of the presentation should not be reproduced /distributed to the public without prior approval of Franklin Templeton Investments.Source: WIPO

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Technology Remains DominantEmerging Vs Developed Markets: Patent Applications

% of Total Applications

78.3

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49.650.4

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Developed Markets Emerging Markets


Technology Remains DominantTechnology: Rising InnovationNo Longer Simply Low Cost Component Manufacturing

MSCI EM Index: IT Sub-Sector EvolutionDecember 2007 – December 2017

For illustrative and discussion purposes only. Past performance is not an indicator or a guarantee of future results.Source: FactSet, MSCI, as of June 2017. MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI.

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USA Top 7 Retailers by Revenue*2015

China Top 7 Retailers by Revenue*2015

Consumer: eCommerce DominanceTransformative Impact on Chinese Retail

For illustrative and discussion purposes only. Past performance is not an indicator or a guarantee of future performance.Source: KPCB; Euromonitor, 2015. Note: *Revenue defined as retail value of goods excluding tax, and excluding certain transaction categories such as consumer-to-consumer, motor vehicles & auto parts, tickets, travel bookings, delivery foodservice, returns, and others, hence may differ from company disclosed total revenue or gross merchandise value figures.


Key Emerging Markets Investment Themes

14

These statements reflect the analysis and opinions of the speaker as of December 2017, and may differ from the opinions of other portfolio managers, investment teams or platforms at Franklin Templeton Investments. Because market and economic conditions are subject to rapid change, the analysis and opinions provided may change without notice. The statements do not provide a complete analysis of every material fact regarding any country, market, industry or security. An assessment of a particular country, market, security, investment or strategy is not intended as an investment recommendation nor does it constitute investment advice. Statements of fact are from sources considered reliable, but no representation or warranty is made as to their completeness or accuracy.

Top Themes Investment Ideas

Technology Is Reshaping the Global Economy

E-Commerce Continues to AccelerateE-commerce is still very much a penetration growth story, resonating in several markets including Russia (Yandex) and South Korea (NAVER).

New Mobility Is Disrupting Industries

Many EM companies have stepped up to play a dominant role in producing automobile solutions not only in terms of software (Baidu), but also in terms of components including batteries (Samsung Electronics) and tires (Hanook Tire).

Fintech Is Driving Financial Institutions Inclusion Banks are increasing investments into their fintech arms (Itau Unibanco, Ping An Insurance).

Consumerism, a Play on Demographics

PenetrationFavorable demographics of young and growing middle class populations bring opportunities to untapped consumer spending potential.

Premiumization

Looking beyond the penetration story, premiumization is the next natural transition as income rises. Examples include higher-end automobiles (Brilliance China) and leisure (entertainment, resorts, movie theatres, gaming and travel).

Shifting Health Care Landscape

Demographic shifts and societal changes are intensifying pressures on health care systems, and more hospitals and pharmaceuticals are taking steps to cater to this market (Biocon, Glenmark Pharma).


Emerging Markets Small Cap


A Wealth of Investment OpportunitiesEM Small Cap Companies Offer a Broad Set of Options

1. As of 31 December 2017. Emerging Markets Small Cap companies includes emerging markets and frontier markets within MSCI Emerging Markets and FrontierMarkets Index. Small cap companies are defined as those with market cap below US$2 billion.2. 30-day daily average.Sources: Bloomberg LP; MSCI. Please see Important Disclosures in the back of this presentation for additional information.

US$39bnstocks of small cap companies are traded daily1,2

23%of emerging markets’ market cap is comprised of small cap companies1

18,251more small cap companies are listed than larger cap companies1

Sizable Investment Universe

Broad Opportunity Set

Ample Liquidity


16.6 16.614.4

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ConsumerDiscretionary

InformationTechnology

Industrials Materials Health Care Real Estate Financials ConsumerStaples

Utilities Energy TelecommServices

MSCI Emerging Markets Small Cap Index MSCI Emerging Markets Index

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Complementary to Existing Large Cap AssetsSmall Cap Companies Offer Different Exposures

Source: FactSet.

Sector ExposuresAs of 31 December 2017

Market Capitalization ExposuresAs of 31 December 2017

Market Cap Above $2bn

Market Cap Below $2bn

MSCI Emerging Markets Index 99% 1%MSCI Emerging Markets Small Cap Index 22% 78%


Templeton EM Smaller Companies FundHigher Exposure to Consumer Sectors

Source: FactSet.

Sector ExposuresAs of 31 December 2017

20% 17% 10% 12% 9% 3% 7%9% 7%

Templeton Emerging Markets Smaller Companies Fund MSCI Emerging Markets Small Cap Index MSCI Emerging Markets Index

Consumer Discretionary

Health Care

Consumer Staples


Idiosyncratic ReturnsEM Small Cap: Stock Inefficiencies

Medy Tox: Korean Botox Producer

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As of December 2017. This is an example of an investment purchased pursuant to investment advice of Templeton Emerging Markets Group; the investment may or may not be currently held by a fund or any investment vehicle advised by Templeton Emerging Markets Group. This is not a complete analysis of every material fact regarding any industry, security or investment and should not be viewed as an investment recommendation. This is intended to provide insight into the advisor’s portfolio selection process. The actions taken with respect to this investment and its performance may not be representative of other advice of the advisor or investments of the fund. Factual statements are taken from sources considered reliable, but have not been independently verified for completeness or accuracy by the fund’s manager or its affiliates. These opinions may not be relied upon as investment advice or as an offer for a particular security or as an indication of trading intent for any Franklin Templeton fund. All portfolio holdings are subject to change. In addition, it should not be assumed that any securities transactions discussed were or will prove to be profitable.

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KRW

Off benchmark, under-researched, under-owned and undervalued company trading at 13x PE with market cap of $106m at purchase. 90 day ADV of $1.5m. Only 5 local research firms cover stock.

Added exposure on weakness during 2016. Dec-2017: Stock now covered by 18 sell side analysts, including international firms. 37x forward PE, 90 day ADV of $18m, market cap of $2.4bn.

Stock added to MSCI EM Small Cap Index in June 2012, trading at 19x forward PE with 90 day ADV of $5m.

Trimmed exposure during 2015. Dec-2015: Re-rated to 63x forward PE, with market cap of $2.3bn.


Medy Tox: Korean Botox Producer

Local Innovation• One of only seven companies

globally with the expertise to produce botox products, both for medical and cosmetic purposes

• Medy Tox sales have grown to over 30% of Korean market share but only c.3% globally

• Global botox market exhibiting rapid growth

• Next generation of product currently undergoing clinical trials

International Licensing• Licensing agreement with the

largest botox product maker, U.S company Allegan, with c.75% global market share

• Allergan to distribute next generation of Medy Tox products in developed countries once commercialised, expected 2018 / 2019

• Company is expanding capacity with third factory to be completed in 2019

• Delay in Allergan clinical trials and Hugel lawsuit

Recent Weakness• Exceptional growth and profitability:

– Strong quarterly profit growth– 45% return on equity, 44% net

profit margin• Halved shareholdings during 2015 on

strength; resumed purchases on cheaper valuations in 2016:

– Stock de-rated in 2016 from 63x forward PE to 34x by year end

– 2017/18: Rebound in share price

Initial Analysis and Thesis Sources of Potential Upside / Risks

Financials/ValuationAs of December 2017

Idiosyncratic ReturnsEM Small Cap: Stock Inefficiencies

20

As of December 2017. This is an example of an investment purchased pursuant to investment advice of Templeton Emerging Markets Group; the investment may or may not be currently held by a fund or any investment vehicle advised by Templeton Emerging Markets Group. This is not a complete analysis of every material fact regarding any industry, security or investment and should not be viewed as an investment recommendation. This is intended to provide insight into the advisor’s portfolio selection process. The actions taken with respect to this investment and its performance may not be representative of other advice of the advisor or investments of the fund. Factual statements are taken from sources considered reliable, but have not been independently verified for completeness or accuracy by the fund’s manager or its affiliates. These opinions may not be relied upon as investment advice or as an offer for a particular security or as an indication of trading intent for any Franklin Templeton fund. All portfolio holdings are subject to change. In addition, it should not be assumed that any securities transactions discussed were or will prove to be profitable.


Why Emerging Markets?1. Trump and Fed: Fear and uncertainty passing2. Fundamentals improving yet valuations still cheap; asset class under-owned3. EM asset class has transformed: Tech, consumer, healthcare – not commodities

Why EM Small Cap Asset Class?1. Vast investment universe, $39bn daily turnover, $6.0tn market cap2. Under-researched stocks provide opportunities3. Market inefficiencies, corporate governance risks – ideal for active management

Why Templeton?1. Unparalleled on the ground research; 30 years of active EM investing2. Enhanced team structure and research process3. Alpha opportunities from inefficient markets and corporate governance focus

Templeton EM Conclusion

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These statements reflect the analysis and opinions of the speaker as of December 2017, and may differ from the opinions of other portfolio managers, investment teams or platforms at Franklin Templeton Investments.Because market and economic conditions are subject to rapid change, the analysis and opinions provided may change without notice. The statements do not provide a complete analysis of every material fact regarding any country, market, industry or security. An assessment of a particular country, market, security, investment or strategy is not intended as an investment recommendation nor does it constitute investment advice. Statements of fact are from sources considered reliable, but no representation or warranty is made as to their completeness or accuracy.


Appendix: Management Profile



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