>Global Emerging Markets Beyond the Turbulence (CITI)

■ Long-Term Bullish — In our first Global Emerging Markets (GEMs) strategy report, we set our long-term bullish case for the asset class. Our forecast is for around 15% returns in 2010, with a continuing pattern of volatility within a rising trend (the average ‘bull market correction’ in this cycle being -17%).

■ The Bull Case: — i) global economy in the early stages of a new upswing – we forecast GDP growth of 6.9% for GEMs in 2010, an even bigger gap than usual over developed countries (+2.4%); and ii) strong corporate earnings growth - EPS growth of 38% is forecast in GEMs for 2010; iii) valuations back to earth - sluggish markets, combined with strong EPS growth, are cutting valuations; an 11.5x forward P/E is back to its recent average.

■ Year 2 slows — the recent average GEMs gain in Year 2 of a bull market is 9%.

■ Headwinds and Risks — There will be Headwinds, notably: i) rising interest rates across the EM world and in the US over the rest of 2010; ii) a higher long-term cost of capital;, and Risks, notably: i) the EU fiscal crisis; and ii) the Chinese property market.

■ Overweight Asia — Overweight in Asia (the growth area of GEMs), a Neutral in Latin America (where earnings momentum is strong) and an Underweight in EMEA (which is the valuation play of the asset class).

■ Top Country Picks — Our Overweight calls are Taiwan, Korea, Russia, Brazil, Turkey; we are Neutral in China, India, Thailand, Chile and Mexico.

■ Top Sector Picks — Our Overweight calls are IT, Materials, Utilities and Consumer Discretionary. We are Neutral in Financials, Industrials, Health Care and Energy.

To read the full report: GEM