See the Disclosure Appendix for the Analyst Certification and Other Disclosures Yiping Huang +852-2501-2735 yiping.huang@citigroup Hong Kong Cliff Tan +65-6328-5725 cliff.tan@citigroup Singapore Asia Economics Team Beijing Minggao Shen Hong Kong Yiping Huang Joe Lo Adrienne Lui Michael Luk Wilbur Maxino Patricia Pong Singapore Puay Yeong Goh Moh Siong Sim Cliff Tan Mumbai Rohini Malkani Anushka Shah Jakarta Anton Gunawan Seoul Suktae Oh Manila Jun Trinidad Taipei Renee Chen Cheng Mount Cheng Willis Wu ECONOMIC & MARKET ANALYSIS: ASIA PACIFIC Prospects for Financial Markets 25 November 2005 Asian Economic Prospects Market Implications for 2006 and Beyond 25 November 2005 Asian Economic Prospects — Market Implications for 2006 and BeyondFigure 1.GDP Forecasts (Growth Rate in Percent) 2005 GDP Forecasts 2006 GDP Forecasts 2007 GDP Forecasts Current Previous Consensus Current Previous Consensus Current Asia-Pacific 6.8 6.7 6.7 6.3 6.2 6.4 6.6 Asian NIEs 4.2 3.9 4.1 4.4 4.0 4.4 4.5 SEA-4 4.9 4.9 4.8 5.1 5.1 5.0 5.4 Bangladesh 5.6 5.4 — 5.6 5.6 — 5.7 China 9.3 9.3 9.4 8.0 8.0 8.4 8.5 Hong Kong 6.0 5.8 5.8 4.3 4.5 4.5 4.8 India 7.5 7.5 7.3 7.1 7.1 7.0 7.5 Indonesia 5.6 5.6 5.2 5.7 5.7 5.2 6.0 Malaysia 5.0 5.0 5.0 5.0 5.0 5.3 5.5 Philippines 4.3 4.3 4.6 4.7 4.8 4.7 4.8 Singapore 5.0 4.5 4.6 4.0 4.0 4.8 4.5 South Korea 3.9 3.5 3.8 5.0 4.3 4.6 4.7 Taiwan 3.8 3.4 3.6 3.6 3.3 3.9 4.0 Thailand 4.0 4.0 4.2 4.7 4.7 4.7 4.9 Vietnam 8.1 8.1 8.0 7.6 7.6 7.4 8.0 Figure 2.CPI Forecasts (Growth Rate in Percent) 2005 CPI Forecasts 2006 CPI Forecasts 2007 CPI Forecasts Current Previous Consensus Current Previous Consensus Current Asia-Pacific 3.3 3.4 3.1 4.2 4.1 3.3 3.6 Asian NIEs 2.3 2.3 2.3 2.6 2.8 2.5 2.4 SEA-4 7.1 6.6 6.6 8.5 7.2 6.4 5.6 Bangladesh 4.5 4.5 — 4.0 4.0 — 3.5 China 2.0 2.5 2.1 3.5 3.5 2.2 3.0 Hong Kong 1.2 1.2 1.2 3.0 3.0 2.2 2.8 India 5.0 5.0 4.3 5.0 5.5 4.7 5.5 Indonesia 10.3 8.6 9.3 13.3 10.1 9.7 7.5 Malaysia 3.1 3.1 3.0 2.7 2.7 2.6 2.5 Philippines 7.8 7.8 7.6 7.6 7.6 6.7 6.5 Singapore 0.6 0.6 0.4 1.7 1.7 1.4 1.7 South Korea 3.0 3.0 2.9 3.0 3.3 3.1 2.7 Taiwan 2.2 2.2 2.2 2.0 2.0 1.7 1.8 Thailand 4.5 4.5 4.5 5.6 5.6 4.1 4.6 Vietnam 7.5 7.5 8.2 6.0 6.0 6.7 6.0 Figure 3.Current Account Forecasts (Percent of GDP) 2005 CAB Forecasts 2006 CAB Forecasts 2007 CAB Forecasts Current Previous Consensus Current Previous Consensus Current Asia-Pacific 4.1 4.2 4.4 3.5 3.6 3.8 3.1 Asian NIEs 5.6 5.3 6.8 5.3 4.6 6.4 5.0 SEA-4 2.3 2.3 2.8 1.5 1.5 2.5 1.6 Bangladesh -0.8 0.8 — -1.8 1.8 — -2.8 China 6.0 6.0 6.4 5.0 5.5 5.2 4.5 Hong Kong 10.7 10.0 10.6 9.1 8.4 10.4 8.9 India -2.3 –1.5 -1.4 -2.4 –1.9 -1.2 -1.9 Indonesia 0.6 0.6 1.0 -0.5 –0.5 0.8 -0.7 Malaysia 12.5 12.5 13.4 11.7 11.5 12.0 10.2 Philippines 3.0 3.0 3.3 3.5 3.5 2.9 3.2 Singapore 25.7 25.1 28.0 23.5 23.5 27.8 21.1 South Korea 2.4 2.2 2.3 2.4 1.6 1.7 2.2 Taiwan 3.5 3.5 3.6 3.8 3.8 3.8 4.0 Thailand -2.7 –2.7 -2.1 -3.4 –3.4 -1.7 -3.3 Vietnam -5.1 –5.1 -3.8 -4.9 –4.9 -3.9 -4.9 Note: Asian NIEs are Hong Kong, Korea, Singapore, and Taiwan. SEA-4 includes Indonesia, Malaysia, the Philippines and Thailand. Asia-Pacific is Asian NIEs + SEA-4 + China + India, GDP-weighted. Source: CEIC Data Company Limited, Consensus Economics and Citigroup estimates. Citigroup Key Economic Forecasts 25 November 2005 Asian Economic Prospects — Market Implications for 2006 and BeyondGlobal outlook: A year of transition The global economic outlook should remain robust in 2006, though US growth may soften temporarily. US interest rates likely will peak early in 2006, but the ECB and BoJ may begin gradual “policy normalization” in the coming quarters. With a large and growing current account deficit and a cooling economy, the US dollar is likely to resume its long-term downturn early in 2006. The risk to our forecast from oil is two-sided. Asian outlook: Consolidation and adjustments While growth is likely to consolidate further in 2006 in much of Asia, growth recovery should continue in Korea and a few other economies. China and India will probably still lead regional economic growth. We like consumption stories in China, India and Korea and investment in India and Thailand. The export outlook should remain robust, but weakening US consumer demand and intensifying competition with China represent two key risks. Current account surpluses should stay high, continuing to finance US deficits. The inflation path is probably the greatest uncertainty for our Asian outlook. And in the face of expected depreciation of the US dollar, inflation could surprise on the upside, unless local currencies strengthen significantly. While we expect only limited adjustments in local currencies in real terms in 2006- 07, significant appreciation of Asian currencies are inevitable eventually as a part of the global adjustment process. We think short-term policy rates will peak in early 2006 in most Asian economies and that long-term rates will creep up gradually. It remains to be seen, however, if the growing risks, such as bird flu and inflation, will significantly spike the risk premiums for emerging Asia assets. Asian local markets: Tightening, more capex needed to support currencies and rates We expect near-term inflection in the US dollar, back toward weakness, which will reverse global currency trends including those for Asia. Beyond an inflection point, the degree of subsequent tilt in favor of Asian currencies depends vitally on Asian monetary tightening and prospects for Asia to recapture capital flows to emerging markets. To the extent that regional central banks embark on more tightening than expected and/or capital flows return more than we anticipate, Asian currency strength may exceed our forecasts. Asian equity strategy: Much good news discounted Based on the market/GDP measure, Asian stocks are already expensive. Sentiment is most bullish in India, Korea and Singapore, and Taiwan stands out as the least favored market. ROE for Asia is set to decline further in 2006. We overweight Korea, Hong Kong, Malaysia and Singapore and underweight Taiwan, China, India and TIP markets. 25 November 2005 Asian Economic Prospects — Market Implications for 2006 and BeyondCitigroup Key Economic Forecasts 2 Asia’s Prospects: Transition and Consolidation 5 Global outlook: A year of transitions..........5 Asian prospects: Preparing for stronger growth......7 Strategy — Asian Currencies and Interest Rates 22 A change is gonna come...22 Everybody loves to cha-cha..........24 Bring it on home to me.....28 Strategy — Asian Equities 35 Much good news discounted.........35 Investor Checklist & Asian Chart Summary 41 Asia Investor Checklist.....42 Asia Chart Summary.........44 Long Term Forecasts 45 Country Section 47 Bangladesh48 China.........52 Hong Kong56 India..........60 Indonesia...64 Korea (South)........68 Malaysia....72 Philippines76 Singapore..80 Taiwan......84 Thailand....88 Vietnam.....91 Contents