January 30, 2014

Press Release
Nikko Asset Management Co., Ltd.

Chinese Shadow Banking Concerns Expandz

Iron ore expected to fall $20 per ton by 2018z

Japan updated indicators show Abenomics succeeding

The impact of bad debts in China’s shadow banking system is likely more important to the global
economy than Fed policy, latest research from Nikko Asset Management (Nikko AM) shows.
Unfortunately, due to a lack of transparency and the extremely complicated system, evenwell-informed global investors cannot grasp the true nature of China’s financial difficulties. Several
property trusts have already defaulted, but with rising land prices and generous credit, these havemanaged to be “worked out”. Recent defaults in the mining and industrial sectors withquestionable collateral will likely have more serious repercussions, however.

“Local governments have less capacity to offer rescues considering their own funding issues, andso we expect that many more defaults are likely this year,” said John F. Vail, Chief Global
Strategist at Nikko AM’s Tokyo head office. “Meanwhile, other efforts to increase regulation of theshadow banking sector are bound to reduce liquidity, especially to troubled borrowers, and thishas some possibility of accelerating into a more serious credit crunch. Thus, we have long been
cautious on Chinese equities and despite low valuations, we continue to believe that corporate
profit margins will be under pressure and that bank earnings understate the true problem of baddebts.”

In other findings, iron ore is expected to fall in price from its current price level of around $130 per
ton towards $110-$120 per ton by 2018, as a result of increased supply from Australia and Brazil.
As a key component in steel products, demand for iron ore has surged as a result of China’s
ongoing urbanisation process. The inability of iron ore producers to increase supply incrementally
has led to a quadrupling of the iron ore price over the past 10 years.

“Looking forward to 2018, assuming the forecasted supply comes to the market, this should havethe impact of reducing the iron ore price by around $20 per ton,” said James Eginton, a researchanalyst at Nikko AM’s subsidiary, Tyndall AM in Australia. “Thus, the outlook for steel makers has
begun to brighten with the potential for margin expansion and improved financial performanceover the longer term.”

In Japan, inflation is moving strongly upward, with pipeline inflation rising 0.8% month-on-month inDecember (3.3% year-on-year). There are also strong signs that this is flowing through to retailprices, with the goods portion of the Consumer Price Index rising 0.7% month-on-month inNovember and up 5.4% on a 6-month annualised basis.

In an update to our previous report on the Abenomics Wealth Effect, the latest data from the Bankof Japan shows that ¥84 trillion ($805 billion) of household financial new worth (excluding realestate) was created in the 12 months to September 2013, summing to ¥1.24 quadrillion of net
financial assets, a record high. The impact of more wealth on consumption will be key to thesuccess of Abenomics.
-ENDS-

This material has been prepared solely for the purposes of Nikko AM to communicate about the market
environment, etc. It is not solicitation for a specific fund. Moreover, the information in this material will
not effect Nikko AM's fund investment in any way. Mentions of individual stocks in these materials
neither promise that the stocks will be incorporated nor constitute a recommendation to buy or sell.
The information in these documents have been prepared from what is considered to be reliable
information but the accuracy and integrity of the information is not guaranteed by the Company.
Figures, charts, and other data in these materials are current as of the date of publication unless statedotherwise. In addition, opinions expressed in these materials are as of the date of publication unlessstated otherwise. * The graphs, figures, etc., contained in these materials contain either past or
back-dated data, and make no promise of future investment returns, etc. These documents make noguarantee whatsoever of future changes to the market environment, etc. Opinions expressed in these
documents may contain opinions that are not Nikko AM's but the personal opinion of the author, andmay be changed without notice.
Forwarding or quoting from these materials without the advance permission of Nikko AM's corporate
communications representative is strictly prohibited. Please contact Nikko AM's Corporate
Communications at +81-(0)3-6447-6775 if you have any questions.

About Nikko Asset Management
Nikko Asset Management (Nikko AM) is a leader in the Asian financial services industry, with over$160 billion in assets under management as of September 30, 2013. Established in 1959, the firm has
22 offices in 10 countries and enjoys one of the largest distributor networks in the region, serving both
retail and institutional clients. More than 300 banks, brokers, financial advisors and life insurancecompanies distribute the company’s products.
Nikko AM manages a wide range of equity and fixed income strategies in both active and passiveformats, leveraging the talents of more than 250 investment professionals. In 2013 alone, Nikko AM
won awards for excellence in asset management from Lipper, Mercer, AsianInvestor, R&I, amongothers.
The company’s management team is highly diverse and experienced, and is committed to running thecompany according to international best practices. Nikko AM’s independence from the limitations
imposed on many captive asset management companies allows it to focus on the interests of clients.
At the same time, the company enjoys a stable base of shareholders, with majority ownership held bySumitomo Mitsui Trust Holdings and a smaller stake by DBS Bank.
For more information, please visit http://en.nikkoam.com/* Consolidated assets under management and sub-advisory of Nikko AM and its subsidiaries as of 30 September 2013.