cs research monthly

December 2012Research Monthly

Investment Strategy

Equities, “new hardcurrencies” and real estate in2013 page 3

Top 30 portfolio stock: Chev-ronA leading energy-related recoveryinvestment.

Buy

US Real Estate InvestmentTrustsUS real estate has upside poten-tial, as the rental market has bot-tomed out. REITS still offer value.

Buy

Risk scenarios

Alternativemacroscenarios andtheir strategyimplications page 8

Top investment ideas 2013

Top 2013InvestmentIdeas page 6

Performance review 2012

Performanceof TopInvestmentIdeas for2012 page 5

Important disclosures are found in the Disclosure appendix. Credit Suisse does and seeks to do business with companiescovered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could af-fect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.For a discussion of the risks of investing in the securities mentioned in this report, please refer to the following Internet link:https://research.credit-suisse.com/riskdisclosure

Global ResearchPrivate Banking

Investment horizon: 6-12+ months

EditorialGiles KeatingHead of Research for Private Banking and As-set Management

[email protected],+41 44 332 22 33

Is it right to assume that lackluster economic growth in de-veloped economies will continue for several more years? Suchprojections rely on three broad ideas: Assertions that technolo-gical innovation has slowed; demand constraints from the un-wind of excess leverage; and existential threats to the euro.The first of these seems difficult to justify (for example, look atour recent Global Investor on new applications of digital techno-logy to healthcare). The second and third have clearly dam-aged growth in recent years, but those years have also seen atransition toward solving those problems. Broken balancesheets are now largely repaired for most US banks and house-holds, though progress is much slower for governments onboth sides of the Atlantic. There has been (largely unsung) pro-gress in macro adjustment and structural reform in Europe,with massive current account deficits reduced or eliminated,nominal wages falling to restore competitiveness and the startof radical labor market reform. Grand plans for European integ-ration look elusive, but limited elements of it are being created,and successful macro adjustment may expose the remainingparts as unnecessary.

On top of all this, one other crucial transition of recentyears has gone largely unnoticed: Oil prices more than tripledat the same time as the financial crisis (as described in the ac-companying essay). This has surely been a major drag ongrowth, but now at last the world is learning to live with thesehigh prices, discovering new sources of energy and adaptingproduction to use less of it. As all these various transitions ad-vance, they become less of a drag and increasingly open thepossibility that growth may surprise to the upside.

This is the year-end issue of the Research Monthly(December 2012/January 2013). The February issuewill be published at the end of January 2013.

In this issue

Investment Strategy

Equities, “new hard currencies” and real estate in2013 page 3


Performance of Top Investment Ideas for 2012 page 5


Top 2013 Investment Ideas page 6

Risk scenarios

Alternative macro scenarios and their strategyimplications page 8

Investment summary page 9

Economics

2013: Growth moderate, rates low page 10

Fixed income

Less value in fixed income page 12

Equities

Positioning for the (Re)recovery page 14

Alternative investments

Opportunities in hedge funds and real estate page 16

Foreign exchange

Diversify out of hard currencies into selected EMcurrencies page 17

Risk disclaimer page 19

Editorial deadline: 27 November 2012

2 27/11/2012 Credit Suisse - Research Monthly

Investment Strategy

Equities, “new hardcurrencies” andreal estate in 2013

Moderate growth, moderate inflationand low yield environment to persist in2013.

Bond returns in 2013 positive, but lowerthan in 2012; more investment opportunit-ies in equities.

“New hard currencies” and US real es-tate offer protection against eroding pur-chasing power.

Nannette Hechler-Fayd'herbeHead of Global Financial Markets Researchnannette.hechler-fayd'[email protected], +41 44 333 17 06

Despite the soft patch in equity markets at the time of writingand the many uncertainties that have prevailed, 2012 is end-ing as a strong year for credits and equities. Real assets, suchas real estate and gold, have also delivered strong perform-ances. As expected, cash and core government bonds are atthe lower end of the performance scale. Financial markets ad-hered rather closely to the central banks’ guidance away fromun-remunerative risk-less into riskier assets.

For 2013, we continue to anticipate a low interest rate en-vironment, sustained by moderate growth and inflation glob-ally. In this context, assets that benefit from low yields arelikely to continue to perform well. Our Top 2013 InvestmentIdeas focus on six specific investment themes: Beyond cash;Recovery stocks; Dividends and beyond; New gas and oilsources; US real estate; and The new hard currencies. We be-lieve that an investor who focuses on these six ideas, in com-binations adapted to their own risk profile, should have a goodchance of obtaining a reasonable return in 2013, while man-aging risk. Investment in our six top ideas can, of course, be

combined with a discretionary managed portfolio and/or directinvestment in stocks and bonds from our recommended TopPick lists, to give an overall balanced strategy.

Fixed income: Credit, not durationIn 2012, investors were able to generate strong – in somecases even double-digit – returns on bonds with credit risk.We do not expect similar performances in 2013. Not that weanticipate a rapid turn in the credit cycle and sharply rising de-fault rates. Corporate credit fundamentals start from a strongposition. But credit spreads have narrowed substantially during2012 and the asset class simply offers less upside from herein most segments. Still, bonds, particularly through direct hold-ings, offer a source of higher cash flow than un-remunerativecash. Investors can therefore look at short maturity bankbonds with ratings between AA and A and corporate bondswith ratings between A and BB as an alternative to un-remu-nerative cash or term deposits. This is our “Beyond cash: Cred-it, not duration” Top 2013 Investment Idea No. 1.

Equities: Attractive compared to other asset classesIn 2012, investment flows into equities have remained low des-pite the good performance. We suspect lower return prospectsin fixed income will contribute to a shift into equities in 2013.Judging by higher implicit discount rates, earnings or dividendyields, the asset class is still attractively valued compared tobonds. Opportunities for new investments look more numerousto us in equities than in other asset classes. Dividend stocks,for example, remain an attractive theme for more risk-averseequity investors, particularly in Asia, where the pressure to tapfiscal revenue sources is less than in the West, and companiesstill have large cash holdings. High free cash flow-generatingstocks, and in Europe, convertible bonds, constitute the othertwo components of our “Dividends and beyond” Top 2013 In-vestment Idea No. 3.

We are also optimistic that a range of stocks can recoverstrongly through 2013 as the business cycle strengthens. Thisis our Top 2013 Investment Idea No. 2: “Recovery stocks.” Inthe USA, we count stocks that benefit directly from the USconsumer revival among those set to recover. But we alsothink that merger and acquisition activity could pick up to thebenefit of M&A targets. Companies have had difficulty raisingtheir top line, but margins are good and corporate cash is plen-tiful. Finally, cyclical stocks more generally are part of the re-covery theme as well. A more specialist but interesting themelies in the new gas and oil sources (our Top 2013 InvestmentIdea No. 4) that are being tapped across the continents, in theUSA, Africa and Asia. This should benefit upstream energystocks with access to these sources in particular.

US real estate: Our preferred alternative investmentAmong alternative investments, private equity investments fol-lowing similar themes as those we presented for equitiesshould perform similarly well. Hedge funds should also be ableto benefit from ample liquidity. On commodities, low interestrates are generally supportive but moderate growth prospectslimit the upside potential. We have a neutral view for the asset

3 Investment Strategy 27/11/2012 Credit Suisse - Research Monthly

class overall and focus on undersupplied commodities. For ourTop 2013 Investment Idea No. 5, we keep US real estate asour preferred alternative investment, though.

Currencies: Major crosses in trading rangesOur outlook for major exchange rates is neutral. Interest ratedifferentials are very tight and no big trends are likely to betriggered against that backdrop. In our view, appreciation po-tential lies in selected emerging market currencies that benefitfrom current account surpluses and offer attractive remunera-tion. This is our Top 2013 Investment Idea No. 6: “New hardcurrencies.” The latter help investors protect purchasingpower. We see depreciation risk, in contrast, for the AUD. Thecurrency is strongly overvalued and interest rates in Australiaare expected to fall further. Add the potential long-term bene-fits the USD may get from a gradual move toward energyautonomy and several ingredients of a correction in theAUD/USD come together.

Closing 2012 with our Top 10 Investment IdeasWe are ending the year with a good result on our 2012 invest-ment ideas. The section dedicated to their review details re-commended actions with regard to existing holdings. We hopeour clients have found the updates over the year helpful andwish all a successful 2013. (23/11/2012)

Strategic asset allocation (SAA)The neutral allocations serve as a guideline and represent theaverage weighting over an entire market cycle. Since the glob-al strategy is based on a medium-term investment horizon, itdeviates from the neutral position. We recommend an over-weight in equities and alternative assets, particularly hedgefunds and gold. Conversely, we recommend underweightingfixed income investments and liquidity.

BM SAACash 5% 2%Fixed Income 80% 80%Equity 0% 0%Alternative 15% 18%





Equities

Fixed Income

Income

Balanced

Capital Gain

Benchmark(BM)

SAA

Benchmark(BM) SAA

Benchmark(BM)

SAA

Benchmark(BM)

SAA

Benchmark(BM)

SAA

Source: Credit Suisse

4 Investment Strategy 27/11/2012 Credit Suisse - Research Monthly


Performance of TopInvestment Ideasfor 2012

Our Top Investment Ideas for 2012have posted good returns thus far, andhave provided diversification.

Strong fixed income and real estate per-formance.

Stefan [email protected], +41 44 334 66 42

Nicole [email protected], +41 44 332 48 61

In the Research Monthly one year ago, we assumed that thelow interest rate environment in developed markets would con-tinue in 2012. We also expected slightly negative total returns

overall in fixed income and continued growth for equities. Weanticipated high volatility and we were positive on real estateand gold. Based on these views, we presented our Top 10 In-vestment Ideas for 2012, some of them with a focus on per-formance, some with a focus more on risk management andportfolio diversification. We occasionally updated the ideas dur-ing the year (please see our monthly Research Alerts on theTop Investment Ideas).

At the time of writing (21 November), we calculated abso-lute returns of between 8.5% (USD) and 17.5% (EUR) forFixed income Idea No. 1, core corporates. Idea No. 2, investin emerging market quasi-government credits, also recorded agood absolute performance. In this equity positive environ-ment, both idea No. 3, High dividend stocks, and idea No. 4,CS Top 30 portfolio, outperformed their respective bench-mark, MSCI World. This resulted in an absolute return of14.4% for our basket of high dividend stocks and 15.7% forthe CS Top 30 basket. Idea No. 5, a covered call writingstrategy, was closed in the spring with an absolute profit of9.4%, as volatility dropped significantly in the first quarter ofthe year. Idea No. 6, Diversifiers, and idea No. 7, Renminbi,were ideas to diversify away from EUR and USD. Besides thediversification effect, both ideas produced positive absolute re-turns. The first commodity idea, to follow a value strategy (No.8), outperformed its benchmark and was closed with an abso-lute performance of 6.4%. In September, this idea wasswitched into a carry strategy, which has underperformed thebenchmark by 1.7% so far (–3.2% absolute). The best per-forming idea was No. 9, real estate income generators, whichhad outperformed the benchmark by 11.3% until August(26.1% absolute) when we locked in the good performance.In September, we recommended investing in US real estate,which also outperformed the benchmark.

We also proposed a list of well-diversified hedges againstthe more extreme possible outcomes globally. Some of theideas (e.g. buy EUR puts/USD calls) showed a negative per-formance, other ideas (e.g. buy Italian and Spanish govern-ment bonds) performed well. (23/11/2012)

5 Performance review 2012 27/11/2012 Credit Suisse - Research Monthly


Top 2013Investment Ideas

Focus on outright performance, with re-covery stocks, the gas and oil theme andthe US real estate idea.

Diversification through EM currencies;risk reduction through short-dated bonds,credit and high dividend yielding stocks.

Kevin Lyne-SmithHead of Global Equity [email protected], +41 44 334 56 41

Following the successful performance of our Top 2012 ideas,for 2013 we initially focus on just six ideas (see Table). Threeof these are focused mainly on outright performance, notablythe recovery stocks, the gas and oil theme and the US real es-tate idea, the others have more of a risk management and di-versification role, while still aiming to deliver some perform-ance. We believe that an investor who focuses on these sixideas, in combinations adapted to their own risk profile, shouldhave a good chance of obtaining a reasonable return in 2013,while managing risk. We will provide further support for riskmanagement by monitoring the ideas throughout the year andchanging them if needed, though we will aim to keep suchchanges to a minimum. As an alternative to using these ideasby themselves, they can also be used to complement discre-tionary managed portfolios, or to complement the broader se-lections of recommended equities and bonds in our “TopPicks” and “Top 30” lists.

Top 2013 Investment Ideas explained1) Beyond cash: For risk-averse investors, we introduce thetop investment idea, “Beyond cash,” including short-datedbonds of AA- to BBB rated financial issuers as well as non-fin-ancial A to BB credits from developed and emerging markets,

as we prefer credit over duration. While we view the defaultoutlook for 2013 as still relatively benign, we recommend ex-cluding European volume car makers from portfolios, given thechallenging environment faced by that industry.

2) Recovery stocks: US and Chinese leading indicators por-tend a recovery, with the ongoing improvement in US labormarkets continuing to lift consumption, a key growth driver forthe US economy. We expect EM consumer demand to im-prove in 2013, while demand in Europe remains weak. USand EM discretionary consumer goods companies and finan-cials (loans and mortgages) should benefit most from these de-velopments. European and emerging market exporters shouldalso benefit from stronger consumer demand. In addition, weexpect M&A activity to pick up, as the uncertainty created bythe US elections and US fiscal cliff fades, and the economicrecovery gains momentum and companies seek to expand op-erations.

3) Dividends and beyond: For investors searching for yield,while maintaining a low risk appetite, high dividend yieldingstocks continue to offer a very attractive alternative to bonds,and as such, remains a Top Idea. However, the idea has beenenlarged to include companies generating high free cash flow,as these stocks generally provide a lower risk route for in-vestors to gain exposure to equity markets. In addition, theidea includes European high yield convertibles as a low volatil-ity investment with exposure to equity markets.

4) New oil and gas sources: The global oil and gas land-scape is undergoing a significant transformation, fueled by thestrength of crude oil prices as demand remains robust. As aresult, the industry has started to focus on deposits in more re-mote and previously inaccessible areas to boost reserves. Newproduction technology has enabled the extraction of oil andgas from geologically challenging deep-water and shale stoneformations. Companies providing related advanced technologyand specialized services should particularly benefit from thesedevelopments and outperform their peers.

5) US real estate: We retained this idea for 2013, as theUS economy continues to recover and housing data has beenconsistently improving since January 2012. Real estateprovides portfolio diversification and investment yield with anadditional benefit of price appreciation if the markets rise.

6) The new hard currencies: Diversification out of tradition-al hard currencies (USD, EUR, CHF) into higher yielding cur-rencies or currencies which are expected to appreciate, can re-tain purchasing power within a portfolio, given that yields in tra-ditional currencies are near zero.

What should I do with investments based on the Top2012 ideas?A number of the investments in the Top 2012 Ideas can be re-tained, as many of them have either been carried over un-changed or have become part of a reformulated or larger idea.Specifically, the two fixed income ideas, “Core corporates andbanks” and “Emerging market quasi-government and corpor-ate credits,” were retained and integrated into a single 2013idea, “Beyond cash.” The equity “Dividend strategies” idea hasbeen retained and included in the broader “Dividends and bey-ond” idea. CS Top Picks and Top 30 will provide an alternativefor equity investors preferring bespoke portfolio solutionsrather than being an investment idea. Foreign exchange “Diver-

6 Top investment ideas 2013 27/11/2012 Credit Suisse - Research Monthly

sifiers” and the “Yuan/renminbi” ideas were retained and integ-rated into a single 2013 idea, “The new hard currencies.”Meanwhile, the commodity “Carry strategies” idea was re-moved form the list, following our strategic downgrade of theasset class to neutral, but the idea remains relevant for in-

vestors still interested in commodities. The US real estate ideais retained for 2013. Finally our “What if…” alternative scenari-os are no longer as relevant, given the stabilization in the eco-nomic and political environment. (23/11/2012)

Top Investment Ideas for 2013

Rationale/UpdateActionStatusFixed Income

Cash should continue to be unremunerative (near-zero yields) in most markets.Whereas credit spreads have come down markedly over the year, bringing yields ofmany bonds into very low territory, corporate bonds of short maturities still offer a de-cent yield pick-up versus cash. With default rates expected to gradually increase in2013, conservative investors should focus on investment grade credits.

Buy short dated AA-A financials and A-BBnon-financials excluding auto.

1. Beyond cash: Creditnot duration

Equities

Equity market sentiment should improve further in 2013. Cyclicals including emergingmarket stocks should benefit mostly from ongoing US and Asia recovery. We expectrobust M&A activity as stocks are cheap and cash levels high.

Buy US consumer, M&A and cyclical stocks.2. Recovery stocks

For investors who are interested in absolute return and with an expectation of relativehigh cash flow disbursements from dividends.

Buy European high dividend yielding stocks,high free cash flow generating stocks or highyield convertible bonds.

3. Dividends and beyond

Oil and gas companies with new exploration technologies or which have interest in asyet unexploited shale gas, tight oil, deepwater oil, etc.

Invest in upstream energy stocks.4. New gas and oilsourcesAlternative Invest-ments

Very affordable prices, easy monetary policy and solid economic growth will supportUS housing. German real estate also appears relatively cheap and can benefit fromcapital inflows.

Invest in commercial and residential real es-tate.

5. US real estate

Foreign Exchange

We stick to the current idea of diversification into selected EM currencies out of tradi-tional hard currencies like EUR and USD.

Buy selected Asian currencies and other selec-ted EM currencies.

6. The new hard curren-cies

Key to status symbols: green = attractive investment opportunities – continue to invest in theme; yellow = keep holdings but do not add to existing positions; red = reduce /exit existing positions.


7 Top investment ideas 2013 27/11/2012 Credit Suisse - Research Monthly

Risk scenarios

Alternative macroscenarios and theirstrategyimplications

Our investment strategy is based on aforecast of curtailed “tail risks” and contin-ued moderate global economic expansion.

Investors may want to consider the im-plications of alternative, “down” or “up-side,” macro scenarios for their personalstrategy.

Oliver AdlerHead Economic [email protected], +41 44 333 09 61

Our 2013 investment strategy (see Monthly Investmentstrategy article) is based on the assumption of moderate globalgrowth, supported by very easy money and easier credit condi-tions, but still constrained by tight fiscal policy and someprivate sector de-leveraging. Inflation is expected to remainlow due to continued excess capacity and moderate commod-ity demand. With interest rates still around zero, this suggestsoverweighting risk assets, especially equities, though not ag-gressively so.

Resurgence of Eurozone stresses?Over the past two years, repeated failures to fully resolve theEurozone debt crisis have been a key driver of financial mar-kets; the fear of default and/or EUR break-up repeatedly setback risk assets. However, since the ECB’s announcementthat it would extend its lender of last resort function to sover-eigns, albeit conditionally, fears have subsided. There neverthe-less remains potential for setbacks, e.g. if European policymakers drag out bank recapitalization in Spain or, more gener-ally, hold back support for highly indebted governments. Finan-cial market stress would again rise and undermine any nascentEuropean recovery. Investors who regard this as likely, would

need to lower their exposure to risk assets generally, espe-cially to European financials as well as high yield, while raisingthe allocation to safe-haven bonds and the USD.

Potential downsides and upsides of the US fiscal cliffMore recently, markets have focused on the so-called US fisc-al cliff and the risk that fiscal policy might tighten abruptly, indu-cing a US recession and slower global growth. The strategy im-plication of this scenario would also be to lower equity weight-ings (this time in the US) while sticking to high grade bonds.Cyclical commodities would be downgraded while the alloca-tion to gold would tend to be higher on the assumption thatthe Fed would offset tighter fiscal policy with extra easing.There are two alternative outcomes of the fiscal debate. Oneis a “fudge,” which extends tax cuts, but fails to tackle longer-term issues. While the fallout for growth would be limited, thecredit rating of the US government would be undermined, andrisk assets as well as the dollar might suffer. The second, farmore positive, outcome would be a “grand bargain,” whichboth avoids the cliff and achieves long-term debt sustainability.The latter would clearly be bullish for equities and credit, whilethe USD and high grade bonds would probably hold up well.

Better or worse growth-inflation mixFinally, investors should consider alternative trajectories for theglobal economy even if policies do not change much. On thepositive side, the “healing” process of the US as well as othereconomies may be further along than we think. If so, cyclicalequities and currencies in Europe and emerging markets, aswell as commodities, such as metals, would benefit. Inflationmay also rise somewhat in such a scenario. More negativewould be higher inflation without better growth, be it becausehigh debts translate into inflation fears or geopolitical tensionsraise oil prices. Such a scenario would call for underweightingrisk assets as well as bonds, while adding to cash.

(23/11/2012)

8 Risk scenarios 27/11/2012 Credit Suisse - Research Monthly

Investment summaryShort interest rates 3M LIBOR / 10-year government bonds

10Ybonds

3MLIBOR

12M3MSpot12M3MSpotin %

1.1-1.30.6-0.80.500.0-0.20.0-0.20.03CHF

1.8-2.01.5-1.71.440.1-0.30.1-0.30.19EUR *

1.9-2.11.6-1.81.690.3-0.50.3-0.50.31USD

2.1-2.31.7-1.91.840.5-0.70.5-0.70.52GBP

0.9-1.10.7-0.90.740.1-0.30.1-0.30.19JPY

Spot rates are closing prices as of 23/11/2012. Forecast date: 22/11/2012. * 3M Euribor

Source: Bloomberg, Credit Suisse

Bonds: Selected indices

12M TR out-look

Total returnYTD (%)

Spread tobench-

mark (bp)

YTM(%)

Index

9.21242.7USD (CS LUCI)

11.51451.9EUR (CS LEI)

4.2540.7CHF (CS LSI)

11.91723.5GBP(CS LEI)

16.32944.7EM HC (JPM EMBIGlobal)

3.8n.a.5.6EM LC hedged inUSD (JPM GBI)

12.16036.7High Yield (CS HY In-dex)

Prices as of 23/11/2012


Commodities

12M3MSpot

1,8501,8001,753.00Gold (USD)

333534.09Silver (USD)

1,8501,7501,619.70Platinum (USD)

999388.28Oil (USD)

Spot prices: London close 23/11/2012


Equities: Selected indices

12M out-look

12M fairvalue

YTD(%)

MTD(%)

PriceIndex

Overweight1,51312.1%-0.2%1,409.15S&P 500

Underweight6,47713.1%1.8%6,715.09SMI

Neutral5,9544.4%0.6%5,819.14FTSE-100

Neutral2,57010.4%2.1%2,557.03Euro Stoxx 50

Underweight9,80010.8%4.9%9,366.80Nikkei 225

Neutral1,0398.7%0.1%995.94MSCI EM

Overweight12,0006.7%0.2%10,606.99China H-Shares

Prices as of 26/11/2012; 12M fair value: scenario analysis available; 12M outlook: relative to MSCI WorldIndex (USD)


Foreign exchange

12M3MSpot

1.33-1.371.33-1.371.30EUR/USD

0.90-0.940.89-0.930.93USD/CHF

1.22-1.261.21-1.251.20EUR/CHF

80-8480-8482USD/JPY

109-113109-113107EUR/JPY

0.82-0.860.82-0.860.81EUR/GBP

1.58-1.621.58-1.621.60GBP/USD

8.18-8.228.38-8.428.59EUR/SEK

0.96-1.000.96-1.001.05AUD/USD

6.10-6.306.12-6.326.23USD/CNY

Spot rates: London close 23/11/2012


Real GDP growth and inflation

InflationGDPgrowth

2013E2012E20112013E2012E2011in %

1.0-0.60.21.50.51.9CH

2.22.42.70.2-0.41.7EMU

2.12.13.22.22.11.8USA

2.02.84.51.0-0.20.9UK

-0.40.0-0.20.61.7-0.8Japan


Global Research asset category strategy

Strategic6–12+ M

Tactical1–6 M

Comments and comparison of weightingsBy region/strategy

We keep our focus on shorter maturities. We recommend focus-ing on high yield bonds.

Overweight: USA; Underweight: CH & Canada.Fixed income

Valuations stay attractive. Equities have not yet regained all post-US election losses, so still a good entry point.

Overweight: USA; Underweight: Switzerland and Japan.Equities

Tactically positive on short-term price rebound potential. Strategic-ally neutral on potential cyclical headwinds.

Overweight: Energy, precious metals; Underweight: Ag-riculturals.

Commodities

Equities: Some upside strategically, but valuations richer. Directreal estate: Attractive rental carry.

Overweight: USA, Asia-Pacific and Germany; Under-weight: UK.

Real estate

Selected private equity themes are particularly suitable to take ad-vantage of the current economic environment.

Focus on secondaries, natural resources, SME LBOs,emerging markets and distressed debt.

Private equity

We overweight directional strategies such as EM and long-short.We maintain our positive stance for global macro.

We maintain our positive stance on global macro and dir-ectional strategies.

Hedge funds

We expect EUR/USD to test the upper end of the 1.25-1.35range. CAD fundamentals are neutral, upside capped.

EUR/USD , USD/CHF, GBP/USD,USD/JPY.

Foreign ex-change

Source: Credit Suisse Investment Committee/Global Research

9 Risk scenarios 27/11/2012 Credit Suisse - Research Monthly

Economics

2013: Growthmoderate, rateslow

Easing financial stress/less fiscal uncer-tainty should allow gradual cyclical improve-ment over coming months. But globalgrowth likely to remain moderate overall in2013.

Significant inflation pressure unlikelynext year. In the majority of advanced eco-nomies, interest rates look very unlikely torise in 2013.

Thomas [email protected], +41 44 333 50 62

The ECB’s promise to buy bonds (in return for deficit cuts andreforms) marked a significant turning point for the Eurozonecrisis in August/September 2012. As long as this announce-

ment remains credible and keeps yields of the weaker coun-tries’ bonds from rising meaningfully, a renewed major finan-cial shock in the Eurozone looks unlikely (for more on alternat-ive macro scenarios, please refer to “risk scenarios” page).Lower financial stress should continue to result in easier mon-etary conditions and some growth improvement in 2013 aftera weak end to 2012. However, fiscal deficit reduction andhigh unemployment remain significant headwinds. Our Euro-zone growth forecast for next year is only marginally abovezero.

US: Stronger growth once fiscal uncertainty recedesGiven the big US deficit, some fiscal drag in 2013 and the fol-lowing years is inevitable. A bi-partisan compromise to softenthe “fiscal cliff” nevertheless remains our base case. Surveydata suggests that businesses have held back investmentspending due to fiscal uncertainty. Once the fiscal outlook be-comes clearer, we would expect some of the pent-up demandto contribute to a re-acceleration during the course of H12013. Hurricane-related effects weigh on Q4 of this year, butwe expect the housing recovery (prices up, excess supplydown, construction activity up) to remain more supportive in2013. Improved labor market trends should continue andmulti-year highs of consumer confidence suggest more expan-sion of spending. That said, we still look for only a gradual de-cline in the unemployment rate in 2013. The Fed is likely to re-tain its expansionary policy bias, which should also support therecovery.

Emerging markets: Again a key growth driver in 2013Emerging markets, especially non-Japan Asia, are (again)likely to account for more than three quarters of global GDPgrowth in 2013. In China, major fiscal stimulus is unlikely asthe new leadership aims to achieve sustainable growth, in ourview. Combined with persisting headwinds in key export mar-kets, e.g. Europe, Chinese growth should remain below thetrend of the past years. Despite all this, solid Chinese creditgrowth, driven in particular by financial market development(e.g. bond issuance), is becoming more supportive. Businesssurveys in China and many other emerging markets (e.g. Rus-sia, India, Turkey, Brazil) tentatively point toward cyclical im-provement, which looks likely to unfold more visibly in early2013. (22/11/2012)

10 Economics 27/11/2012 Credit Suisse - Research Monthly

Selected ideas from previous months

November 2012 (30/10/2012)

Action to be takenRecommendation

Add exposureEQBUY Undervalued cyclical stocks in China. We recommend domestically-driven cyclical stocks to benefit from China’s growth stabilization.

Add exposureEQBUY Exposure to non-investment grade convertible bonds from European issuers.

Add exposureEQBUY Asset managers with a strong EM presence: Partners Group. The alternative investment manager is currently expanding its client rela-tionships throughout Asia.

Add exposureEQBUY CS Top 30 stock: Schlumberger. Occupies a leading position in the diversified energy services market.

October 2012 (25/09/2012)


Add exposureFXBUY Selected EM currencies. For emerging market currencies, the Fed’s action tends to be positive, but we are selective as some coun-tries will counter with their own monetary expansion.

Add exposureREBUY Retailer linked to housing recovery: Home Depot. Home Depot is the world’s largest home improvement specialty retailer, whichshould benefit from a pick-up in US homebuilding.

Add exposureEQBUY Microsoft – CS Top 30 company. Trades at a valuation discount and is poised to benefit from the upcoming Windows 8 release.

September 2012 (28/08/2012)


Add exposureEQBUY Crop resilience: Bayer. Crop protection against weather extremes likely to be a key component of increased efforts to secure foodsupplies.

Add exposureEQBUY Yield enhancement: Deere. Given their potential to safeguard yields, we favor fertilizers with EM exposure as well as high tech farmmachinery.

Add exposureEQBUY Chevron – CS Top 30 company and key energy play. Integrated energy company with solid long-term growth prospects.

Add exposureAIBUY Gain exposure to directional hedge fund styles, such as long/short equity. Low volatility and the uptrend in equity markets positive forthe sector.

FI Fixed income, EQ Equities, AI Alternative investments, FX Foreign exchange, RE Real estate

For further information, including disclosures with respect to any other issuers, please refer to the Credit Suisse Global Research Disclosure site at: http://www.credit-suisse.com/research/disclaimer


11 Economics 27/11/2012 Credit Suisse - Research Monthly

Fixed income

Less value in fixedincome

After a strong 2012, credit performancestill likely to be positive, but much lower in2013.

High yield bonds still offer a decentpick-up over cash; other corporates moremodest, but still worthwhile.

Sylvie Golay [email protected], +41 44 334 54 37

Credit rally gradually ending, but not yet reversingThe year 2012 has not only seen a further decrease in bench-mark bond yields, but also a sharp contraction in credit riskpremia, which pushed corporate bond yields to record lows. Inthis environment, risky credits have performed the best. Thedecline in tail risk in the Eurozone has particularly benefitedEUR high yield bonds, which have recorded total returns above20% YTD. This environment has also been positive for finan-cial issuers, which we have included since March in our 2012Top investment idea 1) “Core corporates and banks,” as well

as for emerging market bonds, which were part of our Top in-vestment idea 2) “EM quasi-government and corporate cred-its“, with both segments posting YTD total returns above 10%.

In 2013, we expect returns to come down significantly, giv-en the lower potential for credit spread tightening and expec-ted increase in benchmark yields. While major central banksare likely to maintain their interest rates close to zero in 2013,we view the impact of further quantitative measures as ratherlimited, providing less support to benchmark governmentbonds. These yields should gradually increase toward their fairvalue to better reflect the improving growth environment. High-er benchmark yields are likely to also constrain the perform-ance of investment grade corporate bonds. Still, bank regula-tions potentially allowing single A rated debt to be eligible for li-quidity requirements, and more generally the low yield environ-ment, should, in our view, help the asset class to post slightlypositive returns in 2013. We again expect high yield bonds tooutperform other fixed income segments. As 2013 pro-gresses, better economic data may allow credit spreads totighten further, but meanwhile the risk of rising leverage mayconstrain any spread narrowing, that may result in mid-single-digit total returns for high yield. As such, we would expectsome risk-tolerant investors, which have shunned equitiessince the financial crisis, to increase their equity allocation atthe expense of high yield bonds.

Diversified corporate bond exposure preferable to cashWhile valuations look less compelling than a year ago, corpor-ate bonds still offer a decent yield pick-up compared to cash.For investors looking to reduce their allocation to the latter, weintroduce the 2013 Top investment idea “beyond cash,” includ-ing short-dated bonds (typically up to 3 years) of AA- to BBBrated financial issuers as well as non-financial A to BB creditsfrom both developed and emerging markets. This idea broadlyencompasses our two fixed income investment ideas from2012, “core corporates and banks” and “emerging marketquasi government and corporate credits,” which have recordeda strong performance YTD. While we view the default outlookfor 2013 as relatively benign, event risk is likely to gradually in-crease in the coming years. Buy-and-hold investors shouldtherefore ensure a very broad name diversification. We also re-commend excluding European volume car makers, given thechallenging environment faced by the sector. At the issuerlevel, we continue to see HeidelbergCement, Lafarge and Con-tinental as improving credit stories likely to provide interestinginvestment opportunities. Among peripheral sovereigns, we reit-erate our preference for Italy. (22/11/2012)

12 Fixed income 27/11/2012 Credit Suisse - Research Monthly

Selected bond recommendations

Dura-tion

Bench-markspread

YTM/YTC(%)

Askprice(1)

Vol.(m)

Min. de-nomina-

tion/incre-ment (in1000)

MaturityCoup.RatingIssuerCurr.ISIN

CHF

2.52161.93101.452005 / 507/16/20152.500BBB / Baa2/

RCI BANQUE SACHFCH0181738904

3.31551.36101.702255 / 505/02/20161.875BBB- /Baa3

METRO AGCHFCH0149058163

4.43483.4899.551855 / 510/25/20173.375NR / Baa2eUNICRED BANK IRELAND PLCCHFCH0197482711USD

2.8851.10100.0022501 / 110/15/20151.100A / A2JPMORGAN CHASE & CO (3)USDUS46623EJR18

4.7811.40101.057502 / 110/10/20171.625A / A1GDF SUEZ (3)USDUSF42768GN96

4.8661.31100.3010001 / 111/06/20171.375A / A2BP CAPITAL MARKETS PLC (3)USDUS05565QCC06

4.8971.6599.7810001 / 111/20/20171.600AA+ / A1GENERAL ELEC CAP CORP (3)USDUS36962G6K56

4.81051.7299.45650200 / 111/20/20171.600A- / A3eVOLKSWAGEN INTL FIN NV (3)USDXS0857054232EUR

1.91891.89100.467501 / 111/24/20142.125BBB / Baa2RCI BANQUE SAEURXS0856173546

2.71331.35104.20600100 / 109/25/20152.875BBB+ / NRCARREFOUR BANQUEEURXS0833631343

4.42512.90103.7810001 / 109/21/20173.750A- / Baa1MORGAN STANLEYEURXS0832446230

4.7991.41101.621250100 / 110/29/20171.750A+ / A2STANDARD CHARTERED PLCEURXS0849677348

4.43293.64101.621711100 / 111/09/20174.000BBB+ /Baa2

INTESA SANPAOLO SPAEURXS0852993285

Others

1.5931.21100.792501 / 105/21/20141.750A- / A3DAIMLER INTL FINANCE BVGBPXS0783260853

2.7991.3299.812501 / 108/20/20151.250A- / A3VOLKSWAGEN INTL FIN NV (3)GBPXS0817624066

6.4972.1999.62500100 / 111/13/20192.125AA- / Aa3NORDEA BANK ABGBPXS0853680527

6.41292.5399.033001 / 111/20/20192.375A+ / A2BNP PARIBASGBPXS0856595961

3.41504.23101.311502 / 208/24/20164.625A- / A3VOLKSWAGEN INTL FIN NVAUDXS0819413351

3.43326.1199.611852 / 210/18/20166.000BBB / Baa2RCI BANQUE SAAUDXS0841812851

4.41914.7099.7645010 / 1011/07/20174.650NR / A2JPMORGAN CHASE & CO (3)AUDAU3CB0201366

4.51574.3898.3375010 / 1011/15/20174.000A / A2TELSTRA CORP LTD (3)AUDAU3CB0201838

2.9942.1399.631252 / 211/27/20152.000NR / NRDAIMLER AGCADXS0858468415

3.6792.24100.0460010 / 1008/31/20162.250NR / NRTOYOTA FINANCE AUSTRALIANOKXS0822354774

4.4572.1499.92150010 / 1008/09/20172.125AAA / AaaNORDIC INVESTMENT BANKNOKXS0812998036EM/Below IG

1.02031.75102.664205 / 512/09/20134.375BBB- /Baa3

GAZPROMBK (GPB FINANCE)CHFCH0142821377

2.62562.35102.004505 / 508/17/20153.125NR / Baa1OJSC RUSS AGRIC BK(RSHB)CHFCH0190653870

2.72021.82103.454105 / 509/14/20153.100NR / A3SBERBANK (SB CAP SA)CHFCH0148606160

2.92702.52103.755005 / 502/17/20163.750BBB / NRVNESHECONOMBANK(VEB)CHFCH0123431709

3.24974.81102.73370150 / 112/31/20175.625BB- / Ba3SUNRISE COMMUNICATIONS I (3)CHFXS0804472057

2.63773.73100.3875050 / 110/05/20153.875BB+ / NRMOL HUNGARIAN OIL & GASEURXS0231264275

3.92032.27106.001400100 / 103/15/20173.755BBB / Baa1GAZPROM (GAZ CAPITAL SA)EURXS0805582011

4.64164.72124.8850050 / 5012/15/20189.500BB / Ba2HEIDELBERGCEMENT FIN LUX (3)EURXS0686703736

4.03233.78102.79450200 / 105/16/20174.461BBB- /Baa3

YANCOAL INTL RES DEV (3)USDUSY97279AA45

4.12913.47105.98750200 / 107/19/20174.875NR / Baa2TURKIYE HALK BANKASI (3)USDXS0806482948

4.2-45.06112.00758260.1 / 0.112/14/20177.750A- / Baa1MEX BONOS DESARR FIX RT (3)MXNMX0MGO0000F3

1) Indicated prices as of 23. November 2012; 2) Subject to withholding tax; 3) Semi-annual coupon; 4) Quarterly coupon; 5) Corporate subordinated hybrid debt, yield to call, duration to call; 6) Junior subordinated debt, yield tocall, duration to call; 7) Subordinated debt, LT2; 8) e = expected rating, subject to final documentation / n.a. = not applicable / NR = not rated; 9) 3M-LIBOR in respective currency; 10) Callable


13 Fixed income 27/11/2012 Credit Suisse - Research Monthly

Equities

Positioning for the(Re)recovery

US and Asian business cycle indicatorsfirming up.

“Fiscal cliff” sell-off has pushed valu-ations toward cheap levels.

Michael O'SullivanHead of Portfolio Strategy & Thematic Researchmichael.o'[email protected], +44 20 7883 8228

Top 30 portfolio stock: ChevronA leading energy-related recovery investment.Buy

With the US elections and the change of leadership in Chinaout of the way, we can focus more on macro data, and in bothcountries business cycles are beginning to show broad basedsigns of recovery. In this sense, with the notable exception ofEurope, which remains mired in a recession of its own making,2013 may be the year when the global business cycle finallyenjoys a decisive and enduring recovery.

Mind the cliffIf this proves to be the case, it will convincingly underpin equit-ies, especially cyclicals. For the moment, the prospect of aglobal economic recovery has to confront the hurdle of the fisc-al cliff debate in the US. Even with recent signs of a more“constructive” debate, we may see more market volatility,though it is also worth mentioning that market volatility and theinsistence of corporate America are likely to spur politicians to-ward a settlement.

Under this “most likely” scenario, market volatility can pushvaluations to cheap levels. To give more detail, our fair valuelevel on the S&P 500 index is just over 1500, assuming long-term average levels of earnings growth, volatility and risk appet-ite. We have an alternative, pessimistic scenario in which volat-ility spikes and risk appetite falls and a level of 1200 comes in-to focus. Thus, the fiscal cliff debate could drive equity indicestoward attractive levels and we would regard any rise in volatil-ity as a buying opportunity. This is especially the case from anasset allocation point of view, with “safe haven” bond yields(e.g. US, UK) again closing on record lows, making them unat-tractive compared with the relatively high dividend yields inequity markets.

Beginning to add cyclical exposureAs such, within equities we continue to stress the relativelygenerous yields on our dividend strategy baskets, in particularfor the lower risk Defensive Dividends basket. This is now partof a broader “Dividends and beyond” Top Idea for 2013,where the focus is more broadly on cash flow rich companies.The other equity Top Idea is based on stocks that are “recov-ery calls,” for example, potential merger and acquisition targetsand global cyclicals. In this spirit, we make a number of sectorallocation changes that begin to give our sector strategy amore cyclical tilt. Specifically, we upgrade insurance and realestate, both of which have positive earnings momentum and at-tractive valuations, to overweight. Hotels and chemicals movefrom underweight to neutral and we then downgrade wirelesstelecoms from overweight to neutral and tobacco to under-weight. We feel it is yet too early to turn positive on larger cyc-lical sectors such as capital goods and materials.

(22/11/2012)

14 Equities 27/11/2012 Credit Suisse - Research Monthly

Global equity sector strategy and top picks

Asia ex Japan (N) / Ja-pan (U) / Australia (N)

Latin America(N) / Emer-

ging Europe &Africa (N)

USA (O)Switzerland (U)Europe (N) /UK (N)

Industry (strategic weight)Sector (strategicweight)

China Shenhua Energy,Cnooc Ltd

Novatek*, Petro-bras

Chevron-Royal DutchShell, BG Group

Energy (O)Energy (O)

-SQM--LindeChemicals (N)#Materials (N)#

Siam Cement--Holcim-Construction Materials (N)

BHP Billiton Limited---Rio TintoMetals & Mining (N)

-----Pulp & Paper (N)

Keppel Corp, Gamuda*,United Tractors

-Caterpillar, Gener-al Electric+

ABB, Schindler-Capital Goods (N)Industrials (N)

---Adecco+-Commercial Services & Supplies (N)

Air China -H----Transportation, incl. Logistics (N)

Toyota Motors, Bridge-stone+

---BMWAutomobiles & Components (N)Consumer discre-tionary (U)

--Coach+--Consumer Durables & Apparel, Tex-tiles, Apparel & Luxury (N)

-----Hotels, Restaurants & Leisure (N)#

-Naspers*Time Warner--Media (N)

---Dufry-Retailing (U)

-----Food & Staples Retailing (N)Consumer staples(U)

-AmBev*--SABMillerBeverages (N)

-Brasil Foods*,Cosan

-Aryzta, Nestlé-Food Products (U)

----British AmericanTobacco

Tobacco (U)#

--Procter &Gamble

-Reckitt BenckiserHousehold & Personal Products (N)

-----Healthcare Equipment & Services (N)Healthcare (N)

--BioMarin Pharma-ceutical

Actelion-Biotechnology (N)

--Teva, Merck &Co.

Roche(Genussscheine),Novartis

Bayer, HikmaPharmaceuticals

Pharmaceuticals (N)

China Construction Bank,Sumitomo Mitsui Financial

Group, Kasikornbank*,Bank Mandiri, DBS+

Sberbank*---Banks (N)Financials (N)

--Citigroup--Diversified Financials (N)

---Zurich InsuranceGroup

Allianz, AXAInsurance (O)#

Asian Property Develop-ment, Henderson Land De-velopment, Swire Proper-

ties

----Real Estate (O)#

--Microsoft,Google, Master-

card

-SAPSoftware & Services (O)IT (O)

Samsung*, Digital China,Lenovo, Toshiba+

-EMC, Apple+--Technology Hardware & Equipment(O)

-----Semiconductors & SemiconductorEquipment (N)

-----Diversified Telecoms (U)Telecom services(U)

Softbank+----Wireless Telecoms(N)#

----IberdrolaUtilities (U)Utilities (U)

This is our sector strategy and top picks as of 26 November 2012 recommended by Credit Suisse, Private Banking division. Our sector/industry strategy shows our sector/industry preferences with recommendations relative toregional benchmarks: Global: (MSCI World in USD), Europe (MSCI Europe in EUR), Switzerland (Swiss Market Index in CHF), USA (S&P 500 in USD), Asia/Pacific (MSCI AC Asia/Pacific in USD). An overweight (underweight)is a recommendation to invest more (less) than in a neutral position indicated by the market-cap weights of the respective benchmarks. The sector/industry weights as well as the neutral positions in figures are available upon re-quest; please contact your relationship manager. The Top Picks is a selection of our favorite stocks within our coverage. The selection was made to reflect the sector/industry and regional preferences. Regular full updates areprovided via our Research Monthly publications as well as in our Equity Research reports. Additionally, we publish our adds and drops in our Research Daily publication. Legend: (O) = Overweight, (N) = Neutral, (U) = Under-weight. (*) = Emerging Markets top picks. Changes are marked as follows: (+) = additions to the top picks, (#) = changes to sector/industry/country weightings. For further information, including disclosures with respect to anyother issuers, please refer to the Credit Suisse Global Research Disclosure site at: http://www.creditsuisse.com/research/disclaimer. Please note that trading facilities in certain securities may be limited.


15 Equities 27/11/2012 Credit Suisse - Research Monthly

Alternative investments

Opportunities inhedge funds andreal estate

Real estate, directional hedge funds andgold have the most upside potential in2013.

US housing recovery: Gain exposure viaREITS and stocks of US homebuilders.

Tobias MerathHead Commodities & Alternative Investments [email protected], +41 44 333 13 62

US Real Estate Investment TrustsUS real estate has upside potential, as the rental mar-ket has bottomed out. REITS still offer value.

Buy

Selectivity is key for 2013The year 2012 has been a mixed one for alternative invest-ments, with some sectors trading sideways (commodities) andothers strongly positive (real estate). The combination of mod-erate growth and low interest rates benefits some sectorsmore than others, and this is likely to continue in 2013. Thereare opportunities, e.g. in real estate, but market participantsneed to be selective.

Hedge funds: Positive outlook for directional strategiesThe DJ CS Hedge Fund Index was down 0.2% in October.The index is up by around 5% year-to-date, so 2012 looks setto be a slightly below average year for hedge funds. The out-

look is reasonably positive for 2013, with liquidity plentiful andvolatility low. Due to the lack of strong trends in the markets,we prefer flexible global macro funds over trend dependentmanaged futures. We also have a positive view on directionalstrategies, which benefit from rising stock markets. Correla-tions between individual stocks are low, offering managersplenty of opportunity to implement fundamental and quantitat-ive strategies.

Commodities: Stronger toward year-end, neutral longertermCommodities have had a mixed year in 2012, with most bench-mark indices up only slightly year-to-date. As growth has bot-tomed out, we might see stronger prices toward the end of theyear. However, beyond the tactical horizon, the outlook is neut-ral. Growth is picking up, but not strongly enough to trigger along-lasting commodity rally. With respect to individual mar-kets, gold has modest upside, in our view, given the ongoingreal interest rate regime. Oil could also trade higher amid eco-nomic stabilization. In terms of investment strategy, we thinkcarry strategies which dynamically overweight commoditiesthat are in short supply should outperform passive indices.

Real estate: Further upside for REITs in 2013Valuations of global real estate investment trusts (REITs) havebecome richer following their strong performance this year.We nevertheless see further upside potential, given attractivedividend yields, robust direct commercial real estate marketsand supportive monetary policy. Regionally, we prefer US RE-ITs, as growth prospects are more favorable in the US, wherewe expect the housing market recovery to continue in 2013.Selected stocks of homebuilders and other companies linkedto US residential construction offer attractive investment oppor-tunities. (22/11/2012)

Performance of alternative investments

50

100

150

200

250

300

350

Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11

Commodities (Credit Suisse Commodity Benchmark) Real Estate (Global REITS)

Hedge funds (DJ Credit Suisse Hedge Fund Index)

Indexed performance in USD, January 2004 = 100

Source: Bloomberg, Credit Suisse / IDC

16 Alternative investments 27/11/2012 Credit Suisse - Research Monthly

Foreign exchange

Diversify out ofhard currenciesinto selected EMcurrencies

We expect USD to remain in its currentbroad trading ranges against EUR andCHF, at the lower end of these bands.

Fundamentals are stronger for most Asi-an currencies and selected currenciessuch as MXN.

Marcus HettingerHead of Global Forex [email protected], +41 44 333 13 63

EUR risk premium to ease, USD lacks rate supportGrowth in the USA remains far stronger than in the EMU, aswe see the Fed as being more expansionary than the ECB.The divergent external deficit and low US yields are negativefor the USD. We thus still see the USD weakening within itsbroad ranges of EUR/USD 1.25–1.35 and USD/CHF0.90–0.97. We stay neutral USD/JPY due to narrow ratespreads. Only major easing by the BoJ, in combination with ahigher inflation target, would imply a weaker JPY. Reserve di-versification flows may turn less supportive of GBP. The eco-nomic outlook is still weak, and risks of a rating downgradeare increasing. We are neutral GBP/USD. Within Europe, westill prefer SEK, given the rate advantage and fair valuation.Within commodity currencies, our relative preference remainsfor CAD vs. AUD. Higher oil prices are positive for CAD, whilerates in Australia are likely to decline. Finally, we continue toexpect the SNB to defend the floor at 1.20 and recommendCHF-based investors diversify into selected European curren-cies such as SEK and NOK.

Stronger CNY to lead Asian currencies higher, MNX is at-tractive in Latin AmericaIn our view, signs of growth bottoming out in China and a cur-rent account surplus are the long-term drivers of moderateCNY appreciation. Other Asian currencies, such as KRW (at-tractive valuation) and SGD (strong external position), are alsoattractive. Diversification out of traditional hard currencies,such as USD, EUR and GBP into selected emerging marketcurrencies, is one of our Top Investment Ideas for 2013 (IdeaNo. 6). Within Latin America, the MXN should benefit fromthe rate advantage, the recovery of the US housing marketand undemanding valuation. But investors must also be awarethat central banks may counter rapid appreciation with cur-rency intervention or easing, especially if growth were to slow.This means selection and periodic position updating will be keyin 2013. We still see risks, for example, of a further weaken-ing of ZAR. (22/11/2012)

USD model currency portfolioThe portfolio is built from the center outwards. The base cur-rency is shown in the middle, surrounded by the long-run CoreDiversification to major liquid currencies and gold. The Stra-tegic Allocation follows, diversified into preferred currencies,based on our strategic currency views. The outer layer showsthe Optimal Portfolio, which also considers our tactical views.

Americas USD 62% USD 62% 0% USD 62%

CAD 0% 0% CAD 0%

Europe EUR 20% EUR 16% -1% EUR 15%

SEK 6% 0% SEK 6%

NOK 4% 0% NOK 4%

CHF 0% 3% CHF 3%

GBP 0% 0% GBP 0%

JPY 15% JPY 8% -2% JPY 6%

SGD 0% 0% SGD 0%

AUD 0% 0% AUD 0%

NZD 0% 0% NZD 0%Gold XAU 3% XAU 4% 0% XAU 4%

TacticalOverlay = Optimal

Portfolio

Asia-Pacific

CoreDiversification

StrategicAllocation +

USDbase

USD

JPY

USDEUR

SEK

NOK

JPYXAU

USDEUR

SEK

NOKCHF

JPYXAU

EUR


17 Foreign exchange 27/11/2012 Credit Suisse - Research Monthly

Important information on derivatives

Option premiums and prices mentioned are indicative only. Option premiums and prices can be subject to very rapid changes:The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the mean-time.

Pricing

Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assumingall the risks involved. Investors must be aware that adding option positions to an existing portfolio may change the characteristicsand behavior of that portfolio substantially. A portfolio’s sensitivity to certain market moves can be heavily impacted by the lever-age effect of options.

Risks

Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at ex-piration.

Buying calls

Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expir-ation.

Buying puts

Investors who sell calls commit themselves to sell the underlying for the strike price, even if the market price of the underlying issubstantially higher. Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to thestrike price plus the upfront premium received and may have their security called away if the security price exceeds the strikeprice of the short call. Additionally, the investor has full downside participation that is only partially offset by the premium receivedupfront. If investors are forced to sell the underlying they might be subject to taxing. Investors shorting naked calls (i.e. sellingcalls but without holding the underlying security) risk unlimited losses of security price less strike price.

Selling calls

Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price. Themaximum loss is the full strike price less the premium received for selling the put.

Selling puts

Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underly-ing trades below the lower strike price at expiration. The maximum gain from buying call spreads is the difference between thestrike prices, less the upfront premium paid.

Buying call spreads

Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position): Investors risk amaximum loss of the difference between the long call strike and the short call strike, less the upfront premium taken in, if the un-derlying security finishes above the long call strike at expiration. The maximum gain is the upfront premium taken in, if the secur-ity finishes below the short call strike at expiration.

Selling naked call spreads

Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premi-um paid. The maximum gain from buying put spreads is the difference between the strike prices, less the upfront premium paid.

Buying put spreads

Buying strangles (buy put and buy call): The maximum loss is the entire premium paid for both options, if the underlying tradesbetween the put strike and the call strike at expiration.

Buying strangles

Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of thecall that is sold plus the upfront premium received. Additionally, if the security trades below the strike price of the short put, in-vestors risk losing the difference between the strike price and the security price (less the value of the premium received) on theshort put and will also experience losses in the security position if they owns shares. The maximum potential loss is the full valueof the strike price (less the value of the premium received) plus losses on the long security position. Investors who are short na-ked strangles or straddles have unlimited potential loss since, if the security trades above the call strike price, investors risk losingthe difference between the strike price and the security price (less the value of the premium received) on the short call. In addi-tion, they are obligated to buy the security at the put strike price (less upfront premium received) if the security finishes below theput strike price at expiration.

Selling strangles or straddles


18 Foreign exchange 27/11/2012 Credit Suisse - Research Monthly

Risk disclaimerInvestors should consider this report as only a single factor inmaking their investment decision. For a discussion of the risksof investing in the securities mentioned in this report, pleaserefer to the following Internet link:

https://research.credit-suisse.com/riskdisclosureCS may not have taken any steps to ensure that the securitiesreferred to in this report are suitable for any particular investor.CS will not treat recipients as its customers by virtue of their re-ceiving the report. The investments or services contained or re-ferred to in this report may not be suitable for you and it is re-commended that you consult an independent investment ad-visor if you are in doubt about such investments or investmentservices. Nothing in this report constitutes investment, legal,accounting or tax advice or a representation that any invest-ment or strategy is suitable or appropriate to your individual cir-cumstances or otherwise constitutes a personal recommenda-tion to you.

The price, value of and income from any of the securitiesor financial instruments mentioned in this report can fall as wellas rise. The value of securities and financial instruments is sub-ject to exchange rate fluctuation that may have a positive or ad-verse effect on the price or income of such securities or finan-cial instruments. Investors in securities such as ADR’s, the val-ues of which are influenced by currency volatility, effectively as-

sume this risk. Structured securities are complex instruments,typically involve a high degree of risk and are intended for saleonly to sophisticated investors who are capable of understand-ing and assuming the risks involved. The market value of anystructured security may be affected by changes in economic,financial and political factors (including, but not limited to, spotand forward interest and exchange rates), time to maturity,market conditions and volatility, and the credit quality of any is-suer or reference issuer. Any investor interested in purchasinga structured product should conduct their own investigationand analysis of the product and consult with their own profes-sional advisers as to the risks involved in making such a pur-chase.

Some investments discussed in this report have a highlevel of volatility. High volatility investments may experiencesudden and large falls in their value causing losses when thatinvestment is realized. Those losses may equal your original in-vestment. Indeed, in the case of some investments the poten-tial losses may exceed the amount of initial investment, in suchcircumstances you may be required to pay more money to sup-port those losses. Income yields from investments may fluctu-ate and, in consequence, initial capital paid to make the invest-ment may be used as part of that income yield. Some invest-ments may not be readily realizable and it may be difficult tosell or realize those investments, similarly it may prove difficultfor you to obtain reliable information about the value, or risks,to which such an investment is exposed.


Disclosure Appendix

Analyst certification

The analysts identified in this report hereby certify that views about thecompanies and their securities discussed in this report accurately reflecttheir personal views about all of the subject companies and securities. Theanalysts also certify that no part of their compensation was, is, or will bedirectly or indirectly related to the specific recommendation(s) or view(s) inthis report.

Knowledge Process Outsourcing (KPO) Analysts mentioned in this reportare employed by Credit Suisse Business Analytics (India) Private Limited.

Important disclosures

Credit Suisse policy is to publish research reports, as it deems appropri-ate, based on developments with the subject company, the sector or themarket that may have a material impact on the research views or opinionsstated herein. Credit Suisse policy is only to publish investment researchthat is impartial, independent, clear, fair and not misleading.The Credit Suisse Code of Conduct to which all employees are obliged toadhere, is accessible via the website at:https://www.credit-suisse.com/governance/doc/code_of_conduct_en.pdf

For more detail, please refer to the information on independence of finan-cial research, which can be found at:https://www.credit-suisse.com/legal/pb_research/independence_en.pdf

The analyst(s) responsible for preparing this research report received com-pensation that is based upon various factors including Credit Suisse's totalrevenues, a portion of which is generated by Credit Suisse InvestmentBanking business.

Equity rating history as of (27/11/2012)

DateRatingCompany

01/11/2012BUYBAYER (BAYN GR)

23/08/2012BUY

04/05/2012BUY

01/03/2012BUY

27/10/2011BUY

05/11/2012BUYCHEVRON (CVX US)

02/08/2012BUY

04/05/2012BUY

31/01/2012BUY

01/11/2011BUY

23/11/2012BUYDEERE & CO (DE US)

17/08/2012BUY

21/05/2012BUY

17/02/2012BUY

24/11/2011BUY

14/11/2012BUYHOME DEPOT (HD US)

27/08/2012BUY

14/08/2012BUY

16/05/2012BUY

23/02/2012BUY

16/11/2011BUY

12/11/2012HOLDLAFARGE (LG FP)

30/07/2012HOLD

14/06/2012HOLD

04/05/2012HOLD

17/02/2012HOLD

07/11/2011HOLD

05/11/2012RESTRICTEDPARTNERSGROUPHOLD-ING (PGHN SW)

04/09/2012BUY

24/07/2012BUY

DateRatingCompany

04/04/2012BUY

12/01/2012BUY

14/03/2011HOLD

22/10/2012BUYSCHLUMBERGER (SLBUS)

23/07/2012BUY

23/04/2012BUY

24/01/2012BUY

25/10/2011BUY

Fundamental and/or long-term research reports are not regularly pro-duced for (LAFARGE). The Global Research department reserves the rightto terminate coverage at short notice. Please contact your RelationshipManager for the specific risks of investing in securities of these compan-ies. The subject issuer (BAYER, CHEVRON, DEERE & CO, HOME DE-POT, LAFARGE, PARTNERS GROUP HOLDING, SCHLUMBERGER)currently is, or was during the 12-month period preceding the date of distri-bution of this report, a client of Credit Suisse. Credit Suisse provided in-vestment banking services to the subject company (BAYER, CHEVRON,DEERE & CO, HOME DEPOT, PARTNERS GROUP HOLDING,SCHLUMBERGER) within the past 12 months. Credit Suisse providednon-investment banking services, which may include Sales and Tradingservices, to the subject issuer (BAYER, DEERE & CO, HOME DEPOT,LAFARGE, PARTNERS GROUP HOLDING) within the past 12 months.Credit Suisse has managed or co-managed a public offering of securitiesfor the subject issuer (DEERE & CO, HOME DEPOT, PARTNERSGROUP HOLDING) within the past three years. Credit Suisse has man-aged or co-managed a public offering of securities for the subject issuer(DEERE & CO, PARTNERS GROUP HOLDING) within the past 12months. Credit Suisse has received investment banking related compensa-tion from the subject issuer (CHEVRON, DEERE & CO, PARTNERSGROUP HOLDING, SCHLUMBERGER) within the past 12 months. Cred-it Suisse has received compensation for products and services other thaninvestment banking services from the subject issuer (BAYER, DEERE &CO, HOME DEPOT, LAFARGE, PARTNERS GROUP HOLDING) withinthe past 12 months. Credit Suisse expects to receive or intends to seek in-vestment banking related compensation from the subject issuer (BAYER,CHEVRON, DEERE & CO, HOME DEPOT, PARTNERS GROUP HOLD-ING, SCHLUMBERGER) within the next three months. As at the date ofthis report, Credit Suisse acts as a market maker or liquidity provider in thesecurities of the subject issuer (CHEVRON, DEERE & CO, HOME DE-POT, SCHLUMBERGER). Credit Suisse holds a trading position in thesubject issuer (BAYER, CHEVRON, DEERE & CO, HOME DEPOT, LA-FARGE, PARTNERS GROUP HOLDING, SCHLUMBERGER). As at theend of the preceding month, Credit Suisse beneficially owned 1% or moreof a class of common equity securities of (BAYER).

Additional disclosures for the following jurisdictions

Hong Kong: Other than any interests held by the analyst and/or associ-ates as disclosed in this report, Credit Suisse Hong Kong Branch does nothold any disclosable interests. United Kingdom: For fixed income dis-closure information for clients of Credit Suisse (UK) Limited and CreditSuisse Securities (Europe) Limited, please call +41 44 333 33 99.For further information, including disclosures with respect to any other is-suers, please refer to the Credit Suisse Global Research Disclosure siteat:https://www.credit-suisse.com/research/disclaimer

Guide to analysis

Equity rating allocation as of (27/11/2012)

Investment bankinginterests onlyOverall

39.88 %38.82 %BUY

50 %51.12 %HOLD

7.14 %7.35 %SELL


Investment bankinginterests onlyOverall

2.98 %2.72 %RESTRICTED

Relative stock performance

At the stock level, the selection takes into account the relative attractive-ness of individual shares versus the sector, market position, growth pro-spects, balance-sheet structure and valuation. The sector and country re-commendations are "overweight," "neutral", and "underweight" and are as-signed according to relative performance against the respective regionaland global benchmark indices.

Absolute stock performance

The stock recommendations are BUY, HOLD and SELL and are depend-ent on the expected absolute performance of the individual stocks, gener-ally on a 6-12 months horizon based on the following criteria:

10% or greater increase in absoluteshare price

BUY

variation between -10% and +10% inabsolute share price

HOLD

10% or more decrease in absoluteshare price

SELL

In certain circumstances, internal and ex-ternal regulations exclude certain typesof communications, including e.g. an in-vestment recommendation during thecourse of Credit Suisse engagement inan investment banking transaction.

RESTRICTED

Research coverage has been concluded.TERMINATED

Absolute bond performance

The bond recommendations are based fundamentally on forecasts for totalreturns versus the respective benchmark on a 3-6 month horizon and aredefined as follows:

Expectation that the bond issue will out-perform its specified benchmark

BUY

Expectation that the bond issue will per-form in line with the specified bench-mark

HOLD

Expectation that the bond issue will un-derperform its specified benchmark

SELL

In certain circumstances, internal and ex-ternal regulations exclude certain typesof communications, including e.g. an in-vestment recommendation during thecourse of Credit Suisse engagement inan investment banking transaction.

RESTRICTED

Credit Suisse HOLT

With respect to the analysis in this report based on the HOLT(tm) method-ology, Credit Suisse certifies that (1) the views expressed in this report ac-curately reflect the HOLT methodology and (2) no part of the Firm's com-pensation was, is, or will be directly related to the specific views disclosedin this report. The Credit Suisse HOLT methodology does not assign rat-ings to a security. It is an analytical tool that involves use of a set of propri-etary quantitative algorithms and warranted value calculations, collectivelycalled the Credit Suisse HOLT valuation model, that are consistently ap-plied to all the companies included in its database. Third-party data (includ-ing consensus earnings estimates) are systematically translated into a num-ber of default variables and incorporated into the algorithms available inthe Credit Suisse HOLT valuation model. The source financial statement,pricing, and earnings data provided by outside data vendors are subject toquality control and may also be adjusted to more closely measure the un-derlying economics of firm performance. These adjustments provide con-sistency when analyzing a single company across time, or analyzing mul-

tiple companies across industries or national borders. The default scenariothat is produced by the Credit Suisse HOLT valuation model establishesthe baseline valuation for a security, and a user then may adjust the de-fault variables to produce alternative scenarios, any of which could occur.The Credit Suisse HOLT methodology does not assign a price target to asecurity. The default scenario that is produced by the Credit Suisse HOLTvaluation model establishes a warranted price for a security, and as thethird-party data are updated, the warranted price may also change. The de-fault variables may also be adjusted to produce alternative warrantedprices, any of which could occur. Additional information about the CreditSuisse HOLT methodology is available on request.CFROI(r), CFROE, HOLT, HOLTfolio, HOLTSelect, HS60, HS40, Value-Search, AggreGator, Signal Flag and "Powered by HOLT" are trademarksor registered trademarks of Credit Suisse or its affiliates in the UnitedStates and other countries. HOLT is a corporate performance and valu-ation advisory service of Credit Suisse.

For technical research

Where recommendation tables are mentioned in the report, "Close" is thelatest closing price quoted on the exchange. "MT" denotes the rating forthe medium-term trend (3-6 months outlook). "ST" denotes the short-termtrend (3-6 weeks outlook). The ratings are "+" for a positive outlook (pricelikely to rise), "0" for neutral (no big price changes expected) and "-" for anegative outlook (price likely to fall). Outperform in the column "Rel perf"denotes the expected performance of the stocks relative to the bench-mark. The "Comment" column includes the latest advice from the analyst.In the column "Recom" the date is listed when the stock was recommen-ded for purchase (opening purchase). "P&L" gives the profit or loss thathas accrued since the purchase recommendation was given.For a short introduction to technical analysis, please refer to Technical Ana-lysis Explained at:https://www.credit-suisse.com/legal/pb_research/technical_tutorial_en.pdf

Global disclaimer / important information

For a discussion of the risks of investing in the securities mentioned in thisreport, please refer to the following Internet link:https://research.credit-suisse.com/riskdisclosure

References in this report to Credit Suisse include subsidiaries and affili-ates. For more information on our structure, please use the following link:https://www.credit-suisse.com/who_we_are/en/

The information and opinions expressed in this report were produced bythe Global Research department of the Private Banking division at CreditSuisse as of the date of writing and are subject to change without notice.Views expressed in respect of a particular security in this report may be dif-ferent from, or inconsistent with, the observations and views of the CreditSuisse Research department of Investment Banking division due to the dif-ferences in evaluation criteria. This report is not directed to, or intendedfor distribution to or use by, any person or entity who is a citizen or resid-ent of or located in any locality, state, country or other jurisdiction wheresuch distribution, publication, availability or use would be contrary to law orregulation or which would subject Credit Suisse AG, the Swiss bank, or itssubsidiaries or its affiliates (“CS”) to any registration or licensing require-ment within such jurisdiction. All material presented in this report, unlessspecifically indicated otherwise, is under copyright to CS. None of the ma-terial, nor its content, nor any copy of it, may be altered in any way, trans-mitted to, copied or distributed to any other party, without the prior ex-press written permission of CS. All trademarks, service marks and logosused in this report are trademarks or service marks or registered trade-marks or service marks of CS or its affiliates.

The information, tools and material presented in this report are provided toyou for information purposes only and are not to be used or considered asan offer or the solicitation of an offer to sell or to buy or subscribe for se-curities or other financial instruments. CS does not offer advice on the tax


consequences of investment and you are advised to contact an independ-ent tax adviser. Please note in particular that the bases and levels of taxa-tion may change.

CS believes the information and opinions in the Disclosure Appendix ofthis report are accurate and complete. Information and opinions presentedin the other sections of the report were obtained or derived from sourcesCS believes are reliable, but CS makes no representations as to their ac-curacy or completeness. Additional information is available upon request.CS accepts no liability for loss arising from the use of the material presen-ted in this report, except that this exclusion of liability does not apply to theextent that liability arises under specific statutes or regulations applicableto CS. This report is not to be relied upon in substitution for the exerciseof independent judgment. CS may have issued, and may in the future is-sue, a trading idea regarding this security. Trading ideas are short termtrading opportunities based on market events and catalysts, while com-pany recommendations reflect investment recommendations based on ex-pected total return over a 6 to 12-month period as defined in the disclos-ure section. Because trading ideas and company recommendations reflectdifferent assumptions and analytical methods, trading ideas may differfrom the company recommendations. In addition, CS may have issued,and may in the future issue, other reports that are inconsistent with, andreach different conclusions from, the information presented in this report.Those reports reflect the different assumptions, views and analytical meth-ods of the analysts who prepared them and CS is under no obligation toensure that such other reports are brought to the attention of any recipientof this report. CS is involved in many businesses that relate to companiesmentioned in this report. These businesses include specialized trading, riskarbitrage, market making, and other proprietary trading.

Information, opinions and estimates contained in this report reflect a judg-ment at its original date of publication by CS and are subject to changewithout notice. This report may provide the addresses of, or contain hyper-links to, websites. Except to the extent to which the report refers to web-site material of CS, CS has not reviewed the linked site and takes no re-sponsibility for the content contained therein. Such address or hyperlink (in-cluding addresses or hyperlinks to CS’s own website material) is providedsolely for your convenience and information and the content of the linkedsite does not in any way form part of this document. Accessing such web-site or following such link through this report or CS’s website shall be atyour own risk.

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Publication Research MonthlySelected chapters Investment StrategyPerformance review 2012Top investment ideas 2013Risk scenariosEconomicsFixed incomeEquitiesAlternative investmentsForeign exchange

Publisher

Giles KeatingHead of Research for Private Banking and Asset Management+41 44 332 22 [email protected]

Oliver AdlerHead Economic Research+41 44 333 09 [email protected]

Nannette Hechler-Fayd'herbeHead of Global Financial Markets Research+41 44 333 17 06nannette.hechler-fayd'[email protected]

Editor

Kevin Lyne-SmithHead of Global Equity Research+41 44 334 56 [email protected]

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Authors

Giles KeatingHead of Research for Private Banking and Asset Management+41 44 332 22 [email protected]

Nannette Hechler-Fayd'herbeHead of Global Financial Markets Research+41 44 333 17 06nannette.hechler-fayd'[email protected]

Stefan Braunschweig+41 44 334 66 [email protected]

Nicole Krieger+41 44 332 48 [email protected]

Kevin Lyne-SmithHead of Global Equity Research+41 44 334 56 [email protected]

Oliver AdlerHead Economic Research+41 44 333 09 [email protected]

Thomas Herrmann+41 44 333 50 [email protected]

Sylvie Golay Markovich+41 44 334 54 [email protected]

Michael O'SullivanHead of Portfolio Strategy & Thematic Research+44 20 7883 8228michael.o'[email protected]

Tobias MerathHead Commodities & Alternative Investments Research+41 44 333 13 [email protected]

Marcus HettingerHead of Global Forex Research+41 44 333 13 [email protected]


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