from stalemate to stimulus · 2021. 1. 13. · targets&tacticalviews marketdataasof targets...

Weekly focus | page 4

From stalemate to stimulusInvestment Weekly |

This material is for distribution in Japan only. Japan edition / Credit Suisse Securities (Japan) Ltd. |

08/01/2021, 11:51, UTC

Diversify your investments

Soichiro MatsumotoChief Investment Officer Japan

2020 was an exceptional year for financial markets. Despitethe substantial initial selloff sparked by the COVID-19 pandem-ic, most risk assets including equities, bonds and commoditiesdelivered positive returns. The ample liquidity in financial mar-kets may support the strong rally going into this year.

At the beginning of 2021, we think it is prudent for investorsto check the concentration risk in their portfolios. We expectpositive returns for equity markets. However, the performancewill be much closer to the historical average instead of thedouble-digit gains in 2020 for indices such as the Nikkei 225(+16%) and NASDAQ (+44%).

For Japan investors, we propose three major investmentthemes and related strategies: the post-pandemic world; adigital society; and a sustainable, carbon-free society. Ourupdated long-term investment themes, called Supertrends,offer six major ideas.

Global CIO Office

Important Information: This report represents the views of the Investment Strategy Department of CS and has not been prepared in accordance with the legal requirements designedto promote the independence of investment research. It is not a product of the Credit Suisse Research Department even if it contains published research recommendations. CS haspolicies in place to manage conflicts of interest including policies relating to dealing ahead of the dissemination of investment research. These policies do not apply to the views ofInvestment Strategists contained in this report. Please find further important information at the end of this material.

Japan

Living forward in apost-pandemic worldWith the COVID-19 pandemic, the year 2020 provided one of the biggest challengesin a lifetime, but it also turned out to be rewarding for investors.

Where do we stand as we start 2021? Chief Investment Officer Michael Strobaek shareshis thoughts about the key topics in the new year and the outlook for equity markets,which he expects to be in for a year of decent gains.

Michael StrobaekGlobal Chief Investment Officer

Investment horizon: 3-6 months

Markets closed 2020 at all-time highs, with the Nasdaq 100up no less than 44% on the year. These gains took manyinvestors by surprise, and although the Credit Suisse Invest-ment Committee bought back into equities in March 2020,the continuousness of the rally until year-end amazed evenme.

As we enter the new year, monetary and fiscal policy in theWestern world remain very loose because of high unemploy-ment and nervousness about the fragility of the financialsystem. Incoming US President Joe Biden will be inauguratedon 20 January with an excellent team around him, in spite ofcontinuing efforts by outgoing President Donald Trump andhis supporters to change the election outcome. In Europe,the Brexit saga has come to an end with a compromise deal,as we expected. Of course, the UK will remain a satellite ofthe EU, like Switzerland, despite musings about sovereigntyand a resurrected empire. Both developments are good news.China and much of Asia (though not India) are emerging fromthe crisis enviably well, while the Western world is badlybruised, both in absolute and relative terms.

Pandemic continues to take its tollBut it’s not over yet. The COVID-19 pandemic will continueto take a significant toll before vaccines are fully rolled outand able to prove their efficacy. This is why I am quite worriedabout the next two to three months of this winter and I thinkthat, sadly, we will only go back to some kind of normality bythe end of the third quarter. Unfortunately, some countrieslike Switzerland and the USA are still struggling with thepandemic, at disproportionately high human, social and eco-nomic costs that I believe will take years to overcome, recoupand recover from. I sincerely hope the West will learn itslessons and be better prepared next time.

Good news in the priceAs for markets, I think the year 2021 could be a bit morevolatile than the optimists have it, as a lot of good news isalready in the price. However, we are very unlikely to see arepeat of such rare cataclysmic market events as in February2020 unless the virus mutates further into something verydeadly or evades our vaccines. Overall, I believe we areprobably in for two to three years of generally calmer markets,where things will begin to heal and return to normality andwhere everyone begins asking themselves: “What do we needto do to prevent a similar trauma in the future?” as we didafter the Great Financial Crisis. I think the response will bebigger governments, more debt, higher taxes, more left-centrist governments, less populism, more government inter-vention in our daily lives, more restrictions on movement,hopefully better health care systems and preparedness. Asa result, we are likely to see continued price inflation in realassets, especially equities and real estate, in the next two tofive years.

Challenges deepenedWhat is very clear to me is that this pandemic has deepenedmany challenges in the Western world that we knew evenbefore the crisis hit: increasing inequality in terms of wealth,income, opportunities and health care access; as well astechnology and capital taking over more and more of labor’srole in a globalized digital economy. That’s not a great legacycoming from the second large global crisis in a little over adecade. Geopolitically, the world is continuing to shift from aWestern-dominated global agenda to a multipolar world.China’s continued rise and Asia’s swifter and more successfulhandling of the pandemic illustrate this shift.

The immediate and most lasting impact of the pandemic willbe on mobility. The sense that we can go everywhere and dowhatever we want at any time has been lost, and maybe thatis not so bad! Nature has reminded us that people movingaround and gathering in large crowds as if pathogens amongus are too small to do us harm is a thing of the past. I thinkit will take a long time before we feel comfortable again toenter a packed basketball or concert stadium or go on a cruise

Investment Weekly | This material is for distribution in Japan only. Japan edition / Credit Suisse Securities (Japan) Ltd., 08/01/2021, 11:51, UTC 2

expecting rest and recovery from a stressful world. I, at least,find such thoughts somewhat worrisome, even with a vacci-nation. What the COVID-19 crisis has most promoted is ourdigital usage and interconnectedness through online mediaand thus, by default, “social distancing.” Globalization andsocialization have truly moved online as a result of the pan-demic.

Sustainability pushed to the foreIn my view, the result of all this will first and foremost be asomewhat lost sense of purpose about what world we aretrying to build, where we were heading and where we areheading now. After all, we have just been reminded that thereare severe limitations to our perceived degrees of freedom,mobility and prosperity if we are not careful with Mother Na-ture. In climate change, an even bigger crisis and challengeis waiting. If our ability to handle a virus is any indication ofhow successfully we may handle rising sea levels and dramaticweather changes as a consequence of global warming, thenwe will need more than rubber boots and umbrellas to protectus going forward. In my view, these challenges inevitably leadto questions of sustainability and what world we want to createfor future generations.

Central banks lay ground for decent year for marketsBack to markets: Once we get through the next two to threemonths, I think 2021 will be a decent year in markets if centralbanks do not change their mind about their loose monetarypolicies. This still is key to markets, and only the inflation

outlook can really change that. I continue to think that thecoronavirus pandemic was a shock that amplified alreadyprevailing deflationary trends in the global economy such asexcess savings, demographics and technology pushing goodsprices lower. As a result, policymakers boosted reflationaryresponses such as cutting interest rates to zero and imple-menting asset purchase programs. We are in “stealth mone-tization mode” now and will stay there for years. With rateslow across the world, there is no more money to be earnedon excess free capital and our savings are worth nothing un-less we put them into risky assets. Only smart and creativeinvestors will know how to continue to put their money towork.

I believe that most of our clients will come to these same re-alizations. In the year ahead, central bank policies will continueto play a key role and determine the course of equity markets,which I believe will be up by the end of 2021. However, in-vestors should not expect another 44% gain in the Nasdaqor another 16% increase in the S&P 500. Rather, they shouldstart thinking about the laggards and dare to be contrarian.

Living forwardOn the economic, health, humanitarian and social front, 2021promises to be better than 2020 in almost every respect.However, in line with my favorite saying based on Danishphilosopher Soren Kierkegaard, “Life can only be understoodbackwards; but it must be lived forwards.” (05/01/2021)


Weekly focus

From stalemate to stimulusThe passage of a COVID-19 relief bill and the Senate run-off elections in Georgia sig-nificantly reduce the risk of policy gridlock in 2021. The current resurgence in virus in-fections will continue to weigh on GDP, but it is looking increasingly certain that growthwill rebound strongly once the public health situation improves.

James P SweeneyChief Economist and Regional CIO Americas

Xiao CuiUS Economist

Jeremy H SchwartzUS Economist

After the Senate run-off elections in Georgia, the Democratswill control the presidency and both houses of Congress. Themajorities in Congress will be slim. There is just an 11 votemargin (out of 435) in the House of Representatives, andthe Senate is actually split 50–50, with Vice President KamalaHarris as a tie-breaking vote.

Narrow majorities make ambitious legislation unlikely. In par-ticular, we do not expect a change to the rules around theSenate filibuster – which will limit the ability for the majorityto push through their agenda without bipartisan support.

However, simply controlling the Senate will open some leg-islative possibilities for the Democrats. Importantly, the Senatemajority-leader sets the agenda for debates and votes. Thisincreases the chances for the Democrats to push some oftheir initiatives that may have bipartisan support. In particular,many centrist Republicans may be willing to negotiate on aninfrastructure package.

There is also the option for the Democrats to pursue somepolicies through the process of budget reconciliation. This isa procedure that can circumvent the Senate’s filibuster rules,only requiring a simple 51-vote majority. Reconciliation canonly apply to taxation and spending (so no regulatory changes)and there is a requirement that the legislation be deficit-neutralbeyond a 10-year time horizon.

In the near term, the Democrats can use the reconciliationprocess to add on several stimulus proposals that did notmake it into the recent relief bill. There has been significantattention paid to the possibility for USD 2,000 direct paymentsto households, but in our view, this is an overly blunt policyfor the current environment – where most households areactually in good shape financially and only a small portion isstruggling. We expect efforts to be redirected toward moregenerous unemployment insurance, debt relief and forbear-ance, and more money for state and local governments.

Joe Biden proposed tax hikes during the campaign, but wedo not expect this to be a policy priority. Given an elevatedunemployment rate and uncertainty regarding the path ofCOVID-19, any tax changes are likely to be consideredthrough budget reconciliation later in his term.

Fiscal policy has quickly shifted gears from gridlock to gener-ous stimulus. This eliminates an important downside risk togrowth this year and is likely to lead to even greater strengthonce the current COVID-19 outbreak is under control. Higherhousehold income will help to offset some of the near-termweakness in growth from the resurgence in COVID-19 cases.This will also lead to a higher savings rate and even healthierhousehold balance sheets, which will add fuel to the fire fora reacceleration in services spending later this year.

(08/01/2021)


Special topic

USD weakness to extend into2021; GBP outlook has improvedAs expected, the USD continued its downtrend in December, ending the year close toits 2018 lows. Despite the possibility of a short-term consolidation, the factors for atrend continuation remain intact.

The GBP rallied on the back of the post-Brexit trade agreement between the EuropeanUnion (EU) and the United Kingdom (UK). We expect more short-term upside but alsoacknowledge risks stemming from economic disruptions and the new COVID-19 variant.

Karsten LinowskyHead of Currencies and G10 Interest Rate Strategy

Patrick ErnstCurrency and G10 Interest Rate Strategist

More USD downside in 20212020 proved to be a grim year for the USD – ever since mid-May the greenback weakened against most of its peers,making it the worst performing G10 currency in the past year.The rollout of COVID-19 vaccination campaigns solidifies theexpectation of an economic recovery in 2021. With the USDbeing a more countercyclical currency, it will likely continueto lag its cyclical counterparts such as the EUR.

Moreover, the US fiscal package announced in the end ofDecember weighs on the USD via deteriorating fiscal balancesand improving risk sentiment. Additionally, the Senate run-offelection outcome increased the probability of more stimulusahead. It can take some time though before fiscal balancesaffect the currency and more fiscal support also takes somepressure off the Federal Reserve. However, the central bankhas made it clear that its monetary policy will not be tightenedanytime soon. Hence, we expect more USD weakness in thecoming months.

Besides central bank communication, some short-term con-solidation is possible in the USD given the extended momen-tum of the recent move and broad short positioning in theUSD. Beyond the short term, however, fundamental USD-negative factors remain intact. Rate differentials are small,

the twin deficits are weighing, inflation is higher in the USAthan in most other G10 countries, and the expected globalrecovery should be supportive for cyclical currencies againstthe USD. We therefore recommend using short-term consol-idation phases or recovery patterns to reinstate short positionsin the USD.

Short-term GBP prospects improveAlthough the UK still faces severe economic challenges, theBrexit deal paves the way for a friendly divorce by providinga level-playing field on goods trade. It should provide a betterstarting point to find a common understanding on servicessectors and, importantly, lowers uncertainty that limited GBPperformance earlier.

The Brexit deal supports relative GBP risk premium improve-ment. Furthermore, a vaccine-led global recovery and therecent US stimulus news should support global market senti-ment, suggesting further appreciation of cyclical currenciessuch as the GBP. Option markets are still suggesting adownside bias in GBP/USD, while speculative positioninghas turned modestly long GBP recently.

We think that the Brexit deal leaves scope for a sentimentshift that can potentially allow GBP/USD to reach its early2018 peak at around 1.43 amid a still-weak USD environ-ment. However, as trade-related disruptions with the EU arestill likely, and with services sectors left out of the deal, risksto the GBP outlook remain in 2021. This should limit theGBP’s ability to recover to pre-Brexit vote levels of 2015.

(07/01/2021)


Targets & tactical viewsTactical ViewsTargetsMarket data as of

07/01/2021

RelativeAbsolute12m3mYTD %IndexEquities

n.a.166015700.61587MSCI AC World (DM & EM)

Benchmark913086400.38718MSCI World (Developed Markets)

Neutral17250163001.416732MSCI USA

Neutral386037101.33804S&P 500

Neutral4924651.7470MSCI EMU

Neutral516048800.24950MSCI Switzerland

Neutral15900150005.915361MSCI UK

Underperform26102530-0.52550MSCI Japan

n.a.1800001695001.9173460MSCI EM (Emerging Markets)RelativeAbsolute12m3mYTD %IndexMSCI Sectors (GICS)

Benchmark913086400.38718MSCI World (Developed Markets)

Neutral2852709.3276MSCI World Energy

Outperform5405104.8574MSCI World Materials

Neutral5004731.1493MSCI World Industrials

Neutral5335040.0546MSCI World Consumer Disc.

Underperform470452-0.6466MSCI World Consumer Staples

Outperform5004721.0486MSCI World Healthcare

Neutral2362234.4238MSCI World Financials

Neutral5485180.0558MSCI World IT

Neutral230217-1.0208MSCI World Com. Services

Neutral3783581.6365MSCI World Utilities

Neutral12751205-2.51186MSCI World Real EstateDurationAbsolute12m3mYTD bpYield 10yGovernment bonds

Short Duration1.31.113.61.0USD

Short Duration-0.3-0.44.9-0.52EUR

Neutral0.50.44.60.24GBP

Short Duration-0.3-0.46.0-0.49CHFRelativeAbsolute12m3mYTD %IndexFixed income

Benchmark599596-0.5595Barclays Global Aggregate

Outperform310306-0.8303Barclays Global IG Corp

Outperform4384230.2427Barclays Global HY Corp

Outperform1011990-0.6989JPM EMBI Global Diversified HC

Neutral2362320.0232JPM GBI-EM Global Diversified LCRelativeAbsolute12m3mYTD %IndexCommodities

Benchmark1721613.2172Bloomberg Commodities

Neutral5755061.7507BCOM Precious metals

Outperform50425.546BCOM Energy

Neutral2782854.8297BCOM Industrial metals

Neutral220019001.61917Gold

Outperform52455.351WTI OilRelativeAbsolute12m3mYTD %IndexFX Total Return Indices

n.a.97.498.5-0.299USD DXY TR Index

n.a.180917531.9-2146826246MSCI EM FX TR IndexRelativeAbsolute12m3mYTD %SpotFX Spot

n.a.0.880.87-0.80.88USD/CHF

n.a.100102-0.1103.13USD/JPY

n.a.1.251.240.91.23EUR/USD

n.a.1.451.43-0.51.36GBP/USD

n.a.1.11.080.21.08EUR/CHF

n.a.0.780.761.40.78AUD/USD

n.a.1.231.26-0.41.27USD/CAD

Tactical views are for 3-6 months. Targets are indicative index levels, yields and total returns expected to be reached during the stated time horizon. Relative views are expressed asexpected performance relative to specified benchmark, for government bonds, it is the preferred position versus the duration of the 1-10y country index. Fixed income indices arehedged in USD.Past performance is not an indicator of future performance. Performance can be affected by commissions, fees or other charges as well as exchange rate fluctuations.Source: Bloomberg, Credit Suisse/IDC


Glossary

Risk warnings

Emerging markets are located in countries that possess one or more of the following characteristics: a certain degree of politicalinstability, relatively unpredictable financial markets and economic growth patterns, a financial market that is still at the developmentstage or a weak economy. Emerging market investments usually result in higher risks as a result of political, economic, credit,exchange rate, market liquidity, legal, settlement, market, shareholder and creditor risks.

Emerging markets

Regardless of structure, hedge funds are not limited to any particular investment discipline or trading strategy, and seek toprofit in all kinds of markets by using leverage, derivative instruments and speculative investment strategies that may increasethe risk of investment loss.

Hedge funds

Commodity transactions carry a high degree of risk and may not be suitable for many private investors. The extent of loss dueto market movements can be substantial or even result in a total loss.

Commodity investments

Investors in real estate are exposed to liquidity, foreign currency and other risks, including cyclical risk, rental and local marketrisk as well as environmental risk, and changes to the legal situation.

Real estate

Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investor’sreference currency.

Currency risks

Equities are subject to market forces and hence fluctuations in value, which are not entirely predictable.Equity risk

Financial markets rise and fall based on economic conditions, inflationary pressures, world news and business-specific reports.While trends may be detected over time, it can be difficult to predict the direction of the market and individual stocks. Thisvariability puts stock investments at risk of losing value.

Market risk

High Yield Bonds are typically rated below investment grade or are unrated and as such are often subject to a higher risk ofissuer default.

High Yield bond risk

Perpetual Bonds have no maturity date and therefore the Interest pay-out depends on the viability of the issuer in the very longterm.

Perpetual Bond risk

In case of liquidation of the issuer, investors can only get back the principal after other senior creditors are paid.Subordinated Bond risk

Investors would face uncertainty over the amount and time of the interest payments to be received.Risk of Bonds with variable/ deferral of interest terms

Investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures.Callable bond risk

Investors would not have a definite schedule of principal repayment.Risk of Bonds with extendable maturity date

Investors are subject to both equity and bond investment risk.Convertible or exchangeable bond risk

The bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event.Cocos risk

Explanation of indices frequently used in reports

CommentIndex

S&P/ASX 200 is an Australian market-capitalization-weighted and float-adjusted stock index calculated by Standard and Poor's.Australia S&P/ASX 200

The US Corporate High Yield Index measures USD-denominated, non-investment grade, fixed-rate and taxable corporatebonds. The index is calculated by Barclays.

BC High Yield Corp USD

The Euro Corporate Index tracks the fixed-rate, investment-grade, euro-denominated corporate bond market. The index includesissues that meet specified maturity, liquidity and quality requirements. The index is calculated by Barclays.

BC High Yield Pan EUR

The US Corporate Index tracks the fixed-rate, investment-grade, dollar-denominated corporate bond market. The index includesboth US and non-US issues that meet specified maturity, liquidity and quality requirements. The index is calculated by Barclays.

BC IG Corporate EUR

The IG Financials Index tracks the fixed-rate, investment-grade, dollar-denominated financials bond market. The index includesboth US and non-US issues that meet specified maturity, liquidity and quality requirements. The index is calculated by Barclays.

BC IG Corporate USD

The S&P/TSX composite index is the Canadian equivalent of the S&P 500 Index in the USA. The index contains the largeststocks traded on the Toronto Stock Exchange.

Canada S&P/TSX comp

Consumer Confidence Indices (CCIs) are based on surveys of consumers' spending intentions and economic situations, as wellas their concerns and expectations for the immediate future.

Consumer Confidence Indices

The Credit Suisse Hedge Fund Index is compiled by Credit Suisse Hedge Index LLC. It is an asset-weighted hedge fund indexand includes only funds, as opposed to separate accounts. The index reflects performance net of all hedge fund componentperformance fees and expenses.

CS Hedge Fund Index

The Liquid Swiss Index ex govt CHF is a market-capitalized bond index representing the most liquid and tradable portion of theSwiss bond market excluding Swiss government bonds. The index is calculated by Credit Suisse.

CS LSI ex govt CHF

The German Stock Index stock represents 30 of the largest and most liquid German companies that trade on the FrankfurtExchange.

DAX

A measure of the value of the US dollar relative to the majority of its most important trading partners. The US Dollar Index issimilar to other trade-weighted indices, which also use the exchange rates from the same major currencies.

DXY

Eurostoxx 50 is a market-capitalization-weighted stock index of 50 leading blue-chip companies in the Eurozone.Eurostoxx 50

The FTSE EPRA/NAREIT Global Real Estate Index Series is designed to represent general trends in eligible real estate equitiesworldwide.

FTSE EPRA/NAREIT Global Real Estate Index Series

The Hedge Fund Barometer is a proprietary Credit Suisse scoring tool that measures market conditions for hedge fund strategies.It comprises four components: liquidity, volatility; systemic risks and business cycle.

Hedge Fund Barometer

TOPIX, also known as the Tokyo Stock Price Index, tracks all large Japanese companies listed in the stock exchange's "firstsection." The index calculation excludes temporary issues and preferred stocks.

Japan Topix

The Emerging Market Bond Index Plus tracks the total return of hard-currency sovereign bonds across the most liquid emergingmarkets. The index encompasses US-denominated Brady bonds (dollar-denominated bonds issued by Latin American countries),loans and Eurobonds.

JPM EM hard curr. USD

The JPMorgan Government Bond Index tracks local currency bonds issued by emerging market governments across the mostaccessible markets for international investors.

JPM EM local curr. hedg. USD


The MSCI All Country Asia Pacific Index captures large and mid cap representation across 5 developed market countries and8 emerging markets countries in the Asia Pacific region. With 1,000 constituents, the index covers approximately 85% of thefree float-adjusted market capitalization in each country.

MSCI AC Asia/Pacific

The MSCI All Country World Index captures large and mid cap representation across 23 developed markets and 23 emergingmarket countries. With roughly 2480 constituents, the index covers around 85% of the global investable equity opportunity set.

MSCI AC World

MSCI Emerging Markets is a free-float-weighted Index designed to measure equity market performance in global emergingmarkets. The index is developed and calculated by Morgan Stanley Capital International.

MSCI Emerging Markets

The MSCI EMU Index (European Economic and Monetary Union) captures large and mid cap representation across the 10Developed Markets countries in the EMU. With 237 constituents, the index covers approximately 85% of the free float-adjustedmarket capitalization of the EMU.

MSCI EMU

The MSCI Europe Index captures large and mid cap representation across 15 developed markets countries in Europe. With442 constituents, the index covers approximately 85% of the free float-adjusted market capitalization across the Europeandeveloped markets equity universe.

MSCI Europe

The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market.With 111 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in the UK.

MSCI UK

MSCI World is an index of global equity markets developed and calculated by Morgan Stanley Capital International. Calculationsare based on closing prices with dividends reinvested.

MSCI World

OECD Composite Leading Indicators (CLIs) are designed to provide early signals of turning points in business cycles withcomponents that measure early stages of production, respond to changes in economic activity, and are sensitive to expectationsof future activity.

OECD Composite Leading Indicators

Purchasing Managers' Indices (PMIs) are economic indicators derived from monthly surveys of private-sector companies. Thetwo principal producers of PMIs are Markit Group, which conducts PMIs for over 30 countries worldwide, and the Institute forSupply Management (ISM), which conducts PMIs for the United States. The indices include additional sub-indices for manufac-turing surveys such as new orders, employment, exports, stocks of raw materials and finished goods, prices of inputs and finishedgoods, and services.

Purchasing Managers' Indices

The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe basedon 1000 large-cap companies with higher price-to-book ratios and higher forecast growth values.

Russell 1000 Growth Index

The Russell 1000 Index is a stock market index that represents the highest-ranking 1,000 stocks in the Russell 3000 Index(encompassing the 3,000 largest US-traded stocks, with the underlying companies all incorporated in the USA), and representingabout 90% of the total market capitalization of that index. The Russell 1000 Index has a weighted average market capitalizationof USD 81 billion and the median market capitalization is approximately USD 4.6 billion.

Russell 1000 Index

The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe based on1000 large-cap companies with lower price-to-book ratios and lower expected growth values.

Russell 1000 Value Index

The Swiss Market Index is made up of 20 of the largest companies listed of the Swiss Performance Index universe. It represents85% of the free-float capitalization of the Swiss equity market. As a price index, the SMI is not adjusted for dividends.

Switzerland SMI

FTSE 100 is a market-capitalization-weighted stock index that represents 100 of the most highly capitalized companies tradedon the London Stock exchange. The equities have an investibility weighting in the index calculation.

UK FTSE 100

Standard and Poor's 500 is a capitalization-weighted stock index representing all major industries in the USA, which measuresthe performance of the domestic economy through changes in the aggregate market value.

US S&P 500

Abbreviations frequently used in reports

DescriptionAbb.DescriptionAbb.

International Monetary FundIMF3/6/12 month moving average3/6/12 MMA

Latin AmericaLatAmAlternative investmentsAI

London interbank offered rateLiborAsia PacificAPAC

Million barrels per daym b/dbarrelbbl

A measure of the money supply that includes all physical money,such as coins and currency, as well as demand deposits,checking accounts and negotiable order of withdrawal accounts.

M1Bank IndonesiaBI

A measure of money supply that includes cash and checkingdeposits (M1) as well as savings deposits, money market mutualfunds and other time deposits.

M2Bank of CanadaBoC

A measure of money supply that includes M2 as well as largetime deposits, institutional money market funds, short-term re-purchase agreements and other larger liquid assets.

M3Bank of EnglandBoE

Mergers and acquisitionsM&ABank of JapanBoJ

Monetary Authority of SingaporeMASBasis pointsbp

Master Limited PartnershipMLPBrazil, Russia, China, IndiaBRIC

Month-on-monthMoMCompound annual growth rateCAGR

Monetary Policy CommitteeMPCChicago Board Options ExchangeCBOE

Option-adjusted spreadOASCash from operationsCFO

Organisation for Economic Co-operation and DevelopmentOECDCash flow return on investmentCFROI

Overnight indexed swapOISDiscounted cash flowDCF

Organization of Petroleum Exporting CountriesOPECDeveloped MarketDM

Price-to-book valueP/BDeveloped MarketsDMs

Price-earnings ratioP/EEarnings before interest, taxes, depreciation and amortizationEBITDA

People's Bank of ChinaPBoCEuropean Central BankECB

P/E ratio divided by growth in EPSPEGEastern Europe, Middle East and AfricaEEMEA

Purchasing Managers' IndexPMIEmerging MarketEM

Purchasing power parityPPPEurope, Middle East and AfricaEMEA


Quantitative easingQEEmerging MarketsEMs

Quarter-on-quarterQoQEuropean Monetary UnionEMU

right-hand side (for charts)r.h.s.Earnings per shareEPS

Reserve Bank of AustraliaRBAExchange traded fundsETF

Reserve Bank of IndiaRBIEnterprise valueEV

Reserve Bank of New ZealandRBNZFree cash flowFCF

Real estate investment trustREITUS Federal ReserveFed

Return on equityROEFunds from operationsFFO

Return on invested capitalROICFederal Open Market CommitteeFOMC

Reserve requirement ratioRRRForeign exchangeFX

Strategic asset allocationSAAGroup of TenG10

Special drawing rightsSDRGroup of ThreeG3

Swiss National BankSNBGross domestic productGDP

Tactical asset allocationTAAGovernment Pension Investment FundGPIF

Trade-Weighted IndexTWIHard currencyHC

Volatility IndexVIXHigh yieldHY

West Texas IntermediateWTIInterest-bearing debtIBD

Year-on-yearYoYCredit Suisse Investment CommitteeIC

Year-to-dateYTDInvestment gradeIG

An indicator of the average increase in prices for all domesticpersonal consumption.

Personal ConsumptionExpenditure (PCE defla-tor)

Inflation-linked bondILB

Currency codes frequently used in reports

CurrencyCodeCurrencyCode

South Korean wonKRWArgentine pesoARS

Mexican pesoMXNAustralian dollarAUD

Malaysian ringgitMYRBrazilian realBRL

Norwegian kroneNOKCanadian dollarCAD

New Zealand dollarNZDSwiss francCHF

Peruvian nuevo solPENChilean pesoCLP

Philippine pesoPHPChinese yuanCNY

Polish złotyPLNColombian pesoCOP

Russian rubleRUBCzech korunaCZK

Swedish krona/kronorSEKEuroEUR

Singapore dollarSGDPound sterlingGBP

Thai bahtTHBHong Kong dollarHKD

Turkish liraTRYHungarian forintHUF

New Taiwan dollarTWDIndonesian rupiahIDR

United States dollarUSDIsraeli new shekelILS

South African randZARIndian rupeeINR

Japanese yenJPY

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 themeantime.

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 theleverage 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 atexpiration.

Buying calls

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

Buying puts

Investors who sell calls commit themselves to sell the underlying for the strike price, even if the market price of the underlyingis substantially higher. Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside tothe strike price plus the upfront premium received and may have their security called away if the security price exceeds thestrike price of the short call. Additionally, the investor has full downside participation that is only partially offset by the premiumreceived upfront. If investors are forced to sell the underlying they might be subject to taxing. Investors shorting naked calls(i.e. selling calls 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 theunderlying trades below the lower strike price at expiration. The maximum gain from buying call spreads is the difference betweenthe strike 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): Investorsrisk a maximum loss of the difference between the long call strike and the short call strike, less the upfront premium taken in,if the underlying security finishes above the long call strike at expiration. The maximum gain is the upfront premium taken in, ifthe security 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 upfrontpremium paid. The maximum gain from buying put spreads is the difference between the strike prices, less the upfront premiumpaid.

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 ofthe call that is sold plus the upfront premium received. Additionally, if the security trades below the strike price of the short put,investors risk losing the difference between the strike price and the security price (less the value of the premium received) onthe short put and will also experience losses in the security position if they owns shares. The maximum potential loss is the fullvalue of the strike price (less the value of the premium received) plus losses on the long security position. Investors who areshort naked strangles or straddles have unlimited potential loss since, if the security trades above the call strike price, investorsrisk losing the difference between the strike price and the security price (less the value of the premium received) on the shortcall. In addition, they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration.

Selling strangles or straddles


Important information on mutual fundsFees and charges, etc.Different types of fees and commissions (subscription fee, amount whichmust be retained in trust assets, repurchase fee, etc.) are charged wheninvestment trusts/funds are purchased and sold. In addition, apart from thesefees and commissions, trust and management fees and other fees (auditfee, trust administrative charges, carried interest, etc.) are charged and borneby you through your trust asset. Fees and commissions borne by you will bea sum of these amounts. Such fees and commissions vary depending onthe investment trust/fund and depending on the investment status, andtherefore, we cannot provide specific amounts or calculation methods.

For detailed information on fees and commissions, etc. of each re-spective investment trust/fund, please refer to the pre-contractdocuments (prospectus and other supplementary documents).

Important information on dividends:• Dividends are different to interest on deposits and are paid from the netasset value of investment trusts/funds. Therefore, when dividends are paid,the base value (net asset value per unit) will decrease by an amount equivalentto the amount paid.

• Dividends may be paid exceeding the profit earned during the calculationperiod (trading profit including profits of dividends, etc. after expenses). Inthis case, the base value (net asset value per unit) on the settlement datein this period will decrease compared to that on the settlement date in theprevious period. Also, the level of dividends does not always reflect the rateof return for the investment trust/fund during the calculation period.

• A part or all of dividends may be virtually equivalent to some repayment ofthe principal depending on the purchase price of the investment trust/fundby an investor. The same can be applied to a case that an increase in thebase value (net asset value per unit) is smaller than a dividend amount dueto the investment status after purchase of the investment trust/fund.

Please refer to the prospectus for details.

Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising, etc.) of the FinancialInstruments and Exchange Act, etc.)The risks described below are a summary of some general risks of investmenttrusts/funds (risks which have an impact on net asset value) and do notcover all risks. Please refer to the pre-trade documents (prospectus andother supplementary documents).

Price volatility risk:Investment trusts/funds invest mainly in equities, bonds and derivativeproducts, etc. The value of the investment trust/fund will go up or down dueto increases or decreases in the prices of such investments. Further, thevalue of such investments will be impacted by political and economic factors,the financial standing of an issuer, market demand and supply, interest ratesand other factors.

Foreign currency risk:Investment trusts/funds which invest in equities or bonds, etc. denominatedin foreign currencies entail a foreign currency risk, and the base value (ornet asset value) of investment trusts/funds may change depending on thecurrency exchange rate. Even when you do not experience a loss of invest-ment principal when calculated in the base currency, you may suffer a lossat conversion into Japanese yen due to fluctuations in exchange rates. Fur-thermore, investment trusts/funds which utilize currency trading amongmultiple currencies may incur costs due to such currency trading dependingon the difference in short-term interest rates between the currencies, andyou may suffer a loss.

Credit risk:For investment trusts/funds which invest in equities or bonds, etc., the pricesof these investments may increase and decrease due to changes in thebusiness or financial standing of the issuer and other factors, and you maysuffer a loss.

Risk pertaining to liquidity:Where there is sudden high volume in a particular investment or when suddenchanges in the external environment surrounding markets triggers a suddendownturn in a market or period of market turmoil, etc., investments may notbe flexibly traded. In such a case, a decline in the price of the investmentmay impact the base value (or net asset value) of the investment trust, result-ing in a loss. Further, the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims.

In addition, for certain types of investment trust/fund there is a risk thatparticular investments may be designated to a separate account (or sidepocket) due to a lack of liquidity. When a separate account is utilized by in-vestment trusts/funds restrictions may apply as to when such investmentscan be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible. In particular,for Fund of Fund investments, when an investment trust/fund makes an in-vestment without time limit in another fund, the investment trust/fund maybe influenced by investment results in the other funds.

Risk associated with an outflow of money received fromsales orders:When there is a large volume of sale orders in a short period of time, theinvestment trust/fund may be forced to sell structured securities at a lowerrate than the prevailing market price to refund monies to investors and as aresult you may suffer a loss. Also, alternative investment trusts/funds gen-erally have a limitation in selling or cashing out the investment compared totraditional investment trusts/funds. Many alternative investment trusts/fundsonly accept a sell or redemption order on a monthly or quarterly basis andtherefore you may not be able to rapidly exit the investment in, for example,times of economic uncertainty.

Redemption risk:Investment trusts/funds may become subject to mandatory redemption dueto a certain reason. For details, please refer to the pre-trade documents(prospectus and other supplementary documents) before subscription.

Concentration risk:Investment trusts/funds which invest in a certain investment product orsimilar investment product group may significantly decrease in value (netasset value) under severe market circumstances.

Country risk:When changes in political, economic and social conditions in investmentdestination countries and regions cause a dislocation in financial and securitymarkets, security prices may significantly change. Also, investments inemerging markets involve unique risks including small market size and tradevolume, political and social uncertainties, undeveloped market infrastructuresuch as a clearing system, undeveloped information disclosure system andlegal system by supervising authorities, large fluctuations in exchange rates,restrictions on currency remittance to foreign countries and other factors,and, therefore, may have larger price fluctuations compared to investmentsin major developed markets.

Important information on non-Japanese stocksPlease refer to the issuer information when you purchase non-Japanesestocks.

DisclaimerThis material is published solely for information purposes and is intended forthe recipient’s sole use. Credit Suisse does not represent or warrant its ac-curacy or completeness. The material is not directly or indirectly intended forany investment solicitation, and does not constitute an invitation or offer toconclude a transaction contract for financial instruments, etc. Credit Suisseaccepts no liability for loss arising from the use of the information in thismaterial. It is recommended that you consult with the third party professionaladvisors as to legal or tax issues, etc. This material should not be reproducedor quoted without the prior express written consent of Credit Suisse. Theinformation and opinions expressed in this material were produced by PrivateBanking Division at Credit Suisse as of the date of writing and are subjectto change without notice. Views expressed in respect of particular investmentproducts in this material may be different from, or inconsistent with, the ob-


servations and views of other divisions besides Private Banking due to thedifferences in evaluation criteria. This material is solely distributed in Japanby Credit Suisse Securities (Japan) Limited. Credit Suisse Securities (Japan)Limited will not distribute or forward it outside Japan.

You may incur a loss as a result of fluctuations in stock prices if you investin stocks. In relation to foreign stocks, you may incur a loss in such stocksdue to foreign exchange rate fluctuations, etc. The market value of bondsis affected by interest rate fluctuations or changes in the financial standingof any issuer, etc. as such you may incur a loss if you sell such bonds beforethey are redeemed. In relation to foreign bonds, you may incur a loss in suchbonds due to foreign exchange rate fluctuations, etc. The net asset valueof mutual funds can fall as well as rise due to price changes of underlyingstocks, bonds, etc. and foreign exchange rate fluctuations, and this maycause you to incur a loss.

Structured securities and derivatives are complex instruments, typically involvea high degree of risk and are intended for sale only to sophisticated investorswho are capable of understanding and assuming the risks involved. Themarket value of any structured security or transaction may be affected bychanges in financial market conditions, reference indices, volatility and thecredit quality of any issuer or reference issuer.

Furthermore, there are structured securities on which you may incur a losssince the redemption amounts are linked with fluctuations in reference indices,etc. There are also derivatives on which potential losses may exceed theamount of the initial investment. Commission rates for any transactions willbe as per the rates agreed between Credit Suisse and you. For transactionsconducted on a principal to principal basis between Credit Suisse and you,the purchase or sale price will be the total consideration. Transactions con-

ducted on a principal to principal basis, including over the counter derivativestransactions, will be quoted as a purchase/bid price or sell/offer price andfor which a difference or spread may exist. Charges in relation to transactionswill be agreed prior to dealing as per our requirements under the FinancialInstruments and Exchange Law.

By purchasing financial instruments, etc., you may incur a loss or aloss in excess of the principal as a result of fluctuations in marketprices or other financial indices, etc. Please read carefully the Pre-Contract Documentation provided for an explanation of associatedrisks and commissions etc. of individual financial instruments, etc.prior to purchase. Please contact your Relationship Manager if youhave any questions.

UNITED STATES: NEITHER THIS REPORT NOR ANY COPY THEREOFMAY BE SENT, TAKEN INTO OR DISTRIBUTED IN THE UNITED STATESOR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION SUNDER THE US SECURITIES ACT OF 1933, AS AMENDED).

Credit Suisse Securities (Japan) Limited, Financial Instruments Dealer, Di-rector-General of Kanto Local Finance Bureau (Kinsho) No. 66, a memberof Japan Securities Dealers Association, Financial Futures Association ofJapan, Japan Investment Advisers Association, Type II Financial InstrumentsFirms Association.

Copyright © 2020 Credit Suisse Group AG and/or its affiliates. All rightsreserved.

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