investment committee report 10.6.10

Zurich, 6 October 2010 Global Research

Stefan Keitel (Chair) CIO, Private Banking and Asset Management & Global Co-Head MACS Giles Keating (Vice-Chair) Head of Research for Private Banking and Asset Management Rolf Bertschi Head of Technical Research, Private Banking Patrick Bucher Deputy CIO, Asset Management Michel Degen Co-Head Fixed Income, Asset Management Dr. Nannette Hechler-Fayd'herbe Head of Global Fixed Income and Credit Research, Private Banking Dr. Anja Hochberg Head of Investment Strategy, Asset Management Lars Kalbreier Head of Global Equity and Alternatives Research, Private Banking Robert Parker Senior Advisor, Credit Suisse Joe Prendergast Head of Currency and Commodity Strategy, Private Banking Filippo Rima Head Equities, Asset Management Guests attending this meeting Guido Bächli, Gregory Fleming Next IC meeting: 19/10/2010

Overview

Global Macro Prospects of additional stimulus and capped interest rates shift the

balance of risks to the positive side. Inflation is not a concern in G-3 for now, but clearly more so in emerging markets (EM).

Fixed Income Despite a more confident economic outlook, Government yields will

not rise too far given low short rates and potential quantitative easing (QE). We prefer credits, and still see some potential in high yield and EM local currency bonds.

Equities Closing in on an entry point for risky assets. After a robust September

performance, more QE and/or positive Q3 earnings news could trigger further upside, and a higher tactical exposure.

Alternative Investments: Commodities Base metals still showing scope for gains. Gold: Retain positions, but

wait for better entry levels to add. Oil: Ranging, but prices above USD 80 becoming rather stretched on the fundamentals.

Forex Perceptions of extended QE usher in some further USD weakness,

though much of the move may have occurred in anticipation. EM/commodity currencies benefiting from "ZERO" rates elsewhere.

The Investment Committee Report

Meeting of 5 October 2010

Fixed Income: / Equities: / Commodities: / Real Estate:

Strategic and Tactical corner

Tactical view (1–6 months)

Strategic view (6–12+ months)

Comment

Fixed Income

Equities

AI: Commodities

AI: Real Estate

Economic news has been fully consistent with our central scenario of moderate global cooling, with no

deterioration into a double-dip visible. Recently, the expansionary forces have received another boost as

the US Fed and Bank of England signaled openness to initiating more bond purchases (QE), and the

Bank of Japan cut rates to zero. We think if a US "QE-2" were announced, it might be a discretionary

multi-month program aimed at keeping Treasury yields capped. More QE could soften USD, raise

appetites for gold, high-yield and EM assets, and underwrite a more unambiguously positive phase for

equities. To prepare for a likely tactical upgrade, investors should free funds and select their targets.

Source: Credit Suisse Investment Committee

Zurich, 6 October 2010

The Investment Committee Report 2

Global Macro

Overview

As global slowdown drags on, the Fed and the BoE express a bias towards additional stimulus.

The “ZERO” environment (very low yields in major economies) implies strong capital flows to emerging markets.

As inflation remains no major issue, emerging market central banks react with FX intervention and by keeping their policy stance looser than in the absence of strong inflows.

European governments tighten fiscal policy further The latest Portuguese consolidation plans are drastic, but might still not be sufficient to reach the targets. Spain has already done much and has presented some new measures.

-10-9-8-7-6-5-4-3-2-10

2010 2011 2012 2013 2014

France Spain Portugal

General government deficit, % of GDP

Source: National Ministries of Finance, Credit Suisse (no Portugal estimates beyond 2011)

German unemployment lowest since 1992 The German labor market continues to improve. Leading indicators also suggest that labor market trends should underpin solid growth in private consumption going forward.

4

5

6

7

8

9

10

11

12

13

14

90 92 94 96 98 00 02 04 06 08 10

German unemployment rate

in %

Source: Datstream, Credit Suisse

China's PMI rises – but largely due to seasonality The improvement in China's PMI was largely driven by seasonality. Nevertheless, the PBOC will retain a tightening bias.

48

4950

5152

53

5455

5657

58

Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

Average MoM change since the inception of the survey in 2005

Chinese PMI 2010 seasonally adjusted

Index points

Source: Bloomberg, Credit Suisse

Macro forecasts

GDP Inflation Central Banks 3M LIBOR 10YR Yield

2010 2011 2010 2011 Current in 3M in 12M Current in 3M in 12M Current in 3M in 12M

USA 2.7 2.0 1.8 1.2 0.0-0.25 0.0-0.25 0.29 0.3-0.5 2.51 3.0-3.2

Eurozone 1.6 1.6 1.4 1.4 1.00 1.25 0.94 1.4-1.6 2.29 2.7-2.9

UK 1.4 2.7 3.1 2.1 0.50 1.25 0.73 1.4-1.6 2.97 3.6-3.8

Japan 3.3 1.8 -1.2 -0.4 0.00 0.00 0.22 0.1-0.3 0.97 1.1-1.3

Australia 3.3 3.8 2.9 3.1 4.50 5.25 4.88 5.3-5.5 5.07 5.6-5.8

Canada 3.0 3.4 1.4 2.1 1.00 2.25 1.23 2.4-2.6 2.79 3.5-3.7

Switzerland 2.4 1.2 0.6 0.7 0.25 0.75 0.18 0.7-0.9 1.44 1.8-2.0




Fixed Income

Overview

Possible quantitative easing measures by the FED will lead to increasing FX-driven portfolio rebalancing over the coming weeks. USD devaluation could lead to long-term underperformance of US Treasuries versus global peers, in our view.

We continue to prefer lower-rated fixed income segments over government bonds. A favorable economic and liquidity situation supports high yield and emerging market bonds.

Government bonds Total Return relative to benchmark –daily Underperformance of the bonds could extend into 2011 if the relative support at 1.22 breaks.

M J J A S O N D 2 010 A M J J A S O N D

1.20

1.25

1.30

1.35

Source: MetaStock, Credit Suisse

Real yields trending down US real yields are on a downtrend due to QE, also affectingreal yields for non-QE countries like Germany.

-

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

01/01/2010 01/03/2010 01/05/2010 01/07/2010 01/09/2010

10Y US-T real yields 10Y GE-Bund real yields


High yield credit spread and rating trend Rating trends have turned net positive for US high yield corporates, supporting credit spreads.

0

5

10

15

20

25

1998 2000 2002 2004 2006 2008 2010-20

246

81012

USD High Yield Spread (lhs, in %)US High Yield Net Downgrades/Total Par (in %)

Source: Moodys, Bloomberg, Credit Suisse

Tactical view: Global Fixed Income (Inputs: Technicals / Fundamentals )

7-10YR government bonds total return

Current Outlook: 1–6M total return relative to world Inputs

10YR Yield

Citigroup TR indices

Overall* Comments Tech.* Fund.*

USA 2.51% 875 Fed in discussions about more quantitative easing

Eurozone 2.29% 583 ECB with neutral outlook

UK 2.97% 984 BoE with dovish growth and inflation outlook

Japan 0.97% 388 Bank of Japan at zero interest rates

Australia 5.07% 1,296 RBA has already entered hiking cycle, but could move a bit slower

Canada 2.79% 990 Canada has also started to hike interest rates

Switzerland 1.44% 358 SNB with more dovish inflation outlook, but technicals less positive

Source: Credit Suisse. Prices as of 1 October 2010, by Citigroup CGBI TR. * Arrows indicate relative expected bond price developments. Note that the bond price is inversely related to bond yield.



Equities

Overview

September has been a very strong month for equities, with the rally led by riskier, more cyclical stocks. Over the past quarter, cyclicals have outperformed defensives by over 6%.

The US Q3 earnings season is the next test for the market, especially as earnings growth and “surprises” may have peaked.

Technical and tactical indicators still poised short of a clear "buy" signal, but could resolve soon.

Global stocks relative to benchmark – daily chart Stocks need to break relative resistance to signal a sustainable outperformance relative to the benchmark into 2011.

M J J A S O N D 201 0 A M J J A S O N D

0.680.690.700.710.720.730.740.750.760.770.780.790.800.810.820.83


Performance of cyclical sectors relative to defensive ones across regions, quarterly Cyclicals strongly outperform defensives.

-2.0

0

2.0

4.0

6.0

8.0

10.0

Glo

bal

EM US

Euro

pe UK

Asi

a

Cyclicals rel. Defensives, QoQ %

%

Source: Datastream, Credit Suisse Research

Upside to consensus bottom up price targets Valuation upside back around Q2 levels.

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

24.09.2009 24.11.2009 24.01.2010 24.03.2010 24.05.2010 24.07.2010 24.09.2010

Global Equities

United States - Overall Market

Source: Datastream, Credit Suisse

Tactical view: Equities (Inputs: Technicals / Fundamentals )

Equity Indices MSCI

Outlook: 1–6M total return rel. to world Inputs

Current Overall Comments 12M Fwd PE

Tech. Fund.

MSCI USA 1092 Earnings season starts this week, some early cyclicals like semiconductors may be weaker than last quarter. 12.4

MSCI Europe 1117 Markets healthy and euro strong despite Ireland's woes 10.7

MSCI U.K. 1656 FTSE 100 pushing the years high points now, supported by materials and other cyclicals 10.1

MSCI Japan 517 Performance has been lackluster so far, yen intervention not yet decisive 13.5

MSCI Australia 938 Weaker earnings momentum 12.5

MSCI Canada 1580 Earnings momentum is slipping. Canada now scores poorly on our scorecard metrics 13.9

MSCI Switzerland 827 Signs that the strong currency is beginning to hurt 11.9

MSCI Emerging (LEA) 1086 Recently upgraded to modest overweight and it has so far outperformed the developed world. India hot, China much less so.

11.1

Source: Credit Suisse. Prices as of close of 1 October 2010 by MSCI Barra



Alternative Investments: Commodities

Overview

Demand for industrial metals remains strong and inventories are falling. Prices have further upside potential.

Gold is reaching new record highs amid low interest rates and strong investor interest. We expect moderate upside, but bottoming real interest rates should limit the upside at one point.

Oil prices have recently risen above USD 80 again. However, the upside should be limited from current levels, given high spare production capacities and inventories.

Commodities relative to benchmark – daily chart Commodities could extend their underperformance relative to the benchmark if they break relative support at 0.7250.

M J J A S O N D 2010 A M J J A S O N D

0.700.710.720.730.740.750.760.770.780.790.800.810.820.830.84


The drop in real yields is supportive for precious metalsReal interest rates are the opportunity costs for holding gold.The drop in real interest rates is supportive for gold. Yieldsshould remain an important factor for gold going forward.

600

700

800

900

1'000

1'100

1'200

1'300

1'400

Jan 07 Jan 08 Jan 09 Jan 10

-0.5

0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Gold spot price 5Y real yield from TIPS (rhs; inverted)

USD/ oz. in %

Source: CFTC, Credit Suisse /IDC

Industrial metal inventories are falling rapidly The rally in industrial metals is in our view very well backed by fundamentals. Demand is strong and inventories are falling fast, leading to tightening market balances and rising prices.

0

10

20

30

40

50

60

Jan 95 Jan 99 Jan 03 Jan 07

Aluminium Copper Lead Nickel Tin Zinc

Stock-to-use ratio in days of consumption

Source: Bloomberg., Credit Suisse/IDC

Tactical view: Commodities (Inputs: Technicals / Fundamentals )

Commodities outlook

Outlook: 1–6M total return rel. to CSCB Total Return Index Inputs

Current Overall Comments Tech. Fund.

CSCB Energy Index 4050 High carrying costs in both crude oil and natural gas are weighing on performance.

CSCB Precious Metals Index 1099 Low interest rates and a weaker USD attract investment flows.

CSCB Industrial Metals Index 3442 We expect further upside amid tightening market balances.

CSCB Agricultural Index 1111 Continued supply uncertainty is driving the sector's performance.

Gold 1316 Following the recent rally, investment flows could moderate.

WTI Oil 81.58 Soft US oil market to limit upside, global consumption growth to limit downside.

Source: Credit Suisse. Data provided by Bloomberg. Prices as of 1 October 2010. Local currency is USD.



Forex

Overview

EUR/USD remains supported by widening rate spreads as the Fed signals further QE. EMU credit market strains are a concern.

Japan cut its policy rate, announced asset purchases and started FX interventions, which may limit USD/JPY downside. But rate spreads are not at levels consistent with JPY weakness.

EUR/CHF: SNB turns dovish. Levels of EUR/CHF below 1.30 may be difficult to sustain due to CHF overvaluation.

USD/CHF – daily chart The US dollar dropped below the all-time low at CHF 0.9675 and next is likely to test support at 0.9350.

M J J A S O N D 2010 A M J J A S O N D

0.95

1.00

1.05

1.10


EUR recovery may extend well into the 1.40 area Fed's indication of additional quantitative easing in the USAshould keep USD weak.

1.151.201.251.301.351.401.451.501.551.60

Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10

-400

-300

-200

-100

0

100

200

300

EUR/USD Real 2 Year Swap Spread EUR minus USD (r.h.s)

EUR/USD in bp


EUR/CHF: Dovish SNB and CHF overvaluation The scope for rate spreads to move into CHF's favor is likely to be limited. This implies – in combination with CHF overvaluation – a more neutral fundamental outlook.

1.251.301.351.401.451.501.551.601.651.70

Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10

0.40.60.81.01.21.41.61.82.02.2

EUR / CHF exchange rate 2 Year Swap EUR minus CHF (rhs)

EUR/CHF %


Forex spot rates

Tactical 1–6M Outlook

Comments Inputs

Current Overall Tech. Fund.

USD/CHF 0.98 Rate spreads not consistent with USD strength, technicals are negative.

USD/JPY 83 Japan starts currency interventions which balance positive fundamentals, technicals are neutral.

EUR/USD 1.37 Real interest rate spreads and basic balance are supportive. Technicals are positive.

GBP/USD 1.58 GBP may find rate support ahead of USD as inflation is sticky. Technicals are positive.

EUR/CHF 1.34 SNB turned rather dovish which balances narrow rate spreads. Technicals are neutral.

AUD/USD 0.97 Wider rate gap, higher commodity prices. Technicals are supportive.

USD/CAD 1.02 BoC expected to hike further, higher commodity prices are supportive, but technicals are neutral.

Source: Credit Suisse, prices as of 1 October 2010, London close, Bloomberg.



How to read the tables in the IC report

The top-line arrows shown above the individual tables for fixed income, equities, commodities, real estate, and on the front page indicate the expected absolute market direction for that asset category.

For fixed income, equities, commodities and real estate, ratings at the asset-category level are classified as positive ( ), neutral ( ), or negative ( ). The outlook rating refers to expected total returns for a time horizon of 1–6 months (tactical) and 6–12+ months (strategic). Thus, a positive, neutral, or negative outlook rating expresses the expectation that an asset category will deliver rising, flat or falling absolute returns. Within the asset categories, the ratings are defined as outperform ( ), neutral ( ), or underperform ( ), with respect to a given asset category benchmark. The predefined benchmarks are as follows: the Citigroup Government Bond Index (Total Return) for fixed income, MSCI World Index (Total Return) for equities, the CSCB (Total Return) for commodities. For real estate investments the benchmark is the GPR 250 property shares index world (Total Return). For fixed income, equities and real estate, the outlook refers to the expected relative total return in local currency, such as AUD or JPY. For commodities, the outlook refers to the expected relative total return in USD. For the 7–10 year government bonds table, the current yields shown for the different markets come from the Citigroup government bond indices. Note that the bond price is inversely related to bond yield. In the macro forecasts, the 3-month outlook for Libor and 10-year government yields is in relation to the current range. For the foreign exchange spot rates, the outlook is in relation to the current spot rate. The inputs used to generate the overall rating outlook are technical and fundamental. Technical analysis forecasts the probable future price trend using technical indicators, such as measures of market trend and momentum. Fundamental analysis looks at valuations, such as the 12-month forward P/E ratio based on earnings estimates, and factors arising from the macro environment, or bond yields based on estimates of future real yields and expected inflation.



General disclaimer / Important information

This document was produced by and the opinions expressed are those of Credit Suisse as of the date of writing and are subject to change. It has been prepared solely for information purposes and for the use of the recipient. It does not constitute an offer or an invitation by or on behalf of Credit Suisse to any person to buy or sell any security. Nothing in this material constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. The price and value of investments mentioned and any income that might accrue may fluctuate and may fall or rise. Any reference to past performance is not a guide to the future. The information and analysis contained in this publication have been compiled or arrived at from sources believed to be reliable but Credit Suisse does not make any representation as to their accuracy or completeness and does not accept liability for any loss arising from the use hereof. Credit Suisse may have acted upon the information and analysis contained in this publication before being made available to clients of Credit Suisse. Investments in emerging markets are speculative and considerably more volatile than investments in established markets. Some of the main risks are political risks, economic risks, credit risks, currency risks and market risks. Furthermore, investments in foreign currencies are subject to exchange rate fluctuations. Before entering into any transaction, you should consider the suitability of the transaction to your particular circumstances and independently review (with your professional advisers as necessary) the specific financial risks as well as legal, regulatory, credit, tax and accounting consequences. Neither this document nor any copy thereof may be sent to or taken into the United States or distributed in the United States or to a US person, in certain other jurisdictions the distribution may be restricted by local law or regulation. Neither this report nor any copy thereof may be sent, taken or distributed in Japan Credit Suisse, a Swiss bank, is authorized and regulated by the Swiss Financial Market Supervisory Authority. Credit Suisse disseminates research to its clients, which has been prepared by either itself or any of its affiliates. This document has been issued in Hong Kong by Credit Suisse Hong Kong branch, which is an Authorized Institution licensed by the Hong Kong Monetary Authority and a Registered Institution under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). Credit Suisse (Deutschland) AG, authorized and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht, disseminates research to its clients that has been prepared by one of its affiliates. This document has been issued in the UK by Credit Suisse (UK) Limited and Credit Suisse Securities (Europe) Limited, London. Credit Suisse Securities (Europe) Limited and Credit Suisse (UK) Limited are associated but independent legal and regulated entities within the Credit Suisse Group. Both are authorized and regulated by the Financial Services Authority. The protections made available by the UK’s Financial Services Authority for private customers do not apply to investments or services provided by a person outside the UK, nor will the Financial Services Compensation Scheme be available if the issuer of the investment fails to meet its obligations.

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investment committee report 10.6.10

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