UUSS IINNDDUUSSTTRRYY MMOONNIITTOORR 2012 Second Half Issue

October 1, 2012

【OVERVIEW】Continued Stability for U.S. Industries but Downside Risks from Overseas

Economy Remain The U.S. economy has slightly decelerated on the back of deteriorating European economy and

sluggish growth in emerging countries; real GDP increased 2.0% yoy in the first quarter, subsequently slowing to a 1.7% increase in the second quarter.

Going forward, the U.S. economy is expected to sustain moderate growth, and the business climate for the U.S. industries is anticipated to remain stable. Nevertheless, rising gasoline prices and prolonged sluggishness in labor market improvement may negatively impact consumer spending. Moreover, downside risks of further slowdown in the overseas economy remain.

《The Outlook for Major Sectors and Indicators》 Energy: Crude oil prices are expected to remain elevated on the back of supply constraints from

the Middle East tensions and tight spare capacity. Natural gas prices likely have bottomed out but they are expected to linger at low levels.

Materials: Ethylene prices should stabilize despite weaker demand, attributable to shutdowns of crackers. Inflow of lower priced imports may exert downward pressure on steel prices.

Industrials: Non-residential construction spending maintained a moderate pace of improvement. Growth in overall machinery orders turned negative except machine tools for automotive demand; going forward, weakness in orders is expected to continue. In Airlines, stable business demand should continue to offset weakening leisure demand.

Consumer discretionary/staples: U.S. light vehicle sales for 2012 are forecasted at 14.0-14.3 million units, attributable to the outlook of solid recovery in sales driven by low interest rates among other factors. Retail sales saw moderate growth on the back of cautious middle-class consumer spending. Going forward, the drought in the Midwest may result in food inflation.

IT: U.S. PC unit sales continue to decline as demand shifts to smartphones and tablets. The total IT industry revenue should maintain +5-10% growth, boosted in part by favorable cloud spending in the enterprise segment. There is a sign of bottoming out in semiconductor shipment amid successful progress in inventory correction.

NYIR.2012-36

1

Table of Contents

Sector Industry Indicator Latest Data

Page

Offshore Rig Utilization/ Dayrates Jul 2012 2 Energy Oil & Natural Gas

Crude Oil Prices / Natural Gas Prices Jul 2012 2

Chemicals Ethylene Price Jul 2012 3

Container & Packaging Cardboard Box Shipments Jun 2012 3

Steel Price/ Production / Import Aug 2012 Metals & Mining

Aluminium LME Spot Price/Inventory Jul 2012 4

Materials

Paper & Forest Products Paper Price Aug 2012 4

Construction & Engineering Non-Residential Construction Jun 2012 5

Aerospace & Defense Commercial Aircraft Orders and Backlog 2Q 2012 5

Industrial Machinery Machinery New Order Jun 2012 6

Freight & Shipping Railroad Traffic 2Q 2012 6

Industrial

Airlines Airline Revenue Passenger Miles Apr 2012 7

Auto & Autoparts Light Vehicle Sales Production Jul 2012 7

Media Ad Revenue Growth and breakdown figures 2Q 2012 8

Hotels, Restaurants & Leisure Growth in Hotel Occupancy and Average Daily Room Rate (ADR)

2Q 2012 8 Consumer

Discretionary

Consumer Discretionary Retailing

Same Store Sales (Dept. Stores, Apparel Specialty, Off-price, High-end)

2Q 2012 9

Consumer Staples

Food & Staples Retailing Same Store Sales (Supermarket, Supercenter, Drug Stores)

2Q 2012 9

Medical Equipment Electromedical , Measuring, and Control Instrument Manufacturing

Jun 2012 10 Healthcare

Pharmaceuticals Pharmaceuticals Shipment Jun 2012 10

Non-bank Finance Companies Loan Growth Credit Performance

Jun 2012 11

Capital Markets Average Daily Trading Volumes Mutual Fund Flows

Aug 2012 11

Insurance L/H Premiums, Consideration & Deposits Net Investment Income

1Q 2012 12

Insurance P/C Combined Ratio Net Investment Income

1Q 2012 12

Financials

Real Estate & REITS SS NOI Growth Vacancy Rates

2Q 2012 13

IT Solution PC Shipment Media Tablet and Smartphone Shipments

2Q 2012 13 Information Technology

IT Components Semiconductor Shipment Equipment Bookings

Jun 2012 Jul 2012

14

Telecoms Telecommunications Wireless Subscription Wireless Average Revenue Per User (ARPU)

1H 2012 2Q 2012

14

Utilities Utilities Electricity Retail Sales / Wholesale Price Jul 2012 15

Appendix1 - Macro Indicators 2Q 2012 16

Appendix2 - Exchange Rate Aug 2012 17

Note: The "FORECAST" period added in this edition is a short-term outlook (6 months-1 year).

Table of Contents

2

Rig Demand/Supply and Utilization

(Source: RigLogix) (Unit: Number of Rigs, Utilization)

0%

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100%

0

50

100

150

200

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

Demand Supply Utilization

U.S. Offshore Rig Dayrates

(Source: RigLogix) (Unit: Dayrates) ($k/day)

0

100

200

300

400

500

600

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

DrilshipsSemisJackups

Crude Oil Prices and Demand

(Source: Bloomberg) (Unit: %, $/barrel)

$0$20$40$60$80$100$120$140

$160

-4%-3%-2%-1%0%1%2%3%

4%

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

World Crude Demand Growth (3 year m.a.)U.S. Crude Demand Growth (3 year m.a.)WTIBrent

Natural Gas Prices and Storage

(Source: Bloomberg) (Unit: bcf., $/mcf)

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$2

$4

$6

$8

$10

$12

$14

$16

1,800

2,000

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'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

Current Storage (1 year m.a.)

Natural Gas Price

1. Offshore Rig Utilization/ Dayrates Forecast: Stabilization of rates and utilization

Utilization strength driven by ultra-deepwater. West African discoveries and ambitious Brazilian spending soak up availability in the ultra-deepwater market. Deepwater activity is also strengthening as the Gulf of Mexico comes back and the North Sea is supporting midwater utilization rates. Even jackups are finding some stability as available rigs are soaked up. However, a continued dichotomy will persist with UDW spending traction driven by new discoveries while international jackup fixtures struggle to keep pace.

Dayrates could level out as newbuilds arrive. Cyclicality is catching up with the offshore market as construction spending followed higher oil prices in previous years. This is bringing un-contracted rigs to the market, particularly beginning in the latter half of 2013.

Capex trends to support offshore drilling. Many of the ultra-deepwater operators are NOCs, which are less sensitive to near-term oil price movements and continue the pace of capital spend. Equity access to low-cost oil plays remains limited for private players, necessitating a focus on costlier oil fields and driving the need for continued capex growth.

2. Crude Oil Prices and Demand / Natural Gas Prices and Storage

Forecast: High oil prices and low gas prices remain the norm

Tight supply supports crude pricing. Crude prices remain elevated in 1H/12 despite the European crisis or a slowdown in the developing world in China, India and parts of Latin America. Supply constraints from the sanctions on Iran, tight spare capacity and the costly extraction techniques have provided pricing support.

Costly production and geopolitical worries to keep crude pricing up. Elevated oil prices should continue to be the norm as geopolitical tensions remain and production growth continues to prove difficult and costly.

Natural gas bounces off of 10-year lows. Natural gas declined to 10-year lows as the shale gas industry evolves and associated gas production from oil and NGL plays increases inventories further. However, the decline in the gas rig count coupled with hot summer weather has resulted in a sharp near-term bounce in pricing off of the bottom.

Depressed natural gas pricing to linger. We expect natural gas pricing to remain depressed going forward as associated gas continues to grow in response to relatively higher oil prices, the inventory of uncompleted wells steadily climbs and capital infusions from joint ventures and M&A activity continues.

3

(Source: RISI) (Unit: Mil sp ft)

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25

27

29

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'05 '06 '07 '08 '09 '10 '11 '12 '13

Shipments Growth (yoy)

(Source: Bloomberg) (Unit: Cents / Pound)

0

10

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70

80

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

Ethylene Price (Delivered pipeline, Gulf)

3. Ethylene Price Forecast: Despite weakening demand, ethylene prices will stabilize amid tighter supply

Ethylene prices descend from a six-year peak. Stalling demand in most regions amid a slowdown in the global economy drove down ethylene prices from their March peak. The most recent price uptick (in July) reflects increased demand from polyethylene producers, who had drawn down their inventories in prior months.

Improving balance in supply and demand. Despite weaker demand, prices will stabilize in the next 3-6 months, as Hurricane Isaac-related cracker shutdowns and reduced operating rates lead to tighter ethylene supply. According to IHS Chemical, about 7% of North American ethylene capacity was shut down in advance of the storm and a further 8% of capacity was running at reduced rates.

4. Cardboard Box Shipments Forecast: Box demand to remain sluggish

Cyclical and secular forces reducing box demand. Cardboard box shipments fell 0.3% in H1/12, continuing the slowing pattern which began in the second half of 2010. Box shipments are closely tied to growth in non-durable goods production and slowing box demand is generally an indication of economic weakening. An additional force affecting box usage has been the offshore shift of production capacity, which has led to a long-term trend rate of decline of 0.5% to 1%.

Proposed price hikes unlikely to hold. Led by International Paper, box producers have initiated an 8% price increase, which suggests inventories have tightened sufficiently to support an increase. However, given the prevailing uncertainty over future economic strength, the price increase will not likely hold. Box demand will likely remain sluggish over the near-term.

4

(Source: Pulp & Paper Week) (Unit: $/Ton)

300

400

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900

1,000

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

Newsprint Uncoated Freesheet

Linerboard

S teel Price, Production & Import

(Unit: Million Tonne, US$/t) (Source: AISI, Steel Business Briefing)

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800

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1,200

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12

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

Production(left) Imports(left)Hot Rolled Prices(right)

Aluminum LME Spot Price/Inventory

(Source: Bloomberg) (Unit: $/t , '000t)

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'08 '09 '10 '11 '12 '13

LME Stock

LME Spot Price

5. Steel Price, Production & Import, Aluminium LME Spot Price/Inventory

Forecast: Demand exhibits slow improvement in steel. Aluminum in continued state of oversupply

Steel:

The market continues to show improvement. 2012’s production was 5.4% higher y-o-y through nearly 8 months and capacity utilization for the year was at 77.5% higher than the same period in 2011 which was at 74.7%. Demand from construction, heavy equipment and auto has been positive but moderate, while oil & gas continues to grow the fastest.

Price boost tempered with rising imports. Recent U.S. steel prices have remained stable as a result of lower inventory and capacity levels however rising imports are a threat to domestic prices. Prices could show slight improvement in late 2012 to early 2013. Raw material prices, especially in iron ore could provide a lift to steel producers in the near-term.

Aluminum:

Aluminum demand has increased. In the USA over the 1H12, increased demand from the auto, aerospace and utilities sector has led to growth in aluminium demand. High global inventories persist reflecting an imbalance in supply and continued prevalence of warehouse financing deals.

The market is in a state of oversupply. Although high cost smelters have shut down or decreased capacity, new low cost smelters enter the market and continue the imbalance in supply. In this challenging pricing and oversupply environment many primary aluminum companies will struggle to remain profitable, while those with strong downstream operations in high value added products may retain some profitability.

6. Paper Price Forecast: Prices remain relatively stable as suppliers maintain disciplined production

Total USA paper production declined 3.1% through 1H12. Newsprint fell 3.3% reflecting the continuing market loss to digital media. Coated papers fell 3.7% through, as a key component, magazine ad pages printed declined 8.4% y-o-y, as ad sales have focused on more digital editions.

Suppliers maintain pricing discipline. Quoted prices for newsprint and containerboard have continued to hold at current cycle highs, although newsprint remains well below previous peaks. Recent pricing in the UFS segment has remained relatively stable over the 2012 but slightly lower than in comparison with 2011. Under the current circumstances, paper suppliers are using a mix of disciplined production with increasing exports to keep inventory levels low. Weak demand continues through 2013, which will continue to challenge the ability of leading producers to keep pricing relatively stable, especially the UFS segment.

5

(Source: U.S. Census Bureau) (Unit:Billion US$)

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'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

Public Private Growth (yoy)

7. Non-Residential Construction Expenditure Forecast: Total non-residential construction spending to see moderate growth

Private construction spending growth is broad-based. Non-residential construction spending rose 9% in H1/12. Private spending was up strongly (+23%), while public construction outlays continued to languish (-2.5%) reflecting tight state budgets. Electric power (+45%) and manufacturing-related projects (+36%) were the primary areas of strength, but all major sub-segments, including healthcare, office buildings and hotels, showed positive growth. In the public sector, most areas continued to see reductions in construction spending, but outlays for roads and highways did manage a slight increase (+1%).

Public spending will take longer to recover. While private non-residential spending has moved into the recovery phase, there could be some near-term deceleration in growth due to raised uncertainty concerning the economic environment. Public spending should shrink further over the near-term, before flattening out in 2013. Total non-residential spending should see moderate growth over the next six months.

8. Commercial Aircraft Orders and Backlog Forecast: Aircraft demand to remain firm

Boeing to dominate aircraft orders in 2012. New orders for large commercial aircraft totaled 655 units in H1/12 – down 19% from H1/11. All of the decline was due to Airbus, which saw its orders for A320 aircraft fall to 189 this year from 571 in H1/11. Last year, thanks to its new engine option, the A320 outsold the B737 by 1,219 orders to 551 (total for 2011). This year Boeing has its own more fuel efficient B737 Max, and the company is expected to make up the ground lost to Airbus in 2011.

Producers raising output levels to monetize backlogs. Both manufacturers have succeeded in raising production levels in 2012. Deliveries through the first half of 2012 increased 8% at Airbus and 29% at Boeing. Greater output capability will enable aircraft producers to accelerate the translation of backlogs into revenues. New orders should remain strong in H2/12, thanks largely to the continuation of the introductory drive for the B737 Max. Backlogs should also rise this year but begin to flatten out in 2013 as orders and production move into balance.

(Source: Boeing, Airbus) (Unit: Units)

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'03 '05 '07 '09 '11 Q2 Q4 Q2

Backlog

Orders

Boeing Airbus Backlog

2011 2012

6

(Source: U.S. Census Bureau) (Unit: Billion US$, %)

-40%

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New Order (SA) YoY % Change

(Source: Surface Transportation Board) (Unit: Billions,%)

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0

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'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

Ton-Miles Growth Ratio (YoY)

9. Machinery Order Forecast: Further declines in machinery orders are likely

Customer caution drives machinery orders lower. U.S. machinery orders rose only 1% in H1/12 and growth moved into negative territory in Q2/12 for the first time since 2009. Uncertainties over future economic growth have prompted machinery users to become more cautious in making capital outlays. Demand for mining equipment was particularly weak (-29%), reflecting reduced coal usage by electric power producers and a broad decline in metals prices. Machine tool orders were a pocket of strength, rising 33% thanks to strong automotive demand.

Weakness to continue over the near-term. Further declines in machine orders are likely over the near-term. Drought in the Midwest should produce a sharp reduction in orders for agricultural machinery. Orders for power generation equipment, which surged to all-time highs in H2/11, are also expected to drop back significantly. Construction machinery orders should contract modestly, but rising activity in both residential and private non-residential construction suggests order growth should reaccelerate in 2013.

10.Railroad Traffic Forecast:Further reductions in rail shipments likely due to weak environment for coal

Weak coal demand drives rail traffic lower. Growth in railroad ton-miles turned negative (-2%) in Q2/12 for the first time since Q4/09. The drop was caused by a 14% contraction in coal shipments. Substitution of cheaper natural gas for coal in electric power generation, coupled with the substantial build-up in coal inventories resulting from the abnormally warm winter, has led to the reduction in coal demand. Aggregate ton-miles for all other types of shipments continued to rise (+4%), although growth is decelerating. Automotive-related shipments have been particularly strong (+20%).

Continued weakness despite rebounding construction sector. Weak conditions in the coal segment will likely persist over the near-term, retarding growth in total rail shipments. In addition, drought in the farm belt will result in reductions in grain shipments. However, improving housing demand should support accelerating growth in forest product and intermodal activity.

7

(Source: U.S. Dept. of Transportation) (Unit: Billions,%)

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Domestic RPMs International RPMs

Dom Growth (YoY) Int Growth (YoY)

US Light Vehicle Sales (SAAR)

(Source: Ward's AutoInfoBank) (Unit:Millions,%)

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Litght TruckCarGrowth Rate (YoY)

North America Light Vehicle Production

(Source: Ward's AutoInfoBank) (Unit:Thousands,%)

-80%

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120%

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Light TruckCarGrowth Rate (YoY)

11. Airline Revenue Passenger Miles Forecast: Air travel demand to remain sluggish

Sluggish traffic for airlines continues. Air traffic in H1/12 was up 1.3% - a marginal improvement over the flat H2/11 performance. U.S. legacy carriers (LC) reported an increase of 0.8% while low-cost carriers (LCC) saw an increase of only 2.9% - their weakest rate of growth since the recession. LC domestic revenue passenger miles (RPM) have declined over the past two years and have now returned to their 2009 cyclical low-point. LCs continue to focus their resources on more profitable international routes.

Business travel stability to offset leisure market weakness. Air travel demand should remain sluggish. LCCs are reporting weakening leisure demand offset by stable business-related travel. Business demand should also keep international traffic growth stable, albeit at low single-digit rates. The industry is still vulnerable to further increases in jet fuel prices.

12. Automobile Sales / Production Forecast: Growth rate will moderate, but 2012 SAAR is expected at 14.0-14.3 million units

Overall demand is stable. U.S. light vehicle sales in 2Q totaled 14.1 million on a SAAR basis, the highest quarterly levels since 2008. Low interest rates on many new models, high trade-in values, and pent-up demand continued to draw shoppers to dealerships. While overall demand remains stable, it doesn’t appear that the recovery gained strength in the first half. YTD SAAR tracked at 14.1 million units, broadly in line with market expectations of ~14.0-14.3 million units for 2012. Looking forward, even though demand remains stable, yoy growth should moderate later in the year as the low base of comparison created by last year’s earthquake in Japan subsides.

Production continues to rebound. North American light vehicle production is on track to hit the 14.9 million unit mark for the first time since 2007, according to OESA. Driven by inventory rebuilding and strong demand, North American production for the first seven months increased 23% yoy, led by the U.S. (27%), Canada (20%) and Mexico (13%). Japanese automakers are also moving some production from Japan to North America because of the strength of the yen. Federal Reserve data show capacity utilization for the auto & parts sector reached 79.9% in July.

8

(Source: Smith Travel Resources) (Unit: %)

1210-8-6-4-202468

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'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

Occupancy Growth (yoy)

ADR Growth (yoy)

(Source: Magna Global, Kantar Media) (Unit: Billion US$, %)

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Total U.S. Adver tising YoY Growth

Percent Change in Mass Media Spending

Mass Media Sector 2Q 12 YoY

Television 2.6%

Newspapers -6.2%

Radio -1.3%

Magazines -3.2%

Outdoor 2.5%

Digital (Internet) 10.9%

(Source: Magna Global, Kantar Media)

13. Ad Revenue Growth Forecast: Advertising demand remains steady, but publishing media challenged

Advertising bolstered by political and Olympic spend. Advertising revenue in the U.S. rose 2% in 1H/12, aided by the Olympic and political spend cycle. Industry growth rates should improve in 2H/12, as campaign spending associated with the Presidential election intensifies. Total U.S. advertising spend is forecasted to advance at a mid-single digit pace over the near-term.

Retransmission fees driving broadcasting revenue. Television broadcasters are benefiting from a sharp rise in retransmission consent fees paid by the pay TV cable and satellite operators, and should outpace the annual growth rate of the overall advertising market. As video content consumption shifts toward online media, broadcasters have begun to augment sales growth with high-margin streaming license deals

Riding the internet wave. The internet, led by paid search and display advertising, continues to be the biggest contributor of new advertising dollars to the industry. U.S. online advertising spending is expected to surpass total print advertising spending by 2013.

Publishers face headwinds as readership base migrates online. Mass media advertising for newspapers and magazines fell 6% and 3% in Q212, respectively. Newspaper ad expenditures have been more than halved over the past five year, while magazine spend has dropped 30% during the same period. To stem this negative sales trend, publishing vendors are scrambling to adopt new online subscription models and digital distribution platforms.

14. Growth in Hotel Occupancy and Average Daily Room Rate (ADR)

Forecast: Slow but steady improvement in occupancy and pricing

Hotel occupancy and pricing continued to improve in 1H12. Occupancy rate rose 3.4% and average daily room rates rose 4.4% in the first half of this year driving an increase of about 8% in per room revenue.

Booking trends remain positive. Strengthening hotel reservations are enabling operators to hike room rates and foster growth, with revenue expected to rise by 4% average this year. Hotel companies are optimistic as booking volumes and business conferences have gained momentum.

New room supply is expected in the high-end segment. Going forward, improving fundamentals are expected to promote new room supply, mainly in the upscale and upper-midscale segments, after three years of limited growth.

9

(Source: Bloomberg) (Unit: YoY %)

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'05 '06 '07 '08 '09 '10 '11 '12 '13

Specialty Apparel Retailers

Off-Price Retailers

Department Stores

High-End Department Stores

15. Consumer Discretionary Retailing (Same Store Sales)

Forecast: Retailers see slow sales growth on cautious middle-class consumers

Retail sales lost momentum in 2Q12, reflecting cautious consumer spending after a strong start to the year. Waning consumer confidence and dim job prospects were partly responsible for the weakness. Many retailers were also lapping strong prior-year same-store sales that were difficult to match.

Results were mixed. Mid-tier department stores fared poorly in 2Q12 as middle-class consumers held back and turned to discounters. High-end department stores and off-price retailers proved resilient even in a sluggish consumer environment.

Retail sales ticked up on back-to-school. Same-store sales at major chains rose 6% in August, as consumers took advantage of back-to-school promotions by retailers. Cooler weather in the Northeast also drove traffic during the month. Despite the overall improvement in August, retailers are still cautious given rising gasoline prices and tepid consumer confidence. Retailers remain focused on tight inventory controls to avoid heavy markdowns in 2H12.

16. Food & Staples Retailing (Same Store Sales)

Forecast: Drought-driven inflation could lift same store sales growth in 2013

Sales moderated on easing inflation. Food retailers’ same-store sales slowed in 1H12 as food inflation continued to subside and retailers became more promotional to drive traffic. Although volume growth has stabilized, moderating inflation (fresh produce and protein) offset the improvement.

Competition remains tough. Supercenters and warehouse clubs continue to see traffic growth as they leverage scale to stay price competitive. The threat of drought-driven food inflation is a cloud over grocers, particularly mid-market supermarkets, who are seeing slow volume trends.

Generic wave squeezed pharmacy sales. Drugstores sales decelerated in 1H12 as the continued ramp in generic wave weighed on pharmacy revenues, but the growth in generic prescription boosted gross margins and offset pressure on reimbursement rates.

(Source: Bloomberg) (Unit: YoY %)

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Supermarkets

Supercenters/Warehouse Clubs

Drug Stores

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(Source: U.S. Census Bureau) (Unit: Billion US$)

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Value of Shipments Growth Rate (YoY)

(Source: U.S. Census Bureau) (Unit: Billion US$)

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Pharmaceutical Shipment

Growth Rate (YoY)

17. Electromedical, Measuring & Control Instrument Manufacturing (Medical Equipment)

Forecast: Shipment growth will remain slow

The chart above refers to NAIC 3345, which includes not only electromedical and electrotherapeutic products but also laboratory analytical instruments, aeronautical instruments, navigation and guidance systems, and physical testing equipment.

Shipments remain soft. YoY shipments decelerated in the first half of the year to 1.5%, amid reduced patient utilization of healthcare services, government austerity measures in Europe, and hospitals’ efforts to streamline their equipment purchases. Product recalls, whose volume rose to a two-year high in 2Q12 (242 medical devices, 123 million units), further curbed shipments.

Pricing is stabilizing. While volumes are slipping, prices have stopped sliding even as their improvement is impeded by a scarcity of breakthrough products.

Modest growth ahead. An uptick in CAPEX on replacement equipment and on equipment for outpatient settings, along with continued demand from emerging markets, will underpin modest gains in shipments.

18. Pharmaceutical Shipment Forecast: Shipments will continue to languish in negative growth territory

Pharmaceutical shipments continue to fall. Pharmaceutical shipments continued their long decline amid a triple whammy of the steep patent cliff, lower consumption of drugs amid reduced patient utilization of healthcare, and strong inroads by low-priced, mainly overseas-produced, generics.

Pricing remains resilient. The roll-out and market uptake of several important biologic drugs helped the PPI of pharmaceutical and medicine manufacturing to gain 5% YoY in the first half of this year.

Generics and the patent cliff will continue to hamper shipment rebound. Managed care’s push of patients into generics, coupled with this year’s patent cliff, will continue to weigh on industry shipments. Although the health care reform will boost drug consumption, it will not be fully implemented until 2014. And although the patent storm will start receding after this year, it will persist through 2016.

11

U.S . Equity Trading Volumes

(Source: NYSE Euronext)

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M)

Y/Y Growth in Managed Receivables

(Source:FRB)

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Consumer

Real estate

Business

Charge-offs

(Source: FRB) (Unit: %)

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C&I Loans

Credit Cards

Real Estate

Industry-Wide Mutual Fund Flows

(Source: ICI) (Unit: Billions USD)

($150)($125)($100)($75)($50)($25)

$0$25$50$75

'08 '09 '10 '11 '12

19. Loan Growth and Credit Performance (Non-bank Financial Companies)

Forecast: Modest loan growth and normalizing credit costs

Loan growth remains a priority and challenge. Having successfully navigated through the financial crisis, non-bank finance companies have continued to focus their efforts on growth strategies. Consumer and business lending continues to improve although the pace of improvement has decelerated in recent quarters. Real estate lending, although improving, continues to lag.

Loan demand continues to gradually improve. According to the Federal Reserve's July 2012 lending survey (2Q12 activity), demand for C&I loans and commercial real estate (CRE) loans continues to improve. On the household side, demand for auto loans and credit cards remained strong, which may partly reflect continued loosening of underwriting standards. Interestingly, demand for prime and nontraditional mortgages increased in 2Q12 despite little changes in underwriting standards.

Credit metrics continue to normalize. Charge-offs and delinquencies are likely to continue to decline support by a gradually improving labor market and GDP growth. The pace of improvement, however, will continue to decelerate. As non-bank finance companies deploy strategies to grow their loan portfolios (e.g. loosen underwriting standards), a slight reversal in the credit metric trends could emerge.

20. Average Daily Trading Volumes Mutual Fund Flows (Capital Markets)

Forecast: Declining trading volumes and modest mutual fund inflows

Trading volumes continue to shrink. Average daily trading volumes in July were down 12% y/y and YTD volumes are down 9%. In the near-term, we expect equity trading volumes to remain soft reflecting decreased market volatility and the new regulatory environment.

Industry flows remain strong. According to the Investment Company Institute (ICI), July YTD inflows to long-term mutual funds were $169 billion. This compares to inflows of $88 billion during the same period in 2011.

Fixed income funds remain the preference. Bond funds remain the driving force behind increased fund flows reflecting the risk-averse sentiment among investors. Year-to-date, total inflows were $173 billion, up from $79 billion in the year-ago period.

Equity funds continue to post outflows. Stock funds posted another month of outflows in July bringing the YTD total to $36 billion.

12

Combined Ratio (1yr. Mov Avg.)

(Source: SNL) (Unit: %)

85

90

95

100

105

110

115

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

Deteriorate

Improve

Net Investment Income (1 yr. Mov Avg.)

(Source: SNL) (Unit: Billion US$)

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

6

8

10

12

14

16

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

Net Investment Income

Y/Y Change (%)

21. Premiums, Consideration & Deposits & Net Investment Income (Insurance L/H)

Forecast: Modest premium growth and lackluster investment returns

Premium growth remains bifurcated. The industry continues to report modest premium growth reflecting, in part, the weak economic backdrop and elevated unemployment. While overall growth remains muted, the story at the product level remains bifurcated with interest rate sensitive products (e.g. universal life and fixed annuities) underperforming and more market driven products (e.g. variable life and variable annuities) experiencing robust growth.

Lackluster investment returns reflect low rates. The low interest rate (the 10-yr Treasury was 1.55% as of August 31, 2012) environment remains a key challenge and continues to put downward pressure on investment income growth. To improve investment returns, life insurance companies have been restructuring their investment portfolios and gradually increasing their allocations of higher-yielding (and higher-risk) assets, such as private placements, commercial mortgage loans and alternative investments.

22. Combined Ratio & Net Investment Income (Insurance P/C)

Forecast: Improved underwriting results and lackluster investment returns

Underwriting results are improving. P/C insurers' underwriting profitability continues to improve after posting substantial losses in 2011 as a result of a record number of catastrophe (CAT) events. The industry’s combined ratio improved to 105% in 2Q12, down from 118% in 2Q11 reflecting a lower number of CAT events.

Pricing is on the rise. Pricing across select lines continues to rise in response to the industry’s poor underwriting results in 2011. Although positive, it remains unclear if the shift in pricing will develop into a longer term trend given that the industry is highly competitive and remains well capitalized with excess underwriting capacity.

Low rates remain a headwind. Investment results continue to be pressured by the low interest rate environment. Lackluster investment results will at least partly offset any improvement in pricing.

Note: The Combined ratio is a primary indicator of P/C insurers’ underwriting profitability. Calculation: losses incurred to premium earned plus underwriting expenses to premiums written after policyholders’ dividends.

Net Investment Incom (1 yr. Mov Avg.)

(Source: SNL) (Unit: Billion US$)

-4%

-2%

0%

2%

4%

6%

8%

30

32

34

36

38

40

42

44

46

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

Net Investment Income ($)

Y/Y Change (%)

Premiums, Consideration & Deposit

(Source: SNL) (Unit: Billion US$)

-60%

-40%

-20%

0%

20%

40%

60%

80%

0

50

100

150

200

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

Premiums, Consideration &Deposits ($)Y/Y Change (%)

13

PC Shipment

(Source: Gartner) (Unit: Million,%)

-20%

-10%

0%

10%

20%

30%

0

20

40

60

80

100

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

USA WW-US

US YoY Growth WW YoY Growth

Connected Device Shipments

(Source: Bloomberg, Gartner) (Unit: Millions)

0

25

50

75

100

125

150

175

200

0

4

8

12

16

20

'06 '07 '08 '09 '10 '11 '12 '13

Media Tablet Unit Shipments (left axis)

Smartphone Uni t Shipments (right axis)

PC Unit Shipments (right axis)

23. U.S. REIT SS NOI Growth and Vacancy Rates (REITs)

Forecast: Continued recovery in fundamentals for most property subsectors

REIT fundamentals continue to recover. Same store (SS) net operating income (NOI) growth remains positive, supported by improving occupancy rates and rent growth. The story among REIT subsectors, however, remains bifurcated with multifamily and self storage continuing to outperform other property types.

Vacancy rates continue to gradually improve.

o Multifamily: continues to be supported by tight supply, household formation growth, job creation and the decline in home ownership. However, further improvement may be limited as the supply of new properties increases.

o Office: property fundamentals are slowly improving reflecting the improving labor markets. However, the market is challenging and tenants remain cautious reflecting the uncertain economic outlook. Properties located in central business districts continue to outperform suburban properties.

o Retail: vacancy rates appear to have stabilized. The market remains bifurcated with class A malls and other properties located in high-quality locations outperforming neighborhood/community centers.

o Industrial: limited new supply combined with GDP growth has led to improved vacancy rates and modest rent growth.

24. PC Shipment / Media Tablet and Smartphone Shipments

Forecast: PC is weak, but smartphones, tablets and cloud present growth opportunity

Domestic PC sales weaken. While global PC shipments rose 6% in 1H/12 on emerging market growth, U.S. demand trends remained negative, with shipments down 6% amid widespread tablet substitution. The domestic PC market should receive a boost in 2H/12 from the October launch of Windows 8.

Smartphone and tablet shipments surge. The number of communicating devices on the network is growing rapidly (smartphones and tablets are forecasted to increase 40% and 70% in 2012) and will outnumber traditional computing devices by almost two-to-one by 2013. Enterprises must invest heavily in IT to service demand from these mobile consumer technologies as they overlap into the workplace.

Shift to the cloud. Public cloud spending is forecasted to rise 20% in 2012. The growing adoption of cloud solutions benefits software, storage, and IT services, but hampers growth for on-premise hardware. Demand for software as a service (SAAS) is particularly strong.

IT remains a top business priority. IT solutions should remain a top spending priority even in a weak economy in light of the increasing importance and often mission-critical functionality that technology plays in the business operating process. Overall industry growth is expected to advance in the mid-to-high single digit range over the near-term.

Vacancy Rates

(Source: REIS)

0%

5%

10%

15%

20%

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12E

Apartment OfficeRetail Industrial

U.S . REIT Y/Y SS NOI Growth by Sector

(Source: SNL and BTMU Research.) (Unit: %)

-6-4-202468

10

'05 '06 '07 '08 '09 '10 '11 1Q12 2Q12

Multifamily Industrial Office

Regional Malls Shopping Ctrs Self Storage

14

North American Semiconductor Equipment Bookings

(Source: SEMI) (Unit: Million US$, Ratio)

0

0.2

0.4

0.6

0.8

1

1.2

1.4

0

500

1,000

1,500

2,000

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

Book-to-Bill Ratio (right axis)Semiconductor Equipment Bookings (left axis)

U.S. Wireless Subscriptions

(Source: Bloomberg) (Unit: Million Persons, %)

0%

4%

8%

12%

16%

0

100

200

300

400

'06 '07 '08 '09 '10 '11 '12 '13

U.S. Wireless SubscribersYoY Growth

25. Semiconductor Shipment Equipment Bookings

Forecast: Semi shipments look to bottom

End user demand remains depressed. Industry revenue trends turned negative during 1H/12 on the heels of a modest inventory correction, owing to a slowdown in end user demand amid the weak macroeconomic climate. Semiconductor equipment bookings in North America fell 2% in July, and the book-to-bill ratio stood at 0.87, the lowest level registered for the year.

Equipment market feeling pressure. The weakness in bookings is placing pressure on semiconductor equipment, as manufacturers pull back production levels and defer plant expansion plans. Wafer fab utilization rates have declined to the 80% range, but downward pressure is easing and should begin to climb as the supply/demand balance normalizes.

Industry sales should bottom out. With suppliers having worked through excess inventory over the past several quarters, and given the need to support higher semiconductor density requirements, industry sales should bottom out during 2H/12. Specifically, the launch of the iPhone 5 and Windows 8 platform, both expected in late 3Q12, should act as growth catalysts for 4Q12. However, sales visibility remains poor and if these products fail to reinvigorate demand, 2012 could mark the first year of decline for the semiconductor industry since 2009.

26. Wireless Subscription / Wireless ARPU Forecast: Wireless data growth outweighs secular decline in voice

Wireless market nears saturation. U.S. wireless subscriptions increased a tepid 1% in 1H/12. The sudden drop-off in industry growth rates likely reflects temporary plan purchase deferrals as customers await iPhone5 availability. The expected iPhone 5 launch date in mid-September should help boost 2H/12 subscriptions, but the overall growth trend points to a rapidly saturating market, with a U.S. wireless penetration rate that recently topped 100%.

Wireline voice market continues to shrink. Fixed access lines fell 9% during 1H/12 and continue to be negatively impacted by wireless substitution, with roughly one-third of U.S. homes relying exclusively on cell phones for voice service. Meanwhile, fixed broadband growth is benefiting from the aggressive push of ultra-fast fiber service by AT&T and Verizon.

Data services key to growth. While strong mobile data use has yet to compensate for the sharp decline in mobile voice revenue, ARPU should experience a steady upward trend as data rapidly becomes a larger proportion of overall industry revenue.

Recession resistant qualities. Given the growing importance of wireless and internet access among society, telecom services should be relatively resilient to the troubled macroeconomic climate. The industry is forecasted to grow at a mid-single digit pace in 2012.

Worldwide Monthly Semiconductor Sales

(Unit: Billion US$,%) (Source: Semiconductor Industry Association)

-60%

-40%

-20%

0%

20%

40%

60%

80%

0

5

10

15

20

25

30

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

Others Americas

Americas YoY % change WW YoY % change

Wireless Average Revenue Per User

(Source: Bloomberg) (Unit: US$, %)

0%

10%

20%

30%

40%

50%

45

46

47

48

49

50

51

52

'05 '06 '07 '08 '09 '10 '11 '12 '13

Data as % of ARPU Total Wireless ARPU

15

Wholesale Electricity Pricing

(Source: Intercontinental Exchange, EIA) (Unit: $/MWh)

0

20

40

60

80

100

120

140

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

PJM West 1 year moving average

Retail Electricity Sales Growth by Sector

(Source: EIA) (Unit: YoY % Change)

-15%

-10%

-5%

0%

5%

10%

15%

'06 '07 '08 '09 '10 '11 '12 '13

Residential Commercial

Industrial Total

27. Electricity Retail Sales / Wholesale Price Forecast: Flat demand expected, natural gas oversupply pressures pricing

Demand growth remains limited. Total electricity demand growth is approaching zero after a 4% drop in the 1Q 12. Residential demand is improving after a 10% plunge in the 1Q12 due to the mild winter in the South, where many households use electricity for heating purposes. Commercial demand was relatively flat and industrial showed some improvement, approaching 2% growth in 2Q12. This flat-to-modest growth trend follows slight improvement in the pace of commercial and industrial bank loans, capital goods orders and industrial production.

Flat sales expected. Overall, retail sales are expected to remain relatively flat over last year’s levels as the economic recovery remains fragile and the labor and housing markets struggling to post gains.

Wholesale pricing fails to gain traction. Wholesale pricing will continue to be driven by natural gas prices, which remain close to multi-year lows. Horizontal drilling and hydraulic fracturing techniques are unlocking significant quantities of natural gas from shale formations in the face of limited demand. Gas production remains persistent despite low pricing due to associated gas from oil formations. Independent power producers that are dependent on market wholesale prices will suffer the most in this environment.

16

(Source: The Conference Board) (Unit: index)

20

40

60

80

100

120

140

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Consumer Confidence

(Source: Institute for Supply Management) (Unit: %)

30

40

50

60

70

80

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Manufacturing Non-manufacturing

(Source: FRB) (Unit: index,%)

-20

-15

-10

-5

0

5

10

15

20

70

80

90

100

110

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Industrial Production % Ch.

(Source: U.S. Dept. of Labor) (Unit: %)

-8-6-4-202468

1012

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12

CPI PPI

(Source: U.S. Dept. of Labor) (Unit: %)

0

2

4

6

8

10

12

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Unemployment Rate

Appendix1: Macro Indicators

Real GDP Growth ISM

Industrial Production CPI・PPI

Consumer Confidence Index Unemployment Rate

(Source: Bureau of Economic Analysis) (Unit: %)

-10-8-6-4-202468

10

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Real GDP % Ch.

17

(Source: Bloomberg)

0.70

0.90

1.10

1.30

1.50

1.70

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12

(Source: Bloomberg)

1.25

1.50

1.75

2.00

2.25

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12

(Source: Bloomberg)

0.80

1.00

1.20

1.40

1.60

1.80

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12

(Source: Bloomberg)

60

80

100

120

140

160

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Appendix2: Exchange Rate

Euro British Pound

Canadian Dollar Japanese Yen

Opinions, views and projections in this document have been made by Bank of Tokyo-Mitsubishi UFJ Corporate Research Division (New York) and do not necessarily reflect the view of other business units. They represent our perceptions at the date of publication and are subject to change without notice. This document has been prepared solely for the information purposes of professional investors and non-private customers of Bank of Tokyo-Mitsubishi UFJ and is not intended to constitute an offer or solicitation to buy or sell securities. Bank of Tokyo-Mitsubishi UFJ and its subsidiaries trade in securities, futures and other financial instruments and may have a position in any of the financial products, securities or instruments mentioned in this commentary. Information appearing in this document is obtained from sources believed to be reliable. However, we cannot guarantee its accuracy and no liability is accepted whatsoever for any direct or consequential loss arising from its use. Bank of Tokyo-Mitsubishi UFJ is regulated by the Financial Services Authority. Copyright © The Bank of Tokyo-Mitsubishi UFJ, Limited 2012 No part of this publication may be reproduced, stored in a retrieval system or transmitted without the prior written permission of The Bank of Tokyo-Mitsubishi UFJ Limited.

Publisher：BTMU Corporate Research Division （New York） 1251 Avenue of the Americas New York NY 10020 U.S.A.

Takeshi Nitta ＋1-212-782- 5706 tnitta@us.mufg.jp Daiji Matsumura 5703 dmatsumura@us.mufg.jp Vera Kalina-Levine 5705 vlevine@us.mufg.jp Gerardus Wynkoop 5551 gwynkoop@mufg.jp Mayuko Hiramatsu 5707 mhiramatsu@us.mufg.jp Javed Siddique 4108 jsiddique@us.mufg.jp Brendan Sheehy 4038 bsheehy@us.mufg.jp Ari Bensinger 5704 abensinger@us.mufg.jp Brian Nogy 4716 bnogy@us.mufg.jp Daisuke Yamamoto 4988 dyamamoto@us.mufg.jp Darcie L. D’Augusta 4260 ddaugusta@us.mufg.jp Yukiko Otteson 5700 yotteson@us.mufg.jp