pb americas the investment landscape – september 2010 private banking americas investment strategy...

PB Americas

The Investment Landscape – September 2010

Private Banking AmericasInvestment Strategy & Advisory Group

The Investment Landscape

September 2010


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Table of Contents

Executive Summary

Guideline Allocations

Market/Strategy Summary

Key Focus:

– China

– Interest Rates

Global Markets Recap

Market and Economic Outlook



Executive Summary

PB Americas


Guideline Allocations & Tactical Overweights



Guideline Allocations

Source: Credit Suisse Investment Strategy & Advisory

Asset Class 1 2 3 4 5 Focus

US Large Cap 10% 15% 20% 23% 24%Quality Growth, High Div, Technology, Consumer Staples

US Sm/Mid Cap 3% 3% 4% 4% 4%

Non-US Developed 5% 6% 9% 12% 14%Germany, Scandinavia, Canada, Asia Pacific ex-Japan

Emerging Markets 6% 9% 14% 18% Asia (China, Korea), Brazil, Peru

Fixed Income 52% 36% 22% 10%Expect credit-related to outperform gov't; credit selection important

Short-term/FX 25% 17% 5%USD neutral, constructive on EM and commodity-related currencies

Private Equity 4% 10% 14% 18%Sm/Mid LBOs, Infrastructure, Secondary, EM, Clean Tech

Hedge Funds 8% 13% 13% 10%Event Driven, Global Macro, Convertible Arb

Commodities 5% 5% 8% 10% 12% Oil & Base Metals

Projected Volatility 0-4 4-7 7-11 11-15 15+

Volatility Budget

PB Americas


Market / Strategy Summary



– Global growth momentum slowing, expansion expected to continue Economic indicators such as PMI index in expansionary territory, but below recovery highs US jobs picture remains weak, but private payrolls increased for past eight months Monetary policy to remain accommodative (maybe more so) due to benign inflation

– Equities: investors cautious despite healthy earnings growth – valuations attractive Valuations, low rates/inflation, and high cash levels positive for equities Favor large cap, quality growth and high dividend, themes: emerging consumer, infrastructure Overweight: US, Asia ex-Japan, Germany, Canada, Nordic countries, Brazil

– Interest Rates: mixed data and uncertainty support low rates Expect rates to stay low for longer, fed on hold until 2012, 10Yr Treasury near 3.0% end-10 Credit: low for longer rate environment = demand for yield, spreads may tighten further

– Currencies: less yield support for USD; commodity-related & EM should outperform Rate spreads supportive of EUR/USD, but bouts of risk aversion should continue to boost dollar Low yields supportive of creditor currencies such as yen and Swiss franc

– Commodities: expect further gains for base metals due to strong demand growth Oil prices appear undervalued below $75, healthy global demand supportive Gold gets support from low rates, but expect to underperform as safe haven demand dries up

Market/Strategy Summary – Sept 2010




Purchasing Managers Index (Above 50 = Expansion) Indicators point to decelerating, positive growth after rebound

Source: Bloomberg, Credit Suisse IDC

30

35

40

45

50

55

60

65

Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10

China PMI Eurozone PMI UK PMI US PMI 50



Real GDP Growth Forecasts 2010 & 2011 Emerging markets lead global growth

Source: Credit Suisse Estimates

2.8%

4.6%

5.7%

4.1%

8.7%

2.7%

1.7% 1.5%

Global Non-JapanAsia

LatinAmerica

EEMEA Japan US Euro-16 UK

2010E

2011E



US Nonfarm Private Payrolls (Monthly ,000s)Private nonfarm payrolls (ex-gov’t) up for past 8 months

Source: Thomson Reuters Datastream

-1000

-800

-600

-400

-200

0

200

400

Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10



August price change in local currency Most major equity indices fell in August amid bearish sentiment


0.0%

-0.6%

-0.9%

-1.9%

-2.0%

-2.3%

-3.5%

-4.0%

1.7%

0.6%

-7.5%

-4.7%

S&P TSX Comp (Toronto)

BSE Sensex (India)

Shanghai SE Comp (China)

FTSE 100 (UK)

Kospi (S Korea)

Bolsa (Mexico)

MICEX (Russia)

Hang Seng (Hong Kong)

Bovespa (Brazil)

DJ Euro Stoxx (Euro Area)

S&P 500 (USA)

Nikkei 225 (Japan)



MSCI World Forward P/E Valuations attractive at current market levels


5

10

15

20

25

Aug-90 Aug-94 Aug-98 Aug-02 Aug-06 Aug-10

Avg: 16.9

8/31/10:

11.3



YTD Change in 10Yr Gov’t Bond Yield (in bps)Yields have fallen globally along with inflation expectations


-136

-123-119

-85-79

USA Euro area UK Canada Switzerland



US Dollar vs Euro, Yen and Pound YTD (Indexed to 0 at 12/31/09)USD stronger vs European currencies, weaker vs yen


-15%

-10%

-5%

0%

5%

10%

15%

20%

Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10

vs Euro

vs Yen

vs Pound



DJUBS Commodity Sub Indices YTD (Indexed to 0 at 12/31/10)YTD: Precious +14%, Ag +6%, Industrial -1%, Energy -20%

-30%

-20%

-10%

0%

10%

20%

Dec-09 Feb-10 Apr-10 Jun-10 Aug-10

Precious Metals Energy Agriculture Industrial Metals


PB Americas


Dashboard 2010Key Focus: China



China Chinese growth expected to remain strong, lead global activity Export growth returns, augmenting domestic strength Money supply growth is normalizing, easing inflation pressures Equity valuations attractive given strong earnings growth outlook

Credit Fewer banks tightening lending standards

Consumer US consumer confidence remains tentative, is improving

Commodities DJ UBS index +28% from low, 45% below peak

Cash Assets have moved from money market to bond funds - investors

remain cautious Cash on corporate balance sheets at record levels, may be deployed

Dashboard 2010 - Key Focus: China




Real GDP Growth: China & Global (Y-o-Y % Change) Chinese growth expected to remain strong, lead global activity

Source: Credit Suisse

2010 Dashboard: China

11.9

10.39.4

8.07.5

8.18.9

10.1

4.9 5.1 4.84.1 4.0 4 4.3 4.7

0

2

4

6

8

10

12

14

Q1-10 Q2-10E Q3-10E Q4-10E Q1-11E Q2-11E Q3-11E Q4-11E

China Global



Chinese Exports & Retail Sales, Y-o-Y % ChgExport growth returns, augmenting domestic strength

Source: Bloomberg via Credit Suisse IDC


0

5

10

15

20

25

Jul-08 Jan-09 Jul-09 Jan-10 Jul-10

-30

-20

-10

0

10

20

30

40

50

60

China Retail Sales Chinese Exports (Rt Axis)



China Money Supply Growth (M2, Y-o-Y % Change)Money supply growth normalizing, easing inflation pressures

Source: Bloomberg via Credit Suisse IDC


0%

5%

10%

15%

20%

25%

30%

Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10

Avg: 18%



MSCI China Forward P/E Equity valuations attractive given strong earnings growth outlook

Source: Thomson Reuters Datastream via Credit Suisse IDC


0

5

10

15

20

25


Avg: 13.68/31/10: 12.1



Loan Survey: Net % respondents reporting tightening lending standardsSmaller % of banks are tightening lending standards


2010 Dashboard: Credit

-40

-20

0

20

40

60

80

100


Fewer banks tightening



US Consumer ConfidenceUS consumer confidence remains tentative, is improving

Source: Bloomberg

2010 Dashboard: Consumer

20

30

40

50

60

70

80

90

100

110

120

Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10



DJ UBS Commodity Index DJ UBS index +28% from low, 45% below peak

Source: Bloomberg

2010 Dashboard: Commodities

50

100

150

200

250


+28%

Mar-09



Assets in Money Market vs Bond & Income Funds ($ Trillions)Investors have moved cash in to bond funds, remain cautious


2010 Dashboard: Cash

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Jul-00 Jul-02 Jul-04 Jul-06 Jul-08 Jul-10

US Money Market Funds

US Bond & Income Funds



S&P 500 Co. Cash & Equivalents ($ billions) Cash on corporate balance at record levels, may be deployed

Source: Standard & Poor’s

2010 Dashboard: Cash

*Through Q1, latest data available

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

1990 1994 1998 2002 2006 2010*

PB Americas


Key Focus: Interest Rates



Expect interest rates to stay low for longer due to weak sentiment, modest growth outlook and low inflation

– Price rally in Treasury bonds rational in current economic environment– Rates have likely bottomed but expect government bond prices to remain well

supported and rise in yield to be gradual

Low rates create opportunity for governments, corporations and consumers to access funds at low rates & reduced interest expense

– US Government: despite jump in 2009 budget deficit, interest expense fell - budget deficit increased $960 bln while interest expense fell $68 bln

– Corporations: low corporate bond yields allow corporations to raise funds at very low rates, leading to increasing interest coverage ratios (more earnings per dollar of interest)

– Consumers: for those able to borrow or re-finance at very low mortgage rates, lower mortgage payments free up more disposable income

Key Focus: Interest Rates




US 2Yr Treasury YieldShort Treasury yields at all-time lows


2010 Dashboard: Interest Rates

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Aug-80 Aug-85 Aug-90 Aug-95 Aug-00 Aug-05 Aug-10

8/31/10: 0.5%

30Y Avg: 6.1%



10Yr Treasury Yield less 10 Yr Treasury Inflation-linked Yield

(TIPS implied) low US inflation expectations = low bond yields


-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10

10Y Inflation Expectations 5Y Inflation Expectations

10Y: 1.63%

5Y: 1.27%




Barclays US Agg Long Treasury Index (Total Return)Price rally in Treasurys rational given economic environment



1750

2000

2250

2500

2750

Aug-08 Feb-09 Aug-09 Feb-10 Aug-10

+ 20% since 4/5/10

+29%



US Treasury Yearly Budget Deficit vs Interest Expense (USD, Billions) Low rates = lower interest expense despite larger deficits

Source: Bloomberg


200

250

300

350

400

450

500

2002 2003 2004 2005 2006 2007 2008 2009

0

200

400

600

800

1000

1200

1400

1600

Yearly Budget Deficit (Rt Axis)

Yearly Interest Expense



US Corporate Non-Financial Interest Coverage & Bond Yields

Low rates = higher interest coverage ratios (earnings / interest)


Source: Bloomberg, Thomson Reuters Datastream

4

6

8

10

12

14

Jun-80 Jun-85 Jun-90 Jun-95 Jun-00 Jun-05 Jun-10

4%

6%

8%

10%

12%

14%

16%

18%

EBITDA Interest Coverage Ratio Baa Corp Bond Yield (Rt Axis)



Freddie Mac US 30YR Mortgage Rate Low rates = lower mortgage payments for many consumers


Source: Bloomberg

2

4

6

8

10

12

14

16

18

20

Aug-80 Aug-85 Aug-90 Aug-95 Aug-00 Aug-05 Aug-10

8/31/10: 4.3%

PB Americas






Equities Mixed economic data and renewed double-dip fears pushed global equity

markets lower in August. Only Canada (+1.7%), India (0.6%) and China (0.1%) posted gains on the month. Japan led declines due to stronger yen (bad for exporters). Emerging markets, led by S. Korea and India, continued to perform better than developed; the MSCI EM index + 0.4% YTD vs S&P 500 (-4.6%) and EAFE (-5.3%). China (-20% YTD) is laggard after strong 2009 (+80%).

In August, weak sentiment led to outperformance of more defensive sectors such as telecomm, utilities and staples. All global sectors are down YTD. In the US, only consumer discretionary (+1.0%) and industrials (+0.2%) are positive.

Large cap stocks held up much better than small in August (Russell 1000 + 3%

vs Russell 2000); small cap remains better YTD thanks to strong start to 2010. Value continues to outperform growth in both large and small cap space.

Currency The dollar was stronger in August and YTD against all major currencies except

the yen and Swiss franc, creditor currencies that benefit from low rates.





Interest Rates & Fixed Income Government bond yields continued to trend lower in August due to strong

investor demand for safe assets, low inflation and increasingly mixed growth outlook. The 10Yr US Treasury yield moved below 2.5% and the yield curve (10Y – 2Y) took a flatter shape. Euro area 10Yr fell to 2.1%, UK to 2.9%, Japan to 0.95%.

Fixed income indices continue strong performance; falling rates have made longer dated Treasurys the top performing segment (+21% YTD). Credit indices have also performed well but wider credit spreads lead to underpformance versus governments. Nominal bonds outperform inflation-linked as inflation expectations fall. US tax-exempt bond yields vs Treasurys are at, or below, historic averages.

Commodities Lower rates and increased uncertainty lifted precious metal prices in August

(gold +6%, silver +7%). The LME metals index posted a small gain despite equity selloff (copper +1.6% in August & +1.0% YTD). Oil remained weak, falling 9%.

Volatility Slow summer trading helped keep the VIX Volatility Index subdued, averaging

25 during August (vs average of 24 in Jan-July).




GLOBAL MARKETSTotal Return Through 08/31/10

Source: Thomson Reuters DataStream

Level Aug-10 YTD

EQUITIES (TR)S&P 500 1,049 -4.5% -4.6%

MSCI EAFE (Local) 726 -2.7% -5.3%

MSCI EM (Local) 42,492 -1.4% 0.4%

US DOLLARVS. EURO 1.27 2.5% 12.9%

VS. YEN 83.97 -3.1% -9.8%

COMMODITIESOIL ($ / barrel) 71.92 -8.9% -9.4%

GOLD ($ / ounce) 1,247.00 6.1% 13.8%



GLOBAL EQUITY MARKETS YTD Price change in local currency (YTD through 8/31/10)


-8.6%

-6.1%

-5.9%

-5.0%

-3.5%

-1.4%

-0.1%

1.4%

2.9%

3.6%

-19.5%

-16.3%

Shanghai SE Comp (China)

Nikkei 225 (Japan)

DJ Euro Stoxx (Euro Area)

Hang Seng (Hong Kong)

S&P 500 (USA)

Bovespa (Brazil)

FTSE 100 (UK)

Bolsa (Mexico)

MICEX (Russia)

S&P TSX Comp (Toronto)

BSE Sensex (India)

Kospi (S Korea)



GLOBAL SECTORS (S&P 1200 Global)Price change in USD (YTD Through 08/31/10)


Sector Aug-10 YTD

Consumer Staples -1.1% -1.1%Consumer Discretionary -3.8% -1.7%Industrials -6.0% -1.9%Telecomm Services 0.1% -3.2%Basic Materials -2.3% -8.4%Utilities -0.5% -9.5%Health Care 0.1% -9.8%Financials -7.0% -10.1%Information Technology -7.3% -10.8%Energy -4.7% -14.6%

S&P Global 1200 -4.2% -7.7%



US EQUITY RETURNS (Size & Style)Total Return Through 08/31/10

Source: Thomson Reuters Datastream, Bloomberg

Aug-10 YTD

Russell 1000 (Lg Cap) -4.5% -4.4%

Russell 1000 Value -4.3% -3.0%

Russell 1000 Growth -4.7% -5.7%

Russell 2000 (Sm Cap) -7.4% -3.0%

Russell 2000 Value -7.5% -2.5%

Russell 2000 Growth -7.3% -3.4%

DJIA -3.9% -2.1%

NASDAQ -6.2% -8.7%



US SECTORS (S&P 500)Price Change Through 08/31/10


S&P Sector Aug-10 YTD

Consumer Discretionary -4.1% 1.0%Industrials -7.3% 0.2%Consumer Staples -1.6% -0.3%Utilities 0.9% -1.7%Telecomm Services 2.3% -1.8%Basic Materials -2.8% -5.9%Financials -7.9% -5.9%Health Care -1.8% -10.3%Energy -4.7% -10.7%Information Technology -7.2% -11.5%

S&P 500 -4.7% -5.9%



CURRENCY% Change As of 08/31/10


Level Aug-10 YTDMAJORS

USD vs. Euro 1.27 2.5% 12.9%

USD vs. Japanese Yen 83.97 -3.1% -9.8%

USD vs. British Pound 1.54 1.9% 5.1%

USD vs. Swiss Franc 1.01 -3.1% -1.9%

AMERICASUSD vs. Canadian Dollar 1.07 3.5% 1.7%

USD vs. Mexican Peso 13.16 4.1% 0.8%

USD vs. Brazilian Real 1.75 -0.3% 0.6%



GLOBAL INTEREST RATES10Y Gov’t Bond Yield (12/31/09 & 08/31/10)


3.8

3.4

4.1

1.3

3.6

1.9

2.5

2.1

2.9

1.0

2.8

1.1

USA Euro area UK Japan Canada Switzerland

Dec-09 Aug-10



US FIXED INCOME & RATESAs of 08/31/10


Level Aug-10 YTD

Barclays US Aggregate (TR) 105 1.33% 8.19%

US TREASURY

5 Yr Treasury Yield 1.33% -26 bps -135 bps

10 Yr Treasury Yield 2.47% -44 bps -136 bps

Yield Curve (10Y - 2Y) 200 bps -36 bps -70 bps

LENDING RATES

Fed Funds 0.25% Unch Unch

3 Mo LIBOR 0.30% -16 bps 5 bps

1 Yr LIBOR 0.84% -19 bps -14 bps

Prime 3.25% Unch Unch



CREDITSpread to 10-Yr Treasury As of 08/31/10 (Basis Points)


Current Chg (Bps) Chg (Bps)Spread Aug-10 YTD

Barclays US Muni Bond 45 12 66

Barclays US Inv Grade Corp 186 11 140Barclays US High Yield 599 56 76

Barclays Global Aggregate Credit 78 18 50

Barclays Global High Yield 599 45 43

JPM Emerging Market Bond 326 13 31



US FIXED INCOME YTDTotal Return YTD through 8/3110


0.3%

5.2%

5.5%

6.4%

6.9%

7.0%

7.1%

8.3%

8.4%

14.7%

16.8%

21.0%

US Cash

US Agencies

US MBS

US Inflation Linked (TIPS)

US Treasury Med

US Munis

US ABS

US High Yield

US Inv. Grade Med

US Inv. Grade Long

US CMBS

US Treasury Long



NON-US FIXED INCOME YTDTotal Return YTD through 8/31/10 (In Local Currency)


2.6%

5.0%

5.4%

5.5%

6.9%

7.6%

12.4%

14.1%

Japan Government

Euro Govt InflationLinked

Europe Govt Med

UK Government

Euro Inv. Grade

Europe Govt Long

EM

Pan European HighYield



COMMODITIES% Change As of 08/31/10 (Spot Price)


Level Aug-10 YTD

WTI Crude Oil ($/bbl) 71.92 -8.9% -9.4%

Natural Gas (Henry Hub, $/MMBtu)

3.79 -21.2% -34.7%

Gold ($/oz) 1,247 6.1% 13.8%

Silver ($/oz) 18.87 6.9% 11.1%

Platinum ($/oz) 1,710 -1.4% 4.9%

Copper ($/lb) 3.36 1.6% 1.0%

LME Metals Index 3,353 0.1% -1.4%

Corn ($/Bushel) 3.94 7.8% 4.7%

Wheat (Soft Red, $/Bushel)

6.18 4.0% 50.4%



HEDGE FUNDS & PRIVATE EQUITY

Source: Dow Jones Credit Suisse Hedge Fund Index, Cambridge Associates, Thomson Reuters Datastream

Jul-10* YTD

BEST PERFORMING HF STRATEGIES DJ CS Emerging Markets 3.5% 2.7%

DJ CS Long/Short Equity 2.5% -0.8%

DJ CS Convertible Arb 2.2% 4.9%

WORST PERFORMING HF STRATEGIES DJ CS Dedicated Short Bias -3.5% -6.2%

DJ CS Managed Futures -1.5% -1.2%

DJ CS Global Macro 0.7% 4.9%

Dow Jones/CS HF Index 1.6% 2.2%

S&P 500 Total Return 7.0% -0.1%*J uly 2010: most recent data available

Private Equity Q1-10*

Cambridge Associates US PE Index 4.4%

Cambridge Associates US VC Index 0.7%

S&P 500 Total Return 5.4%

Q1 2010: most recent data available



CBOE Volatility Index (VIX)


0

10

20

30

40

50

Aug-09 Nov-09 Feb-10 May-10 Aug-10

PB Americas


Looking Ahead – 2010Market & Economic Outlook



Market & Economic Outlook Summary Global expansion expected to continue, although at slower pace following

strong rebound from crisis lows; double dip remains unlikely. 2010 global GDP growth forecasted at 4.6% followed by 4.3% in 2011. Growth in emerging markets (particularly Asia) expected to remain strong, boosting global activity in part through increasing imports. Amid low inflation, central banks able to sustain (increase) policies to support growth.

Maintain positive long-term equity outlook; valuations attractive given healthy earnings growth expectations (MSCI World forward P/E = 11.3 vs 20Yr avg of 16.7). Weak sentiment, not positive fundamentals, remains near-term market driver as continued high unemployment and slow recovery trouble investors.

Overweight US, Asia ex-Japan, Germany, Canada, and Nordic countries. Underweight emerging Europe. Neutral stance on euro area.

US: focus on larger companies, quality growth and high dividend (with dividend growth potential). Overweight technology (upgrade cycle, business investment) and consumer staples (valuation & cash flows, focus on strong brand names).




Market & Economic Outlook Summary Mixed economic data, continued uncertainty and accommodative central bank

policies should keep rates low for longer. Expect US 10Yr Treasury yield near 3% end-10. Fed may implement more ‘quantitative easing’, rate hike unlikely until 2012. Globally, no policy rate changes expected in 2010; commodity-related (Brazil, Aust, Canada) likely pause tightening earlier than expected due to benign inflation outlook.

Low for longer rate environment plus solid corporate fundamentals should keep demand high for credit-related fixed income, expect tighter spreads in to year end. Overweight US investment grade and high yield, and emerging markets. Continue to highlight importance of careful credit selection.

US dollar has less yield support as Fed expected to remain on hold until 2012. Low yields benefit creditor currencies (JPY, CHF). Commodity-related and emerging market currencies should outperform, although valuations rich for some (AUD).

Base metals have most supportive fundamentals - strong demand outpacing supply. Global demand should also lift oil prices, although high inventories may weigh near-term. Low rates support gold, but expected to underperform other commodities. Wheat supply outage largely priced in; positive long-term outlook for agriculture.




GLOBAL ECONOMIC OUTLOOKReal GDP Growth

Source: Credit Suisse estimates

2010E 2011E Comments

Global 4.6% 4.3%Recovery projected to continue at somewhat slower pace. (Q3E 4.5% & Q4E 4.2%). Global PMI comfortably above 50 (Aug. 53.8) No double dip expected.

USA 2.7% 2.5%H2 growth momentum moderating. Recent dips in housing and retail sales mainly due to rescheduling of spending incentivized by stimulus measures.

Euro Area 1.7% 2.5%Q2 growth likely to have been strongest (3.9% q-o-q annualized). H2 growth projected to slow somewhat, yet growth to remain steady. Q3E 1.9%, Q4E 1.7%

UK 1.5% 2.5%Q2 GDP revised up driven by construction. Consumption buoyant in Q2. Improving labor market (falling unemployment claimant count since Feb '10) Q3E 1.1%

J apan 2.6% 0.8%Q2 GDP growth (0.4%) lower than expected driven by lower consumption and inventory restocking. Production expected to continue to slow. Q3E 1.3%

Non-J apan Asia

8.7% 7.6%India grew 8.8% in Q2, fastest in nearly 3 years on strong manufacturing and farm output. Chinese growth expected to be 9.7% for '10. High wages benefit consumption but also push up inflation.

EEMEA* 4.1% 4.5%Russian growth doubled in Q2 (1.5%) compared to Q1 due to improved domestic demand. Continuation of moderate recovery. 10E Russia 4.7%. Turkey 5.5%.

Latin America

5.7% 4.1%Brazil: signs of output growth slowdown evident; GDP growth to stabilize at close to potential growth rate. Argentina: growth forecast revised up for '10. 2010E Brazil 8.0%, Mexico 4.4%, Argentina 7.5%

* EEMEA = Emerging Europe, Middle East, Africa



GLOBAL EQUITIES OUTLOOK


Weight (Local) Comments

USA OverPsychology, not fundamentals, continues to be main driver of market moves. Positive on large caps & high dividend yield - should help buffer some of the volatility.

Asia ex-J apan

OverConstructive on Korea given attractive valuation. China shows some slowing (prevents overheating) but data stronger than expected (good for domestic & global growth).

Latin America

NeutralIn Brazil recommend maintaining exposure to domestic sectors (airlines, retail) given outlook for positive, but modest, global growth. Stay defensive (telecoms) in Mexico.

UK NeutralRelatively high exposure to commodities/materials sector a positive, less constructive on domestic outlook. Region is high dividend yielding, valuation is not expensive.

J apan NeutralRegion treading water as global economy finds footing; see no obvious catalyst for J apan to outperform. Valuations most expensive of major global regions (2010 & '11).

Euro Area NeutralRecent bank woes not "new" news. Macro outlook improved overall, but still disparity between weak (Spain) & strong (Germany). Stronger euro headwind for exports.

EEMEA* UnderOil prices have been able to sustain $70+ level, positive for Russia, domestic outlook still strained. Cautious on South Africa given weak earnings outlook.

* Emerging Europe, Middle East, Africa



Global Equities Snapshot (As of 08/31/10)

Source: I/B/E/S, Thomson Reuters Datastream, Bloomberg

Index

12 Mo. Relative % Change vs. MSCI AC World

Estimated 2010 Y-o-Y Engs Growth*

P/E (Current Price /

2010 Engs)* Sample ETFs

S&P 500 (USA) 1.4% 35.9% 12.7 SPY, IVV

MSCI Canada 5.4% 10.8% 15.7 EWC

MSCI Europe ex-UK -1.9% 34.1% 11.0 EZU, IEV, FEZ

MSCI UK 4.5% 39.3% 10.5 EWU

MSCI Japan -17.7% 77.9% 14.2 EWJ, ITF

MSCI Australia -3.3% 20.0% 12.0 EWA

MSCI China 5.8% 24.5% 13.3 GXC, FXI

MSCI Brazil 16.8% 27.3% 11.1 EWZ

MSCI India 14.3% 22.7% 17.7 PIN

MSCI Russia 19.3% 29.4% 6.4 RSX

MSCI All Country World 1.4% 35.9% 12.5 ACWI, VT



EQUITY INDEX FORECASTS


Aug-10 End-10E

S&P 500 1,049 1,300 - 1,350

DJ EURO STOXX 251 290 - 300

FTSE 100 (UK) 5,225 6,000 - 6,200

NIKKEI 225 (Japan) 8,824 10,300 - 10,700

BOVESPA (Brazil) 65,145 77,000 - 80,000

BOLSA (Mexico) 31,680 35,000 - 37,000



S&P 500 SECTOR OUTLOOK


Sector Weight Comment

Information Technology

OverConsumer behavior changing, mobile devices and multimedia technologies increasingly in trend; corporates upgrading hardware & software infrastructure.

Consumer Staples

OverCompanies owning internationally well known brand names have pricing power, emerging consumers offer immense pool for growth. Trading at a premium.

Financials NeutralBanks need to adapt business to new regulatory environment (eg closing proprietary trading), reducing income and earnings, though M&A activity helps.

Health Care NeutralValuation attractive, sector trades at relative discount, with increased visibility from healthcare reform gap should close. Govt's budget situation negative.

Industrials NeutralGood 2011 growth estimates despite slowing defense budget, as infrastructure investments continue favoring machinery, constr. & engine. companies.

Energy NeutralUpstream reinvestment efficiency low, profitability for downstream business remains muted though global demand growing. Valuation fair, solid growth.

Materials NeutralBase and precious metals mining companies continue to invest as demand grows; especially copper which faces low inventories and supply constraints.

Consumer Discretionary

NeutralWeak employment growth keeps discretionary income low, credit is tight and higher need for savings. Earnings growth muted though valuation fair.

Telecomm Svcs

UnderNetwork infrastructure and speed remains bottleneck for mobile devices; requires significant investments. New technologies threat to traditional services.

Utilities UnderLow earnings growth expectations and stretched valuation; high dividend yields offer alternative to low bond yields and shelter during market volatility.



S&P 500 Sector Snapshot (As of 08/31/10)

Source: I/B/E/S, Thomson Reuters Datastream

Sector

12 Mo. Relative % Change vs.

S&P 500

Estimated 2010 Y-o-Y EPS Growth

P/E (Current Price /

2010 Engs)Sample Sector

ETFs

Consumer Discretionary 12.5% 44.1% 14.9 XLY, VCR

Consumer Staples 4.5% 7.2% 14.5 XLP, VDC

Energy -4.6% 51.7% 11.7 XLE, IYE

Financials -10.5% 202.1% 13.5 XLF, IYF, IYG

Health Care -4.5% 7.5% 11.2 XLV, IYH

Industrials 9.1% 21.8% 15.4 XLI, IYJ

Materials 2.6% 69.7% 15.8 XLB, IYM

Technology -0.7% 44.6% 13.0 XLK, IGM, IYW

Telecomm Services 4.1% 2.4% 16.0 IYZ, VOX

Utilities 2.6% 2.6% 12.5 XLU, IDU

S&P 500 2.8% 35.9% 12.5 SPY, IVV



HEDGE FUND & PRIVATE EQUITY OUTLOOKThrough July, 2010 (most recent data available)


Hedge Fund Strategy Weight Comments

Event Driven OverPositive performance in J uly as both credit and equity markets rebounded. Both merger arb and distressed debt strategies should outperform due to healthy M&A activity and restructuring opportunities, respectively.

Convertible Arb OverIn J uly, lower grade names outperformed investment grade names and convertible bonds valuations improved on healthy trading volume. Fund of fund managers now more constructive on the strategy.

Global Macro OverJ uly markets driven by government actions and macro data. Short term tactical trading continues to drive returns as managers await further clarity in global economic outlook.

Fixed Income Arbitrage OverPositive returns in J uly. Search for yields drove spreads narrower. Opportunity set should remain expansive as managers can take advantage of anomalies created by quantitative easing.

Equity Long/Short UnderStrategy reversed losses from prior two months. Performance led by long side of portfolio due to global equity markets rally. High beta sectors and stocks outperformed lower beta counterparts due to return of risk appetite.

Private Equity NeutralFocus on small LBO funds, infrastructure funds, secondary market funds, emerging market, distressed real estate and clean tech venture capital.



POLICY RATE OUTLOOKGovernment Policy Rates (%)


Aug-10 2010E Comments

USA 0-0.25 0.25Likelihood of Fed Funds rate hike is low as growth momentum slows in H2 '10. Further quantitative easing expected. No rate hike anticipated before 2012.

Euro Area 1.00 1.00ECB last meeting in line with expectations. Growth and inflation projections revised up. No rate change expected through year end.

UK 0.50 0.50No policy change (quantitative easing and policy rate) at least until Nov. '10 when BOE releases new inflation report.

J apan 0.10 0.10 BoJ remains in favor of status quo, likely to maintain zero rate policy longer term.

Canada 0.75 1.00Expectations for slower growth and lower inflation suggest pause after 25 bps rate hike in Sept.'10. Next BoC move pushed out to H2 '11.

Mexico 4.50 4.50Rate unchanged at last meeting. No rate change expected in 2010 and possibly 1H '11. Next rate move will be rate hike, not cut.

Brazil 10.75 10.75More benign inflationary outlook led to no rate hike at Sept meeting. Expect no rate changes through '10. Selic rate expected to be cut to 10% by end '11.



INTEREST RATE OUTLOOK10-Yr Government Bond Yield

Source: Bloomberg, Credit Suisse estimates

Aug-10 2010E Comments

USA 2.47% 2.90% - 3.10%Faster than expect mortgage backed security prepayments triggered Fed to extend QE. Rates likely to stay lower for longer (no rate hike before '12).

Euro Area 2.13% 2.50% - 2.75%With further policy normalization by ECB, rates projected to trend higher.

UK 2.93% 3.25% - 3.50%In absence of BoE Gilt purchases and no rate hike, yield rise likely less pronounced.

J apan 0.97% 0.90% - 1.10%Yields could remain close to 1.0% in near term. Yields low, but stable.



FIXED INCOME OUTLOOK


Weight Comments

US Investment Grade Corp.

OverCurrent spreads near middle of historical range. Expect tighter spreads year end, supported by low rate environment. Fundamentals remain positive. Pull-backs in spreads provide opportunities to add higher yielding credits.

US High Yield OverHY spreads 56 bps wider in Aug due to risk aversion. Default rates should decline as economic recovery continues. Corporate balance sheets healthy. Spreads should tighten further; suggest careful credit selection.

Emerging Markets OverExpect further tightening year end. Many EM countries in better fiscal condition than developed ones. Overweight Venezuela, Russia and Chile.

Treasury Inflation Protected (TIPS)

NeutralInflation currently low, but some inflation likely to emerge in longer run - in which case TIPS will outperform nominal bonds. TIPS should be part of FI portfolio for diversification and protection of long term purchasing power.

US Municipal NeutralRatios of muni yields vs Treasurys near or below historical averages. Extend duration to medium. Focus on high quality credits. Diversification and credit selection key. Tax-exempt bonds should be in high demand if tax rates rise.

Mortgage-Related NeutralFed's support for MBS market should cap basis widening. Spread volatility likely to continue, providing tactical trading opportunities.

US Treasuries NeutralFlight to safety pushed yields to historic low levels although could stay low for sometime. Stay on shorter end of the curve.



FIXED INCOME OUTLOOKPreferred Maturities (In Years)


0 1 2 3 4 5 6

A/BBB

GBP AAA/AA

A/BBB

EUR AAA/AA

A/BBB

USD AAA/AA



CURRENCY OUTLOOK


US Dollar Aug-10 2010E Comments

vs. Euro* 1.27 1.30 -1.35Euro weaker vs dollar in Aug due to risk aversion. Fed expected to remain on hold longer than ECB, pushing spreads in favor of euro. However, bouts of risk

aversion could boost dollar from time to time. Euro neutral.

vs. Japanese Yen

84.2 84 - 88Narrow rate spreads support yen. However yen unlikely to remain much below

83 due to valuation. Yen neutral.

vs. British Pound*

1.53 1.60 -1.65BoE likely to raise rates before Fed due to inflation risk. However, pound vulnerable to de-leveraging. Pound marginally bullish.

vs. Canadian Dollar

1.07 0.98 - 1.02C-dollar is the least overvalued among commodity currencies. However, it remains vulnerable to bouts of risk aversion. C-dollar marginally bullish.

vs. Mexican Peso

13.20 12.00 - 12.30Nearly balanced current account and capital inflows supportive of peso. Peso

outlook marginally bullish.

vs. Brazilian Real

1.76 1.65 - 1.75Robust growth and commodity outlook should translate into stronger real.

Strong carry appeal.

*indicates inverse exchange rate quotation



CURRENCY FORECASTS


Aug -10 2010EINTEREST RATE DRIVEN CURRENCIES

Euro / US Dollar 1.27 1.30 -1.35=US Dollar / Japanese Yen 84.2 84 - 88

British Pound / US Dollar 1.53 1.60 -1.65

US Dollar / Swiss Franc 1.04 1.00 -1.04

US Dollar / Mexican Peso 13.20 12.00 - 12.30

COMMODITY CURRENCIESUS Dollar / Canadian Dollar 1.07 0.98 - 1.02

US Dollar / Brazilian Real 1.76 1.65 - 1.75

Australian Dollar / US Dollar 0.89 0.90 - 0.94

NZ Dollar / US Dollar 0.70 0.70 - 0.74



COMMODITIES OUTLOOK

Source: Credit Suisse

Weight Comments

Base Metals

Over

Most base metals have traded sideways recently as economic data has disappointed. Demand continues to show healthy growth while inventories are falling. Copper remains preferred metal - consumption growth is outpacing supply expansion.

Energy Over

Profit taking pushed oil below $75, natural gas near $4 - both appear undervalued at these levels. Oil: global demand growth remains robust and spare production capacity is falling gradually. Natural gas: expect higher prices, with continued volatile.

Agriculture Neutral

Wheat supply outage largely priced in (+50% since J uly). Corn and soy prices may benefit as they can be used as substitutes, boosting demand. Healthy longer term outlook driven by structural shifts in EM & growing demand from food, fuel and feed.

Precious Metals

Under

Gold gets support from low rates, limiting downside, but likely to underperform as safe haven demand dries up. Platinum and palladium should perform well due to positive supply/demand fundamentals. Q4 typically weak for precious metals.



COMMODITIES FORECASTS

Source: Thomson Reuters Datastream, Credit Suisse estimates

Aug-10 2010E

ENERGY

WTI Crude Oil (USD/ barrel) 71.9 85 - 95

US Natural Gas (USD/mmbtu) 3.79 5.00 - 5.50

PRECIOUS METALS (Spot, USD/ounce)Gold 1,247 1100 - 1200

Silver 18.9 18 - 19

Platinum 1,710 1800 - 1900

BASE METALS (Spot, USD/Pound)Aluminum 0.89 1.00 - 1.05Copper 3.36 3.80 - 4.00Zinc 0.80 0.85 - 0.90

Agriculture (USD/bushel)Wheat 6.18 6.0 - 7.0Corn 3.94 4.0 - 5.0

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