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Credit Suisse_Research_Monthly_Asia_Dec 2012

Credit Suisse_Research_Monthly_Asia_Dec 2012

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December 2012
Research Monthly
 Asia edition
Investment Strategy
Equities, “new hardcurrencies” and real estate in2013
page 3
Top 30 portfolio stock: Chev-ron
 A leading energy-related recoveryinvestment.
US Real Estate InvestmentTrusts
US real estate has upside poten-tial, as the rental market has bot-tomed out. REITS still offer value.
Focus on the BBB-BB spaceand new issues in 2013
For yield pick-up and to capturethe new-issue premium.
 Asia Pacific Top 25 high-yield-ing stocks basket
 Attractive dividend yields offer stable returns in a low interestrate environment.
Economics Asia
Growth poisedto rise in2013
page 18
Top investment ideas 2013
Top 2013InvestmentIdeas
page 6
Performance review 2012
Performanceof TopInvestmentIdeas for2012
page 5
Important disclosures are found in the Disclosure appendix.
Credit Suisse does and seeks to do business with companiescovered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could af-fect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.For a discussion of the risks of investing in the securities mentioned in this report, please refer to the following Internet link:
Global ResearchPrivate BankingZurichInvestment horizon: 6-12+ months
Giles Keating
Head of Research for Private Banking and As-set Managementgiles.keating@credit-suisse.com,+41 44 332 22 33
Is it right to assume that lackluster economic growth in de-veloped economies will continue for several more years? Suchprojections rely on three broad ideas: Assertions that technolo-gical innovation has slowed; demand constraints from the un- wind of excess leverage; and existential threats to the euro.The first of these seems difficult to justify (for example, look atour recent Global Investor on new applications of digital techno-logy to healthcare). The second and third have clearly dam-aged growth in recent years, but those years have also seen atransition toward solving those problems. Broken balancesheets are now largely repaired for most US banks and house-holds, though progress is much slower for governments onboth sides of the Atlantic. There has been (largely unsung) pro-gress in macro adjustment and structural reform in Europe, with massive current account deficits reduced or eliminated,nominal wages falling to restore competitiveness and the startof radical labor market reform. Grand plans for European integ-ration look elusive, but limited elements of it are being created,and successful macro adjustment may expose the remainingparts as unnecessary.On top of all this, one other crucial transition of recentyears has gone largely unnoticed: Oil prices more than tripledat the same time as the financial crisis (as described in the ac-companying essay). This has surely been a major drag ongrowth, but now at last the world is learning to live with thesehigh prices, discovering new sources of energy and adaptingproduction to use less of it. As all these various transitions ad-vance, they become less of a drag and increasingly open thepossibility that growth may surprise to the upside.This is the year-end issue of the Research Monthly(December 2012/January 2013). The February issue will be published at the end of January 2013.
In this issue
Investment Strategy
Equities, “new hard currencies” and real estate in2013
page 3Performance review 2012
Performance of Top Investment Ideas for 2012
page 5Top investment ideas 2013
Top 2013 Investment Ideas
page 6Risk scenarios
 Alternative macro scenarios and their strategyimplications
page 8
Investment summary
page 9Economics
2013: Growth moderate, rates low
page 10Fixed income
Less value in fixed income
page 12Equities
Positioning for the (Re)recovery
page 14 Alternative investments
Opportunities in hedge funds and real estate
page 16Foreign exchange
Diversify out of hard currencies into selected EMcurrencies
page 17Economics Asia
Growth poised to rise in 2013
page 18Fixed income Asia
Moderate scope for credit spread tightening in2013
page 19Equities Asia
Stay constructive on Asian equities in 2013
page 20Real estate Asia
Constructive outlook for Asian commercial real estate in2013
page 21
Risk disclaimer 
page 23
Editorial deadline: 27 November 2012
Credit Suisse - Research Monthly Asia
Investment Strategy
Equities, “new hardcurrencies” andreal estate in 2013
Moderate growth, moderate inflationand low yield environment to persist in2013.
Bond returns in 2013 positive, but lower than in 2012; more investment opportunit-ies in equities.
“New hard currencies” and US real es-tate offer protection against eroding pur-chasing power.
Nannette Hechler-Fayd'herbe
Head of Global Financial Markets Researchnannette.hechler-fayd'herbe@credit-suisse.com, +41 44 333 17 06
Despite the soft patch in equity markets at the time of writingand the many uncertainties that have prevailed, 2012 is end-ing as a strong year for credits and equities. Real assets, suchas real estate and gold, have also delivered strong perform-ances. As expected, cash and core government bonds are atthe lower end of the performance scale. Financial markets ad-hered rather closely to the central banks’ guidance away fromun-remunerative risk-less into riskier assets.For 2013, we continue to anticipate a low interest rate en-vironment, sustained by moderate growth and inflation glob-ally. In this context, assets that benefit from low yields arelikely to continue to perform well. Our Top 2013 InvestmentIdeas focus on six specific investment themes: Beyond cash;Recovery stocks; Dividends and beyond; New gas and oilsources; US real estate; and The new hard currencies. We be-lieve that an investor who focuses on these six ideas, in com-binations adapted to their own risk profile, should have a goodchance of obtaining a reasonable return in 2013, while man-aging risk. Investment in our six top ideas can, of course, becombined with a discretionary managed portfolio and/or directinvestment in stocks and bonds from our recommended TopPick lists, to give an overall balanced strategy.
Fixed income: Credit, not duration
In 2012, investors were able to generate strong – in somecases even double-digit – returns on bonds with credit risk.We do not expect similar performances in 2013. Not that weanticipate a rapid turn in the credit cycle and sharply rising de-fault rates. Corporate credit fundamentals start from a strongposition. But credit spreads have narrowed substantially during2012 and the asset class simply offers less upside from herein most segments. Still, bonds, particularly through direct hold-ings, offer a source of higher cash flow than un-remunerativecash. Investors can therefore look at short maturity bankbonds with ratings between AA and A and corporate bonds with ratings between A and BB as an alternative to un-remu-nerative cash or term deposits. This is our “Beyond cash: Cred-it, not duration” Top 2013 Investment Idea No. 1.
Equities: Attractive compared to other asset classes
In 2012, investment flows into equities have remained low des-pite the good performance. We suspect lower return prospectsin fixed income will contribute to a shift into equities in 2013. Judging by higher implicit discount rates, earnings or dividendyields, the asset class is still attractively valued compared tobonds. Opportunities for new investments look more numerousto us in equities than in other asset classes. Dividend stocks,for example, remain an attractive theme for more risk-averseequity investors, particularly in Asia, where the pressure to tapfiscal revenue sources is less than in the West, and companiesstill have large cash holdings. High free cash flow-generatingstocks, and in Europe, convertible bonds, constitute the other two components of our “Dividends and beyond” Top 2013 In-vestment Idea No. 3.We are also optimistic that a range of stocks can recover strongly through 2013 as the business cycle strengthens. Thisis our Top 2013 Investment Idea No. 2: “Recovery stocks.” Inthe USA, we count stocks that benefit directly from the USconsumer revival among those set to recover. But we alsothink that merger and acquisition activity could pick up to thebenefit of M&A targets. Companies have had difficulty raisingtheir top line, but margins are good and corporate cash is plen-tiful. Finally, cyclical stocks more generally are part of the re-covery theme as well. A more specialist but interesting themelies in the new gas and oil sources (our Top 2013 InvestmentIdea No. 4) that are being tapped across the continents, in theUSA, Africa and Asia. This should benefit upstream energystocks with access to these sources in particular.
US real estate: Our preferred alternative investment
 Among alternative investments, private equity investments fol-lowing similar themes as those we presented for equitiesshould perform similarly well. Hedge funds should also be ableto benefit from ample liquidity. On commodities, low interestrates are generally supportive but moderate growth prospectslimit the upside potential. We have a neutral view for the asset
Investment Strategy 27/11/2012
Credit Suisse - Research Monthly Asia

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