Global Research Private Banking Investment horizon: 6-12+ months

Research Monthly

December 2012

Buy

Top 30 portfolio stock: Chevron A leading energy-related recovery investment. US Real Estate Investment Trusts US real estate has upside potential, as the rental market has bottomed out. REITS still offer value.

Buy

Investment Strategy

Equities, “new hard currencies” and real estate in 2013
page 3

Performance review 2012

Top investment ideas 2013

Risk scenarios

Performance of Top Investment Ideas for 2012
page 5

Top 2013 Investment Ideas
page 6

Alternative macro scenarios and their strategy implications

page 8

Important disclosures are found in the Disclosure appendix. Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect 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: https://research.credit-suisse.com/riskdisclosure

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Credit Suisse - Research Monthly

Editorial
Giles Keating Head of Research for Private Banking and Asset Management giles.keating@credit-suisse.com, +41 44 332 22 33

In this issue
Investment Strategy

Equities, “new hard currencies” and real estate in 2013  page 3
Performance review 2012

Performance of Top Investment Ideas for 2012
Top investment ideas 2013

 page 5

Is it right to assume that lackluster economic growth in developed economies will continue for several more years? Such projections rely on three broad ideas: Assertions that technological innovation has slowed; demand constraints from the unwind of excess leverage; and existential threats to the euro. The first of these seems difficult to justify (for example, look at our recent Global Investor on new applications of digital technology to healthcare). The second and third have clearly damaged growth in recent years, but those years have also seen a transition toward solving those problems. Broken balance sheets are now largely repaired for most US banks and households, though progress is much slower for governments on both sides of the Atlantic. There has been (largely unsung) progress in macro adjustment and structural reform in Europe, with massive current account deficits reduced or eliminated, nominal wages falling to restore competitiveness and the start of radical labor market reform. Grand plans for European integration look elusive, but limited elements of it are being created, and successful macro adjustment may expose the remaining parts as unnecessary. On top of all this, one other crucial transition of recent years has gone largely unnoticed: Oil prices more than tripled at the same time as the financial crisis (as described in the accompanying essay). This has surely been a major drag on growth, but now at last the world is learning to live with these high prices, discovering new sources of energy and adapting production to use less of it. As all these various transitions advance, they become less of a drag and increasingly open the possibility that growth may surprise to the upside.

Top 2013 Investment Ideas
Risk scenarios

 page 6

Alternative macro scenarios and their strategy implications  page 8 Investment summary
Economics  page 9

2013: Growth moderate, rates low
Fixed income

 page 10

Less value in fixed income
Equities

 page 12

Positioning for the (Re)recovery
Alternative investments

 page 14

Opportunities in hedge funds and real estate
Foreign exchange

 page 16

Diversify out of hard currencies into selected EM currencies  page 17 Risk disclaimer
 page 19

Editorial deadline: 27 November 2012

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.

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Investment Strategy

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Credit Suisse - Research Monthly

Investment Strategy

Equities, “new hard currencies” and real estate in 2013

combined with a discretionary managed portfolio and/or direct investment in stocks and bonds from our recommended Top Pick lists, to give an overall balanced strategy. Fixed income: Credit, not duration In 2012, investors were able to generate strong – in some cases even double-digit – returns on bonds with credit risk. We do not expect similar performances in 2013. Not that we anticipate a rapid turn in the credit cycle and sharply rising default rates. Corporate credit fundamentals start from a strong position. But credit spreads have narrowed substantially during 2012 and the asset class simply offers less upside from here in most segments. Still, bonds, particularly through direct holdings, offer a source of higher cash flow than un-remunerative cash. Investors can therefore look at short maturity bank bonds with ratings between AA and A and corporate bonds with ratings between A and BB as an alternative to un-remunerative cash or term deposits. This is our “Beyond cash: Credit, not duration” Top 2013 Investment Idea No. 1. Equities: Attractive compared to other asset classes In 2012, investment flows into equities have remained low despite the good performance. We suspect lower return prospects in fixed income will contribute to a shift into equities in 2013. Judging by higher implicit discount rates, earnings or dividend yields, the asset class is still attractively valued compared to bonds. Opportunities for new investments look more numerous to us in equities than in other asset classes. Dividend stocks, for example, remain an attractive theme for more risk-averse equity investors, particularly in Asia, where the pressure to tap fiscal revenue sources is less than in the West, and companies still have large cash holdings. High free cash flow-generating stocks, and in Europe, convertible bonds, constitute the other two components of our “Dividends and beyond” Top 2013 Investment Idea No. 3. We are also optimistic that a range of stocks can recover strongly through 2013 as the business cycle strengthens. This is our Top 2013 Investment Idea No. 2: “Recovery stocks.” In the USA, we count stocks that benefit directly from the US consumer revival among those set to recover. But we also think that merger and acquisition activity could pick up to the benefit of M&A targets. Companies have had difficulty raising their top line, but margins are good and corporate cash is plentiful. Finally, cyclical stocks more generally are part of the recovery theme as well. A more specialist but interesting theme lies in the new gas and oil sources (our Top 2013 Investment Idea No. 4) that are being tapped across the continents, in the USA, Africa and Asia. This should benefit upstream energy stocks with access to these sources in particular. US real estate: Our preferred alternative investment Among alternative investments, private equity investments following similar themes as those we presented for equities should perform similarly well. Hedge funds should also be able to benefit from ample liquidity. On commodities, low interest rates are generally supportive but moderate growth prospects limit the upside potential. We have a neutral view for the asset

Moderate growth, moderate inflation and low yield environment to persist in 2013.

Bond returns in 2013 positive, but lower than in 2012; more investment opportunities in equities.

“New hard currencies” and US real estate offer protection against eroding purchasing power.

Nannette Hechler-Fayd'herbe Head of Global Financial Markets Research nannette.hechler-fayd'herbe@credit-suisse.com, +41 44 333 17 06

Despite the soft patch in equity markets at the time of writing and the many uncertainties that have prevailed, 2012 is ending as a strong year for credits and equities. Real assets, such as real estate and gold, have also delivered strong performances. As expected, cash and core government bonds are at the lower end of the performance scale. Financial markets adhered rather closely to the central banks’ guidance away from un-remunerative risk-less into riskier assets. For 2013, we continue to anticipate a low interest rate environment, sustained by moderate growth and inflation globally. In this context, assets that benefit from low yields are likely to continue to perform well. Our Top 2013 Investment Ideas focus on six specific investment themes: Beyond cash; Recovery stocks; Dividends and beyond; New gas and oil sources; US real estate; and The new hard currencies. We believe that an investor who focuses on these six ideas, in combinations adapted to their own risk profile, should have a good chance of obtaining a reasonable return in 2013, while managing risk. Investment in our six top ideas can, of course, be

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class overall and focus on undersupplied commodities. For our Top 2013 Investment Idea No. 5, we keep US real estate as our preferred alternative investment, though. Currencies: Major crosses in trading ranges Our outlook for major exchange rates is neutral. Interest rate differentials are very tight and no big trends are likely to be triggered against that backdrop. In our view, appreciation potential lies in selected emerging market currencies that benefit from current account surpluses and offer attractive remuneration. This is our Top 2013 Investment Idea No. 6: “New hard currencies.” The latter help investors protect purchasing power. We see depreciation risk, in contrast, for the AUD. The currency is strongly overvalued and interest rates in Australia are expected to fall further. Add the potential long-term benefits the USD may get from a gradual move toward energy autonomy and several ingredients of a correction in the AUD/USD come together. Closing 2012 with our Top 10 Investment Ideas We are ending the year with a good result on our 2012 investment ideas. The section dedicated to their review details recommended actions with regard to existing holdings. We hope our clients have found the updates over the year helpful and wish all a successful 2013. (23/11/2012)

Strategic asset allocation (SAA) The neutral allocations serve as a guideline and represent the average weighting over an entire market cycle. Since the global strategy is based on a medium-term investment horizon, it deviates from the neutral position. We recommend an overweight in equities and alternative assets, particularly hedge funds and gold. Conversely, we recommend underweighting fixed income investments and liquidity.
Fixed Income
Benchmark (BM) SAA Cash Fixed Income Equity Alternative BM 5% 80% 0% 15% SAA 2% 80% 0% 18%

Income
Benchmark (BM) SAA Cash Fixed Income Equity Alternative BM 5% 55% 20% 20% SAA 2% 53% 22% 23%

Balanced
Benchmark (BM) SAA Cash Fixed Income Equity Alternative BM 5% 35% 40% 20% SAA 2% 32% 43% 23%

Capital Gain
Benchmark (BM) SAA Cash Fixed Income Equity Alternative BM 5% 15% 60% 20% SAA 2% 12% 64% 22%

Equities
Benchmark (BM) SAA Cash Fixed Income Equity Alternative BM 5% 0% 80% 15% SAA 2% 0% 83% 15%

Source: Credit Suisse

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Performance review 2012

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Credit Suisse - Research Monthly

Performance review 2012

Performance of Top Investment Ideas for 2012

Our Top Investment Ideas for 2012 have posted good returns thus far, and have provided diversification.

Strong fixed income and real estate performance.

Stefan Braunschweig stefan.braunschweig@credit-suisse.com, +41 44 334 66 42 Nicole Krieger nicole.m.krieger@credit-suisse.com, +41 44 332 48 61

In the Research Monthly one year ago, we assumed that the low interest rate environment in developed markets would continue in 2012. We also expected slightly negative total returns

overall in fixed income and continued growth for equities. We anticipated high volatility and we were positive on real estate and gold. Based on these views, we presented our Top 10 Investment Ideas for 2012, some of them with a focus on performance, some with a focus more on risk management and portfolio diversification. We occasionally updated the ideas during the year (please see our monthly Research Alerts on the Top Investment Ideas). At the time of writing (21 November), we calculated absolute returns of between 8.5% (USD) and 17.5% (EUR) for Fixed income Idea No. 1, core corporates. Idea No. 2, invest in emerging market quasi-government credits, also recorded a good absolute performance. In this equity positive environment, both idea No. 3, High dividend stocks, and idea No. 4, CS Top 30 portfolio, outperformed their respective benchmark, MSCI World. This resulted in an absolute return of 14.4% for our basket of high dividend stocks and 15.7% for the CS Top 30 basket. Idea No. 5, a covered call writing strategy, was closed in the spring with an absolute profit of 9.4%, as volatility dropped significantly in the first quarter of the year. Idea No. 6, Diversifiers, and idea No. 7, Renminbi, were ideas to diversify away from EUR and USD. Besides the diversification effect, both ideas produced positive absolute returns. The first commodity idea, to follow a value strategy (No. 8), outperformed its benchmark and was closed with an absolute performance of 6.4%. In September, this idea was switched into a carry strategy, which has underperformed the benchmark by 1.7% so far (–3.2% absolute). The best performing idea was No. 9, real estate income generators, which had outperformed the benchmark by 11.3% until August (26.1% absolute) when we locked in the good performance. In September, we recommended investing in US real estate, which also outperformed the benchmark. We also proposed a list of well-diversified hedges against the more extreme possible outcomes globally. Some of the ideas (e.g. buy EUR puts/USD calls) showed a negative performance, other ideas (e.g. buy Italian and Spanish government bonds) performed well. (23/11/2012)

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Top investment ideas 2013

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Credit Suisse - Research Monthly

Top investment ideas 2013

Top 2013 Investment Ideas

Focus on outright performance, with recovery stocks, the gas and oil theme and the US real estate idea.

Diversification through EM currencies; risk reduction through short-dated bonds, credit and high dividend yielding stocks.

Kevin Lyne-Smith Head of Global Equity Research kevin.lyne-smith@credit-suisse.com, +41 44 334 56 41

Following the successful performance of our Top 2012 ideas, for 2013 we initially focus on just six ideas (see Table). Three of these are focused mainly on outright performance, notably the recovery stocks, the gas and oil theme and the US real estate idea, the others have more of a risk management and diversification role, while still aiming to deliver some performance. We believe that an investor who focuses on these six ideas, in combinations adapted to their own risk profile, should have a good chance of obtaining a reasonable return in 2013, while managing risk. We will provide further support for risk management by monitoring the ideas throughout the year and changing them if needed, though we will aim to keep such changes to a minimum. As an alternative to using these ideas by themselves, they can also be used to complement discretionary managed portfolios, or to complement the broader selections of recommended equities and bonds in our “Top Picks” and “Top 30” lists. Top 2013 Investment Ideas explained 1) Beyond cash: For risk-averse investors, we introduce the top investment idea, “Beyond cash,” including short-dated bonds of AA- to BBB rated financial issuers as well as non-financial A to BB credits from developed and emerging markets,

as we prefer credit over duration. While we view the default outlook for 2013 as still relatively benign, we recommend excluding European volume car makers from portfolios, given the challenging environment faced by that industry. 2) Recovery stocks: US and Chinese leading indicators portend a recovery, with the ongoing improvement in US labor markets continuing to lift consumption, a key growth driver for the US economy. We expect EM consumer demand to improve in 2013, while demand in Europe remains weak. US and EM discretionary consumer goods companies and financials (loans and mortgages) should benefit most from these developments. European and emerging market exporters should also benefit from stronger consumer demand. In addition, we expect M&A activity to pick up, as the uncertainty created by the US elections and US fiscal cliff fades, and the economic recovery gains momentum and companies seek to expand operations. 3) Dividends and beyond: For investors searching for yield, while maintaining a low risk appetite, high dividend yielding stocks continue to offer a very attractive alternative to bonds, and as such, remains a Top Idea. However, the idea has been enlarged to include companies generating high free cash flow, as these stocks generally provide a lower risk route for investors to gain exposure to equity markets. In addition, the idea includes European high yield convertibles as a low volatility investment with exposure to equity markets. 4) New oil and gas sources: The global oil and gas landscape is undergoing a significant transformation, fueled by the strength of crude oil prices as demand remains robust. As a result, the industry has started to focus on deposits in more remote and previously inaccessible areas to boost reserves. New production technology has enabled the extraction of oil and gas from geologically challenging deep-water and shale stone formations. Companies providing related advanced technology and specialized services should particularly benefit from these developments and outperform their peers. 5) US real estate: We retained this idea for 2013, as the US economy continues to recover and housing data has been consistently improving since January 2012. Real estate provides portfolio diversification and investment yield with an additional benefit of price appreciation if the markets rise. 6) The new hard currencies: Diversification out of traditional hard currencies (USD, EUR, CHF) into higher yielding currencies or currencies which are expected to appreciate, can retain purchasing power within a portfolio, given that yields in traditional currencies are near zero. What should I do with investments based on the Top 2012 ideas? A number of the investments in the Top 2012 Ideas can be retained, as many of them have either been carried over unchanged or have become part of a reformulated or larger idea. Specifically, the two fixed income ideas, “Core corporates and banks” and “Emerging market quasi-government and corporate credits,” were retained and integrated into a single 2013 idea, “Beyond cash.” The equity “Dividend strategies” idea has been retained and included in the broader “Dividends and beyond” idea. CS Top Picks and Top 30 will provide an alternative for equity investors preferring bespoke portfolio solutions rather than being an investment idea. Foreign exchange “Diver-

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Top investment ideas 2013

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Credit Suisse - Research Monthly

sifiers” and the “Yuan/renminbi” ideas were retained and integrated into a single 2013 idea, “The new hard currencies.” Meanwhile, the commodity “Carry strategies” idea was removed form the list, following our strategic downgrade of the asset class to neutral, but the idea remains relevant for inTop Investment Ideas for 2013
Fixed Income 1. Beyond cash: Credit not duration Status  Action Buy short dated AA-A financials and A-BB non-financials excluding auto.

vestors still interested in commodities. The US real estate idea is retained for 2013. Finally our “What if…” alternative scenarios are no longer as relevant, given the stabilization in the economic and political environment. (23/11/2012)

Rationale/Update Cash should continue to be unremunerative (near-zero yields) in most markets. Whereas credit spreads have come down markedly over the year, bringing yields of many bonds into very low territory, corporate bonds of short maturities still offer a decent yield pick-up versus cash. With default rates expected to gradually increase in 2013, conservative investors should focus on investment grade credits.

Equities 2. Recovery stocks  Buy US consumer, M&A and cyclical stocks. Equity market sentiment should improve further in 2013. Cyclicals including emerging market stocks should benefit mostly from ongoing US and Asia recovery. We expect robust M&A activity as stocks are cheap and cash levels high. For investors who are interested in absolute return and with an expectation of relative high cash flow disbursements from dividends. Oil and gas companies with new exploration technologies or which have interest in as yet unexploited shale gas, tight oil, deepwater oil, etc.

3. Dividends and beyond

Buy European high dividend yielding stocks, high free cash flow generating stocks or high yield convertible bonds. Invest in upstream energy stocks.

4. New gas and oil sources Alternative Investments 5. US real estate 

Invest in commercial and residential real estate.

Very affordable prices, easy monetary policy and solid economic growth will support US housing. German real estate also appears relatively cheap and can benefit from capital inflows.

Foreign Exchange 6. The new hard currencies  Buy selected Asian currencies and other selected EM currencies. We stick to the current idea of diversification into selected EM currencies out of traditional hard currencies like EUR and USD.
Source: Credit Suisse

Key to status symbols: green = attractive investment opportunities – continue to invest in theme; yellow = keep holdings but do not add to existing positions; red = reduce /exit existing positions.

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Risk scenarios

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Credit Suisse - Research Monthly

Risk scenarios

Alternative macro scenarios and their strategy implications

need to lower their exposure to risk assets generally, especially to European financials as well as high yield, while raising the allocation to safe-haven bonds and the USD. Potential downsides and upsides of the US fiscal cliff More recently, markets have focused on the so-called US fiscal cliff and the risk that fiscal policy might tighten abruptly, inducing a US recession and slower global growth. The strategy implication of this scenario would also be to lower equity weightings (this time in the US) while sticking to high grade bonds. Cyclical commodities would be downgraded while the allocation to gold would tend to be higher on the assumption that the Fed would offset tighter fiscal policy with extra easing. There are two alternative outcomes of the fiscal debate. One is a “fudge,” which extends tax cuts, but fails to tackle longerterm issues. While the fallout for growth would be limited, the credit rating of the US government would be undermined, and risk assets as well as the dollar might suffer. The second, far more positive, outcome would be a “grand bargain,” which both avoids the cliff and achieves long-term debt sustainability. The latter would clearly be bullish for equities and credit, while the USD and high grade bonds would probably hold up well. Better or worse growth-inflation mix Finally, investors should consider alternative trajectories for the global economy even if policies do not change much. On the positive side, the “healing” process of the US as well as other economies may be further along than we think. If so, cyclical equities and currencies in Europe and emerging markets, as well as commodities, such as metals, would benefit. Inflation may also rise somewhat in such a scenario. More negative would be higher inflation without better growth, be it because high debts translate into inflation fears or geopolitical tensions raise oil prices. Such a scenario would call for underweighting risk assets as well as bonds, while adding to cash. (23/11/2012)

Our investment strategy is based on a forecast of curtailed “tail risks” and continued moderate global economic expansion.

Investors may want to consider the implications of alternative, “down” or “upside,” macro scenarios for their personal strategy.

Oliver Adler Head Economic Research oliver.adler@credit-suisse.com, +41 44 333 09 61

Our 2013 investment strategy (see Monthly Investment strategy article) is based on the assumption of moderate global growth, supported by very easy money and easier credit conditions, but still constrained by tight fiscal policy and some private sector de-leveraging. Inflation is expected to remain low due to continued excess capacity and moderate commodity demand. With interest rates still around zero, this suggests overweighting risk assets, especially equities, though not aggressively so. Resurgence of Eurozone stresses? Over the past two years, repeated failures to fully resolve the Eurozone debt crisis have been a key driver of financial markets; the fear of default and/or EUR break-up repeatedly set back risk assets. However, since the ECB’s announcement that it would extend its lender of last resort function to sovereigns, albeit conditionally, fears have subsided. There nevertheless remains potential for setbacks, e.g. if European policy makers drag out bank recapitalization in Spain or, more generally, hold back support for highly indebted governments. Financial market stress would again rise and undermine any nascent European recovery. Investors who regard this as likely, would

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Risk scenarios

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Credit Suisse - Research Monthly

Investment summary
Short interest rates 3M LIBOR / 10-year government bonds
3M LIBOR in % CHF EUR * USD GBP JPY Spot 0.03 0.19 0.31 0.52 0.19 3M 0.0-0.2 0.1-0.3 0.3-0.5 0.5-0.7 0.1-0.3 12M 0.0-0.2 0.1-0.3 0.3-0.5 0.5-0.7 0.1-0.3 10Y bonds Spot 0.50 1.44 1.69 1.84 0.74 3M 0.6-0.8 1.5-1.7 1.6-1.8 1.7-1.9 0.7-0.9 12M 1.1-1.3 1.8-2.0 1.9-2.1 2.1-2.3 0.9-1.1

Equities: Selected indices
Index S&P 500 SMI FTSE-100 Euro Stoxx 50 Nikkei 225 MSCI EM China H-Shares Price 1,409.15 6,715.09 5,819.14 2,557.03 9,366.80 995.94 10,606.99 MTD (%) -0.2% 1.8% 0.6% 2.1% 4.9% 0.1% 0.2% YTD (%) 12.1% 13.1% 4.4% 10.4% 10.8% 8.7% 6.7% 12M fair value 1,513 6,477 5,954 2,570 9,800 1,039 12,000 12M outlook Overweight Underweight Neutral Neutral Underweight Neutral Overweight

Prices as of 26/11/2012; 12M fair value: scenario analysis available; 12M outlook: relative to MSCI World Index (USD) Source: Bloomberg, Credit Suisse

Spot rates are closing prices as of 23/11/2012. Forecast date: 22/11/2012. * 3M Euribor Source: Bloomberg, Credit Suisse

Foreign exchange Bonds: Selected indices
Spot Index YTM (%) 2.7 1.9 0.7 3.5 4.7 5.6 6.7 Spread to benchmark (bp) 124 145 54 172 294 n.a. 603 Total return YTD (%) 9.2 11.5 4.2 11.9 16.3 3.8 12.1 12M TR outlook        EUR/USD USD/CHF EUR/CHF USD/JPY EUR/JPY EUR/GBP GBP/USD EUR/SEK AUD/USD USD/CNY
Spot rates: London close 23/11/2012 Source: Bloomberg, Credit Suisse

3M 1.33-1.37 0.89-0.93 1.21-1.25 80-84 109-113 0.82-0.86 1.58-1.62 8.38-8.42 0.96-1.00 6.12-6.32

12M 1.33-1.37 0.90-0.94 1.22-1.26 80-84 109-113 0.82-0.86 1.58-1.62 8.18-8.22 0.96-1.00 6.10-6.30

1.30 0.93 1.20 82 107 0.81 1.60 8.59 1.05 6.23

USD (CS LUCI) EUR (CS LEI) CHF (CS LSI) GBP(CS LEI) EM HC (JPM EMBI Global) EM LC hedged in USD (JPM GBI) High Yield (CS HY Index)
Prices as of 23/11/2012

Source: Bloomberg, Credit Suisse

Real GDP growth and inflation Commodities
Spot Gold (USD) Silver (USD) Platinum (USD) Oil (USD)
Spot prices: London close 23/11/2012 Source: Bloomberg, Credit Suisse

GDP growth 3M 1,800 35 1,750 93 12M 1,850 33 1,850 99 in % CH EMU USA UK Japan 2011 1.9 1.7 1.8 0.9 -0.8 2012E 0.5 -0.4 2.1 -0.2 1.7 2013E 1.5 0.2 2.2 1.0 0.6 1,753.00 34.09 1,619.70 88.28

Inflation 2011 0.2 2.7 3.2 4.5 -0.2 2012E -0.6 2.4 2.1 2.8 0.0 2013E 1.0 2.2 2.1 2.0 -0.4

Source: Bloomberg, Credit Suisse

Global Research asset category strategy
By region/strategy Fixed income Equities Commodities Real estate Private equity Hedge funds Foreign exchange Overweight: USA; Underweight: CH & Canada. Overweight: USA; Underweight: Switzerland and Japan. Overweight: Energy, precious metals; Underweight: Agriculturals. Overweight: USA, Asia-Pacific and Germany; Underweight: UK. Focus on secondaries, natural resources, SME LBOs, emerging markets and distressed debt. We maintain our positive stance on global macro and directional strategies. EUR/USD  , USD/CHF , GBP/USD , USD/JPY . Comments and comparison of weightings We keep our focus on shorter maturities. We recommend focusing on high yield bonds. Valuations stay attractive. Equities have not yet regained all postUS election losses, so still a good entry point. Tactically positive on short-term price rebound potential. Strategically neutral on potential cyclical headwinds. Equities: Some upside strategically, but valuations richer. Direct real estate: Attractive rental carry. Selected private equity themes are particularly suitable to take advantage of the current economic environment. We overweight directional strategies such as EM and long-short. We maintain our positive stance for global macro. We expect EUR/USD to test the upper end of the 1.25-1.35 range. CAD fundamentals are neutral, upside capped.
Source: Credit Suisse Investment Committee/Global Research

Tactical 1–6 M   

Strategic 6–12+ M      

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Economics

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Credit Suisse - Research Monthly

Economics

2013: Growth moderate, rates low

ment remains credible and keeps yields of the weaker countries’ bonds from rising meaningfully, a renewed major financial shock in the Eurozone looks unlikely (for more on alternative macro scenarios, please refer to “risk scenarios” page). Lower financial stress should continue to result in easier monetary conditions and some growth improvement in 2013 after a weak end to 2012. However, fiscal deficit reduction and high unemployment remain significant headwinds. Our Eurozone growth forecast for next year is only marginally above zero. US: Stronger growth once fiscal uncertainty recedes Given the big US deficit, some fiscal drag in 2013 and the following years is inevitable. A bi-partisan compromise to soften the “fiscal cliff” nevertheless remains our base case. Survey data suggests that businesses have held back investment spending due to fiscal uncertainty. Once the fiscal outlook becomes clearer, we would expect some of the pent-up demand to contribute to a re-acceleration during the course of H1 2013. Hurricane-related effects weigh on Q4 of this year, but we expect the housing recovery (prices up, excess supply down, construction activity up) to remain more supportive in 2013. Improved labor market trends should continue and multi-year highs of consumer confidence suggest more expansion of spending. That said, we still look for only a gradual decline in the unemployment rate in 2013. The Fed is likely to retain its expansionary policy bias, which should also support the recovery. Emerging markets: Again a key growth driver in 2013 Emerging markets, especially non-Japan Asia, are (again) likely to account for more than three quarters of global GDP growth in 2013. In China, major fiscal stimulus is unlikely as the new leadership aims to achieve sustainable growth, in our view. Combined with persisting headwinds in key export markets, e.g. Europe, Chinese growth should remain below the trend of the past years. Despite all this, solid Chinese credit growth, driven in particular by financial market development (e.g. bond issuance), is becoming more supportive. Business surveys in China and many other emerging markets (e.g. Russia, India, Turkey, Brazil) tentatively point toward cyclical improvement, which looks likely to unfold more visibly in early 2013. (22/11/2012)

Easing financial stress/less fiscal uncertainty should allow gradual cyclical improvement over coming months. But global growth likely to remain moderate overall in 2013.

Significant inflation pressure unlikely next year. In the majority of advanced economies, interest rates look very unlikely to rise in 2013.

Thomas Herrmann thomas.herrmann@credit-suisse.com, +41 44 333 50 62

The ECB’s promise to buy bonds (in return for deficit cuts and reforms) marked a significant turning point for the Eurozone crisis in August/September 2012. As long as this announce-

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Selected ideas from previous months
November 2012 (30/10/2012) Recommendation BUY Undervalued cyclical stocks in China. We recommend domestically-driven cyclical stocks to benefit from China’s growth stabilization. BUY Exposure to non-investment grade convertible bonds from European issuers. BUY Asset managers with a strong EM presence: Partners Group. The alternative investment manager is currently expanding its client relationships throughout Asia. BUY CS Top 30 stock: Schlumberger. Occupies a leading position in the diversified energy services market. October 2012 (25/09/2012) Recommendation BUY Selected EM currencies. For emerging market currencies, the Fed’s action tends to be positive, but we are selective as some countries will counter with their own monetary expansion. BUY Retailer linked to housing recovery: Home Depot. Home Depot is the world’s largest home improvement specialty retailer, which should benefit from a pick-up in US homebuilding. BUY Microsoft – CS Top 30 company. Trades at a valuation discount and is poised to benefit from the upcoming Windows 8 release. September 2012 (28/08/2012) Recommendation BUY Crop resilience: Bayer. Crop protection against weather extremes likely to be a key component of increased efforts to secure food supplies. BUY Yield enhancement: Deere. Given their potential to safeguard yields, we favor fertilizers with EM exposure as well as high tech farm machinery. BUY Chevron – CS Top 30 company and key energy play. Integrated energy company with solid long-term growth prospects. BUY Gain exposure to directional hedge fund styles, such as long/short equity. Low volatility and the uptrend in equity markets positive for the sector.
FI Fixed income, EQ Equities, AI Alternative investments, FX Foreign exchange, RE Real estate For further information, including disclosures with respect to any other issuers, please refer to the Credit Suisse Global Research Disclosure site at: http://www.credit-suisse.com/research/disclaimer Source: Credit Suisse

Action to be taken EQ EQ EQ EQ Add exposure Add exposure Add exposure Add exposure

Action to be taken FX RE EQ Add exposure Add exposure Add exposure

Action to be taken EQ EQ EQ AI Add exposure Add exposure Add exposure Add exposure

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Fixed income

27/11/2012

Credit Suisse - Research Monthly

Fixed income

Less value in fixed income

After a strong 2012, credit performance still likely to be positive, but much lower in 2013.

as for emerging market bonds, which were part of our Top investment idea 2) “EM quasi-government and corporate credits“, with both segments posting YTD total returns above 10%. In 2013, we expect returns to come down significantly, given the lower potential for credit spread tightening and expected increase in benchmark yields. While major central banks are likely to maintain their interest rates close to zero in 2013, we view the impact of further quantitative measures as rather limited, providing less support to benchmark government bonds. These yields should gradually increase toward their fair value to better reflect the improving growth environment. Higher benchmark yields are likely to also constrain the performance of investment grade corporate bonds. Still, bank regulations potentially allowing single A rated debt to be eligible for liquidity requirements, and more generally the low yield environment, should, in our view, help the asset class to post slightly positive returns in 2013. We again expect high yield bonds to outperform other fixed income segments. As 2013 progresses, better economic data may allow credit spreads to tighten further, but meanwhile the risk of rising leverage may constrain any spread narrowing, that may result in mid-singledigit total returns for high yield. As such, we would expect some risk-tolerant investors, which have shunned equities since the financial crisis, to increase their equity allocation at the expense of high yield bonds. Diversified corporate bond exposure preferable to cash While valuations look less compelling than a year ago, corporate bonds still offer a decent yield pick-up compared to cash. For investors looking to reduce their allocation to the latter, we introduce the 2013 Top investment idea “beyond cash,” including short-dated bonds (typically up to 3 years) of AA- to BBB rated financial issuers as well as non-financial A to BB credits from both developed and emerging markets. This idea broadly encompasses our two fixed income investment ideas from 2012, “core corporates and banks” and “emerging market quasi government and corporate credits,” which have recorded a strong performance YTD. While we view the default outlook for 2013 as relatively benign, event risk is likely to gradually increase in the coming years. Buy-and-hold investors should therefore ensure a very broad name diversification. We also recommend excluding European volume car makers, given the challenging environment faced by the sector. At the issuer level, we continue to see HeidelbergCement, Lafarge and Continental as improving credit stories likely to provide interesting investment opportunities. Among peripheral sovereigns, we reiterate our preference for Italy. (22/11/2012)

High yield bonds still offer a decent pick-up over cash; other corporates more modest, but still worthwhile.

Sylvie Golay Markovich sylvie.golay@credit-suisse.com, +41 44 334 54 37

Credit rally gradually ending, but not yet reversing The year 2012 has not only seen a further decrease in benchmark bond yields, but also a sharp contraction in credit risk premia, which pushed corporate bond yields to record lows. In this environment, risky credits have performed the best. The decline in tail risk in the Eurozone has particularly benefited EUR high yield bonds, which have recorded total returns above 20% YTD. This environment has also been positive for financial issuers, which we have included since March in our 2012 Top investment idea 1) “Core corporates and banks,” as well

13

Fixed income

27/11/2012

Credit Suisse - Research Monthly

Selected bond recommendations
ISIN Curr. Issuer Rating Coup. Maturity Min. denomination/increment (in 1000) 5/5 5/5 5/5 1/1 2/1 1/1 1/1 200 / 1 1/1 100 / 1 1/1 100 / 1 100 / 1 Vol. (m) Ask price (1) YTM/ YTC (%) Benchmark spread Duration

CHF CH0181738904 CHF CH0149058163 CHF CH0197482711 CHF USD US46623EJR18 USD USF42768GN96 USD US05565QCC06 USD US36962G6K56 USD XS0857054232 EUR XS0856173546 XS0833631343 XS0832446230 XS0849677348 XS0852993285 Others XS0783260853 XS0817624066 XS0853680527 XS0856595961 XS0819413351 XS0841812851 GBP GBP GBP GBP AUD AUD DAIMLER INTL FINANCE BV VOLKSWAGEN INTL FIN NV (3) NORDEA BANK AB BNP PARIBAS VOLKSWAGEN INTL FIN NV RCI BANQUE SA JPMORGAN CHASE & CO (3) TELSTRA CORP LTD (3) DAIMLER AG TOYOTA FINANCE AUSTRALIA NORDIC INVESTMENT BANK GAZPROMBK (GPB FINANCE) OJSC RUSS AGRIC BK(RSHB) SBERBANK (SB CAP SA) VNESHECONOMBANK(VEB) SUNRISE COMMUNICATIONS I (3) MOL HUNGARIAN OIL & GAS GAZPROM (GAZ CAPITAL SA) HEIDELBERGCEMENT FIN LUX (3) YANCOAL INTL RES DEV (3) TURKIYE HALK BANKASI (3) MEX BONOS DESARR FIX RT (3) A- / A3 A- / A3 AA- / Aa3 A+ / A2 A- / A3 BBB / Baa2 NR / A2 A / A2 NR / NR NR / NR AAA / Aaa BBB- / Baa3 NR / Baa1 NR / A3 BBB / NR BB- / Ba3 BB+ / NR BBB / Baa1 BB / Ba2 BBB- / Baa3 NR / Baa2 A- / Baa1 1.750 1.250 2.125 2.375 4.625 6.000 4.650 4.000 2.000 2.250 2.125 4.375 3.125 3.100 3.750 5.625 3.875 3.755 9.500 4.461 4.875 7.750 05/21/2014 08/20/2015 11/13/2019 11/20/2019 08/24/2016 10/18/2016 11/07/2017 11/15/2017 11/27/2015 08/31/2016 08/09/2017 12/09/2013 08/17/2015 09/14/2015 02/17/2016 12/31/2017 10/05/2015 03/15/2017 12/15/2018 05/16/2017 07/19/2017 12/14/2017 1/1 1/1 100 / 1 1/1 2/2 2/2 10 / 10 10 / 10 2/2 10 / 10 10 / 10 5/5 5/5 5/5 5/5 150 / 1 50 / 1 100 / 1 50 / 50 200 / 1 200 / 1 0.1 / 0.1 250 250 500 300 150 185 450 750 125 600 1500 420 450 410 500 370 750 500 450 750 100.79 99.81 99.62 99.03 101.31 99.61 99.76 98.33 99.63 100.04 99.92 102.66 102.00 103.45 103.75 102.73 100.38 124.88 102.79 105.98 1.21 1.32 2.19 2.53 4.23 6.11 4.70 4.38 2.13 2.24 2.14 1.75 2.35 1.82 2.52 4.81 3.73 2.27 4.72 3.78 3.47 5.06 93 99 97 129 150 332 191 157 94 79 57 203 256 202 270 497 377 203 416 323 291 -4 1.5 2.7 6.4 6.4 3.4 3.4 4.4 4.5 2.9 3.6 4.4 1.0 2.6 2.7 2.9 3.2 2.6 3.9 4.6 4.0 4.1 4.2 USD EUR EUR EUR EUR EUR RCI BANQUE SA METRO AG UNICRED BANK IRELAND PLC JPMORGAN CHASE & CO (3) GDF SUEZ (3) BP CAPITAL MARKETS PLC (3) GENERAL ELEC CAP CORP (3) VOLKSWAGEN INTL FIN NV (3) RCI BANQUE SA CARREFOUR BANQUE MORGAN STANLEY STANDARD CHARTERED PLC INTESA SANPAOLO SPA BBB / Baa2 / BBB- / Baa3 NR / Baa2e A / A2 A / A1 A / A2 AA+ / A1 A- / A3e BBB / Baa2 BBB+ / NR A- / Baa1 A+ / A2 BBB+ / Baa2 2.500 1.875 3.375 1.100 1.625 1.375 1.600 1.600 2.125 2.875 3.750 1.750 4.000 07/16/2015 05/02/2016 10/25/2017 10/15/2015 10/10/2017 11/06/2017 11/20/2017 11/20/2017 11/24/2014 09/25/2015 09/21/2017 10/29/2017 11/09/2017 200 225 185 101.45 101.70 99.55 1.93 1.36 3.48 1.10 1.40 1.31 1.65 1.72 1.89 1.35 2.90 1.41 3.64 216 155 348 85 81 66 97 105 189 133 251 99 329 2.5 3.3 4.4 2.8 4.7 4.8 4.8 4.8 1.9 2.7 4.4 4.7 4.4

2250 100.00 750 1000 650 750 600 101.05 99.78 99.45 100.46 104.20 1000 100.30

1000 103.78 1250 101.62 1711 101.62

AU3CB0201366 AUD AU3CB0201838 AUD XS0858468415 XS0822354774 XS0812998036 EM/Below IG CAD NOK NOK

CH0142821377 CHF CH0190653870 CHF CH0148606160 CHF CH0123431709 CHF XS0804472057 XS0231264275 XS0805582011 XS0686703736 CHF EUR EUR EUR

1400 106.00

USY97279AA45 USD XS0806482948 USD

MX0MGO0000F3 MXN

75826 112.00

1) Indicated prices as of 23. November 2012; 2) Subject to withholding tax; 3) Semi-annual coupon; 4) Quarterly coupon; 5) Corporate subordinated hybrid debt, yield to call, duration to call; 6) Junior subordinated debt, yield to call, duration to call; 7) Subordinated debt, LT2; 8) e = expected rating, subject to final documentation / n.a. = not applicable / NR = not rated; 9) 3M-LIBOR in respective currency; 10) Callable Source: Bloomberg, Credit Suisse

14

Equities

27/11/2012

Credit Suisse - Research Monthly

Equities

Positioning for the (Re)recovery

Mind the cliff If this proves to be the case, it will convincingly underpin equities, especially cyclicals. For the moment, the prospect of a global economic recovery has to confront the hurdle of the fiscal cliff debate in the US. Even with recent signs of a more “constructive” debate, we may see more market volatility, though it is also worth mentioning that market volatility and the insistence of corporate America are likely to spur politicians toward a settlement. Under this “most likely” scenario, market volatility can push valuations to cheap levels. To give more detail, our fair value level on the S&P 500 index is just over 1500, assuming longterm average levels of earnings growth, volatility and risk appetite. We have an alternative, pessimistic scenario in which volatility spikes and risk appetite falls and a level of 1200 comes into focus. Thus, the fiscal cliff debate could drive equity indices toward attractive levels and we would regard any rise in volatility as a buying opportunity. This is especially the case from an asset allocation point of view, with “safe haven” bond yields (e.g. US, UK) again closing on record lows, making them unattractive compared with the relatively high dividend yields in equity markets. Beginning to add cyclical exposure As such, within equities we continue to stress the relatively generous yields on our dividend strategy baskets, in particular for the lower risk Defensive Dividends basket. This is now part of a broader “Dividends and beyond” Top Idea for 2013, where the focus is more broadly on cash flow rich companies. The other equity Top Idea is based on stocks that are “recovery calls,” for example, potential merger and acquisition targets and global cyclicals. In this spirit, we make a number of sector allocation changes that begin to give our sector strategy a more cyclical tilt. Specifically, we upgrade insurance and real estate, both of which have positive earnings momentum and attractive valuations, to overweight. Hotels and chemicals move from underweight to neutral and we then downgrade wireless telecoms from overweight to neutral and tobacco to underweight. We feel it is yet too early to turn positive on larger cyclical sectors such as capital goods and materials. (22/11/2012)

US and Asian business cycle indicators firming up.

“Fiscal cliff” sell-off has pushed valuations toward cheap levels.

Michael O'Sullivan Head of Portfolio Strategy & Thematic Research michael.o'sullivan@credit-suisse.com, +44 20 7883 8228

Buy

Top 30 portfolio stock: Chevron A leading energy-related recovery investment.

With the US elections and the change of leadership in China out of the way, we can focus more on macro data, and in both countries business cycles are beginning to show broad based signs of recovery. In this sense, with the notable exception of Europe, which remains mired in a recession of its own making, 2013 may be the year when the global business cycle finally enjoys a decisive and enduring recovery.

15

Equities

27/11/2012

Credit Suisse - Research Monthly

Global equity sector strategy and top picks
Sector (strategic weight) Industry (strategic weight) Europe (N) / UK (N) Switzerland (U) USA (O) Latin America (N) / Emerging Europe & Africa (N) Novatek*, Petrobras SQM Naspers* AmBev* Brasil Foods*, Cosan Asia ex Japan (N) / Japan (U) / Australia (N)

Energy (O) Materials (N)#

Energy (O) Chemicals (N)# Construction Materials (N) Metals & Mining (N) Pulp & Paper (N)

Royal Dutch Shell, BG Group Linde Rio Tinto BMW SABMiller British American Tobacco Reckitt Benckiser Bayer, Hikma Pharmaceuticals -

Holcim ABB, Schindler Adecco+ Dufry Aryzta, Nestlé Actelion Roche (Genussscheine), Novartis -

Chevron Caterpillar, General Electric+ Coach+ Time Warner Procter & Gamble BioMarin Pharmaceutical Teva, Merck & Co. -

China Shenhua Energy, Cnooc Ltd Siam Cement BHP Billiton Limited Keppel Corp, Gamuda*, United Tractors Air China -H Toyota Motors, Bridgestone+ -

Industrials (N)

Capital Goods (N) Commercial Services & Supplies (N) Transportation, incl. Logistics (N)

Consumer discretionary (U)

Automobiles & Components (N) Consumer Durables & Apparel, Textiles, Apparel & Luxury (N) Hotels, Restaurants & Leisure (N)# Media (N) Retailing (U)

Consumer staples (U)

Food & Staples Retailing (N) Beverages (N) Food Products (U) Tobacco (U)# Household & Personal Products (N)

Healthcare (N)

Healthcare Equipment & Services (N) Biotechnology (N) Pharmaceuticals (N)

Financials (N)

Banks (N)

Sberbank*

China Construction Bank, Sumitomo Mitsui Financial Group, Kasikornbank*, Bank Mandiri, DBS+ Asian Property Development, Henderson Land Development, Swire Properties -

Diversified Financials (N) Insurance (O)# Real Estate (O)#

Allianz, AXA -

Zurich Insurance Group -

Citigroup -

-

IT (O)

Software & Services (O)

SAP

-

Microsoft, Google, Mastercard EMC, Apple+ -

-

Technology Hardware & Equipment (O) Semiconductors & Semiconductor Equipment (N) Telecom services (U) Utilities (U) Diversified Telecoms (U) Wireless Telecoms(N)# Utilities (U)

Iberdrola

-

-

Samsung*, Digital China, Lenovo, Toshiba+ Softbank+ -

This is our sector strategy and top picks as of 26 November 2012 recommended by Credit Suisse, Private Banking division. Our sector/industry strategy shows our sector/industry preferences with recommendations relative to regional benchmarks: Global: (MSCI World in USD), Europe (MSCI Europe in EUR), Switzerland (Swiss Market Index in CHF), USA (S&P 500 in USD), Asia/Pacific (MSCI AC Asia/Pacific in USD). An overweight (underweight) is a recommendation to invest more (less) than in a neutral position indicated by the market-cap weights of the respective benchmarks. The sector/industry weights as well as the neutral positions in figures are available upon request; please contact your relationship manager. The Top Picks is a selection of our favorite stocks within our coverage. The selection was made to reflect the sector/industry and regional preferences. Regular full updates are provided via our Research Monthly publications as well as in our Equity Research reports. Additionally, we publish our adds and drops in our Research Daily publication. Legend: (O) = Overweight, (N) = Neutral, (U) = Underweight. (*) = Emerging Markets top picks. Changes are marked as follows: (+) = additions to the top picks, (#) = changes to sector/industry/country weightings. For further information, including disclosures with respect to any other issuers, please refer to the Credit Suisse Global Research Disclosure site at: http://www.creditsuisse.com/research/disclaimer. Please note that trading facilities in certain securities may be limited. Source: Credit Suisse

16

Alternative investments

27/11/2012

Credit Suisse - Research Monthly

Alternative investments

Opportunities in hedge funds and real estate

look is reasonably positive for 2013, with liquidity plentiful and volatility low. Due to the lack of strong trends in the markets, we prefer flexible global macro funds over trend dependent managed futures. We also have a positive view on directional strategies, which benefit from rising stock markets. Correlations between individual stocks are low, offering managers plenty of opportunity to implement fundamental and quantitative strategies. Commodities: Stronger toward year-end, neutral longer term Commodities have had a mixed year in 2012, with most benchmark indices up only slightly year-to-date. As growth has bottomed out, we might see stronger prices toward the end of the year. However, beyond the tactical horizon, the outlook is neutral. Growth is picking up, but not strongly enough to trigger a long-lasting commodity rally. With respect to individual markets, gold has modest upside, in our view, given the ongoing real interest rate regime. Oil could also trade higher amid economic stabilization. In terms of investment strategy, we think carry strategies which dynamically overweight commodities that are in short supply should outperform passive indices. Real estate: Further upside for REITs in 2013 Valuations of global real estate investment trusts (REITs) have become richer following their strong performance this year. We nevertheless see further upside potential, given attractive dividend yields, robust direct commercial real estate markets and supportive monetary policy. Regionally, we prefer US REITs, as growth prospects are more favorable in the US, where we expect the housing market recovery to continue in 2013. Selected stocks of homebuilders and other companies linked to US residential construction offer attractive investment opportunities. (22/11/2012)

Real estate, directional hedge funds and gold have the most upside potential in 2013.

US housing recovery: Gain exposure via REITS and stocks of US homebuilders.

Tobias Merath Head Commodities & Alternative Investments Research tobias.merath@credit-suisse.com, +41 44 333 13 62

Buy

US Real Estate Investment Trusts US real estate has upside potential, as the rental market has bottomed out. REITS still offer value.

Performance of alternative investments
Indexed performance in USD, January 2004 = 100 350

Selectivity is key for 2013 The year 2012 has been a mixed one for alternative investments, with some sectors trading sideways (commodities) and others strongly positive (real estate). The combination of moderate growth and low interest rates benefits some sectors more than others, and this is likely to continue in 2013. There are opportunities, e.g. in real estate, but market participants need to be selective. Hedge funds: Positive outlook for directional strategies The DJ CS Hedge Fund Index was down 0.2% in October. The index is up by around 5% year-to-date, so 2012 looks set to be a slightly below average year for hedge funds. The out-

300

250

200

150

100

50 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11
Commodities (Credit Suisse Commodity Benchmark) Hedge funds (DJ Credit Suisse Hedge Fund Index) Real Estate (Global REITS)

Source: Bloomberg, Credit Suisse / IDC

17

Foreign exchange

27/11/2012

Credit Suisse - Research Monthly

Foreign exchange

Diversify out of hard currencies into selected EM currencies

Stronger CNY to lead Asian currencies higher, MNX is attractive in Latin America In our view, signs of growth bottoming out in China and a current account surplus are the long-term drivers of moderate CNY appreciation. Other Asian currencies, such as KRW (attractive valuation) and SGD (strong external position), are also attractive. Diversification out of traditional hard currencies, such as USD, EUR and GBP into selected emerging market currencies, is one of our Top Investment Ideas for 2013 (Idea No. 6). Within Latin America, the MXN should benefit from the rate advantage, the recovery of the US housing market and undemanding valuation. But investors must also be aware that central banks may counter rapid appreciation with currency intervention or easing, especially if growth were to slow. This means selection and periodic position updating will be key in 2013. We still see risks, for example, of a further weakening of ZAR. (22/11/2012)

We expect USD to remain in its current broad trading ranges against EUR and CHF, at the lower end of these bands.

USD model currency portfolio The portfolio is built from the center outwards. The base currency is shown in the middle, surrounded by the long-run Core Diversification to major liquid currencies and gold. The Strategic Allocation follows, diversified into preferred currencies, based on our strategic currency views. The outer layer shows the Optimal Portfolio, which also considers our tactical views.
JPY CHF NOK NOK SEK SEK JPY USD base USD USD USD JPY XAU XAU

Fundamentals are stronger for most Asian currencies and selected currencies such as MXN.

Marcus Hettinger Head of Global Forex Research marcus.hettinger@credit-suisse.com, +41 44 333 13 63

EUR EUR EUR

EUR risk premium to ease, USD lacks rate support Growth in the USA remains far stronger than in the EMU, as we see the Fed as being more expansionary than the ECB. The divergent external deficit and low US yields are negative for the USD. We thus still see the USD weakening within its broad ranges of EUR/USD 1.25–1.35 and USD/CHF 0.90–0.97. We stay neutral USD/JPY due to narrow rate spreads. Only major easing by the BoJ, in combination with a higher inflation target, would imply a weaker JPY. Reserve diversification flows may turn less supportive of GBP. The economic outlook is still weak, and risks of a rating downgrade are increasing. We are neutral GBP/USD. Within Europe, we still prefer SEK, given the rate advantage and fair valuation. Within commodity currencies, our relative preference remains for CAD vs. AUD. Higher oil prices are positive for CAD, while rates in Australia are likely to decline. Finally, we continue to expect the SNB to defend the floor at 1.20 and recommend CHF-based investors diversify into selected European currencies such as SEK and NOK.

Core Diversification Americas USD EUR 62% 20%

Strategic Allocation USD CAD EUR SEK NOK CHF GBP 62% 0% 16% 6% 4% 0% 0% 8% 0% 0% 0% 4%

+

Tactical Overlay 0% 0% -1% 0% 0% 3% 0% -2% 0% 0% 0% 0%

=

Optimal Portfolio USD CAD EUR SEK NOK CHF GBP JPY SGD AUD NZD XAU 62% 0% 15% 6% 4% 3% 0% 6% 0% 0% 0% 4%

Europe

AsiaPacific

JPY

15%

JPY SGD AUD NZD

Gold

XAU

3%

XAU

Source: Credit Suisse

18

Foreign exchange

27/11/2012

Credit Suisse - Research Monthly

Important information on derivatives
Pricing Option premiums and prices mentioned are indicative only. Option premiums and prices can be subject to very rapid changes: The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in the meantime. Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assuming all the risks involved. Investors must be aware that adding option positions to an existing portfolio may change the characteristics and behavior of that portfolio substantially. A portfolio’s sensitivity to certain market moves can be heavily impacted by the leverage effect of options. Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price at expiration. Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price at expiration. Investors who sell calls commit themselves to sell the underlying for the strike price, even if the market price of the underlying is substantially higher. Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside to the strike price plus the upfront premium received and may have their security called away if the security price exceeds the strike price of the short call. Additionally, the investor has full downside participation that is only partially offset by the premium received upfront. If investors are forced to sell the underlying they might be subject to taxing. Investors shorting naked calls (i.e. selling calls but without holding the underlying security) risk unlimited losses of security price less strike price. Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price. The maximum loss is the full strike price less the premium received for selling the put. Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if the underlying trades below the lower strike price at expiration. The maximum gain from buying call spreads is the difference between the strike prices, less the upfront premium paid. Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position): Investors risk a maximum loss of the difference between the long call strike and the short call strike, less the upfront premium taken in, if the underlying security finishes above the long call strike at expiration. The maximum gain is the upfront premium taken in, if the security finishes below the short call strike at expiration. Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfront premium paid. The maximum gain from buying put spreads is the difference between the strike prices, less the upfront premium paid. Buying strangles (buy put and buy call): The maximum loss is the entire premium paid for both options, if the underlying trades between the put strike and the call strike at expiration. Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price of the call that is sold plus the upfront premium received. Additionally, if the security trades below the strike price of the short put, investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short put and will also experience losses in the security position if they owns shares. The maximum potential loss is the full value of the strike price (less the value of the premium received) plus losses on the long security position. Investors who are short naked strangles or straddles have unlimited potential loss since, if the security trades above the call strike price, investors risk losing the difference between the strike price and the security price (less the value of the premium received) on the short call. In addition, they are obligated to buy the security at the put strike price (less upfront premium received) if the security finishes below the put strike price at expiration.
Source: Credit Suisse

Risks

Buying calls Buying puts Selling calls

Selling puts Buying call spreads

Selling naked call spreads

Buying put spreads Buying strangles Selling strangles or straddles

19

27/11/2012

Credit Suisse - Research Monthly

Risk disclaimer
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: https://research.credit-suisse.com/riskdisclosure CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat recipients as its customers by virtue of their receiving the report. The investments or services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report 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, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR’s, the values of which are influenced by currency volatility, effectively as-

sume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realized. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment, in such circumstances you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realizable and it may be difficult to sell or realize those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed.

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27/11/2012

Credit Suisse - Research Monthly

Disclosure Appendix
Analyst certification The analysts identified in this report hereby certify that views about the companies and their securities discussed in this report accurately reflect their personal views about all of the subject companies and securities. The analysts also certify that no part of their compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Knowledge Process Outsourcing (KPO) Analysts mentioned in this report are employed by Credit Suisse Business Analytics (India) Private Limited. Important disclosures Credit Suisse policy is to publish research reports, as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. The Credit Suisse Code of Conduct to which all employees are obliged to adhere, is accessible via the website at:
https://www.credit-suisse.com/governance/doc/code_of_conduct_en.pdf

Company

Rating BUY BUY HOLD

Date 04/04/2012 12/01/2012 14/03/2011 22/10/2012 23/07/2012 23/04/2012 24/01/2012 25/10/2011

SCHLUMBERGER (SLB US)

BUY BUY BUY BUY BUY

For more detail, please refer to the information on independence of financial research, which can be found at:
https://www.credit-suisse.com/legal/pb_research/independence_en.pdf

The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which is generated by Credit Suisse Investment Banking business.

Equity rating history as of (27/11/2012)
Company BAYER (BAYN GR) Rating BUY BUY BUY BUY BUY CHEVRON (CVX US) BUY BUY BUY BUY BUY DEERE & CO (DE US) BUY BUY BUY BUY BUY HOME DEPOT (HD US) BUY BUY BUY BUY BUY BUY LAFARGE (LG FP) HOLD HOLD HOLD HOLD HOLD HOLD PARTNERS GROUP HOLD- RESTRICTED ING (PGHN SW) BUY BUY Date 01/11/2012 23/08/2012 04/05/2012 01/03/2012 27/10/2011 05/11/2012 02/08/2012 04/05/2012 31/01/2012 01/11/2011 23/11/2012 17/08/2012 21/05/2012 17/02/2012 24/11/2011 14/11/2012 27/08/2012 14/08/2012 16/05/2012 23/02/2012 16/11/2011 12/11/2012 30/07/2012 14/06/2012 04/05/2012 17/02/2012 07/11/2011 05/11/2012 04/09/2012 24/07/2012

Fundamental and/or long-term research reports are not regularly produced for (LAFARGE). The Global Research department reserves the right to terminate coverage at short notice. Please contact your Relationship Manager for the specific risks of investing in securities of these companies. The subject issuer (BAYER, CHEVRON, DEERE & CO, HOME DEPOT, LAFARGE, PARTNERS GROUP HOLDING, SCHLUMBERGER) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (BAYER, CHEVRON, DEERE & CO, HOME DEPOT, PARTNERS GROUP HOLDING, SCHLUMBERGER) within the past 12 months. Credit Suisse provided non-investment banking services, which may include Sales and Trading services, to the subject issuer (BAYER, DEERE & CO, HOME DEPOT, LAFARGE, PARTNERS GROUP HOLDING) within the past 12 months. Credit Suisse has managed or co-managed a public offering of securities for the subject issuer (DEERE & CO, HOME DEPOT, PARTNERS GROUP HOLDING) within the past three years. Credit Suisse has managed or co-managed a public offering of securities for the subject issuer (DEERE & CO, PARTNERS GROUP HOLDING) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject issuer (CHEVRON, DEERE & CO, PARTNERS GROUP HOLDING, SCHLUMBERGER) within the past 12 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject issuer (BAYER, DEERE & CO, HOME DEPOT, LAFARGE, PARTNERS GROUP HOLDING) within the past 12 months. Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject issuer (BAYER, CHEVRON, DEERE & CO, HOME DEPOT, PARTNERS GROUP HOLDING, SCHLUMBERGER) within the next three months. As at the date of this report, Credit Suisse acts as a market maker or liquidity provider in the securities of the subject issuer (CHEVRON, DEERE & CO, HOME DEPOT, SCHLUMBERGER). Credit Suisse holds a trading position in the subject issuer (BAYER, CHEVRON, DEERE & CO, HOME DEPOT, LAFARGE, PARTNERS GROUP HOLDING, SCHLUMBERGER). As at the end of the preceding month, Credit Suisse beneficially owned 1% or more of a class of common equity securities of (BAYER). Additional disclosures for the following jurisdictions Hong Kong: Other than any interests held by the analyst and/or associates as disclosed in this report, Credit Suisse Hong Kong Branch does not hold any disclosable interests. United Kingdom: For fixed income disclosure information for clients of Credit Suisse (UK) Limited and Credit Suisse Securities (Europe) Limited, please call +41 44 333 33 99. For further information, including disclosures with respect to any other issuers, please refer to the Credit Suisse Global Research Disclosure site at:
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Guide to analysis
Equity rating allocation as of (27/11/2012)
Investment banking interests only 39.88 % 50 % 7.14 %

Overall BUY HOLD SELL 38.82 % 51.12 % 7.35 %

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Overall RESTRICTED 2.72 %

Investment banking interests only 2.98 %

Relative stock performance At the stock level, the selection takes into account the relative attractiveness of individual shares versus the sector, market position, growth prospects, balance-sheet structure and valuation. The sector and country recommendations are "overweight," "neutral", and "underweight" and are assigned according to relative performance against the respective regional and global benchmark indices. Absolute stock performance The stock recommendations are BUY, HOLD and SELL and are dependent on the expected absolute performance of the individual stocks, generally on a 6-12 months horizon based on the following criteria:

tiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust the default variables to produce alternative scenarios, any of which could occur. The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variables may also be adjusted to produce alternative warranted prices, any of which could occur. Additional information about the Credit Suisse HOLT methodology is available on request. CFROI(r), CFROE, HOLT, HOLTfolio, HOLTSelect, HS60, HS40, ValueSearch, AggreGator, Signal Flag and "Powered by HOLT" are trademarks or registered trademarks of Credit Suisse or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse. For technical research Where recommendation tables are mentioned in the report, "Close" is the latest closing price quoted on the exchange. "MT" denotes the rating for the medium-term trend (3-6 months outlook). "ST" denotes the short-term trend (3-6 weeks outlook). The ratings are "+" for a positive outlook (price likely to rise), "0" for neutral (no big price changes expected) and "-" for a negative outlook (price likely to fall). Outperform in the column "Rel perf" denotes the expected performance of the stocks relative to the benchmark. The "Comment" column includes the latest advice from the analyst. In the column "Recom" the date is listed when the stock was recommended for purchase (opening purchase). "P&L" gives the profit or loss that has accrued since the purchase recommendation was given. For a short introduction to technical analysis, please refer to Technical Analysis Explained at:
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BUY HOLD SELL RESTRICTED

10% or greater increase in absolute share price variation between -10% and +10% in absolute share price 10% or more decrease in absolute share price In certain circumstances, internal and external regulations exclude certain types of communications, including e.g. an investment recommendation during the course of Credit Suisse engagement in an investment banking transaction. Research coverage has been concluded.

TERMINATED

Absolute bond performance The bond recommendations are based fundamentally on forecasts for total returns versus the respective benchmark on a 3-6 month horizon and are defined as follows:

Global disclaimer / important information
For a discussion of the risks of investing in the securities mentioned in this report, please refer to the following Internet link:
https://research.credit-suisse.com/riskdisclosure

BUY HOLD

Expectation that the bond issue will outperform its specified benchmark Expectation that the bond issue will perform in line with the specified benchmark Expectation that the bond issue will underperform its specified benchmark In certain circumstances, internal and external regulations exclude certain types of communications, including e.g. an investment recommendation during the course of Credit Suisse engagement in an investment banking transaction.

References in this report to Credit Suisse include subsidiaries and affiliates. For more information on our structure, please use the following link:
https://www.credit-suisse.com/who_we_are/en/

SELL RESTRICTED

Credit Suisse HOLT With respect to the analysis in this report based on the HOLT(tm) methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the HOLT methodology and (2) no part of the Firm's compensation was, is, or will be directly related to the specific views disclosed in this report. The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database. Third-party data (including consensus earnings estimates) are systematically translated into a number of default variables and incorporated into the algorithms available in the Credit Suisse HOLT valuation model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. These adjustments provide consistency when analyzing a single company across time, or analyzing mul-

The information and opinions expressed in this report were produced by the Global Research department of the Private Banking division at Credit Suisse as of the date of writing and are subject to change without notice. Views expressed in respect of a particular security in this report may be different from, or inconsistent with, the observations and views of the Credit Suisse Research department of Investment Banking division due to the differences in evaluation criteria. This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse AG, the Swiss bank, or its subsidiaries or its affiliates (“CS”) to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates. The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS does not offer advice on the tax

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consequences of investment and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. CS believes the information and opinions in the Disclosure Appendix of this report are accurate and complete. Information and opinions presented in the other sections of the report were obtained or derived from sources CS believes are reliable, but CS makes no representations as to their accuracy or completeness. Additional information is available upon request. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, a trading idea regarding this security. Trading ideas are short term trading opportunities based on market events and catalysts, while company recommendations reflect investment recommendations based on expected total return over a 6 to 12-month period as defined in the disclosure section. Because trading ideas and company recommendations reflect different assumptions and analytical methods, trading ideas may differ from the company recommendations. In addition, CS may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other reports are brought to the attention of any recipient of this report. CS is involved in many businesses that relate to companies mentioned in this report. These businesses include specialized trading, risk arbitrage, market making, and other proprietary trading. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by CS and are subject to change without notice. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed the linked site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS’s own website material) is provided solely for your convenience and information and the content of the linked site does not in any way form part of this document. Accessing such website or following such link through this report or CS’s website shall be at your own risk. Distribution of research reports Except as otherwise specified herein, this report is distributed by Credit Suisse AG, a Swiss bank, authorized and regulated by the Swiss Financial Market Supervisory Authority. Australia: This report is distributed in Australia by Credit Suisse AG, Sydney Branch (CSSB) (ABN 17 061 700 712 AFSL 226896) only to "Wholesale" clients as defined by s761G of the Corporations Act 2001. CSSB does not guarantee the performance of, nor makes any assurances with respect to the performance of any financial product referred herein. Bahamas: This report was prepared by Credit Suisse AG, the Swiss bank, and is distributed on behalf of Credit Suisse AG, Nassau Branch, a branch of the Swiss bank, registered as a broker-dealer by the Securities Commission of the Bahamas. Bahrain: This report is distributed by Credit Suisse AG, Bahrain Branch, authorized and regulated by the Central Bank of Bahrain (CBB) as an Investment Firm Category 2. Dubai: This information is distributed by Credit Suisse AG Dubai Branch, duly licensed and regulated by the Dubai Financial Services Authority (DFSA). Related financial products or services are only available to wholesale customers with liquid assets of over USD 1 million who have sufficient financial experience and understanding to participate in financial markets in a wholesale jurisdiction and satisfy the regulatory criteria to be a client. France: This report is distributed by Credit Suisse (France), authorized by the Autorité de Contrôle Prudentiel (ACP) as an investment service provider. Credit Suisse (France) is supervised and regulated by the Autorité de Contrôle Prudentiel and the Autorité des Marchés Financiers. Germany: Credit Suisse (Deutschland) AG, authorized and regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht (BaFin), disseminates research to its clients that has been prepared by one of its affiliates. Gibraltar: This report is distributed by Credit Suisse (Gibraltar) Limited. Credit Suisse (Gibraltar) Limited is an independent legal entity

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Imprint
Subscription profile Publication Research Monthly Selected chapters Investment Strategy Performance review 2012 Top investment ideas 2013 Risk scenarios Economics Fixed income Equities Alternative investments Foreign exchange

Publisher Giles Keating Head of Research for Private Banking and Asset Management +41 44 332 22 33 giles.keating@credit-suisse.com Oliver Adler Head Economic Research +41 44 333 09 61 oliver.adler@credit-suisse.com Nannette Hechler-Fayd'herbe Head of Global Financial Markets Research +41 44 333 17 06 nannette.hechler-fayd'herbe@credit-suisse.com

Editor Kevin Lyne-Smith Head of Global Equity Research +41 44 334 56 41 kevin.lyne-smith@credit-suisse.com

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Authors
Giles Keating Head of Research for Private Banking and Asset Management +41 44 332 22 33 giles.keating@credit-suisse.com Nannette Hechler-Fayd'herbe Head of Global Financial Markets Research +41 44 333 17 06 nannette.hechler-fayd'herbe@credit-suisse.com Stefan Braunschweig +41 44 334 66 42 stefan.braunschweig@credit-suisse.com Nicole Krieger +41 44 332 48 61 nicole.m.krieger@credit-suisse.com Kevin Lyne-Smith Head of Global Equity Research +41 44 334 56 41 kevin.lyne-smith@credit-suisse.com

Oliver Adler Head Economic Research +41 44 333 09 61 oliver.adler@credit-suisse.com Thomas Herrmann +41 44 333 50 62 thomas.herrmann@credit-suisse.com Sylvie Golay Markovich +41 44 334 54 37 sylvie.golay@credit-suisse.com Michael O'Sullivan Head of Portfolio Strategy & Thematic Research +44 20 7883 8228 michael.o'sullivan@credit-suisse.com Tobias Merath Head Commodities & Alternative Investments Research +41 44 333 13 62 tobias.merath@credit-suisse.com Marcus Hettinger Head of Global Forex Research +41 44 333 13 63 marcus.hettinger@credit-suisse.com

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