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1 ÎÑÎ ÓÑÔÏÒÐ/ Equity Research y Tokyo Contact kunihiko.shiohara@credit-suisse.com ÖÐ ÒÎÒÖÑÒ Andrew Garthwaite andrew.garthwaite@credit-suisse.com Luca Paolini luca.paolini@credit-suisse.com Marina Pronina marina.pronina@credit-suisse.com Mark Richards mark.richards@credit-suisse.com Sebastian Raedler sebastian.raedler@credit-suisse.com Global Equity Strategy ÑÒÖÒÑ 大陸欧州 : オーバーウェートを継続 Ê Â ÕÕ ÑÕÇ É 2 Ê ÇÂÐ Ñ ÐÑ Ê Ê É ÉÊÉÉÆÍÂÈÊÉÌ ÊÏ Ó ÏÏ ÒÊ Î 10% ÇÍ5%Ê Ç ÇÍÂÉÇ Ê ÊÍÍÔÒÑÔ ÑÉ Î Ç ÇÏ Ó ÏÏ ÒÉÈÍÇÉÊ ÉfÆÍ Ê Ê ÆÉ 2 Ê ÖÓÖÒÑÇ Æ ÉÆÍÂ Ê ÊÉÆÉ Ê Êu Î ÉÉÆÍÂ Ê ÇÍ s Ç ÉÈÉÇÍ 9 ÊÎÏÒÓÔÏ ÕÈÉÆÍ ÊÐ ÑÉÊ 12 ÇÇÉÉÆÍÂ Ê 12 ÊÆÉÍ ÂÌÉÂ Ê Ç Ê s Ç Ê ÉÊÊÉÉ~ 5 ÊÐ ÑÊÆÉ 3 ÉÎÏÒÓÔÏ ÕÈÉÆÍ Ê~  ÊÎÏÒÓÔÏ ÕÈÍÂ Ê ÂG4 ÊÊÇÉ Ìy Ç Ç ÉÊ féæíâ Õ ÖÊÖÑÐÊÿ Éd ÈÍÍÉ ÍÍÍÂÕ Ö/ÒÖ Ç 1Õ Ö 1.3ÒÖÊÊÉÉÌ ÉÊÊÆÉÍÆ ÇÇÆÈÉu Î Í Ê Ê~ÍÉÆÍ Õ ÖÊzy ÉuÉ 16%~ v ÈÍÉÆÍ Ê ÕÕ ÑÕÊ ÍÍÌ Êj ÉÆÍ } Ç ŠÎ ÆÉÆÍ Ê GDP ÉÊ Î Ç z Ê ÈÉ Ê d Ê Õ ÖÊÓÒÒÑÕ Ò ÔÑÑÕ Ê Ê~ÇÊÆÂÕ Ö Ê 10% mé GDP Ê 0.8 ÔÏ ÒÂEPS Ê 10 ÔÏ Ò ÈÍÂ1995  ÊÕ Ö m Ê 60%ÉÎÏÒÓÔÏ ÕÈÉÆÍ ~yô ÑÉ Â ÒÏÒÊ } ÍÍÌ uéæí ÒÏÒÊÕ Ö GDP Ê 27%Î ÌÍ Ç } Ê 18% ÂÖÔÖ ÑÕ Ç ÈÍ h ÊÇÊÍ ÆÉ ÍÍÍÂÒÏÒÊ G10Ê ÑÐÑ Ê ÉÓÖ ÑÑ ÒÊy Ç Ì Ç Îf ÈÉw Êy Ê ÉÆÍ ÑÐÑ Ê~ v ÈÍÉÆÍÉ ÍÍÍÇÉÇ ÉÆÍ ÆÉ ÐÑÒÊ Ê w É ÈÉ 10% ÈÇÍÉÌÍÍÍÂÒÏÒ ÊÕÕ ÑÕÊ ÍÍ Ìj ÉÆÍ ÑÔÏ ÂÎÏÖÖ ÒÂÐÖÑÕʈ Ê Êdd Îf È Éw ÉÂGDP ÊÈÍÈÍ 10%Â6%Â11% Ê ÇdÌ ÊÍÍÂÈÍÊ Í Ê ÈÍÍÉfÆÍÍÍ uê ÉÈÉÂÇÍÌÉÊÉÇÍ fê ÇÆÈÉw Î ÈÉÆÍ ÉÆÍÂ Ç ÉÆÍ h Ê É ÈÉ ÊÖÑÐv Ê~ 6 Ê Ê}Æ ÊÆÍ ÊÔÎ ÒÊ ËÊÏÏ ÒÊ 2004 Ê ÉÊÉÉÆÍ ÓÖÕÏ ÑÕ ÊÍÍ Ê Æ Ê ÉÇÉ ÊÑÐÑ w Ê PER Ê Î 10% ÉÉÆÍÂ Ê HOLT Ê ÉÇ É Êk ÊÇÍ ÊuÆÍÂ Ê Ê Credit Suisse HOLT ÆÍË PER É PBR ÉuÉ É ÍÍÂÐ Ñ ÐÑ Ê Ê ÉÊÉÉÆÍ Ryanair SAPÂSanofi-Aventis ÐÖÒÏ ÑÏÑ ÔÏ ÏÑ ÖÑÒ ÂPorscheÂ Ê Ê PBR É PER ÉuÉ Ê ÍÍÌ ÊÈÍÉ É ÍÍÍ DanoneÂLindeÂRyanairÂThyssen Krupp ÐÖÒÏ ÑÏÑ ÔÏ ÏÑ ÖÑÒ Â Ê Ç Ç Ç ÊÒÏÒ MetroÂHeidelbergCement Î È } ÊÉÆÉÊ ÊÎ Ñ ÏÏ ÒÎ ÈÍ ÒÔÖÇÇ ÍÍÊÆu~ÈÉÆÍÉÌ Â ÇÊÖÔ ÒÊ 3 12 sêk ÖÔ ÒÃGlobal equity strategyãêÿ wfv ÉÈÂÔÖÖÔ Ò fv Êk ÎÇ ÈÍÍÆ Ê Ñ ÖÑÊÇ~ ÈÆÌÈÍÆÆŠÆ È ÇÌÈ ÒÏÑÐÖ ÑÕ ÎÔ ÒÏÐÑÊÎÒÖÑÒÐ ÒÏÔÏÐ ÑÕ Ë Ê ~ Ê ÈÍÎÒÖÑÒ Ê Î ÎÉÆÌÈÂÈÊ Ê uê ÊÉÆÉÊ researchdisclosures ÎÇ ÆÉ ÉÇÇ +1 (877) ÌÉÇ~ ÇÉÈÆ ÊÒÏÑÐÖ ÑÕ : Credit SuisseÊw ÖÔ ÒÉw y ÉÈÉÆÍ ÉÓÑÓÑÎsÊÉÉÆÍÂÌÉÊsÊÆ ÇÆÍÌÈÂÈÉÇÉÉ y Ê ÖÔ ÒÊ u Ê Î ËÈ ÊÆÍ Ç Ê ÈÉÆÍ h ÎvxÈÍ uçæíìèâ ÖÔ ÒÊÆÇÌÉ y ÊÊÉÉÊ ÉÆfÆÇÉÈÆÂ

2 Continental Europe: Still overweight We are overweight Continental Europe, but take our weighting down from 10% to 5%. Still seems right to have a small overweight We think it is still right to be overweight for the following reasons: 1) The stage of the cycle... a late cycle play Europe typically starts outperforming nine months into an economic recovery but on 3 out of 7 occasions Europe did not outperform until a year after the trough in lead indicators (KIWTG%QPVKPGPVCN'WTQRGNCIUVJG1'%&NGCFKPFKECVQTD[PKPGOQPVJU Trough in OECD Composite LI Trough in Europe xuk Lead (Lag), Europe xuk rel World performance after trough in OECD Composite LI Date Level rel World months 1m later 3m later 6m later 12m later May Jun % -6% -8% -6% Jul Oct % -11% -10% 1% Jan Oct % 4% 6% 5% May Feb % -1% -6% -4% Aug Jul % -11% -10% -13% Sep Sep % 8% 9% 1% Feb Mar % -2% 0% 1% Mean -8 0% -3% -3% -2% Median -9 0% -2% -6% 1% Both we on the global strategy team and our colleagues on Jonathan Wilmot s global fixed income strategy team are positive on global growth, given our belief that we will be in a second leg to the global economic recovery this year driven by the pick-up in both capital spending and employment. Europe tends to outperform when global lead indicators rise and global consensus earnings forecasts are being revised up. (KIWTG%QPVKPGPVCN'WTQRGKUCRNC[QPINQDCN ITQYVJ (KIWTGCPFQPEQPUGPUWU'25WRITCFGU 30 Eur ex UK rel. pf. Yoy% (lhs) OECD lead indicator y/y% (rhs) % 10% % % -5% -10% Aug- 89 Aug- 91 Aug- 93 Eur ex UK rel. pf. yoy% (lhs) Global net EPS upgrades, % tot. (rhs, inv.) Aug- 95 Aug- 97 Aug- 99 Aug- 01 Aug- 03 Aug- 05 Aug- 07 Aug % -20% -25% Global Equity Strategy 2

3 This is because the region has high operational leverage and a business cycle that tends to lag the global cycle owing to a monetary policy strongly biased towards tackling inflation (a lagging variable). (KIWTG%QPVKPGPVCN'WTQRGJCUJKIJQRGTCVKQPCNNGXGTCIG y beta of operating earnings with sales (annual data) Japan Europe ex UK UK Admittedly, though some global lead indicators are beginning to peak and thus the question is whether we should be focusing on the defensive markets. We would note, however, that: Many of our clients still seem very sceptical of the recovery, near term. Thus, from an anecdotal basis our view of the cycle is a lot more optimistic than that of our clients. While lead indicators are peaking, we think that they are likely to plateau on a high level. In the past, when lead indicators have stabilised at high levels prior to the first fed rate hike, Europe has outperformed on three out of five occasions (on average, the outperformance was 1.1% over those periods). (KIWTG'WTQRGVGPFUVQQWVRGTHQTOYJGPNGCFKPFKECVQTURNCVGCWDGHQTGVJGHKTUV(GFJKMG Periods following a peak in ISM New orders and before Fed hike Start End Duration (mm) ISM Peak ISM at end Eur exuk UK JP GEM NJA Dec-83 Feb % 4.5% 6.9% 5.6% - 9.2% Sep-86 Dec % -0.9% 3.6% -1.7% % Jan-93 Jun % 2.7% -4.5% 9.3% 22.2% 6.8% Jun-96 Oct % 0.3% 5.2% -9.3% -6.0% -6.5% Jan-04 Jun % -1.0% 0.2% 9.5% -7.8% -10.3% Average % 1.1% 2.3% 2.7% 2.8% 3.1% % of times positive return 40% 60% 80% 60% 33% 60% Global Equity Strategy 3

4 2) Continental Europe tends to outperform when rate expectations rise Continental Europe tends to outperform when rate expectations rise and we believe expectations are not likely to go lower. The market is pricing in an ECB policy rate of 82bps and a Fed fund target of 51bps by the end of the year. This seems too optimistic, in our view, given our GDP growth forecast of 1.5% and 3.6% in Europe and the and the fact that inflation expectations are rising. (KIWTG%QPVKPGPVCN'WTQRGVGPFUVQQWVRGTHQTOYJGP UJQTVVGTOTCVGUVTQWIJ (KIWTG CPFYJGPVJG(GFUVQRUEWVVKPITCVGU Eur ex UK rel. pf. (lhs) Germany 2Y rate (rhs) Eur ex UK rel. pf. yoy% (lhs) Fed fund rate, yoy abs. change (rhs) One reason Europe outperforms when rate expectations rise is that the household sector is a net floating rate creditor (i.e. when interest rates rise, interest income increases by more than interest-rate payments). In 3Q09, for example, euro-area households had 6.3trn in currency and deposits against total bank debt of 5.7trn that is, net interest-bearing assets equalled 6% of GDP, compared with net liabilities of 41% in the and 18% in the UK. We estimate that in Continental Europe, household income rises by about 0.3% for a 1pp rise in bond yields (recall, only 30% of French and German mortgages are variable rate). (KIWTG'WTQCTGCJQWUGJQNFUGEVQTKUCPGVHNQCVKPITCVGETGFKVQT Deposits Loans GDP Net interestbearing Country assets, % variable/ tot. loans Impact on households' income of a 1pp rise in interest rates, % of GDP* bn, loc. currency % GDP Euro-area 6,301 5,757 9,022 30% 6% 0.3% UK 1,179 1,434 1,412 80% -18% -0.2% 7,741 13,625 14,462 20% -41% 0.2% Japan 7,906 3,120 4,742 70% 101% 0.8%. *We assume that 75% of a rate increase is passed over to depositors. Global Equity Strategy 4

5 Europe has abnormally low leverage relative to Japan, the and the UK if we look at aggregate debt-to-gdp ratios or savings ratios, thus again explaining why Europe outperforms when interest rates rise. (KIWTG6QVCNNGXGTCIGCUCQH)&2KUVJGNQYGUVKP VJGGWTQCTGC (KIWTG%QTG'WTQRGJCUXGT[JKIJRGTUQPCNUCXKPIU TCVKQU 400% 350% 300% Debt by economic sector, % of GDP Non-financial corporates Households Government France 250% Germany 200% % 10 UK 150% 100% 5 50% Japan 0% Euro-area UK Japan ) The euro should weaken a bit more Continental European companies have foreign sales exposure (i.e., sales outside the euro-area) of 36% and we estimate that a 10% decline in the trade-weighted euro adds directly 6pp to European EPS (see the European EPS model on page 8). Moreover, each 10% off the euro trade-weighted adds 0.8pp to GDP growth, according to the OECD (taking the 2 effects together we estimate that 10% off the Euro adds 10pp to EPS growth). Historically, Continental Europe tends to outperform in local-currency terms when the euro weakens. Since 1995, 60% of the time the euro has fallen by more than 5% against the $, Continental Europe has outperformed. (KIWTG%QPVKPGPVCN'WTQRGVGPFUVQQWVRGTHQTOKPNQECNEWTTGPE[YJGPVJGGWTQ YGCMGPU Eur ex UK rel. pf. Yoy% (lhs) Euro TWI y/y% (rhs, inv.) Global Equity Strategy 5

6 We believe the euro will weaken against the $ for the following reasons (on this view we disagree with the house view from our FX team, which forecasts /$1.48 by end-2010): a) High valuation: the euro looks 16% overvalued on PPP, 11pp more than its historical norm. (KIWTG6JGGWTQKUGZRGPUKXGQP222 (KIWTG CPFQPCVTCFGYGKIJVGFDCUKU 50% 40% Euro/$, deviation from PPP Euro Trade-weighted 30% % 10% 0% -10% % 80-30% 75-40% Source Thomson Reuters DataStream, Credit Suisse research b) Continental European economic momentum seems weak (as shown on page 15). c) The problems in peripheral Europe are severe. We have addressed this topic on many occasions recently (for example, see Peripheral Europe, 5 February 2010) and we believe that in almost every possible scenario the euro is likely to weaken: in case of a bail-out, the euro would likely lose a lot of credibility as a strong currency; and in case of a default or structural deflation in peripheral Europe, the growth rate of the euro area would likely suffer. d) The current account deficit ex oil has nearly halved since 2006 (from 4.3% of GDP to 2.2% now). e) European banks have a lot more write-offs and deleveraging to do than their peers (see details on page 18). f) We are close to the end of QE in the (scheduled for the end of this month) and thus we should no longer see a rise in the Fed s balance sheet relative to that of the ECB. (KIWTG6JGICRKPOQPGVCT[DCUGDGVYGGPVJG75CPF'WTQRGUJQWNFRGCMYKVJVJG GPFQH3'KPVJG75 20% Monetary base % of GDP 16% 12% 8% E uro-a rea UK 4% Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 Global Equity Strategy 6

7 g) Speculative positions on the $ are now more or less neutral. (KIWTG75PGVURGEWNCVKXGRQUKVKQPUENQUGVQPGWVTCNNGXGNU # of contracts (000's) ` Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Source: the BLOOMBERG PROFESSIONAL service, CFTC. European consensus earnings revisions tend to lag the euro by six months, suggesting a sharp improvement in relative earnings momentum in the months ahead. (KIWTG4GNCVKXGGCTPKPIUOQOGPVWONCTIGN[FTKXGPD[EWTTGPE[OQXGOGPV 30% 20% Eur ex UK net upgrades (% tot. revisions), rel. to global Euro/D, 6m% (rhs, inv.) % % -5-10% 0-20% 5-30% % 20-50% Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan Source: Thomson Reuters DataStream, IBES, Credit Suisse research Global Equity Strategy 7

8 4) European EPS tends to lag EPS by about three quarters Historically, European consensus EPS has lagged EPS by around nine months. This suggests that European earnings should be strong going forward. According to our model, euro-area EPS should grow by 25% over the next 12 months slightly above the bottom-up consensus growth of 23%. (KIWTG'WTQCTGC'25VGPFUVQNCI75'25D[ SWCTVGTU 4.5 operating profits (LHS, log) Eur ex UK operating profits (RHS, log) (KIWTG1WT'WTQCTGC'25OQFGNUWIIGUVITQYVJ QXGTVJGPGZVOQPVJU Model Inputs: YoY % change in: Lead (Q) Coefficient Value S&P EPS IFO Margin proxy TW Euro Model Output: MSCI EMU, EPS y/y in 12 Months (%) 25 Memo: IBES Consensus 23 R Intercept ) Valuation looks slightly cheap when compared with the On traditional valuation metrics, Continental Europe looks attractive relative to the, trading at a 10% discount on a sector-adjusted P/E to its historical norm. Source: Thomson Reuters DataStream, I/B/E/S, Credit Suisse research (KIWTG'WTQRGGZ7-UGEVQTCFLWUVGF2'TGNCVKXGVQ VJG75DGNQYPQTO (KIWTG'WTQRGNQQMUEJGCRQP&;TGNCVKXGVQVJG75 145% 210% DY - Europe Ex UK relative to A 130% Europe ex UK sector adjusted 12m fw d P/ E relativ e to Av erage 190% 170% Average 115% 150% 100% 130% 85% 110% 90% 70% % Furthermore, as of the latest available data, 46% of Continental European companies have a dividend yield above the government bond yield the highest share of any region after Japan. Global Equity Strategy 8

9 (KIWTGQHUVQEMUKPVJG'WTQ5VQZZ+PFGZJCXGC&;JKIJGTVJCPVJGIQXGTPOGPV CUQHNCVGUVCXCKNCDNGFCVC Benchmark 10Y Govt bond yield % of stocks with DY > BY Nikkei 1.3% 56.9% Euro Stoxx 3.1% 46.2% FTSE % 36.5% MSCI Canada 3.4% 34.0% MSCI World* 3.3% 23.7% MSCI NJA** 3.6% 16.3% S&P % 14.0% *Govt BY is a GDP weighted average of developed countries **Considering Govt BY We would also note that 62% and 72% of European sectors trade on a P/E and P/B discount to their peers (with an average discount of 16% and 25%, see page 19 for details). Relative to global markets, the European P/E and P/B are mid-range. (KIWTG%QPVKPGPVCN'WTQRGNQQMUPGWVTCNTGNCVKXGVQ INQDCNOCTMGVUQPCHQTYCTF2'DCUKU (KIWTG CPFQPC2$DCUKU 120% 110% 12m fwd P/E - Europe Ex UK relative to World Average 120% 110% P/B - Europe Ex UK relative to World Average 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% % If we look at the CFROI versus value to cost on Credit Suisse HOLT, the valuation of Continental Europe also looks about fair. Global Equity Strategy 9

10 (KIWTG%QPVKPGPVCN'WTQRGENQUGVQHCKTXCNWGQP%TGFKV5WKUUG* NJA LatAm UK 1.5 GEM Value-to-cost EMEA Europe (ex UK) 0.9 Japan 0.7 1% 2% 3% 4% 5% 6% 7% 8% 9% CFROI, 2009E Source: Credit Suisse HOLT, Credit Suisse estimates 6) Risk appetite in Europe is very low European risk appetite is more depressed than in any other region excluding Japan. The gap between European risk appetite and global risk appetite is close to a five-year low. (KIWTG'WTQRGJCUNQYGUVGSWKV[TKUMCRRGVKVGDCT,CRCPCVUVCPFCTFFGXKCVKQPU (KIWTG%QPVKPGPVCN'WTQRG UTKUMCRRGVKVGTGNCVKXG VQINQDCNKUJKUVQTKECNN[NQY Risk appetite (standard deviations) Equity sector Risk appetite (number of standard dev iations Continental Europe RA Rel World GEM UK Europe ex UK Japan Global Global Equity Strategy 10

11 Continental Europe has underperformed by 5% in local currency terms and 11% in dollar terms since October 2009 and it is now 1.6 standard deviations oversold (we look at the deviation of relative price performance in $ from the six-month moving average. In common currency terms, Continental Europe is 0.6 standard deviations oversold). (KIWTG%QPVKPGPVCN'WTQRGJCUWPFGTRGTHQTOGFD[ UKPEG1EVQDGTKPEQOOQPEWTTGPE[VGTOU (KIWTG CPFPQYNQQMUQXGTUQNFKPFQNNCTVGTOU 1.8 Europe ex UK rel World(lc) Europe ex UK rel World($) 3.0 Europe ex UK 6mma rel World No. of SD above/below avg ) The potential for reflation in Germany We would highlight that Germany is 50% larger than peripheral Europe in terms of GDP. We believe Germany has scope for more reflation because: a) It has the most competitive economy in Europe, with a decline of 10% in its real effective exchange rate relative to the rest of Europe since b) The property sector looks undervalued. (KIWTG)GTOCPTGCNGHHGEVKXGGZEJCPIGTCVGJCU FGENKPGFD[CDQWVTGNCVKXGVQ'WTQRGUKPEG (KIWTG)GTOCPJQWUKPIOCTMGVNQQMUWPFGTXCNWGF 35% REER, increase since 2000 (%) 15 30% 10 IMF house price overvaluation 25% 20% 5 15% 0 10% 5% 0% Chart shows the portion of the increase in house prices that cannot be explained by the IMF s model of house price inflation Ireland Spain Greece Netherlands Belgium Italy Portugal France Finland Austria Germany -15 IRE ITA GBR FRA ESP A SWE JPN NLD DNK A NZL CHE KOR NOR CAN DEU FIN Source: IMF Global Equity Strategy 11

12 c) Germany currently has the least leveraged private sector of developed countries. Furthermore, total debt is 180% of GDP, compared with a developed-market average of 225%. d) Germany has a neutral cyclically adjusted budget position. (KIWTG)GTOCP[KUEWTTGPVN[VJGOQUVWPFGTNGXGTCIGF GEQPQO[KPVJG1'%&CTGC (KIWTG CPFJCUCDCNCPEGFE[ENKECNN[CFLWUVGF HKUECNDCNCPEG 600% Total domestic debt, % of GDP 4 Cyclically-adjusted primary balance, % of potential GDP (2009E) 500% 2 400% 0 300% 200% 100% 0% Iceland Japan United States United Kingdom Australia Ireland Denmark Portugal Spain Switzerland Singapore Korea Italy New Zealand Norway Greece France Germany Hungary Italy Finland Belgium Switzerland Denmark Germany New Zealand Austria Australia Netherlands Portugal Canada Czech Rep. France Japan Spain Greece UK Ireland Source: Thomson Reuters DataStream, OECD estimates, Credit Suisse research Moreover, Germany s relative economic momentum is improving and is close to a ten-year high relative to the rest of the euro-area and Germany would appear to be the potential winner from a weaker euro given that it is the second-largest exporter globally. (KIWTG)GTOCP[ UTGNCVKXGGEQPQOKEOQOGPVWOKU KORTQXKPI (KIWTG)GTOCP[KUVJGUGEQPFNCTIGUVGZRQTVGT INQDCNN[VJWUUKIPKHKECPVN[GZRQUGFVQGWTQYGCMPGUU 1.10 Germany manufacturing PMI new orders Relative to the Euro-area Relative to the ,400 1,200 Exports, last 12 months, $bn , $bn Jul-98 Jul-00 Jul-02 Jul-04 Jul-06 Jul China Germany JP Netherlands France Italy Russia Canada UK Global Equity Strategy 12

13 We believe the key question is, however, the degree to which Germany is willing to reflate and on this score there is some uncertainty. It is true that the tax cuts announced for this year are worth 1.7% of GDP, but in a recent poll (ARD, 8 January 2010), 58% of the electorate (and 69% of the high-income earners) said they would oppose further tax cuts. 8) It is not obvious to us that Continental Europe will suffer more deflation than the Core CPI is rising 0.9% yoy in the euro area compared with 1.6% in the. However, if we look at the CPI Swap market, inflation expectations are 2% in Europe, compared with 2.1% in the over the next five years. (KIWTG%QTG%2+KPFKHHGTGPVTGIKQPU (KIWTG%2+KPHNCVKQPUYCRUCVUKOKNCTNGXGNUKPVJG 75CPFVJGGWTQCTGC Core CPI, yoy% CPI Swap Eurozone HCPI ex-tobacco Swap UK RPI Swap UK Euro-area Japan Maturity (years) Source: the BLOOMBERG PROFESSIONAL service, Credit Suisse research 9) The impact of peripheral Europe may be exaggerated While we have been very negative on parts of peripheral Europe (Ireland, Greece and Spain), at this juncture we believe the risk peripheral Europe has on Continental European GDP and equity markets overall may be exaggerated. (1) Very strong fiscal tightening was agreed upon in Ireland in 2009 as well as in Greece and Spain now (6%, 11% and 10% of GDP over the next four years on a cycle-adjusted basis). We believe this should be enough to ease some of the concerns. What is encouraging is that recent opinion polls in Greece still show a 52% approval rating for Papandreou, despite acute austerity measures (GPO/ Mega Television, 9 March 2010); (2) While we are negative on Spain, we would stress that it has a AAA-rating (compared with Greece's BBB+) and, crucially, total debt payments (principal and interest payments) over the next year are quite low at 2.7%, compared with 10.8% for Greece; (3) Core Europe owns about 35% of Greece s public debt and its banks have $411bn of loans to peripheral Europe, according to the BIS. So, ultimately, Core Europe has a strong interest in ensuring the situation in peripheral Europe does not deteriorate further; (4) Peripheral Europe accounts for only 18% of euro-area GDP, compared with 27% in Germany. On the OECD Interlink model, each 10% off the euro trade-weighted adds 0.8pp to European GDP growth this would offset a 4.4% hit to peripheral European real GDP. Since October, the euro is down 6% in trade-weighted terms this would offset a 3.3% decline in peripheral Europe s real GDP. Global Equity Strategy 13

14 (5) We think that the ECB will postpone its collateral tightening requirements (from BBB- to A- by the end of the year) and that the full allotment policy of the ECB s weekly main refinancing operations (MRO), which gives banks access to cheap central bank funding, will be kept at least until October, according to our European interest rate analyst Stuart Sparks. (6) It appears that the Euro-area countries are in the process of setting up an IMF-style institution that, in the longer term, will make the concept of the euro more solid and provide a critical oversight function. The real risk, in our opinion, is that the electorate, underestimating the potential economic consequences, end up voting against acute fiscal austerity plans something that has not yet happened in Ireland and Greece. 10) European margins versus margins We would highlight that 16 out of 22 Continental European sectors have 2010E margins below their counterparts. On aggregate, net margins for ex-financials were 2.8% in Europe in 4Q09, compared with 5.8% in the. We believe this means that there is some potential for a catch-up. (KIWTG'PGVOCTIKPUQH'WTQRGCPEQORCTGFYKVJ75UGEVQTU 2010e Net Margins Sectors Eur xuk Eur xuk rel Software & Services 11.4% 22.0% -10.5% Semiconductors & Semiconductor Equipment 7.6% 17.6% -10.0% Household Products 6.8% 14.3% -7.4% Metals & Mining 3.1% 10.3% -7.2% Hotels Restaurants & Leisure 2.7% 9.4% -6.6% Tobacco 17.1% 23.8% -6.6% Technology Hardware & Equipment 5.7% 11.8% -6.1% Transportation 2.9% 6.7% -3.8% Beverages 9.6% 12.8% -3.1% Pharmaceuticals 19.1% 22.1% -3.0% Capital Goods 4.4% 6.5% -2.1% Commercial & Professional Services 3.9% 5.8% -1.9% Utilities 6.8% 8.5% -1.8% Energy 6.0% 7.7% -1.7% Automobiles & Components 1.6% 2.6% -1.0% Food & Staples Retailing 2.0% 2.9% -0.9% Consumer Durables & Apparel 7.8% 6.7% 1.1% Media 9.9% 8.2% 1.7% Health Care Equipment & Services 6.4% 4.4% 2.0% Telecommunication Services 10.2% 6.6% 3.6% Food Products 9.3% 5.2% 4.1% Retailing 10.1% 4.0% 6.0% Market exc Financials 6.1% 8.1% -2.0% % of sectors having lower margins in Eur xuk 73% Source: Thomson Reuters DataStream, IBES estimates, Credit Suisse research Global Equity Strategy 14

15 11) Fund flows: We find that the allocation to Continental Europe in global equity funds is the lowest since 2004 (latest data January 2010). (KIWTG)NQDCNGSWKV[HWPFU CNNQECVKQPVQ%QPVKPGPVCN'WTQRGKUVJGNQYGUVUKPEG 25% 20% Global funds allocation to Continental Europe (Germany, France, Spain, Italy, Greece) 15% 10% 5% 0% Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Source: EPFR, Credit Suisse research The negatives We see the following negatives for Continental Europe: 1) Relative economic momentum is deteriorating Continental Europe scores the second worst in our regional economic momentum scorecard. We would also highlight that Credit Suisse economists forecast European GDP growth of 1.5% in 2010, compared with 3.6% in the and 1.7% in Japan. (KIWTG4GIKQPCNGEQPQOKEOQOGPVWOUEQTGECTF Rank Region Composite PMI* Index, now Index, 3m ch Score UK GEM Europe ex UK Japan * Average of ISM Manufacturing and Non-manufacturing Source: PMI Premium, I/B/E/S, Credit Suisse research Global Equity Strategy 15

16 Economic surprises in Europe have been worse than in other regions and European consensus GDP estimates have been upgraded only by 0.2pp since September 2009, compared with 0.9pp for the, according to Blue Chip. (KIWTG'EQPQOKEUWTRTKUGKPFGZKUYGCMGTKP'WTQRG VJCPKPVJG (KIWTG$NWG%JKREQPUGPUWU)&2GUVKOCVGUHQT GWTQCTGCCPFVJG Euro-area macro surprise index -0.6 Euro-area macro surprise index -0.8 Apr-01 Oct-02 Apr-04 Oct-05 Apr-07 Oct-08 Apr Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Source: Blue Chip, Credit Suisse research Furthermore, in the fourth quarter of 2009, Continental Europe GDP growth was weaker than that of any major non-european developed country (and, unlike these, it experienced negative growth in private consumption). We also note that Credit Suisse s European economists have recently downgraded their 2010 GDP forecast for the euro-area from 2% to 1.5% (see European Economics, The big issue, 12 February; half of the downgrade comes from cuts in GDP growth for peripheral Europe). (KIWTG'WTQCTGC)&2ITQYVJYCUVJGYGCMGUVCOQPI FGXGNQRGFGEQPQOKGU (KIWTG CPFTGCNRTKXCVGEQPUWORVKQPKUHCNNKPI 7.0% 4.0% 6.0% Real GDP, 4Q09, annualized growth 3.5% Real private consumption, 4Q09, annualized growth 5.0% 3.0% 4.0% 3.0% 2.0% 2.5% 2.0% 1.5% 1.0% 1.0% 0.5% 0.0% Canada Japan Australia Switzerland UK Euro-area 0.0% -0.5% Canada Japan Australia Switzerland UK Euro-area This would make us considerably more bearish on Continental Europe, were it not for: our belief that near term the global cycle will surprise on the upside (helping the high operational regions, such as Europe); and the weaker euro, which should help to turn around relative economic momentum. Global Equity Strategy 16

17 2) Relative earnings momentum is weak On our earnings momentum scorecard, Continental Europe scores at the bottom on all measures. (KIWTG4GIKQPCNGCTPKPIUOQOGPVWOUEQTGECTF %QPVKPGPVCN'WTQRGCVVJGDQVVQO Net Upgrades (% tot. revisions) 12m EPS change 2011 EPS change Total score (50% upgrades, 50% EPS change) Last 3m change z-score 1m 3m z-score 1m 3m z-score UK 48% 19% % 9.9% 0.7 3% 6% Japan 13% -11% % 12.9% 1.4 2% 4% GEM 8% -14% % 5.4% % 2% % -14% % 4.5% % 1% Europe ex UK -16% -12% % 2.4% % -1% Global 7% -10% 1.2% 2.2% -1% -1% Source: Thomson Reuters DataStream, I/B/E/S, Credit Suisse research We would note that Continental Europe s consensus 12m EPS has fallen 5% year-to-date, compared with a 2% and 5% rise in the and the UK, respectively. Moreover, Continental Europe is the only region in which there have been more earnings downgrades than earnings upgrades over the past three months. (KIWTG%QPVKPGPVCN'WTQRG UO'25JCUDGGP FQYPITCFGF m consensus EPS (100= 12m ago) Eur ex UK UK Japan GEM Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Jan-10 Mar-10 Source: Thomson Reuters DataStream, I/B/E/S, Credit Suisse research (KIWTG VJGTGUWNVKUVJCVPGVWRITCFGUTGNCVKXG VQINQDCNCTGXGT[NQY 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% Eur ex UK net upgrades (% tot. revisions), rel. to global Source: Thomson Reuters DataStream, I/B/E/S, Credit Suisse research Global Equity Strategy 17

18 We believe the main reason for this is that productivity growth in Europe has lagged that in the (-2%, compared with +5.9% currently). As a result, our profit margin proxy (PPI minus unit labour costs) is considerably weaker for Continental Europe than for the. (KIWTG1WTRTQHKVOCTIKPRTQZ[KUUVKNNXGT[YGCMKPVJGGWTQCTGCKPCDUQNWVG CPFTGNCVKXGVGTOU 10.0 Profit margin proxy (PPI minus ULC, yoy %) Euro-area Q Q Q Q Q Q Q Q Q Q Q Source: Thomson Reuters DataStream, I/B/E/S, Credit Suisse research Q Q Q Q Q ) European banks have lagged their peers in terms of write-offs and deleveraging required relative to the European banks have so far lagged their peers on write-offs and deleveraging. Q Q (KIWTG75DCPMUCTGEWTTGPVN[HWTVJGTQPKPVJG RTQEGUUQHTGEQIPKUKPIVJGKTETGFKVNQUUGUHTQOVJG ETKUKUVJCPVJGKT'WTQRGCPRGGTU (KIWTG75DCPMU NGXGTCIGKUCVJKUVQTKECNCXGTCIG NGXGNU WPNKMGVJGNGXGTCIGQHVJG'WTQRGCPDCPMU 1,600 1,400 1,200 Write downs so far Expected total write-downs (CS) Expected total write-downs (IMF) Banks' tangible assets / tangible equity Pan-Europe 1,000 x 30 $, bn Pan-Europe Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse and European banks team estimates We assume that there are $2.7trn globally of credit-related write-offs (assuming losses equivalent to 13% of GDP in the, the UK, Spain and Ireland, 5% of GDP in Germany and 2% elsewhere, given that average losses in past banking crises were around 13% of GDP). Following the IMF s assumptions, we estimate that 70% of these losses will be borne by global banks, of which, in turn, 60% would be borne by European banks. On this basis, we Global Equity Strategy 18

19 calculate that European banks still have to write off another $600bn, compared with just $60bn in the. Moreover, European banks are still more leveraged than their peers. To return leverage (tangible assets to tangible equity) to a ten-year low, we calculate European banks need another $200bn of deleveraging, compared with $40bn for banks (crucially, however, this does not account for the accounting differences in the treatment of derivatives). As a consequence, loan growth is likely to be weaker for longer, a problem for a region in which 70% of the funding of non-financial corporation has traditionally come from bank loans. 4) Continental Europe scores at the bottom of our composite regional scorecard (based on macro and earnings momentum, valuation and sentiment), as we show in Appendix 1. What currently looks cheap in Continental Europe? At a sector level, paper, banks, tech and utilities look cheap relative to their peers on forward P/E, P/B and dividend yield. (KIWTG8CNWCVKQPQH'WTQRGCPXU75UGEVQTU 12m fwd P/E P/B DY vs Continental Europe Valuation Overall Eur xuk Rel Z-Score (a) Eur xuk Rel Z-Score (b) Eur xuk Rel Z-Score (c) score (a+b-c) Rank Pulp & Paper % % % Banks % % % Technology Hardware % % % Utilities % % % Transport % % % Real Estate % % % Energy % % % Automobiles % % % Telecoms % % % Construction Materials % % % Insurance % % % Media % % % Software % % % Metals and Mining % % % Hotels & Leisure % % % Chemicals % % % Pharmaceuticals % % % Retailing % % % Semiconductors % % % Food Retail % % % Diversified Financials % % % Household Products % % % Healthcare Equip % % % Capital Goods % % % Tobacco % % % Consumer Durables % % % Food Producers % % % Commercial Services % % % Beverages % % % CYCLICALS % % % DEFENSIVES % % % Average % % % 0.2 % of sectors where Cont Eur is cheap 62% 38% 72% 38% 69% 62% 45% Source: Thomson Reuters DataStream, I/B/E/S, Credit Suisse research Global Equity Strategy 19

20 At a stock level, the following stocks look cheap on forward P/E and P/B relative to their peers (we compare companies operating in the same markets and with similar business models, as identified by our analysts): of those Danone, Linde, Ryanair, Thyssen (a Credit Suisse Focus List stock) and Zurich are Outperform-rated by Credit Suisse. (KIWTG%JGCR'WTQRGCPUVQEMUTGNCVKXGVQVJGKT75RGGTUQRGTCVKPIKPUKOKNCTOCTMGVUCPFYKVJUKOKNCTDWUKPGUU OQFGNU Company 12m fwd P/E Price to book Avg valuation Credit Suisse Rating SDs from SDs from Europe Ratio Europe Ratio Europe avg avg (stdev) Europe Finmeccanica Boeing % % not rated Neutral Lottomatica Scientific Games % % not rated not rated Danone Heinz % % Outperform Neutral Linde Praxair % % Outperform Neutral Akzo Nobel PPG % % Underperform Underperform RyanAir Southwest Airlines % % Outperform not rated TNT FedEx % % not rated Neutral ThyssenKrupp Steel % % Outperform Neutral Zurich Travellers % % Outperform Neutral Source: Company data, Thomson Reuters DataStream, I/B/E/S, Credit Suisse estimates We also look at Continental European names that look cheap on relative 12m forward P/E and price to book, on Credit Suisse HOLT, have earnings revisions stronger than the market and are rated Outperform by Credit Suisse analysts: Among others we highlight SAP, Sanofi, Porsche, Ryanair. (KIWTG'WTQRGCPPCOGUVJCVNQQMEJGCRQPOHQTYCTF2'RTKEGVQDQQMJCXGUWRGTKQTGCTPKPIUOQOGPVWO CPFCTGTCVGF1WVRGTHQTOD[%TGFKV5WKUUG -----P/E (12m fwd) P/B Yield (2010e) HOLT Momentum Name Abs rel to Industry rel to mkt % above/below average Abs rel to mkt % above/below average FCY DY Price, % change to best 3m EPS 3m Sales Consensus Credit Suisse (buy less holds rating & sells) Sanofi-Aventis % -39% % 16.1% 4.6% Outperform Sap Ag % -31% % 6.7% 1.7% Outperform Deutsche Bank Ag % -27% % n/m 2.3% Outperform Credit Agricole Sa % -7% % n/m 5.2% Outperform Porsche Auto Hl Se % -57% % 89.4% 0.9% Outperform Ryanair Hldgs % -3% % -4.0% 0.0% Outperform Source: MSCI, I/B/E/S, Factset, Thomson Reuters DataStream, Credit Suisse HOLT, Credit Suisse research We continue to highlight domestic plays in core Germany, for the reasons given on page 4. (KIWTG)GTOCPFQOGUVKERNC[UYKVJFQOGUVKEUCNGUQHCVNGCUVCPF1WVRGTHQTOTCVGFD[%TGFKV5WKUUG -----P/E (12m fwd) P/B Yield (2010e) HOLT Momentum Name Domestic sales, % Abs rel to Industry rel to mkt % above/below average Abs rel to mkt % above/below average FCY DY Price, % change to best 3m EPS 3m Sales Consensus Credit Suisse (buy less holds rating & sells) Deutsche Euroshop % n/a 1.0 n/a n/m 4.6% Outperform Deutsche Boerse Ag % -14% 3.4-2% n/m 4.2% Outperform Pfeiffer Vac Techn % n/a 3.8 n/a 5.2% 4.6% Outperform Heidelbergcement % -18% % 7.5% 0.7% Outperform Muenchener Rueckve % -69% % n/m 5.1% Outperform Gerresheimer Ag n/a n/a 1.6 n/a 12.3% 1.9% Outperform Metro Ag % 1% 2.3 2% 4.2% 3.3% Outperform Source: MSCI, I/B/E/S, Factset, Thomson Reuters DataStream, Credit Suisse HOLT, Credit Suisse research Global Equity Strategy 20

21 As we still believe that the risk is that the euro weakens, we screen for European exporters that look cheap on HOLT. Of these stocks we would highlight those that have positive consensus earnings revisions: Smurfit, Renault, SAP and Daimler. (KIWTG'WTQRGCPGZRQTVGTUYKVJPQPGWTQUCNGUQHCVNGCUVVJCVNQQMEJGCRQP*1.6CPFCTG1WVRGTHQTO TCVGFD[%TGFKV5WKUUG -----P/E (12m fwd) P/B Yield (2010e) HOLT Momentum Name Non-Euro sales Abs rel to Industry rel to mkt % above/below average Abs rel to mkt % above/below average FCY DY Price, % change to best 3m EPS 3m Sales Consensus Credit Suisse (buy less holds rating & sells) Smurfit Kappa Grp 99% % n/a 0.8 n/a 17.8% 2.6% Outperform Renault Sa 88% % 132% % -6.1% 0.2% Outperform Sap Ag 79% % -31% % 6.7% 1.7% Outperform Siemens Ag 73% % 3% % 6.7% 2.6% Outperform Anheuser-Busch Inb 66% % n/a 3.7 n/a 3.7% 1.3% Outperform Ing Groep Nv 64% % -10% % n/m 0.5% Outperform Roche Hldgs Ag 61% % -14% % 7.2% 3.6% Outperform Iberdrola Renovabl 56% 27.1 n/a n/a 1.2 n/a -11.0% 1.0% Outperform Banco Santander 53% % -3% % n/m 6.1% Outperform Telefonica Sa 53% % -18% % 12.4% 8.0% Outperform Axa 52% % -26% % n/m 5.0% Outperform Daimler Ag 52% % 38% % -1.6% 1.8% Outperform Crh 52% % 46% % 9.6% 3.8% Outperform Fiat Spa 52% % 128% % -15.3% 2.1% Outperform Source: MSCI, I/B/E/S, Factset, Thomson Reuters DataStream, Credit Suisse HOLT, Credit Suisse research We would be concerned about names with high European exposure given the weak relative economic momentum in Europe and a dollar that we believe is likely to strengthen in the near term: of those we highlight PPG, Anixter and Rpm, which are Underperform-rated by Credit Suisse. (KIWTG75UVQEMUYKVJJKIJUCNGUGZRQUWTGKPVQ%QPVKPGPVCN'WTQRG -----P/E (12m fwd) P/B Yield (2010e) HOLT Momentum Name Pan Europe sales Abs rel to Industry rel to mkt % above/below average Abs rel to mkt % above/below average FCY DY Price, % change to best 3m EPS 3m Sales Consensus (buy less holds Credit Suisse rating & sells) First Solar Inc 74% % n/a 3.7 n/a -1.5% n/a Neutral Harman International Inds 59% % 119% % 3.1% n/a 0.0 NM NM Neutral Brightpoint Inc 55% 13.1 n/a n/a 2.3 n/a 9.4% n/a Neutral Paccar Inc 47% % 175% 2.6 7% 2.4% 1.3% Neutral Pall Corp 43% % 17% % 4.4% 1.7% Neutral National Instruments Corp 41% 24.0 n/a n/a 3.8 n/a 4.1% n/a Neutral Rockwood Holdings Inc 41% % n/a 2.1 n/a 5.3% 0.0% Neutral Ppg Industries Inc 36% % 40% % 6.4% 3.5% Underperform Anixter Intl Inc 21% 13.8 n/a -6% 1.4-8% 7.1% 0.1% Underperform Rpm International Inc 21% % n/a 2.0 n/a 8.0% 4.5% NM 25.0 Underperform Source: MSCI, I/B/E/S, Factset, Thomson Reuters DataStream, Credit Suisse HOLT, Credit Suisse research Global Equity Strategy 21

22 Appendix 1: Regional scorecard (KIWTG%QORQUKVGTGIKQPCNUEQTGECTF Macro scorecard Market scorecard Total score Rank Economic Monetary Earnings Risk Score Rank Valuation momentum conditions momentum aversion Score Rank Weight 75% 25% 40% 40% 20% Now vs. Nov.09 Now Nov-09 UK GEM Japan Europe ex UK Source: Thomson Reuters DataStream, I/B/E/S, MSCI, Credit Suisse research Our composite regional scorecard has two parts: Macro scorecard: Economic momentum (index level and 3-month change in regional composite PMI) and monetary conditions (an average of real policy rates, M1 -GDP growth and deviation of the exchange rate from trend); Market scorecard: valuation (relative 12m PE, PB, DY compared with history and Credit Suisse HOLT), earnings momentum (based on 1-month and 3-month changes in 12-month forward EPS as well as net earnings revisions) as well as sentiment (the regional risk appetite relative to global in standard deviations). ÇÊÖÔ ÒÊÂÐÖÒÏ ÑÏÑv ÌÉÊÈÊ Ì ÇkwÉ ÈÉÖÔ ÒÎÇ fêéìêÿ vèéìêéèâ ÊÉÆÉÇ Ê ÇÆÍÌÈÉÍkw ÎÆwÌÆÉÉÇÇÂ Ê ÖÔ ÒÎ ÆÉÈÌÈÉ ÊÆ Æ ÍÈÇÉ ÈÆÂ Global Equity Strategy 22

23 u ÈÍÉÆÍ Ê Akzo Nobel (AKZO.AS, Eu40.90, UNDERPERFORM [V], TP Eu41.00, MARKET WEIGHT) Anheuser-Busch InBev (ABI.BR, Eu37.07, OUTPERFORM, TP Eu43.00, OVERWEIGHT) Anixter International (AXE, $44.93, UNDERPERFORM [V], TP $36.00) AXA (AXAF.PA, Eu16.12, OUTPERFORM [V], TP Eu20.67, MARKET WEIGHT) Boeing (BA, $70.01, NEUTRAL, TP $57.00) Brightpoint Inc. (CELL, $7.90, NEUTRAL [V], TP $8.00) Credit Agricole SA (CAGR.PA, Eu12.02, OUTPERFORM [V], TP Eu13.50, MARKET WEIGHT) CRH (CRH.I, Eu17.84, OUTPERFORM [V], TP Eu22.00, MARKET WEIGHT) Daimler (DAIGn.DE, Eu33.12, OUTPERFORM [V], TP Eu47.00, MARKET WEIGHT) Danone (DANO.PA, Eu44.26, OUTPERFORM, TP Eu46.00, OVERWEIGHT) Deutsche Bank (DBKGn.F, Eu51.62, OUTPERFORM [V], TP Eu62.50, MARKET WEIGHT) Deutsche Boerse (DB1Gn.F, Eu53.32, OUTPERFORM [V], TP Eu70.00, MARKET WEIGHT) Deutsche Euroshop (DEQGn.DE, Eu23.58, OUTPERFORM, TP Eu27.00, MARKET WEIGHT) FedEx Corporation (FDX, $87.26, NEUTRAL [V], TP $87.00) Fiat (FIA.MI, Eu9.22, OUTPERFORM [V], TP Eu11.50, MARKET WEIGHT) First Solar (FSLR, $110.95, NEUTRAL [V], TP $115.00) Gerresheimer AG (GXIG.DE, Eu23.20, OUTPERFORM, TP Eu28.00, MARKET WEIGHT) H.J. Heinz Company (HNZ, $46.36, NEUTRAL, TP $50.00) Harman International Industries (HAR, $43.97, NEUTRAL [V], TP $46.00) HeidelbergCement (HEIG.DE, Eu41.72, OUTPERFORM [V], TP Eu58.00, MARKET WEIGHT) Iberdrola Renovables (IBR.MC, Eu3.16, OUTPERFORM, TP Eu3.80, MARKET WEIGHT) ING Group (ING.AS, Eu7.37, OUTPERFORM [V], TP Eu8.95, MARKET WEIGHT) Linde (LING.F, Eu86.06, OUTPERFORM, TP Eu100.00, MARKET WEIGHT) Metro (MEOG.F, Eu41.15, OUTPERFORM [V], TP Eu46.00, OVERWEIGHT) Munich Re (MUVGn.DE, Eu117.90, OUTPERFORM, TP Eu132.00, MARKET WEIGHT) National Instruments Corp. (NATI, $33.18, NEUTRAL, TP $30.00) Paccar Inc (PCAR, $39.76, NEUTRAL [V], TP $38.00) Pall Corporation (PLL, $41.04, NEUTRAL, TP $37.00) Pfeiffer Vacuum (PV.DE, Eu57.75, OUTPERFORM, TP Eu53.00, MARKET WEIGHT) Porsche (PSHG_p.F, Eu40.26, OUTPERFORM [V], TP Eu69.00, MARKET WEIGHT) PPG Industries, Inc. (PPG, $63.70, UNDERPERFORM, TP $68.00) Praxair Inc. (PX, $79.01, NEUTRAL, TP $93.00) Renault (RENA.PA, Eu33.12, OUTPERFORM [V], TP Eu43.00, MARKET WEIGHT) Roche (ROG.VX, SFr178.70, OUTPERFORM, TP SFr200.00, OVERWEIGHT) Rockwood Holdings Inc. (ROC, $25.74, NEUTRAL [V], TP $30.00) RPM International (RPM, $20.81, UNDERPERFORM, TP $21.00) Ryanair (RYA.I, Eu3.45, OUTPERFORM [V], TP Eu4.70, OVERWEIGHT) Sanofi-Aventis (SASY.PA, Eu56.13, OUTPERFORM, TP Eu62.00, OVERWEIGHT) Santander (SAN.MC, Eu10.48, OUTPERFORM, TP Eu12.50, MARKET WEIGHT) SAP (SAPG.F, Eu33.92, OUTPERFORM, TP Eu40.00, OVERWEIGHT) Siemens (SIEGn.DE, Eu67.78, OUTPERFORM, TP Eu78.00, UNDERWEIGHT) Smurfit Kappa (SKG.I, Eu6.50, OUTPERFORM [V], TP Eu9.10, MARKET WEIGHT) Telefonica (TEF.MC, Eu18.06, OUTPERFORM, TP Eu22.00, OVERWEIGHT) Thyssen Krupp AG (TKAG.F, Eu25.34, OUTPERFORM [V], TP Eu35.00, OVERWEIGHT) Travelers Cos. Inc. (TRV, $52.89, NEUTRAL, TP $56.00) United States Steel Group (X, $59.96, NEUTRAL [V], TP $45.00) Zurich Financial Services (ZURN.VX, SFr265.60, OUTPERFORM, TP SFr300.00, MARKET WEIGHT) Companies mentioned but not covered (KPOGEECPKEC.QVVQOCVKEC6065EKGPVKHKE)COGU5QWVJYGUV#KTNKPGU ディスクロージャーアペンディクス ÐÖ ÓÖÊ uêòïñðö ÑÕ w ÖÔ ÒÊsvÈÍÉÆÍ ÎÒÖÑÒÊÂÈÍÈÍÇ ÈÍ ÂÌÉÊv ÊÉÆÉÂ w ÖÔ ÒÊ ÈÍÉÆÍuuÇÈËÉÊ v ÆÍËv Ê ÈÍÈÍÈÍÊ uuî Ê ÈÂ ÈÍÈÍÊ Ç w ÖÔ ÒÊ ÈÍÉÆÍ ÌÉÊuuÊÂ ÊÌ ÊÌ Í ~ÈÉÆÍÈÂÌÉ Ì ~È ÊÆÇÉÎvÌÌÈÂ w ÖÔ ÒÊ Î ÈÉÎÒÖÑÒÊÂCredit Suisse Êd ÎÊÈÌÉÈÍ ÂÊu Ê ÉÇ Î Ç É ÉÆÌÈÂÇÊd ÊÊ Credit Suisse Ê y s ÊÍÉÉ É Ç ÌÍÉÆÌÈÂ Global Equity Strategy 23

24 ÎÒÖÑÒÊ yv Ê ÊÍÆÊ fèíéæìè Outperform: (O) Ò ÑÖÖÑ Ç 12 Ê ~Ô ÒÔ Ð* Î 10-15% ÈÍÍÖÑÐÊÍÉÉÊÈÍ ÍÉ ÈÍÍ Â Neutral (N): Ò ÑÖÖÑ Ç 12 Ê ~Ô ÒÔ Ð* Ì Ô ÒÔ ÐÊ ÈÉr10-15%ÊÖ Ñ É ÈÍÉ ÈÍÍ Â Underperform (U): Ò ÑÖÖÑ Ç 12 Ê ~Ô ÒÔ Ð*Î10-15%ÆÍÆÊÈÍ ÍÉ ÈÍÍ Â * ÇÉÊ ~Ô ÒÔ Ð ÂÏ ÑÒÖÖÎÂÓÕ Ñ Ö Ò ÂÆÍËÏÒÑÊÆÇÍ yv Ê ÈÊ Ê s Ê ÈÍ Ò ÑÖÖÑ Ê h  2 ÎÒÖÑÒÏÓÖÒÑÕÓÓ Ñ** ÊÆÇÍÈÊ Êu }ÌÍÍÒ ÑÖÖÑ Ê Ê Outperform Ê Ì Ê ÂNeutral ÊÈÍÍÍÌ Ç Í ÂUnderperform Ê y ÊyÈÍ Ç Ì ÊÆ ÎsÈÉÆÌÈ Ê ÉÆÉÆÌÈ ÆÍËÏÒÑÊ ÊÿÊÂ Ì u ÊÍÉÉ vé fèíé Ò ÑÖÖÑ Ê ÇÍÊÈÍÍ ÇÆÍÌÈ  ÂÆÍË Î ÇÎÑÎ ÊÆÇÍ yv ÊÂÈÊ ÊÒ ÑÖÖÑ É ~ÈÍ ÌÉÊ ÊÔ ÒÔ ÐÊ Ò ÑÖÖÑ ÉÊ Ê ÉÆ ÉÆÌÈÂ Ê yv ÊÂÈÊ ÊÒ ÑÖÖÑ ÉÎÒÖÑÒÏÓÖÒÑÕÓÓ Ñ**ÉÊ Ê ÉÆÉÆÌÈÂÏ Ñ ÒÖÖÎÉÓÕ Ñ Ö ÒÊÉÆÉÊÂOutperform É Underperform Ê yv Ê fêæçí 10-15%ÎÂÎÒÖÑÒÊvxÈÍ ÖÑÐÊÈÉÇÉÉÈÍÈÍ 22%É 12%ÊeÇ ÆÉ ÈÉÆÌÈÂ Ê NeutralÊ yv Ê fêæçí %É-10-15% ÎÂÎÒÖÑÒÊvxÈÍÖÑÐÊÈÉÇÉÉ22 É 12 ÊÈÍÈÍeÇ ÆÉÆÌÈ **ÎÒÖÑÒÏÓÖÒÑÕÓÓ ÑÊ ~ÈÍÑÐÑ ÉÎÒÖÑÒÇÏÓ ÈÍ ÊÍÉÉ ÈÍÌÈ Restricted (R): Ê ÉÊÂÐÖÒÏ ÑÏÑÊ ÆÍË/ÌÉÊ wu ÊÍÍ y Î ÌÿÊ ~ÇÉÇÊ ÇÊÍÌÈÂÇÊ Ê Ê ÉÊÂÐÖÒÏ ÑÏÑÇ y s Î~s ÉÆÍ ÂÆÍËÂÈÊ Ê Ê ÊÆ Í Î ÌÌÈ ÔÖÒÏÖÒÏ Ï ÒÏÐ Ñ [V]: ~ 24 ÊÆÉ ÊÇÉÌ 8 Ê Ç 1 É 20% ÈÉ ÂÆÍÆÊÎÒ ÖÑÒÇ Ê Ê Î ÈÍ ÎVolatileÉ fèìèâ ÎÒÖÑÒÊÏÓÖÒÑ ÕÓÓ ÑÊÏÏ ÒÊÎÒÖÑÒÊ yv É ÊÍ ÊÔ ÒÔ Ð**Ê ÈÍÏÓÖÒÑ Õ ÓÓ Ñ*Ê ÓÔÏ Ô ÑÊ ÉÆÉÆÌÈ Overweight 12 Ê ÊÔ ÒÔ ÐÎÎÏÒÓÔÏ ÕÈÍÉ ÈÍÍÏ ÑÑÒÖ Â Market Weight 12 Ê ÊÔ ÒÔ ÐÉ ÊÓÔÏ Ô ÑÇ ÈÍÍÏ ÑÑÒÖ Â Underweight 12 Ê ÊÔ ÒÔ ÐÎÎ Ñ ÓÔÏ ÕÈÍÉ ÈÍÍÏ ÑÑÒÖ Â *ÎÒÖÑÒÊÏÓÖÒÑ ÕÓÓ ÑÊ vñðñ ÉÎÒÖÑÒÇÏÓ ÈÍÈËÉÊ É ÈÍÉÆÌÈ ** ÊÔ ÒÔ ÐÊ ÊÔ ÐÒÒ Ï ÒÒÐÑ Â ÉÊ S&P500 Ê 12 Ê ÖÑ Ê ÉÆÉÆÌÈ Credit Suisse Ê yv ÆÍË y sêš Ê ÐÖ ÓÖ Ö ÒÏ Ð ÒÏÑÒÖÓÕ ÑÕ * Outperform/Buy* 44% ( y sêš 60%) Neutral/Hold* 42% ( y sêš 60%) Underperform/Sell* 13% ( y sêš 54%) Restricted 2% *ÓÕ Õ Ðv ÆÍË v Ê yv u Ê ÉÇÂ Ê Outperform, Neutral, Underperform Ê yv ÊÈÍÈ ÍÂBuy, Hold, Sell ÊËË ÈÍÌÊÉÊÉÉÆÌÈÂÉÉÈÂ Ê yv Ê Ô ÑÉ ÈÍÉÆÍÉÌÂ Ê ÉÊÆÍÌÈΠ~Ê fîç ÇÉÈÆ Âv Êz Â Ê y  ÂÈÊ Ê u Ê ÉÇÇ ÇÉÈÆ w ÖÔ ÒÊv~ÈÍÉÆÍuuÌÈÇÊ uê Ê Î ÆÍ h ÇÆÍ y ÂÑÐÑ Â Ê ÊÉÆ ÉÊÂ É ÍÍÍ Êw ÖÔ ÒÊÎÒÔÒ ÒÎsÆÇÉÎ Credit Suisse Ê ÉÈÉÆÌÈ ÍÇÊÇ Â ÇÉ ÉÂwuÎ Ç ÍÊÊÆw ÖÔ ÒÊÌÎ sèíçéî Credit Suisse Ê ÉÈÉ ÆÌÈÂv ÊÉÆÉÊÂ Ô ÕÔ Ñ ÊÃw ÖÔ ÒÊ ÍÍ Ê Ê ÈÍ Credit Suisse Ê Policies for Managing Conflicts of Interest in connection with Investment Research Î Ç É È Æ Credit Suisse ÊÆÇÊÍ ÎÒÓÏÑÌsÆÌÈΠÖÔ Ò Ê ~ Ê ÈÍv~ÊÂe Ê Î ÉÈÉ Î ÈÉÌÊÉÌÂÈÊ ÎÌÉÉ ÇÍÉÌÊÉÌÊÇÂÌÉÈÊ ÊÉÌÊ ÈÍÇÉÊÉÇÌÈÎÂ Ê uêòïñðö ÑÕ w ÖÔ ÒÎ ÈÍÉÑ ÏÔ ÖÊÆ ÊÆÇÍÌÈÉÊ w ÖÔ ÒÇÍ ÈÍÆÇÊÍ ŠÊÉÆÉ ÌÂÑ ÏÔ ÖÊÔÏÒ ÑÕÖ ÎÒÓÏÐ ÊÇ~ ÇÉÈÆ ÿïòñêv ËÊ Ê Ê vé ÈÍÉÆÌÈ NVS-- x RVS--x SVS-- x  Credit Suisse Ê ~ ÉÊÆÏÒÑÊÏ ÔÑÒÕ ÒÒÏ Ö ÇÍ ÖÔ ÒÎ ÈÍÉ ÊÂCredit Suisse Ê ~ ÉÊÆÏÒÑÊÏ ÔÑÒÕ ÒÒÏ Ö Çi ÖÔ ÒÊÆÆÉu ÈÍÉÆÍ Ç ÖÔ ÒÊ Ì ÍÉÆÊÆ h ÊÆÍÇÉÎÇ ÆÇÇÉÈÆ Credit Suisse Securities (Canada), Inc Ê ÖÐ ÒÊ Ê ÈÍ Â ÊÉÇÌÈÉÊ ÎÇ ÇÉÈÆÂ Ê Ê ÊÊ IFRS Ê ÈÉ ÇÆÍÌÈ DANO.PA, MEOG.F, PSHG_p.F, RYA.I, SASY.PA, SAPG.F, TKAG.F. Global Equity Strategy 24

25 Credit Suisse Ê vöô Ò s É vöô ÒÊ yêêééæí ÊÉÆÉÔ ÐÒÒÕ Ï ÌÈÇÊÖ ÐÏÒÏÒÏ ÔÖÓÏÑ ÉÈÂ Ê ÇÊÆÍ ÉÆÍÉÌ Πvèíìêéêæíìèîâ Ê v ÊÈÊ Æ É ÈÍÉ ÊÈÊŠÉÊÍÌÈ ÇÊw ÖÔ ÒÇ Ê ~ Ê ÈÍÎÒÖÑÒÊÍÉÉ ÌÉÊÈÊÿÇ ÈÍ É ÉÇ Í ÍÊÆÆÉÂ Ê Ê ~ Ê ÈÍÎÒÖÑÒ Ð ÒÖÓÕ Ñ Ê ÈÍ uê ÉÊ ÍÌÈ vê È Ê ~ Ê ÈÍÎÒÖÑÒÊÂÖÐ ÒÎÒÖÑÒÉÈÉ FINRA Ê ƒèíéæíèâöð ÒÎÒÖÑÒy Î FINRA ÇÍ ÆÍÍÉÆÌÈÎÂ Ê È Ê ~ Ê ÈÍÎÒÖÑÒÊ CSSU Ê ÉÊÊÇÂÇÊÉÌ w y ÉÊ uâîòöñòê Ê us ÂÎÒÖÑÒÇ ÈÍ ÉÊ v Îu ÈÍ NASD u 2711 Ë NYSE u 472 Ê yéêíêæ ÇÆÍÌÈ ÊÂ Ê ~ ÉÆÍÐÖÒÏ ÑÏÑv Ê ÈÍÉÆÍÖÐ ÒÎÒÖÑÒÉÈ Credit Suisse HOLT Ê uêòïñðö ÑÕ Credit Suisse Ê w ÖÔ ÒÊ Credit Suisse HOLT Ê Ê ÉÇ ÊÉÆÉ w ÖÔ ÒÊ ÈÍÉÆ ÍuuÇ Credit Suisse HOLT Ê Î Ê ÈÂ Ê Ç w ÖÔ ÒÊ ÈÍÉÆÍuuÊÂ Ê Í ~ÈÉÆÍÈÂÌÉ Ì ~ÈÊÆÇÉÎvÌÌÈ Credit Suisse HOLT Ê ÉÊÂv Ê ÈÉ Î ÈÍÇÉÊÆÍÌÈÎÂCredit Suisse HOLT Ê ÊÂd ÈÉ Credit Suisse HOLTÓÖÕÏ ÑÕ ÕÒÖÉ ÈÍÍ iðï Ò ÎÖÐÖÑÕÉ v Î Ì ÍÈÉ ÈÍ Ò ÖÉÆÍÂÒ ÑÔ ÑÊ ÈÍÍ ÊÿyÈÉ ÈÍÌÈ fò Ñ Ð Ñ ÐÑ Ê Ò ÑÎ Ì ÊÂ Ê ÊÒÔÏÖÒ Ê ÈÍÂCredit Suisse HOLTÓÖÕÏ ÑÕ ÕÒÖÉ hêîöðöñõê Ì}ÌÍÌÈÂ Ò Ñ ÍÍ ÈÍÍy wsâ ÇÂ Ò ÑÊÒ Ñ Ê z yéêíâ Ê ÓÔÏ Ô Ñ ÊÉÌÊ dêw Ç sííìèâçêw ÊÂ Ê ~ Ê Ê ÈÍ ÂÌÉÊt Ê Â ÎsÆ Êÿy Î ÈÍÉÌ ÊÌÊÉÈÂCredit Suisse HOLTÓÖÕÏ ÑÕ ÕÒÖÇ ÈÍÒÔÏÖÒ ÑÒÖÏÊÂv Ê ÓÖÕÏ ÑÕ ÉÈÉ ÈÍÍÌÊÉÆÍÂÕ Ð ÊÂÒÔÏÖÒ Îw È ÑÒÖÏÎ ÈÍÇÉÇÉÇÌÈÂCredit Suisse HOLT Ê Ê ÈÍÈÍÊvÈÆ ÊÂÇw ÊÍÍÇ ÆÉÉÇÌÈ Credit Suisse HOLT Ê ÉÊÂv Ê ÈÉ Î ÈÍÇÉÊÆÍÌÈÎÂCredit Suisse HOLTÓÖÕÏ ÑÕ ÕÒÖÇ ÈÍÒÔÏÖÒ ÑÒÖÏÊÂv Ê Î ÈÍÌÊÉÈÂÌÉ fò ÑÇ ÈÍÍÇÉ Ê ÆÂ Ì ÈÍ h ÇÆÍÌÈ ΠÈÍÉÌÊÂÒÔÏÖÒ Îw ÈÍÇÉÇ h ÉÈ CFROI  HOLT HOLTfolio HOLTSelect ValueSearch AggreGator Signal Flag ÆÍË Powered by HOLT ÊÂCredit Suisse ÌÉÊ ÌÈÊ Ê ÊÆÇÍ Credit Suisse Ê ~ Ê ÌÐ ÓÑÔ ÐÂÌÈÇÊ ƒ Ì ƒð ÓÑÔ ÐÉÈÂHOLT Ê Credit Suisse Ê ÓÔÏ Ô ÑÆÍËÓÖÕÏ ÑÕ ÊÎÒÓÏÐÖ Ð ÓÑÉÈÂCFROI Ê Ê Credit SuisseÂÈÊ ÆÍÆÊ ~ Ê ƒ ÉÈ w ÖÔ ÒÉu ÈÍÉÆÍÈÊ ÊÉÆÉÊ Credit Suisse Ê ÊÉÇÌÈÉÊ ÎÇ ÂÌÉÊ ÌÉÇ~ ŠÆÌÈÂÌÉ ÖÔ Ò Ê Î ièìèéîòöñòâìéêîñññ ÒÊ Ç~ ÎÆÉÉÇÍÊ wéæ ÆiÈÌÈÂ Ô ÑÊ Ç Global Equity Strategy 25