Investment Strategy Stock rally to continue as economy improves pptx

Buy Google, Intel, Infineon, Len-ovo, Oracle, Priceline.com, Qualcomm, Samsung and TS-MC Stocks with a strong market posi-tion in secular growth themes, such as Mobile Internet, Cloud

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February 2013 Research Monthly

Investment StrategyStock rally to continue as

Quality Japanese exporters:

Toyota, Honda, Bridgestone

Beneficiaries of a weaker JPY

and US recovery

Buy

Google, Intel, Infineon,

Len-ovo, Oracle, Priceline.com,

Qualcomm, Samsung and

TS-MC

Stocks with a strong market

posi-tion in secular growth themes,

such as Mobile Internet, Cloud

Computing, Big Data,

Virtualiza-tion and Social Media

Buy

Megatrend Champions

Invest in our Champions portfolio,

which reflects the optimal tactical

allocation of megatrend

invest-ments, according to our Traffic

Megatrends

Investment theme

IT spending to benefit from secular

technology growth

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 fect the objectivity of this report Investors should consider this report as only a single factor in making their investment decision.For a discussion of the risks of investing in the securities mentioned in this report, please refer to the following Internet link:

af-https://research.credit-suisse.com/riskdisclosure

Global ResearchPrivate BankingInvestment horizon: 6-12+ months

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It is human nature to be impatient and investors have been

keen for rapid results from the monetary stimulus of recent

years and skeptical when little happened An exception was

last year’s positive reaction to the ECB’s special bank loans

(LTROs) and bond-buying offer (OMT) But a sense of failure

surrounds the near-zero interest rates imposed by the Fed,

ECB, BoE and BoJ several years ago and subsequent

bond-buying (QE) Such measures are widely seen as financial

al-chemy with little real economic impact Yet, Nobel

Prize-win-ner Milton Friedman stressed that monetary policy operates

with “long and variable lags.” These can be exceptionally long

when there are deep problems in banking and credit – the key

transmission mechanism to the real economy – but as they

re-turn to health, monetary policy should finally become effective

That now seems to be happening in the US, with banks

cap-italized and lending again, credit card loan securitization

re-starting, and record issuance of high yield bonds

All this is a bit like flooring the gas pedal on a car with

mal-functioning fuel injection Nothing happens and you think that

your foot pressure is useless, but when a mechanic fixes the

problem, the car suddenly goes forward even though you do

not push the pedal anymore By analogy, the US economy can

accelerate without the Fed adding extra stimulus Europe is

similar, but perhaps 6–12 months behind the US, as the

com-plex credit problems take longer to fix In short, as investors

we should not be ruled by our own impatience: Monetary

policy is at last becoming effective, and the throttle is open far

wider than ever before As broken banking and credit systems

heal, positive monetary impetus can overwhelm the negative

ef-fects of tighter fiscal policy, boosting the economy more than

people expect, and raising stock markets during a “sweet

spot” that could last a couple of years before inflation

be-comes a threat

In this issue Investment Strategy

Stock rally to continue as economy improves  page 3

Investment summary  page 5 Economics

Gradual global pick-up to continue  page 7 This month’s featured topic

Can “Abenomics” revive Japan and overcomedeflation?  page 9

Investment theme

IT spending to benefit from secular technology growththemes  page 10

Credit Suisse Megatrends

Introducing our new Megatrends Framework  page 11 Fixed income

Credits start the year on a positive note  page 12 Equities

Strong start to the year bodes well for equities  page 14 Alternative investments

Directional hedge fund styles and US REITS offeropportunities  page 16

Foreign exchange

Diversification into emerging market currencies  page 17

Risk disclaimer  page 19

Editorial deadline: 29 January 2013

2 Credit Suisse - Research Monthly

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Investment Strategy

Stock rally to

continue as

economy improves

 Gradual global economic pick-up to

con-tinue with no imminent inflation and

ex-pansive central banks.

 Stocks, US real estate remain in focus

as investments on a 6–12+ month

hori-zon In bonds, favor short maturity credits.

 CHF correcting weaker; EUR gaining

and emerging market currencies set to

rise.

Nannette Hechler-Fayd'herbe

Head of Global Financial Markets Research

nannette.hechler-fayd'herbe@credit-suisse.com, +41 44 333 17 06

The first weeks of trading in 2013 saw a strong rebound in

in-vestor risk appetite Economic headwinds have ebbed, as the

credit crunch ends and the fiscal outlook becomes clearer in

the USA, euro break-up dangers fade and China growth

con-solidates Equity funds hence registered significant inflows,

new bond issues of riskier creditors continued to be

oversub-scribed and European peripheral sovereign and corporate

bonds traded at significantly tighter spreads to German Bunds

Core government bond yields, in contrast, rose and all

safe-haven assets – the CHF, the JPY, gold – have

underper-formed or lost ground It seems as if investors are finally

show-ing willshow-ingness to commit their excess cash holdshow-ings to

finan-cial investments Meanwhile, last year’s fall in credit spreads

has left bonds less attractive, while equity multiples are still not

stretched

Top investment ideas for 2013 – January update

Our set of Top investment ideas for 2013 published in our vious edition have recorded absolute returns of 1%–12%since we recommended them in late 2012, with only our for-eign exchange idea in flattish territory Despite the strengthand rapidity of these market moves, we keep the status of all

pre-of our ideas unchanged on Green (which means “Continue toaccumulate”) The emphasis on stocks (Idea No 2, “Recoverystocks,” Idea No 3, “Dividend stocks” and Idea No 4, “Newgas and oil sources”), real estate (Idea No 5, “US real estate”)with less fixed income (Idea No 1, “Beyond cash: Credit, notduration”) in combinations reflective of respective investor riskprofiles should continue to perform well, in our view

Fixed income: First trading weeks confirming our

“cred-it, not duration” call

Yields on core government bonds increased at the start of theyear in the wake of a general “risk-on” investor mode, whilecredit spreads continued to compress We do not expect thesame pace in core yields and credit spreads to continue Afterall, while improving, global growth is still likely to be moderate

in 2013, inflation to remain low and central banks generallystick to their accommodative stance So, core yields shouldhave some upside risks, albeit limited, except for Switzerland,where a further depreciation of the CHF would induce a fur-ther normalization of Eidgenossen yields These are still signi-ficantly below fair value Credit spreads, too, are unlikely tocompress at the same pace As a result, carry (or coupon con-tribution) will be key in fixed income returns, which we anticip-ate to be in the low single-digit area Therefore, we maintainour strategic focus on short maturity credits down to BB creditquality We also highlight European convertibles as a fixed in-come alternative likely to perform well

Equities: Japan upgraded to neutral in our regional strategy

Equities have continued with strong advances at the start ofthe year and have benefited from falling credit spreads and bet-ter investor sentiment Temporary short-term setbacks of smallmagnitude are possible any time, but in the broader picture,equities are among the more attractively valued asset classesand one of the few opportunities left offering investors a re-turn In our regional focus, we have changed our views with re-gard to Japanese stocks, which are unlikely to underperformglobal markets if the JPY stays around current levels Our cur-rency outlook suggests positive consequences on earnings inJapan Our sector strategy and our preferred equity themes re-main unchanged and are reflected in our Top ideas for 2013,Nos 2–4 In this issue, we provide more details on the techno-logy sector, on which we have a positive view

Alternative investments: US REITS still our favorite

This month, we confirm US real estate as our favorite ive investment We would also expect hedge funds to benefitfrom persistently low volatility on stock markets and good liquid-ity conditions Directional strategies are likely to fare best inthis investment category In commodities, our moderate globalgrowth picture still justifies a neutral outlook

alternat-3 Credit Suisse - Research Monthly

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Foreign exchange: Weaker CHF vs EUR, selected

emer-ging market currencies stronger

The CHF has depreciated markedly vs EUR and we expect

more Falling risk premia on the EUR should lead to gradual

capital outflows from Switzerland The EUR and selected

Asi-an Asi-and interest-bearing emerging market currencies are likely

to benefit the most, the USD less In our optimal currency

port-folios, we add CNH, MXN, PLN and TRY as providing good

di-versification The JPY has entered a technical downtrend and

even though there are reasonable doubts about how effective

the BoJ can be, we see USD/JPY at 94 in 12 months

Tactic-ally, we prefer to await a correction to go short JPY

Risk review

Risks in relation with the Eurozone debt crisis have declined

materially, in our view If peripheral countries disappoint on

their deliverables, credit spreads could still widen again from

current levels But the Outright Monetary Transactions

frame-work of the European Central Bank provide a credible

back-stop to a more devastating movement In the US, while the

debt ceiling could provide some temporary drama, we still

anti-cipate muddling-through from both the Republicans and

Demo-crats In our view, geopolitical risks in both the Near and Far

East therefore remain the least easily predictable For

in-vestors who are overly concerned about the potential impact of

any event on global stock markets, we again highlight the

relat-ively cheap short-term protection opportunity offered by

derivat-ives, given persistently low volatility (25/01/2013)

Strategic asset allocation (SAA)

The neutral allocations serve as a guideline and represent theaverage weighting over an entire market cycle Since the glob-

al strategy is based on a medium-term investment horizon, itdeviates from the neutral position We recommend an over-weight in equities and alternative assets, particularly hedgefunds and real estate (selected markets) Conversely, we re-commend underweighting fixed income investments and liquid-ity

BM SAA

Fixed Income 35% 32% Equity 40% 43% Alternative 20% 23%

BM SAA

SAA

Benchmark (BM)

SAA

Benchmark (BM)

SAA

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Investment summary

Short interest rates 3M LIBOR / 10-year government bonds

10Y bonds 3M

LIBOR

12M 3M

Spot 12M

3M Spot

in %

0.9-1.1 0.6-0.8

0.70 0.0-0.2

0.0-0.2 0.02

CHF

1.6-1.8 1.5-1.7

1.57 0.1-0.3

0.1-0.3 0.21

EUR *

1.8-2.0 1.6-1.8

1.85 0.3-0.5

0.3-0.5 0.30

USD

2.1-2.3 1.8-2.0

2.01 0.5-0.7

0.5-0.7 0.51

GBP

0.9-1.1 0.8-1.0

0.73 0.1-0.3

0.1-0.3 0.17

JPY

Spot rates are closing prices as of 24/01/2013 Forecast date: 24/01/2013 * 3M Euribor

Source: Bloomberg, Credit Suisse

Bonds: Selected indices

12M TR look Total return

out-YTD (%) Spread to

mark (bp)

bench-YTM (%) Index



-0.6 110

2.7 USD (CS LUCI)



-0.9 133

2.1 EUR (CS LEI)



-0.8 46

0.8 CHF (CS LSI)



-0.6 158

3.6 GBP(CS LEI)



-0.1 256

5.8 High Yield (CS HY In-

Spot

1,800 1,750

1,658.70 Gold (USD)

32 34

31.20 Silver (USD)

1,850 1,750

1,694.75 Platinum (USD)

100 96

95.88 Oil (USD)

Spot prices: London close 25/01/2013

Equities: Selected indices

12M look 12M fair

out-value YTD

(%) MTD (%) Price Index

Overweight 1,513

5.4%

1,502.96 S&P 500

Underweight 6,477

9.3%

7,458.66 SMI

Neutral 5,954

6.6%

6,284.45 FTSE-100

Neutral 2,570

4.1%

2,744.18 Euro Stoxx 50

Neutral 10,600

5.1%

10,926.65 Nikkei 225

Neutral 1,039

1.3%

1,069.12 MSCI EM

Overweight 12,000

4.9%

12,001.81 China H-Shares

Prices as of 25/01/2013; 12M fair value: scenario analysis available; 12M outlook: relative to MSCI World Index (USD)

Foreign exchange

12M 3M

Spot

1.35-1.39 1.36-1.40

1.34 EUR/USD

0.93-0.97 0.89-0.93

0.93 USD/CHF

1.28-1.32 1.24-1.28

1.24 EUR/CHF

92-96 90-94

90 USD/JPY

127-131 125-129

120 EUR/JPY

0.84-0.88 0.84-0.88

0.85 EUR/GBP

1.58-1.62 1.58-1.62

1.58 GBP/USD

8.78-8.82 8.73-8.77

8.68 EUR/SEK

0.96-1.00 0.98-1.02

1.05 AUD/USD

5.90-6.10 6.05-6.25

6.22 USD/CNY

Spot rates: London close 24/01/2013

Real GDP growth and inflation

Inflation GDP

growth

2014E 2013E

2012E 2014E

2013E 2012E

in %

1.0 0.4

-0.7 2.0

1.5 0.9 CH

1.7 1.8

2.5 1.1

0.0 -0.4 EMU

2.1 1.6

2.1 2.5

2.0 2.1 USA

2.3 2.3

2.8 1.5

1.0 0.0 UK

1.8 -0.4

0.0 1.2

1.4 1.7 Japan

Global Research asset category strategy

Strategic 6–12+ M Tactical

1–6 M Comments and comparison of weightings

ad-Focus on secondaries, natural resources, SME LBOs,

emerging markets, and private debt funds.

Private equity



We overweight directional strategies such as EM and long-short.

We maintain our positive stance for global macro.

We maintain our positive stance on global macro and

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Top Investment Ideas for 2013

Rationale/Update Action

Status Fixed Income

Cash should continue to be unremunerative (near-zero yields) in most markets Whereas credit spreads have come down further in recent weeks, bringing yields of many bonds into very low territory, corporate bonds of short maturities still offer a de- cent yield pick-up versus cash With default rates expected to marginally increase in

2013, conservative investors should focus on investment grade credits.

Buy short dated AA- to BBB financials and A

to BB non-financials excluding auto.

Buy US consumer, M&A and cyclical stocks.



3 Dividends and beyond

Oil and gas companies with new exploration technologies or which have interest in as yet unexploited shale gas, tight oil, deepwater oil, etc.

Invest in upstream energy stocks.

Very affordable prices, easy monetary policy and solid economic growth to support

US housing German real estate also appears relatively cheap and can benefit from capital inflows.

Invest in commercial and residential real tate.

es-

5 US real estate

Foreign Exchange

We continue to recommend diversification into selected EM currencies out of

tradition-al hard currencies like EUR and USD.

Buy selected Asian currencies and other ted EM currencies.

selec-

6 The new hard

curren-cies

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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Gradual global

pick-up to continue

Easing Eurozone stress and better

finan-cial conditions should support the global

economy.

 Growth momentum continues in the US,

despite fiscal headwinds, and emerging

Asia; Europe lags.

Thomas Herrmann

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

Signs of financial stress in the Eurozone continued to abate

over the past few weeks Government bond yields fell further

and the deposit and capital flight that had intensified last year

continued to reverse over the past months in Italy and Spain

Actual data releases point to a weak last quarter of 2012, with

weakness likely persist into the start of the year However, as

time progresses, significantly lower risks of extreme outcomes

and improved financial conditions should be reflected in better

confidence and “hard” economic data We expect a return tomodest growth in the second half of 2013, with continuinglarge differences between countries Growth is likely to remainweak in those countries, where planned deficit cuts arelargest, unemployment highest and structural banking sector is-sues still present (e.g Spain)

US: Solid underlying improvement despite fiscal winds

head-Several positive forces, including the housing and labor marketrecovery, should continue to support US growth The corpor-ate sector looks very healthy, with low leverage and a substan-tial amount of cash on the balance sheet Less fiscal uncer-tainty should result in stronger investment spending growththis year Importantly, the full impact of the fiscal cliff – a com-bination of expiring tax relief and automatic spending cuts –has been averted In addition, the statutory debt limit has beentemporarily suspended (effectively until the summer) andpending decisions on spending cuts look unlikely to result in ameaningful growth impact this year While household incomesand spending are likely to be affected by higher taxes in thefirst half of this year, the positive developments describedabove should lead to stronger growth thereafter As inflation isset to remain low, the Fed still looks likely to continue its bondpurchases at the current pace throughout 2013

Emerging markets: Better growth momentum, some flation pick-up

in-Supported by demand from other emerging markets, exportsfrom China and smaller Asian economies (e.g Malaysia) haverebounded This should also be reflected in stronger industrialproduction Some acceleration in China, supported by thestructural trend toward stronger domestic demand, should begood for Japan (for more details on Japan, please see thismonth’s featured topic) Several emerging markets face great-er-than-expected inflation pressure (e.g Brazil) and are thusless likely to ease policy further They are also likely to toleratetighter policy in the form of stronger currencies EasternEurope, (especially the economies most exposed to Eurozoneweakness, such as the Czech Republic and Hungary), remains

an exception in all this with growth still weak, inflation low and

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Selected ideas from previous months

December 2012 (27/11/2012)

Action to be taken Recommendation

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

Add exposure RE

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

November 2012 (30/10/2012)

Add exposure EQ

BUY Undervalued cyclical stocks in China We recommend domestically-driven cyclical stocks to benefit from China’s growth stabilization.

Add exposure EQ

BUY Exposure to non-investment grade convertible bonds from European issuers.

Add exposure EQ

BUY Asset managers with a strong EM presence: Partners Group The alternative investment manager is currently expanding its client

rela-tionships throughout Asia.

Add exposure EQ

BUY CS Top 30 stock: Schlumberger Occupies a leading position in the diversified energy services market.

October 2012 (25/09/2012)

Add exposure FX

BUY Selected EM currencies For emerging market currencies, the Fed’s action tends to be positive, but we are selective as some

coun-tries will counter with their own monetary expansion.

Add exposure RE

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.

Add exposure EQ

BUY Microsoft – CS Top 30 company Trades at a valuation discount and is poised to benefit from the upcoming Windows 8 release.

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

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This month’s featured topic

Can “Abenomics”

revive Japan and

overcome

deflation?

 Added fiscal and monetary stimulus

should boost growth in the short term, but

long-term revival faces structural

head-winds.

 The reflationary monetary policy bias

could reinforce negative JPY sentiment.

 Japanese equities have moderate

up-side potential on monetary easing, a

weak-er JPY and favorable fund flows.

The new LDP government under Prime Minister Shinzo Abe

in-tends to boost the Japanese economy by implementing

ag-gressive fiscal stimulus and overcoming long-entrenched

defla-tion This policy shift appears, more generally, to reflect the

wish to reverse the perceived secular decline of Japan’s

eco-nomic power and regional influence in the face of China’s cendancy The recent escalation of the dispute over theDiaoyu/Senkaku islands is a manifestation of the intensifyingrivalry in the Asia-Pacific region

as-Cyclical economic boost likely, but long-term success in doubt

The announced increase in government expenditure of morethan 2% of GDP, combined with monetary easing measures,has prompted us to raise the growth forecast for Japan by0.6% in 2013 Financial markets were initially disappointed bythe limited size of the BoJ’s announced (additional) “openended asset purchases,” as well as the lack of a time frame orother milestones to achieve the upwardly revised inflation tar-get However, we believe that plans for added asset pur-chases may be announced once a new BoJ governor takesover in April Whether Japan can decisively emerge from defla-tion remains to be seen Given Japan’s demographic head-winds, its rising debt burden and political resistance to structur-

al reform, a more lasting boost to economic growth also mains in doubt

re-New Japanese reflation theme suggests JPY weakness could persist

While we harbor some doubts as to whether the BoJ can

deliv-er the policy outcomes demanded, the new reflationary themedoes shift the risk-reward on USD/JPY to the upside The re-cent JPY depreciation trend could therefore persist – even ifour models no longer indicate JPY overvaluation Minimally,

we would expect any significant JPY strength to be met with amore forceful central bank response That said, direct foreigncurrency intervention, including significant foreign bond pur-chases are fairly unlikely given their foreign policy sensitivity

We revise our forecasts for 3M and 12M higher to 92 and 94,from 89 and 90, previously However, given still substantialspeculative net JPY short positions as well as upcoming eventrisks – including the February G20 meeting and the appoint-ment process for the new BoJ governor – we may well seetransitional JPY gains

Quality Japanese exporters with good upside potential

More expansionary policy, a weaker JPY and favorable fundflows should further reduce the risk premium on Japaneseequities At break-even levels of USD/JPY 89–90, or weaker,earnings for exporters should improve Our overall stance onJapanese equities remains neutral Within the market, we re-commend quality Japanese exporters, including Toyota,Honda and Bridgestone, which are likely to benefit from JPYweakness and a recovery in the US and China We also favorbeneficiaries of reflation policies, especially major banks likeSumitomo Mitsui Financial Group, Mitsubishi UFJ FinancialGroup, Mizuho Financial Group, as well as highly leveraged

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 We expect IT spending growth to

recov-er in 2013 to at least in line with global

GDP growth.

 The IT sector trades in line with the

broad market; we think it deserves a

premium given its good growth prospects.

Uwe Neumann

uwe.neumann@credit-suisse.com, +41 44 334 56 45

Ulrich Kaiser

ulrich.kaiser@credit-suisse.com, +41 44 334 56 49

Google, Intel, Infineon, Lenovo, Oracle,

Priceline.com, Qualcomm, Samsung and TSMC

Stocks with a strong market position in secular growth

themes, such as Mobile Internet, Cloud Computing,

Big Data, Virtualization and Social Media

Buy

Cyclical technology stocks to prevail in the mid term

We expect global IT spending to recover (our estimate: 3.4%),

with spending related to technology themes, such as Mobile

In-ternet, Cloud Computing, Big Data, Virtualization and Social

Media, likely to be disproportionately high Companies ing from these secular growth themes should continue to out-perform in the longer term (see our Research Alert, “‘TenTech Titans’ monetizing IT megatrends,” dated 14 August2012) However, in the current “risk-on” market environment,cyclical technology stocks, such as semiconductors and select-ive mid-quality technology stocks, may outperform the IT sec-tor in the mid term, benefiting from an economic tailwindthrough margin leverage (see our Research Alert, “InformationTechnology Outlook 2013: A three-tier society,” dated 22January 2013) and/or IT spending that was postponed duringthe recession

benefit-In IT Hardware, we expect the mobile device market to tinue to grow strongly whilst the PC market declines, withgrowth rates in the smartphone market likely to drop to the lowteens Combined with rising competitive pressure (a large num-ber of “iPhone-like” smartphones were launched in Q4 2012),margins in this segment could decline as well Software and In-ternet should perform well throughout 2013, due to their nu-merous structural secular growth trends

con-Historically low valuation supports our constructive view

Historically low spending levels in 2012 and 2013E explain tosome extent the compression of the 12-month forward P/Evaluation premium The sector appears to be valued quite at-tractively against its historic base and the broader market.Since IT remains one of the most fundamentally attractive sec-tors, with strong balance sheets and high net-cash positions,

we are still of the opinion that the sector deserves a premium

(24/01/2013)

Valuation does not reflect solid fundamentals

51015202530

Apr 04 Apr 06 Apr 08 Apr 10 Apr 12

IT MSCI World

12-month forward P/E

Source: Datastream, Credit Suisse / IDC

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Credit Suisse Megatrends

Introducing our

new Megatrends

Framework

Megatrends can last for decades, but

as-set prices related to them can have boom,

bust and growth phases lasting only a few

months or years.

 Based on our new Traffic Light system,

we introduce our Megatrend Champions.

Invest in our Champions portfolio, which reflects the

optimal tactical allocation of megatrend investments,

according to our Traffic Light system

Buy

The lifecycle of megatrend investments

Megatrends are major economic, social and political forces,

which are relevant across decades We believe that the

analys-is of megatrends enables us to identify attractive investment

opportunities in growing markets It should be also understood

that markets move on a very different timescale than these

un-derlying trends Investors can become enthusiastic about curities related to a megatrend theme, driving valuations tohigh levels, and then become disenchanted, causing a majorsell-off even as the underlying theme remains in place Thedot.com bubble provides an illustration of this behavior (seechart)

se-Guiding investors

Understanding these investment cycles allows for a strategicand sustainable approach to investment in megatrends Withthis in mind, we recently introduced our new tactical TrafficLight system, which helps long-term investors navigatethrough these market fluctuations by signaling optimal entrypoints or times to reduce exposure The Traffic Light systemconsiders a variety of metrics, including relative valuation, earn-ings revisions, long-term growth prospects, price momentumand risk profile

Dot.com bubble

Nasdaq Computer index since 1993

0 500 1'000 1'500 2'000 2'500 3'000

Oct 93 Oct 95 Oct 97 Oct 99 Oct 01 Oct 03 Oct 05 Oct 07 Oct 09 Oct 11

NASDAQ Computer Index

Start-up phase

Capital overcrowding

an overview of the portfolio, please see our publication, ducing our Megatrend Champions basket,” published 22 Janu-

Trang 12

Fixed income

Credits start the

year on a positive

note

 Significant credit spread tightening and

higher core government bond yields at the

start of the year.

 We keep our positive view on

lower-rated credits, but would wait for more

clar-ity on the US debt ceiling and Italian

elec-tions before adding exposure.

Maurice Jiszda

maurice.jiszda@credit-suisse.com, +41 44 333 21 41

“Credit, not duration” best describes recent markets

Since the US government managed to negotiate a budget

deal, fixed income markets have essentially headed in one

dir-ection While major ten-year government bond yields

in-creased significantly, credit markets remained on a strong

foot-ing amid positive economic data releases Credit outperformed

other fixed income asset classes, with lower-rated issuers ing the way Consequently, our Top 2013 Investment IdeaNo.1, “Beyond cash: Credit, not duration,” delivered strong re-turns compared to cash or money markets

lead-Still positive on credits, but more cautious in February

As we expect both stimulus from the major central banks andglobal growth recovery to continue, our default rate outlook re-mains benign Hence, we maintain our constructive strategicview on risky credits and have a neutral outlook for govern-ment bonds, since we do not expect yields to increase sharplyfrom here For more risk tolerant investors, we recommend fo-cusing on BBB and BB credits up to around four years matur-ity as well as selected Italian, Spanish and Portuguese bonds

In emerging markets, we favor local currency exposure to ico, Russia and Turkey, given expected yield stability and cur-rency appreciation potential Further out the risk curve, convert-ible bonds still offer good opportunities, especially in Europe,given our positive view on high yield and equities Less risk-tol-erant investors may want to either hold or enter positions ofour Top 2013 investment idea “Beyond cash,” a broadly diver-sified basket of AA- to BBB rated financials and A to BB ratedcorporates The continuing yield advantage of credits is likely

Mex-be the dominating source of outperformance against cash.Despite our strategically positive view on credits, especially onhigh yield bonds, we recommend a more cautious stanceahead of the US debt ceiling debate and Italian elections

Surge in LBO activity: A real threat, but not yet

A material increase in leveraged buyout (LBO) activity (currentcase: Dell) usually coincides with the maturing of the creditcycle Low yields and a positive stock market outlook are LBOsupportive drivers In an LBO environment, single name risk in-creases significantly, since credit spreads of targeted compan-ies usually rise sharply, given the highly leveraged structure ofsuch transactions However, since the credit cycle and the as-sociated corporate leverage are just entering expansionary ter-ritory and banks are still reluctant to lend to private equity, we

do not expect an LBO wave to be unleashed anytime soon Allthe same, we take the case of Dell as a clear warning sign ofmore to come later in the year or in 2014

(24/01/2013)

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