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PB Americas The Investment Landscape – July 2011 Private Banking Americas Investment Strategy & Advisory Group The Investment Landscape July 2011.

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Presentation on theme: "PB Americas The Investment Landscape – July 2011 Private Banking Americas Investment Strategy & Advisory Group The Investment Landscape July 2011."— Presentation transcript:

1 PB Americas The Investment Landscape – July 2011 Private Banking Americas Investment Strategy & Advisory Group The Investment Landscape July 2011

2 The Investment Landscape – July 2011 This document is not complete without attached Important Legal Information. Table of Contents Key Focus: – Small Cap, Big Impact Asset Allocation/Outlook Appendix – Key Forecasts – Global Returns Dashboard – Historic Snapshots 2

3 PB Americas The Investment Landscape – July 2011 Key Focus: Small Cap, Big Impact 3

4 The Investment Landscape – July 2011 This document is not complete without attached Important Legal Information. Small capitalization stocks had the highest return of all major asset classes in 2010 – up 27%. The DRIVER framework captures the major catalysts of small cap performance, and can help in determining large cap vs. small cap portfolio split. Small cap valuations currently trade near a record- high premium relative to large caps. Small cap cos typically very correlated to the US economy – only 17% of sales come from abroad, vs. half of sales for large caps. Key Focus: Small Cap, Big Impact Source: Credit Suisse Small/Mid Cap Equity Strategy, Russell BNY/Mellon Small Cap vs. Large Cap Valuations Small Cap DRIVERs Framework Source: Credit Suisse Small/Mid Cap Equity Strategy Team 4 Read more about Small Cap in this months key focus article: Small Cap, Big Impact. Contact your Relationship Manager for more information. Key Indicator(s) D DealsMerger & Acquisition (M&A) activity R Revisions Up/downward earnings revisions as % of total I Investor Sentiment VIX Volatility Index & high yield spreads V Valuation Absolute valuations & valuations relative to large cap E Economy Inflation/US dollar outlook & non-US sales exposure R Retail FlowsETF/Mutual fund money flows

5 The Investment Landscape – July 2011 This document is not complete without attached Important Legal Information. Large cap companies are on average covered by 25 equity research analysts – small cap cos are only covered by about 7. ETF/mutual fund flows into small cap generally strongest in the beginning of year, taper off in summer months – may signal soft performance. S&P 500 corporate balance sheets are flush with cash. Could lead to increased M&A activity, which should benefit small cap. Our neutral position for US equity is 75% large cap / 25% small cap. Our current recommendation based largely on valuations is a split of 80% large cap / 20% small cap. Key Focus: Small Cap, Big Impact Equity Research Analyst Coverage Source: The BLOOMBERG PROFESSIONAL TM service S&P 500 Sector Cash Levels (as of Q1-2011) Source: The BLOOMBERG PROFESSIONAL Service 5 Read more about Small Cap in this months key focus article: Small Cap, Big Impact. Contact your Relationship Manager for more information.

6 PB Americas The Investment Landscape – July 2011 Asset Allocation & Economic Outlook 6

7 The Investment Landscape – July 2011 This document is not complete without attached Important Legal Information. Cycle Clock The Cycle Clock framework breaks the economic cycle into 4 phases (Overheating, Slowdown, Contraction & Recovery). For each of the 4 phases we examine which asset classes perform best. GDP robust Unemployment low Tighter rate policy Inflation rising GDP dropping Employment slowing Tight rate policy Inflation slowing GDP contracting Unemployment high Easier rate policy Inflation low GDP picking up Employment off Easy rate policy Inflation tame Source: PB Global Research 7

8 The Investment Landscape – July 2011 This document is not complete without attached Important Legal Information. Markets rebound on improved economic data, progress on Greek debt issues Jul.Jun Equity - USA - Non-US Developed - Emerging Markets Economic momentum slowing, expected to reaccelerate in H2-11 European sovereign debt issues persist, contagion risks remain Inflation pressures have eased, monetary policy remains supportive Cash Underweight due to unfavorable investment returns Source: PB Americas Investment Strategy & Advisory Positive * Negative * Neutral * * Arrows represent the current PB Americas Investment Strategy & Advisory absolute market view for 6-12 months. 8 Improvement in market sentiment and rising yields negative for sector Fixed Income - US Tax-Exempt - US Taxable - Non-USD Local government fiscal issues & rising interest rates warrant caution Quality credit fundamentals expected to peak; Greek debt rollover still an issue EM valuations appear fair, credit selection remains key Outlook Summary:

9 The Investment Landscape – July 2011 This document is not complete without attached Important Legal Information. Outlook Summary: Global Macro remains top opportunity in the space Private equity funds currently holding record amounts of cash – buyout activity may flourish. Suggest diversified exposure; current opportunities in US commercial property, Asia Current negative sentiment creates opportunity for long-term investors JunJul. Source: PB Americas Investment Strategy & Advisory Alternative Investments - Commodities - Gold - Hedge Funds - Private Equity - Real Estate Global Macro funds poised to outperform during H reacceleration Positive * Negative * Neutral * * Arrows represent the current PB Americas Investment Strategy & Advisory absolute market view for 6-12 months. 9 Remains strong cyclically and technically with further upside

10 The Investment Landscape – July 2011 This document is not complete without attached Important Legal Information. Guidance Allocations Source: PB Americas Investment Strategy & Advisory The proposed Benchmark and Strategic Asset Allocations for each of the risk budgets referenced above are created by the Private Banking Americas Investments Strategy & Advisory group. The Benchmark Asset Allocation (BAA), for a 3-7 year time horizon, is the neutral position reflecting the predefined risk budgets and meets investment objectives over a full market cycle. The Strategic Asset Allocation (SAA), for a month time horizon, expresses views resulting in temporary deviations from the BAA to generate expected excess returns or reduce risk. Alternative investments are typically high-risk investment vehicles which are available only to qualified individuals or entities that are willing to assume above average risk and sustain limited liquidity with a portion of their net worth. Please refer to the attached Important Legal Information for important disclosure relating to alternative investments. 10

11 The Investment Landscape – July 2011 This document is not complete without attached Important Legal Information. a Temporarily soft economic data turning more positive, second half 2011 reacceleration gaining traction. Lower gas prices and easing agriculture commodity prices point to decreased inflationary pressure. Greeces near-term funding issue appears solved. Medium-term support and possible private sector participation still being negotiated. Japans industrial production is rebounding and alleviating some global supply chain bottlenecks caused by the natural disaster earlier this year. China tightening is unlikely to result in a hard landing as increased wages and government spending support growth. Recent weak economic data mask strong global fundamentals; H2 reacceleration projected Economics US Gas Prices Decline: Freeing Up Income Japan: V-Shaped Recovery Source: The BLOOMBERG PROFESSIONAL TM service 11 Source: The BLOOMBERG PROFESSIONAL TM service

12 The Investment Landscape – July 2011 This document is not complete without attached Important Legal Information. Markets rebound on improved economic data, progress on Greek debt issues Equities Developed MarketsEmerging Markets USA Asia Asia Pacific ex-Japan Latin America Canada Europe, Mid East, Africa UK Japan Europe ex-UK Despite recent uptick in markets, valuations remain compelling, particularly in the US. Some clarity reached in Greek sovereign debt situation, though ultimate solution yet to be reached, volatility could persist. Valuations attractive in Emerging Asia and Russia, momentum strong in Russia as well, despite oil trading well off 2011 highs. Small caps look richly valued vs. large caps, and benefit relatively less from global reacceleration – prefer large cap. As reacceleration thesis plays out, cyclicals should outperform (e.g. Technology and Materials). Sector Outlook Source: Credit Suisse Investment Strategy & Advisory Information Technology Financials Materials Health Care Consumer Discretionary Industrials Consumer Staples Telecomm Services Energy Utilities Regional Outlook Source: Credit Suisse Investment Strategy & Advisory Positive * Negative * Neutral * * Arrows represent the current PB Americas Investment Strategy & Advisory absolute market view for 6-12 months. 12

13 The Investment Landscape – July 2011 This document is not complete without attached Important Legal Information. Improvement in market sentiment and rising yields negative for sector Fixed Income With economic growth reaccelerating in second half of 11 and corporate leverage expected to further increase, prospect of addl spread tightening limited. Risk averse investors: focus on short-to- medium term maturities in A to BBB space HY default rates likely to bottom in the next 2- 3 quarters. Specific opportunities still offer value. Improvement in market sentiment with more transparency around Greece and economic reacceleration could benefit the EM space. Local government fiscal issues and rising rates calls for caution in muni space. Exposure to select IG credits may offer value. Favor financials. Source: The BLOOMBERG PROFESSIONAL TM service Fixed Income Outlook IG Spread: Further Compression Unlikely Source: PB Americas Investment Strategy & Advisory Positive * Negative * Neutral * * Arrows represent the current PB Americas Investment Strategy & Advisory absolute market view for 6-12 months. Emerging Markets US Treasury Inflation Protected US Securitized US Investment Grade Corp. US High Yield US Treasuries US Municipal 13

14 The Investment Landscape – July 2011 This document is not complete without attached Important Legal Information. USD stabilizes, but still likely to weaken over the medium term Currencies Wide interest rate gap in favor of EUR is offset by risk premium. EUR remains overvalued, but supports remains in place. Commodity currencies (AUD, NZD) overvalued, but commodity prices warrant current level. Bank of England rate hike less certain and hike to occur later than anticipated. Improving risk sentiment may weigh on JPY vs. other currencies. Narrow rate spreads at short end of curve. EM currencies expected to outperform against USD. Low US yields and ample liquidity projected to lead to further EM capital inflows. FX Outlook CAD: Lower oil price may pressure currency Source: The BLOOMBERG PROFESSIONAL TM service Source: PB Americas Investment Strategy & Advisory Positive * Negative * Neutral * * Arrows represent the current PB Americas Investment Strategy & Advisory absolute market view for 6-12 months. 14 USD vs. CAD USD vs. CHF GBP vs. USD NZD vs. USD USD vs. JPY AUD vs. USD USD vs. BRL USD vs. MXN EUR vs. USD

15 The Investment Landscape – July 2011 This document is not complete without attached Important Legal Information. Further downside risk to commodities limited as macro environment improves and various markets tighten. Current levels present a good entry point. Despite recent selling pressure, palladium likely to perform well as a result of Russian supply shortages and increasing car production. Natural gas remains attractive due to favorable valuation and supply constraints. Above average summer temperatures requires increased power to run air conditioning – benefits nat gas. Agriculture prices closer to bottom, but overvaluations remain an issue, upside will be capped. Current negative sentiment creates opportunity for long-term investors Commodities Palladium: Poised for Growth Source: The BLOOMBERG PROFESSIONAL TM service Commodities Outlook Source: PB Americas Investment Strategy & Advisory Positive * Negative * Neutral * * Arrows represent the current PB Americas Investment Strategy & Advisory absolute market view for 6-12 months. 15 Precious Metals Industrial Metals Livestock Agriculture Energy

16 The Investment Landscape – July 2011 This document is not complete without attached Important Legal Information. Global Macro funds poised to outperform during H reacceleration Alternatives Mixed economic indicators and increased volatility have kept hedge fund capital on sidelines on fears of a double-dip recession and/or Greek default – neither of which is likely. Remain constructive on global macro funds, despite recent performance issues, given prospect of H reacceleration. Private equity funds currently holding record amounts of cash – buyout activity may continue to flourish. Real property remains a key part of a global asset allocation. Focus on select parts of US and Asia. ISM Manufacturing Index: Turning Up Source: The BLOOMBERG PROFESSIONAL TM service Greek 5yr CDS: Elevated Levels on Default Fear Source: The BLOOMBERG PROFESSIONAL TM service 16

17 PB Americas The Investment Landscape – July 2011 Appendix Key Forecasts Global Returns Historic Snapshots 17

18 The Investment Landscape – July 2011 This document is not complete without attached Important Legal Information. Key Forecasts* Global Equity Indices 6/30/1112M US (S&P 500)1,3211,404 Euro Area (Euro Stoxx 50)2,8493,061 UK (FTSE 100)5,9466,236 Japan (Nikkei 225)9,81610,500 Asia Ex-Japan (MSCI Asia AC ex-Japan) /30/11Year-end Brazil (Bovespa)62,40485,000 Mexico (IPC)36,55840,000 Commodities 6/30/113M12M Energy WTI Crude Oil (USD/barrel) US Natural Gas (USD/mmbtu) Precious Metals (Spot, USD/ounce) Gold 1, Silver Platinum Base Metals (Spot, USD/pound) Aluminum Copper Agriculture ($/bushel) Wheat Corn Real GDP (In %) 2011E2012E Inflation 11E Global US Euro Area Japan Non-Japan Asia Latin America Interest Rates (10-yr Gov.) 6/30/113M12M US – 3.4%3.3 – 3.5% Euro Area – 3.2%3.1 – 3.3% UK – 3.5%3.7 – 3.9% Japan – 1.2%1.2 – 1.4% Currencies (USD vs.) 6/30/113M12M Euro** Japanese Yen British Pound** Swiss Franc Canadian Dollar Australian Dollar** New Zealand Dollar** Mexican Peso Brazilian Real Source: PB Global Research, The BLOOMBERG PROFESSIONAL TM service, Thompson Reuters DataStream *3month, 12month, or Year-end forecasts as indicated; **Level with USD as counter currency, price change with USD as base currency 18

19 The Investment Landscape – July 2011 This document is not complete without attached Important Legal Information. Global Returns Dashboard Source: The BLOOMBERG PROFESSIONAL TM service, Thompson Reuters Datastream *Level with USD as counter currency, price change with USD as base currency Global Equities (TR, Local Currency) Jun-11YTD S&P %6.0% Canada (Toronto Stock Exchange) -3.3%0.2% Euro Area (Euro Stoxx 50) -0.3%4.6% UK (FTSE 100) -0.4%2.7% MSCI Asia/Pacific ex-Japan -2.7%0.0% Japan (Nikkei 225) 1.3%-3.0% MSCI EM Asia -2.2%1.5% MSCI EM Europe, Middle East/Africa -1.0%2.2% Brazil (Bovespa) -3.4%-10.0% Mexico (IPC) 2.1%-4.4% Fixed Income (TR, USD) Jun-11YTD Barclays US Government Bond -0.3%2.2% Barclays US Municipal Bond 0.3%4.4% Barclays US Inflation Linked (TIPS) 0.8%5.8% Barclays US Mortgage-backed 0.1%2.9% Barclays US Investment Grade -0.9%3.2% Barclays US High Yield -1.0%5.0% JP Morgan Emerging Markets 1.3%5.0% Barclays Global Aggregate 0.1%4.4% Commodities (TR) Jun-11YTD DJ-UBS Commodities Index -5.0%-2.6% DJ-UBS Agriculture Sub-index -8.2%-7.1% DJ-UBS Energy Sub-index -6.4%-1.7% DJ-UBS Industrial Metals Sub-index -0.4%-3.5% DJ-UBS Precious Metals Sub-index -4.1%6.9% WTI Crude Oil (USD/barrel) -7.1%4.4% Gold (USD/ounce) -2.3%5.6% Currencies (USD vs.) Jun-11YTD Euro* -0.7%-7.7% Japanese Yen -1.2%-0.7% British Pound* 2.5%-2.7% Swiss Franc -1.6%-10.1% Canadian Dollar -0.5%-3.5% Mexican Peso 1.2%-5.1% Brazilian Real -1.1%-5.9% Australian Dollar* -0.5%-4.6% New Zealand Dollar* -0.6%-5.9% 19

20 The Investment Landscape – July 2011 This document is not complete without attached Important Legal Information. Historic Snapshots Source: The BLOOMBERG PROFESSIONAL TM service,, Thompson Reuters DataStream US 10-Year Tsy Yield & Consumer Price Index S&P 500 & MSCI Emerging Markets Index US GDP Growth & Unemployment Rate S&P 500 & MSCI Emg Mkts 12M Fwd P/E Ratio 20

21 The Investment Landscape – July 2011 This document is not complete without attached Important Legal Information. Historic Snapshots Source: The BLOOMBERG PROFESSIONAL TM service,, Thompson Reuters DataStream DJ-UBS Commodity Index S&P/Case-Shiller Home Price Index US Dollar Trade Weighted Index Gold & WTI Crude Oil Price 21

22 The Investment Landscape – July 2011 This document is not complete without attached Important Legal Information. Important Legal Information This information is not intended to be a recommendation or opinion regarding the equity securities of the referenced companies. This material may not be used or relied upon for any purpose other than as specifically contemplated by a written agreement with Credit Suisse Securities (USA) LLC (CSSU). This material has been prepared by the Investment Strategy & Advisory Group of the Private Banking USA business of CSSU and not by the CSSU research department. It is provided for informational purposes, is intended for your use only and does not constitute an invitation or offer to subscribe for or purchase any of the products or services mentioned. The material is not intended to provide a sufficient basis on which to make an investment decision. It is intended only to provide observations and views of the Investment Strategy & Advisory Group, which may be different from, or inconsistent with, the observations and views of CSSU research department analysts, CSSU traders or sales personnel, or the proprietary positions of CSSU. Observations and views expressed herein may be changed by the Investment Strategy & Advisory Group at any time without notice. Past performance is not an indication or guarantee of future performance, and no representation or warranty, expressed or implied is made regarding future performance. The material set forth above has been obtained from or based upon sources believed to be reliable but CSSU does not represent or warrant its accuracy or completeness and is not responsible for losses or damages arising out of errors, omissions or changes in market factors. This material does not purport to contain all of the information that an interested party may desire and, in fact, provides only a limited view of a particular market. CSSU may, from time to time, participate or invest in transactions with issuers of securities that participate in the markets referred to herein, perform services for or solicit business from such issuers, and/or have a position or effect transactions in the securities or derivatives thereof. The material does not constitute objective research under FSA rules. The most recent CSSU research on any company mentioned is available to online subscribers at suisse.com/pbclientview. CSSU does not provide legal or tax advice. Consult your personal accounting, legal, and tax advisor with respect to any legal or tax implications. Private equity funds, hedge funds and other alternative investments are complex instruments that are not suitable for every investor, may involve a degree of risk, and may be appropriate investments only for sophisticated investors who are capable of understanding and assuming the risks involved. Before entering into any transaction, an investor should determine if the product suits his or her particular circumstances and should independently assess (with his or her professional advisers) the specific risks and the legal, regulatory, credit, tax and accounting consequences. CSSU makes no representation as to the suitability of any alternative investment product for any particular investor nor as to the future performance of any such products. Any offering of interest in any private equity fund, hedge fund or other alternative investment product shall only be made pursuant to the offering material for each such product, which will be provided to each prospective investor before making his or her investment decision and which contains information about such product's investment objectives, the terms and conditions of an investment in such product and also contains tax information and risk disclosures that involve significant risks, such as loss of entire investment, illiquidity, restrictions or transferring of interests, volatility of performance, and currency risks. Before deciding to invest in a private equity fund, hedge fund, or other alternative investment, prospective investors should read the relevant offering material for such product and pay particular attention to the risk factors contained therein. Prospective investors should have the financial ability and willingness to accept the risk characteristics of such investment. The Private Banking USA business in CSSU is a regulated broker dealer and investment advisor. It is not a chartered bank, trust company or depository institution. It is not authorized to accept deposits or provide corporate trust services and it is not licensed or regulated by any state or federal banking authority. Internal Revenue Service Circular 230 Disclosure: As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein. This material may be distributed in Mexico by Banco Credit Suisse (México), S.A., for information purposes only, this may not be construed as an offer or an invitation to enter into any transaction or purchase any security or investment product that may not be undertaken under Mexican applicable regulation. ©2011 Credit Suisse Securities (USA) LLC. All rights reserved 22

23 PB Americas The Investment Landscape – July 2011 Private Banking Americas Investment Strategy & Advisory Group The Investment Landscape


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