1. Outlook For Financial Markets And Investment Strategy
January 2014
Outlook For Financial Markets And Investment Strategy
Chen Zhao Chief Global Strategist Global Investment Strategy 1

2. ISM* PURCHASING MANAGERS' * INSTITUTE FOR SUPPLY MANAGEMENT.
Global Economies Resynchronize %
Ann%
Ann%
Ann%
U.S.
Chg
Chg
EURO AREA REAL GDP
ISM* PURCHASING MANAGERS'
Chg 70 60
MODEL ESTIMATE*
COMPOSITE INDEX (LS)
TOTAL RETURN:
STOCK-TO-BOND 2
RATIO (RS) 40 2 60 20 50 -2 -2
-20 40
-40 -4 -4
© BCA Research 2014
© BCA Research 2014 02 04 06 08 10 12 14 04 06 08 10 12 14
* INSTITUTE FOR SUPPLY MANAGEMENT.
* BASED ON REAL EFFECTIVE EXCHANGE RATE, CORPORATE
BOND YIELDS AND PMI. 2

3. Global Economies Resynchronize
Ann%
Ann%
Chg
GLOBAL INDUSTRIAL PRODUCTION*
Chg
MODEL ESTIMATE** 10 10 5 5 -5 -5
-10
-10
© BCA Research 2014 70 75 80 85 90 95
2000 05 10 15
* GDP-WEIGHTED AVERAGE OF 40 COUNTRIES. 3
** BASED ON THE BCA GLOBAL ECONOMIC LEADING INDICATOR, THE PRICE OF BRENT OIL AND BAA SPREADS.

4. Price Inflation In Developed World
Ann% %
Ann% %
Chg
EURO ARE
Chg
U.K.
HEADLINE INFLATION (LS)
HEADLINE 70
INFLATION DIFFUSION INDEX* (RS) 70 4 5
INFLATION (LS) 60 4 60 3 50 3 50 2 40 2 40 1 30 1 30 20
INFLATION DIFFUSION -1
INDEX* (RS) 20 10 -1
© BCA Research 2014
© BCA Research 2014
2000 02 04 06 08 10 12 14
2000 02 04 06 08 10 12 14
* PERCENTAGE OF CPI COMPONENTS WHICH ARE RISING. SHOWN
* PERCENTAGE OF CPI COMPONENTS WHICH ARE RISING. SHOWN 4
SMOOTHED EXCEPT FOR THE LATEST DATAPOINT.
SMOOTHED EXCEPT FOR THE LATEST DATAPOINT.

5. U.S. CONSUMER PRICE INFLATION
Price Inflation In Developed World
Ann%
Ann%
Chg
Chg
U.S. CONSUMER PRICE INFLATION
HEADLINE 4 4 2 2 -2 -2
Ann%
Ann%
Chg
SERVICES
Chg
GOODS 6 6 4 4 2 2 -2 -2 -4 -4
© BCA Research 2014 04 06 08 10 12 14 5

6. Profits, Yield Curve And Equity Multiples
Ann%
Ann% Bp
Chg
Chg
U.S.
U.S. S&P 500 OPERATING EARNINGS PER SHARE
S&P 500 FORWARD P/E RATIO* (LS) 15
YIELD CURVE** (RS)
YEAR-OVER-YEAR
GROWTH
400 80 80
MODEL ESTIMATE* 14
350 40 40 13
300 12
250
-40
-40 11
200
© BCA Research 2014
© BCA Research 2014
2000 02 04 06 08 10 12 14
2010
2012
* BASED ON THE CHANGE IN QUALITY SPREADS, NEW ORDERS AND THE GAP BETWEEN PRODUCTIVITY GROWTH AND PERSONAL INCOME
GROWTH-PER-CAPITA.
* SOURCE: THOMSON REUTERS / IBES.
** 30-YEAR MINUS 2-YEAR GOVERNMENT BOND YIELD. 6
NOTE: BOTH SERIES SHOWN SMOOTHED.

7. 26-WEEK ROLLING CORRELATION**:
Changing Correlations %
1800
U.S. 7
U.S. S&P 500 (LS)
S&P 500 (LS)
1800
CONTINUOUS COMMODITY
INDEX* (RS)
1600
10-YEAR GOVERNMENT BOND
700 6
1600
YIELD (RS)
1400 5
1400
600
1200 4
1200
500
1000 3
1000
400
800
800 2 %
26-WEEK ROLLING CORRELATION**:
4-YEAR WEEKLY ROLLING CORRELATION: .8 .8 .8 .8 .6 .6 .4 .4 .4 .4 .2 .2
U.S. S&P 500 VS. 10-YEAR
GOVERNMENT BOND YIELD
U.S. S&P 500 VS. CONTINUOUS
-.2
-.2
-.4
-.4
COMMODITY INDEX*
-.4
-.4
© BCA Research 2014
© BCA Research 2014 02 04 06 08 10 12 14 08 10 12
* SOURCE: THOMSON REUTERS.
** SHOWN SMOOTHED EXCEPT FOR THE LATEST DATAPOINT. 7

8. 12-MONTH FORWARD P/E RATIO**
Are We In A Bubble?
U.S.
250
S&P 500*
250
OPERATING EPS*
200
200
Phase I
150
Phase II
150
100
100
12-MONTH FORWARD P/E RATIO** 15 15 14 14 13 13 12 12 11 11 10
© BCA Research 2014
© BCA Research 2014 10 08 10 12
* SHOWN REBASED TO 100 AT THEIR BOTTOMS. 8
** SHOWN SMOOTHED EXCEPT FOR THE LATEST DATAPOINT. SOURCE: THOMSON REUTERS / IBES.

9. Are We In A Bubble? % %
BCA U.S. EQUITY VALUATION INDEX*
U.S. S&P 500
100
100
DEVIATION FROM FAIR
VALUE BASED ON 3 3 80
COMPETING ASSETS* 80 2 2 60 60
EXTREMELY OVERVALUED 40 40 1 1
OVERVALUED 20 20
UNDERVALUED -1 -1
-20
-20
EXTREMELY UNDERVALED -2 -2
-40
-40
© BCA Research 2014
© BCA Research 2014 60 65 70 75 80 85 90 95
2000 05 10 15 80 85 90 95
2000 05 10 15
* SHOWN STANDARDIZED.
* BASED ON 10-YEAR GOVERNMENT BONDS, HOUSE PRICES AND BAA 9
CORPORATE BONDS. ESTIMATED SINCE 1955.

10. Japan: Nominal Or Real Problem?
JAPANESE RELATIVE TO GLOBAL EQUITIES
IN COMMON-CURRENCY TERMS*
Chg
JAPANESE
100
100
CONSUMER PRICE INFLATION (LS) 4
TRADE-WEIGHTED YEN* (INVERTED, RS) 60
PHASE I ADJUSTMENT:
PHASE II ADJUSTMENT:
DEBT MINIMIZATION
PROFIT MAXIMIZATION 80 80 2 80 60 60
100 40 40
Severe bear market
Benchmark performance 20 -2 20
120
© BCA Research 2014
© BCA Research 2014 90 95
2000 05 10 90 94 98 02 06 10 14
* SHOWN REBASED TO JAN = 100.
* SOURCE: J.P. MORGAN CHASE & CO. 10

11. Chinese Stocks: Cyclical Trend Versus Structural Story
Ann%
Ann%
Chg
CHINESE REAL GDP:
Chg
CHINESE SMALL CAP* RELATIVE TO
A SHARES**
ANNUALIZED
GROWTH RATE
.52
.52 14
QUARTER-
OVER-
QUARTER
YEAR-OVER-
YEAR 14
.48
.48 12 12
.44
.44 10 10
.40
.40 8 8
.36
.36 6 6
© BCA Research 2014
© BCA Research 2014
2012
2013
2000 02 04 06 08 10 12 14
* SOURCE: MSCI INC. 11
** SHOWN IN LOCAL-CURRENCY TERMS.

12. Commodity Plays Versus Commodity Prices
AUD/
USD
700
1.1
AUD / USD EXCHANGE RATE (LS)
CONTINUOUS COMMODITY INDEX* (RS)
1.0
600 .9
500 .8
400 .7
CAD/
USD
CAD / USD EXCHANGE RATE (LS)
1.05
CONTINUOUS COMMODITY INDEX* (RS)
650
1.00
550
.95
.90
450
.85
350
.80
© BCA Research 2014 08 10 12
* SOURCE: THOMSON REUTERS. 12

13. Commodity Plays Versus Commodity Prices
EMERGING ASIAN RELATIVE TO
U.S. S&P 500 RELATIVE
140
LATIN AMERICAN EQUITIES* (LS)
120
120
TO PRICE OF OIL*
GLOBAL MANUFACTURED GOODS
RELATIVE TO RAW MATERIALS
PRICES** (RS)
130
1.2
100
100
120
110 80 80
100
1.0 90 60 60 80 .8 70 40 40
A mega switch? 60 20 20 50 .6
© BCA Research 2014
© BCA Research 2014 02 04 06 08 10 12 14 98
2000 02 04 06 08 10 12 14
* SHOWN IN U.S. DOLLAR TERMS AND REBASED TO JAN = 100.
* BRENT CRUDE OIL. 13
SOURCE: MSCI INC.
** SOURCE: NETHERLANDS BUREAU FOR ECONOMIC POLICY ANALYSIS.

14. REAL* PRICE OF GOLD (IN 2013 US$) * DEFLATED USING HEADLINE CPI.
Bear Market In Gold Has Further To Go
Breakout
1600
REAL* S&P 500
1600
(IN 2013 US$)
900
900
500
500
300
300
REAL* PRICE OF GOLD (IN 2013 US$)
1600
1600
900
Breakdown
900
500
500
300
300
© BCA Research 2014 70 75 80 85 90 95
2000 05 10 15
* DEFLATED USING HEADLINE CPI. 14