UUSS IINNDDUUSSTTRRYY MMOONNIITTOORR 2010 Second Half Issue

October 1 2010

【OVERVIEW】Increased Uncertainty for Sustained Recovery in U.S. Industries

The GDP growth rate in the United States improved to +5% in the fourth quarter of 2009, then gradually decelerated in 2010 to +3.7% and currently to +1.7%. There are signs of mixed outlook; while the recovery in capital investment is becoming apparent, consumer spending which has been slowly but steadily improving is now showing signs of sluggishness. The current corporate financial results show that measures taken by companies during the economic downturn to improve business structure is taking effect and overall recovery in profitability is steadily improving. Nevertheless, it is unclear if the recovery will sustain going forward.

The processing and assembly sector is expected to remain solid for now. Light vehicle sales remain stable, albeit at a lower level than previous estimates, and consensus estimates for 2010 light vehicle sales are around 11.4 million units. The semiconductor industry continue to enjoy favorable results, and although decelerating PC demand may dampen revenue growth going forward, the recovery trend is expected to continue. The machinery industry finally turned positive in the early spring, and the industry is expected to remain solid reflecting recovery in demand and inventory rebuilding.

The outlook for the energy and materials sector is increasingly uncertain. Metals and chemicals industries turned positive in the first quarter. Nevertheless, currently the demand is weakening and steel and ethylene prices are declining, contributing to increased uncertainty for recovery going forward. In the oil industry, the refining and marketing segment was undergoing a downturn for a while, but the results turned positive in the second quarter as a result of restructuring. Nevertheless, the demand from downstream business such as gasoline lacks strength, and going forward the rate of recovery may gradually slow down.

In the nonmanufacturing sector, the retail industry in general continues to enjoy a gradual recovery, albeit lacking strength. Results are mixed; while luxury department stores post favorable results, specialty stores targeting teens are lackluster. The homebuilding industry is yet to see a bottom as the demand declines and inventory remains high amid challenging labor market. On the other hand, the office market is showing signs of recovery such as declining vacancy rate. However, the level of vacancy rate remains high, and considering today’s labor market, it is expected to take some time for a real recovery.

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Table of Contents

Industry Indicator Latest Data Page

Automobile 1. Car Sales / Production Jul 2010

Machinery 2. Machinery New Order Jun 2010 2

3. PC Shipment 2Q/2010 Electronics

4. Semiconductor Shipment Jun 2010 3

Steel 5. Steel Price/ Production / Import Jun 2010

Chemical 6. Ethylene Price Jul 2010 4

Paper 7. Paper Price Jul 2010

Pharmaceuticals 8. Pharmaceuticals Shipment Jun 2010 5

Retail 9. Retail Sales Jul 2010

10. Railroad Traffic 2Q 2010 6

Transportation 11. Airline Revenue Passenger Miles May 2010

Telecommunication 12. Wireless Subscription 2H 2009 7

Utilities 13. Electricity Wholesale Price / Retail Sales Jun 2010

Advertisement 14. Ad Revenue Growth 1Q 2010 8

15. Housing Starts / Permit Housing Price Index Jul 2010

Real Estate 16. Office Rent (Manhattan, Midtown) 2Q 2010

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Appendix 1 Company Financial Performance 10

Appendix 2 Macro Indicators 14

Appendix 3 Exchange Rate 15

Note: The "FORECAST" period added in this edition is a short-term outlook (6 months). This bulletin is issued semi-annually.

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1. Automobile Sales / Production Forecast: Sales level is likely to level off after strong surge in fleet sales in the first half of 2010

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(Source: Ward's AutoInfoBank) (Unit: Millions, %)

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(Source: Ward's AutoInfoBank) (In Units: Thousand, %)

Year-to-date July, US light vehicle sales are up +15% y/y to a mid-11million SAAR level. But a large chunk of this rise has been propelled by fleet sales (+62% y/y) while retail sales are up only +5% y/y. Yet July sales reflected some moderation in the fleet mix, with fleet sales representing 17% of industry sales, down from 23% YTD. This suggests that July’s +4% m/m gain was primarily driven by retail demand amid model-year clearance promotions. North American production is up 68% y/y in the first seven months as automakers have sought to rapidly rebuild depleted inventories after the cash-for-clunkers program. That has quickly fed into much improved production schedules and boosted the sector’s financial results in the first half of the year. Production volume in the second half is projected to level off, as automakers maintain diligent inventory control. The near-term prospects for light vehicle sale decidedly are mixed. Although July’s shift in retail mix is encouraging, retail demand remains highly sensitive to incentives. On the other hand, manufacturers will likely remain disciplined on pricing in the post summer-clearance period to maintain higher average transaction prices. As such, if automakers uphold their plans to rely less on fleet sales in the second half of 2010, sales recovery isn’t likely to be robust. In all, both sales and production will remain on an upward track for the next six months – but the y/y growth pace in the first half is unlikely to continue. Current consensus estimates put US light vehicle sales at around ~11.4 million units and North American light vehicle production at ~11.5 million units for 2010.

2. Machinery Order Forecast: Continued strong growth for machinery orders

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(Source: U.S. Census Bureau) (Unit: Billion US$, %)

Machinery orders rose 18% in the first half of 2010, although the absolute level of orders is still relatively low (just below their 1H/05 level). The largest year-over-year increases came in the construction (+99%) and industrial (+63%) sectors, both of which had experienced particularly steep drops in 1H/09. Orders for metalworking, materials handling and electric power equipment all recorded double-digit gains. Orders for new machinery should continue on their upward growth path over the next six months. Dealership and leasing company inventories in a number of machinery sectors are still in need of replenishing following the steep cuts undertaken in 2009. The rise in commodity prices is generating increased mining activity globally.

US Light Vehicle Sales（SAAR）

North American Light Vehicle Production

y/y  comparisons  for July were  skewed  by last  year’s  Cash‐for‐Clunkers program

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3. PC Shipment Forecast: Slowing, but healthy growth

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USA WW-USUS YoY Growth WW YoY Growth

(Unit : Million , %)(Source : Gartner)

Global PC shipments are projected to increase +19% this year according to Gartner which reduced its 21H0 forecast by -2% to +15% because of expectations for economic weakness in the US and Western Europe. Notably, IDC reported that the global PC market grew 22% during 2Q10. 2010 PC sales benefit from the success of Microsoft’s Windows 7 upgrade which sold 150MM+ copies during the first 9 months through 6/30/10 - making it the fastest selling OS in history. The Asian PC manufacturers continue to gain share by selling into emerging markets with lower priced computers. During 2Q10, global PC shipment growth for the 6 largest vendors were as follows: (1) ASUS +84%; (2) Lenovo +47%; (3) Toshiba +26%; (4) Acer +21%; (5) Dell +19%; (6) HP +12%. Big picture growth drivers for PCs include durable consumer demand (as the public now views the PC as a relative necessity) and an ongoing enterprise PC refresh cycle. Headwinds include fast growth of the iPad and lower-priced iPad imitations which are likely to take PC share over the next couple of years. In conclusion, we believe PC shipment growth prospects remain robust for at least the next 6 months.

4. Semiconductor Shipment Forecast: Slowing, but healthy growth

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Americas OthersAmericas YoY % change WW YoY % change

(Source: Semiconductor Industry Association) (Unit: Billion Dollar, % )

The SIA forecasts that global chip sales will increase +28% to $290.5 billion in 2010. Also, the forecast projects slowing +6% growth in 2011 and +3% in 2012. During July, global chip sales increased +37% y/y with YTD growth of +47% y/y for the first 7 months of 2010. Strong global chip sales are indicative of increased chip penetration into a diverse range of electronic products such that the industry’s secular growth drivers continue to overpower slowing economic growth. Notably, Intel issued a growth warning because of weaker-than-expected demand for mobile PCs in consumer markets in the U.S. and Europe. Resultantly, the largest chip maker now expects third-quarter revenue of $10.8B to $11.2B and a gross margin of 66%, plus or minus one percentage point. Previously, Intel had guided to 3Q10 revenue of $11.2B to $12B with a 67% gross margin. While this represents a -5% decrease in top-line expectations, we note that $11B in 3Q10 sales would still represent a healthy +17% y/y increase. Resultantly, we view Intel’s announcement as a read into directional change for the PC market (i.e. slowing growth but nothing monumental). In conclusion, we expect prospects for chip sales will remain strong for at least the next 6 months although slower PC sales will impact chip growth at the margin.

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5. Steel Price, Production / Import Forecast: As manufacturing activity slows, mills will keep tight reign on production in near term

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1200Production(left)Imports(left)Hot Rolled Prices(right)

(Source: AISI, Purchasing) (Unit: Million Tonne, US$/t)

Steel production is up +66% y/y for year-to-date May, while steel consumption grew by +53% y/y. The faster rebound in production reflects US steel mills’ market share gain: Typically imports meet 25-30% of US steel consumption, but import penetration fell below 20% in the second half of 2009 and remained low until February as US price premium temporarily disappeared. However, US spot prices shot higher in spring, as US steel producers raised prices in response to higher prices for raw materials, such as iron ore, coking coal and scrap iron. That, in turn, triggered foreign steel from Asia and Europe to flow back in. In recent months, however, shipments to key end-markets, including distributors, construction, auto and container, have weakened as manufacturing activity slows and consumers grow more cautious. In this environment, US steel producers clearly lack the leverage they need to maintain higher price, and US steel prices tumbled in June. Prices for hot-rolled steel coil fell -4.7% m/m in June to $645/ton. Domestic steel mills are responding by cutting production for fear of sending price even lower. Most steel producers don’t expect steel demand to pick up anytime soon and likely to keep production under tight control in coming months. And the prospects of soft raw material prices in Q4/10 are likely to lower the floor for US steel prices in near term.

6. Ethylene Price Forecast: Ethylene prices will fall further as additional capacity comes on stream in the Middle East

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Ethy lene Price (Delivered pipeline, Gulf)

(Source: Bloomberg) (Unit: Cent / Pound)

Ethylene prices are plummeting on sharply lower feedstock costs in the U.S., reflecting increased supply of natural gas produced from shale. Nevertheless, prices remain well above their level last year due to improved domestic demand, strong exports to China, and unplanned plant outages. New ethylene capacity is coming onstream in the Middle East and Asia, albeit with many start-up delays due to technical issues. Although about 3MM m.t./year of ethylene capacity has been shuttered, mostly in the U.S., the global ethylene market is facing oversupply of about 5MM m.t./year through 2014. As the recent demand recovery loses steam in many parts of the world and producers’ operating rates do not rise above their current 80%, ethylene prices will decline further. Price declines, coupled with possible higher costs due to seasonal feedstock disruptions caused by hurricanes, might lead to margin compression.

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7. Paper Price Forecast: Further modest price increases likely

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Newsprint Uncoated FreesheetLinerboard

(Source: Pulp & Paper Week) Transaction Price($ / Ton)

Paper producers have successfully instituted a series of price increases during the first half of 2010. Rising input costs (pulp and recycled fiber) were significant contributors to the price increases. Uncoated free sheet prices (+8.7%) benefited from some cyclical firming in demand. Box shipments were up 4% in 1H/10, leading to a 21% rise in linerboard prices. Domestic demand for newsprint has been flat for the last eight months, but very strong export demand – particularly from Asia – has driven an 11% increase in total shipments and newsprint prices have increased 16% in the first half of the year. Further modest increases in major paper grades are likely over the next six months. Pulp prices have fallen over the last two months in response to an abrupt drop in purchases by China, and if pulp pricing continues to weaken, paper prices could come under downward pressure. However, the decline in Chinese orders is expected to be short-lived and pulp pricing should ultimately stabilize. Uncoated free sheet and newsprint continue to face long-term declining trends in demand, but cyclical forces should continue to provide positive pressure over the near-term. Linerboard prices are already at historically high levels and significant increases in recycled corrugated cardboard prices will be necessary to produce a major upward move (>10%) from where we are now.

8. Pharmaceutical Shipment Forecast: Shipments will stabilize though prices will be pressured by generics

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Pharmaceutical ShipmentGrow th Rate (YoY)

(Source: U.S. Census Bureau) (Unit: Billions US$, %)

Although pharmaceutical shipments continue to decline y-o-y, the pace of this decline is slowing due to inventory restocking and strong demand in emerging markets. For example, legacy Pfizer sales in emerging markets grew 11% y-o-y in 2Q10. Higher pricing has mitigated constrained volumes. The PPI of pharmaceutical preparations rose 6.1% y-o-y in the first half., as manufacturers sought to establish a higher pricing level ahead of the health care reform’s price discounting. Although the U.S. health care reform is set to gradually stimulate new demand for prescription drugs, much of it will be directed toward lower priced generics, which are imported products. Increased generic competition related to accelerating patent expiries on top of limited major product launches in the coming years will restrain pricing of branded products, dampening domestic shipment recovery. A strengthening dollar and drug pricing pressures in the Euro zone amid stringent budgetary measures will be a negative for U.S. sales.

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9. Retail Sales Forecast: Although sales remain positive, weak traffic and promotions weigh on the pace of recovery

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Retail Total YoY % Change

(Unit: Billion US$, %)(Source: U.S. Census Bureau)

US retail sales rose by a modest +0.4% m/m and +5.2% y/y in July. But much of the increase was driven by incentive-fueled auto sales (+1.6% m/m) and higher gasoline prices (+2.3% m/m). Core retail sales, which excludes auto, gasoline and building materials, fell -0.1% m/m and have been stalled for the past four months, averaging just -0.1%, compared with a +0.8% pace in Jan-Mar 2010. The fragility of the consumer recovery is notable also in July same-store sales. Almost two-thirds of major chains reporting the data fell short of analysts’ estimates despite lure of summer clearance. Overall same-store sales increased by +2.9% y/y, down from a +3.1% gain in June. This was particularly disappointing given the easy comparison against a year-ago month’s -5.1% drop. Among the stronger performers were luxury retailers, such as Nordstrom and Saks. This partly reflects the easy comparisons, but upscale retailers overall outperformed mass-market chains in this early stage of recovery. Meanwhile, the teen segment posted the biggest miss, with teen unemployment rate at triple the national average. The mass-market segment appears to be a zero-sum game, which produces winners and losers rather than uniform gains across the segment. Given low levels of consumer confidence and anemic job growth, it isn’t likely that consumer spending will strengthen much further this year. While retailers become more promotional in an effort to steal market share from other chains, they will also face tougher y/y comparisons in the next six months.

10.Railroad Traffic Forecast: Intermodal demand should drive continued growth in rail freight activity

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(Source: Surface Transportation Board) (Unit: Billions, %)

After recording five consecutive quarters of decline, rail freight tonnage bounced back strongly in 1H/10, rising 6% in Q1 and 13% in Q2. Automotive related sectors were particularly strong in the first half of the year reflecting the rebound in auto production. Shipments of motor vehicles and equipment rose 38%, while metals and scrap materials were up 65% and 28%, respectively. Grain and other farm products and chemicals remained strong, rising at double digit rates. The only segments reporting declines were coal (-1%) and paper products (-3%). Weakness in coal shipments was due to sluggish activity in the electric utility industry. However, export-related coal shipments, which are much more profitable for the railroads, rose sharply. Rail freight traffic should continue to expand in the second half of 2010, although rates of growth should moderate somewhat. Coal shipments have slowed in Q3/10 but should pick up again in Q4. Retail electricity demand has rebounded and coal inventories will require some rebuilding. Intermodal traffic growth should remain strong (15-20%) reflecting continued high container volumes at U.S. ports.

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11. Airline Revenue Passenger Miles Forecast: Continued moderate growth in air traffic

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Domestic RPMs International RPMsDom Grow th (YoY) Int Grow th (YoY)

(Source: US Dept. of Transportation) (Unit: Billions, %)

A firming in international demand has led to rising growth in air traffic in the first half of 2010. U.S. legacy carriers (LC) reported international travel increases of 2% in Q1/10 and 5% in Q2/10. Domestic traffic was essentially flat as LCs experienced modest declines (-0.5%) while Low Cost Carriers (LCC) saw first-half growth of 5%. After two years of decreases in capacity, airlines began bringing aircraft back on line in Q2, although capacity increases have thus far lagged behind traffic growth. Continued moderate growth in air traffic is probable in the second half of 2010. The LCs will likely continue to focus on business travel and their more profitable international routes, while the LCCs capture most of the growth in more price-sensitive domestic traffic.

12. Wireless Subscription Forecast: Slow voice sub growth offset by connected devices, prepaid and data

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(Unit : Million Persons , %)(Source : CTIA )

U.S. wireless sub growth increased +5.8% y/y during 2Q10 which is roughly in-line with the 2009 growth rate. 2Q10 sub growth components are as follows: postpaid (75.9% mix) +1.6% y/y; traditional prepaid (13.0% mix) +1.9%; unlimited prepaid (6.7% mix) +45.2%; connected devices (2.8% mix) +95.1%; wholesale (1.5% mix) +63%. We can see that the industry’s traditional postpaid business has slowed dramatically which reflects a weak economy coupled with peaking penetration for affluent wireless subs. Notably, postpaid sub growth is primarily driven by growth in high-end smartphones. Rather, overall sub growth is driven by connected devices (i.e. machines talking to the Internet, Kindle e-readers, etc.) along with lower priced wireless plans provided by wholesale and unlimited prepaid players. Industry ARPU continues to hold its own, decreasing just -1.8% y/y to $48.13 during 2Q10. This is a function of increasing data ARPU (broadband) +15% y/y to $15.23 during the quarter. Net/net, the industry’s total service revenues increased +4.1% y/y during 2Q10. We expect similar growth trends over the next 6 months.

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13. Electricity Wholesale Price /Retail Sales

Forecast: Growth in retail electricity consumption to continue, but wholesale power prices to fall

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(Source: Intercontinental Exchange, EIA) (Unit: $/MWｈ)

After six consecutive quarterly declines, growth in retail electricity sales turned positive in the first two quarters of 2010, rising 3% on average. Residential demand increased 4% while industrial usage was up 6%. Higher than normal temperatures played a large role in the increase. Wholesale power prices have risen and are showing year-over-year increases for the first time since Q3/08. Retail power sales should continue to improve in 2H/2010. Above normal temperatures in the Midwest and Northeast have produced higher power consumption volumes in Q3. Industrial demand should continue to grow in line with business activity. However, reserve margins for electric utilities will continue to reflect overcapacity and, with natural gas prices expected to remain at low levels, wholesale power prices will likely fall back over the next few months.

14. Ad Revenue Growth Forecast: Stabilizing at single digit growth

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YoY Growth

(Source: Kantar Media)

Magna forecasts US ad spend will increase +3.4% this year and +1.2% next year. Notably, political ad spend will boost 2010 results. Growth details are as follows: TV nets (English) +6.1% in 2010/ -3.0% in 2011; cable nets +7.5%/+8.2%; local TV +8.3%/+3.9%; local newspapers -9.6%/-6.2%; radio +5.5%/+0.1%) While positive growth is most welcome, it is notable that expected 2010 results do not come close to offsetting 2009’s dramatic fall-off of -15.5%. 2009’s decline was driven primarily by the following industries (ordered by ad spend amounts) : retail -11.5%; auto -22.8%; financial services -16.4%; media -14.6%; apparel -27.3%; real estate -48.6%. Resultantly, it is apparent that a rebound in consumer spending is required to return ad spend to 2008 levels. Also, we note that much of the affected industries tend to purchase local ads which explains why local ad expenditures have underperformed national ad spend (with local expected to continue underperforming over the next couple of years). In conclusion, we believe ad spending has stabilized at a lower level. Resultantly, we expect GDP type ad spend growth rates over the next 6 months. A more material ad spend rebound will require strengthening consumer spending – a prospect we do not expect in the intermediate term.

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15. Housing Start / Permit, Housing Price Index

Forecast: The housing market will remain distressed amid weak prices, excess inventory and falling demand

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(Source: US Dept. of Comm., OFHEO) (Unit: Thousands, % )

The HPI continued to slide year-over-year, though the pace of decline appears to be slowing. Home prices nationally are at the level they were in the fall of 2003, leaving many recent buyers underwater. With the homebuyer’s tax credit having expired in April（used up to June）, consumers are staying away from the housing market. Sales of both existing and new homes plunged y-o-y in July and inventory levels rose to 12.5 months, according to the National Association of Realtors. New housing activity continues to decline. Economic uncertainty, especially the stubbornly high unemployment, will stand in the way of demand recovery. At the same time, inventory of unsold houses will increase, as lenders initiate more foreclosures in order to clear their backlogs (In July, banks foreclosed on 6% more homes than in July 09). The supply/demand imbalance and pressures on pricing will be extended into the future due to a large shadow inventory of houses temporarily taken off the market. Most experts estimate that prices will fall 5%-10% this winter. Against the background of weak demand and depressed prices, amid excess inventory, housing starts and permits will decline further .

16. Office Rent (Manhattan Midtown) Forecast: Signs of recovery in New York’s office market

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(Source: Cushman & Wakefield) (Unit: US$/SQF, %)

After peaking in the first quarter, midtown office vacancy rate declined to 11.5% in the second quarter, the lowest level in over a year, reflecting a steady reduction in sublease space availabilities and a substantial increase in leasing activity. Absorption of midtown office space (after leasing and disposition) turned positive in 2Q10 for the first time in more than three years. Midtown Class A rents have stabilized at $69.5 per square foot in the past two quarters, 30% below their 3Q08 peak. Against the background of the addition of 19,000 jobs in New York City’s key office-using industries (financial, professional services, and media) in the first two quarters, increased leasing activity, positive absorption of space and stabilization in rental rates signal that office market recovery may be underway

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Company Financial Performance

Energy (Oil & Natural Gas)

11.2%9.9%8.4%8.5%6.9%8.3%11.1%

14.8%

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Revenu Growth (y/y)

Operating Margin

In 2Q 2010, the ENERGY sector recorded 27.8% increase y/y in revenue as well as doubled operating profit. The main factor contributing to this is large increase in profit in the upstream business due mainly to crude oil prices rising from an average of $60/barrel in 2Q 2009 to $80/barrel in 2Q 2010. In addition, refining and marketing businesses which was lagging behind in recovery in terms of profitability, have been improving since 2Q supported by improved demand of diesel fuel stemming from increased freight activity along with economic recovery, as well as benefit of cost cutting by the companies.

Incidentally, we should take in consideration that 2Q 2009 results were quite low when taking a look at improvement in current financial results. The demand for downstream business such as gasoline is expected to remain weak, and if crude oil prices should remain at the current level, the rate of growth in revenue may gradually slowdown.

Materials （Chemicals, Metals, Paper & Forest Products, Container & Packaging）

5.4%

11.8%10.6%9.7%11.0%

8.9%

1.5%

10.5%

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The MATERIALS sector revenue in Q4 2009 improved to the level of 2008, further going up in 2010 at a double-digit rate for two consecutive quarters bolstered by increased shipment volume and rising prices.

CHEMICALS recorded two consecutive quarters of higher earnings on higher sales, albeit the rate of growth in revenue has slowed down. Concerns over decelerating economy in Europe and China as well as fall in ethylene prices after April has increased uncertainty for the industry, and there is a possibility the rate of recovery in corporate performance may slow down going forward.

METALS posted two consecutive quarters of large increase in revenue and profit bolstered by increased shipment volume and rising prices. Even in the steel segment where some companies reported operating loss, many companies regained profitability in the second quarter. Nevertheless, steel shipment and prices have been falling after peaking in May. We should monitor this trend to discern if the recovery will continue going forward.

PAPER AND FOREST PRODUCTS has concentrated on improving profitability by restructuring amid downward trend in revenue as a result of stagnating domestic demand in 2009 as well as increased competition from import products. While revenue is back on growth trend since early 2010, the industry has not been able to absorb higher materials prices, which resulted in decrease of operating profits for two consecutive quarters.

※Companies Included～Dow Chemical, Du Pont, 3M Company, Huntsman Corp., PPG, Air Products & Chem., Praxair Inc., Sherwin-Williams, Ashland Inc., Alcoa Inc., U.S. Steel Corp., Nucor Corp., Illinois Tool Works, Commercial Metals, Teck Cominco Ltd. , AK Steel Holding, Freep't-McMoRan C&G, Reliance Steel, Owens-Illinois, Crown Holdings, Ball Corp., MeadWestvaco, Sealed Air, Sonoco Products, Bemis Co., Pactiv Corp., Silgan Holdings, Smurfit-Stone Cont., Int'l Paper, Weyerhaeuser Co., Temple-Inland, Louisiana-Pacific, Plum Creek Timber, Rayonier Inc., Wausau Paper

※ Companies Included ～ Exxon Mobil Corp., Chevron Corp., ConocoPhillips, Valero Energy, Marathon Oil Corp., Sunoco, Inc., Hess Corp., Schlumberger Ltd., Tesoro Corp., Occidental Petroleum, Williams Cos., Enbridge Inc., Kinder Morgan Energy, Magellan Midstream

11

Industrials（Aerospace & Defence, Machinery, Transportation, Construction & Engineering, Airline, Freight & Shipping)

7.0%

11.0%9.1%9.3%

6.8%8.8%

6.5%9.6%

150

160

170

180

190

200

210

2008/3Q 2008/4Q 2009/1Q 2009/2Q 2009/3Q 2009/4Q 2010/1Q 2010/2Q

（USD Bn）

-20%

-10%

0%

10%

20%

Revenue

Revenu Growth (y/y)

Operating Margin

The revenue for the INDUSTRIALS recovered to the level in the previous year in 1Q 2010, and the sector further increased revenue in 2Q (+9.2% y/y) bolstered by improving capital investment.

Although the recovery in the MACHINERY had been behind, the industry recorded positive growth in revenue in 2Q for the first time in six quarters. The industry is steadily progressing in its restructuring efforts, and operating profit is improving.

FREIGHT & SHIPPING revenue has increased 20% y/y in 2Q bolstered by increased cargo volume along with economic recovery, and profitability has recovered almost to the level before the Lehman Shock.

AIRLINES has gained large operating profit due to increased revenue as a result of improvement in international revenue passenger miles in addition to benefit from cost reduction measures by the companies.

On the other hand, business condition for the CONSTRUCTION & ENGINEERING continues to remain challenging as recovery in private orders is slow and public investment which has been supporting the industry seems to have exhausted.

Consumer Staples （Food & Beverage, Household & Personal Products, Groceries, Drug & Discount Stores）

7.3%7.4%8.2%7.9%7.9%7.4%

7.0%7.5%

0

50

100

150

200

250

300

350

400

2008/3Q 2008/4Q 2009/1Q 2009/2Q 2009/3Q 2009/4Q 2010/1Q 2010/2Q

（USD Bn）

-5%

0%

5%

10%

15%

Revenue

Revenu Growth (y/y)

Operating Margin

The revenue growth had been weak since 2009 in FOOD & BEVERAGE due to a shift in consumer preference to lower priced brands as a result of recession as well as supermarkets lowering prices at the storefront. However, the results remain solid since after the second half of 2009.

While HOUSEHOLD & PERSONAL PRODUCTS revenue was on downward trend during 2009 due to a shift to lower priced brands and discount prices at the storefront, revenue has been recovering after 4Q 2009. Nevertheless, in 2Q 2010 revenue growth rate has already declined, and further development in the near term should be monitored.

GROCERIES, DRUG & DISCOUNT STORES has been maintaining solid results despite recession due to a) consumers eating out less and b) increased popularity in lower priced store brand items. Although currently consumer spending seems to be slowing down, the industry is expected to maintain solid results.

※Companies Included～Boeing, Lockheed Martin, Honeywell Int'l, Northrop Grumman, Gen'l Dynamics, Raytheon Co., L-3 Communic. Hldgs., Textron, Inc., Goodrich Corp., Precision Castparts, Waste Management, Jacobs Engineering, EMCOR Group, Granite Construction, Shaw Group, United Technologies, Caterpillar Inc., Deere & Co., Fluor Corp., CNH Global NV, Cummins Inc., Terex Corp., Dover Corp., AMR Corp., UAL Corp., Cont'l Airlines, Southwest Airlines, Alaska Air Group, JetBlue Airways, United Parcel Serv., FedEx Corp., YRC Worldwide, C.H. Robinson, Ryder System, Expeditors Int'l, Con-way Inc., J.B. Hunt, Werner Enterprises, Union Pacific, Burlington Northern, CSX Corp., Norfolk Southern, Kansas City South'n

※Companies Included～PepsiCo, Inc., Kraft Foods, Tyson Foods , Coca-Cola, Con Agra Food, Gen'l Mills, Tyson Foods, Sara Lee Corp., Anheuser-Busch, Procter & Gamble, Kimberly-Clark, Colgate-Palmolive, Avon Products, Estee Lauder, Kroger Co., Safeway Inc., Supervalu Inc., Sysco Corp., Whole Foods Market, Wal-Mart Stores, Costco Wholesale, Walgreen Co., Target Corp, CVS Care Mark Group, G’t Atlantic & Pacific

12

Consumer Discretionary (Auto & Auto Parts, Homebuilding, Household Durables, Hotels & Restaurants, Apparel &

Footwear, Department/ & Specialty Stores, Media)

11.3%10.4%

9.5%9.2%7.8%

5.5%4.6%

8.4%

0

50

100

150

200

250

300

2008/3Q2008/4Q2009/1Q2009/2Q2009/3Q2009/4Q2010/1Q2010/2Q

（USD Bn）

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Revenue

Revenu Growth (y/y)

Operating Margin

AUTO & AUTO PARTS is solid, with new car sales of 11 million SAAR since March 2010, albeit slightly lower than the estimate at the beginning of this year. Although the current sales is greatly below pre-2007 level of 16-17 million SAAR, operating profit is steadily recovering as a result of companies successfully streamlining processes.

The revenue in HOMEBUILDING recorded two consecutive quarters of double-digit growth, and posted operating profit for the first time since 2007, bolstered by pulled forward demand before the end of government housing stimulus in April. Nevertheless, currently housing starts are declining in reaction to the pulled forward demand, and it is expected to take some time for the corporate earnings to bottom.

While HOUSEHOLD DURABLES and APPAREL & FOOTWEAR reported wider gains in revenue in 2Q, DEPARTMENT & SPECIALTY STORES with larger scale in terms of sales are exhibiting signs of slowing down, which may suggest exhaustion in personal spending.

Healthcare（Pharmaceuticals, Medical Equipment, Biotechnology, Medical Services）

16.2%16.2%

13.8%

15.3%14.8%15.4%

13.0%14.2%

0

20

40

60

80

100

120

140

160

180

200

2008/3Q2008/4Q2009/1Q2009/2Q2009/3Q2009/4Q2010/1Q2010/2Q

（USD Bn）

-5%

0%

5%

10%

15%

20%

Revenue

Revenu Growth (y/y)

Operating Margin

PHARMACEUTICALS revenue had been declining since 4Q 2008 along with declining number of people visiting hospitals and shift to cheaper generic drugs. Nevertheless, after 3Q 2009 revenue growth turned positive due to introduction of new drugs by major companies as well as price increases. In preparation of patent expirations of major drugs during 2010-12, major companies are seeking supplying new drugs and entry to new market through M&A. Large revenue growth reported after 4Q 2009 was a result of major M&A.

HOSPITALS & MEDICAL SERVICES revenue growth had been decelerating since the second half of 2008 to mid-2009 as a result of patients staying away from hospitals due to economic slowdown. Currently, the growth rate has been accelerating. Just like pharma, the industry reported large revenue increase after 4Q 2009 due to aggressive M&A by major players.

※Companies Included～Ford Motor, Johnson Controls, Goodyear Tire, AutoNation, Inc., PACCAR Inc., Eaton Corp., Genuine Parts, Visteon Group, Lennar Corp., Pulte Homes, KB Home, Int'l Game Tech., Darden Restaurant, Starwood Hotels, Marriott International, McDonald's Corp., Yum! Brands, Starbucks Corp., Whirlpool Corp., Mohawk Inds., Fortune Brands, Leggett & Platt, Newell Rubbermai, Snap-on INC, Stanley Works, Human International, Nike, Inc. V.F. Corp., Coach Inc, Jones Apparel, LIZ Claiborne, Polo Ralph Lauren, Grey TV, LIN TV, Entravision, Sinclair Broadcast, Radio One, Entercom, Cumulus, Emmis, Interpublic Group, Omnicom Group, DIRECTV Group , Comcast Corp., Cablevision Sys. , Shaw Communication , Time Warner, Walt Disney, News Corp., Viacom Inc. , CBS Corp. , Gannett Co., Washington Post, New York Times, EW Scripps, McClatchy Co., Media General 'A', Belo Corp, Home Depot, Sears Holdings, Best Buy Co., Macy's Inc., J.C. Penney, Gap Inc., Bed Bath & Beyond, Radioshack Corp, Limited Brands

※Companies Included～Amgen, Gilead Sciences, Celgene Corp, Genzyme Corp., Mckesson Corp., Cardinal Health, AmerisourceBergen, Johnson & Johnson, Abbott Labs., Medtronic, Inc., Baxter Int'l Inc., Owens & Minor Inc., Patterson Companies Inc, Kindred Healthcare Inc., Tenet Healthcare Corp, Universal Health Services Inc., Laboratory Corp of America Hldgs, Express Scripts Inc., Davita Inc. , Pfizer, Inc., Merck & Co., Bristol-Myers Squibb, Eli Lilly, Forest Labs., Allergan, Inc.

13

IT（PC & Peripherals, Communication Equipment, Semiconductors, Electronic Equipment/EMS, Software & Services）

20.4%18.9%

21.8%

18.2%15.4%

14.5%16.0%

16.8%

0

20

40

60

80

100

120

140

160

180

200

2008/3Q2008/4Q2009/1Q 2009/2Q2009/3Q 2009/4Q2010/1Q2010/2Q

（USD Bn）

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%RevenueOperating Margin

Operating Margin

COMPUTER & PERIPHERALS posted two consecutive quarters of double-digit revenue growth in the second quarter. Going forward, the industry is expected to remain solid due to a) replacement demand for enterprise PC and servers, b) increase in demand for data storage and c) progress in inventory control, etc.

SEMICONDUCTOR posted over 40% of revenue growth in 2Q for two consecutive quarters due mainly to growth in demand for laptop PC, cell phones, and servers. Furthermore, as a result of corporate restructuring during the recession, operating margin remains around 30%, the level above pre-Lehman Shock.

Telecommunications

15.9%

13.2%

16.0%

14.1%15.5%15.1%

12.9%

14.9%

0

10

20

30

40

50

60

70

80

90

100

2008/3Q 2008/4Q 2009/1Q 2009/2Q 2009/3Q 2009/4Q 2010/1Q 2010/2Q

（USD Bn）

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Revenue

Revenu Growth (y/y)

Operating Margin

The TELECOMMUNICATIONS sector is relatively immune to recession mainly for consumer business, and maintaining slight revenue growth. Currently, due to companies regaining financial health, recovery in corporate business demand is apparent.

Nevertheless, the current business structure is that mobile telecom/broadband services are offsetting revenue decline in the landline businesses. As a result, while revenues of the major telecom players remain solid, wireline service providers are experiencing secular decline.

Utilities

20.9%17.8%

13.8%

23.9%

19.8%17.3%

16.0%

20.2%

0

10

20

30

40

50

2008/3Q2008/4Q2009/1Q2009/2Q2009/3Q2009/4Q2010/1Q2010/2Q

（USD Bn）

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Revenue

Revenu Growth

The UTILITIES sector had been posting revenue decline since 1Q 2009 due to weak electricity demand as a result of economic downturn. However, as the economy regained strength, the rate of decline narrowed, finally recovering to the level of the previous year in 2Q.

While both electricity demand and wholesale prices seem to have hit a bottom, given the current weakness in the economy, the rate of growth is expected to remain slow for now.

※Companies Included～Cisco Systems, Nortel Networks, Juniper Networks, Tellabs, Inc., Motorola Inc, Hewlett-Packard, Int'l Business Mach., Dell Inc., Apple Inc., Jabil Circuit, Celestica Inc., Emerson Electric, Sanmina-SCI Corp, Intel Corp., Texas Instruments, Micron Technology, Advanced Micro Dev., Analog Devices, LSI Corp., Microsoft Corp., Oracle Corp., Google, Inc., Yahoo! Inc., Symantec Corp., CA, Inc., Intuit Inc., BMC Software

※ Companies Included ～ Constellation Energy, Dominion Resources, FPL Group, Exelon Corp., Southern Co., Amer. Elec. Power, Edison Int'l, PG&E Corp., Public Serv. Enterprise, Consol. Edison

※Companies Included～Verizon Communication., AT&T Inc., Qwest Communication., CenturyTel Inc., Cincinnati Bell, Windstream Corporation, U.S. Cellular, Sprint Nextel, Leap Wireless

14

Macro Indicators

Real GDP Growth ISM

-8-7-6-5-4-3-2-1012345678

85/1

Q

87/1

Q

89/1

Q

91/1

Q

93/1

Q

95/1

Q

97/1

Q

99/1

Q

01/1

Q

03/1

Q

05/1

Q

07/1

Q

09/1

Q

Real GDP % Ch.

(Source: Bureau of Economic Analy sis) (Unit: %)

30

40

50

60

70

80

98/1 00/1 02/1 04/1 06/1 08/1 10/1

Manufacturing Non-manufacturing

(Source: Institute for Supply Managemant) (Unit: index )

Industrial Production CPI・PPI

70

76

82

88

94

100

106

98/1 00/1 02/1 04/1 06/1 08/1 10/1

-15-12-9-6-3036912Industrial Production

% Ch.

(Source: FRB) (Unit: index , %)

-8-6-4-202468

1012

98/1 00/1 02/1 04/1 06/1 08/1 10/1

CPI PPI

(Source: US Dept. of Labor) (Unit: %)

Consumer Confidence Index Unemployment Rate

20

40

60

80

100

120

140

95/1 97/1 99/1 01/1 03/1 05/1 07/1 09/1

Consumer Confidence

(Source: The Conferrence Board) (Unit: index )

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

95/1 97/1 99/1 01/1 03/1 05/1 07/1 09/1

UnemploymentRate

(Source: US Dept. of Labor) (Unit: %)

15

Exchange Rate

Euro British Pound

0.700.800.901.001.101.201.301.401.501.601.701.801.902.00

98/1 00/1 02/1 04/1 06/1 08/1 10/1(Source: Bloomberg)

0.70

0.95

1.20

1.45

1.70

1.95

2.20

2.45

98/1 00/1 02/1 04/1 06/1 08/1 10/1(Source: Bloomberg)

Canadian Dollar Japanese Yen

0.700.800.901.001.101.201.301.401.501.601.701.801.902.00

98/1 00/1 02/1 04/1 06/1 08/1 10/1(Source: Bloomberg)

70.00

80.00

90.00

100.00

110.00

120.00

130.00

140.00

150.00

98/1 00/1 02/1 04/1 06/1 08/1 10/1(Source: Bloomberg)

Opinions, views and projections in this document have been made by Bank of Tokyo-Mitsubishi UFJ Corporate Research Division (New York) and do not necessarily reflect the view of other business units. They represent our perceptions at the date of publication and are subject to change without notice. This document has been prepared solely for the information purposes of professional investors and non-private customers of Bank of Tokyo-Mitsubishi UFJ and is not intended to constitute an offer or solicitation to buy or sell securities. Bank of Tokyo-Mitsubishi UFJ and its subsidiaries trade in securities, futures and other financial instruments and may have a position in any of the financial products, securities or instruments mentioned in this commentary. Information appearing in this document is obtained from sources believed to be reliable. However, we cannot guarantee its accuracy and no liability is accepted whatsoever for any direct or consequential loss arising from its use. Bank of Tokyo-Mitsubishi UFJ is regulated by the Financial Services Authority. Copyright © The Bank of Tokyo-Mitsubishi UFJ, Limited 2010 No part of this publication may be reproduced, stored in a retrieval system or transmitted without the prior written permission of The Bank of Tokyo-Mitsubishi UFJ Limited. Publisher：BTMU Corporate Research Division （New York） 1251 Avenue of the Americas New York NY 10020 U.S.A.

Takeshi Nitta ＋1-212-782- 5706 tnitta@us.mufg.jp Ryuta Nagai 5703 rnagai@us.mufg.jp Philip Mangieri 5704 pmangieri@us.mufg.jp Vera Kalina-Levine 5705 vlevine@us.mufg.jp Gerardus Wynkoop 5551 gwynkoop@mufg.jp Mayuko Hiramatsu 5707 mhiramatsu@us.mufg.jp Brian Nogy 4716 bnogy@us.mufg.jp Yukiko Otteson 5700 yotteson@us.mufg.jp