PB Americas The Investment Landscape – August 2010 Private Banking Americas Investment Strategy &...

PB Americas

The Investment Landscape – August 2010

Private Banking AmericasInvestment Strategy & Advisory Group

The Investment Landscape

August 2010


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Table of Contents

Executive Summary

Guideline Allocations

Market/Strategy Summary

Key Focus:

– Credit

– Earnings

Global Markets Recap

Market and Economic Outlook



Executive Summary

PB Americas


Guideline Allocations & Tactical Overweights



Guideline Allocations

Source: Credit Suisse Investment Strategy & Advisory

Asset Class 1 2 3 4 5 Focus

US Large Cap 8% 16% 20% 23% 23%Quality Growth, High Div, Technology, Consumer Staples

US Sm/Mid Cap 2% 4% 4% 4% 4%

Non-US Developed 5% 8% 9% 12% 15%Germany, Scandinavia, Canada, Asia Pacific ex-Japan

Emerging Markets 6% 8% 10% 14% Asia (China, Korea), Brazil, Peru

Fixed Income 40% 33% 21% 10% 2%Shorter Maturities, Credit Selection Important

Short-term, FX 45% 14% 8% 5%USD neutral, constructive on EM and commodity-related

Private Equity 6% 10% 14% 17%Sm/Mid LBOs, Infrastructure, Secondary, EM, Clean Tech

Hedge Funds 8% 13% 14% 15%Event Driven, Global Macro, Convertible Arb

Commodities 5% 7% 8% 10% Oil & Base Metals

Projected Volatility 0-4 4-7 7-9 9-11 11+

Volatility Budget

PB Americas


Market / Strategy Summary



– Data point to decelerating, positive growth after strong rebound Growth momentum to slow somewhat, markets to focus on extent of growth moderation Deficit reductions to have small growth impact, help limit rise in gov’t bond yields US consumer remains tentative amid uncertain jobs outlook, recovery to be slow

– Equity: neutral near-term (weak sentiment), positive long-term (valuations) Investors cautious; valuations, fundamentals and cash support long term upside Favor quality growth and high dividend, themes: emerging consumer, infrastructure Overweight US, Asia ex-Japan (+ China & Korea, India: cautious) and Brazil

– US Treasuries supported by weak sentiment, low inflation expectations Rates likely stay low for longer, yields to rise only gradually (10Yr near 3.0% end-10) Credit spreads may tighten further (stretch for yield amid low rates); credit selection key

– Dovish Fed, lower US yields removes some dollar support – USD neutral Bearish euro sentiment has likely peaked, but still little support given regional concerns UK inflation likely pushes BOE to hike rates before Fed, giving support to pound

– Commodities: expect cyclical sectors (oil & base metals) to outperform Gold supported near term (low rates, weaker USD), longer term underperform Agriculture (wheat) prices jump on supply crunch; strong demand = long term upside

Market/Strategy Summary – August 2010




Global Purchasing Managers Index (Above 50 = Expansion) Indicators point to decelerating, positive growth after rebound

Source: Bloomberg, Credit Suisse IDC

35

40

45

50

55

60

Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10



US GDP Component Contribution (with Real GDP growth Q/Q) Q2: Investment +2.1%, Consumer +1.2%, Net Exports -2.9%

Source: Thomson Reuters Datastream

(2.4%)(3.7%)

(5.0%)

(1.6%)(-0.7%)(-4.9%)

(-6.8%)(-4.0%)

(0.6%)

(-0.7%)

(2.9%)

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

Q4-07 Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10

Inventories Consumer Gov't Spending Net Exports Investment



July price change in local currency All major equity indices gained in July led by Brazil and China


6.9%

6.9%

6.7%

6.2%

4.5%

3.7%

3.7%

3.6%

10.8%

10.0%

0.9%

1.6%

Bovespa (Brazil)

Shanghai SE Comp (China)

FTSE 100 (UK)

S&P 500 (USA)

MICEX (Russia)

DJ Euro Stoxx (Euro Area)

Hang Seng (Hong Kong)

S&P TSX Comp (Toronto)

Bolsa (Mexico)

Kospi (S Korea)

Nikkei 225 (Japan)

BSE Sensex (India)



MSCI World Forward P/E Valuations attractive at current market levels


5

10

15

20

25

Jul-90 Jul-92 Jul-94 Jul-96 Jul-98 Jul-00 Jul-02 Jul-04 Jul-06 Jul-08 Jul-10

Avg: 17



Market Expectations of Fed Rate Moves in next 12 months Investors have lowered expectations for fed hikes in next year

Source: Bloomberg

0

20

40

60

80

100

120

140

Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10

19 bps



10Yr Treasury Yield less 10 Yr Treasury Inflation-linked Yield

(TIPS implied) inflation expectations lower, above crisis lows


0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jul-00 Jul-02 Jul-04 Jul-06 Jul-08 Jul-10

1.79%

0.05%



US 2Yr Yield Premium and EUR/USD Exchange RateYield spread has turned in favor of euro (2Yr +24 bps vs US)


-250

-200

-150

-100

-50

0

50

100

150

200

250


1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

US 2Y Yield Premium EUR/USD (Inverse, Rt Axis)



DJUBS Commodity Index and US Industrial ProductionCommodity prices have lagged upturn in industrial production

Source: Bloomberg

100

120

140

160

180

200

220

240


-15

-10

-5

0

5

10

DJ UBS Commodity Index US Industrial Production (Y-o-Y) Rt Axis

PB Americas


Dashboard 2010Key Focus: Credit



Credit Lending to small businesses showing slow improvement Corporate borrowing costs (bond yields) at historic lows TED spread points to lower levels of perceived credit risk US consumers continue to reduce debt levels Credit issues in peripheral Europe have eased, remain contained

Consumer Jobs growth needed to sustain US incomes and spending

China China’s inflation contained as growth moderates at high levels

Commodities Precious metals brief outperformance reversed as oil & base metals

gain

Cash Investor cash remains elevated, fuel for an equity rally Cash on corporate balance sheets at record levels, may be deployed

Dashboard 2010 - Key Focus: Credit




0

2

4

6

8

10

12

14

16

18


% of small businesses reporting credit harder to get vs 3 months ago Lending to small businesses showing slow improvement

Source: Thomson Reuters Datastream via Credit Suisse IDC

2010 Dashboard: Credit



3

4

5

6

7

8

9


LUCI Index A-Rated Corporate Bond Yield in % Corporate borrowing costs (yields) at historic lows

Source: Credit Suisse LUCI Workbench


Click to Print / View PowerPoint

Avg: 5.5%



TED Spread (US 3Mo Treasury less 3 Mo LIBOR) TED spread points to lower levels of perceived credit risk




0

50

100

150

200

250

300

350

400

450

500




1800

1900

2000

2100

2200

2300

2400

2500

2600

Jun-02 Jun-04 Jun-06 Jun-08 Jun-10*

US Consumer Credit Outstanding (USD Bln) US consumers continue to reduce debt levels




-6.3%

* Latest data available



Sovereign CDS Spreads (cost of insuring against default) Credit issues in peripheral Europe have eased; remain contained




0

200

400

600

800

1000

1200

Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10

Greece Portugal Spain



US Personal Income Y-o-Y % ChangeJob growth is needed to support US incomes and spending

Source: Bloomberg

2010 Dashboard: Consumer

-4

-2

0

2

4

6

8

10

Jun-00 Jun-02 Jun-04 Jun-06 Jun-08 Jun-10*

*Latest data available



China CPI Inflation and Industrial Production (Y-o-Y % Change)China’s inflation contained as growth moderates at high levels

Source: Thomson Reuters Datastream, Bloomberg

2010 Dashboard: China

-3

0

3

6

9


0

5

10

15

20

25

CPI Y-o-Y Industrial Production Y-o-Y (Rt Axis)


*



2010 YTD Price Changed (Indexed to 1.0 at 12/31/09) Precious metals May/June outperformance has reversed

Source: Bloomberg

2010 Dashboard: Commodities

0.8

0.9

1.0

1.1

1.2

Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10

Crude Oil DJ UBS Base Metals DJ UBS Precious Metals



US Money Market Mutual Fund Assets in $ TrillionInvestor cash remains elevated, fuel for an equity rally

Source: Datastream, ICI

2010 Dashboard: Cash

$2.8T

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Jun-00 Jun-02 Jun-04 Jun-06 Jun-08 Jun-10*




S&P 500 Co. Cash & Equivalents ($ billions) Cash on corporate balance at record levels, may be deployed

Source: Standard & Poor’s

2010 Dashboard: Cash

*Through Q1, latest data available

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

1990 1994 1998 2002 2006 2010*

PB Americas


Key Focus: Earnings



All major global regions expected to post positive year-over-year earnings growth for 2010 and 2011

Rising US earnings expectations push 2010 EPS forecast to $83 (+36% vs 2009) up from $77 in January– Seven of ten S&P 500 sectors have seen 2010 earnings upgrades since Q2 reports

began, led by utilities (+3.6%), industrials (+3.4%), energy and discretionary (+3.3%)

– 2010 forecast cuts for staples, materials and telecomm– Q2 earnings growth now forecast +36% (vs 26% on Jun.30) as earnings reports

surprise to upside at high rate (77%); 63% of companies beat sales forecasts

Asia ex-Japan 2010 earnings growth now expected at +37% (up from 29% in January), following a strong 2009 (+17%)

Europe (DJ Euro Stoxx) earnings growth expectations have remained relatively flat at about 33% vs 2009 drop of 28%

Key Focus: Earnings




Global Earnings Snapshot: Projected EPS Growth 2010 & 2011

Source: Credit Suisse, Thomson Reuters Datastream, I/B/E/S

KEY FOCUS: EARNINGS

Market/Region 2010E 2011EJ apan 74.8% 21.0%Emerging Asia 40.6% 12.8%UK 36.4% 18.9%S&P 500 36.3% 14.6%Switzerland 34.4% 12.5%Continental Europe 30.7% 18.8%Latin America 26.5% 23.5%Middle East/Africa 24.7% 26.2%Emerging Europe 22.9% 26.7%Canada 16.1% 21.4%Pacific ex-J apan 16.0% 17.8%

MSCI AC World 34.3% 17.7%



S&P 500 2010 EPS Forecast 2010 earnings expectations +8.4% since January

Source: Credit Suisse Quantitative Research, IBES

EPS: Consensus Earnings Per Share

KEY FOCUS: EARNINGS

$76.7$78.2

$80.9$82.0 $81.6

$82.6 $83.1

Jan-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Aug-9



% Change in 2010 EPS Estimate 6/30/10 to 8/9/10 2010E EPS +2% since June 30, upward revisions broad based

Source: Credit Suisse Quantitative Research

KEY FOCUS: EARNINGS

-1.5%

-0.9%

-0.1%

1.1%

1.9%

2.6%

3.3%

3.3%

3.4%

3.6%

1.9%

Telecomm Services

Materials

Consumer Staples

Health Care

Financials

Information Technology

Consumer Discretionary

Energy

Industrials

Utilities

S&P 500



S&P 500 Sector EPS Forecasts 2010 & 2011 (Y-o-Y % Growth) Growth expected for all sectors in 2010 & 2011

Source: I/B/E/S

KEY FOCUS: EARNINGS

Sector 2010 2011

Consumer Discretionary 63.5% 14.3%

Consumer Staples 5.4% 10.6%

Energy 52.3% 14.7%

Financials 141.6% 28.3%

Health Care 9.0% 6.3%

Industrials 23.7% 16.6%

Information Technology 41.5% 10.9%

Materials 81.7% 28.9%

Telecomm Services 2.9% 13.5%

Utilities 3.6% 3.1%

S&P 500 36.3% 14.6%



S&P 500 Q2 2010 EPS Forecast (% change from previous year) Q2 earnings expectations rose 500 bps in July (peak of reports)


KEY FOCUS: EARNINGS

20.9% 21.8%

24.4%26.4% 25.5%

33.1%

35.9%

Jan-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Aug-9



Q2-10 S&P 500 Sales & Earnings Reports vs Expectations Q2 earnings and sales reports above expectations

Source: Bloomberg

KEY FOCUS: EARNINGS

Above Match Below

Earnings 77% 8% 15%

Sales 63% 0% 37%

89% of companies have reported as of Aug 9



S&P 500 EPS Forecasts & Valuations Consensus EPS of $83.13 supports higher market levels


EPS: Consensus Earnings Per Share

KEY FOCUS: EARNINGS

2010E +10% -10%EPS 83.13$ 91.44$ 74.82$

16x 1330 1463 119717x 1413 1555 127218x 1496 1646 1347

PE



MSCI Asia ex-Japan 2010 EPS Growth Estimate (Y-o-Y) Asia ex-Japan should see another strong year of growth

Source: IBES

KEY FOCUS: EARNINGS

2009E: +17%

28.6%29.9% 30.3%

33.0%

36.7% 37.2% 37.2% 37.3%

Jan-1 Feb-1 Apr-1 May-1 Jun-1 Aug-1 Aug-9 Aug-16



DJ Euro Stoxx Earnings Growth Forecast (Y-o-Y) DJ Euro Stoxx growth to improve in 2010 after weak 2009

Source: IBES

KEY FOCUS: EARNINGS

2009E: -28%

32.2% 32.9% 32.3%

25.0%

27.2%29.1%

32.2% 32.3%33.2%

Jan-1 Feb-1 Mar-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Aug-9

PB Americas


Global Markets Recap



Global Markets Recap Equities

After a difficult first half equity markets posted a broad based rally in July; all major global regions and sectors gained. A strong start to Q2 earnings season propelled US markets - S&P 500 +7% in July, near break even for the year. Brazil (+10.8%) and China (+10.0%) led July’s gains, both join most markets in negative territory YTD.

July saw reversal from H1 sector trends as cyclical sectors (industrials, basic materials) outperformed defensive sectors (health care, staples). YTD, industrials and consumer discretionary are top performers while sectors with regulatory overhang (health care, energy) lag.

Little size and style differentiation in the US in July – all categories rose about 7%. YTD small cap has outperformed large, value over growth.

Currency The dollar weakened against all major currencies in July as US rate

advantaged faded. USD lost 6% vs euro after gaining 17% in H1.




Global Markets Recap Interest Rates & Fixed Income

US Treasury yields moved lower as inflation and rate hike expectations fell. US 10Yr Treasury ended July at 2.91%, 2Yr at 0.56%. 10Yr gov’t yields rose in euro area (to 2.8%) and UK (to 3.4%).

Longer dated fixed income indices outperforming in 2010 as rates fall - US Treasury long term index +13%. Credit has also performed well due to lower rates, spreads mostly wider YTD. Yields on US tax-exempt bonds above Treasurys at longer dated maturities.

Commodities Precious metal prices suffered in July as safe haven demand dried up

(gold -5.5%, silver -5.8%) while all other segments gained. Oil +4.4% to $79, copper +12.6% to $3.31, wheat +25% on supply concerns.

Volatility As equity markets rallied the Volatility Index (VIX) fell and ended July

at a 3 month low at 23.5.




GLOBAL MARKETSTotal Return Through 07/30/10

Source: Thomson Reuters DataStream

Level Jul-10 YTD

EQUITIES (TR)S&P 500 1,102 7.0% -0.1%

MSCI EAFE (Local) 747 4.7% -2.7%

MSCI EM (Local) 43,195 6.2% 1.8%

US DOLLARVS. EURO 1.30 -6.0% 10.1%

VS. YEN 86.66 -2.1% -6.9%

COMMODITIESOIL ($ / barrel) 78.95 4.4% -0.5%

GOLD ($ / ounce) 1,175.47 -5.5% 7.3%



GLOBAL EQUITY MARKETS YTD Price change in local currency (YTD through 7/30/10)


-4.8%

-3.9%

-2.9%

-1.6%

-1.2%

-0.3%

0.6%

2.0%

2.3%

4.5%

-19.5%

-9.6%

Shanghai SE Comp (China)

Nikkei 225 (Japan)

DJ Euro Stoxx (Euro Area)

Hang Seng (Hong Kong)

FTSE 100 (UK)

Bovespa (Brazil)

S&P 500 (USA)

S&P TSX Comp (Toronto)

Bolsa (Mexico)

MICEX (Russia)

BSE Sensex (India)

Kospi (S Korea)



GLOBAL SECTORS (S&P 1200 Global)Price change in USD (YTD Through 07/30/10)


Sector Jul-10 YTD

Industrials 9.5% 4.4%Consumer Discretionary 8.3% 2.2%Consumer Staples 5.9% 0.0%Telecomm Services 9.5% -3.3%Financials 11.7% -3.4%Information Technology 7.2% -3.8%Basic Materials 9.7% -6.3%Utilities 8.3% -9.1%Health Care 1.2% -9.9%Energy 9.4% -10.4%

S&P Global 1200 8.3% -3.7%



US EQUITY RETURNS (Size & Style)Total Return Through 07/30/10

Source: Thomson Reuters Datastream, Bloomberg

Jul-10 YTD

Russell 1000 (Lg Cap) 7.0% 0.1%

Russell 1000 Value 6.8% 1.3%

Russell 1000 Growth 7.1% -1.0%

Russell 2000 (Sm Cap) 6.9% 4.8%

Russell 2000 Value 7.1% 5.4%

Russell 2000 Growth 6.6% 4.2%

DJIA 7.2% 1.9%

NASDAQ 7.0% -2.8%



US SECTORS (S&P 500)Price Change Through 07/30/10


S&P Sector Jul-10 YTD

Industrials 10.3% 8.2%Consumer Discretionary 7.7% 5.3%Financials 6.6% 2.1%Consumer Staples 5.8% 1.3%Utilities 7.3% -2.5%Basic Materials 12.2% -3.1%Telecomm Services 7.9% -3.9%Information Technology 7.2% -4.6%Energy 8.0% -6.2%Health Care 1.3% -8.6%

S&P 500 6.9% -1.2%



CURRENCY% Change As of 07/30/10


Level Jul-10 YTDMAJORS

USD vs. Euro 1.30 -6.0% 10.1%

USD vs. Japanese Yen 86.66 -2.1% -6.9%

USD vs. British Pound 1.57 -4.5% 3.1%

USD vs. Swiss Franc 1.05 -3.0% 1.2%

AMERICASUSD vs. Canadian Dollar 1.03 -3.1% -1.8%

USD vs. Mexican Peso 12.64 -1.9% -3.2%

USD vs. Brazilian Real 1.76 -2.4% 0.9%



GLOBAL INTEREST RATES10Y Gov’t Bond Yield (12/31/09 & 07/30/10)


3.8

3.4

4.1

1.3

3.6

1.9

2.92.8

3.4

1.1

3.1

1.5

USA Euro area UK Japan Canada Switzerland

Dec-09 Jul-10



US FIXED INCOME & RATESAs of 07/30/10


Level Jul-10 YTD

Barclays US Aggregate (TR) 105 1.62% 6.77%

US TREASURY

5 Yr Treasury Yield 1.59% -18 bps -109 bps

10 Yr Treasury Yield 2.91% -3 bps -93 bps

Yield Curve (10Y - 2Y) 236 bps 2 bps -34 bps

LENDING RATES

Fed Funds 0.25% Unch Unch

3 Mo LIBOR 0.45% -8 bps 20 bps

1 Yr LIBOR 1.04% -14 bps 5 bps

Prime 3.25% Unch Unch



CREDITSpread to 10-Yr Treasury As of 07/30/10 (Basis Points)


Current Chg (Bps) Chg (Bps)Spread Jul-10 YTD

Barclays US Muni Bond 33 -14 55

Barclays US Inv Grade Corp 175 -18 30Barclays US High Yield 543 -79 21

Barclays Global Aggregate Credit 60 -19 33

Barclays Global High Yield 554 -78 -1

JPM Emerging Market Bond 313 -45 18



US FIXED INCOME YTDTotal Return YTD through 7/30/10

Source: Bloomberg, Thomson Reuters Datastream

0.2%

4.4%

4.6%

4.6%

5.4%

5.6%

6.1%

7.0%

8.2%

10.5%

13.3%

14.5%

US Cash

US Agencies

US Inflation Linked (TIPS)

US Munis

US MBS

US Treasury Med

US ABS

US Inv. Grade Med

US High Yield

US Inv. Grade Long

US Treasury Long

US CMBS



NON-US FIXED INCOME YTDTotal Return YTD through 7/30/10 (In Local Currency)

Source: Bloomberg, Thomson Reuters Datastream

2.6%

2.6%

3.4%

4.4%

4.9%

5.5%

9.7%

12.5%

Japan Government

Euro Govt InflationLinked

Europe Govt Med

Europe Govt Long

Euro Inv. Grade

UK Government

EM (USD)

Pan European HighYield



COMMODITIES% Change As of 07/30/10 (Spot Price)


Level Jul-10 YTD

WTI Crude Oil ($/bbl) 78.95 4.4% -0.5%

Natural Gas (Henry Hub, $/MMBtu)

4.81 5.6% -17.1%

Gold ($/oz) 1,175 -5.5% 7.3%

Silver ($/oz) 17.66 -5.8% 3.9%

Platinum ($/oz) 1,734 -4.5% 6.3%

Copper ($/lb) 3.31 12.6% -0.6%

LME Metals Index 3,348 11.5% -1.5%

Corn ($/Bushel) 3.65 9.9% -2.9%

Wheat (Soft Red, $/Bushel)

5.94 24.6% 44.6%



HEDGE FUNDS & PRIVATE EQUITY

Source: Dow Jones Credit Suisse Hedge Fund Index, Cambridge Associates, Thomson Reuters Datastream

Jun-10* YTD*

BEST PERFORMING HF STRATEGIES DJ CS Dedicated Short Bias 5.5% -2.8%

DJ CS Fixed Income Arbitrage 0.9% 5.5%

DJ CS Global Macro 0.6% 4.2%

WORST PERFORMING HF STRATEGIES DJ CS Long/Short Equity -2.1% -3.2%

DJ CS Event Driven -1.6% 1.8%

DJ CS Equity Market Neutral -1.0% -4.6%

Dow Jones/CS HF Index -0.8% 0.6%

S&P 500 Total Return -5.2% -6.7%

*June 2010: most recent data available

Private Equity Q1-10*Cambridge Associates US PE Index 4.4%

Cambridge Associates US VC Index 0.7%

S&P 500 Total Return 5.4%

*Q1 2010: most recent data available



CBOE Volatility Index (VIX)


0

10

20

30

40

50

60

70

80

Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10

PB Americas


Looking Ahead – 2010Market & Economic Outlook



Market & Economic Outlook Summary Global growth should continue at slower pace as stimulus wanes;

double dip unlikely. H2 2010 likely to see decelerating growth with slight growth drag from fiscal tightening offset by strong global trade activity. Asia will remain global driver as the US and Europe move along slow upward paths. Inflation muted, deflation unlikely given proactive policy responses.

Equity valuations attractive at current market levels. Positive earnings growth and strong corporate balance sheets supportive of long-term upside, weak sentiment may keep levels neutral near term. Focus on exporters, fiscal flexibility and natural resources (Germany, Scandinavia, Asia).

Overweight US, emerging Asia (Korea & China) and Brazil; underweight euro area and emerging Europe.

US: focus on quality growth and high dividend. Overweight technology (upgrade cycle, business investment) and consumer staples (valuation & cash flows, focus on strong brand names).




Market & Economic Outlook Summary US government bonds well supported by weak sentiment and low

inflation expectations, yields to rise only gradually. Expect US 10Yr Treasury yield near 3% end-10. Fed rate hike unlikely until 2012. ECB not expected to raise rates until 2011; BOE likely +50 bps in Q4 amid higher inflation.

Credit spreads may tighten further as investors reach for yield in low rate environment, higher beta and longer duration may see increased demand. We highlight importance of careful credit selection.

With Fed expected to remain on hold US has lost yield spread advantage vs euro. Bearish euro sentiment has likely peaked, but still little support given regional concerns. Positive near term outlook for AUD and CAD due to higher rates, strong growth and higher commodity prices. Global recovery supportive for EM currencies.

Cyclical commodity sectors (oil and base metals) expected to outperform as market focus turns to supply/demand fundamentals; safe haven demand for gold is drying up. Supply concerns drive near term agriculture gains; growing demand (fuel, food, feed) supportive of long term upside.




GLOBAL ECONOMIC OUTLOOKReal GDP Growth

Source: Credit Suisse estimates

2010E 2011E Comments

Global 4.6% 4.4%Global recovery expected to continue, yet at a slower pace (Q3E 4.6% & Q4E 4.2% q-o-q annualized). Double dip unlikely.

USA 3.0% 2.8%Somewhat slower growth momentum forecasted in H2 2010 as consumer spending and construction activity see declining growth rate. Q3E 2.5%

Euro Area 1.5% 2.5%Q3 & Q4 growth anticipated to be strongest period of 2010 as business investment picks up and consumption gradually accelerates. Q3E 3.9%

UK 1.5% 2.5%Growth levels projected to be maintained in H2 '10 with consumer spending at 2.0% in both quarters. Q3E 2.8%

J apan 2.9% 1.0%Slowdown in exports in H2 possible (from double digit levels). Consumer spending, investment to accelerate. Q3E 0.7%

Non-J apan Asia

8.6% 7.6%Chinese growth revised downwards to 9.7% from 10% as PMI data (J uly 51.2) suggests less momentum. Signs of moderation in India's industrial production also suggest moderation of strong growth. India '10E 8.3%

EEMEA* 4.0% 4.6%Growth expected to gain momentum in region through '11 (except Turkey). '10E: Russia 4.7%, Turkey 5.5%

Latin America

5.5% 4.1%Brazil: signs of slight deceleration apparent. Chile, Argentina and Panama saw ratings upgrade. 2010E Brazil 8.0%, Mexico 4.4%

* EEMEA = Emerging Europe, Middle East, Africa



Healthy growth outlook led by emerging markets & US 2010 and 2011 Real GDP Growth Forecasts (Y-o-Y)


1.5% 1.5%

2.5%3.0% 2.9%

4.6%

8.6%

5.5%

1.0%

4.4% 4.1%

2.8%

7.6%

2.5%

Global Non-JapanAsia

LatinAmerica

US Japan Euro-15 UK

2010E

2011E



GLOBAL EQUITIES OUTLOOK


Weight (Local) Comments

USA OverQ2 earnings reports continuing trend of beating estimates across sectors. Valuation points to higher levels. Sentiment weak, equities still under-owned by retail investors.

Asia ex-J apan

OverGrowth outlook in China remains intact, $2 trillion+ in reserves can buffer downside. China and Korea remain top picks, express caution on India given rich valuation.

Latin America

NeutralOverweight Brazil given domestic outlook. Consumption trends (demographics, use of credit) in Brazil look favorable - positive for select sectors (financials, real estate).

UK NeutralDefensive profile, dividend yield high - both positives should market uptick falter. Valuation cheap, but see no major catalyst for significant outperformance.

J apan NeutralGlobal growth outlook still improving, but modestly - if GDP trends sideways, J apan should follow. Wary of valuation which is richest of major global regions.

EEMEA* UnderMore positive on Russia as its post-crisis performance has lagged & oil prices are ranging higher, domestic outlook needs to improve further. Cautious on S. Africa.

Euro Area UnderMacro surprised to upside, need evidence of sustained trend before upgrading region. Continued strength in euro may impair exports. Highlight Germany as a positive.

* Emerging Europe, Middle East, Africa



Global Equities Snapshot (As of 07/30/10)

Source: I/B/E/S, Thomson Reuters Datastream, Bloomberg

Index

12 Mo. Relative % Change vs. MSCI AC World

Estimated 2010 Y-o-Y Engs Growth*

P/E (Current Price /

2010 Engs)* Sample ETFs

S&P 500 (USA) 2.7% 36.3% 13.1 SPY, IVV

MSCI Canada -3.5% 16.1% 14.9 EWC

MSCI Europe ex-UK -2.5% 31.1% 11.4 EZU, IEV, FEZ

MSCI UK 4.9% 36.4% 10.6 EWU

MSCI Japan -19.2% 74.8% 14.9 EWJ, ITF

MSCI Australia -2.8% 7.6% 14.4 EWA

MSCI China -6.5% 23.9% 13.1 GXC, FXI

MSCI Brazil 15.5% 28.6% 11.0 EWZ

MSCI India 7.8% 23.7% 17.2 PIN

MSCI Russia 19.7% 27.6% 6.5 RSX

MSCI All Country World 8.9% 34.3% 12.7 ACWI, VT



EQUITY INDEX FORECASTS


Jul-10 End-10E

S&P 500 1,102 1,300 - 1,350

DJ EURO STOXX 262 290 - 300

FTSE 100 (UK) 5,258 6,000 - 6,200

NIKKEI 225 (Japan) 9,537 10,300 - 10,700

BOVESPA (Brazil) 68,384 77,000 - 80,000

BOLSA (Mexico) 32,309 35,000 - 37,000



S&P 500 SECTOR OUTLOOK


Sector Weight Comment

Information Technology

OverContinues to offer very favorable valuation and growth and strong cash flow production; trends in consumer electronic and corporate upgrade cycle support

Consumer Staples

OverConcerns that US$ strength weighs on sector were short lived, strong international aspect of sector a key, focus on well known brand names

Financials NeutralAdjustments in regulatory environment remains a challenge, deleveraging continues keeping loan growth low, valuation supportive but risks remain high

Health Care NeutralSector torn between concerns about patent expiration and cost pressure from governments worldwide, yet valuation and growth remain attractive

Industrials NeutralBest performing sector year to date, US factory activity has picked up and global economic activity remains healthy, valuation becomes stretched

Energy NeutralSupply and demand fundamentals are gradually tightening as global demand is growing robustly, limiting downside though inventory levels remain elevated

Materials NeutralPrecious metals segment acts as safe haven investment in uncertainty, remains volatile. Industrial metals fundamentals are encouraging, demand growing.

Consumer Discretionary

NeutralStimuli encouraging households to spend is fading, disposable income remains under pressure based on weak employment. However, valuations supportive

Telecomm Svcs

UnderIncreasing demand for mobile technologies goes beyond voice, requires more/ faster data, costly network upgrades necessary; valuation stretched

Utilities UnderHigh dividend yield attracts investor seeking shelter from volatile markets, valuation relative to market above average and growth outlook remains muted.



S&P 500 Sector Snapshot (As of 07/30/10)

Source: I/B/E/S, Thomson Reuters Datastream

Sector

12 Mo. Relative % Change vs.

S&P 500

Estimated 2010 Y-o-Y EPS Growth

P/E (Current Price /

2010 Engs)Sample Sector

ETFs

Consumer Discretionary 12.7% 63.5% 14.7 XLY, VCR

Consumer Staples -1.6% 5.4% 14.3 XLP, VDC

Energy -8.2% 52.3% 12.1 XLE, IYE

Financials 1.6% 141.6% 13.9 XLF, IYF, IYG

Health Care -9.4% 9.0% 11.2 XLV, IYH

Industrials 14.2% 23.7% 15.7 XLI, IYJ

Materials -1.0% 81.7% 15.6 XLB, IYM

Technology 1.1% 41.5% 13.3 XLK, IGM, IYW

Telecomm Services -9.5% 2.9% 14.9 IYZ, VOX

Utilities -6.9% 3.6% 12.4 XLU, IDU

S&P 500 11.6% 36.3% 13.5 SPY, IVV



HEDGE FUND & PRIVATE EQUITY OUTLOOKThrough June, 2010 (most recent data available)


Strategy Weight Comments

Event Driven OverBoth merger arb and distressed debt strategies should outperform due to healthy M&A activity and restructuring opportunities, respectively.

Convertible Arb OverLower grade names underperformed investment grade amid flight to quality. Many managers are underinvested; will re-deploy cash when they see opportunities

Global Macro OverA diverging macro performance between developed and emerging world, combined with traditional business cycles, continues to create opportunities for strategy.

Emerging Markets NeutralExpect a choppy ride in H2 although EM HF provides a less volatile exposure to EM theme. EM fundamentals remain intact.

Fixed Income Arbitrage

NeutralMost managers benefited in J une from volatile gov't bond markets. Opportunity set should remain expansive in 2H due to conflicting views about rate hikes.

Equity Long/Short UnderJ une was difficult month for bottom-up stock pickers due to high correlations. Losses driven by long books. European markets outperformed US but still negative.

Private Equity NeutralFocus on small & mid-size LBO funds, infrastructure funds, secondary market funds, emerging market private equity and clean tech venture capital.



POLICY RATE OUTLOOKGovernment Policy Rates (%)


Jul-10 2010E Comments

USA 0-0.25 0.25With path of economic recovery unusually uncertain, likelihood of Fed Funds rate hike is low. No increase anticipated before 2012.

Euro Area 1.00 1.00No major changes at last ECB meeting as European bond market stabilized somewhat over passed month. No rate change expected through year end.

UK 0.50 1.00Inflation remained on higher end due to currency depreciation & VAT hike earlier this year. Divergence in BOE is growing. Rate hike expected in Q4 '10 by +50bps.

J apan 0.10 0.10BoJ expected to be on hold over next 16 months. Central bank upgraded growth outlook to 2.6% in 2010 from 1.8% in April.

Canada 0.75 1.50J uly rate hike by +25bps. Canada employment picture remains positive (J une +93k). Additional rate hike in Sept by +25 bps expected.

Mexico 4.50 4.50No rate change at last meeting. Central bank foresees inflation to be in line with forecast. Bank slightly hawkish, yet no rate change expected in 2010.

Brazil 10.75 11.25Rate increase by 50 bps at last meeting below expectation of +75 bps, pointing to a more benign inflationary trend. Expect no rate hike at Sept. meeting.



INTEREST RATE OUTLOOK10-Yr Government Bond Yield

Source: Bloomberg, Credit Suisse estimates

Jul-10 2010E Comments

USA 2.91% 2.90% - 3.10%With rates likely to stay lower for longer (no rate hike before 2012), yields expected to rise only gradually.

Euro Area 2.67% 3.00% - 3.25%With passage of European bank stress test and further policy normalization by ECB, rates projected to trend higher.

UK 3.33% 3.50% - 3.75%Economic recovery could give BOE room for some tightening pushing yield curve higher.

J apan 1.07% 1.00% - 1.25%Yields could continue to trend to below 1% in near term. Yields to stay low and stable.



FIXED INCOME OUTLOOK


Weight Comments

US Investment Grade Corp.

OverSpreads should continue to tighten. Any sell-off should be short-lived. Add exposure to high-beta credits for valuations - financials (banks, brokers) and non-financials (paper, metals) as they are still well off April tights.

US High Yield OverHY spread now again below historical average. Default rates should decline as economic recovery continues. Corporate balance sheets healthy. Significant new issuance.

Emerging Markets OverEM spreads tighter due to improved risk appetite. Many EM countries in better fiscal condition than developed ones. Overweight Russia, Argentina and Venezuela.

Treasury Inflation Protected (TIPS)

NeutralInflation currently low, but some inflation likely to emerge in longer run. TIPS should be part of FI portfolio for diversification and protection of long term purchasing power.

US Municipal NeutralRatios of muni yields vs Treasurys near or below historical averages. Focus on high quality GOs and short to intermediate maturity. Credit selection critical. Tax-exempt bonds should be in high demand as tax rates rise.

Mortgage-Related NeutralMBS spreads tightened further in J uly. Favorable supply/demand and a benign prepay outlook should keep MBS spreads structurally tight.

US Treasuries UnderFlight to safety pushed yields to unsustainable low levels. Limited upside potential. Stay on shorter end of the curve.



FIXED INCOME OUTLOOKPreferred Maturities (In Years)


0 1 2 3 4 5 6

A/BBB

GBP AAA/AA

A/BBB

EUR AAA/AA

A/BBB

USD AAA/AA



CURRENCY OUTLOOK


US Dollar Jul-10 2010E Comments

vs. Euro* 1.31 1.30 -1.35Fed expected to remain on hold until 2012, pushing spreads in favor of euro. Euro area weathered major refinancing tests (Portugal & Spain). Bearish euro sentiment now less extreme, but not yet supportive. Euro neutral.

vs. J apanese Yen

86.5 85 - 90Low yields in US and Europe benefit yen. However yen unlikely to remain much below 85 due to valuation. Yen neutral.

vs. British Pound*

1.57 1.60 -1.65BoE likely to raise rates before Fed. Fiscal tightening measures improved credibility. However, pound vulnerable to de-leveraging. Pound marginally bullish.

vs. Canadian Dollar

1.03 0.97 - 1.02C-dollar is the least overvalued among commodity currencies and could be destination for reserve currency for diversification purpose. However, it remains exposed to bouts of risk aversion. C-dollar marginally bullish.

vs. Mexican Peso

12.65 12.00 - 12.30Peso should benefit from US recovery. Mexico's addition to a major bond index could drive portfolio inflows. Peso outlook marginally bullish.

vs. Brazilian Real

1.75 1.60- 1.70Robust growth and expected rate hikes should translate into bullish real. Strong carry appeal.

*indicates inverse exchange rate quotation



CURRENCY FORECASTS


Jul -10 2010EINTEREST RATE DRIVEN CURRENCIES

Euro / US Dollar 1.31 1.30 -1.35=US Dollar / Japanese Yen 86.5 85 - 90

British Pound / US Dollar 1.57 1.60 -1.65

US Dollar / Swiss Franc 1.04 1.00 -1.04

US Dollar / Mexican Peso 12.65 12.00 - 12.30

COMMODITY CURRENCIESUS Dollar / Canadian Dollar 1.03 0.97 - 1.02

US Dollar / Brazilian Real 1.75 1.60- 1.70

Australian Dollar / US Dollar 0.90 0.90 - 0.94

NZ Dollar / US Dollar 0.73 0.70 - 0.74



COMMODITIES OUTLOOK

Source: Credit Suisse

Weight Comments

Base Metals

Over

Recent price gains buoyed by improved investor sentiment likely to continue. Rising demand and falling inventories support further upside. Copper prices tend to lag economic growth and has catch-up potential. Less positive on zinc and nickel (supply).

Energy Over

Oil supply/demand fundamentals gradually tightening along with demand growth = prices well supported, target $85-95 end-10. Spare capacity limits upside somewhat. Natural gas longer term outlook improving as it becomes larger part of energy mix.

Agriculture Neutral

Supply issues may drive further near term gains. Longer term outlook driven by growing demand (food, fuel and feed). Market sentiment for sector also improving. Expect corn to outperform; wheat benefits as corn substitute. Less positive on sugar.

Precious Metals

Under

Low rates, a weaker dollar and positive seasonal factors may provide price support through Q3. But sector should underperform as economic activity and investor sentiment improves. Prefer platinum - appears cheap relative to gold.



COMMODITIES FORECASTS

Source: Thomson Reuters Datastream, Credit Suisse estimates

Jul-10 2010E

ENERGYWTI Crude Oil (USD/ barrel) 79.0 85 - 95

US Natural Gas (USD/mmbtu) 4.81 5.00 - 5.50

PRECIOUS METALS (Spot, USD/ounce)Gold 1,175 1100 - 1200

Silver 17.7 18 - 19

Platinum 1,734 1800 - 1900

BASE METALS (Spot, USD/Pound)Aluminum 0.89 1.00 - 1.05Copper 3.31 3.80 - 4.00Zinc 0.80 0.85 - 0.90

Agriculture (USD/bushel)Wheat 5.94 4.5 - 5.5Corn 3.65 4.0 - 5.0

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