UBS Equity Compass November 2012 En

ab

UBS equity compassCIO WM ResearchNovember 2012

Monthly pointing the way to our favorite equity recommendations

The economics of demographics

Demographic changeChange poses challenges and offers opportunities

InvestingSeveral equity themes benefit from demographics

EquitiesRemain neutrally weighted

Don't miss the 2013 outlook special

issue of UBS equity compass, due out

on 17 December

UBS CIO WM Research November 2012 2

UBS equity compass

UBS equity compass

This report has been prepared by

UBS AG. Please see the important

disclaimer at the end of the document.

Past performance is not an indication of

future returns. The market prices provided

are closing prices on the respective

principal stock exchange. This applies to

all performance charts and tables in this

publication.

PublicationUBS AG, UBS CIO WM Research,

P.O. Box, CH-8098 Zurich

Editor-in-ChiefStefan Schneider, Analyst, UBS AG

EditorsCLS Communication AG, Basel

Editorial deadline26 October 2012

Project ManagementRahel Hauser, UBS AG

Desktop PublishingCIO Digital & Print Publishing

TranslationCLS Communication AG, Basel

Cover picture© Irochka / Fotolia.com

LanguagesPublished in English and German

[email protected]

UBS homepage: www.ubs.com

SubscribeAs a UBS client, you can subscribe to the UBS equity compass via the e-banking platform, via Quotes or by asking your client advisor.

ContentsEditorialThe economics of demographics .................................................................3

StrategyMore uncertainty ahead ..............................................................................4

RegionsSwitzerland .................................................................................................5Eurozone ....................................................................................................6Germany .....................................................................................................7United Kingdom .........................................................................................8United States ..............................................................................................9Asia ..........................................................................................................10Emerging markets .....................................................................................11

SectorsAutomobiles .............................................................................................12Consumer Discretionary ............................................................................13Consumer Staples .....................................................................................14Energy ......................................................................................................15Financials ..................................................................................................16Healthcare ................................................................................................17Industrials .................................................................................................18Information Technology ............................................................................19Materials ...................................................................................................20Real Estate ................................................................................................21Telecom ....................................................................................................22Utilities .....................................................................................................23

Investment areaOverview: Reap the dividends ...................................................................24Prudence – Defensive themes ....................................................................25Geography – Regional investing ................................................................26Industry – Sectoral investing ......................................................................27Persistence – Long-term themes ................................................................28Approach – Style-based themes ................................................................29Sustainability – Shaping the future ............................................................30

Technical analysis ...................................................................................31Global & regional equity sector strategies ..........................................33Selection of UBS CIO WM research publications .................................34

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UBS equity compass

• Demographic change poses challenges, but offers opportunities, too.

• We present several equity themes benefiting from the insurmount-able force of demographics.

• Equities remain neutrally weighted among asset classes.

Demographics are a force that many governments have become more acutely aware of in recent years. In Europe, with a social contract founded on generous welfare and an aging population, all countries face debt that is only made worse by the demographic trend. In the US, a dwindling number of workers are supporting a growing number of retirees through the twin pillars of social security and Medicare. Meanwhile, most emerging markets have healthier demographics. How-ever, the largest of them, China, is a clear exception. The one child policy, which helped to allow both parents to work, is now accelerating aging trends: there is only one child to support two parents when they retire. The policy also serves to explain the very high savings rate and, conse-quently, relatively low propensity to consume in China. Nevertheless, consumption is growing with rising wealth. “Rising Asian consumer demand” and “Emerging markets equities,” presented in the Geogra-phy investment area on page 26, are related equity themes. Demographics represent an important and explicit driver for a number of other equity themes, too. Most prominent among these are “Demo-graphics: efficient healthcare” and “Demographics: lifestyles & trends, aging & anti-aging”, which deal directly with the rising proportion of elderly people in the global population. They can be found in the Sus-tainability investment area on page 30. In fact, sustainability is intertwined with demographics, as mankind faces the challenge of dealing with the opposing forces of a growing populace and scarcity of resources. “Agribusiness”, “Water”, “Access for the bottom five”: all are linked to this challenge. Your investments should also take into account the demographics of you and your loved ones. This goes beyond what we can tackle in this publi-cation, but we hope to give you some ideas on how and where to invest within equities across regions, sectors and themes. Our positioning within equities remains unchanged versus last month’s: we continue to prefer US and emerging market equities over other regions, while we overweight the Consumer Staples, Healthcare and Information Technology sectors. We leave equities on a neutral alloca-tion among asset classes. The next edition of the UBS equity compass will be out on 17 December. It will be a special edition with a focus on our equity outlook for 2013.

Editorial

The economics of demographicsRudolf Leemann, analyst, UBS AG [email protected]

Rudolf Leemann, Equity analyst, Wealth Management Research

Back to Contents page


UBS equity compass

More uncertainty aheadMarkus Irngartinger, CFA, strategist, UBS AG [email protected]

Strategy

Past performance is no indication of future performance. The market prices provided are closing prices on the respective principal exchange.

• Despite central banks providing support and economic data stabi-lizing, equity markets tended sideways in early October after a strong rally going back to June. We keep our neutral stance on equities.

• We keep our regional equity allocation unchanged. We continue to like US equities on the back of their relative earnings strength. EM equities should benefit from the stabilization in economic activity.

• We also keep our balanced stance between cyclical and defensive sectors unchanged globally.

In September, central banks across the globe eased monetary policy and lifted sentiment among investors. With elections in the US coming up, and the debate about the fiscal cliff in the US ongoing, uncertainty might rise again in coming weeks. After a steady improvement in global equities since mid-June, more volatility seems likely in the coming weeks. Thanks to the central banks’ announcements, the downside risks look lower now than six weeks ago. Still, with equity markets up 10% to 20% since June, one should not become too greedy. We stay neutral on equities for the time being and take risk through corporate bonds. We still like US and emerging market equitiesWe keep our preference for US equities. Resilient company earnings still speak for an overweight stance relative to global equities over the com-ing six months (see Fig. 1). Continued economic growth should underpin earnings in 2013, too. The presidential election and the debate about the fiscal cliff could lead to more volatility until year-end for the US market. Emerging markets remain tactically preferred. Monetary easing, along with fiscal stimulus in key emerging market countries, has led to a stabi-lization in economic data. Economic activity is likely to improve gradually over the coming quarters, supporting company earnings. Relatively attractive valuations are also a supporting factor. We remain cautious on Australian and Canadian equities. Their earnings continue to be revised down. As a result, earnings momentum in these two markets is weaker than for global equities. Balanced sector stance remains in placeWe like IT globally, as the sector offers a superior earnings growth out-look. In addition, companies in the sector are generating good cash flows and have healthy balance sheets. Meanwhile, consumer staples and healthcare have the strongest earnings outlook among the defen-sive sectors.

24201612840–4–8

Performance of global equity sectors

Source: Thomson Reuters, UBS CIO WM Research, as of 23 October 2012

In %

Cons StaplesEnergy

FinancialsHealthcareIndustrials

ITMaterialsTelecom

Cons Discr

Utilities

YTD 1m

161240–4 8

Performance of global equity regions

EMU

US

Japan

World

In %

Switzerland

UK

Fig. 1: More resilient earnings in US and EM

Source: Thomson Reuters, UBS CIO WM Global Investment Office

Trailing earnings, normalized to 100 at 30.12.2011

US

EM

Australia

Canada

90

95

100

105

Dec-11 Aug-12Jun-12Apr-12Feb-12 Oct-12



UBS equity compass

Swiss companies continue to focus on tight cost control. Most compa-nies also admit that economic visibil-ity is poor, and lower than it used to be. In other words, ordering has become more short-term these days. As a result, most companies are also working on further increasing the flexibility of their operations.

Region

Stefan R. Meyer, analyst, UBS AG [email protected]

Switzerland

StrategyWe remain neutral on Swiss equities. Swiss companies are interna-tionally well diversified, with about two-thirds of revenues generated in the US and in emerging markets. This provides the basis for solid revenues and earnings, despite economic weakness in Europe. While the Swiss franc remains overvalued, the currency is no longer a drag. In fact, as the franc has depreciated versus the US dollar since the summer, Swiss companies’ earnings will show positive currency trans-lation and margin effects.

Our positioning within the regionAs part of our Swiss equity strategy, we favor the investment themes of large companies, sustainable high dividend yield and above-aver-age exposure to emerging countries. In view of challenging economic data in Europe, we temporarily prefer defensive over cyclical sectors.

The third-quarter earnings season has begun. Compared to the relatively strong second quarter, it will be a lot more challenging for companies to beat market consensus expectations. This is evidenced by various profit warnings globally, primarily in the more economically sensitive space. Two prominent Swiss companies to have issued profit warnings thus far are Nobel Biocare and Panalpina. Most Swiss companies not only have robust balance sheets at present, but are also truly global in their profit generation. In fact, the largest 90 companies in the Swiss stock market generate 89% of their operat-ing profits abroad. In addition, foreign profit contributions are well diver-sified, with roughly one-third each generated in Western Europe, North America and other parts of the world. This broad diversification and high share from emerging markets reduces the regional business risks.

Over recent years, investors in Swiss equities have become used to cur-rency exchange losses at Swiss companies reporting in Swiss francs. In some cases these currency losses hurt a lot. This year, for the first time, the currency impact is unlikely to be a negative factor any more: in fact, our analysis suggests that, in particular, third-quarter results will show currency gains on a year-on-year comparison for companies that report in francs. In that regard, dollar exposure will actually be more positive than exposure to the euro. This is because the dollar has recov-ered more year-on-year, while the franc has stabilized just above the minimum exchange rate to the euro guaranteed by the Swiss National Bank (SNB).

We currently favor large companies as well as companies with sustain-able high dividend yields. We prefer defensive over cyclical sectors. In addition, we are focusing on companies with a diversified, above-aver-age exposure to emerging countries.

Investing in Switzerland is a monthly cross-asset investment guide for those interested in investing in the Swiss financial markets, covering equities, bonds, real estate, currencies and more.Available in: English, German, French, ItalianSubscribe: here or via client advisor

Investing in Switzerland

Investing in SwitzerlandCIO WM ResearchOctober 2012

Switzerland compared to the rest of the world

EconomyRobust domestic economy

CompaniesEarnings from all over the world

CurrenciesOpportunities for foreign currencies

A monthly guide to investing in Swiss financial markets

Most Preferred Least Preferred

ABB Ltd CHF Adecco CHF

Actelion CHF CS Group CHF

Aryzta AG CHF Dufry CHF

Bâloise CHF Ems Chemie CHF

Emmi AG CHF Gurit CHF

Flughafen Zurich AG CHF Intershop CHF

Givaudan CHF Kuehne + Nagel CHF

Kuoni CHF Metall Zug CHF

Lonza Group AG CHF Nobel Biocare CHF

Nestlé CHF Panalpina CHF

Novartis CHF Partners Group CHF

Pargesa Holding CHF Phoenix Mecano CHF

Roche CHF PSP Swiss Property CHF

Swiss Re CHF Straumann CHF

Swisscom CHF Swiss Prime Site CHF

Tecan Group CHF Tamedia CHF

Zurich Insurance CHF VP Bank CHF

Source: UBS

As our selected recommendations may change over time, please always consult the underlying Equity Preference List (EPL) for our up-to-date equity preferences. The respective EPL (which also lists the analyst(s) responsible for the selections) can be found on the UBS Research portal that can be accessed via the e-banking platform or via Quotes.


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UBS equity compass Region

EurozoneAndré Schuetz, analyst, UBS Deutschland AG, [email protected]

The Eurozone equity market has shown double-digit performance this year, which is quite remarkable given that the debt crisis remains unsolved and the economy is still weak. But as central banks and politicians con-tinue to work on solutions, the near-term downside risk for stock prices seems limited.

StrategyWe remain neutral on Eurozone equities. While the sovereign debt crisis is still a risk factor, the conditional bond-buying program by the ECB and the introduction of the ESM have significantly reduced downside risks. Near-term, we believe volatility might increase as poli-ticians wrangle about the steps needed to provide a more lasting solution to the debt crisis (e.g. solving banking-related problems in Spain). We think that attractive valuations sufficiently compensate for those risks.

Our positioning within the regionThe Eurozone’s economic environment remains muted. We continue to like defensive stocks, European large-cap companies with low valu-ations compared with their sectoral peers, and stocks with attractive and sustainable dividends. We also like companies that have signifi-cant exposure to the rapidly growing emerging regions.

For now, we expect the market to remain in a broad sideways range, as investors are waiting for a trigger. Consensus earnings estimates have stayed unchanged compared with last month, and the reporting season has recently started. We do not expect the latter to be a strong driver. In addition, leading macroeconomic indicators do not suggest that earn-ings forecasts will improve in the short term, either. Since the majority of the Eurozone purchasing managers indices, for example, are languishing below the expansion threshold of 50 points, on balance they indicate only weak economic development. To be more precise, the Eurozone economy remains in a recessionary state. At the same time, political deci-siveness and central bank actions in recent and coming months should limit near-term risks for Eurozone equities, in our view.

We prefer defensive stocks and stocks of solid companies that pay attractive and sustainable dividends. As leading indicators seem to be bottoming out at low levels, investing in selected cyclical companies is making more sense. Investors should favor highly capitalized compa-nies over lower-capitalized ones, as they have less exposure to Europe, are less cyclical and, accordingly, have less earnings risk.

We keep a preference for the defensive consumer staples and health-care sectors. Both have strong balance sheets and offer exposure to emerging markets and favorable demographic trends. We keep our underweight in European (peripheral countries’) financials, as sovereign indebtedness and bank capitalization remain concerns. We are under-weight in consumer discretionary, industrials, and telecom stocks. Energy remains a favored sector.


Ahold EUR Accor EUR

Allianz EUR BBVA EUR

Anheuser-Busch InBev EUR Carrefour EUR

ASML EUR Elisa Corporation EUR

Bayer EUR RWE EUR

Danone EUR ThyssenKrupp EUR

E.ON EUR

Gerresheimer EUR

L'Oréal EUR

LVMH Moet Hennessy Louis Vuitton SA

EUR

Reed Elsevier NV EUR

Safran SA EUR

Saint Gobain EUR

SAP AG EUR

Vinci EUR

Volkswagen Preference EUR

Source: UBS





Germany

The reporting season has just started; however, four of the largest German companies have already reduced their 2012 guidance. While we do not expect overly negative numbers, additional companies will probably be forced to adjust their outlook, in our view. Profit margins are set to come under pressure, too.

StrategyGermany continues to be a relatively resilient economy in the Euro-zone. A healthy labor market is supporting domestic demand. How-ever, the slowdown in global activity over the summer months has had a negative impact on the earnings of German companies. We expect manufacturing activity to stabilize and actually to pick up moderately in the coming months. The European Central Bank’s readiness to act lowers the risks from the European sovereign debt crisis, in our view – also supporting German equities.

Our positioning within the regionIt remains important to hold stocks with defensive business models. Nevertheless, robust cyclicals that generate a large amount of their revenues in emerging markets, the US and Germany are also attrac-tive. Investors should focus on companies with strong positions in these regions. We also like German real estate companies’ stocks.

Negative historical patterns might suggest that September should have been this year’s worst performing month for the DAX. Despite some consolidation, however, this year’s September was in fact the third best in a decade. Including what October has delivered so far, the year-to-date performance is the best it has been for 15 years. Enthusiasm was mainly driven by central banks’ and politicians’ decision-making. A stock market saying suggests that politically-driven markets should not be considered sustainable. However, this might be hard to prove in the very near term, as investors’ liquidity remains high, and valuations are still below the historical average level. Nevertheless, we continue to be cautious when looking into fundamen-tals, as economic indicators are still not painting a clear positive picture. While the ZEW seems to be bottoming out at low levels, Germany’s cru-cial Ifo Business Climate Index has continued its downward trend. In addition, the pending reporting season should not serve as a fundamen-tal trigger, in our view. Some companies have already cut their 2012 guidance lately. Given the note of caution sounded during the last reporting season, more companies will probably have to adjust their guidance, in our view. The overall level of profit margins should contract further. We continue to like companies with defensive business models, including selected German real estate companies. We believe the German real estate market is healthy, which should help German real estate stocks. Picking stocks with high and sustainable dividends remains a successful long-term approach. We still recommend a selective mix of cyclicals that generate a large amount of their revenues in economically robust regions such as the US, emerging markets and Germany.

André Schuetz, analyst, UBS Deutschland AG, [email protected]


Allianz EUR RWE EUR

Alstria Office EUR Symrise EUR

Bayer EUR ThyssenKrupp EUR

Deutsche Post EUR

Deutsche Wohnen AG EUR

E.ON EUR

Fielmann AG EUR

Fresenius SE EUR

GEA Group EUR

Gerresheimer EUR

Hugo Boss EUR

Kabel Deutschland EUR

Linde EUR

MTU Aero Engines EUR

SAP AG EUR


Source: UBS




UBS equity compass

Against a backdrop of low growth, the government remains under pres-sure with regard to its fiscal austerity program. November should bring an update on government budgets as well as potentially more monetary stimulus from the Bank of England.

Region

United KingdomCaroline Winckles, CFA, analyst, UBS AG [email protected]

We have a neutral view on UK equities relative to global equities. Earnings have continued to disappoint, showing one of the weakest dynamics within our market universe. Commodity-related sectors are showing steep earnings declines. This trend is expected to moderate as commodity prices stabilize, but only after a time lag. The market usually trades at a discount to global equities. While this discount is currently not higher than during the last ten-year period, it is slightly higher than in the last five years.

Our positioning within the regionIn the UK our preferred equity investment strategies are high quality dividend yields, pricing power and exposure to emerging market growth.

The UK’s Bank of England base rate remains at a historical low of 0.5%, while UK 10-year gilts are yielding just 1.8%. Yet inflation is still running above target at over 2%, leading to negative real bond yields. Against this backdrop, the 4% dividend yield on equities continues to look attractive, and provides positive real income. Investors often underestimate the importance of dividends to total returns. In the UK, dividends have accounted for one-third of total equity returns since 1973. In the aftermath of the financial crisis, economic growth will remain below historical averages for some time, as compa-nies adjust to the new world of lower leverage and great fiscal austerity, regulation and capital requirements. In the face of reduced growth opportunities, companies will look for alternative ways to generate shareholder returns. As a result, we expect that dividend payments will contribute an increasing part of total returns going forward. However, we do not recommend that investors simply buy the market yield, but instead that they focus on high-quality dividends. Companies with sound fundamentals, robust balance sheets and sustainable grow-ing dividends that are well covered by their earnings and cash flows are more likely to be rewarded for the reliability of income payments in the current low-yield, low-growth environment. In light of the unexciting economic outlook, we expect an in-line perfor-mance from the UK equity market. However, we remind investors there can be wide disparities in performance of stocks within equity markets. In our view, companies that can continue to demonstrate reliability of earnings growth will be rewarded. We continue to prefer attractively val-ued stocks with high-quality income streams, pricing power and exposure to emerging market growth.


AstraZeneca GBp Cable & Wireless Communications

GBp

Barclays GBp

BAT UK GBp

BHP Billiton Plc GBp

BP GBp

Centrica GBp

GlaxoSmithKline GBp

HSBC GBp

Lloyds Banking Group GBp

Next GBp

Reed Elsevier plc GBp

Rio Tinto Plc GBp

Royal Dutch Shell GBp

RSA Insurance Group GBp

SABMiller GBp

Unilever Plc GBP

Vodafone Group GBp

Whitbread GBp

Source: UBS




UBS equity compass

Reality and perception do not always match. There are very strong compa-nies reporting good results whose share prices are nevertheless falling because of poor sentiment. Positive corporate news may not always be of prime importance for markets, espe-cially when macro news, fear and hope are predominant. The financial markets are likely in for a bumpy ride.

Region

United States

StrategyWe keep our preference for US equities relative to other developed equity markets. Earnings continued to hold up better than in other regions during the economic slowdown over the summer months. The US Federals Reserve's very pro-growth policy stance is a clear advantage for the local equity market. Continued economic growth should allow US companies to show mid-single-digit earnings growth over the coming 12 months, leading the market gradually higher.

Our positioning within the regionWithin the US we recommend a well-diversified portfolio of solid defensive companies. We find companies strongly focused on the US domestic market and emerging markets attractive, but would be cau-tious about cyclicals or companies that depend on Europe. Mid caps have a greater domestic focus, are attractively valued and are very well suited for adding a little more risk to a portfolio, with the pros-pect of higher return.

We still like the US equity market and believe that it should outperform on the back of the current economic momentum. We have lately seen some nice economic surprises such as good ISM data, improving housing numbers and strong auto sales; all this should continue to support the US market.

The most prominent upcoming event in the US is the presidential elec-tion, but of even higher significance for the equity market is the loom-ing fiscal cliff, which could become an issue in January. The fiscal cliff is about a series of fiscal measures set to kick in at the beginning of 2013 and could potentially eat away a significant portion of GDP growth. However, we believe that the likelihood of such a grave outcome is fairly limited, since, in our view, Congress would be likely to temporarily extend most of the measures (mini cliff) or let them all expire but retro-actively adjust taxes and spending early in 2013 (temporary cliff). One aspect of these possible measures would be a higher taxation of divi-dends. We expect that under either political alignment, dividend income is unlikely to be taxed as ordinary income. We like companies that are not only paying as sustainable dividend but are also determined to return cash to shareholders by buying back their own shares. In the first half of 2012, S&P 500 companies paid out USD 131 bn in dividends and bought back almost USD 200 bn worth of their own shares. Together these fig-ures amount to around 5.3% of total market cap. We expect this trend to continue. We think that the consumer staples will grow its dividend by 7–10% over the next five years.

We also continue to like the IT sector in the US, since in terms of valua-tion it is really attractive. We believe its current discount to the overall market is not justified, especially given that the sector offers a solid growth outlook of 8–10% for at least the next couple of years.

Stefanie Scholtysik, analyst, UBS AG [email protected]


Accenture Ltd. USD Alcoa Inc. USD

Adobe Systems Inc. USD AT&T Inc. USD

Anadarko Petroleum Corp. USD Cabela's Incorporated USD

Apple Inc. USD Caterpillar Inc. USD

Axis Capital Holdings Ltd. USD Overstock.Com USD

Broadcom USD Progressive Corporation USD

Citigroup USD

Coca-Cola Co. USD

Colgate-Palmolive USD

CSX Corp. USD

DDR Corporation USD

Deere & Co USD

EMC USD

Express Scripts USD

First Republic Bank USD

Ford Motor Co. USD

Gilead Sciences USD

Google Inc. USD

Halliburton Co. USD

Home Depot USD

Honeywell Int. USD

Ingersoll-Rand Co. USD

International Paper USD

MetLife USD

Mondelez International USD

Occidental Petroleum USD

Omnicom USD

Oracle Corporation USD

Philip Morris International USD

Rackspace Hosting Inc. USD

Schlumberger Ltd. USD

Stryker USD

Wal-Mart Stores USD

Watson USD

Williams-Sonoma, Inc. USD

Yum! Brands Inc. USD

Source: UBS




UBS equity compass

As investors have drawn some com-fort from the recent favorable eco-nomic data points in the region, the structural issues and reforms in India and Indonesia and political events in China and Japan could be the new swing factors for the market.

Region

AsiaPatrick Ho, CFA, analyst, UBS AG [email protected]

If you are interested in learning more about Asian stock mar-kets and investment themes, please refer to our UBS equity compass Asia. Subscribe: here or via client advisor

UBS equity compass Asia

Links to full reports on the research portal

� Thailand equities: Southeast Asia's bright star, published 19 October 2012

� Japanese equities: Drastic changes are afoot, published 17 October 2012

� Singaporean equities: Monetary policy surprise, published 12 October 2012

� Asia Pacific equities: Rising Asia consumer update: Myths and giants, published 1 October 2012

� Hong Kong equities: Opportunities in the CNH market: Update, published 1 October 2012

� Asia Pacific equities: Giants rising in the east – learning from the winners, published 28 September 2012

� Chinese equities: The date after QE3, published 27 September 2012

��Asia Pacific equities: ASEAN cash registers ring louder, published 26 September 2012

� Singaporean equities: In the land of QE3, not everyone is equal, published 24 September 2012

� Asia Pacific equities: QE2 and iPhone 5 – A sweet serendipity, published 21 September 2012

Please note that the distribution of any publication recommended above may be restricted in some countries for legal or regulatory reasons.

� Document links available (UBS internal only) for the published documents. Please click on the links to access the PDF.

• Japan could see drastic changes in economic policy after the next lower house election in a few months time.

• The Monetary Authority of Singapore surprisingly maintained its appreciation bias for SGD, which should benefit the stocks in our “Winners and losers from Singapore’s policy shift” Equity Prefer-ence List.

• We expect the near-term outlook for the property market in China to be stable, so that Tier 1 and Tier 2 cities could face upward price pressure of around 5% in 2013 given limited supply.

In addition to the Sino-Japan tension we highlighted in the last edition of the UBS equity compass, the global slowdown has also depressed the consensus forecasts on Japanese companies’ earnings. For the next two to three months, we expect investors to shift their focus to political events that could significantly change the Bank of Japan’s policy approach and the potential changes in Japan’s economic policies under a new government. The change could be drastic, as the Liberal Demo-cratic Party will likely win the next lower house election and take over the administration from the ruling Democratic Party of Japan. The new government could be more aggressive in terms of pursuing reflationary economic measures and make greater efforts to ease the Sino-Japan tension, in our view.

Despite the growth slowdown in the past two quarters, the Monetary Authority of Singapore surprisingly maintained its policy of a modest and gradual appreciation of the SGD to combat inflation. We think policy measures to tighten foreign labor supply and raise low-wage workers’ salaries could mean upward pressure on inflation. The strong SGD should attract capital inflows and support our view that local interest rates will remain low. This should be positive for the most preferred inflation-linked and high-dividend-yield stocks in our “Winners and losers from Singapore’s policy shift” Equity Preference List.

The China property market has fared much better than expected in home sales year-to-date, helping to improve the liquidity conditions of the Chinese developers. We expect the near-term outlook for the prop-erty market to be stable, so that Tier 1 and Tier 2 cities could face upward price pressure of around 5% in 2013 given limited supply. Longer-term, however, we expect sales volume to have already peaked, and smaller players could be squeezed out from the market as operating conditions remain tough (e.g. with government tightening measures and high funding costs).

UBS equity compass AsiaCIO WM ResearchOctober 2012


Tension, reform and earnings

Japan-China tension India reform benefits and risks

Robust earnings for Hong Kong property stocks


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Emerging markets

StrategyThe downward revisions to the emerging market GDP growth fore-casts by market participants appear to be coming to an end. Another supporting factor are the attractive valuations relative to developed markets. Monetary policy in major developed countries remains very easy. One implication of these low interest rate policies, we believe, will be to enhance emerging market equity returns in USD by sup-porting EM currencies more broadly against the USD over the next six months.

Our positioning within the regionWithin emerging markets, we have a preference for the large equity markets, Brazil, China and South Korea. We see relatively less upside for more defensive Malaysia. We believe that South Africa and Indo-nesia are expensive.

Within emerging markets, we have a preference over six months for the large equity markets of Brazil, China and South Korea. We expect an acceleration of growth into 2013 in Brazil and South Korea, and a stabi-lization in the case of China. We see relatively less upside for the more defensive Malaysia. We believe that South Africa and Indonesia are expensive. The ECB’s announcement that it stands ready to buy the bonds of com-pliant Eurozone governments has lessened the tail risks for the smaller European emerging equity markets (Turkey, Hungary, Poland), but their equity markets are susceptible to setbacks.

Outlook Given the above, in our base case we see the P/E multiple of the MSCI EM Index staying around the current level of 11x trailing (i.e. realized) earnings over the next six months. Over the next 12 months, we expect EM earnings growth of around 11% (slightly below consensus). If things turn out better than our base case assumes, say if the global economy improves, thereby boosting the ability of EMs to grow more strongly in 2013, this would lead to higher earnings growth of around 15% – and in turn to a better P/E multiple of 14x trailing earnings. In a negative scenario, however – with possible developments such as an escalating Eurozone crisis, a stronger US fiscal contraction or a Chinese hard landing – trade would be hit, thus denting the economic prospects of EMs. If this kind of bad scenario were to materialize within the next six months, we would expect a 20% decline in earnings. We assume, however, that the market would also be expecting some recovery in earnings later in 2013, helping the P/E multiple to recover to 10x trailing [email protected], analyst, UBS AG


Asia ex-Japan Asia ex-Japan

China Construction Bank HKD Giant Mfg TWD

China Overseas Land HKD

China Shenhua Energy HKD

Hutchison Whampoa HKD

Indofood S.M. IDR

Keppel Corporation SGD

Mediatek TWD

OCBC SGD

Samsung Electronics KRW

Emerging Europe, Middle East & Africa

Emerging Europe, Middle East & Africa

Gazprom USD AngloGold Ashanti ZAR

Polyus Gold International GBp Anglo Platinum ZAR

RusHydro RUB Gold Fields ZAR

Teva Pharmaceuticals ADR USD Harmony Gold ZAR

Kumba Iron Ore ZAR

Northam Platinum ZAR

Uralkali USD

Latin America Latin America

America Movil MXN CONSORCIO ARA MXN

Bolsa Mexicana De Valores MXN Kimberly Clark de Mexico MXN

G.F. Banorte MXN

GENOMMA LAB MXN

GEO MXN

Gruma MXN

Grupo Televisa MXN

Mexichem MXN

Petrobras Pref ADR USD

Potential trading restrictions may be applied to Giant Mfg and Mediatek Source: UBS


Our Global Emerging Markets Equity Preference List contains our best investment opportunities from Africa, Asia ex-Japan, Eastern Europe, Latin America, and the Middle East as identi-fied by our sector and regional analysts. These companies are expected to outperform (Most Preferred or Least Preferred underperform) respective benchmarks. More details on individ-ual stock preferences can be obtained via UBS Quotes or the respective analyst.



UBS equity compass

The market is currently looking at the third-quarter earnings season. In par-ticular, any news flow about the upcoming major production cuts and/or even capacity cuts, and the impact on corporate profitability, will be closely watched by investors.

Sector

AutomobilesRolf Ganter, CFA, analyst, UBS AG [email protected]

With an exceptional performance in Europe and a lagging US sector, the global Automobiles sector has had a strong performance year-to-date. However, the more challenging macro environment raises con-cerns on the outlook and decreases visibility. While the premium seg-ment should continue to benefit from emerging market growth, a slowdown will most likely hit the mass-market producers. The sector valuation is inexpensive, reflecting higher earnings volatility com-pared to other sectors. We confirm our neutral sector view.

Our positioning within the sectorThe companies we prefer, in particular Volkswagen, are well posi-tioned outside the troubled southern European markets. The Ameri-can players are recovering in their strong home market and address-ing their European problems, while we remain careful on the auto manufacturers from the European periphery.

At the Paris motor show, a lot of appealing new products were pre-sented. But European auto production cuts have been in the spotlight, and we believe there will be a 10–12% decline in the last quarter of 2012, negatively impacting profitability. Hence, we are largely avoiding the automotive suppliers subsector, as it might be hit the hardest. While the German players talked in Paris about technology and prod-ucts, investors were desperate to hear about the balance sheets and cash flows of the peripheral automakers. The French manufacturers in par-ticular failed once more to convince investors that their business model is not broken. As auto executives do not see any relief for Europe in 2013, any positive news for the sector can only come in the form of significant plant clo-sures in order to take out excess capacity and costs. In this respect, the possible combination of Peugeot with Opel was once again put into the spotlight, while Fiat’s interest in Opel was also discussed in the Italian economic press once again. However, all of this would definitely not offer any immediate help to the ailing companies. In the far east, the recent clash between Japan and China is still a key negative for some of the Japanese auto manufacturers, with the Ger-mans once again being a clear winner of this dispute. Moving on to the far west, the US once again showed strong car sales, and our preferred companies should clearly benefit from this growth as well. Our selection of auto stocks will certainly not be immune to ongoing economic concerns. But their strong segment positions and brands, rela-tively solid balance sheets, margin leeway and exposure to higher-growth (emerging) markets make them superior to sector peers. They have also proven that they are less vulnerable to a market correction than the peripheral mass-market competition.


BMW EUR Faurecia EUR

Fiat Industrial EUR Mitsubishi Motors Corp JPY

Ford Motor Co. USD

MAN EUR

Tesla USD

Toyota Motor JPY


Source: UBS




UBS equity compass

I especially liked the following quote by Sidney Toledano, CEO of Christian Dior: “I am not an economist, but looking at the fundamentals of demand in China, I am not worried.”

Sector

Consumer DiscretionaryStefanie Scholtysik, analyst, UBS AG [email protected]

Underweight

Strategy Driven by the media and retailing subsectors, Consumer Discretionary has been a strong performing sector year-to-date. However, the out-performance has made the sector among the most expensive. Moreo-ver, we believe consumer sectors could increasingly be challenged by reduced consumer confidence and lower consumption. We still like US media companies, which should benefit from growing corporate profits and good pricing power. But we reiterate our underweight on global consumer discretionary stocks.

Our positioning within the sectorWe recommend that investors take a cautious approach to consumer non-staples and look for companies that are growing their sales and that also have the potential to boost margins. We recognize, how-ever, that for many companies margins are already at record levels. We also prefer companies with good pricing power and positions in rapidly growing emerging markets or the US.

Last month the picture in the consumer discretionary sector was rather mixed, and the individual subsectors were volatile, moving in all different directions. The biggest underperformer at the beginning of October was the luxury segment, but it later caught up on the back of improving data – although there were also various conflicting messages. For exam-ple, Burberry issued a profit warning in September, and a few weeks later the company posted a trading statement implying that the situation is already improving. Similarly, LVMH posted the weakest quarterly organic growth figures since 2009, but the market cheered up again fol-lowing the accompanying comments by management that destocking trends in China are supposedly coming to an end and that it was able to increase prices for Louis Vuitton products by 8% in Europe. We believe that the current uncertainties are still there and expect the volatility to continue. At the same time, we reckon that the sector’s valuation is low. It is trading below its historical average, and the premium compared with equity markets as a whole has decreased further – although this reflects the weaknesses, in our view. Within the luxury space, we con-tinue to like PPR, LVMH and Richemont. We also like Yoox, an Italy-based online retailer in the upper price range. We believe that the company will especially benefit from bringing the e-commerce world into the luxury goods environment by offering monobrand solutions for them.

The best-performing segment was the media sector, which was rela-tively stable. We have a positive view on the sector and believe that the cable TV operators in particular have strong pricing power and should be able to keep up the good momentum. In this context, we like ITV and CBS.


CarMax USD Cabela's Incorporated USD

Compagnie Financiere Richemont SA

CHF Dollar General USD

Ford Motor Co. USD Dufry CHF

Gap USD Overstock.Com USD

Home Depot USD Vitamin Shoppe Inc. USD

HomeAway USD

Inditex SA EUR

ITV plc GBp

LVMH Moet Hennessy Louis Vuitton SA

EUR

McDonalds Corp. USD

Next GBp

Omnicom USD

PPR SA EUR

Reed Elsevier plc GBp

Toyota Motor JPY

Urban Outfitters Inc. USD


Williams-Sonoma, Inc. USD

Yoox EUR

Source: UBS




UBS equity compass

My sector in a nutshell: the big supermarkets and everything you can buy there. The best companies grow slightly faster than global GDP, improve their business doggedly, and thus boost cash flow to shareholders in excess of global inflation. They are like perpetual bonds with growing coupons.

Sector

Consumer StaplesThomas Kruemmel, CFA, analyst, UBS AG [email protected]

Overweight

Strategy Consumer Staples have had a strong performance year-to-date. These companies in general have relatively stable earnings and cash flows and are less impacted by economic cycles, which is a benefit in the current challenging environment. The sector offers defensive growth and a healthy combination of dividend yields and growth, which justi-fies the relatively expensive valuation. With attractive long-term pros-pects, current high-single-digit consensus growth expectations are realistic, in our view. We reiterate our overweight.

Our positioning within the sectorIt is impossible to be overweight in Japanese cheese producers, or underweight in Western European paper towel manufacturers – there just aren‘t any companies with such a narrow focus. Most companies worth investing in encompass several regions and/or categories. That’s why we screen companies using certain criteria – pricing power, sales growth and a disciplined use of cash. Then, if a company matches our criteria, we select it, no matter on which exchange its shares trade.

The slowdown in the third-quarter must have been worse than was thought: When central banks in the US and Europe pledged even looser monetary policy for even longer in September, they may have been more worried than they let on. Companies have started to publish results for the third quarter, with the Europeans usually only publishing sales data. The giants of the food & beverage industry saw their sales growth slow by more than was widely expected. Danone (yogurt, bottled water) is still struggling in the south of Europe, Nestlé had difficulties in the US and Diageo (spirits) witnessed very modest sales growth in Asia. Coca-Cola managed to improve volumes in every region but suffered some modest pricing pressure everywhere except in North America, hurting margins. While it is still early in the earnings season, there seems to be a common thread – business had slowed down anywhere, impacting sales and very probably margins, too. Now, global consumer staples companies have been here before – and will be there again. Slowdowns are merely a nuisance; they do not threaten the survival of the companies. Margins may decline for two or three quarters, but they will not disappear. Stock prices reacted quite modestly to the disappointing announcements. Valuations are still attrac-tive, especially if you compare their free cash flow (the cash available for distribution to shareholders via dividends and share buybacks) yields of 5-6% with bonds. If and when the actions of central banks gain traction, global nominal GDP growth will re-accelerate again, and this is the benchmark for the sales growth of the majors in the sector. With better growth, capacity utilization will improve, and so will profitability.


Ahold EUR Campbell Soup Company USD

Anheuser-Busch InBev EUR

Aryzta AG CHF

Coca-Cola Co. USD

Colgate-Palmolive USD

Danone EUR

Diageo GBp

L'Oréal EUR

Mondelez International USD

Nestlé CHF

Philip Morris International USD

Reckitt Benckiser GBp

Unilever Plc GBP

Wal-Mart Stores USD

Source: UBS




UBS equity compass

Third-quarter results reveal higher oil prices but lower natural gas price realizations in North America and Europe. This should lead to higher earnings overall, but with some headwinds from gas.

Energy Neutral

Sector

Rudolf Leemann, analyst, UBS AG [email protected]

With an attractive dividend yield, good dividend cover, and very solid balance sheets, Energy offers defensive qualities. The sector per-formed quite weakly at the beginning of the year but has caught up nicely in recent months. It still trades at a discount to the market. However, the earnings outlook for the sector has a high correlation to energy prices, where we have a negative view due to ongoing worries on the global macro environment. Therefore we keep a neutral stance.

Our positioning within the sectorWe are finding attractive risk-reward profiles primarily among major oil companies and energy services providers. Meanwhile, US natural gas and refining stocks are slotting into higher risk categories. That said, business models and operating environments vary a lot, and it is all about individual companies.

The earnings season is in full swing, and it is worth a reminder that sub-par second-quarter earnings were simply ignored by markets. Most sub-sectors within Energy have long business cycles of up to several years. We look at the big picture in the 30-page UBS research focus entitled “Investing in the future with Energy”, published 29 August. Natural gas is set to be a winner in the energy mix for the next 20 years. Linked to this is our Equity Preference List entitled “Natural gas growth gainers”. The typical production mix of an integrated major oil & gas company – currently one-third gas and two-thirds oil – is likely to continue drifting up on the gas side. Currently, due to regional prices, the profitability of natural gas is only attractive outside of North America. We continue to like energy service providers (Schlumberger, Hallibur-ton). International business exposure is preferred over more volatile US-driven sales. While 2012 can be regarded as the year of rising order intake, 2013 and 2014 are set to be years of higher earnings growth. Risk of order cancellations is low: even at a Brent oil price of only USD 90, virtually all projects are profitable. Even if we saw a drop below this price, it would be worth bearing in mind that investment decisions are rarely reversed quickly. In the US we prefer geographically diversified oil producers (Anadarko, Apache) over domestic natural gas producers. The relatively defensive integrated oil & gas majors all are value stocks with an attractive risk-reward. We prefer European majors, such as Royal Dutch Shell or Total, which come with a solid dividend as well. We keep a limited exposure to refining and US natural gas stocks, even though margins are sequentially improving from the terrible fourth quarter of 2011. In both areas, supply is higher than demand, depressing prices and margins, with some companies making losses. Note, though, that refining and gas are largely local. There are refiners making money (in the US Midwest) and profitable international gas producers (outside of North America).


AMEC GBp Chesapeake Energy Corp. USD

Anadarko Petroleum Corp. USD ConocoPhillips USD

Apache Corporation USD SandRidge Energy Inc USD

BP GBp

China Shenhua Energy HKD

Devon Energy Corporation USD

Gazprom USD

Halliburton Co. USD

Occidental Petroleum USD

Petrobras Pref ADR USD

Royal Dutch Shell GBp

Schlumberger Ltd. USD

TOTAL EUR

Transocean Ltd. CHF

Weatherford International Ltd. CHF

Source: UBS




UBS equity compass

While valuations are supportive, we still see funding incentives, mainly in Europe, for banks to reduce their balance sheets. We do not see any short-term triggers for upside bank-ing earnings revisions. Low interest rates are squeezing margins and compressing earnings, particularly those of life insurers.

Sector

FinancialsFabio Trussardi, analyst, UBS AG [email protected]

Neutral

StrategyWhile Financials had a strong performance year-to-date, we still see various challenges and the low yield environment remains an issue for the profitability of banks and insurers. With visibility improving glob-ally and inexpensive valuations, we see large regional differences. These support banks in the US and emerging markets where, in con-trast to Europe, macro conditions are benign and loan growth is posi-tive. For European banks, the creation of a banking union could be positive but may take time. We reiterate our neutral positioning.

Our positioning within the sectorWe do not see positive earnings revision prospects for the European financials in the upcoming quarterly results. Conversely, the US reporting season is proving to be sound. Within the global banking sector we prefer Asia and the US over Europe. Low interest rates are curbing earning prospects, particularly for life insurers. Reinsurers should profit from stable premium prices and possibly a mild hurri-cane season.

Based on the massive credit facilities provided by the European Central Bank (ECB) to the European banks, we exclude the possibility of major bank failures caused by lack of liquidity. Non-performing loans are expected to remain elevated, denting profitability. We should have bet-ter clarity on the underlying trends with the new report season, which has in fact already started in the US and is proving to be sound.

Given the current credit conditions, many banks are unable to fund themselves economically, and their marginal lending is not enhancing their profitability. Even though the valuation metrics are well below the historical average, we do not see any short-term triggers as the profit-ability outlook is still subdued. In the medium to longer term, we still see a funding-driven incentive for banks to reduce the size of their balance sheets as we continue to view the leverage ratios (assets-to-equity and assets-to-GDP) of the European banking system as too high. The situa-tion is sounder in the US and Asia, where loan growth is positive. US banks have lower leverage than their EU peers and benefit from sounder macro conditions.

With low interest rates, we think it will be difficult to have significant upside earnings revisions within the insurance sector. Low interest rates are squeezing margins and compressing earnings, particularly those of life insurers. As a subsector we prefer reinsurers that should profit from at least stable premium prices and possibly a mild hurricane season (we have Munich Re, Swiss Re and Scor as Most Preferred among financials). We favor insurers exposed to Asia, where economic growth is higher. We prefer European insurers over their US counterparts, as they have policyholder reserves and lower levels of “variable annuities” business. They should therefore be more resilient in the current low interest rate environment.


Allianz EUR Bank of India INR

Aon Corp USD BBVA EUR

Axa EUR CNP Assurances EUR

Bâloise CHF Commonwealth Bank of Australia

AUD

BNP Paribas EUR Crédit Agricole EUR

China Pacific Insurance - H HKD CS Group CHF

Citigroup USD Deutsche Bank EUR

DNB Bank NOK Partners Group CHF

First Republic Bank USD Progressive Corporation USD

G.F. Banorte MXN Santander EUR

HSBC GBp State Bank of India INR

MetLife USD VP Bank CHF

Munich Re EUR

Old Mutual GBp

Royal Bank Of Canada CAD

Scor EUR

Swiss Re CHF

United Overseas Bank SGD

Zurich Insurance CHF

Potential trading restrictions may be applied to Bank of India and State Bank of India Source: UBS




UBS equity compass

Pharma companies focusing on branded drug development have come back into favor. This means that investors no longer view clinical trial results simply as a potential neg-ative risk event – but also as an opportunity for future growth.

Sector

HealthcareStefan Schneider, CFA, analyst, UBS AG [email protected]

Overweight

Strategy Thanks to its defensive qualities and low dependence on the business cycle, Healthcare has outperformed global markets year-to-date. We believe the sector offers visible growth prospects, high quality earn-ings, good returns on capital, strong balance sheets, and attractive dividend yields. While the patent cliff is an ongoing challenge, we see signs of managements taking action to improve productivity. The sec-tor valuation remains attractive and we confirm our overweight.

Our positioning within the sectorWe highlight our increasing preference for organizations that are focused on R&D. With pipeline news flow quite positive lately, and some recent product approvals by the FDA, we believe that investors are increasingly willing to pay up for drug pipelines. We also continue to be interested in growth niches outside the large-cap pharma space. We like companies exposed to obesity – a disease with a growing prevalence. We also like healthcare companies that are exposed to aging and anti-aging – trends that are showing above-average growth and where single companies can be found that are disproportionally exposed to them.

At the time of writing, Roche and Johnson & Johnson have already reported numbers for the third quarter – and in both cases, they are quite good (note: Roche only reported sales). Overall, we expect a good earnings season for the healthcare sector, with growth in the US, and emerging markets expected to meet expectations. In Europe, we con-tinue to see pricing pressure and also expect this to persist for the time being. Just a few years ago – when pharma growth was very much challenged by the patent cliff and insufficient R&D productivity – healthcare inves-tors preferred diversified business models over focused pharma compa-nies. This has changed in the recent months. Product pipeline news flow – and the risk associated with it – no longer get categorically ignored. In our view, two findings explain this observation: the quite positive pipeline news flow recently, and ongoing issues within various business units of diversified pharma companies. We therefore advise investors to add positions in focused pharma com-panies including Roche, for instance, or large-cap biotech names such as Amgen, Celgene and Gilead Sciences. Thematically, we continue to like our Lifestyles & Trends healthcare investment theme, in which we analyze lifestyles and trends that have been widely adopted and are expected to persist for a long time. As such, these trends open up inter-esting investment opportunities. Currently we are focusing on obesity – a disease with a growing prevalence. We also like healthcare compa-nies that are exposed to aging and anti-aging. For both trends we find companies that are disproportionally exposed to them and are showing above average growth.


Actelion CHF Nobel Biocare CHF

Amgen Inc. USD Straumann CHF

Celgene USD

Coloplast B DKK

Express Scripts USD

Fresenius SE EUR

Gilead Sciences USD

Mckesson USD

Pfizer Inc. USD

Roche CHF

Shire Pharmaceuticals GBp

Tecan Group CHF

Watson USD

William Demant DKK

Source: UBS




UBS equity compass

The performance of the sector will be driven by the earnings season over the next few weeks. The most important statements by companies will be those concerning their out-look for the rest of the year, pros-pects for 2013 and the impact of the slowdown on their businesses.

Sector

IndustrialsAlexander Stiehler, CFA, analyst, UBS AG [email protected]

Underweight

Strategy Industrials have modestly lagged the global benchmark year-to-date. While balance sheets across the sector remain strong, the near-term earnings outlook remains uncertain following renewed worries on the macro environment in some regions and disappointing leading indicators. Thus, increased negative earnings revisions for 2012 and 2013 are likely and could pressure stock prices, in our view. With lower outlook visibility and valuations at a small premium, we reiter-ate our underweight recommendation.

Our positioning within the sectorSeveral profit warnings from transport companies and limited visibility pose earnings risk to third-quarter results. We recommend investors avoid excessive European exposure. Concentrate on high-quality names in the US and European stocks with a global focus or on self-help opportunities.

Over the last few weeks, we have seen some glimmers of hope. Most leading indicators have stabilized or even improved (US ISM, EURO PMI, some degree of stimulus in China). This has also been reflected in perfor-mance, with global industrials performing in-line with the general market. Nevertheless, leading indicators in Europe have remained well below the important level that indicates growth. Several profit warnings across all regions and, in particular, in the transport sector have confirmed the per-sistent softness in the market over recent weeks (e.g. FedEx, Landstar System, Norfolk Southern, Panalpina, Swift, and Werner Enterprise). All of them have seen weak September volumes and have therefore reduced their outlook for the rest of the year. Normally, this is a good leading indi-cator for the capital goods sector. We would expect more misses than beats in Q3, with warnings for 2012 and a more cautious outlook for 2013. In our view, consensus expectations for next year are still too high (5–10%). In a world of low growth, internal drivers like self-help (e.g. restructuring, cost-cutting) and the valuation of a stock become an important driver for performance. Therefore, investors should look for strong and resilient business models and self-help stories while avoiding high European expo-sure. Our focus continues to be on high-quality names in the US and on European stocks with a global focus. In the US, we like such names as John Deere, Danaher, Honeywell and Ingersoll-Rand. Companies that report in euro should get some support from the currency given the sequential weakening year-over-year. In Europe, our favorites are MTU, Bilfinger Berger, and Flughafen Zurich.


ABB Ltd CHF Adecco CHF

Bilfinger Berger EUR Caterpillar Inc. USD

CSX Corp. USD Panalpina CHF

Danaher Corporation USD Renewable Energy Corporation NOK

Deere & Co USD Solarworld AG EUR

Flughafen Zurich AG CHF

Foster Wheeler USD

gategroup Holding AG CHF

GEA Group EUR

Honeywell Int. USD

Ingersoll-Rand Co. USD

KBR USD

MTU Aero Engines EUR

Rockwell Collins Inc. USD

Safran SA EUR

Saint Gobain EUR

Schweiter Technologies CHF

Sulzer CHF

United Continental USD

United Technologies Corp. USD

Vinci EUR

Zodiac Aerospace EUR

Source: UBS




UBS equity compass

Key catalysts ahead include initial sales of recently launched products and further earnings announcements in the enterprise IT segment. Inves-tors should additionally gear up for the early holiday sales data, which may also act as a catalyst to the sec-tor’s performance.

Sector

Information TechnologySundeep Gantori, analyst, UBS AG [email protected]

Overweight

Strategy Since the start of the year, the global IT sector has had a strong per-formance. However, we think there is more to come as the product cycle is attractive and we confirm our overweight. The sector has ben-efited from ongoing robust end demand, especially in the US and emerging markets. While European demand trends have been mixed, the sector should also benefit from expected resilient consumer spending. With long-term growth trends intact, the sector’s valuation still looks attractive.

Our positioning within the sectorWe continue to recommend stocks exposed to smart mobility and cloud computing, as we have very good growth visibility. In particular, the smart mobility industry stands to benefit in the near term from new product launches and strong consumer demand during the holi-day season.

We believe the recent underperformance of the IT sector in early Octo-ber is overdone, as we think investors have over-reacted to Apple’s weaker-than-expected sales of iPhone 5 during its opening weekend. We believe the weakness stems largely from the undersupply of iPhone 5, and our latest checks in Asia suggest a potential easing is on the cards due to improved yields at suppliers.

From a thematic perspective, while we continue to recommend stocks exposed to smart mobility and cloud computing, geographically we favor US tech stocks in the near term. This is based on our view that US IT stocks are trading at an unjustified discount to the broader markets. Given the US IT sector’s attractive valuation, superior earnings growth, and solid balance sheets, we expect US IT stocks to outperform in the near future. We believe the recent product refreshes should also help US IT companies to sustain the strong growth in the near term.

The recent wave of tablet PC launches creates another overhang in the PC industry, as we believe the attractively-priced tablet devices will fur-ther cannibalize sales of PCs. While the initial mixed response to Win-dows 8 is not a surprise to us (please see part 2 of our “Whither the PC industry?” report, published on 24 August 2012), bulls argue in favor of a potential consumer PC upgrade cycle in 2013 due to the lengthening lifespan of consumer PCs. Our view is that while some consumers may replace aging PCs, the majority may further delay upgrades in favor of purchasing a tablet PC instead, given the improving functionality that tablet devices offer.

Our positive view on cloud computing is also unchanged, as spending on cloud has remained fairly robust so far in 2012, despite a weak macro environment.


Adobe Systems Inc. USD IBM Corp. USD

Apple Inc. USD Tata Consultancy Svcs INR

Broadcom USD Venture Corporation SGD

Citrix Systems Inc. USD

EMC USD

Google Inc. USD

Mediatek TWD

Oracle Corporation USD

Rackspace Hosting Inc. USD

Samsung Electronics KRW

SAP AG EUR

Taiwan Semiconductor Mfg. TWD

Potential trading restrictions may be applied to Mediatek, Taiwan Semiconductor, and Tata Consultancy Svcs Source: UBS




UBS equity compass

We continue to think economic data from China could have a consider-able impact on the Materials sector. Chinese steel production data, along with statements and actions from the US Federal Reserve, are also important.

Sector

MaterialsDaniel Koenig, analyst, UBS AG [email protected]

Neutral

Strategy The Materials sector, which is mainly comprised of mining and chemi-cal companies, has underperformed the global benchmark. The sec-tor faces headwinds of higher operating costs, taxation, royalties and capex, which are likely to result in falling margins and returns. That said, we think near-term earnings revisions could continue to be neg-ative. The sector valuation is inexpensive which also reflects the chal-lenging macro environment. We confirm our neutral positioning.

Our positioning within the sectorWe like industrial mining companies with low valuations despite the slowdown in China’s economy. Selective chemicals companies are showing strong cash flow yield. In addition, we like sound gold and silver companies on attractive valuations.

In the context of QE3, the US Federal Reserve intends to buy USD 40bn of mortgage-backed securities per month. Furthermore, the outright monetary transactions program by ECB has increased stability in the Eurozone. These actions are likely to be incrementally positive for the euro or incrementally negative for the US dollar, and thus positive overall for commodities. In the real world, the most important economy for commodities, China, remains sluggish. The CEO of International Paper said in a TV interview that China’s growth feels like 2% to 3%. Shanghai steel rebar prices have started to gain momentum. Year-on-year, how-ever, they are still down by a mid-teen percentage. After falling below marginal costs, iron ore prices have snapped back with a vengeance. They are now at a level below USD 120 per tonne, which feels about right.

The earnings season is underway and has got off to a lackluster start with Alcoa, which beat the consensus estimate of a break-even, but warned on fourth-quarter demand for its products. We are more wor-ried about 2013 earnings estimates for Alcoa. In our view, chemical companies could have a mixed quarter. Overall, given the more difficult economic backdrop, we think a selective approach is appropriate.

Gold and silver stocks should be in the limelight of a QE3 environ-ment. At the Denver Gold Forum, many companies mentioned a new-found focus on return. Companies have to live up to their promises, and the investment community could be skeptical in the beginning, but the value opportunity in selective cases is undeniable, in our view. For further details see our Precious investments theme report published on 13 Sep-tember 2012.


Anhui Conch Cement HKD Air Liquide EUR

BASF EUR Alcoa Inc. USD

BHP Billiton Plc GBp Aluminum Corp of China HKD

Eldorado Gold Corp. Ltd. USD Ambuja Cements INR

Givaudan CHF Anglo Platinum ZAR

Goldcorp Inc. USD CRH EUR

Harry Winston Diamond CAD DSM EUR

Holcim CHF Gold Fields ZAR

International Paper USD Gurit CHF

Kinross Gold USD JFE Holdings JPY

Lafarge EUR Kumba Iron Ore ZAR

Lanxess EUR Lonmin GBp

Linde EUR Symrise EUR

Lonza Group AG CHF Syngenta CHF

Outokumpu EUR ThyssenKrupp EUR

Polymetal International GBp Uralkali USD

Polyus Gold International GBp Wacker Chemie AG EUR

Siam Cement THB

Silver Standard USD

Silver Wheaton Corp. USD

Teck Resources Ltd. CAD

Xstrata Plc GBp

Potential trading restrictions may be applied to Ambuja Cements Source: UBS




UBS equity compass

Global REITs have a proven track record. While global equities have over the past ten years provided a 5.7% return, of which 52% comes from yields, global REITs have returned 10.2%, of which 62% comes from yields. What is more, the average payout ratio of around 72% is not overstretched.

Sector

Real EstateThomas Veraguth, analyst, UBS AG [email protected]

Real estate is expected to deliver attractive returns as valuation levels remain attractive overall. We expect to see payout ratios gradually moving slightly higher, along with portfolio optimizations and ongo-ing cost-cutting. In addition, net asset values are expected to improve a little. A weak economy inhibits strong rental growth, but low supply supports higher occupancy rates.

Our positioning within the sectorAsia remains the positive performance generator, driven by very low interest rates and solid fundamentals. Monetary easing continues to stabilize Europe, helping to offset poor performances in the periphery and macro risks. Asia and Japanese developers excluding J-REITs remain positive performance generators. Overall, Europe remains comparatively weak, while the UK and the US have already priced in some market improvements.

Since July, global listed real estate has again performed well, with an annualized return of roughly 20%. This follows a second quarter that delivered a weaker 10% annualized. Despite this good performance, the asset class valuation has remained attractively valued. Asia has been the strongest performer, and even Europe has outperformed the US year-to-date, as the ECB has reduced tail risks. QE3 is not an imminent perfor-mance driver but provides support for capital values going forward. Spreads between implied property yields and bonds remain advanta-geous. Earnings yields over five-year swap rates are currently very attrac-tive due to low interest rates. Also, the flattening of interest curves around the world has again been a positive return catalyst and should remain supportive going forward. Regarding direct markets, the scant supply of commercial space across the globe is leading to a gradual decline in vacancy rates. This is sup-ported by access to financing remaining restrictive overall for developers. Meanwhile, publicly traded companies face little or no restriction, espe-cially in the US, Germany, Scandinavia, Japan and also the key Asian locations. In addition, rental yields remain attractive compared with high grade bond yields. However, we see further capital appreciation as lim-ited, albeit positive. The restricted potential for rental income growth as the economy remains challenging is now a concern. Hence, commercial real estate transaction volumes are down year-on-year due to a lack of product in core markets and constraints on debt financing for private investors. Within real estate, we recommend a global mix of a defensive posi-tioning and more volatile stocks in order to generate stable income on the one hand and to capture some opportunities on the other.


Alstria Office EUR Intershop CHF

American Capital Agency Corp USD PSP Swiss Property CHF

CapitaMall Trust SGD Soho China HKD

Castellum SEK Swiss Prime Site CHF

CDL Hospitality Trust SGD

Cheung Kong HKD

Ciputra Development IDR

DDR Corporation USD

Deutsche Wohnen AG EUR

Eurocommercial Properties EUR

Fabege SEK

Flughafen Zurich AG CHF

Great Portland Estates GBp

Hammerson GBp

Kenedix Realty JPY

Kilroy Realty USD

Mitsubishi Estate JPY

Mitsui Fudosan JPY

Mobimo Holding CHF

Sponda EUR

Sumitomo Realty & Dev. JPY

Swire Properties HKD

The Link REIT HKD

Source: UBS




UBS equity compass

We stay clear of most European tel-ecom companies as we anticipate further dividend cuts, driven by the deteriorating operating outlook; in the absence of consolidation we also raise concerns about longer-term margins and the sustainability of lev-erage at many operators.

Sector

TelecomCesare Valeggia, analyst, UBS AG [email protected]

Underweight

StrategyWith a very strong performance in the US and a very weak one in Europe, global Telecoms have had a solid performance year-to-date, modestly underperforming the market. The main attractions of tele-coms remain the relatively stable earnings and the high dividend yield. However, revenues are declining and ongoing high capital expenditure is reducing free cash flows, resulting in lower dividends. Companies in emerging markets have better growth prospects but even here margins may have peaked. We reiterate our underweight.

Our positioning within the sectorWe like the Chinese operators and the cable operators globally. We suggest taking profit on the US Bells and avoid European wireless operators despite the EU equity rally.

Most investors have marched in 2012 to the mantra that equity invest-ment should target safe-yield plays such as telecoms. This pushed the valuations of AT&T and Verizon close to their 20-year highs (12-month forward P/E) at the end of August. That was the time we decided to remove the two from the list. After all, we don’t expect telecoms to cre-ate significant shareholder value in the long run. They lack the competi-tive advantage of the most successful brands (Coca Cola, Google, Apple, etc), while the competition in this sector is heavily based on price as play-ers struggle to differentiate their offering. The ongoing consolidation among the weaker players should only reinforce this and be detrimental for the two mega caps.

Unlike most US companies, the US telecoms have a domestic focus pre-venting them from capitalizing on globalization. And then there is the increasing threat of rising subsidy costs now that the iPhone 5 is becom-ing mainstream, leading to margin compression.

With the exception of Norway and perhaps Sweden, the pricing environ-ment in the overall European theater remains fragile. We expect sales to decline further following –3.3% year-over-year in the first quarter and –4.6% year-over-year in the second quarter, as the economy in the Euro-zone has weakened further, and the regulatory pressure on international roaming costs should weigh on the top line. The industry rebase cost is even more challenging, with headcounts protected by political parties. This should lead to EPS cuts and lower free cash flow, and we expect dividends to be trimmed 30% in 2013 from 2012 levels for the industry as a whole. As we do not expect all these aspects to be priced in, the sector still has room to de-rate further.


CenturyLink USD Bouygues EUR

China Telecom HKD Elisa Corporation EUR

China Unicom Ltd. HKD TDC DKK

Far Eastone Telecom TWD Telefonica EUR

Hutchison Telecommunications HKD

Telenor NOK

Time Warner Cable Inc. USD

Time Warner Telecom USD

Potential trading restrictions may be applied to Far Eastone Telecom Source: UBS




UBS equity compass

With weak power demand and muted power prices, we think funda-mental headwinds should remain high for the sector in major regions. The short-term political risks could move from Europe to the US with the expiration of dividend tax cuts. We continue to believe that regu-lated stocks remain the safe havens.

Sector

UtilitiesCarsten Schlufter, analyst, UBS AG [email protected]

Neutral

StrategyThe operating environment for Utilities remains challenging with a weak power demand outlook in most regions and low power prices in liberalized markets (e.g., US, Europe). As a consequence, global and European Utilities have strongly underperformed the broader markets in recent months. Having said that, we are more constructive on the global sector as power prices may have bottomed, earnings revisions may have seen an inflection point, and regulatory risk should ease.

Our positioning within the sectorWe like regulated and selective integrated companies that offer decent valuations, modest earnings growth, and attractive dividend yields. We have a regional preference for the UK.

It is still too early in the earnings season to give indications. However, fol-lowing several years of earnings downgrades driven by power genera-tion overcapacities and muted demand, lower commodity prices as well as regulatory and political changes, we think sector earnings in Europe may be close to its trough. That said, relative to other sectors where earnings expectations may be too optimistic and earnings downgrades are likely, the Utilities earnings season should do relatively well.

On the other hand, sector fundamentals remain challenging with weak power demand outlook and muted power prices in mayor developed economies. While the US market environment looks relatively more favorable, the recession in Europe limits the upside for European Utilities’ earnings. That said, earnings growth appears very limited also in the long run in Europe. In China, power demand slowed down again to (only) 4.8% in the January to September 2012 period. For the full year, power demand growth should have slowed to 4–5% from 11.7% in 2011.

With the new energy law in Spain which was less negative than feared, we believe the political risks in Europe have eased. That said, we think near-term political risks will move to the US. With the expiration of divi-dend tax cuts in the US at 1/1/13, (if not extended) dividends would be taxed as ordinary income which could lead to multiple contractions of US Utilities.

While we see both chances and risks in the sector, we think there are opportunities for investors. We continue to think regulated compa-nies in general should do well. Sector valuation look inexpensive for integrated stocks and partially expensive for regulated ones. Thus, stock picking remains key and we prefer stocks with higher visibility. Region-ally, we continue to like the UK.


American Electric Power, Inc. USD Enel EUR

Centrica GBp Exelon USD

CHINA RESOURCES PWR HKD Red Electrica EUR

Duke Energy USD RWE EUR

Iberdrola EUR

PPL Corporation USD

RusHydro RUB

Severn Trent Plc GBp

Snam Rete Gas EUR

Spectra Energy Corp. USD

United Utilities Group Plc GBp

Source: UBS




UBS equity compass Investment area

Rudolf Leemann, analyst, UBS AG [email protected] September and November of each year, different forms of

harvest festivals take place around the northern hemisphere of the globe. These include Harvest Suppers, Oktoberfest, Mooncake Festi-val and the increasingly mimicked Thanksgiving. What they all have in common is some kind of feast to reward the hard work reaping and gathering grain and other grown products.

In the corporate world, the reward reaped by investors is the dividend payout, although this typically tends to happen in spring. After the financial year has closed, a payout is determined. Again, traditions across markets differ, with December, March or September as most popular financial year-ends.

The latest update of our “High-quality dividend yields” theme, fea-tured in the Prudence and Approach investment areas, explores why the theme is particularly attractive in the UK, although similar findings are true for other markets.

Equity dividends offer an attractive real income stream in a low-yield environment. In a lower-growth world we expect an increase in the con-tribution of dividends to total equity returns. Quality counts – investors should not be enticed by high yields alone, but should instead continue to focus on high-quality dividends. We recommend dividends that are well covered by earnings and cash flow, are sustainable and growing, and come from companies with sound fundamentals. The UK’s Bank of England base rate remains at a historical low of 0.5%, while UK 10-year gilts are yielding just 1.8%. Yet inflation is running above target at over 2%, leading to negative real bond yields. Against this backdrop, the dividend yield on equities continues to look attractive, and provides positive real income. Our UK dividend Equity Preference List yields 5.3% (2013E) on average. Investors often underestimate the importance of dividends to total returns. In the UK, dividends have accounted for one-third of total equity returns since 1973. In the aftermath of the financial crisis, it is clear that economic growth will remain below historical averages for some time, as companies adjust to the new world of lower leverage, along with greater fiscal austerity, regulation and capital requirements. In the face of reduced growth opportunities, companies will look for alternative ways to generate shareholder returns. As a result, we expect that dividend payments will contribute an increasing part of total returns going forward.

Reap the dividends

Prudence – Defensive themes

IndustryIndustry – Sectoral investing

GeographyGeography – Regional investing

Persistence – Long-term themes

StyleApproach – Style-based themes

Sustainability – Shaping the future

+ added to investment area – removed from investment area




The four weeks to the middle of October witnessed hardly any gains in global stock markets. Our themes under the “Prudence” banner remain unchanged with the exception of our Healthcare theme “Pharma pipelines as free option”. Steady performance with low vol-atility is key to our selection.

This month we did not implement changes in our selection. Pricing power is not merely a buzzword; it is absolutely crucial for the long-term survival of companies. In the words of Warren Buffet, pricing power is the single most important item for evaluating a business. The theme cuts across sectors and geographies. Our Swiss success factors theme highlights a selection of Swiss stocks that are not successful because they are Swiss, but because they do very well globally. They are good at innovation and/or production, distribution and marketing – whatever helps improve the customer experience or reduce costs without compro-mising the product. We believe this selection has good defensive quali-ties – with a touch of Switzerland.

Precious investments remains in place as an interesting way of hedg-ing risk. The underlying idea is a commodity – gold – in the form of gold mining shares. These have not risen nearly as much as physical gold over the last five years. The benefits are two-fold: gold is considered a safe-haven investment by many, and the companies in our theme are trading at a discount to the physical gold price. We believe this discount is a valu-ation anomaly and the gap should close, making gold stocks attractive. Our Stock perpetuals forever add portfolio stability theme remains in place. As the name of the theme suggests, these stocks have the look and feel of perpetual bonds with a growing coupon – increasing sales, profits and dividends at least in line with global inflation. They thus pro-vide protection. The most recent update contains a discussion of the per-formance of consumer staples stocks versus equities in general. Our high dividend yield strategy also remains in place. If history is any guide, dividend payers are repeat performers, improving as time goes by. Finally we have closed our Healthcare theme “Pharma pipelines as free option”[email protected], analyst, UBS AG


Prudence

Dividend investing

• Equity Preference List – Dividend Investing (Global), continuously updated

��UK equities: High quality dividends, published 18 October 2012

Healthcare

• Equity Preference List – Healthcare, continuously updated

��Healthcare: Update: Efficient Healthcare – Providers and Services, published 26 July 2012

Precious investments

• Equity Preference List – Precious investments, continuously updated

��Materials: Precious investments, published 13 September 2012

Pricing power

• Equity Preference List – Pricing power, continuously updated

��Pricing power: Companies well positioned to face uncertainty, published 20 July 2012

Stock perpetuals forever add portfolio stability

• Equity Preference List – Stock perpetuals are forever, continuously updated

��Equity markets: Stock perpetuals – the diversifier, published 5 September 2012

Swiss success factors

• Equity Preference List – Swiss success factors, continuously updated

��Swiss equities: Swiss success factors, published 26 April 2012

We recommend that investors consult our Equity Preference Lists and published research as well as contact their client advisors to find out how best to profit from these ideas. Please note that the distribution of any publication recom-mended above may be restricted in some countries for legal or regulatory reasons.



Prudence presents selected themes for defensive equity investors


https://bw.gpwb.ubs.com/app/SBC/6/ResearchNavigator/gzg/document.do?pageNodeId=prudence&id=5081715











Geography – Regional investing

We still like the emerging markets and the US – the two markets that we overweight within our equity strategy. We believe these two regions offer the best risk-return prospects. Within US equities, we have added one new theme: Information Technology (IT).

This month we have left our geographical preferences unchanged.

Recent news flow in the IT sector points to a rather difficult environment, though we believe that the sector still offers a very favorable risk-return profile and think that its valuation is too low at just 12.3x forward earn-ings. Historically, investors have been well served by buying technology shares when the sector has been trading at under 15x.

The IT sector stands out as having the strongest balance sheets among the ten S&P 500 economic sectors. In addition, mature large-cap US technology companies have increasingly begun to incorporate dividends into their capital allocation decision-making process in recent years. Tech sector dividends have increased at an annualized rate of 17% over the past seven years, although we reckon that this strong growth in divi-dends is partly attributable to a comparison base of zero. The tech sec-tor’s current dividend yield of 1.2% and dividend payout ratio of 18% (both well below the S&P 500 yield and payout of 2.0% and 29% respectively) indicate further upside for dividend growth.

Investment spending on IT equipment and software has increased quite consistently as a percentage of GDP. We expect this growth to persist as businesses continue to deploy information technology in order to wring efficiencies from their operations. We believe that tech spending is still below trend, suggesting that there is still pent-up demand that should drive spending going forward.

Furthermore, we expect secular growth to come from emerging market IT penetration, cloud computing, outsourcing & data centers and increased use of [email protected], analyst, UBS AG

Geography

Emerging Markets Equities

• Equity Preference List – Emerging markets, continuously updated

��Emerging market equities: Abundant liquidity, now we need growth, published 27 September 2012

North American Railroads

• Equity Pereference List – North American Railroads, continuously updated

�� Industrials: North American railroads – 180 years track record, published 1 February 2012

US equities

• Equity Preference List – US equities, continuously updated

��US equities: Earnings preview 2Q: Slowing down, not rolling over, published 9 July 2012

US housing gradually bottoming

• Equity Preference List – US Equities, continuously updated

��US economy: US housing gradually bottoming, published 11 June 2012

Winners from emerging markets growth

• Equity Preference List – Winners from emerging markets growth, continuously updated

��Equity markets: Wester winners from emerging market growth, published 28 September 2012

We recommend that investors consult our Equity Preference Lists and published research as well as contact their client advisors to find out how best to profit from these ideas. Please note that the distribution of any publication recommended above may be restricted in some countries for legal or regulatory reasons.


Geography – Regional investing

Geography presents selected themes that fit our regional preferences


https://bw.gpwb.ubs.com/app/SBC/6/ResearchNavigator/gzg/document.do?pageNodeId=geography&id=5079625












Industry – Sectoral investing

We continue to like defensive themes that offer solid growth pros-pects. Consumer Staples (and also Healthcare) fit well into this. They offer stable earnings and cash flow, good balance sheet quality, and decent valuations with attractive dividends.

IT remains one of our preferred sectors as it offers superior growth trends. We think our top themes, “Cloud computing” and “Smart mobility”, should continue to do well. They are both structural trends that offer great growth prospects in the coming years, with attractive opportunities for investors. In addition, we continue to like our “Nat-ural gas growth gainers” theme, which we also see as at long-term structural story within the energy sector.

“Stock perpetuals” look like perpetual bonds with growing coupons but are, in fact, stocks of companies growing sales, profits and dividends regularly and reliably. Many perpetuals are consumer staples companies with higher returns and lower risk – a mighty attractive combination. At some point, a company with the perfect product develops pricing power and economies of scale. Companies such as these shape markets into oligopolies that do not compete on price. The perfect company keeps growing sales, which should be roughly in line with nominal GDP. Main-taining or even slightly improving margins translates into lots of cash generated for distribution to the company’s owners.

“Cloud computing” is at an inflection point due to the perfect conflu-ence of supply and demand factors. On the supply side, the mainstream adoption of virtualization technology and increased availability of broad-band internet at falling prices should lead to greater availability of cloud services. On the demand side, we see two strong growth drivers: 1) increased adoption by enterprises due to potential cost savings and, more importantly, revenue maximization as cloud enables new business opportunities; and 2) solid uptake from consumers as the recent smart-phone and tablet PC revolution leads to increased cloud-based services on these devices.

Driven by a desire to stay connected all the time, we see “Smart mobil-ity” as a prime necessity and a structural trend with more steam left to power ahead. We expect a unit CAGR of nearly 30% for both smart-phones and tablet PCs from 2011–2016, which makes smart mobility one of the fastest-growing segments within the IT [email protected], analyst, UBS AG

Industry

Cloud computing IT

• Equity Preference List – Cloud computing, continuously updated

�� Information technology: Cloud computing update: Weathering the storm, published 3 August 2012

Healthcare Healthcare

• Equity Preference List – Healthcare, continuously updated

��Healthcare: Update: Efficient Healthcare – Providers and Services, published 26 July 2012

Information Technology IT

• Equity Preference List – Information technology, continuously updated

�� Information technology: iPhone 5 set to thrive; implications, published 13 September 2012

Natural gas growth gainers Energy

• Equity Preferences List – Natural gas growth gainers, continuously updated

��Equity markets: Natural gas growth gainers – update, published 23 October 2012

Stock perpetuals forever add portfolio stability Consumer Staples



Smart mobility IT

• Equity Preference List – Smart mobility, continuously updated

�� Information Technology: Smart Mobility: More catalysts emerging, published 16 August 2012



Industry – Sectoral investing

Industry presents selected equity themes with a sector perspective


https://bw.gpwb.ubs.com/app/SBC/6/ResearchNavigator/gzg/document.do?pageNodeId=industry&id=5074295






https://bw.gpwb.ubs.com/app/SBC/6/ResearchNavigator/gzg/document.do?pageNodeId=sustainability&id=5082251








The Global Fortune 500 ranking, compiled annually by Fortune maga-zine in the US, lists the top 500 corporations worldwide. A persistent trend in recent years is Asian companies displacing firms from other regions at an accelerating pace. One group benefits from large home countries and strong, sometimes protected, domestic market share. Another group, also often dominant at home, ventures abroad and registers success there. These latter companies are those we try to identify in our theme “Global giants rising in the east”. They are becoming more international on innovation, brand building and com-petitive strategies. We identify the names with promising growth potential at attractive valuations.

We have also updated our “Rising Asian consumer demand” and “Natural gas growth gainers” themes.

Widely-known examples of giants rising in the east are technology lead-ers that have surpassed many western peers, but in other sectors, too, the low cost of R&D can translate into technology advantages and ulti-mately scale. We find that the selected companies in our Equity Prefer-ence List are showing not only higher sales growth but also higher oper-ating (EBIT) margins. This leads us to believe that these companies will fare particularly well over the coming years.

“Rising Asian consumer demand” focuses more on domestic success and on western companies that are well positioned to profit from rising incomes and more discretionary consumption spending. In the latest update of the theme, we highlight that high-demand-growth consumer sectors alone are not sufficient, as low entry barriers can also mean that business returns are diluted. In addition, it is not products, but compa-nies that should be at the heart of an investment strategy, as companies have business strategies to address the rise of new or expanding income groups as they emerge. Our current Asian consumer strategy favors con-sumer staples over discretionary stocks, with minimal exposure to the latter. We have also raised exposure to Indian and Indonesian consumer stocks.

Meanwhile, “Natural gas growth gainers” is going smoothly. The performance from 19 April, the themes launch date, to date is positive, but marginally down versus global equities. Most of the companies iden-tified as beneficiaries have double-digit EPS growth expectations for next year, and Master Limited Partnerships offer a 6.6% dividend yield. We encourage a longer-term view and envisage the theme as an attractive long-term trend for the next two decades. See also the 30-page UBS research focus, “Investing in the future with Energy”, published on 29 August and available in six [email protected], analyst, UBS AG


Long-Term...

Agribusiness – efficiency gains from field to fork

��Agribusiness: Of efficiency and food security, published 18 July 2012

E-Commerce: Shopping on the move

• Equity Preference List – Shopping on the move, continously updated

��Equity markets: E-Commerce: Shopping on the move, published 31 August 2012

Global giants rising in the east

• Equity Preference List – Giants rising in the east, continuously updated

��Asia Pacific equities: Giants rising in the East - learning from the winners, published 28 September 2012

Natural gas growth gainers

• Equity Preference List – Natural gas growth gainers, continuously updated

��Equity markets: Natural gas growth gainers – update, published 23 October 2012

Rising Asian consumer demand

• Equity Preference List – Rising Asian consumer demand, continuously updated

��Asia Pacific equities: Rising Asia consumer demand update: Myths and giants, published 1 October 2012

Stock perpetuals forever add portfolio stability






Persistence presents selected themes for the long-term-orientedequity investor


https://bw.gpwb.ubs.com/app/SBC/6/ResearchNavigator/gzg/document.do?pageNodeId=persistence&id=5071742














US GDP growth is currently below its long-term trend but is expected to begin reaccelerating in 2013. In this environment, US mid-cap stocks should see outperformance as their earnings will likely benefit more than those of large caps due to increased exposure to the domestic economy.

The medium-term outlook for Europe is not so bright however, and so we hold a different view here. We will continue to prefer large caps in the region until the economy sees a definite acceleration in growth.

In the current low-yield environment, we maintain our preference for stocks that have been proven to pay not only high, but also stable or growing dividends. While the world is starved of yield, this will con-tinue to be an important theme.

Our “Approach” investment themes are those that recommend a particular style of stock. For example a “value style” would invest in the cheapest stocks in the market.

The recovery of the US since the global financial crisis has been sluggish. Even now, three years on, GDP growth remains below its long-term trend. Forecasts from our economists show that growth is expected to accelerate slightly next year, which should create an environment in which mid-cap stocks outperform large caps in the region. Mid caps generally have higher expected top-line (sales) and bottom-line (earn-ings) growth than large caps when GDP growth is mildly positive or bet-ter. In addition, over the long term mid caps have tended to outperform large caps since they are nimble enough to adapt to changing trends within their industries. This makes our investment theme “US mid caps: The sweet spot” an attractive proposition currently.

In Europe, there are still greater risks to growth than in the US, with much of the region experiencing a contraction in growth this year. While the outlook for 2013 is brighter, it is not strong enough for us to favor small caps. Instead, we will continue to prefer large caps until the region sees a stronger acceleration in GDP growth.

Another theme that we continue to like is to invest in companies that will benefit from the far stronger growth in emerging markets. Our “Winners from emerging market growth” theme seeks out the companies that are best positioned to exploit this and as a result experi-ence stronger earnings growth.

In a world starved of yield it is no surprise that we still like dividend-pay-ing stocks as a source of income. We look to invest in companies that have strong balance sheets but that also offer reliable, growing and high dividend yields. This is a defensive theme that in the long run should offer attractive but steady returns.

The economic problems of the last year have seen some companies unfairly punished, and our “Solid stocks below book value” theme aims to find these [email protected], strategist, UBS AG

Approach – Style-based themes

Style

Dividend investing

• Equity Preference List – Dividend Investing (Global), continuously updated

��UK equities: High quality dividends, published 18 October 2012

Investing in volatility

��Equity markets: Invest in volatility to gain downside protection, published 28 March 2012

Size matters: Bigger is better

• Equity Preference List – Eurozone, UK, Switzerland, continuously updated

��Equity style investing: Size matters: Bigger is better – Update, published 3 July 2012

Solid stocks below book value

• Equity Preference List – Solid stocks below book value, continuously updated

��Equity markets: Solid stocks below book value, published 14 September 2012

US mid-caps

• Equity Preference List – US equities, continuously updated��Equity style investing: US mid caps: The sweet spot, published 19 April 2012

Winners from emerging markets growth

• Equity Preference List – Winners from emerging markets growth, continuously updated

��Equity markets: Western winners from emerging market growth, published 28 September 2012



Approach – Style-based themes

Approach presents selected style themes that exploit fundamental characteristics


https://bw.gpwb.ubs.com/app/SBC/6/ResearchNavigator/gzg/document.do?pageNodeId=approach&id=5081715













At present we have five Most Preferred themes. We like companies that 1) are exposed to greater efficiency and lower wastage in the agricultural value chain (agribusiness), 2) benefit from investments in water infrastructure, 3) benefit from the energy move into gas, 4) benefit from the growth dynamics around smart phones and tablet PCs, or opportunities in the treatment of obesity and anti-aging, or 5) fit into our Access for the “Bottom Five” investment theme, which is a research series on social trends. We maintain our neutral stance on energy efficiency. The performance of our Most Preferred themes was sluggish in mid-September/October. Only one out of five preferred themes achieved a positive absolute performance.

Agribusiness: Several agricultural goods have seen their prices rise fol-lowing droughts in important producing regions. But not all are at highs: palm oil is at its lowest real price in a decade. However, the Agribusiness call is only indirectly linked to agricultural prices and has more to do with business opportunities for efficiency, including those beyond the farm gate. Last month the theme suffered a slight decline in performance, but it has outperformed global equities year-to-date.

Lifestyle & trends: Over recent weeks, both the Mobility part of the research series and the Obesity/Aging and anti-aging part saw slight dips in performance. In particular, the IT sector underperformed global equi-ties. This was primarily led by negative sentiment surrounding Apple as the company reported weaker-than-expected sales of iPhone 5 during its opening weekend. The weaker performance of the Obesity/Aging and anti-aging part was caused by a better performance of large-cap versus mid-cap healthcare stocks. Our theme is biased towards mid caps.

Low emissions: The call’s performance has been positive since its launch on 19 April and flat versus global equity markets. Most of the companies identified as beneficiaries have double-digit EPS growth expectations for next year, and Master Limited Partnerships offer a 6.6% dividend yield. We encourage a longer-term view and envisage the theme as an attractive long-term trend for the next two decades. See also our UBS research focus entitled “Investing in the future with Energy” published 29 August 2012.

Social development: After a difficult start, our Access for the “Bottom Five” selection has shown the best performance over recent weeks. We recommend adding positions.

Water: The theme has recently seen some pressure in absolute terms. Utilities, which is one key sector, has held up quite well owing to its defensive characteristics. However, industrials have taken the brunt of the pressure while experiencing some discomfort. Nonetheless, this theme is long-term by nature and short-term variations should be seen as offering entry possibilities rather than deterring [email protected], analyst, UBS AG


Sustainability

Demographics: Efficient healthcare (buy)

• Equity Preference List – Healthcare, continuously updated��Healthcare: Update: Efficient Healthcare – Providers and Services, published 26 July 2012

Demographics: Lifestyles & trends (buy)

• Equity Preference Lists – Lifestyle & trends, continuously updated��Demographics: Lifestyle & Trends – Aging & antiaging, published 31 August 2012

Greentech: Energy efficiency (hold)

��Greentech: Energy efficiency: time for a breather, published 16 January 2012

Greentech: Low-emission energy (buy)

• Equity Preference List – Natural gas growth gainers, continuously updated��Equity markets: Natural gas growth gainers – update, published 23 October 2012

Greentech: Waste & recycling (hold)

��Greentech: Water: Underestimated risks yield opportunities, published 27 July 2012

Social Development

• Equity Preference List – Access for the “Bottom Five”, continuously updated��Access for the “Bottom Five”, published 23 August 2012

Sustainable & responsible investments

• Equity Preference List – SRI, continuously updated

Resource scarcity: Agribusiness (buy)

��Agribusiness: Of efficiency and food security, published 18 July 2012

Resource scarcity: Water (buy)

��Greentech: Water: Underestimated risks yield opportunities, published 27 July 2012




Sustainability presents selected equity themes that shape the global future






https://bw.whe.ubs.com/app/SBC/6/ResearchNavigator/document.do?id=5051894

https://bw.whe.ubs.com/app/SBC/6/ResearchNavigator/document.do?id=5051894





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UBS equity compass

Short-term catalysts: The 3Q earn-ings season has started, with the usual earnings-related risks.

Technical analysis

Technical analysisHans Sanders, CFA, analyst, UBS AG [email protected]• Global equity indices are still in corrective mode, but the medium-

term outlook remains positive.• If equity indices exceed their September highs, their correction

should be over.• The low level of the VIX increases the risk of a short-term

correction.

Global equity markets have been quite resilient since our last update in this publication. Our stance then was that the medium-term outlook had improved, although short-term weakness was likely. We expected down-side of about 5% to lead to a buying opportunity. This view is, perhaps surprisingly, still valid. Since most equity indices posted their recent peak on 14 September, with the exception of some Asian markets that peaked later, equities have essentially moved sideways. The pattern looks in many cases like a zig-zag, or in wave terms an ABC correction. In this very simple pattern a first wave (A) starts the correction off the peak, a second wave (B) is the recovery and a final wave (C) takes the index to the low. If the index then moves back into the zone of wave (A), then the outlook brightens, and this is what happened on 15 October. This does not yet end the corrective action. More certainty about this needs to be provided by the index exceeding the high of wave (B). And because many indices turned lower again right at the point of incoming down-trends, especially in Europe, we think the correction, although it has a constructive character, could last a bit longer. In our latest update of “Technical Analysis of Major Asset Classes” on 12 October we main-tained bearish targets, while highlighting that these should be buying opportunities given the improved medium-term outlook. Figure 1 shows the weekly chart for the MSCI World index (1322 on 19 October). The index broke the downtrend connecting the major highs in 2007–2011 and March 2012 and set an intraday high at 1353.6 on 14 September. This high also exceeded the March 2012 peak, which is bull-ish for the medium term.

Fig. 1: MSCI WorldWeekly Candle Stick Chart

Source: UBS CIO WM Research, Updata and Bloomberg



UBS equity compass

However, the recovery off the low on 4 June may have completed five waves. If this is correct, then we can continue to expect downside to the 38.2% Fibonacci retracement of the June-September advance at 1272 for this correction. If, on the other hand, the index were to exceed the high of wave (B) in the present correction, i.e. 1341, then we could prob-ably consider the correction to be over and we should target upside to 1400 or higher. So we maintain the near-term bearish view, which the short-term evening star on the daily chart has just confirmed, with more upside to be expected later. Figure 2 shows the pan-European DJ STOXX 600 (274 on 19 October). This index also set its intraday high on 14 September, at 276.6. It broke a downtrend and exceeded the March 2012 high, but the correction since the 14 September high looks different from that of the MSCI World. In fact, it does not resemble a zig-zag correction: it might be something more complex. Another, more worrying, interpretation is that a zig-zag has developed against the first wave down. This would mean that more downside is actually around the corner. And finally, Friday 19 October completed a short-term bearish evening star candle stick con-figuration, similarly to the MSCI World. We still think that downside to 260 is a possibility, followed by more medium-term upside. For more detailed information, please consult Technical Analysis of Major Asset Classes in the publication Technical Themes. This monthly publica-tion can be accessed in UBS e-banking via the Research tab on Quotes or alternatively can be subscribed to.

Fig. 2: DJ STOXX 600Weekly Candle Stick chart

Source: UBS CIO WM Research, Updata and Bloomberg



UBS equity compass

Global & regional equity sector strategies

Regions

Sectors Global US EMU

Consumer Discretionary î è î

Consumer Staples ì ì ì

Energy è è ì

Financials è è î

Healthcare ì î ì

Industrials î ì î

IT ì ì è

Materials è î è

Telecom î î î

Utilities è è è

Arrow indicates our preference relative to global equity markets over a 3- to 12-month horizon.


Selection of UBS CIO WM research publications

UBS research focusUBS research focus examines how major global trends affect personal wealth plan-ning decisions. Each issue is devoted to a specific subject spanning the fields of eco-nomics, financial markets and investment.Available in: English, German, French, Italian, Spanish, Portuguese

OnlinePublications with content available to the general public can be found at www.ubs.com/research.Clients can access our online Research portal via e-banking or via Quotes. The portal contains elec-tronic versions of all of our publications and much more.

Order or subscribeUBS clients can order or subscribe to the above publications. Please ask your client advisor or send an e-mail to [email protected].

Monthly Monthly Monthly

Thematic

Investing in SwitzerlandInvesting in Switzerland is a cross-asset investment guide for those interested to invest in the Swiss financial markets, covering equities, bonds, real estate, currency and more.Available in: English, German, French, Italian

UBS investor’s guideUBS investor’s guide gives the background to UBS’s current investment strategy and the latest global economic developments, together with market analyses and recom-mendations for equities, bonds, currencies and the emerging markets.Available in: English, German, French, Italian, traditional and simplified Chinese

UBS equity compassUBS equity compass is a comprehensive view on global equity markets. Stay informed about market trends and find out about the latest equity strategies and investment themes supported by clear investment advice and concrete investment opportunities.Available in: English, German

UBS investor’s guideCIO WM Research | 5 October 2012 International

Quantitative easing to infinity

UBS WM Investment Summit 2012 “UBS’s investment process should resemble

a very stable pyramid”: Alex Friedman, UBS WM Global Chief Investment Officer

Market outlook Central bankers put on their superhero capes

Currencies The SNB’s pause for breath turns gloomy

We will not rest

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Get the latest on the UBS House View with the new CIO WeeklyTo subscribe, contact your client advisor or visit the Research portal

UBS equity compass AsiaUBS equity compass Asia is a comprehen-sive view on Asian equity markets. Stay informed about Asian stock markets and investment themes supported by concrete investment opportunities.Available in: English

Monthly

UBS equity compass AsiaCIO WM ResearchOctober 2012


Tension, reform and earnings

Japan-China tension India reform benefits and risks

Robust earnings for Hong Kong property stocks

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UBS equity compassCIO WM ResearchNovember 2012


The economics of demographics

Demographic changeChange poses challenges and offers opportunities

InvestingSeveral equity themes benefit from demographics

EquitiesRemain neutrally weighted

Don't miss the next, special

Outlook 2013 edition of

UBS equity compass, due out

on 17 December

Investing in SwitzerlandCIO WM ResearchOctober 2012

Switzerland compared to the rest of the world

EconomyRobust domestic economy

CompaniesEarnings from all over the world

CurrenciesOpportunities for foreign currencies

A monthly guide to investing in Swiss financial markets

UBS CIO PodcastUpcoming events relevant for financial markets and current themes discussed in an interview setting. Listen on http://www.ubspodcast.ch/research/ as of 10 am Friday mornings.Available in: English, German, French, Italian

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The paradigm shift in emerging market currenciesEmerging market currencies in a portfolio context

Emerging market currenciesThe case for an underappreciated asset class

UBS research focusCIO WM ResearchOctober 2012

UBS Weekly Podcast

Scan to listen to our latest weekly podcast; also available on www.ubs.com/research-podcast

UBS outlook SchweizUBS outlook Schweiz caters primarily for Swiss entrepreneurs and managers. Each issue presents the results of UBS Research Switzerland’s survey of industrial and service companies regarding their business outlook, as well as analysis of currencies, interest rates and the real estate market. Available in: German, French, Italian

Quarterly

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UBS outlook SchweizCIO WM ResearchSeptember 2012

ThemaEin Jahr Kursuntergrenze

KonjunkturEin «Wahljahr» in verschiedener Hinsicht

ImmobilienAnzeichen einer Trendwende

3. Quartal 2012

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UBS equity compass

Rating history changes (past 12 months)

Company Rating date Relative rating

Accenture Ltd. 1/30/12 Most Preferred

Actelion 5/1/12 Most Preferred

Adecco 2/10/12 Least Preferred

Air Liquide 12/20/11 Least Preferred

Alstria Office 2/15/12 Most Preferred

Ambuja Cements 12/28/11 Least Preferred

American Capital Agency Corp 8/17/12 Most Preferred

AngloGold Ashanti 10/1/12 Least Preferred

ASML 2/2/12 Most Preferred

AT&T Inc. 8/31/12 Least Preferred

AT&T Inc. 7/2/12 Most Preferred

Bank of India 12/2/11 Least Preferred

BASF 1/30/12 Most Preferred

BBVA 2/8/12 Least Preferred

BNP Paribas 10/25/12 Most Preferred

Bolsa Mexicana De Valores 3/26/12 Most Preferred

Bouygues 1/26/12 Least Preferred

Cabela's Incorporated 8/31/12 Least Preferred

Caterpillar Inc. 11/16/11 Least Preferred

Celgene 6/22/12 Most Preferred

Chesapeake Energy Corp. 5/11/12 Least Preferred

China Overseas Land 3/19/12 Most Preferred

Citrix Systems Inc. 1/31/12 Most Preferred

CNP Assurances 1/27/12 Least Preferred

Coloplast B 6/22/12 Most Preferred

Commonwealth Bank of Australia 8/20/12 Least Preferred

CRH 7/30/12 Least Preferred

Danone 5/23/12 Most Preferred

Deutsche Bank 9/17/12 Least Preferred

Deutsche Wohnen AG 6/7/12 Most Preferred

Deutsche Wohnen AG 6/6/12 Discontinued Coverage

Deutsche Wohnen AG 11/17/11 Most Preferred

Deutsche Wohnen AG 11/16/11 Discontinued Coverage

Dollar General 10/11/12 Least Preferred

DSM 9/10/12 Least Preferred

Dufry 10/11/12 Least Preferred

Eldorado Gold Corp. Ltd. 3/27/12 Most Preferred

Emmi AG 9/28/12 Most Preferred

Enel 8/27/12 Least Preferred

Eurocommercial Properties 6/12/12 Most Preferred

Exelon 5/31/12 Least Preferred

Express Scripts 3/30/12 Most Preferred

Fabege 9/25/12 Most Preferred

Faurecia 9/24/12 Least Preferred

First Republic Bank 5/7/12 Most Preferred

G.F. Banorte 7/13/12 Most Preferred

Gap 9/3/12 Most Preferred

Gap 8/31/12 Discontinued Coverage

GEO 3/26/12 Most Preferred

Giant Mfg 12/28/11 Least Preferred

Great Portland Estates 10/23/12 Most Preferred

Great Portland Estates 10/22/12 Discontinued Coverage

Gruma 3/26/12 Most Preferred


Halliburton Co. 7/19/12 Most Preferred

Hammerson 10/17/12 Most Preferred

Harmony Gold 9/25/12 Least Preferred

Holcim 10/10/12 Most Preferred

Home Depot 6/15/12 Most Preferred

Home Depot 6/14/12 Discontinued Coverage

HomeAway 10/11/12 Most Preferred

Hutchison Telecommunications 8/20/12 Most Preferred

Iberdrola 4/23/12 Most Preferred

Ingersoll-Rand Co. 6/28/12 Most Preferred

International Paper 10/5/12 Most Preferred

ITV plc 6/6/12 Most Preferred

KBR 12/29/11 Most Preferred

Kenedix Realty 2/10/12 Most Preferred

Kilroy Realty 6/12/12 Most Preferred

Kimberly Clark de Mexico 10/25/12 Least Preferred

Kühne&Nagel 10/1/12 Least Preferred

Lafarge 7/23/12 Most Preferred

Lanxess 12/30/11 Most Preferred

Lonza Group AG 7/11/12 Most Preferred

Lonza Group AG 2/9/12 Least Preferred

Mckesson 3/30/12 Most Preferred

Mexichem 10/23/12 Most Preferred

Mitsubishi Motors Corp 1/25/12 Least Preferred

Nobel Biocare 4/4/12 Least Preferred

Northam Platinum 10/3/12 Least Preferred

Occidental Petroleum 5/15/12 Most Preferred

Outokumpu 9/18/12 Most Preferred

Overstock.Com 8/31/12 Least Preferred

Panalpina 3/21/12 Least Preferred

Pargesa Holding 11/25/11 Most Preferred

Partners Group 5/30/12 Least Preferred

Phoenix Mecano 6/29/12 Least Preferred

Phoenix Mill 10/25/12 Most Preferred

PSP Swiss Property 12/20/11 Least Preferred

Rackspace Hosting Inc. 7/31/12 Most Preferred

Red Electrica 9/14/12 Least Preferred

Royal Bank Of Canada 12/29/11 Most Preferred

Silver Standard 4/16/12 Most Preferred

Silver Wheaton Corp. 5/8/12 Most Preferred

Snam Rete Gas 1/17/12 Most Preferred

Soho China 8/20/12 Least Preferred

Spectra Energy Corp. 8/3/12 Most Preferred

State Bank of India 8/14/12 Least Preferred

Sumitomo Realty & Dev. 6/18/12 Most Preferred

Swire Properties 9/28/12 Most Preferred

Swisscom 6/15/12 Most Preferred

Swisscom 1/12/12 Least Preferred

Symrise 1/19/12 Least Preferred

Tata Consultancy Svcs 12/28/11 Least Preferred

TDC 4/5/12 Least Preferred

Tecan Group 6/18/12 Most Preferred

Telefonica 2/13/12 Least Preferred

Appendix


UBS equity compass

Rating history changes (past 12 months)


Tesla 12/30/11 Most Preferred

ThyssenKrupp 9/18/12 Least Preferred

ThyssenKrupp 7/4/12 Most Preferred

ThyssenKrupp 3/5/12 Least Preferred

Time Warner Telecom 3/27/12 Most Preferred

United Continental 9/21/12 Most Preferred

Uralkali 6/22/12 Least Preferred

Urban Outfitters Inc. 9/3/12 Most Preferred

Urban Outfitters Inc. 8/31/12 Discontinued Coverage

Venture Corporation 6/19/12 Least Preferred

Vitamin Shoppe Inc. 8/31/12 Least Preferred

VP Bank 4/19/12 Least Preferred

Wacker Chemie AG 9/13/12 Least Preferred

William Demant 8/31/12 Most Preferred

Williams-Sonoma, Inc. 9/3/12 Most Preferred

Yoox 10/10/12 Most Preferred

Appendix


UBS equity compass

If you require further information on the instruments or issuers mentioned in this publication, or you require general information on UBS CIO WM Research including research policies and statistics regarding past recommendations, please contact either your Client Advisor or the mailbox [email protected] giving your country of residence.

Equity selection systemAnalysts provide three equity selections (Most Preferred, Neutral View, Least Preferred).

Equity preference

Most PreferredTaking into consideration the stock‘s rating as well as other factors relevant for portfolio management (e.g. risk, diversification), analysts expect the stock to outperform versus the thematic benchmark, i.e. to contribute positively to the overall performance of the relevant Equity Preference List (EPL) in the next 12 months.

Neutral ViewAnalysts expect the stock to neither contribute positively nor negatively to the performance of the relevant EPL, i.e. to perform in line with the thematic benchmark in the next 12 months.

Least PreferredTaking into consideration the stock‘s rating as well as other factors relevant for portfolio management (e.g. risk, diversification), analysts expect the stock to underperform versus the thematic benchmark, which results in a positive contribution to the EPL in the next 12 months.

SuspendedIssuing an analyst‘s research on a company can be restricted due to legal, regulatory, contractual or best business practice obliga-tions, which are normally caused by UBS Investment Bank‘s participation in an investment banking transaction involving the com-pany concerned.

Equity selection: An assessment relative to a benchmarkEquity selections are a relative assessment versus a thematic benchmark. Analysts select a benchmark for every thematic invest-ment context they define, be it a regional, sector or other investment context. These benchmarks are often defined as MSCI Level 1, 2 or 3. In cases where such benchmarks do not appropriately reflect the investment context, we may deem a different bench-mark more appropriate. The assigned benchmark is also used to measure the performance of the individual analyst.

Stocks can be selected for several Equity Preference Lists (EPLs). In order to keep the various preference lists consistent, a stock can only be selected as a part of either Most Preferred lists or Least Preferred lists. As benchmarks among lists differ, stocks must not necessarily be included on every list they could theoretically be added to.

UBS‘s selection methodology shows private clients how to best invest if they would like to profit from a specific investment theme.

Current UBS global rating distribution (as of last month-end)

Buy 47.73% (38.96%*)

Neutral 40.01% (40.14%*)

Sell 10.54% (21.86%*)

Suspended 1.61% (75.00%*)

Discontinued 0.12% (100.00%*)

*Percentage of companies within this rating for which investment banking services were provided by UBS AG or UBS Securities LLC or its affiliates within the past 12 months.

Appendix


UBS equity compass

Terms and abbreviations

Term / Abbreviation Description / Definition

1H, 2H, etc. or 1H07,2H07, etc.

First half, second half, etc. or first half 2007, second half 2007, etc.

1Q, 2Q, etc. or 1Q07,2Q07, etc.

First quarter, second quarter, etc. or first quarter 2007, second quarter 2007, etc.

2007E, 2008E, etc. 2007 estimate, 2008 estimate, etc.

ADR American depositary receipt

AUM Assets under management = total value of own and third-party assets managed

bn Billion (109)

bp or bps Basis point or basis points (100 bps = 1 percentage point)

BVPS Book value per share = shareholders‘ equity divided by the number of shares

CAGR Compound annual growth rate

Cant Inc/Capita Cantonal income per capita (Switzerland only)

Capex Capital expenditures

CFO 1) Cash flow from operations 2) Chief financial officer

CFPS Cash flow per share

Cost/Inc Ratio (%) Costs as a percentage of income

CPI Consumer price index

CR Combined ratio = ratio of claims and expenses as a percentage of premiums (for insurance companies)

CY Calendar year

DCF Discounted cash flow

DDM Dividend discount model

Dividend Yield (%) Dividend per share divided by price per share

DPS Dividend per share

EBIT Earnings before interest and taxes

EBIT Margin (%) EBIT divided by revenues

EBIT(D)A Earnings before interest, taxes, (depreciation) and amortization

EBITDA Margin (%) EBITDA divided by revenues

EBITDA/Net Interest EBITDA divided by net interest expense

EBITDAR Earnings before interest, taxes, depreciation, amortization and rental expense

EFVR Estimated fair value range

Appendix


EmV Embedded value = net asset value + present value of forecasted future profits (for life insurers)

EPS Earnings per share

Equity Ratio (%) Shareholders‘ equity divided by total assets

EV Enterprise value = market value of equity, preferred equity, outstanding net debt and minorities

FCF Free cash flow = cash a company generates above outlays required to maintain/expand its asset base

FCF Yield (%) Free cash flow divided by market capitalization

FFO Funds from operations

FY Fiscal year / financial year

GDP Gross domestic product

GF Grandfathered status

Gross Margin (%) Gross profit divided by revenues

h/h Half-year over half-year; half on half

Interest Coverage Ratio that expresses the number of times interest expenses are covered by earnings

Interest exp Interest expense

ISIN International securities identification number

LLP/Net Int Inc (%) Loan loss provisions divided by net interest income

LLR/Gross Loans (%) Loan loss reserves divided by gross loans

m/m Month-over-month; month on month

mn Million (106)

n.a. or NA Not available or not applicable

NAV Net asset value

Net Debt Short- and long-term interest-bearing debt minus cash and cash equivalents

Net Int Margin (%) Net interest income divided by average interest-bearing assets

Net Margin (%) Net income divided by revenues

n.m. or NM Not meaningful

NPL Non-performing loans


UBS equity compass

Terms and abbreviations


Op Margin (%) Operating income divided by revenues

p.a. Per annum (per year)

P/BV Price to book value

P/CFPS Price/Cash flow per share

P/E Price to earnings

P/E Relative P/E relative to the market

P/EmV Price to embedded value

PEG Ratio P/E ratio divided by earnings growth

PPI Producer price index

Prim Bal/Cur Rev (%) Primary balance divided by current revenue (total revenue minus capital revenue)

Profit Margin (%) Net income divided by revenues

q/q Quarter-over-quarter; quarter on quarter

ROA (%) Return on assets

ROCE (%) Return on capital employed = EBIT divided by difference between total assets & current liabilities

ROE (%) Return on equity

ROAE (%) Return on average equity

ROIC (%) Return on invested capital

Solvency Ratio (%) Ratio of shareholders‘ equity to net premiums written (for insurance companies)

Tax Burden Index Swiss tax index; 100 = average tax burden of all cantons

Tier 1 Ratio (%) Tier 1 capital divided by risk-weighted assets; describes a bank‘s capital adequacy

tn Trillion (1012)

Valor Swiss company identifier

WACC Weighted average cost of capital

UBS CIO UBS Chief Investment Office

y/y Year-over-year; year on year

YTD Year-to-date

Appendix


UBS equity compass

Analyst certificationEach research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her per-sonal views about those securities or issuers; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report.

Any price of securities written in this publication is taken as at the close of business on the main market of listing on the date shown unless otherwise stated.

Disclosures (26 October 2012)ABB Ltd 1, 2, 3, 4, 5, 6, 7. Accenture PLC 2, 6, 8, 9, 10, 11. Accor SA 2, 3, 4, 5, 6, 12. Actelion Ltd 1, 3, 4, 5, 13. Adecco SA 1, 3, 4, 5, 6. Adobe Systems Inc 6, 8, 9, 10, 11. Koninklijke Ahold NV 6. Air Liquide SA 6. Alcoa Inc 2, 6, 8, 9, 14. Allianz SE 3, 6. Alstria Office REIT-AG 3. Aluminum Corp of China Ltd 6, 15. America Movil SAB de CV 6. American Capital Agency Corp 2, 3, 4, 5, 6, 8, 9, 14. American Electric Power Co Inc 2, 3, 4, 5, 6, 8, 9, 10, 11, 14. Amgen Inc 2, 3, 4, 5, 6, 8, 9, 10, 11. Anadarko Pe-troleum Corp 2, 3, 4, 6, 7, 8, 9, 10, 11. Anglo American Platinum Ltd 6. AngloGold Ashanti Ltd 3, 4, 6, 16, 17. Anheuser-Busch InBev NV 3, 6. Anhui Conch Cement Co Ltd 6, 15, 18. Aon PLC 2, 3, 6, 8, 9, 10, 11. Apache Corp 2, 4, 6, 8, 9, 10, 11. Apple Inc 1, 6, 7, 8, 9, 10, 11. Aryzta AG 3, 4, 5. ASML Holding NV 6, 13. AstraZeneca PLC 2, 3, 4, 6, 7, 10, 11. AT&T Inc 2, 4, 5, 6, 7, 8, 9, 10, 11. AXA SA 2, 3, 6, 10, 11. Axis Capital Holdings Ltd 6. Baloise Holding AG 1, 3, 4, 5, 6. Barclays PLC 4, 5, 6, 10, 11. BASF SE 3, 6, 16, 19. British American Tobacco PLC 3, 4, 6, 16, 17, 20. Bayer AG 3, 4, 6, 16. Banco Bilbao Vizcaya Argentaria SA 3, 4, 6, 7, 21. BHP Billiton PLC 2, 3, 4, 5, 6, 22. Bilfinger SE 6, 23. Bayerische Motoren Werke AG 3, 4, 6, 10, 11. BNP Paribas SA 3, 4, 5, 6, 10, 11. Bolsa Mexicana de Valores SAB de CV 24. Bouygues SA 6. BP PLC 2, 3, 4, 5, 6, 16, 25. Broadcom Corp 6. Campbell Soup Co 2, 3, 4, 5, 6, 8, 9, 10, 11. CarMax Inc 6. Carrefour SA 3, 4, 6. Caterpillar Inc 6, 9, 10, 11, 14. Celgene Corp 2, 6, 8, 9. Centrica PLC 2, 3, 4, 5, 6, 16. CenturyLink Inc 2, 5, 6. Chesapeake Energy Corp 1, 2, 4, 5, 6. Cheung Kong Holdings Ltd 6, 15. China Construction Bank Corp 6, 15, 20. China Overseas Land & Investment Ltd 15. China Pacific Insurance Group Co Ltd 3, 4, 5, 13, 15. China Resources Power Holdings Co Ltd 4, 6. China Shenhua Energy Co Ltd 3, 6, 15, 18. China Telecom Corp Ltd 6, 15, 18, 26. China Unicom Hong Kong Ltd 3, 6, 15. Citigroup Inc 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 14. Citrix Systems Inc 6, 8, 9, 10, 11. CNP Assurances 3, 4. Coca-Cola Co/The 2, 4, 5, 6, 8, 9, 10, 11, 14. Colgate-Palmolive Co 6, 10, 11. Commonwealth Bank of Aus-tralia 3, 4, 5, 6, 27, 28. Cie Financiere Richemont SA 3, 4, 6, 29. ConocoPhillips 2, 4, 6, 8, 9, 14. Credit Agricole SA 3, 4, 5, 6. CRH PLC 3, 4, 6, 16. Credit Suisse Group AG 1, 3, 6, 7, 10, 11, 30. CSX Corp 2, 3, 4, 5, 6, 10, 11. Danaher Corp 2, 4, 6, 8, 9. Danone SA 6. DDR Corp 2, 4, 5, 6, 8, 9. Deere & Co 6, 10, 11. Deutsche Bank AG 2, 3, 4, 5, 6, 7, 10, 11. Deutsche Post AG 3, 6. Deutsche Wohnen AG 3, 4, 5. Devon Energy Corp 2, 3, 4, 5, 6, 8, 9, 10, 11. Diageo PLC 2, 3, 4, 6, 16. DNB ASA 4, 5, 6. Dollar General Corp 6. Koninklijke DSM NV 3, 4, 6. Dufry AG 3, 4, 5. Duke Energy Corp 2, 3, 4, 5, 6, 10, 11. E.ON AG 3, 6, 10, 11. Eldorado Gold Corp 6. EMC Corp/MA 2, 3, 4, 6, 8, 9, 10, 11, 14. Emmi AG 3. EMS-Chemie Holding AG 3. Enel SpA 3, 4, 5, 6. Exelon Corp 2, 3, 4, 5, 6, 8, 9, 10, 11, 14. Express Scripts Holding Co 2, 4, 6, 10, 11. Fiat Industrial SpA 2, 3. Flughafen Zuerich AG 3, 4, 5. Ford Motor Co 2, 6, 8, 9, 14, 16. Foster Wheeler AG 1, 3, 4, 6. Fresenius SE & Co KGaA 6. Grupo Financiero Banorte SAB de CV 2, 4, 6. Gap Inc/The 6, 10, 11. Gategroup Holding AG 1, 3, 31. Gazprom OAO 3, 4, 5, 6, 7, 30. GEA Group AG 6. Corp GEO SAB de CV 6. Gilead Sciences Inc 6. Givaudan SA 1, 3, 4, 5, 6, 13, 29. GlaxoSmithKline PLC 2, 3, 4, 5, 6, 16. Gold Fields Ltd 6. Gold-corp Inc 6, 32, 33. Google Inc 2, 3, 4, 6, 8, 9, 10, 11, 14. Gruma SAB de CV 6, 24. Grupo Televisa SAB 6. Gurit Holding AG 3. Halliburton Co 1, 6, 10, 11. Hammerson PLC 13. Harmony Gold Mining Co Ltd 6. Harry Winston Diamond Corp 6. Holcim Ltd 1, 3, 4, 5, 6, 7. Home Depot Inc/The 3, 6, 10, 11. Honeywell International Inc 6, 8, 9, 10, 11, 14. HSBC Holdings PLC 2, 4, 5, 6, 7, 10, 11, 15, 20, 34. Hutchison Whampoa Ltd 6, 15. Iberdrola SA 3, 4, 5, 6. International Business Machines Corp 2, 4, 5, 6, 8, 9, 10, 11, 14. Inditex SA 6. Indofood Sukses Makmur Tbk PT 6. Ingersoll-Rand PLC 6, 7, 10, 11. International Paper Co 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 14. Intershop Holdings 3. ITV PLC 4. JFE Holdings Inc 3. Kabel Deutschland Holding AG 1, 4. KBR Inc 2, 4, 6, 8, 9. Keppel Corp Ltd 6. Kilroy Realty Corp 6. Kinross Gold Corp 2, 6, 33. Kuehne + Nagel International AG 3. Kumba Iron Ore Ltd 6. Kuoni Reisen Holding AG 3. Lafarge SA 3, 6, 35. Lanxess AG 2, 3. Linde AG 6, 7. Lloyds Banking Group PLC 3, 4, 5, 6, 7, 10, 11, 16, 23. Lonmin PLC 6, 13. Lonza Group AG 1, 3, 4, 5, 6. L'Oreal SA 6. LVMH Moet Hennessy Louis Vuitton SA 6. MAN SE 6. Mc-Donald's Corp 6, 10, 11. McKesson Corp 6. Metall Zug AG 3. MetLife Inc 1, 2, 3, 4, 5, 6, 8, 9, 10, 11, 14. Mitsubishi Estate Co Ltd 3, 6. Mitsui Fudosan Co Ltd 3. Mobimo Holding AG 3. MTU Aero Engines Holding AG 1, 6, 36. Muenchener Rueckversi-cherungs AG 4, 6. Nestle SA 1, 3, 4, 5, 6, 7, 10, 11, 20, 29. Next PLC 3, 4, 16. Nobel Biocare Holding AG 1, 3, 4, 6. Novartis AG 1, 2, 3, 4, 5, 6, 7, 20, 29, 37. Occidental Petroleum Corp 1, 2, 3, 4, 5, 6. Old Mutual PLC 6. Omnicom Group Inc 2, 3, 6, 7, 8, 9, 14. Oracle Corp 3, 4, 5, 6, 10, 11, 23. Panalpina Welttransport Holding AG 3. Pargesa Holding SA 3. Partners Group Holding AG 3. Pfizer Inc 6, 9, 10, 11, 14. Philip Morris International Inc 3, 4, 5, 6, 10, 11. Phoenix Mecano AG 3, 38. Polyus Gold International Ltd 6. PPL Corp 2, 4, 5, 6, 8, 9. Progressive Corp/The 6, 9, 14. PSP Swiss Property AG 3. Rackspace Hosting Inc 6. Reckitt Benckiser Group PLC 6. Red Electrica Corp SA 6. Reed Elsevier NV 6. Reed Elsevier PLC 3, 4, 5, 6, 16. Rio Tinto PLC 2, 4, 6. Roche Holding AG 3, 4, 5, 6, 20. Rockwell Collins Inc 2, 3, 4, 5, 6, 8, 9, 10, 11, 20. Royal Bank of Canada 2, 3, 4, 5, 6, 10, 11, 32, 33. Royal

Appendix


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Dutch Shell PLC 4, 6, 39. RSA Insurance Group PLC 1, 4. Federal Hydrogenerating Co JSC 6. RWE AG 3, 4, 5, 6. SABMiller PLC 1, 3, 6. Safran SA 6. Samsung Electronics Co Ltd 6. SandRidge Energy Inc 2, 3, 4, 5, 6. Banco Santander SA 3, 4, 5, 6, 7, 10, 11, 40. SAP AG 2, 3, 4, 6, 10, 11, 41. Schlumberger Ltd 6, 10, 11. Schweiter Technologies AG 3. SCOR SE 3, 4, 5, 6, 10, 11. Severn Trent PLC 4, 6. Shire PLC 6. Siam Cement PCL 4, 42. Silver Standard Resources Inc 1, 6, 33. Silver Wheaton Corp 1, 2, 6, 32, 33. Snam SpA 2, 3, 4, 5, 6. Spectra Energy Corp 2, 6. State Bank of India 4, 5, 6. Straumann Holding AG 3. Stryker Corp 6, 10, 11. Sulzer AG 1, 3. Swiss Prime Site AG 3, 4. Swiss Re AG 3, 4, 5, 6, 29, 30. Swisscom AG 3, 4, 6. Symrise AG 6, 36. Syngenta AG 1, 3, 4, 6, 10, 11, 43. Taiwan Semiconductor Manufacturing Co Ltd 6. Tamedia AG 3. TDC A/S 3. Tecan Group AG 3, 13, 44. Teck Re-sources Ltd 2, 3, 4, 5, 6, 33. Telefonica SA 2, 3, 4, 5, 6, 45, 46. Telenor ASA 6. Tesla Motors Inc 6. Teva Pharmaceutical Industries Ltd 6. Time Warner Cable Inc 2, 3, 4, 5, 6. tw telecom inc 2, 3, 4, 5, 6. Total SA 2, 3, 4, 6, 23, 41. Toyota Motor Corp 2, 3, 4, 5, 6, 10, 11. Transocean Ltd 1, 2, 3, 4, 6, 7, 8, 9. Unilever PLC 4, 6, 16. United Continental Holdings Inc 1, 3, 6, 47. United Overseas Bank Ltd 3, 4, 5, 6. United Technologies Corp 6, 10, 11, 20. United Utilities Group PLC 6. Uralkali OJSC 4. Urban Outfitters Inc 6. Vinci SA 2, 4, 5, 6, 10, 11. Vodafone Group PLC 3, 4, 6, 23, 45, 48, 49. Volkswagen AG 3, 3, 4, 4, 6, 6, 16, 16. Verwaltungs- und Privat-Bank AG 3. Wacker Chemie AG 36. Wal-Mart Stores Inc 2, 4, 6, 8, 9, 10, 11, 14. Watson Pharmaceuticals Inc 6. Weather-ford International Ltd/Switzerland 1, 2, 3, 4, 5, 6, 8, 9, 10, 11. Zurich Insurance Group AG 1, 2, 3, 4, 5, 6. Xstrata PLC 3, 6. Wil-liams-Sonoma Inc 6. Yum! Brands Inc 6. Zodiac Aerospace 6.

1. UBS AG, its affiliates or subsidiaries beneficially owned 1% or more of a class of this company`s common equity securities as of last month`s end (or the prior month`s end if this report is dated less than 10 days after the most recent month`s end).

2. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and investment banking services are being, or have been, provided.

3. UBS AG, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services from this company/entity within the next three months.

4. Within the past 12 months, UBS AG, its affiliates or subsidiaries has received compensation for investment banking services from this company/entity.

5. UBS AG, its affiliates or subsidiaries has acted as manager/co-manager in the underwriting or placement of securities of this company/entity or one of its affiliates within the past 12 months.

6. UBS Securities LLC makes a market in the securities and/or ADRs of this company.7. UBS AG, its affiliates or subsidiaries held other significant financial interests in this company/entity as of last month`s end (or

the prior month`s end if this report is dated less than 10 working days after the most recent month`s end).8. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-securities services are

being, or have been, provided.9. Within the past 12 months, UBS Securities LLC has received compensation for products and services other than investment

banking services from this company/entity.10. This company/entity is, or within the past 12 months has been, a client of UBS Financial Services Inc, and non-investment

banking securities-related services are being, or have been, provided.11. Within the past 12 months, UBS Financial Services Inc has received compensation for products and services other than

investment banking services from this company.12. UBS Limited is advising Accor SA on it acquisition of the South American hotel portfolio of Grupo Posadas.13. UBS AG, its affiliates or subsidiaries beneficially owned more than 5% of the total issued share capital of this company.14. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-investment banking

securities-related services are being, or have been, provided.15. UBS Securities (Hong Kong) Limited is a market maker in the HK-listed securities of this company.16. UBS Limited acts as broker to this company.17. UBS South Africa (Pty) Limited acts as JSE sponsor to this company.18. UBS AG, its affiliates or subsidiaries beneficially owned more than 3% of the total issued share capital of this company.19. UBS Securities LLC is acting as advisor to BASF SE on its announced agreement to acquire Becker Underwood.20. The equity analyst covering this company, a member of his or her team, or one of their household members has a long

common stock position in this company.21. UBS Limited is acting as dealer-manager on the announced tender for select Banco Bilbao Vizcaya Argentaria debt securities.22. UBS AG, Australia Branch is acting as Adviser to BHP Billiton Ltd on the off-market buy-back and will be receiving fees for

acting in this capacity.23. An employee of UBS AG is an officer, director, or advisory board member of this company.24. UBS Casa de Bolsa S.A. makes a market in the securities of this company.25. UBS Limited is advising BP PLC in respect of the disposal of its 50% interest in TNK-BP to Rosneft.26. UBS AG, Hong Kong Branch, acts as the financial adviser to China Telecom Corporation Limited in respect of the acquisition

of certain CDMA network assets and associated liabilities from China Telecommunications Corporation.

Appendix


UBS equity compass

27. UBS AG, Australia Branch or an affiliate expect to receive or intend to seek compensation for investment banking services from this company/entity within the next three months.

28. UBS Securities Canada Inc or an affiliate has acted as manager/co-manager, underwriter or placement agent in regard to an offering of securities for this company/entity or one of its affiliates within the past 12 months.

29. UBS AG, its affiliates or subsidiaries has issued a warrant the value of which is based on one or more of the financial instruments of this company.

30. The UBS Wealth Management strategist, a member of his or her team, or one of their household members has a long common stock position in this company.

31. UBS AG, its affiliates or subsidiaries beneficially owned more than 3% of the total issued shares of this company.32. UBS Securities Canada Inc or an affiliate expect to receive or intend to seek compensation for investment banking services

from this company/entity within the next three months.33. Within the past 12 months, UBS Securities Canada Inc or an affiliate has received compensation for investment banking

services from this company/entity.34. UBS Securities LLC is acting as advisor to Banco Davivienda on its announced agreement to acquire HSBC's Central American

businesses.35. UBS Limited is acting as advisor to Anglo American Plc on the creation of a 50:50 Joint Venture with Lafarge SA in connection

with Anglo American Plc's business division Tarmac Quarry Materials and Lafarge SA's UK business.36. In Germany, UBS Limited has entered into a contractual arrangement to act as the manager of orders (Designated Sponsor) in

the financial instruments of this company.37. UBS AG is acting as agent on the announced share buy-back programme of Novartis AG38. UBS AG is acting as agent in regard to Phoenix Mecano's announced share buyback programme.39. UBS Securities Canada Inc is acting as advisor to Ivanhoe Energy on its announced agreement for its Sunwing Zitong Energy

subsidiary to sell 100% of its interest in the Zitong block in China's Sichuan Basin to a subsidiary of Royal Dutch Shell.40. UBS Limited is advising Kredyt Bank in respect of its proposed merger with Bank Zachodni WBK S.A.41. UBS Limited is acting as manager/co-manager, underwriter, placement or sales agent in regard to an offering of securities of

this company/entity or one of its affiliates.42. UBS AG, Australia Branch is acting as sole financial adviser to Boral Limited on the US$135 million sale of its Indonesian

construction materials operations to Siam Cement Group (SCG)and will be receiving a fee for acting in this capacity.43. UBS AG is acting as agent on Syngenta`s announced share buy-back programme.44. UBS AG, its affiliates or subsidiaries beneficially held more than 5% of the total issued share capital of this company; or for

UK and Irish companies, a line of stock of this company; as of the date shown in this disclosure table.45. UBS Limited is acting as financial advisor to Vodafone Group Plc on its network sharing agreement with Telefonica SA in the

UK46. UBS Limited is acting as manager/co-manager, underwriter, placement or sales agent in regard to an offering of securities for

Telefonica Deutschland Holding AG.47. UBS Securities LLC is acting as an advisor to Continental Airlines on its announced agreement to merge with UAL Corp.48. UBS Limited is advising Vodafone on the possible acquisition of TelstraClear and will be receiving a fee for acting in this

capacity.49. UBS Limited is acting as agent on Vodafone Group Plc's announced share buyback programme.

Appendix


UBS equity compass

AppendixDisclaimer

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Version 10/2012.

© UBS 2012. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.

UBS Equity Compass November 2012 En

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