Investment Strategy Stock rally to continue as economy improves

Global Research Private Banking Investment horizon: 6-12+ months Research Monthly February 2013 Quality Japanese exporters: Buy Toyota, Honda, Bridgestone Beneficiaries of a weaker JPY and US recovery. Google, Intel, Infineon, Len-Buy ovo, Oracle, Priceline.com, Qualcomm, Samsung and TS-MC Stocks with a strong market posi-tion in secular growth themes, such as Mobile Internet, Cloud Computing, Big Data, Virtualiza-tion and Social Media. Megatrend Champions Buy Invest in our Champions portfolio, which reflects the optimal tactical allocation of megatrend invest-ments, according to our Traffic Light system. Platinum with a time horizon Buy of 6–12 months The market is undersupplied and undervalued. Investment Strategy Stock rally to continue as economy improves page 3 This month’s featured topic Can “Abenomics” revive Japan and overcome deflation? page 9 Investment theme IT spending to benefit from secular technology growth themes page 10 Credit Suisse Megatrends Introducing our new Megatrends Framework page 11 Important disclosures are found in the Disclosure appendix. Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could af-fect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For a discussion of the risks of investing in the securities mentioned in this report, please refer to the following Internet link: https://research.credit-suisse.com/riskdisclosure 2 29/01/2013 Credit Suisse - Research Monthly Editorial Giles Keating Head of Research for Private Banking and Wealth Management In this issue Investment Strategy Stock rally to continue as economy improves  page 3 giles.keating@credit-suisse.com, +41 44 332 22 33 Investment summary  page 5 Economics Gradual global pick-up to continue  page 7 It is human nature to be impatient and investors have been keen for rapid results from the monetary stimulus of recent years and skeptical when little happened. An exception was last year’s positive reaction to the ECB’s special bank loans (LTROs) and bond-buying offer (OMT). But a sense of failure This month’s featured topic Can “Abenomics” revive Japan and overcome deflation?  page 9 Investment theme IT spending to benefit from secular technology growth surrounds the near-zero interest rates imposed by the Fed, themes  page 10 ECB, BoE and BoJ several years ago and subsequent bond- buying (QE). Such measures are widely seen as financial al-chemy with little real economic impact. Yet, Nobel Prize-win- Credit Suisse Megatrends Introducing our new Megatrends Framework  page 11 ner Milton Friedman stressed that monetary policy operates with “long and variable lags.” These can be exceptionally long when there are deep problems in banking and credit – the key Fixed income Credits start the year on a positive note  page 12 transmission mechanism to the real economy – but as they re-turn to health, monetary policy should finally become effective. That now seems to be happening in the US, with banks re-cap-italized and lending again, credit card loan securitization re- Equities Strong start to the year bodes well for equities  page 14 Alternative investments starting, and record issuance of high yield bonds. Directional hedge fund styles and US REITS offer All this is a bit like flooring the gas pedal on a car with mal- opportunities  page 16 functioning fuel injection. Nothing happens and you think that your foot pressure is useless, but when a mechanic fixes the problem, the car suddenly goes forward even though you do Foreign exchange Diversification into emerging market currencies  page 17 not push the pedal anymore. By analogy, the US economy can accelerate without the Fed adding extra stimulus. Europe is similar, but perhaps 6–12 months behind the US, as the com- Risk disclaimer  page 19 plex credit problems take longer to fix. In short, as investors Editorial deadline: 29 January 2013 we should not be ruled by our own impatience: Monetary policy is at last becoming effective, and the throttle is open far wider than ever before. As broken banking and credit systems heal, positive monetary impetus can overwhelm the negative ef-fects of tighter fiscal policy, boosting the economy more than people expect, and raising stock markets during a “sweet spot” that could last a couple of years before inflation be-comes a threat. 3 Investment Strategy 29/01/2013 Credit Suisse - Research Monthly Investment Strategy Stock rally to continue as economy improves  Gradual global economic pick-up to con-tinue with no imminent inflation and ex-pansive central banks.  Stocks, US real estate remain in focus as investments on a 6–12+ month hori-zon. In bonds, favor short maturity credits.  CHF correcting weaker; EUR gaining and emerging market currencies set to rise. Nannette Hechler-Fayd`herbe Head of Global Financial Markets Research nannette.hechler-fayd`herbe@credit-suisse.com, +41 44 333 17 06 The first weeks of trading in 2013 saw a strong rebound in in-vestor risk appetite. Economic headwinds have ebbed, as the credit crunch ends and the fiscal outlook becomes clearer in the USA, euro break-up dangers fade and China growth con-solidates. Equity funds hence registered significant inflows, new bond issues of riskier creditors continued to be oversub-scribed and European peripheral sovereign and corporate bonds traded at significantly tighter spreads to German Bunds. Core government bond yields, in contrast, rose and all safe-haven assets – the CHF, the JPY, gold – have underper-formed or lost ground. It seems as if investors are finally show-ing willingness to commit their excess cash holdings to finan-cial investments. Meanwhile, last year’s fall in credit spreads has left bonds less attractive, while equity multiples are still not stretched. Top investment ideas for 2013 – January update Our set of Top investment ideas for 2013 published in our pre-vious edition have recorded absolute returns of 1%–12% since we recommended them in late 2012, with only our for-eign exchange idea in flattish territory. Despite the strength and rapidity of these market moves, we keep the status of all of our ideas unchanged on Green (which means “Continue to accumulate”). The emphasis on stocks (Idea No. 2, “Recovery stocks,” Idea No. 3, “Dividend stocks” and Idea No. 4, “New gas and oil sources”), real estate (Idea No. 5, “US real estate”) with less fixed income (Idea No. 1, “Beyond cash: Credit, not duration”) in combinations reflective of respective investor risk profiles should continue to perform well, in our view. Fixed income: First trading weeks confirming our “cred-it, not duration” call Yields on core government bonds increased at the start of the year in the wake of a general “risk-on” investor mode, while credit spreads continued to compress. We do not expect the same pace in core yields and credit spreads to continue. After all, while improving, global growth is still likely to be moderate in 2013, inflation to remain low and central banks generally stick to their accommodative stance. So, core yields should have some upside risks, albeit limited, except for Switzerland, where a further depreciation of the CHF would induce a fur-ther normalization of Eidgenossen yields. These are still signi-ficantly below fair value. Credit spreads, too, are unlikely to compress at the same pace. As a result, carry (or coupon con-tribution) will be key in fixed income returns, which we anticip-ate to be in the low single-digit area. Therefore, we maintain our strategic focus on short maturity credits down to BB credit quality. We also highlight European convertibles as a fixed in-come alternative likely to perform well. Equities: Japan upgraded to neutral in our regional strategy Equities have continued with strong advances at the start of the year and have benefited from falling credit spreads and bet-ter investor sentiment. Temporary short-term setbacks of small magnitude are possible any time, but in the broader picture, equities are among the more attractively valued asset classes and one of the few opportunities left offering investors a re-turn. In our regional focus, we have changed our views with re-gard to Japanese stocks, which are unlikely to underperform global markets if the JPY stays around current levels. Our cur-rency outlook suggests positive consequences on earnings in Japan. Our sector strategy and our preferred equity themes re-main unchanged and are reflected in our Top ideas for 2013, Nos. 2–4. In this issue, we provide more details on the techno-logy sector, on which we have a positive view. Alternative investments: US REITS still our favorite This month, we confirm US real estate as our favorite alternat-ive investment. We would also expect hedge funds to benefit from persistently low volatility on stock markets and good liquid-ity conditions. Directional strategies are likely to fare best in this investment category. In commodities, our moderate global growth picture still justifies a neutral outlook. 4 Investment Strategy 29/01/2013 Credit Suisse - Research Monthly Foreign exchange: Weaker CHF vs. EUR, selected emer-ging market currencies stronger The CHF has depreciated markedly vs. EUR and we expect more. Falling risk premia on the EUR should lead to gradual capital outflows from Switzerland. The EUR and selected Asi-an and interest-bearing emerging market currencies are likely to benefit the most, the USD less. In our optimal currency port-folios, we add CNH, MXN, PLN and TRY as providing good di-versification. The JPY has entered a technical downtrend and even though there are reasonable doubts about how effective the BoJ can be, we see USD/JPY at 94 in 12 months. Tactic- ally, we prefer to await a correction to go short JPY. Strategic asset allocation (SAA) The neutral allocations serve as a guideline and represent the average weighting over an entire market cycle. Since the glob-al strategy is based on a medium-term investment horizon, it deviates from the neutral position. We recommend an over-weight in equities and alternative assets, particularly hedge funds and real estate (selected markets). Conversely, we re-commend underweighting fixed income investments and liquid-ity. Fixed Income Benchmark SAA BM SAA (BM) Cash 5% 2% Risk review Risks in relation with the Eurozone debt crisis have declined materially, in our view. If peripheral countries disappoint on their deliverables, credit spreads could still widen again from current levels. But the Outright Monetary Transactions frame-work of the European Central Bank provide a credible back-stop to a more devastating movement. In the US, while the debt ceiling could provide some temporary drama, we still anti-cipate muddling-through from both the Republicans and Demo-crats. In our view, geopolitical risks in both the Near and Far East therefore remain the least easily predictable. For in-vestors who are overly concerned about the potential impact of any event on global stock markets, we again highlight the relat-ively cheap short-term protection opportunity offered by derivat- Income Benchmark (BM) Fixed Income 80% 80% Equity 0% 0% Alternative 15% 18% SAA BM SAA Cash 5% 2% Fixed Income 55% 53% Equity 20% 22% Alternative 20% 23% ives, given persistently low volatility. (25/01/2013) Balanced Benchmark (BM) Capital Gain Benchmark (BM) SAA BM SAA Cash 5% 2% Fixed Income 35% 32% Equity 40% 43% Alternative 20% 23% SAA BM SAA Cash 5% 2% Fixed Income 15% 12% Equity 60% 63% Alternative 20% 23% Equities Benchmark (BM) SAA BM SAA Cash 5% 2% Fixed Income 0% 0% Equity 80% 81% Alternative 15% 17% Source: Credit Suisse 5 Investment Strategy 29/01/2013 Credit Suisse - Research Monthly Investment summary Equities: Selected indices Index Price MTD YTD 12M fair 12M out- Short interest rates 3M LIBOR / 10-year government bonds 3M 10Y LIBOR bonds in % Spot 3M 12M Spot 3M 12M CHF 0.02 0.0-0.2 0.0-0.2 0.70 0.6-0.8 0.9-1.1 EUR * 0.21 0.1-0.3 0.1-0.3 1.57 1.5-1.7 1.6-1.8 USD 0.30 0.3-0.5 0.3-0.5 1.85 1.6-1.8 1.8-2.0 GBP 0.51 0.5-0.7 0.5-0.7 2.01 1.8-2.0 2.1-2.3 JPY 0.17 0.1-0.3 0.1-0.3 0.73 0.8-1.0 0.9-1.1 Spot rates are closing prices as of 24/01/2013. Forecast date: 24/01/2013. * 3M Euribor Source: Bloomberg, Credit Suisse (%) (%) value look S&P 500 1,502.96 5.4% 5.4% 1,513 Overweight SMI 7,458.66 9.3% 9.3% 6,477 Underweight FTSE-100 6,284.45 6.6% 6.6% 5,954 Neutral Euro Stoxx 50 2,744.18 4.1% 4.1% 2,570 Neutral Nikkei 225 10,926.65 5.1% 5.1% 10,600 Neutral MSCI EM 1,069.12 1.3% 1.3% 1,039 Neutral China H-Shares 12,001.81 4.9% 4.9% 12,000 Overweight Prices as of 25/01/2013; 12M fair value: scenario analysis available; 12M outlook: relative to MSCI World Index (USD) Source: Bloomberg, Credit Suisse Bonds: Selected indices Index YTM (%) USD (CS LUCI) 2.7 EUR (CS LEI) 2.1 CHF (CS LSI) 0.8 GBP(CS LEI) 3.6 EM HC (JPM EMBI 4.6 Global) EM LC hedged in 5.5 USD (JPM GBI) Spread to bench-mark (bp) 110 133 46 158 256 n.a. Total return YTD (%) -0.6 -0.9 -0.8 -0.6 -0.1 -0.4 12M TR out-look       Foreign exchange EUR/USD USD/CHF EUR/CHF USD/JPY EUR/JPY EUR/GBP GBP/USD EUR/SEK AUD/USD USD/CNY Spot 3M 1.34 1.36-1.40 0.93 0.89-0.93 1.24 1.24-1.28 90 90-94 120 125-129 0.85 0.84-0.88 1.58 1.58-1.62 8.68 8.73-8.77 1.05 0.98-1.02 6.22 6.05-6.25 12M 1.35-1.39 0.93-0.97 1.28-1.32 92-96 127-131 0.84-0.88 1.58-1.62 8.78-8.82 0.96-1.00 5.90-6.10 High Yield (CS HY In- 5.8 509 1.8  Spot rates: London close 24/01/2013 dex) Source: Bloomberg, Credit Suisse Prices as of 28/01/2013 Source: Bloomberg, Credit Suisse Commodities Real GDP growth and inflation GDP Inflation growth Gold (USD) Silver (USD) Platinum (USD) Oil (USD) Spot prices: London close 25/01/2013 Spot 3M 1,658.70 1,750 31.20 34 1,694.75 1,750 95.88 96 12M in % 1,800 CH 32 EMU 1,850 USA 100 UK ... - tailieumienphi.vn