CONFIDENTIAL/ NOT FOR REDISTRIBUTION 1 Robert Parker – Vice Chairman, Asset Management 9 th...

CONFIDENTIAL/ NOT FOR REDISTRIBUTION

1

Robert Parker – Vice Chairman, Asset Management

9th September, 2009

The Outlook for Global Capital Markets & Investment Themes for the remainder of 2009 & 2010

2

Key questions for global capital markets, investment strategy and asset allocation Assuming the credit crunch is over, how will credit conditions now evolve?

Is the economic recovery in the developed G20 countries durable and how will the pattern of growth evolve?

Have emerging economies decoupled from the developed economies and will emerging economies be the key driver in global growth?

Has the risk of deflation passed and what is the risk of a rapid return to inflation?

Will currency markets become unstable particularly with the major US fiscal deficit and central bank reserve diversification leading to a US dollar sell-off?

Will emerging market demand lead to a further commodity boom?

After the significant decline in equity markets from mid-2007 to early 2009, have equities now formed a base for a durable recovery and if so, which markets and sectors will outperform?

What signs are there of recovery in alternative asset classes such as real estate, private equity and hedge funds?

3

Source: PMI Premium, Bloomberg, Credit Suisse

There are clear signs of recovery

Last data point: June 2009

10

20

30

40

50

60

70

J an-03 Oct-03 J ul-04 Apr-05 J an-06 Oct-06 J ul-07 Apr-08 J an-09

Index

US

Eurozone

Japan

PMI New Orders

4

Recovery has been pronounced in Asia

25

30

35

40

45

50

55

60

65

70

J an-03 Oct-03 J ul-04 Apr-05 J an-06 Oct-06 J ul-07 Apr-08 J an-09

Index

Russia

China

India

PMI New Orders

Brazil

Source: PMI Premium, Bloomberg, Credit Suisse

Last data point: June 2009

5

Recovery is reflected in global trade and commodity indices

Source: IDC, Bloomberg

Price index 2000 = 100

0

100

200

300

400

500

600

700

800

900

01/200001/200101/2002 01/200301/200401/200501/200601/200701/200801/2009

Baltic Dry Index Brent oil Copper

6

1'500

2'000

2'500

3'000

3'500

4'000

4'500

J an 89 J an 93 J an 97 J an 01 J an 05 J an 09

US existing + new homes inventory

units on sale

US home inventories (new +existing homes)

0

10

20

30

40

50

60

70

80

J un 93 J un 97 J un 01 J un 05 J un 09

0

500

1'000

1'500

2'000

2'500

US NAHB Housing Index US Housing starts (rhs)

NAHB Index versus US housing starts (yoy, %)

2.6

2.8

3.0

3.2

3.4

3.6

3.8

4.0

4.2

J an 81 J an 85 J an 89 J an 93 J an 97 J an 01 J an 05 J an 09

US existing house price/median income Pre-bubble average

House price to wage ratio

NAHB sentiment index leads housing starts by 2 months

Trough in NAHB sentiment index

Trough in housing starts

No months that housing starts troughs

after NAHB troughJan 1991 Feb 1991 1Jan 1995 Apr 1995 3Oct 2001 Dec 2001 2

One source of the economic crisis, i.e. the US housing market is now forming a base

7

Recovery has been boosted by public expenditure but deficits are unsustainable

Source: IMF, Credit Suisse

-10

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

2000 2002 2004 2006 2008 2010 2012 2014

60

65

70

75

80

85

90

95

100

105

110

% %

Fiscal balance (lhs)

Government debt (rhs)

Forecasts

8

Credit conditions have improved but remain tight on trend

-60

-50

-40

-30

-20

-10

0

10

20

Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09

Secured Lending-Credit To Households,Past 3M Next 3 months

UK bank lending conditions

-1%

1%

3%

5%

7%

9%

11%

13%

2003 2004 2005 2006 2007 2008 2009 2010

-20

-10

0

10

20

30

40

50

60

70

Private sector loan growth

ECB survey: net ch in expected lending standards, rhs, inv

Tightening credit standards

Euro-area bank lending standards

Source: Bank of England , © Datastream International Limited ALL RIGHTS RESERVED, Credit Suisse research

US bank lending conditions

-10

-5

0

5

10

15

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

-20

-10

0

10

20

30

40

50

60

70

80

Total loans, y/y%

Banks tightening credit - average of firms, mortgages, creditcard, rhs, inverted, lead 12m

9

0

2

4

6

8

10

12

14

16

18

'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09

Y2K9/11

Demand for cash balances is elevated at banks....

Sources: Federal Reserve, Credit Suisse

Ratio: Excess Reserves to Required Reserves

10

-2%

0%

2%

4%

6%

8%

10%

12%

14%

1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007

US personal savings as % of disposable income, 3mma

1959-87 avg: 9.1% May 09

Consumers are increasing savings

Source: Bloomberg, Credit Suisse

Last data point: May 2009, Value: 6.9%

11

US consumer credit has collapsed


12

Emerging and developed economies are decoupling

Source: IMF, Credit Suisse

* Includes 22 oil-exporting nations ** Excludes Russia & Saudi Arabia *** World includes G20 & oil-exporting nations Note: Real annual growth is estimated by

multiplying the real growth rate of each economy to its GDP share in the previous year (at market exchange rates)

0% 1% 2% 3% 4% 5% 6% 7% 8%

Oil exporters* (7.7%)

Emerging G20** (16.7%)

Developed G20(67.6%)

World***

2004 - 08E

2009E - 14E

Growth rateCountry group& share of world GDP (2008)

Contribution to global growth

9%

49%

37%

2004 – 08E

13

G3 countries; inflation has fallen sharply

Credit Suisse; the BLOOMBERG PROFESSIONAL™ service; DataStream

-2%

0%

2%

4%

6%

8%

10%

12%

Jan-81 Jan-83 Jan-85 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09

G3 yoy% - Headline

G3 yoy% - Core (ex food and energy)

14

Global output gap with cyclical inflation


-22

-20

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

2

Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

-1.6%

-1.2%

-0.8%

-0.4%

0.0%

0.4%

0.8%

1.2%

1.6%

2.0%

2.4%

Output Gap w. Forecast (lhs)

G3+ Cyclical inflation (6m lag, rhs)

Forecast

15

Taylor rule: forecasting official interest rates


-4

-3

-2

-1

0

1

2

3

4

5

6

7

8

9

10

Jan-85 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09

Dec '10:1.23%0.73%

Taylor Rule Policy Corridor (based on Headline and Core Inflation Taylor Rules)

G3 LIBOR: 0.85% (June '09 average)

Interest Rate Futures

16

Capital market activity has improved

0.0

0.5

1.0

1.5

2.0

2001 2002 2003 2004 2005 2006 2007 2008 2009

US high yield debt issuance (8 week m.a.)

Average

USD bn

Source: Trim Tabs, Bloomberg, Credit Suisse IB Last data point: 25 June 2009

Source: Bloomberg, Credit Suisse Last data point: 26 June 2009

0

5

10

15

20

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

US equity issuance (4wma)

Average

USD bn

17

Credit markets have improved since late 2008

Last data point: 10.07.2009

Source: Bloomberg, Credit Suisse / IDC

0

100

200

300

400

500

600

700

J an 00 J an 01 J an 02 J an 03 J an 04 J an 05 J an 06 J an 07 J an 08 J an 09

US financials US industrials Europe financials Europe industrials

spread to benchmark

18

Credit spreads emerging markets



0

500

1'000

1'500

2'000

2'500

Mar 02 Mar 03 Mar 04 Mar 05 Mar 06 Mar 07 Mar 08 Mar 09

Asia Latin America EMEA

spread to benchmark

19


2.0

3.0

4.0

5.0

6.0

7.0

8.0

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

G3+ 10yr yield with kernel trend – yields remain unusually low

20

USD trading above fair value


0

20

40

60

80

100

120

140

Dec 82 Dec 86 Dec 90 Dec 94 Dec 98 Dec 02 Dec 06

29.06.2009

+1 Stdev

-1 Stdev

Fair value USD TWI "Broad"

TWI Broad Index

21

USD: capital inflows into USA still very weak

Source: Bloomberg, Credit Suisse / IDC Last data point 31.05.2009

External balance: the current account deficit has narrowed, but net capital inflows have also dramatically fallen

22

USD/JPY: Yen weakness is correlated with increased investor risk taking


23

EM currencies: Brazil, China, India, Indonesia, Korea, Mexico, South Africa, Turkey vs. USD

Source: Datastream, Credit Suisse

90

100

110

120

130

140

150

01/2008 03/2008 05/2008 07/2008 09/2008 11/2008 01/2009 03/2009 05/2009

J anuary 2008 = 100

Appreciation vs. USD

Depreciation vs. USD

24


-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%C

NY

KR

W

TW

D

MX

N

SG

D

SE

K

TH

B

PLN

GB

P

CH

F

JPY

ZA

R

NO

K

HU

F

CA

D

US

D

EU

R

NZ

D

AU

D

expensive

cheap

Trade-weighted fair value measures

25


Historic equity recoveries

(indexed to 100 at beginning of recovery, trough 1-2 Std Dev below trend)

100

120

140

160

180

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

February 1866 June 1877March 1938 June 1949December 1974 February 2009Average

26

Equity downside is protected by the credit rally

Source: © Datastream International Limited ALL RIGHTS RESERVED, Credit Suisse research

Trough Peak Trough Peak Trough PeakJun-80 Aug-81 May-80 Nov-80 1 9Dec-82 Oct-87 Aug-82 Aug-87 4 2Oct-87 Apr-90 Dec-87 Jul-90 -1 -3Dec-90 Aug-97 Oct-90 Jul-98 2 -11Oct-98 Jan-00 Aug-98 Apr-00 2 -2Oct-02 Feb-07 Oct-02 Jul-07 0 -5Mar-09 Mar-09 0Average 1 -2

Credit (BBB corporates) Equities (S&P 500) Equity leads... (months)

Over the past year, credit and equities have moved together

600

700

800

900

1,000

1,100

1,200

1,300

1,400

Jul-08 Sep-08 Nov -08 Jan-09 Mar-09 May -09 Jul-09

300

500

700

900

1,100

1,300

1,500

1,700

S&P 500, lhs

CDX high y ield spread, rhs, inv erted

27

Investors are still long cash underpinning markets

5%

10%

15%

20%

25%

30%

35%

Q11952

Q11957

Q11962

Q11967

Q11972

Q11977

Q11982

Q11987

Q11992

Q11997

Q12002

Q12007

US households, direct equitiesas % of all financial assets

US households, equities as % of all financial assets

Source: US Insurance team, © Datastream International Limited ALL RIGHTS RESERVED, Credit Suisse research

US money market funds reached a record 49% of market cap in early March (currently 36%)

0

5

10

15

20

25

30

35

J un 83 J un 87 J un 91 J un 95 J un 99 J un 03 J un 07

Retail Money Market mutual funds/US Eq. Market capInst. Money Market mutual funds/US Eq. Market cap

in %

28

Earnings revisions

-80

-60

-40

-20

0

20

40

60

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

S&P500

MSCI World

Net positive revisions as % of total%

Source: Datastream, Credit Suisse

Last data point: 1 July 2009

29

Corporate sector balance sheets have repaired themselves

US non-fin corporate FCF, % of GDP

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Q4 1969 Q4 1975 Q4 1981 Q4 1987 Q4 1993 Q4 1999 Q4 2005

US non-financial Corporate FCF/GDPLT Average

US non-residential investment, % of GDP

8%

10%

12%

14%

16%

18%

20%

Q3 1959 Q3 1965 Q3 1971 Q3 1977 Q3 1983 Q3 1989 Q3 1995 Q3 2001 Q3 2007

US Investment/GDP US non-residential investment/GDP

US non-fin corporate financing gap

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Q41969

Q41972

Q41975

Q41978

Q41981

Q41984

Q41987

Q41990

Q41993

Q41996

Q41999

Q42002

Q42005

Q42008

US corporate non-financial : Financing gap(capex-int. generated funds) % GDP

30

Global equity risk premium (GERP)


Source: Datastream, Credit Suisse / IDC

-2

0

2

4

6

8

10

12

J un 91 J un 93 J un 95 J un 97 J un 99 J un 01 J un 03 J un 05 J un 07 J un 09

Earnings Yield Gap Mean + / - 1 std. dev. + / - 2 std. dev.

%

31

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007

Market cap / GDP average

Non-farm, non-financial US corporates

Valuations: equity valuations are in line with their long-run averages

US Tobin’s Q US market cap-to-GDP

US P/E on trend earnings US 12-month forward P/E

Source: © Datastream International Limited ALL RIGHTS RESERVED, Credit Suisse research

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

Q3

1953

Q2

1958

Q1

1963

Q4

1967

Q3

1972

Q2

1977

Q1

1982

Q4

1986

Q3

1991

Q2

1996

Q1

2001

Q4

2005

US Tobin's Q ( EV at market/replacement v alue, nonfinancial business)

10.0

12.0

14.0

16.0

18.0

20.0

22.0

24.0

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

US 12m Price/Earnings

32

Low-debt / higher beta sectors

Source: Datastream, HOLT, Credit Suisse

Utilities

Div. Tel.

Wireless Tel.

Semi'sSoftware

Tech Hard/ W

Food Retail

House. + Prsnl. Prod.Tobacco

Beverages

Food ProductsMetals & Mining

Pulp & Paper

Chemicals

Cons. Mats

Energy

Transport

Comm Servs.Cap. Goods

Retail

Hotels

Media

Cons Dur.Autos

Biotech

Pharma

HCare Equip

R Estate

Insurance

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.5 0.7 0.9 1.1 1.3 1.5 1.7

Beta

HO

LT

Tota

l Boo

k D

ebt/

Mar

ket C

ap(F

Y0)

Banks & Diversified Financials

33

Emerging markets equities


Last data point: 2 July 2009

50

100

150

200

250

300

350

J ul 99 J ul 00 J ul 01 J ul 02 J ul 03 J ul 04 J ul 05 J ul 06 J ul 07 J ul 08 J ul 09

MSCI World

MSCI Emerging Markets

Index (-10Y= 100)

34

EM to World: P/E valuation relative


Source: Datastream, Credit Suisse / IDC

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1.10

J an 01 J an 02 J an 03 J an 04 J an 05 J an 06 J an 07 J an 08 J an 09

rel P/E EM to World Avg +/ - 1 STD

35

Capital market conclusions and investment strategy The G3 countries have emerged from a steep recession but will experience at least 3

years of mediocre growth. The smaller European economies and central Europe will emerge from recession last

Government action through expansionary monetary and fiscal policies has prevented a sustained depression and a successful rescue of the banking industry has largely taken place

Headline inflation has decelerated rapidly but long-term deflation should be avoided. Inflationary expectations may deteriorate in 1H2010, but any upturn in inflation will prove short-lived

The growth slowdown in the larger emerging markets has reversed quickly, although emerging markets with current account deficits and over-leveraged banking systems will remain under severe pressure in the medium term

On trend, Asia and Latin America are the most attractive emerging markets

After the strong performance of equity markets from early March until early August, the 1-2 months outlook is for an equity market correction. During the 4th quarter, equity markets should outperform. In 2010 there is a risk that the equity market rally in developed markets fails with markets going through a medium term period of broad stability

36

Capital market conclusions and investment strategy Foreign exchange market volatility has fallen. The Asian and Latin American currencies are

the most undervalued. The sterling devaluation is over

The investment grade credit rally is durable, although risk in the high yield market has risen sharply. Risk/reward in Government bond markets is starting to erode

The banking system will be characterised by further de-leveraging. Banks with high commission income and emerging market exposure will outperform those banks with government ownership

Although real estate markets are undervalued, it is premature to forecast a recovery in this sector. The central scenario is that real estate markets will move sideways for 2-3 years

Consumption will remain weak where consumers are de-leveraging, notably in the US and the UK

On a 1-2 year view, defensive equity sectors in the G3 markets with strong cash flows will out perform cyclical sectors. On trend, emerging markets will out perform developed markets

Sectors that will benefit from the recession easing are IT and infrastructure

The nature of private equity is changing radically with 2009 being characterised by significant valuation write-downs and sales of distressed assets. The improvement in the hedge fund industry since the beginning of 2009 is likely to prove durable

37

Important Legal Information

This document was produced by and the opinions expressed are those of Credit Suisse as of the date of writing and are subject to change. It has been prepared solely for information purposes and for the use of the recipient to whom it is distributed by Credit Suisse. No part of this document may be reproduced or retransmitted in any matter without any prior written permission of Credit Suisse. It does not constitute an offer or an invitation by or on behalf of Credit Suisse to any person to buy or sell any security. Nothing in this material constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. The price and value of investments mentioned and any income that might accrue may fluctuate and may fall or rise. Any reference to past performance is not a guide to the future. There are no guarantees concerning the achievement of investment objectives or target returns or measurements such as alpha, tracking errors, stock weightings, and information ratios. The use of tools cannot guarantee performance.

The information and analysis contained in this publication have been compiled or arrived at from sources believed to be reliable but Credit Suisse does not make any representation as to their accuracy or completeness and does not accept liability for any loss arising from the use hereof. A Credit Suisse Group company may have acted upon the information and analysis contained in this publication before being made available to clients of Credit Suisse. Credit Suisse does not represent, warrant or guarantee that this document is suitable for any investment purpose and it should not be used as a basis for investment decisions.

Investments in emerging markets are speculative and considerably more volatile than investments in established markets. Some of the main risks are political risks, economic risks, credit risks, currency risks and market risks. Investments in foreign currencies are subject to exchange rate fluctuations. Before entering into any transaction, you should consider the suitability of the transaction to your particular circumstances and independently review (with your professional advisers as necessary) the specific financial risks as well as legal, regulatory, credit, tax and accounting consequences. The investment views and market opinions/ analysis expressed herein may not reflect those of Credit Suisse Group as a whole and different views are expressed based on different investment styles, objectives, views or philosophies.

Copyright © 2009 Credit Suisse Group AG and/or its affiliates. All rights reserved.

CONFIDENTIAL/ NOT FOR REDISTRIBUTION 1 Robert Parker – Vice Chairman, Asset Management 9 th...

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