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Pascal VoisinChief executive officerof Natixis Asset Management

n Japanese crisis,

commodities, energy: what

are the macroeconomic

impacts?

n Commodities: what are the

strategic and tactical asset

allocation options?

n Energy policies: what is the

read-across for investment

strategies?

All questions addressed during

the Natixis Asset Management

Workshop attended by some

200 participants on March 23rd

and introduced by Pascal Voisin,

chief executive officer, Philippe

Waechter, chief economist,

Franck Nicolas, head of global

asset allocation & ALM, Hervé

Guez, head of extra-financial

research, Brigitte Le Bris, head

of international fixed income

and currencies and Emmanuel

Bourdeix, CIO equities asset

allocation and structured

products.

"Japanese crisis, commodities, energy: what are the scenarios?"

NEwSLETTErAprIL 2011

Natixis AM Workshop - 23 march 2011"The recent events affecting Japan,

soaring commodity prices and the

resurgence of the nuclear issue are not

without impact on the strategic and

tactical asset allocation of our portfolios.

The difficulty remains the real magnitude

of this impact."

4 points to note: n 15 months after the Kobe earthquake, Japan had recovered 98% of its pre-earthquake industrial output. Even if the current situation is more serious, particularly due to the damages caused by the failure of the nuclear plants, the country has shown significant ability to mobilize its population and solidarity. n The oil price is certainly high but the barrel is not currently more expensive than in 1864, in constant dollars. What has changed, however, is the need to factor in a structurally high price given the direction in the level and structure of demand. n In 2040-2050, the world will have 9 billion inhabitants. The resulting explosion in commodity demand will run up against dwindling and increasingly inaccessible fossil fuel resources and will cause problems of supply security.n Lastly, the Japanese shock could begin the debate on the role of nuclear that was sidelined in Copenhagen, changing the approach and the solution to world energy needs.

The Natixis Asset Management Workshop on March 23rd gathered some 200 participants.

N E W s L E t t E r - A P r i L 2 011 / / / N At i x i s A M Wo r k s H o P - PA r i s2 /

What are the macroeconomic impacts?

"Beyond the human drama, the Japanese tsunami will have a limited impact on the global economy. Uncertainties will, however, remain as to the economics consequences of the nuclear shock..."

The situation in Japan

A limited impact on the Japanese economyThe regions affected by the tsunami represent 6 to 7% of the

Japanese economy, which is significant.

The existing research suggests that an earthquake in a

developed country ultimately has an extremely limited impact

and does not generally prompt a collapse in economic activity.

The 1995 Kobe earthquake led to an immediate 2.7% loss in

industrial output, followed by a rapid rebound such that there

was no adverse impact on the growth dynamic.

The limited impact was explained by the effective functioning

of institutions, the qualification level of the population (work

can replace capital, facilitating the rebound in output) and

the ability to relocate production in areas unaffected by the

catastrophe.

The regions involved will benefit from reconstruction with the

most-advanced technologies which will constitute a future

advantage. The cost of the earthquake is estimated at 3% or

even 3.5% of GDP. Its financing will be ensured by an increase

in Japanese debt, a temporary increase in taxes and the

repatriation of capital invested outside Japan.

Philippe WaechterChief economist

Hydro-electric 8%

Oil-fired 9%

Other 2%

Natural gas 26%Nuclear 27%

Coal-fired 28%

Source: Energy Information Administration – Natixis Asset Management

Uncertainties remain as to the nuclear shock Investors in the markets expect the nuclear risk to be

contained.

Were the shock to prove more serious, they would modify

their positions. Increased risk aversion and concerns of

contagion for the United States and Europe would weaken the

trend in global economic growth and the markets. Higher risk

aversion is feared, which would have dramatic implications for

global economic activity. Nuclear effectively represents 27%

of electricity generation in Japan. (Cf below)

Sources of electricity generation in 2009

N E W s L E t t E r - A P r i L 2 011 / / / N At i x i s A M Wo r k s H o P - PA r i s WWW.AM.NAtixis.coM / 3

Commodities

The nature of the rise in commodity prices has changedThe equilibrium of the commodities market has changed. Until

the late 1990s, demand mostly reflected that of the developed

countries. Any adjustments took place on the supply side. The

level of prices was rapidly modified and then fluctuated around

a horizontal trend as was the case during the 1974 and 1979

shocks.

Currently, due to the strong growth in the emerging countries,

the equilibrium has changed. There is rapid demand growth

from the emerging countries and the price profile of

commodities is thus rising. It is no longer conditioned simply

by the economic activity in the industrialized countries but is

maintained at a high level by robust emerging demand.

The 2000s have seen a major break with the past. The increase in commodity prices that has, historically, been explained by a supply-side shock, is now the result of an acceleration in demand from the emerging countries.

Soaring commodity prices are penalizing the economic players and the markets… For the industrialized countries, the increase in commodity

prices has a significant impact.

The price fluctuations affect corporate margins in that they

cannot automatically be passed on in consumer prices.

A macroeconomic arbitrage relating to the trend in the energy

price can also be seen. An increase in the cost of energy

prompts individuals to reduce their spending or opt for more

efficient use of this energy. In the short term, however, energy

spending cannot be compressed. An increase in price is thus

reflected in significant arbitrages to the detriment of other

goods and services.

The current level of the oil price suggests that arbitrages of this

type may take place, both in the United States and Europe.

Furthermore, the higher price of energy increases the oil bill.

To maintain the macroeconomic equilibrium, adjustments

must be made to avoid a too-rapid deterioration in the trade

balance in commodities which would penalize the internal

growth mechanism.

… and leading to diverging monetary policies Since its priority is the recovery in the economy and

employment, the US Federal Reserve is focusing more on

the underlying inflation rate and is leaving interest rates

unchanged.

Conversely, the European Central Bank has announced an

increase in its policy rates for April to contain inflation. Given

the trend in energy and agricultural commodity prices (two

major components of inflation), the target of a stable inflation

rate could weigh on the internal situation (the third key factor

in the inflation profile).

This diverging behavior from central banks should support the

euro relative to the dollar.

1.5

2

2.5

3

3.5

4

4.5

2004 2005 2006 2007 2008 2009 2010 20114.50

5.00

5.50

6.00

6.50

7.00

7.50

Gasoline price (weekly) Weight of energy spending in consumption (right-hand scale)

Source: Datastream – Natixis Asset Management

0

50

100

150

200

250

300

1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011

Base 100 in 2010

Source: Datastream – Natixis Asset Management

CRB : Commodity Research Bureau

United States - Gasoline price and energy spending by consumers

CRB Commodities Index

N E W s L E t t E r - A P r i L 2 011 / / / N At i x i s A M Wo r k s H o P - PA r i s4 /

Commodities: what are the strategic and tactical asset allocation options?

"Commodities are a "bona fide" asset class and, due to their decorrelation from the equity market can contribute additional performance..."

Franck NicolasHead of global asset allocation & ALM

Commodities constitute a real, fully-fledged asset classCommodities have the two main characteristics of all asset

classes: a homogeneous universe and a risk premium which

is distinct from that of equities. They thus have their role to

play in a portfolio since they can provide an additional source

of return, bearing in mind, however, that the diversification

contribution is differentiated depending on the period.

One key characteristic: their decorrelation relative to equitiesResearch shows that, on both entering and exiting recession,

equities anticipate the cycle by around six months whereas

commodities tend to perform in line with the cycle. This

decorrelation offers investment opportunities during the

current reflationary period.

Optimizing returns thanks to tactical allocation within commoditiesThe differences in cycle between the long-cycle finite

resources (energy, metals, etc.) and the shorter-cycle

renewable energies (agricultural products, etc.) offer

different investment periods within the asset class even if

financialization tends to bring them closer together.

Similarly, the forward curves enable upside and downside

projections on a one-year view.

Lastly, as commodities do not produce income but only

generate capital gains, such investment becomes more

relevant the lower the level of real rates.

Investing in commodities and "operational" controlExposure to commodities may imply, from a Socially

Responsibility Investment perspective, some exclusions or an

offset via, notably, shared return funds.

Additionally, a long position on this asset class is expensive

and may disappoint.

On the other hand, you can "win" even as a buyer when

commodity prices fall by the roll over on futures contracts.

The liquidity of the synthetic replication underlyings can,

nonetheless, be problematic and generate, over time, a bubble.

Purchasing futures implies managing the futures contract rolls

to avoid physical delivery.

Different tactical signals enable the exposure to commodities to be optimized by choosing those with the best return, the periods during which to invest, etc.

Lastly, the choice of indices is important. Our approach

consists of prioritizing those which are balanced in terms of

sector to the detriment of those that are significantly focused

on energy.

Playing commodities through equities For those who remain unconvinced, it is still possible to

play the commodities theme indirectly, through equities,

particularly through sector or emerging country baskets. The

link, however, functions differently depending on the period

and the emerging market correlation is likely to fall with the

diversification of the product-mix in these regions.

WWW.AM.NAtixis.coM / 5

Philippe ZaouatiDeputy CEO, head of business development

Following an introduction from Philippe Zaouati, deputy CEO and head of business development, presentations were made on the day’s theme by a number of Natixis Asset Management experts.

Energy policies: what is the read-across for investment strategies?

What are the long-term trends for commodities? by Hervé Guez, head of extra-financial researchIn 2012 in Brisbane (Australia), the

meeting of international geological

experts may declare that we have

changed era since the industrial

revolution. Since the 1800s, man has

effectively had a major impact on the

environment.

Other than the technical progress, demographic growth* and

the new equilibrium between emerging and developed countries

have also been responsible for this increasingly significant impact.

The explosion in commodity demand is going to run up against a

limited supply. Known fossil and mineral reserves can be counted

in decades, and not in centuries. To find new reserves, we shall

have to go farther still while respecting ever-more-demanding

human and environmental safety requirements. This implies

structurally higher prices.

Can we expect significant commodity volatility in coming years?

by Franck Nicolas, head of global asset allocation & ALMVolatility should remain high for a

very long period since prices are

increasingly escaping the producer

cartel. Volatility is high due to the

relentless growth in demand

linked to population growth and

the financialization of the markets which amplify the cyclical

trends.

What are the medium-term energy projections? by Philippe Waechter, chief economistThe trend in emerging country

economic growth will not be

called into question and will be

reflected in increasingly strong

demand for commodities. This

additional demand from emerging

countries will represent some 90% of the new energy needs

over the next two decades.

In the short term, this will mean steady upwards pressure

on the prices of all energies, ultimately making arbitrages on

renewable energies easier and less expensive.

Then there is the issue of the growth and renewal of nuclear

sites in China and India (for the construction of new plants)

and in the industrialized countries. Any revisiting of past

choices would be reflected, at constant energy consumption,

in a significant rise in energy prices and an increase in CO2 emissions into the atmosphere.

In the medium and long term, the substitution of these

sources by renewable technologies may be envisaged.

What is the view on renewable energies? by Hervé Guez, head of extra-financial researchThe increase in fossil energy prices, the carbon constraint and

security in the event of extreme weather conditions all point to

the development of renewable energies. Solar is currently the

most expensive energy source but also the most promising

given its availability and the research and development efforts.

More generally, after a first difficult start-up phase, a second

"euphoric" phase that narrowly missed turning into a bubble,

* Since 1800, the population has increased by a factor of ten whereas it had only doubled in the preceding period

N E W s L E t t E r - A P r i L 2 011 / / / N At i x i s A M Wo r k s H o P - PA r i s6 /

and a third phase of skepticism, the rise in energy prices and

uncertainty regarding the role of nuclear in the global mix,

could give rise to a new period favorable to investment in this

sector.

What impact would higher inflation have on the bond markets?

by Brigitte Le Bris, head of international fixed income and currenciesThe impact should be limited and

has already been partly priced

in by long-term bond yields. The

increase in commodity prices has

seen inflation average of 2% in the

developed countries and 6% in the emerging countries.

We are still far from past levels. The central banks of the

emerging countries have also already started to react with

25 having increased their interest rates, wiping out one third

of the interest rate easing cycle realized since the failure of

Lehman. To contain inflation, the emerging countries can also

play with the level of their currencies. The ECB and the Bank

of England have announced that they are preparing to increase

their policy rates: in April for the ECB and May for the Bank

of England. Since an increase in interest rates by the Fed is

conditional on the recovery in growth and employment, the

increase here should be limited.

Do you expect a further increase in risk aversion? by Emmanuel Bourdeix, CIO equities, asset allocation and structured productsPrior to the events in Japan,

the markets were expecting a

reduction in risk aversion. We have

since seen an increase prompted

by concerns about nuclear, the

situation in the Middle East but also uncertainties surrounding

social tension potentially triggered by the austerity plans in

Greece, Ireland and Portugal.

In the medium term, the abundant liquidity, the low level of

interest rates even after rate hikes and the improvement in

corporate earnings following the economic recovery all point

to a return to a lower level of volatility.

From the left to the right : Philippe Waechter, chief economist - Franck Nicolas, head of global asset allocation & ALM - Brigitte Le Bris, head of international fixed income and currencies - Hervé Guez, head of extra-financial research - Emmanuel Bourdeix, CIO equities, asset allocation and structured products - Philippe Zaouati, deputy CEO, head of business development

WWW.AM.NAtixis.coM / 7

///// Contact us: communication@am.natixis.com

Natixis Asset Management is the European expert of Natixis Global Asset Management. Based in Paris, it is among the top European asset managers with EUr 302 billion under management and around 670 employees as of 31st December 2010.

Natixis Asset Management provides a full range of products and investment solutions in all asset classes for institutional investors, companies, distributors and banking networks. A recognized pioneer with 25 years experience, Natixis Asset Management is also one of the leading sri managers in France and in Europe.

Natixis Asset Management also offers a direct access to different expertise:

n in France, in partnership with Dorval Finance, the expert in flexible wealth management and with Natixis Multimanager, a Natixis Asset Management subsidiary which offers both long-only and alternative multimanagement solutions;

n in Europe, in partnership with H2o Asset Management, a London-based entrepreneurial venture, specialized in global macro multistrategies, global and emerging bond management;

n internationally, via the multi-boutique model of Natixis Global Asset Management and the expertise of other fund managers, notably in the Us (Loomis sayles & co, L.P., Gateway investment Advisers, L.L.c....) and Asia (Absolute Asia Asset Management Ltd).

Written on 01/04/2011

disClaimerThis document is destined for professional clients. None of the information contained in this document should be interpreted as having any contractual value. Natixis asset management will not be held responsible for any decision taken or not taken on the basis of information contained in this document, nor in the use that a third-party may make of it. The opinions expressed in the research and analyses are the sole responsibility of their authors and are not necessarily shared by Natixis asset management. Natixis asset management shall not be held liable for the accuracy and exclusivity of the information provided. The funds mentioned in this material are not registered or authorized in all jurisdictions and may not be available to all investors in a jurisdiction. Please refer to legal information of this material before any investment.

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