Investment Strategy Stock rally to continue as economy improves pptx

February 2013Research Monthly Investment Strategy Stock rally to continue as economy improves page 3 Quality Japanese exporters: Toyota, Honda, Bridgestone Beneficiaries of a weaker JPY and US recovery. Buy Google, Intel, Infineon, Len- 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. Buy Megatrend Champions Invest in our Champions portfolio, which reflects the optimal tactical allocation of megatrend invest- ments, according to our Traffic Light system. Buy Platinum with a time horizon of 6–12 months The market is undersupplied and undervalued. Buy Credit Suisse Megatrends Introducing our new Megatrends Framework page 11 Investment theme IT spending to benefit from secular technology growth themes page 10 This month’s featured topic Can “Abenomics” revive Japan and overcome deflation? page 9 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 Global Research Private Banking Investment horizon: 6-12+ months Editorial Giles Keating Head of Research for Private Banking and Wealth Management giles.keating@credit-suisse.com, +41 44 332 22 33 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 surrounds the near-zero interest rates imposed by the Fed, 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- 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 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- starting, and record issuance of high yield bonds. All this is a bit like flooring the gas pedal on a car with mal- 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 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- plex credit problems take longer to fix. In short, as investors 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. In this issue Investment Strategy Stock rally to continue as economy improves  page 3 Investment summary  page 5 Economics Gradual global pick-up to continue  page 7 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 Fixed income Credits start the year on a positive note  page 12 Equities Strong start to the year bodes well for equities  page 14 Alternative investments Directional hedge fund styles and US REITS offer opportunities  page 16 Foreign exchange Diversification into emerging market currencies  page 17 Risk disclaimer  page 19 Editorial deadline: 29 January 2013 2 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. 3 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. 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- ives, given persistently low volatility. (25/01/2013) 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. BM SAA Cash 5% 2% Fixed Income 80% 80% Equity 0% 0% Alternative 15% 18% BM SAA Cash 5% 2% Fixed Income 55% 53% Equity 20% 22% Alternative 20% 23% BM SAA Cash 5% 2% Fixed Income 35% 32% Equity 40% 43% Alternative 20% 23% BM SAA Cash 5% 2% Fixed Income 15% 12% Equity 60% 63% Alternative 20% 23% BM SAA Cash 5% 2% Fixed Income 0% 0% Equity 80% 81% Alternative 15% 17% Equities Fixed Income Income Balanced Capital Gain Benchmark (BM) SAA Benchmark (BM) SAA Benchmark (BM) SAA Benchmark (BM) SAA Benchmark (BM) SAA Source: Credit Suisse 4 Investment Strategy 29/01/2013 Credit Suisse - Research Monthly Investment summary Short interest rates 3M LIBOR / 10-year government bonds 10Y bonds 3M LIBOR 12M3MSpot12M3MSpotin % 0.9-1.10.6-0.80.700.0-0.20.0-0.20.02CHF 1.6-1.81.5-1.71.570.1-0.30.1-0.30.21EUR * 1.8-2.01.6-1.81.850.3-0.50.3-0.50.30USD 2.1-2.31.8-2.02.010.5-0.70.5-0.70.51GBP 0.9-1.10.8-1.00.730.1-0.30.1-0.30.17JPY Spot rates are closing prices as of 24/01/2013. Forecast date: 24/01/2013. * 3M Euribor Source: Bloomberg, Credit Suisse Bonds: Selected indices 12M TR out- look Total return YTD (%) Spread to bench- mark (bp) YTM (%) Index  -0.61102.7USD (CS LUCI)  -0.91332.1EUR (CS LEI)  -0.8460.8CHF (CS LSI)  -0.61583.6GBP(CS LEI)  -0.12564.6EM HC (JPM EMBI Global)  -0.4n.a.5.5EM LC hedged in USD (JPM GBI)  1.85095.8High Yield (CS HY In- dex) Prices as of 28/01/2013 Source: Bloomberg, Credit Suisse Commodities 12M3MSpot 1,8001,7501,658.70Gold (USD) 323431.20Silver (USD) 1,8501,7501,694.75Platinum (USD) 1009695.88Oil (USD) Spot prices: London close 25/01/2013 Source: Bloomberg, Credit Suisse Equities: Selected indices 12M out- look 12M fair value YTD (%) MTD (%) PriceIndex Overweight 1,513 5.4%5.4% 1,502.96 S&P 500 Underweight 6,477 9.3%9.3% 7,458.66 SMI Neutral 5,954 6.6%6.6% 6,284.45 FTSE-100 Neutral 2,570 4.1%4.1% 2,744.18 Euro Stoxx 50 Neutral 10,600 5.1%5.1% 10,926.65 Nikkei 225 Neutral 1,039 1.3%1.3% 1,069.12 MSCI EM Overweight 12,000 4.9%4.9% 12,001.81 China H-Shares Prices as of 25/01/2013; 12M fair value: scenario analysis available; 12M outlook: relative to MSCI World Index (USD) Source: Bloomberg, Credit Suisse Foreign exchange 12M3MSpot 1.35-1.391.36-1.401.34EUR/USD 0.93-0.970.89-0.930.93USD/CHF 1.28-1.321.24-1.281.24EUR/CHF 92-9690-9490USD/JPY 127-131125-129120EUR/JPY 0.84-0.880.84-0.880.85EUR/GBP 1.58-1.621.58-1.621.58GBP/USD 8.78-8.828.73-8.778.68EUR/SEK 0.96-1.000.98-1.021.05AUD/USD 5.90-6.106.05-6.256.22USD/CNY Spot rates: London close 24/01/2013 Source: Bloomberg, Credit Suisse Real GDP growth and inflation InflationGDP growth 2014E2013E2012E2014E2013E2012Ein % 1.00.4-0.72.01.50.9CH 1.71.82.51.10.0-0.4EMU 2.11.62.12.52.02.1USA 2.32.32.81.51.00.0UK 1.8-0.40.01.21.41.7Japan Source: Bloomberg, Credit Suisse Global Research asset category strategy Strategic 6–12+ M Tactical 1–6 M Comments and comparison of weightingsBy region/strategy  We keep our focus on shorter maturities. We recommend focus- ing on corporates. Overweight: USA; Underweight: CH & Canada. Fixed income  Equity markets at important technical levels: Limited consolida- tion is equally as likely before further rises. Overweight: USA; Underweight: Switzerland. Equities  Tactically positive on short-term price rebound potential. Strategic- ally neutral but technicals improving for cyclicals. Overweight: Energy, precious metals; Underweight: Ag- riculturals. Commodities  Equities: Some upside strategically, but valuations richer. Direct real estate: Attractive rental carry. Overweight: USA, Asia-Pacific and Germany; Under- weight: UK. Real estate  Selected private equity themes are particularly suitable to take ad- vantage of the current economic environment. Focus on secondaries, natural resources, SME LBOs, emerging markets, and private debt funds. Private equity  We overweight directional strategies such as EM and long-short. We maintain our positive stance for global macro. We maintain our positive stance on global macro and dir- ectional strategies. Hedge funds We expect EUR/USD to rise to 1.37. CAD fundamentals are pos- itive now. EUR/USD  , USD/CHF , GBP/USD , USD/JPY . Foreign ex- change Source: Credit Suisse Investment Committee/Global Research 5 Investment Strategy 29/01/2013 Credit Suisse - Research Monthly Top Investment Ideas for 2013 Rationale/UpdateActionStatusFixed Income Cash should continue to be unremunerative (near-zero yields) in most markets. Whereas credit spreads have come down further in recent weeks, bringing yields of many bonds into very low territory, corporate bonds of short maturities still offer a de- cent yield pick-up versus cash. With default rates expected to marginally increase in 2013, conservative investors should focus on investment grade credits. Buy short dated AA- to BBB financials and A to BB non-financials excluding auto.  1. Beyond cash: Credit not duration Equities We expect equity market sentiment to improve further in 2013, especially after US politicians find a solution to the debt ceiling issue. We recommend US consumer stocks and recovery stocks benefiting from the US and Asia recovery. We expect ro- bust M&A activity as stocks are cheap and cash levels high. Buy US consumer, M&A and cyclical stocks.  2. Recovery stocks For investors who are interested in absolute return and with an expectation of relat- ively high cash flow disbursements from dividends. Buy high dividend yielding stocks, high free cash flow generating stocks or European high yield convertible bonds.  3. Dividends and beyond Oil and gas companies with new exploration technologies or which have interest in as yet unexploited shale gas, tight oil, deepwater oil, etc. Invest in upstream energy stocks.  4. New gas and oil sources Alternative Invest- ments Very affordable prices, easy monetary policy and solid economic growth to support US housing. German real estate also appears relatively cheap and can benefit from capital inflows. Invest in commercial and residential real es- tate.  5. US real estate Foreign Exchange We continue to recommend diversification into selected EM currencies out of tradition- al hard currencies like EUR and USD. Buy selected Asian currencies and other selec- ted EM currencies.  6. The new hard curren- cies Key to status symbols: green = attractive investment opportunities – continue to invest in theme; yellow = keep holdings but do not add to existing positions; red = reduce /exit existing positions. Source: Credit Suisse 6 Investment Strategy 29/01/2013 Credit Suisse - Research Monthly Economics Gradual global pick-up to continue  Easing Eurozone stress and better finan- cial conditions should support the global economy.  Growth momentum continues in the US, despite fiscal headwinds, and emerging Asia; Europe lags. Thomas Herrmann thomas.herrmann@credit-suisse.com, +41 44 333 50 62 Signs of financial stress in the Eurozone continued to abate over the past few weeks. Government bond yields fell further and the deposit and capital flight that had intensified last year continued to reverse over the past months in Italy and Spain. Actual data releases point to a weak last quarter of 2012, with weakness likely persist into the start of the year. However, as time progresses, significantly lower risks of extreme outcomes and improved financial conditions should be reflected in better confidence and “hard” economic data. We expect a return to modest growth in the second half of 2013, with continuing large differences between countries. Growth is likely to remain weak in those countries, where planned deficit cuts are largest, unemployment highest and structural banking sector is- sues still present (e.g. Spain). US: Solid underlying improvement despite fiscal head- winds Several positive forces, including the housing and labor market recovery, should continue to support US growth. The corpor- ate sector looks very healthy, with low leverage and a substan- tial amount of cash on the balance sheet. Less fiscal uncer- tainty should result in stronger investment spending growth this year. Importantly, the full impact of the fiscal cliff – a com- bination of expiring tax relief and automatic spending cuts – has been averted. In addition, the statutory debt limit has been temporarily suspended (effectively until the summer) and pending decisions on spending cuts look unlikely to result in a meaningful growth impact this year. While household incomes and spending are likely to be affected by higher taxes in the first half of this year, the positive developments described above should lead to stronger growth thereafter. As inflation is set to remain low, the Fed still looks likely to continue its bond purchases at the current pace throughout 2013. Emerging markets: Better growth momentum, some in- flation pick-up Supported by demand from other emerging markets, exports from China and smaller Asian economies (e.g. Malaysia) have rebounded. This should also be reflected in stronger industrial production. Some acceleration in China, supported by the structural trend toward stronger domestic demand, should be good for Japan (for more details on Japan, please see this month’s featured topic). Several emerging markets face great- er-than-expected inflation pressure (e.g. Brazil) and are thus less likely to ease policy further. They are also likely to tolerate tighter policy in the form of stronger currencies. Eastern Europe, (especially the economies most exposed to Eurozone weakness, such as the Czech Republic and Hungary), remains an exception in all this with growth still weak, inflation low and an easing bias persisting. (24/01/2013) 7 Economics 29/01/2013 Credit Suisse - Research Monthly Selected ideas from previous months December 2012 (27/11/2012) Action to be takenRecommendation NeutralEQBUY Top 30 portfolio stock: Chevron. A leading energy-related recovery investment. Add exposureREBUY US Real Estate Investment Trusts. US real estate has upside potential, as the rental market has bottomed out. REITS still offer value. November 2012 (30/10/2012) Action to be takenRecommendation Add exposureEQBUY Undervalued cyclical stocks in China. We recommend domestically-driven cyclical stocks to benefit from China’s growth stabilization. Add exposureEQBUY Exposure to non-investment grade convertible bonds from European issuers. Add exposureEQBUY Asset managers with a strong EM presence: Partners Group. The alternative investment manager is currently expanding its client rela- tionships throughout Asia. Add exposureEQBUY CS Top 30 stock: Schlumberger. Occupies a leading position in the diversified energy services market. October 2012 (25/09/2012) Action to be takenRecommendation Add exposureFXBUY Selected EM currencies. For emerging market currencies, the Fed’s action tends to be positive, but we are selective as some coun- tries will counter with their own monetary expansion. Add exposureREBUY Retailer linked to housing recovery: Home Depot. Home Depot is the world’s largest home improvement specialty retailer, which should benefit from a pick-up in US homebuilding. Add exposureEQBUY Microsoft – CS Top 30 company. Trades at a valuation discount and is poised to benefit from the upcoming Windows 8 release. FI Fixed income, EQ Equities, AI Alternative investments, FX Foreign exchange, RE Real estate For further information, including disclosures with respect to any other issuers, please refer to the Credit Suisse Global Research Disclosure site at: http://www.credit-suisse.com/research/disclaimer Source: Credit Suisse 8 Economics 29/01/2013 Credit Suisse - Research Monthly This month’s featured topic Can “Abenomics” revive Japan and overcome deflation?  Added fiscal and monetary stimulus should boost growth in the short term, but long-term revival faces structural head- winds.  The reflationary monetary policy bias could reinforce negative JPY sentiment.  Japanese equities have moderate up- side potential on monetary easing, a weak- er JPY and favorable fund flows. Marcel Thieliant marcel.thieliant@credit-suisse.com, +65 6212 6071 Soichiro Matsumoto soichiro.matsumoto@credit-suisse.com, +81 3 4550 5462 Koon How Heng koonhow.heng@credit-suisse.com, +65 6212 6003 Quality Japanese exporters: Toyota, Honda, Bridgestone Beneficiaries of a weaker JPY and US recovery. Buy The new LDP government under Prime Minister Shinzo Abe in- tends to boost the Japanese economy by implementing ag- gressive fiscal stimulus and overcoming long-entrenched defla- tion. This policy shift appears, more generally, to reflect the wish to reverse the perceived secular decline of Japan’s eco- nomic power and regional influence in the face of China’s as- cendancy. The recent escalation of the dispute over the Diaoyu/Senkaku islands is a manifestation of the intensifying rivalry in the Asia-Pacific region. Cyclical economic boost likely, but long-term success in doubt The announced increase in government expenditure of more than 2% of GDP, combined with monetary easing measures, has prompted us to raise the growth forecast for Japan by 0.6% in 2013. Financial markets were initially disappointed by the limited size of the BoJ’s announced (additional) “open ended asset purchases,” as well as the lack of a time frame or other milestones to achieve the upwardly revised inflation tar- get. However, we believe that plans for added asset pur- chases may be announced once a new BoJ governor takes over in April. Whether Japan can decisively emerge from defla- tion remains to be seen. Given Japan’s demographic head- winds, its rising debt burden and political resistance to structur- al reform, a more lasting boost to economic growth also re- mains in doubt. New Japanese reflation theme suggests JPY weakness could persist While we harbor some doubts as to whether the BoJ can deliv- er the policy outcomes demanded, the new reflationary theme does shift the risk-reward on USD/JPY to the upside. The re- cent JPY depreciation trend could therefore persist – even if our models no longer indicate JPY overvaluation. Minimally, we would expect any significant JPY strength to be met with a more forceful central bank response. That said, direct foreign currency intervention, including significant foreign bond pur- chases are fairly unlikely given their foreign policy sensitivity. We revise our forecasts for 3M and 12M higher to 92 and 94, from 89 and 90, previously. However, given still substantial speculative net JPY short positions as well as upcoming event risks – including the February G20 meeting and the appoint- ment process for the new BoJ governor – we may well see transitional JPY gains. Quality Japanese exporters with good upside potential More expansionary policy, a weaker JPY and favorable fund flows should further reduce the risk premium on Japanese equities. At break-even levels of USD/JPY 89–90, or weaker, earnings for exporters should improve. Our overall stance on Japanese equities remains neutral. Within the market, we re- commend quality Japanese exporters, including Toyota, Honda and Bridgestone, which are likely to benefit from JPY weakness and a recovery in the US and China. We also favor beneficiaries of reflation policies, especially major banks like Sumitomo Mitsui Financial Group, Mitsubishi UFJ Financial Group, Mizuho Financial Group, as well as highly leveraged firms like Softbank. (25/01/2013) 9 This month’s featured topic 29/01/2013 Credit Suisse - Research Monthly Investment theme IT spending to benefit from secular technology growth themes  We expect IT spending growth to recov- er in 2013 to at least in line with global GDP growth.  The IT sector trades in line with the broad market; we think it deserves a premium given its good growth prospects. Uwe Neumann uwe.neumann@credit-suisse.com, +41 44 334 56 45 Ulrich Kaiser ulrich.kaiser@credit-suisse.com, +41 44 334 56 49 Google, Intel, Infineon, Lenovo, Oracle, Priceline.com, Qualcomm, Samsung and TSMC Stocks with a strong market position in secular growth themes, such as Mobile Internet, Cloud Computing, Big Data, Virtualization and Social Media. Buy Cyclical technology stocks to prevail in the mid term We expect global IT spending to recover (our estimate: 3.4%), with spending related to technology themes, such as Mobile In- ternet, Cloud Computing, Big Data, Virtualization and Social Media, likely to be disproportionately high. Companies benefit- ing from these secular growth themes should continue to out- perform in the longer term (see our Research Alert, “‘Ten Tech Titans’ monetizing IT megatrends,” dated 14 August 2012). However, in the current “risk-on” market environment, cyclical technology stocks, such as semiconductors and select- ive mid-quality technology stocks, may outperform the IT sec- tor in the mid term, benefiting from an economic tailwind through margin leverage (see our Research Alert, “Information Technology Outlook 2013: A three-tier society,” dated 22 January 2013) and/or IT spending that was postponed during the recession. In IT Hardware, we expect the mobile device market to con- tinue to grow strongly whilst the PC market declines, with growth rates in the smartphone market likely to drop to the low teens. Combined with rising competitive pressure (a large num- ber of “iPhone-like” smartphones were launched in Q4 2012), margins in this segment could decline as well. Software and In- ternet should perform well throughout 2013, due to their nu- merous structural secular growth trends. Historically low valuation supports our constructive view Historically low spending levels in 2012 and 2013E explain to some extent the compression of the 12-month forward P/E valuation premium. The sector appears to be valued quite at- tractively against its historic base and the broader market. Since IT remains one of the most fundamentally attractive sec- tors, with strong balance sheets and high net-cash positions, we are still of the opinion that the sector deserves a premium. (24/01/2013) Valuation does not reflect solid fundamentals 5 10 15 20 25 30 Apr 04 Apr 06 Apr 08 Apr 10 Apr 12 IT MSCI World 12-month forward P/E Source: Datastream, Credit Suisse / IDC 10 Investment theme 29/01/2013 Credit Suisse - Research Monthly [...]... We add our most-favored currencies to the chosen allocation: CNH and MXN (Top 2013 Investment Idea No.6), PLN and TRY, due to carry Our USD-based model currency allocation also diversifies notably to EUR, which we expect to stay firm as ECB easing expectations are wound down and risk premia fade We expect EUR/USD to rise to 1.38 over 3M, and raise our 12M forecast to 1.37 (from 1.35) While the CHF should... benchmarks The sector/industry weights as well as the neutral positions in figures are available upon request; please contact your relationship manager The Top Picks is a selection of our favorite stocks within our coverage The selection was made to reflect the sector/industry and regional preferences Regular full updates are provided via our Research Monthly publications as well as in our Equity Research... Start-up phase 500 0 Oct 93 Oct 95 Oct 97 Oct 99 Oct 01 Oct 03 Oct 05 NASDAQ Computer Index Oct 07 Oct 09 Oct 11 Source: Datastream, Credit Suisse / IDC Megatrend Champions We recently launched our Megatrend Champions portfolio, which includes our top picks from all stocks exposed to the megatrends We selected stocks using a rigorous screening process that includes the following factors: Stock recommendation,... positive view on high yield and equities Less risk-tolerant investors may want to either hold or enter positions of our Top 2013 investment idea “Beyond cash,” a broadly diversified basket of AA- to BBB rated financials and A to BB rated corporates The continuing yield advantage of credits is likely be the dominating source of outperformance against cash Despite our strategically positive view on credits,... and governance-related performance, as well as valuation and profitability as measured by HOLT The portfolio has a beta slightly above that of the market, and strong exposure to emerging markets and growth stocks For the current status of the Traffic Light system and an overview of the portfolio, please see our publication, “Introducing our Megatrend Champions basket,” published 22 January 2013 (25/01/2013)... Underweight (*) = Emerging Markets top picks Changes are marked as follows: (+) = additions to the top picks, (#) = changes to sector/industry/country weightings For further information, including disclosures with respect to any other issuers, please refer to the Credit Suisse Global Research Disclosure site at: http://www.creditsuisse.com/research/disclaimer Please note that trading facilities in... Research Monthly other fixed income asset classes, with lower-rated issuers leading the way Consequently, our Top 2013 Investment Idea No.1, “Beyond cash: Credit, not duration,” delivered strong returns compared to cash or money markets Still positive on credits, but more cautious in February As we expect both stimulus from the major central banks and global growth recovery to continue, our default rate outlook... circumstances you may be required to pay more money to support those losses Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield Some investments may not be readily realizable and it may be difficult to sell or realize those investments, similarly it may prove difficult for you to obtain reliable information... FINANCIAL GROUP, TOYOTA MOTOR) within the past three years Credit Suisse has managed or co-managed a public offering of securities for the subject issuer (BMW, HONDA MOTOR, LENOVO, MITSUBISHI UFJ FINANCIAL GROUP, MIZUHO FINANCIAL GROUP, ORACLE, PARTNERS GROUP HOLDING, SBERBANK, SUMITOMO MITSUI FINANCIAL GROUP, TOYOTA MOTOR) within the past 12 months Credit Suisse has received investment banking related... (price likely to rise), "0" for neutral (no big price changes expected) and "-" for a negative outlook (price likely to fall) Outperform in the column "Rel perf" denotes the expected performance of the stocks relative to the benchmark The "Comment" column includes the latest advice from the analyst In the column "Recom" the date is listed when the stock was recommended for purchase (opening purchase) "P&L" . 2013Research Monthly Investment Strategy Stock rally to continue as economy improves page 3 Quality Japanese exporters: Toyota, Honda, Bridgestone Beneficiaries. Suisse - Research Monthly Investment Strategy Stock rally to continue as economy improves  Gradual global economic pick-up to con- tinue with no imminent inflation