6th Annual Guernsey Investment Briefing
Time for Equities? Thursday 27 September 2012
Opening Remarks Julian Parker, Chartered FCSI President, CISI Guernsey Branch
CISI Update Edward Brunel-Cohen MCSI Global Director of Finance & IT, CISI
Edward Brunel-Cohen FCA MCSI Global Director of Finance & IT
The Chartered Institute for Securities and Investment
Guernsey Investment Briefing
3
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CISI in Guernsey Main Board meeting in May held in Guernsey Guernsey Annual Dinner..
Guernsey Committee at Annual Dinner 2012
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Kevin Lyne-Smith Head of Global Equities, Credit Suisse AG, Zurich
Why Equities? 27th September 2012
Produced by: Kevin Lyne-Smith Global Head of Equity Research Phone: +41 44 334 56 41 Email:
[email protected]
«We cannot direct the wind, but we can adjust the sails» Bertha Calloway September 2012
14
Why first macroenvironment support?
September 2012
15
Strategy View: Long drawn out recovery Current Phase
Overheating
Slowdown
Contraction
Cash
Bonds
Credits
Comm
Stocks omm
Comm.
Bonds
Cash Comm
Cash Stocks
Bonds*
Comm
Underperform
Bonds
Stocks
Outperform
Recovery
Source : Credit Suisse, Datastream * Bonds are defined as government bonds September 2012
16
Macro: factors supportive for equities 1.
US economic data generally surprising to the upside.
2.
Eurozone crisis slowly seems to evolve towards less negative prospective.
3.
Emerging markets continue to grow strongly, albeit at a slower pace. Chinese data remains weak but demand still growing.
4.
Employment sees continuing improvements in US, but weakness persists in Europe, except in Germany where exports keep economy buoyant.
5.
Inflation is likely to fall further helped by lower oil prices in coming months in most regions, and policy easing may well continue.
6.
Interest rates are likely to remain very low (or decline for those countries with higher rates).
September 2012
17
CS Global Risk Appetite vs VIX - supportive 6
90
Euphoria
80
4
70 2 60 0 50 -2 40 -4 30 -6
Panic
20
-8 Sep 07
10 Mar 08
Sep 08
Mar 09
Sep 09
Mar 10
Daily Risk Appetite
Last data point: 23.09.2012
Sep 10
Mar 11
Sep 11
Mar 12
Sep 12
VIX Index (r.h.s.)
Source: Bloomberg, CS Global Strategy, / IDC September 2012
18
European sovereign CDS…..spreads closing at last Basis Points 1'600 1'400 1'200 1'000 800 600 400 200 0 Jan 08
Jul 08
Jan 09
Germany Last data point: 23.09.2012
Jul 09 France
Jan 10 Italy
Jul 10 Ireland
Jan 11 Belgium
Jul 11 Portugal
Jan 12
Jul 12
Spain
Source: Bloomberg, Credit Suisse, Credit Suisse / IDC September 2012
19
US economy appears on track US ISM index (PMI) compared to past recessions Index
Past recession range ex. extremes Past recessions median
75 70
ISM PMI new orders range
65 60 55 50 Current
45 40 35 30 0
3
6
9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 54 57 60
Months after trough in ISM PMI Last data point: 15/ 12/ 2011
Source: Datastream, Credit Suisse September 2012
20
US corporate profits – going from strength to strength % 10.5 9.5
Profit share of GDP in %
8.5 7.5 6.5 5.5 4.5 3.5 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Last data point: 15/ 11/ 2011; Value: Profit share of GDP in % : 10.29;
Source: Datastream, Credit Suisse / IDC September 2012
21
European manufacturing PMI – remain weak Index 65
Expansion
60 55 50 45 40 35 30
Contraction
25 Oct 01
Oct 02
Oct 03
Oct 04 France
Oct 05
Oct 06
Spain
Italy
Last data point: 24.09.2012
Oct 07 Germany
Oct 08 UK
Oct 09
Oct 10
Oct 11
Greece
Source: Bloomberg, PMIPremium, Credit Suisse / IDC September 2012
22
Interest rate trends of major central banks – cheap financing supportive % 7.0
6.0
5.0
4.0
3.0
0.25
2.0
0.75 0.10
1.0
0.50 0.00
0 99
01 Fed funds rate
Last data point: 23.09.2012
03 ECB refi rate
05
07 BoJ overnight
09 BoE base rate
11 SNB 3M Libor target Source: Bloomberg, Credit Suisse / IDC
September 2012
23
EM-8 vs G3 Inflation – not a threat for now % YoY 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0 -1.0 -2.0 Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
EM-8 Inflation Last data point: 24.09.2012
Jan 09
Jan 10
Jan 11
Jan 12
G3 countries Source: Datastream, IMF, Credit Suisse / IDC September 2012
24
GDP growth and inflation / Interest rates Real GDP growth and inflation
in % CH EMU USA UK Japan China
GDP growth 2011
2012E
1.9 1.7 1.8 0.9 -0.8 9.2
0.5 -0.4 2.1 -0.5 2.4 7.4
2013E
Inflation 2011
2012E
2013E
1.5 0.3 2.2 1 1.2 7.6
0.2 2.7 3.2 4.5 -0.2 5.4
-0.3 2.2 2.1 2.6 0.4 3
1 1.5 2.1 2 0.1 3.2
3M
12M
0.7-0.9 1.7-1.9 1.7-1.9 1.8-2.0 0.8-1.0
1.1-1.3 1.9-2.1 1.9-2.1 2.1-2.3 0.9-1.1
Short interest rates 3M LIBOR / 10-year government bonds
in % CHF EUR * USD GBP JPY
3M LIBOR Spot
3M
12M
10Y bonds Spot
0.05 0.23 0.37 0.63 0.19
0.0–0.2 0.1-0.3 0.3–0.5 0.5–0.7 0.1–0.3
0.0–0.2 0.1-0.3 0.3–0.5 0.5–0.7 0.1–0.3
0.60 1.57 1.76 1.80 0.80
Spot rates are closing prices as of 20/09/2012. Forecast date: 18/09/2012. * 3M Euribor
Source: Bloomberg, Credit Suisse / IDC September 2012
25
Why Equities?
September 2012
26
Global equity style performance (monthly) – cyclicals small caps headging ahead
A more defensive style has outperformed over the last two months. This is a reversal of the prior “risk-on” pattern. Tactical indicators still not on buy. % 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 Cyclcials Defensives
Small Caps
Large Caps
Value
Growth
EM Equity Developed Equity
Equity Styles - MoM % return Last data point: 20.09.2012
Source: Datastream, Credit Suisse / IDC
September 2012
27
Price earnings ratio - cheap 12-month forward P/ E 25
20 DM average 15 EM average Developed 10
Emerging
5 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Last Lastdata datapoint: point:13/ 13/08/ 8/ 2012; Value: MSCI World (developed (developedmarkets): markets): 11.94; MSCI Emerging Markets: 9.73;
Source: Datastream, Credit Suisse / IDC
Source: Datastream, Credit Suisse / IDC September 2012
28
Profit margin estimates are elevated in the US, but unlikely to decline substantially in our “no global recession” scenario 0.13
US margins
0.12 0.11 0.10 0.09 0.08 0.07 0.06 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 FY1 Last data point: 31.07.2012
FY2
FY3 Source: Credit Suisse, IBES, Datastream September 2012
29
US non-financial corporate sector: Cash/total assets – starting to spend in % 5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0 1955
1959
1963
Last data point: 29.06.2012
1967
1971
1975
1979
1983
1987
1991
1995
Non-financial corporate sector: cash/ total assets
1999
2003
2007
2011
Source: Datastream, Credit Suisse / IDC September 2012
30
US share buybacks/Market. Capitalization – picking up again in % 8.0
6.0
4.0
2.0
0
-2.0
-4.0 68
72
Last data point: 29.06.2012 IDC
76
80
84
88
92
96
US share buybacks/Mkt. cap.
00
04
08
12
Source: Datastream, Credit Suisse / IDC September 2012
31
Equities: Investment summary Equities: Selected indices
Index
Price
MTD (%)
YTD (%)
12M target
S&P 500
1‘460.26
3.8%
16.1%
1'367
Overweight
SMI
6‘556.49
2.6%
10.4%
6‘477
Underweight
FTSE-100
5‘854.64
2.5%
5.1%
5‘954
Neutral
Euro Stoxx 50
2‘553.03
4.6%
10.2%
2,570
Neutral
Nikkei 225
9‘086.98
2.8%
7.5%
9‘800
Underweight
998.27
5.4%
8.9%
1,039
Neutral
9‘707.91
4.6%
-2.3%
12’000
Overweight
MSCI EM China H-Shares
12M outlook
Prices as of 21/09/2012; 12M target: scenario analysis available; 12M outlook: Relative to MSCI World Index (USD)
Source: Bloomberg, Credit Suisse / IDC September 2012
32
Why US Equities?
September 2012
33
US payrolls by sector (rebased) Index (Rebased, January 2007 = 100) 140 130 120 110 100 90 80 70 Jan 07
Jan 08
Construction Financial activities Last data point: 31.08.2012
Jan 09
Jan 10
Professional and business services Manufacturing
Jan 11
Jan 12
Education and health services Source: Datastream, Credit Suisse / IDC September 2012
34
US housing starts
US Foreclosure inventory
in ' 000
in % of all loans
2' 500
5.0 4.5
2' 000
US Foreclosure inventory
4.0 3.5
1' 500
3.0 2.5 1' 000
2.0 1.5
500
1.0 0.5
0 Jan 96
Jan 98
Jan 00
Jan 02
Jan 04
Jan 06
Jan 08
Jan 10
Jan 12
0 1981
US Housing Starts
Last data point: 31.08.2012
Source: Bloomberg, Credit Suisse / IDC
US House price to wage ratio
1991
1996
2001
2006
2011
Source: Datastream, Credit Suisse / IDC
US homeowners' equity in real estate in %
4.2
75
4.0
70
3.8
65
3.6
60
3.4
55
3.2
50
3.0
45
2.8
40
2.6
35
2.4 1981
1986
Last data point: 15.05.2012
1986
1991
1996
2001
US existing house price/median income
2006
2011
30 Mar 78
Mar 82
Mar 86
Mar 90
Mar 94
Mar 98
Mar 02
Mar 06
Mar 10
Pre-bubble average
Homeowners' equity in real estate
Last data point: 31.08.2012
Source: Bloomberg, Credit Suisse / IDC
Last data point: 31.12.2011
Source: Bloomberg, Credit Suisse / IDC
September 2012
35
Eurozone remain a concern
September 2012
36
Eurozone: remain a concern Debt and deficit projections for euro area countries 2012E, % of GDP 9
DEFICIT
Ireland
8 7
Greece Spain
6
Unsustainable debt dynamics
Slovenia
France Cyprus Belgium Slovakia Portugal Malta Austria Netherlands Italy Estonia Luxembourg Germany Finland
5 4 3 2 1
GROSS DEBT 2012E, % of GDP
0 0
50
100
150
200
250
Source: European Commission September 2012
37
Housing bubble episodes: US & Spain vs. Japan Price index
Residential real estate prices (inflation adjusted) Spain, peak: Nov 2007
US, peak: May 2006
160
Japan, peak: Feb 1991
140 120 100
Average price level before peak
80 60
Years before peak
16 14 12 10
8
6
Years after peak
4
2
0
2
Last data point: Japan: 28/ 02/ 2007; US: 31/ 10/ 2011; Spain: 31/ 01/ 2012
4
6
8
10 12 14 16 Source: Datastream, Credit Suisse September 2012
38
Equities Investment Ideas
September 2012
39
Global regional strategic positioning (6-12 month view) Canada Australia Emerging markets Western Europe UK
United States
Switzerland Japan
Global sector strategic positioning (6-12 month view) Sector overweight on cyclicals has been removed (capital goods, metals & mining downgraded, retailing). Recently increased weighting in some more defensive sectors (tobacco). Telecoms recent declines have made high dividend yield more attractive again. Energy Software & services Technology Hardware & Equipment
Banks Diversified financials Real estate Commercial services & supplies Hotels, Restaurants & Leisure Household & personal products Metals & mining Construction materials Capital Goods Chemicals Pharmaceuticals Health care equipment & services
Autos & Components Semiconductors & Equip. Energy Media Construction materials Food products Health care equipment & services Biotechnology Wireless telecom services Transportation Pulp & paper Tobacco Beverages Consumer durables & apparel, textiles & luxury goods
Diversified telecom services Utilities Retailing
September 2012
40
USA Valuations close to 10 year low
Economy and exports
12-month forward P/ E
Broad-based economy and
19.0 18.0
industrial base steadily recovering.
17.0 16.0
Global presence avoids regional
15.0
issues.
14.0 13.0
Strong brands, sales and service
12.0
organizations.
11.0 10.0 Sep 02
Sep 03
Sep 04
Sep 05
Sep 06
Sep 07
Sep 08
Sep 09
Sep 10
Sep 11
S&P 500
Sep 12
Strong cash generative businesses
Intel (INTC US) Semiconductor company
Microsoft (MSFT US) IT Software
Bunge (BG US) Agricultural comoditiy trader, processor and logistics Schlumberger (SLB US) Oil services company
Caterpillar (CAT US) Construction equipment
Data as of: 24.09.2012
Citigroup (C US) Financial services Source: Credit Suisse / IDC September 2012
41
Germany Valuations remain attractive
Fundamentals remain robust
12-month forward P/ E
Export driven economy. Domestic consumer sentiment
18.0
16.0
14.0
improving.
12.0
Technology lead industry. Improving economy.
10.0
8.0
6.0 Sep 02
Sep 03
Sep 04
Sep 05
Sep 06
Sep 07
Sep 08
Sep 09
Sep 10
Sep 11
Sep 12
DAX 30
ThyssenKrupp (TKA GY) Steel and business services
Volkswagen (VOW3 GY) Car and commercial vehicle manufacturer
SAP (SAP GY) Largest European software company
Linde (LIN GY) Gas and engineering business
Allianz (ALV GY) Insurance company
Bayer (BAYN GY) Chemicals and healthcare company
Data as of: 24.09.2012
Source: Credit Suisse / IDC September 2012
42
UK Performance held back
Export driven economy
12-month forward P/ E 20
Domestic economic environment
18
slowing.
16
Strong international brands. Insulated from Eurozone woes. Above average EPS growth.
14
12
10
8
6 Sep 02
Sep 03
Sep 04
Sep 05
Sep 06
Sep 07
Sep 08
Sep 09
Sep 10
Sep 11
Sep 12
FTSE 100
HIKMA Pharmaceuticals (HIK LN) Pharma, Biotech company
RIO TINTO (RIO LN) Mining
SAB Miller (SAB LN) Leading beverage producer
BG Group (BG/ LN) Integrated energy company
Barclays (BARC LN) International financial service company
BAT (BAT LN) Tobacco
Data as of: 24.09.2012
Source: Credit Suisse / IDC September 2012
43
Brands Valuations below historical averages Credit Suisse global brands vs. MSCI world vs. MSCI emerging markets Index (rebased) 110 100 90 80
Consistent outperformers
Premium pricing. Solid cashflow generation expected. International and diversified business.
70 60
Positive outlook for 2012
50 40 30 Jun 08
Dec 08
Jun 09
Dec 09
Credit Suisse Global Brands Index
Jun 10
Dec 10
MSCI World (USD)
Last data point: 19.09.2012
Jun 11
Dec 11
Jun 12
MSCI Emerging Markets (USD)
Source: Bloomberg, Credit Suisse / IDC
Nestle (NESN VX) Global consumer goods
Samsung (5930 KS) Electronics conglomerate
Apple (AAPL US) Technology company
LVMH (MC FP) Leading global luxury goods company
Starbucks (SBUX US) Coffee retailer
Swatch (UHR VX) Luxury goods company
Data as of: 24.09.2012
Source: Credit Suisse / IDC September 2012
44
Dynamic Dividends Valuations compelling
Yield in a low-yielding environment
12-month forward P/ E
17.0 16.0 15.0 14.0 13.0 12.0 11.0
Strong cashflow generation. Robust operating environment. Lower beta, but high yields. Valuations undemanding.
10.0 9.0 8.0 Aug 02
Aug 03
Aug 04
Aug 05
Aug 06
MSCI Europe Utilities
Aug 07 Mean
Aug 08
Aug 09
Aug 10
Aug 11
Aug 12
+/ - one standard deviation
Royal Dutch Shell (RDSA LN) Fully integrated energy company
Allianz (ALV GY) Insurance
Philip Morris (PM US) Tobacco company
Roche (ROG VX) Pharmaceuticals
Vodafone(VOD LN) Telecom service provider
Merck (MRK US) Pharmaceutical
Data as of: 24.09.2012
Source: Credit Suisse / IDC September 2012
45
Global Equity Sector Dividend Yield vs. US Bonds (in %) 6.0
5.0
4.0
3.0
2.0
1.0
Last data point: 21.09.2012
US Govt Bonds (agg.)
IT
US Corp Bonds (agg.)
Cons. Disc.
Materials
Industrials
Cons. Staples
Energy
Global Equities
Health Care
Financials
Utilities
Telecoms
0
Source: Datastream, Credit Suisse / IDC September 2012
46
Technology Valuations attractive
Leadership through technology
12-month forward P/ E
Mobile technologies. Ongoing renewal cycles and
30 28 26 24
rising capital expenditures budgets.
22 20 18 16 14 12 10 Aug 02
Aug 03
Aug 04
Aug 05
Aug 06
Aug 07
MSCI World Information Technology
Aug 08 Mean
Aug 09
Aug 10
Aug 11
+/ - one standard deviation
Aug 12
Robust consumer demand. Urbanization and changing social models
Apple (AAPL US) Technology company
Microsoft (MSFT US) Software
Samsung (5930 KS) Electronics conglomerate
EMC (EMC US) Information storage systems and services
SAP (SAP GY) Software provider
Intel (INTC US) Semiconductor company
Data as of: 24.09.2012
Source: Credit Suisse / IDC September 2012
47
European stocks with high levels of sales outside Europe Company Royal Dutch Anglo American ARM Holdings SAB Miller Tullow Oil Rieter ASML Lafarge Dufry Unilever Holcim Sanofi Sulzer BHP Billiton Glaxosmithkline Heineken LVMH HSBC Carlsberg Novartis Roche Novo Nordisk
Recommendation
Sales outside EUR/GBP 2012E
BUY HOLD HOLD BUY BUY HOLD HOLD HOLD BUY HOLD HOLD BUY HOLD HOLD HOLD SELL BUY HOLD HOLD HOLD BUY HOLD
90% 90% 90% 80% 80% 80% 80% 80% 75% 75% 75% 70% 70% 70% 70% 70% 66% 65% 65% 65% 65% 65%
Company Ahold Nestlé Swatch Lindt & Sprüngli Richemont Danone British American Tobacco Bayer Metro Logitech Rio Tinto Coca Cola Hellenic Bottling Kaba SAP Infineon ABB BH Group Micronas Philips EADS Anheuser Bush Inbev Alstom
Recommendation
Sales outside EUR/GBP 2012E
HOLD BUY BUY BUY BUY HOLD BUY BUY HOLD HOLD BUY HOLD BUY BUY HOLD BUY BUY BUY HOLD HOLD HOLD HOLD
65% 64% 63% 63% 62% 60% 60% 60% 60% 60% 55% 55% 54% 53% 53% 50% 50% 50% 50% 50% 50% 44%
Source: Companies/Credit Suisse
Data as of: 24.09.2012 September 2012
48
Evergreens: Longer Term Themes?
September 2012
49
Emerging markets remain a strategic call Country recommendation (6–12 month view) Western Europe (-)
Emerging Europe and Africa (=)
Preferred: Germany (+) Least Preferred: France (), Italy (-)
Preferred: Russia (+) Least Preferred: Czech (-), Egypt (), Turkey (-)
UK (+) Switzerland (=)
Japan (=)
Canada (=)
ASIA ex-Japan (+) Preferred: China (+), Hong Kong (+) Least Preferred: Malaysia (-), Philippines (-), Thailand (-)
USA (=)
Latin America (=) Preferred: Brazil (+) Least Preferred: Mexico (-), Peru (-) Global EM (+)
Australia (=) Gulf Region (=) Preferred: Qatar (+), UAE (+)
Regional weights: Underweight
Neutral
Overweight
(+) = Overweight, (=) = Neutral, (–) = Underweight Source: Credit Suisse Global Research
September 2012
50
China CPI - headline vs. food inflation % YoY 25
20
15
10
5
0
-5
-10 Jan 99
Jan 01 China CPI
Last data point: 31.08.2012
Jan 03
Jan 05 China food CPI
Jan 07
Jan 09
Jan 11 China non-food CPI
Source: Bloomberg, Credit Suisse / IDC September 2012
51
China real house prices by city Chinese housing markets are slowing Growth in real house prices, % YoY 25 20 15 10 5 0 -5 -10 -15 -20 -25 Aug 05
Aug 06
Aug 07 Beijing
Last data point: 31.08.2012
Aug 08 Tianjin
Shenzhen
Aug 09 Guangzhou
Aug 10
Aug 11
Aug 12
Shanghai Source: Datastream, Credit Suisse / IDC September 2012
52
Emerging Market Brands Rank Brand 10
Ticker
Company Name
941 HK Equity
CHINA MOBILE LTD
13 24 25 37
China Mobile Industrial and Commercial Bank of China China Construction Bank Baidu (CHINESISH) Tencent
38 53 55
Agricultural Bank of China China Life Samsung
56 61
Sinopec Bank of China
63 68
ICICI Bank PetroChina
69
Moutai
71 74
Airtel Sberbank
75
Petrobras
78 85 88 90
Ping An MTS (Telecom) MTN (Telecoms) China Telecom
IND & COMM BK OF CHINA-H CHINA CONSTRUCTION BANK-H BAIDU INC - SPON ADR TENCENT HOLDINGS LTD AGRICULTURAL BANK OF CHINA1288 HK Equity H 2628 HK Equity CHINA LIFE INSURANCE CO-H 005930 KS Equity SAMSUNG ELECTRONICS CO LTD CHINA PETROLEUM & CHEMICAL386 HK Equity H 3988 HK Equity BANK OF CHINA LTD-H ICICIBC IN Equity ICICI LIMITED 857 HK Equity PETROCHINA CO LTD-H 600519 CH Equity KWEICHOW MOUTAI CO LTD-A BHARTI IN Equity BHARTI AIRTEL LTD SBER RU Equity SBERBANK PETROBRAS - PETROLEO BRASPETR4 BZ Equity PR PING AN INSURANCE GROUP CO2318 HK Equity H MBT US Equity MOBILE TELESYSTEMS OJSC MTN SJ Equity MTN GROUP LTD 728 HK Equity CHINA TELECOM CORP LTD-H
97
Telcel
AMXL MM Equity AMERICA MOVIL SAB DE C-SER L
1398 HK Equity 939 HK Equity BIDU US Equity 700 HK Equity
Country Market cap USD bn HK
209.19
CN CN CN CN
227.55 171.30 41.07 51.24
CN CN KR
137.58 76.20 155.14
CN CN
90.37 125.29
IN CN
17.33 272.51
CN
36.91
IN RU
20.60 54.61
BR
126.36
CN RU ZA CN
55.45 17.11 Source: BrandZ 30.25 September 2012 38.57
MX
91.79
53
Urbanization bn 6
Global Urban vs. Rural population
5
Urban
4 3
Rural 2 1
Forecast 0 1950
1960
1970
1980
1990
2000
2010
2020
2030
Source: United Nations, Credit Suisse September 2012
54
Urbanization
Seoul London Moscow Berlin Paris Tokyo Zurich São Paulo Istanbul Shanghai Mumbai Beijing Manila Hanoi Accra Lagos Luanda
Annualized rate of urbanization 2010-2015E 5% 4% 3% 2% 1% 0% -1%
Opportunities in an Urbanizing World The report identifies the key determinants of successful urbanization in emerging markets.
GDP of major cities, 2008 and 2025 (USD bn) 2000 1500 1000 500 0 Mumbai Shanghai Hong Kong Moscow Buenos A. São Paulo Mexico Paris London Chicago Los Ang. New York Tokyo
• Today, half of the World’s population lives in cities. • Although the rate of urbanization is declining globally, it is still high in Africa and developing Asia. • By 2025, Mumbai or Shanghai’s GDP will be at London’s current level.
Source: UN Habitat, PWC, Credit Suisse
September 2012
55
Every city has its own story to tell Hubs of Productivity
Urban Divide
• Urban areas are hubs of productivity, innovation, and entrepreneurship. • Wages in Manhattan are 175% above US average and exceed those of Silicon Valley by 45%.
• But they also create environmental, social, and infrastructure challenges. • Sustainable urban management includes health systems, transportation, and recycling.
Commute Time
Entrepreneurship
Health Systems
Recycling
Stockholm San Franc. Moscow Mexico Mumbai São Paulo
Tokyo Singapore São Paulo Mumbai Moscow Johanne…
Seoul San Franc. São Paulo Mexico Istanbul Abu Dhabi
30
Berlin Abu Dhabi Mumbai New York London Moscow
Dimensions of Urban Performance (Rank out of 26 Global Centers, 26=best) Skyscraper Constr.
20 0
Toronto Mexico Berlin Paris Los Ang. Johanne…
10
Source: PWC, Credit Suisse
September 2012
56
Urbanization: beneficiaries Company
Country
Sector
Dividend yield
PE ratio
PB recom.
DEERE & CO
United States
Industrials
2.2
11.1
BUY
UNITED TRACTORS
Indonesia
Industrials
3.0
12.3
BUY
CISCO SYSTEMS
United States
Information Technology
3.0
12.6
BUY
SIEMENS
Germany
Industrials
3.8
15.6
BUY
SEMBCORP INDUSTRIES
Singapore
Industrials
2.6
12.2
BUY
SCHNEIDER ELECTRIC
France
Industrials
3.5
13.7
BUY
SEMBCORP MARINE
Singapore
Industrials
2.2
15.0
BUY
KEPPEL CORP
Singapore
Industrials
3.9
8.4
BUY
CATERPILLAR INC
United States
Industrials
2.3
10.2
BUY
MEXICHEM SAB DE CV
Mexico
Materials
1.9
31.0
BUY
Source: Datastream, Credit Suisse Data as of 24 September 2012 September 2012
57
Urbanization: performance Index 400 350 300 EM infrastructure
250 200 150
MSCI World
100 50 2005
2006
Last data point: 24/ 09/ 2012
2007
2008
2009
2010
2011
2012
Source: Bloomberg, Credit Suisse / IDC September 2012
58
Health and Wellbeing Social gains
Unsustainable costs
• Innovation and improved access to healthcare are key driving forces of human and economic development. • Global consumption of leisure and recreation is rising.
• Exploding costs due to longevity and a shift in the leading cause of death from acute to chronic diseases. • Global obesity rates are growing fast as dietary habits of the increasing middle classes change.
Pharmaceuticals
US
France
Switzerl…
Sweden
UK
Finland
Chile
Korea
20% 15% 10% 5% 0% Mexico
US
Germ…
France
UK
US
Out-of-pocket
Healthcare cost in 2010 (% of GDP)
Germany
Public expenditure
Germany
France
UK
Healthcare Expenditure in Comparison (USD bn) 2000 2010 6000 4000 2000 0
Source: OECD, Credit Suisse
September 2012
59
Healthcare: beneficiaries Company
Country
Dividend yield
PE ratio
PB recom.
MERCK & CO
United States
3.7
20.6
BUY
ABBOTT LABORATORIES
United States
2.9
22.5
BUY
GALENICA
Switzerland
1.6
15.3
BUY
GILEAD SCIENCES
United States
20.4
BUY
ACTELION
Switzerland
1.7
19.4
BUY
SANOFI S.A.
France
3.9
14.1
BUY
ROCHE (GENUSSSCHEINE)
Switzerland
3.8
17.9
BUY
STADA ARZNEIMITTEL
Germany
1.6
96.0
BUY
HIKMA PHARMACEUTICALS
United Kingdom
1.2
21.5
BUY
MYLAN
United States
18.9
BUY
Source: Datastream, Credit Suisse Data as of 24 September 2012 September 2012
60
Healthcare: performance Index 170 Healthcare 150 130 MSCI World
110 90 70 50 2005
2006
Last data point: 24/ 09/ 2012
2007
2008
2009
2010
2011
2012 Source: Bloomberg, Credit Suisse / IDC September 2012
61
EMs are the future engines of growth Real GDP growth (Δ ΔUSD bn) 5,000
2030
4,000 3,000 2,000
EM share: 67% EM share: BRICs add twice 50% as much as US
2012
1990
2000
EM share: 25%
BRICs overtake Eurozone
2020
1,000 0 -1,000 -2,000 1981 1986 1991 1996 2001 2006 2011 2016 2021 2026 2031 Japan other advanced
Eurozone other developing
US BRICs Source: Oxford Economics, Credit Suisse September 2012
62
Share of global consumption 40%
2011 Est.
35% US 30%
25%
Emerging markets
20%
15% 1990
1993
Last data point: 31/12/2011
1996
1999
2002
2005
2008
2011
Source: Datastream, IMF, Credit Suisse September 2012
63
The transformation of global power: China’s rise Military and socioeconomic distribution of power in 2012 20.1
24.1
Military 41.2 spending 4.2
34.9
27.6
31.2
36.6
GDP
Patents
19.1
56.0
Foreign reserves 4.3
8.3
5.7 14.3
17.6
2.7 9.3
22.8
% change, 2000-2012 1000% 750% 500% 250% 0% -250%
50% 0%
China India Russia Brazil USA Europe
China Russia India USA Brazil Europe
-50%
300% 200% 100% 0% -100%
China Russia Brazil India USA Europe
100%
China India USA Russia Brazil Europe
200% 150% 100% 50% 0% -50%
Source: SIPRI, IMF, Worldbank, Credit Suisse September 2012
64
The Growing Middle Class and the Emerging Consumer Growing middle classes Emerging Consumer Survey
• Emerging consumerism will be an engine of global growth.
CS engages with AC Nielsen to conduct primary research on EM consumers, interviewing 14,000 consumers across eight countries.
• Despite the recent downturn, confidence among EM consumers is still reasonably strong. Persons with daily expenditures (PPPadjusted) between USD10 and USD100 (m people) 3000 2500 2000 1500
Share of middle class by country 100%
2000
80%
2015
60%
2030
40%
1000 500
20%
0
0% Africa
LatAm
OECD
BRICs
2000
2015
2030
Source: OECD, Credit Suisse
September 2012
65
Emerging consumer: beneficiaries Indirect investments
Company
Country
Sector
Dividend yield
PE ratio
PB recom.
BMW
Germany
Consumer Discretionary
3.9
8.7
BUY
BRITISH AMERICAN TOBACCO
United Kingdom
Consumer Staples
4.1
19.8
BUY
COCA-COLA
United States
Consumer Staples
2.7
20.2
BUY
COLGATE-PALMOLIVE
United States
Consumer Staples
2.3
21.2
BUY
HIKMA PHARMACEUTICALS
United Kingdom
Health Care
1.2
21.5
BUY
PPR
France
Consumer Discretionary
2.9
14.6
BUY
SAB MILLER
United Kingdom
Consumer Staples
2.1
23.9
BUY
SWATCH GROUP
Switzerland
Consumer Discretionary
1.5
14.9
BUY
VOLKSWAGEN AG
Germany
Consumer Discretionary
2.0
4.0
BUY
Source: Datastream, Credit Suisse Data as of 24 September 2012 September 2012
66
Emerging consumer: beneficiaries
Direct investments
Company
Country
Sector
Dividend yield
PE ratio
PB recom.
BRF BRASIL FOODS SA (ADR)
Brazil
Consumer Staples
1.6
24.0
BUY
CHINA MENGNIU DAIRY
Hong Kong
Consumer Staples
1.0
23.3
HOLD
CHINA UNICOM (HONG KONG) LIMITED
Hong Kong
Telecommunication Services
1.0
47.1
BUY
KASIKORNBANK
Thailand
Financials
1.3
15.3
BUY
MAHINDRA & MAHINDRA LIMITED India
Consumer Discretionary
1.5
17.2
BUY
MTN GROUP LIMITED
South Africa
Telecommunication Services
5.0
14.2
BUY
NASPERS LIMITED
South Africa
Consumer Discretionary
0.7
39.2
BUY
SAMSUNG ELECTRONICS
Korea
Information Technology
0.4
15.5
BUY
SINA CORP
Hong Kong
Information Technology
90.6
BUY
ULTRAPAR ADR
Brazil
Energy
28.2
BUY
2.5
Source: Datastream, Credit Suisse Data as of 24 September 2012 September 2012
67
Digital World Big data
Disruptive innovation
• The size and complexity of digital data is continuously increasing.
• Obliterates barriers to consumption and democratizes technology.
• The potential to store, manage, and analyze data will crucially shape global business.
• Does not rely on technological breakthrough, but business models.
Global data (Zetabytes)
30
Music items sold (USD m ) Vinyl 20000 Cassette CD 15000 Downloads
20
10000
10
5000
40
0 2008 2010 2012 2014 2016 2018 2020
• Not winning by doing it better, but doing it differently.
0 1973 1978 1983 1988 1993 1998 2003 2008 Source: Recording Industry Association of America (RIAA), Credit Suisse
September 2012
68
Digital world: investments
Company
Country
APPLE INC
United States
AKAMAI TECHNOLOGIES INC
Dividend yield
1.5
PE ratio
PB recom.
16.2
BUY
United States
37.2
BUY
EMC CORP
United States
22.9
BUY
GOOGLE
United States
22.2
BUY
INTEL
United States
4.0
9.7
BUY
MICROSOFT
United States
3.0
15.4
BUY
SALESFORCE.COM INC
United States
QUALCOMM
United States
1.6
18.7
BUY
SAMSUNG ELECTRONICS
Korea
0.4
15.5
BUY
SAP
Germany
2.0
18.7
BUY
BUY
Source: Datastream, Credit Suisse Data as of 24 August 2012 September 2012
69
Digital world: performance Index 170 150
Information technology
130 MSCI World
110 90 70 50 2005
2006
Last data point: 24/ 09/ 2012
2007
2008
2009
2010
2011
2012 Source: Bloomberg, Credit Suisse / IDC September 2012
70
Summary
September 2012
71
Research Outlook: Strategic View Keep exposure to short-dated credits, equities, hedge funds, US real estate Asset Category
Sep. Oct.
Fixed Income
Focus on high yield bonds as credit returns more likely to be driven by carry
Equities
Positive policy outcomes drive additional gains
Alternative Investments Commodities
Move from value to carry strategies. Gold, precious metals well positioned
Real Estate
QE supports; some strategic value remains. Diversify globally, focus on Asia and USA
Hedge Funds
Directional strategies gaining ground. Equity market uptrend supportive
Private Equity
We see attractive opportunities in listed PE, natural resources, distressed debt, emerging markets, small- to medium-size LBOs and secondaries
Neutral
Positive
Negative
Explanation: Arrows represent the current Credit Suisse Global Research absolute market view. Time horizon for all arrows is 6–12 months.
Source: Credit Suisse, Research Monthly, October 2012
September 2012
72
