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Economics | page 9

A year like no otherInvestment Monthly | Japan edition / Credit Suisse Securities (Japan) Ltd. | July 2020

Global investment strategyHigh yield reduced to neutral

Japan asset allocationReduce high yield bonds to neutralallocation

Japan investment strategyStay neutral risk

page 11page 5page 3

Global CIO Office

Important Information This report represents the views of the Investment Strategy Department of CS and has not been prepared in accordance with thelegal requirements designed to promote the independence of investment research. It is not a product of the Credit Suisse Research Department even if itcontains published research recommendations. CS has policies in place to manage conflicts of interest including policies relating to dealing ahead of the dis-semination of investment research. These policies do not apply to the views of Investment Strategists contained in this report. Please find further importantinformation at the end of this material. Singapore: For accredited investors only. Hong Kong: For professional investors only. Australia: For wholesale clientsonly.

Editorial

Burkhard VarnholtChief Investment Officer – Swiss Univer-sal Bank

Michael StrobaekGlobal Chief Investment Officer

EditorialAll rallies eventually take a pause, and the one that enabledequities to recover significant ground in the second quarteris no exception. Since mid-June, equity markets have largelytrended sideways, with even positive economic surprises un-able to spark sustained momentum. Uncertainty over thestrength of the recovery from the coronavirus pandemic amidworsening outbreaks in the Americas helped to keep a lid onperformance and investors’ risk appetite.

In the Investment Committee, we turned neutral on equitiesin late June, as we recognized the altered backdrop. Newson the virus front, the Q2 earnings season as well as theusual low-liquidity summer lull may well lead to volatility spikesin the weeks ahead, and thus it is prudent to retain our neutralallocation to equities. In the medium term, however, equitiescontinue to offer further upside potential, particularly giventhat we expect central banks to uphold their monetary policysupport for quite some time to come. At present, we see at-tractive opportunities in Asian equity markets, above all Chinaand Hong Kong. We have also just scaled back our allocationto high yield bonds to neutral. Not only because high yieldbonds are more vulnerable to an increase in risk aversion, butparticularly due to the impending expiration of the US FederalReserve’s facilities to support credit markets in September.Despite these well-considered steps to reduce risk in ourpositioning, we maintain overweight positions in investment-grade bonds, emerging market hard currency bonds andcommodities.

The pages ahead paint a detailed picture of how we currentlyassess asset classes as well as the global economy in whatso far has been a year like no other. We hope our guidanceproves valuable in your investment decisions ahead.

In this issue

3Japan investment strategyStay neutral risk

5Japan asset allocationReduce high yield bonds to neutral allocation

7Investment themes and solutionsSilver economy: Investment solution features

9EconomicsA year like no other

11Global investment strategyHigh yield reduced to neutral

12Fixed incomeLower exposure to high yield

13EquitiesAsia preferred in emerging markets

15Alternative investmentsHighlighting dislocation opportunities in hedgefunds

16Foreign exchangeDiversifying out of USD

17ForecastsAt a glance

Editorial deadline: 15 July 2020

Investment Monthly | Japan edition / Credit Suisse Securities (Japan) Ltd., July 2020 2

Japan investment strategy

Stay neutral riskMarkets take into account expectations for an economic recovery from Q3.

Investors should stay alert to event risks and other contingent market risks.

Suggest focusing on long-term investment themes in a potential market correction.

Soichiro MatsumotoChief Investment Officer Japan

Recovery hopesWith COVID-19 related shutdowns easing off in most partsof the world, economic activity has resumed, fiscal and mon-etary policy have boosted hopes of a swift economic revival,and business confidence in the USA, Europe and China haverebounded. All these indicate that we could see an economicrecovery from the third quarter onward, with May representinga major market trough.

Nevertheless, we believe the road to recovery will not bewithout its challenges. First and foremost, COVID-19 infec-tions have started to surge again following the resumption ofeconomic activity. Additionally, in spite of supportive policies,some companies are beginning to show signs of operationalweakness. While a further bottoming out of the economy islikely to be avoided as policy support is still in place, the re-covery process is unlikely to be a quick and smooth one.

Risk factors to watch during a rough summer rallySummer typically brings reduced market liquidity and in-creased price volatility. This year’s US presidential election,in particular, represents a major political event, making themarket even less predictable than usual. Moreover, theearnings reports in July should shed light on the market’soutlook for corporate earnings, a potential point of concern.

Whatever the case may be, the summer months ahead willprove to be a test for investor sentiment that has so far seena nice recovery. This could be one of the reasons why volatil-ity has remained high and also why gold – considered the ul-timate safe haven – is scaling new highs notwithstandingstock market strength.

Heightened expectations and rising risksThanks to policy support from governments and central banksalike, expectations for an economic recovery are on the wayup. The Economic Surprise Index has risen significantly onthe back of better-than-expected improvement in businessconfidence and other soft data points. Meanwhile, the Volatil-ity Index (VIX), also known as the fear index, which representsthe expected volatility (risk) of the stock market, has remainedelevated. We believe that in this environment the market forrisky assets has become more vulnerable to shocks. We

therefore adopt a neutral approach toward risky assets suchas stocks and high-yield bonds and, at this point, would avoidtaking more risk in investment portfolios than necessary.

Looking to buy the dips? Favor long-term growth stocksGiven this backdrop, have stocks lost their luster as invest-ments? The answer is no. Over the medium term, we believethat equities represent an attractive investment option andwe would use any potential correction this summer as anopportunity to buy the dips.

The most attractive investment targets for dip buyers arestocks with long-term growth potential. We believe the currentglobal pandemic represents a major turning point in the waybusiness is conducted throughout the world. We thus seeinvestment opportunities in the industries and companies thatstand to benefit from new business models. Specifically,companies featured on our Supertrend “Technology at theservice of humans” are worth considering.

Sectors that stand to benefit from changing industrystructureWe believe the post-pandemic world will be characterized bya shift in existing business models. In fact, we are beginningto see some signs of this in the stock market. Companiesthat have dominated markets for years are being overtakenby new and growing companies in terms of market capitaliza-tion. In the semiconductor sector, for example, we have seensome changes in industry leadership position in terms of eq-uity market capitalization.

The US economy has an established history of maintaininghigh growth rates through the dynamic replacement of indus-tries and companies that drive growth. For example, the listof top 30 companies in the USA by market capitalization isnot the same as it was 30 years ago.

Looking at recent stock market activity, it appears that themarket is not only trying to price in a cyclical recovery of theeconomy, but also trying to factor in long-term structuralchanges. This is another reason why we focus on long-terminvestment themes.


Will Japanese equities “miss out” yet again?Having experienced a full-blown pandemic, the world is likelyto undergo a major economic transformation. What, then, willthis shift bring to Japan? Will the Japanese market see furtherstagnation or is there a chance of a reversal?

For nearly 30 years, Japan’s economic growth has laggedglobal growth due to various factors. These include thecredit crunch of 1996, the subsequent decline in population,the deflationary economy, and the delayed digitalization ofthe economy despite widespread internet penetration. As aresult, investors remain concerned that Japanese equities willunderperform the wider market.

Japan arguably needs a substantial change in its thinking inorder to turn the ongoing global economic shift into a reboundopportunity. Investor concern about a potential underperfor-mance by Japanese equities is unlikely to subside if Japanremains indisposed to change and tries to maintain existingmethods and structures.

Favored investment strategies

In an effort to help the economy recover from the pandemicshock, central banks in major economies have implementedor are implementing bold monetary easing measures.

We believe the road to economic recovery will be a long oneand thus accommodative monetary policy is likely to remainfor some time. As a result, opportunities to earn interest willbe extremely limited, and investment strategies that targetyield as well as strategies for the management of liquid assets,including cash and deposits, will require a different approach.

1. Putting cash to workLarge-scale monetary easing has been implemented as aneconomic stimulus measure, and it is increasingly apparentthat the current low interest rate environment will be protract-ed. Following in the footsteps of Japan and the Eurozone,the US has decided to prolong its zero-interest rate policy.As a result, in terms of cash management, traditional invest-ment strategies (deposits, short-term government bonds,etc.) are no longer expected to provide satisfactory results,forcing investors to consider other options. As part of ourcash replacement strategy we are currently focusing on theassumption that the exchange rate will remain within a gener-ally constant range while real interest rates are less likely todiverge significantly. At the same time, implied exchange ratevolatility has remained high as investors remain cautious aboutrisk. Thus, we believe the effectiveness of strategies whichcombine volatility with foreign currency deposits to secureyield will increase.

2. Management to secure yieldThe ongoing low interest rate environment will make it moredifficult for investors to earn yield. We generally consider twoapproaches to securing yield. The first is to minimize costssuch as fees and lost opportunity. One solution involvesleveraging a yield-seeking discretionary investment approachby introducing mechanisms that enable more detailed portfoliomanagement in accordance with a given investment policy.The second is to zero in on credit that is more secure, witha sufficient spread. We are currently attracted to investment-grade corporate credit issued in developed countries as wellas major currency denominated government bonds issued inemerging countries.

3. Long-term return growth strategy: EquitiesFrom a medium-term perspective, we believe that equitiesand alternative investments will provide higher returns thanbonds. From a longer-term perspective, certain businesses(technology, sharing economy, senior services, sustainablebusiness, etc.) provide high growth opportunities. The growthof such businesses can generally be attributed to social andeconomic structural changes and political changes, such asthe ongoing shift from a globalized to a multipolar world aswell as population decline caused by a declining birthrate andaging population. The above structural changes, coupled withthe emergence and evolution of new technologies, havespawned new business and growth opportunities.

At Credit Suisse we analyze long-term investment themes aspart of our “Supertrends” series, and focus more specificallyon investment in growth stocks which conform to suchthemes.

Additionally, in an environment where volatility repeatedly risesin a short cycle, an investment approach that provides stabil-ity to one’s stock portfolio is required. We are currently focus-ing on long-short equity strategies that involve portfolio invest-ment in stable high-yield stocks while hedging against certainmarket risks.

4. Multi-asset management (globally diversified invest-ment)In an environment of low returns and loose liquidity, it is sen-sible to assume a higher level of risk in order to achievehigher target returns. The key point here is whether or notone’s investment strategy incorporates mechanisms for con-trolling overall risk while keeping costs down. As a coremanagement strategy for long-term asset formation, we arefocused on multi-asset discretionary investment that targetsa wide variety of assets globally. (15/07/2020)


Japan asset allocation

Reduce high yield bonds toneutral allocationOur House View remains overweight investment grade credit in a portfolio context.

Within emerging market equities, we increase our allocation to emerging Asia.

Soichiro MatsumotoChief Investment Officer Japan

High yield bonds reduced to neutralSpreads on high-yield bonds have narrowed, in part due tothe supportive monetary policies of central banks worldwide.As the effects of this policy easing wear off, the InvestmentCommittee has decided to reduce our exposure to high-yieldcredit in portfolios to neutral. It is also important to note thatissuers’ leverage ratios are on the rise. On the other hand,we remain overweight investment grade bonds.

Increase allocation to emerging Asia equitiesChina and several other north Asian countries have been onestep ahead of the rest of the world in terms of preventing thespread of COVID-19, and these very nations are also the firstto experience an economic recovery due to their success inlargely containing the virus. We have therefore increased ourallocation to emerging Asia equities, as the COVID-19 spreadcontinues largely unabated in the rest of the emerging mar-kets.

Investment map (asset class vs. region)

Source: Credit Suisse

(15/07/2020)


JPY international TAA (balanced)Benchmark SAAversus bench-

markBalanced TAA

JulyJuneChangeJulyJune

5.0%-2.0%-3.0%1.5%3.0%1.5%Liquidity

5.0%-2.0%-3.0%1.5%3.0%1.5%JPY47.5%0.0%0.0%0.0%47.5%47.5%Fixed income

4.0%-1.5%-1.5%0.0%2.5%2.5%JPY

34.5%1.0%0.5%0.5%35.5%35.0%Global Corporates

3.0%0.0%0.5%-0.5%3.0%3.5%Global High Yield

3.0%1.0%1.0%0.0%4.0%4.0%Emerging Markets USD

3.0%-0.5%-0.5%0.0%2.5%2.5%Emerging Markets LC

0.0%0.0%0.0%0.0%0.0%0.0%Global Convertibles42.5%0.0%1.0%-1.5%42.5%44.0%Equity

16.5%-1.0%-0.5%-0.5%15.5%16.0%Japan

26.0%1.0%1.5%-1.0%27.0%28.0%World (ex. Japan)

0.5%1.0%1.0%0.0%1.5%1.5%Switzerland

2.5%0.0%0.0%-0.5%2.5%3.0%Euro Zone

12.5%0.0%0.0%0.0%12.5%12.5%North America

1.0%0.0%0.5%-0.5%1.0%1.5%United Kingdom

0.5%0.0%0.0%0.0%0.5%0.5%Australia

3.0%0.0%0.0%0.0%3.0%3.0%Emerging Markets

0.0%0.0%0.0%0.0%0.0%0.0%LatAm

2.5%0.5%0.0%0.5%3.0%2.5%APAC

0.5%-0.5%0.0%-0.5%0.0%0.5%EMEA

6.0%0.0%0.0%0.0%6.0%6.0%Supertrend

2.5%0.0%0.0%0.0%2.5%2.5%Silver Economy

2.0%0.0%0.0%0.0%2.0%2.0%Angry Society

1.5%0.0%0.0%0.0%1.5%1.5%Millennials' Value5.0%2.0%2.0%0.0%7.0%7.0%Alternative invest-

ments

2.5%0.0%0.0%0.0%2.5%2.5%Real Estate

2.5%2.0%2.0%0.0%4.5%4.5%Commodities

0.0%0.0%0.0%0.0%0.0%0.0%Gold100.0%0.0%0.0%0.0%100.0%100.0%Total



Investment themes and solutions

Silver economy: Investmentsolution featuresIn the subtheme “Therapeutics and devices” of Supertrend “Silver economy – Investingfor population aging,” we recommend companies that provide healthcare solutions inresponse to the structural changes brought about by an aging population as well ascompanies that are developing drugs and vaccines that target COVID-19.

Maki ShimizuInvestment Strategist - Japan Strategy

Balancing value and efficiencyThe strength of healthcare stocks lies in the fact that theyare less susceptible to economic fluctuations and they standto benefit from market expansion due to structural trendssuch as an aging population. As the population ages, thedemand for both stable medical services and solutions tocontrol medical costs rises, and companies that respond tothis demand are likely to see robust growth. We believe thatnext-generation technologies have a significant role to playin balancing value and efficiency in healthcare, and we haveselected certain biotechnology companies as correspondinginvestment solutions. As investors yearn for the rapid devel-opment of a vaccine to stem the global spread of COVID-19,financial markets have vacillated between optimism and pes-simism in response to a stream of headlines about potentialvaccine clinical trials by major healthcare companies. Asresearch and development progresses rapidly, despite therisks involved on the road to commercialization, the market’sfocus on healthcare companies has further intensified.

Individual stock picksFrom the standpoint of an expanding healthcare market inresponse to a growing elderly population, we are also explor-ing opportunities for investment in pharmaceutical companies,biotechnology companies, the dental industry, and medicalservices companies, especially in major developed Westerncountries. Among various stocks, we have selected companiesthat demonstrate pricing power and an ability to providecomprehensive healthcare services in an increasingly cost-conscious environment. Development efforts carried out byhealthcare companies that target the novel coronavirus canprimarily be divided into therapeutics and vaccines. In theformer, in some instances, existing drugs are being repur-posed, while in other instances new drugs are being devel-oped. The list of stocks recommended in this Supertrend re-port includes major US and European companies that arenotable for their ongoing development of therapeutics andvaccines. For investors looking for fund-based solutions, wealso recommend exchange-traded funds (ETFs) such as theSelect Sector Standard & Poor’s Depositary Receipt (SPDR)Funds (healthcare, daily necessities and consumer goods).

(15/07/2020)


SupertrendsRecommended solutionDetailTheme

AM One Global Security StockFund, CS Beneficiaries of AnxiousSocieties Selection

Anxious societies – Inclusivecapitalism

Basis goods such as housing, healthcare and pension have become unaffordable for many peopleAffordability

Skilling, reskilling and upskilling are crucial steps as technical progress radically changes required skill setEmployment

Everyday challenges such as the pandemic outbreak or cybersecurity are the most important pain pointsfor people

Personal security

Global Core Infrastructure StockFund, CS Infrastructure List

Infrastructure – Closing thegap

Developed markets have to invest in project replacements while emerging markets continue to spend ongrowth

Transport

Energy transition toward renewables to limit global carbon emission; Middle East faces an acute watershortage

Energy & water

As 68% of the world’s population will live in urban areas by 2050, cities must become smarter to handlethis strong growth

Smart cities

As 5G will be the next major investment cycle for the mobile industry, mobile traffic may grow almost five-fold

Telecom infrastructure

AM One Global Security StockFund, CS Technology Selection

Technology at the service ofhumans

The number of connected devices is surging and thus edge computing is expected to gain traction in orderto capture even more value from data

Digitalization

Growing to the size of today’s smartphone market in the years aheadVirtual reality

Material growth potential for home, industries and cities, digitalization, and healthtech and fintech marketsArtificial intelligence (AI)

Robots and automation are entering various non-industry sectors; demand for industry robots is risingIndustry 4.0

Digitalization solution, biotechnology and AI in product development and healthcare researchHealthtechSelect Sector SPDR ETFs (Health-care, Consumer Staples, ConsumerDiscretionary), CS Silver EconomyStocks

Silver economy – Investing forpopulation aging

Biopharma and medical device companies to innovate around senior conditions such as heart disease &cancer

Therapeutics & devices

Managed care organizations; hospitals and dedicated facilities to face increasing demandCare & facilities

Private pension gap in emerging markets and growing importance of private pension fund & insurancesolutions

Health & life insurance

High spending power of seniors to benefit consumer companies with senior-centric offeringsSenior consumer choicesAM One Global Security Fund, CSMillennials Favorites

Millennials' values

ESG overlay across the entire millennials stock universe to underpin the importance of sustainabilitySustainable business and invest-ments

Being connected 24/7, having a strong preference for technology brands, driving an education technologyrevolution

Digital natives

A new way of living and spending with substantial growth potential in emerging marketsFun, health & leisureAM One Global Security Fund, CSClimate Change Choice

Climate Change

CO2-neutral electricity production and the replacement of coal-fired electricity as a key component ofCO2 reduction

Carbon-free electricity

Demand for fossil fuel remains high for now, while the transition pioneers will be leading the sectorOil & gas transition pioneers

Sustainable fuels, a switch to electric vehicles, more efficient engines and railroads will reduce greenhousegas (GHG) emissions

Sustainable transport

A growing population and a high CO2 emission from the agriculture sector require efficiency gainsAgriculture & food



Economics

A year like no otherThe coronavirus pandemic has upended the global economy in 2020. Though growthmomentum is picking up, that rebound should not be mistaken for true recovery.

Many uncertainties remain going into the second half, with the virus and further policyresponses among the most important ones.

James P SweeneyChief Economist and Regional CIO Americas

Peter James FoleyEconomist

Global growth volatility was exceptionally tranquil from 2010to 2019, but 2020 is a year like no other. On many measures,the world is experiencing its largest shock in at least 70 years,and government policy measures have been used aggressivelyto counter it.

The pandemic that has caused all this still rages, though itsgeographic distribution has wandered. Currently the Americasare the epicenter. The northern hemisphere’s autumn is stilla major concern, and in some places reopening plans are al-ready beginning to reverse.

The world’s output is far above its March/April lows, however,and in the coming months many economic indicators willcontinue to improve, as if a light has been switched back on.But the threat of renewed contagion, the incomplete damageassessment process, and the ultimate implications of govern-ment policy measures suggest that a growth momentum re-bound should not be mistaken for true recovery.

The big uncertainties in the second half of the year are thevirus, further policy responses, and political developments,including the result of the November US election. Beyondthat, we will learn how a total redistribution of balance sheethealth among the world’s firms, households, and governmentswill shape the true recovery when infections are low enoughthat it can begin.

USA: An uneasy reboundIn the USA, activity is rebounding after nationwide shutdownsin March and April. However, a resurgence of COVID-19cases and the expiration of fiscal measures are a near-termrisk. Business failures and prolonged unemployment are doinglong-term damage as well. We expect growth and the labormarket to be impaired for at least 18 months, and we do notexpect the old gross domestic product (GDP) trend to bereached until at least 2022. We forecast –5.6% and +3.5%annual GDP growth in 2020 and 2021.

COVID-19 infection numbers are rising in much of the coun-try, and states are beginning to pause or reverse their deci-sions to reopen businesses. Regardless of official decisions,cautious consumers will avoid many types of spending untilcontagion is under control.

Fiscal stimulus has effectively supported household incomeand allowed struggling businesses to retain workers. However,many of these measures were designed to combat a short-term shock, not prolonged weakness. More fiscal support willbe necessary soon, or else income and spending will fallsharply and financial stress of households will rise.

The Federal Reserve (Fed) has been aggressive about stabi-lizing financial markets – cutting rates to zero and implement-ing an array of lending programs. On the margin, this willsupport the housing market and prevent stress for businesses,but financial conditions are not the limiting factor for demandright now. There is not much the Fed can do to offset thedemand shock from COVID-19.

Polling for the November election has shifted significantly infavor of the Democratic Party. Following the election, neitherparty is likely to have a strong majority in the Senate. Thismeans ambitious legislation will be difficult to pass. Theelection is most likely to affect the economy through marketsentiment and regulatory changes.

Eurozone: A turning pointThe Eurozone was one of the epicenters of the COVID-19pandemic in March and April, and strict lockdowns caused acollapse in economic activity. Lockdowns appear to have beensuccessful: daily infection rates are now low across the bloc.Consequently, governments are easing lockdowns, and eco-nomic activity has started to recover.

We expect the recovery to take 18 months, with GDP return-ing to pre-COVID levels late next year. We forecast GDPgrowth of –8.2% in 2020 and +8.1% in 2021. The main riskis the virus: a second wave of infections, provoking renewedlockdowns, would mean an uneven, slower recovery.


Another risk is structural damage wrought by the recent re-cession. But economic policy measures designed to mitigatethat have been successful, so far: businesses are able toaccess ample liquidity from the banks, and fiscal policy andfurlough schemes have prevented a surge in unemployment.

The risk of stress in sovereign funding markets has beenmitigated by the European Central Bank’s massive bondpurchase program and the proposed EU rescue fund. Therescue fund is an important step toward a mutual fiscal capac-ity for the Eurozone. At the national level, fiscal policy is beingloosened substantially, especially in Germany.

China: A bumpy recoveryEconomic activity in China has rebounded sharply since strictlockdowns were imposed in January and February. A numberof economic indicators have returned close to pre-COVIDlevels. However, as the initial tailwinds of returning to workfade, growth has slowed. We forecast GDP growth of 3.3%in 2020 and 5.6% in 2021.

China might be a good preview of the growth path in othercountries that have significantly reduced infection rates. Partsof the service sector have seen only a limited rebound, andhigh frequency indicators of long-haul passenger traffic remainfar below pre-COVID levels. It seems difficult for all parts ofthe economy to return to normal while the virus threat lingers.

The overall fiscal response to the pandemic has remainedfairly prudent, accounting for around 3% of GDP. Nonethe-less, local governments have accelerated spending on infras-tructure. Credit conditions remain challenging for small andmedium sized businesses.

Other developed economies: Gaining controlMost developed countries outside the USA have gained con-trol of COVID-19 outbreaks for now, and have begun reopen-ing their economies. Policy responses have followed a com-mon pattern: lockdowns to reduce COVID-19 infections, fiscalsupport to fill cash flow gaps, and central bank cuts and assetpurchases to prevent financial tightening.

Japan has managed to avoid large virus outbreaks so far.Nonetheless, activity declined sharply in Q2 and has only juststarted to recover, backed by significant fiscal and monetarystimulus. In the UK, the rebound in economic activity appearsto be lagging behind many European peers, and the risk ofa WTO Brexit at the end of the year still looms. In Switzerland,government stimulus and strong pharmaceutical exports aresupporting a recovery in GDP.

Other emerging economies: One shock at a timeEmerging economies fared relatively well during recent finan-cial volatility. Policymakers in emerging markets – aided byample global liquidity – have deployed a comprehensivetoolkit, including letting currencies float, expanding balancesheets, lowering policy rates, and substantially increasingfiscal stimulus. Disorderly macroeconomic adjustments haveso far been avoided. However, it remains to be seen if therelatively benign financial environment can be sustained, andfocus will now turn to countries’ strategies to exit stimulusprograms.

The main risk is that the pandemic is still intensifying in manyemerging regions. Latin America and South Asia are experi-encing large virus outbreaks that do not appear to havepeaked. Weak health infrastructure has become extremelystrained. If outbreaks continue for a long period, providingfurther policy support could prove difficult as a lot of policyspace has already been used. Many economies in East Asiahave so far managed to avoid major outbreaks, and haveenjoyed a less severe downturn in growth. (10/07/2020)


Global investment strategy

High yield reduced to neutralWe tactically reduce high-yield (HY) bonds to a neutral allocation in portfolios after astrong performance on the back of central bank support.

Equities remain at a neutral allocation after we reduced the asset class from overweightin late June.

Walter EdelmannChief Global Strategist

The Credit Suisse Investment Committee decided to reducehigh yield (HY) bonds to a neutral allocation. We maintainoverweight positions in investment grade (IG) and emergingmarket hard currency bonds (EM HC) as well as commodities.

Recent equity reduction to neutral confirmedOver the past several weeks, global equities have been range-bound. Ongoing positive economic surprises failed to reignitean overall positive market momentum, while rising coronavirusinfection numbers in the USA became a market concern. Thisis why, in an ad-hoc meeting in late June, the InvestmentCommittee decided to reduce equities to a neutral allocationfrom overweight, a position we had introduced close to marketlows in March and that had profited from the extraordinaryrally since then.

In its most recent meeting, the Investment Committee con-firmed this tactical reduction to strategic allocations. Oneconsideration is that the snap-back in real activity in May andJune due to the reopening of economies has already led toa sharp rise in economic surprises. For the USA, surprise in-dexes have reached levels that signal caution, as it is becom-ing more difficult to beat increased expectations. Anotherreason for near-term caution is that infection numbers in theUSA are continuing to rise sharply. Market liquidity tends tofall during the summer months, which increases market sen-sitivity also to political risk factors. One such risk is that theUSA might face a fiscal cliff in late July should Congress beunable to agree on an extension of the benefits introducedin March to counter the impact of rising unemployment. Theapproaching US presidential election might further increasemarket volatility.

Equities still offer upside mid-termThough these risk factors make us cautious tactically, we stillthink that equities offer further upside in the medium term.A key pillar of this view is the extreme policies introduced inthe major economies in response to the pandemic. Most im-portantly central banks with the US Federal Reserve (Fed) inthe lead have boosted liquidity. We expect strong monetarypolicy support to be in place for longer as central banks arecommitted to getting economies back on track and, over time,raise inflation expectations more meaningfully, thereby drivingdown the real cost of capital.

HY bonds reduced to a neutral allocationThe Investment Committee decided to tactically reduce HYbonds to a neutral allocation. Besides the vulnerability of HYto a general increase in risk aversion, several HY-specificfactors prompted this decision: Special facilities put in placeby the Fed to support credit markets are set to expire inSeptember. Those facilities were instrumental in the melt-upof the HY market. A sharply rising leverage ratio of HY anda pick-up in the default cycle further reduce the attractivenessof HY. Indeed, in recent weeks, we already observed thatHY has started to trail other credit segments such as IG andEM HC bonds, where we retain overweight positions.

Watch a video featuring the highlights of theCredit Suisse investment strategy:www.credit-suisse.com/cio/film

(13/07/2020)


Fixed income

Lower exposure to high yieldWe reduce exposure to high-yield credit back to strategic levels.

We maintain an overweight in EM HC and IG credit, while retaining an underweight incore government bonds.

Luca BindelliHead of Fixed Income and Currency and Commodity Strategy

Despite some improvement in economic indicators, interestrates remain low, as central banks are unlikely to raise theirkey rates anytime soon and their large asset purchase pro-grams remain in place. But given the low yield levels andmedium-term inflation and bond supply risks, we considergovernment bonds unattractive in the medium term.

Yield curve control has been widely discussed as a potentialpolicy tool for the US Federal Reserve (Fed). However, wethink that the benefits of introducing yield targets for USTreasury bonds are quite limited as yields for short maturitybonds are already close to zero and expected to remain there.We believe that the Fed might tolerate some steepening ofthe yield curve and that yield curve control could become anoption in case of an equity market sell-off or if nominal yieldincreases push real rates higher.

We prefer short duration in the USA, the Eurozone andSwitzerland, and remain underweight global treasuries in aportfolio context. We prefer Italian over German bonds, asthe strong support from fiscal and monetary policy shouldlead to further spread narrowing in the Eurozone. In relativeterms, we consider US inflation-linked bonds attractive.

Positive on IGWe expect attractive returns in both IG and HY over the next3–6 months. However, we reduce our allocation to HY toneutral for now. Although carry still warrants above-cash re-turns, the current implied default premium is not sufficient tocompensate for macroeconomic uncertainties and deteriorat-

ing fundamentals. In particular, the Fed’s credit facility supportis set to expire in September, which could add an element ofrisk to HY markets. Also, rising leverage ratios and a risingdefault cycle reduce the attractiveness of HY at this point.We maintain an overweight allocation to IG, as investor flowsremain supportive and there is a lower risk of rating down-grades. We keep a bias for high-quality credits in the BBbucket within HY and extend our duration preference to 5–7years. We continue to favor IG with a duration of 7–10 years,especially in cyclical sectors such as autos and chemicals.

Carry still attractive in EM bondsEmerging market (EM) bonds have continued to post strongreturns, with spreads tightening further. Improvements inglobal market conditions, strong liquidity and stable USTreasury returns continue to drive performance. Some highyielding countries have made good progress in restructuringtheir debt and our EM risk appetite index has improved further.A large number of EM-dedicated funds have managed tooutperform the benchmark index over the last three months.Moreover, EM countries have recovered market access,helping to ease concerns about financing needs. Our construc-tive view has largely played out so we do not expect EMspreads to continue tightening at the same pace, but furthergains are still likely due to the high relative carry.

In terms of regional preference, we remain positive on EasternEurope, Middle East and Africa, negative on Latin Americaand neutral on Asia. We continue to hold a negative view onBrazil, where a combination of poor economic fundamentalsand high political uncertainty are likely to limit performance.

(10/07/2020)


Equities

Asia preferred in emergingmarketsWe have neutralized our previous overweight in equities and expect a volatile consoli-dation for now as we work through the summer months.

Economies in Asia are leading the reacceleration with solid and improving fundamentals.We expect emerging Asia to outperform global emerging markets (EM).

Philipp LisibachHead of Global Equity Strategy

Simply looking at the first-half 2020 returns does not tell thefull story. After a sharp sell-off in late February and March,equity markets hit a trough in late March and subsequentlyrecovered meaningfully in April and May. More recently,however, they have shown signs of a pause, losing somemomentum. As such, our Investment Committee decided inlate June to neutralize our previous overweight in equities andreduce exposure in portfolios to the strategic level. We areapproaching the typical summer lull, where traded liquiditytends to be lower and prices are susceptible to higher fluctu-ations. And some relevant events are indeed ahead of us.

Q2 earnings – Time for truthThe Q2 earnings season is ongoing and expectations aredire. Growth in earnings per share (EPS) is expected to drop45.8% YoY for the MSCI World, as Q2 includes the full blowof the April and May lockdowns. We believe that this iswidely known and mostly reflected in prices, but given thehigh degree of uncertainty, we may see some surprisesnonetheless.

Further, the news of regional COVID-19 outbreaks is a con-cern and could lead to a slower easing of lockdowns thananticipated. This is also likely why the rotation we observedin June – out of growth, into value and cyclical stocks – hascome to a pause. We have carefully shifted our equity strategyby adding high-quality value exposure, such as German equi-ties, which offer an appealing combination of strong funda-mentals and attractive valuation with robust macro support.

Shifting our regional EM preference in favor of AsiaWithin EM, we see that many large Asian economies havebeen successful in containing the coronavirus, allowing theireconomies to recover from the crisis. In China, for example,we have been observing a steady recovery, as evidenced inrecent macro data. Fundamentals are improving and earningsresilient, as China is one of the few countries expected tosee positive growth in 2020. We have shifted our regionalpreference in favor of EM Asia, with Eastern Europe, MiddleEast and Africa our least preferred region.

Q1 vs. Q2 – A tale of two sides

Last data point: 30/06/2020. Historical performance indications and financial market

scenarios are not reliable indicators of current or future performance. Source: Bloomberg,

Credit Suisse

(09/07/2020)


Global equity sector strategy and top picks from Research (3-6 months)APAC (O)#USA (N)Switzerland (O)Eurozone (N)/ UK (N)#Sector view

Pioneer Natural Resources, Williams,Chevron, Cheniere Energy

Repsol, TotalEnergy (O)

Air Products & Chemicals, Newmont,Ecolab, Sherwin-Williams

Anglo American, Air Liquide, SmurfitKappa, Symrise, BHP, Synthomer+

Materials (N)

Sany Heavy IndustryHoneywell, Union Pacific, JohnsonControls+

Georg Fischer, SchindlerSchneider Electric, Smiths, Vinci,Siemens, Experian

Industrials (N)

China Tourism Group Duty Free, PtMap Aktif Adiperkasa Tbk, WynnMacau, Gree Electric Appliances+

Target, Restaurant Brands International,The Home Depot, Nike

LVMH, BMW, InformaConsumer discretionary (N)

Foshan Haitian Flavouring and FoodCompany

Coca-Cola, WalmartNestleDanone, Kerry, CarlsbergConsumer staples (U)

Jiangsu HengruiAlexion, Mylan, Biomarin Pharmaceuti-cal, Merck & Co.

Novartis, RocheRoyal Philips, Fresenius, Novo NordiskHealthcare (O)

Bank of China, Industrial and Commer-cial Bank of China

JPMorgan Chase, Bank of America,The Blackstone, Chubb, Progressive

Zurich Insurance, CembraMoney Bank, Partners,UBS

AXA, Crédit Agricole, KBC, UniCredit,Barclays, RSA Insurance, Caixabank+

Financials (N)

Samsung Electronics, Largan Preci-sion, SK Hynix, Luxshare Precision In-dustry, Shenzhen Sunway, Goertek+

Visa, IBM, Micron Technology, Sales-force.com

Telefon AB L.M.EricssonIT (O)

PCCWAlphabet, FacebookSunrise CommunicationsVodafone, Vivendi, OrangeCommunication services (U)

NextEra Energy, Eversource EnergyRWE, Iberdrola, EDPUtilities (N)

UOL, China Aoyuan+, Link+, NewWorld Development+

Equinix, American TowerVonovia, Deutsche WohnenReal Estate (N)

These are our sector strategy and top picks as of 14 July 2020 recommended by Credit Suisse, International Wealth Management division. Our sector/industry strategy shows oursector/industry preferences with recommendations relative to regional benchmarks: Global: (MSCI World in USD), Europe (MSCI Europe in EUR), Switzerland (Swiss Market Indexin CHF), USA (S&P 500 in USD), Asia-Pacific (MSCI AC Asia-Pacific in USD). An outperform (underperform) view is a recommendation to invest more (less) than in a neutral positionindicated by the market-cap weights of the respective benchmarks. The sector/industry weights as well as the neutral positions in figures are available upon request; please contactyour relationship manager. Top Picks is a selection of our favorite stocks within our coverage. The selection was made to reflect the sector/industry and regional preferences. Reg-ular full updates are provided via our Investment Monthly publications as well as in our Equity Research reports. Additionally, we publish our additions and drops in our InvestmentDaily publication. Legend: (O) = Outperform, (N) = Neutral, (U) = Underperform. Changes are marked as follows: (+) = additions to the Top Picks, (#) = changes to sector/indus-try/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.credit-suisse.com/research/disclaimer. Please note that trading facilities in certain securities may be limited.Source: Credit Suisse


Alternative investments

Highlighting dislocationopportunities in hedge fundsWe favor a balanced allocation across hedge fund styles with a focus on dislocationsin capital markets. Defensive real estate is preferred.

We remain positive on commodities and favor a diversified approach across sub-sectors.

Jelena KucenkoHead of Alternative Investments

Fabian DeriazCommodity Strategist

Hedge funds: Focus on dislocation opportunitiesHedge funds extended their gains in June. Their year-to-dateperformance is nearly flat, but ahead of global equities andhigh yield bonds. As growth and liquidity conditions improvedrecently, fundamental and relative value strategies performedwell. Tactical managers lagged as most major markets lackeddirectionality. As the real economy catches up with the rallyin risky assets, volatility is likely to remain elevated. Thus, wethink that a balanced allocation across hedge fund strategiesis still appropriate. We highlight strategies with a focus onCOVID-19 created dislocations in risk premiums acrossstructured and corporate credit, new corporate issuance andopportunistic equity as well as distressed debt. Such strategiescan exploit sectoral and regional divergences amid elevatedmarket volatility.

Commodities: Energy-led rebound, we stay positiveCommodities enjoyed a broad rebound in June and early July.Energy, particularly crude oil and gasoline, did best as activitypicked up after the lockdowns. After a strong rally, oil maybe in for a pause in the near term until visible inventories startdrawing more substantially (which we expect later in H2 2020and into 2021). However, the mid-term outlook remainsconstructive as supply is set to remain constrained, while

demand recovers. The other cyclical sector, industrial metals,has benefited from the recovery in China, while ex-Chinademand must now follow suit to justify recent gains. As un-certainty persists, gold, which is a defensive asset, has alsoposted gains despite some improvement in risk appetite. Lowand anchored nominal yields in combination with tentativelyrising inflation expectations create a very friendly environmentfor gold. Signs of USD weakness are an additional help. Fi-nally, agriculture bounced from recent weakness as acreageestimates are revised lower, while crop conditions have be-come less supportive. Summer weather will now be key. Westay positive on the asset class and favor a diversified ap-proach across sub-segments.

Real estate: Favor defensive marketsListed real estate delivered a modest return in June, but un-derperformed global equities both over the month and in thefirst half of 2020 as structural concerns lingered. Althoughthe risk-on environment supported a broad-based recoveryin real estate recently, growth concerns remain elevated. Assuch, we favor defensive sectors underpinned by seculargrowth such as residential and industrial. We keep a neutralview on listed real estate ahead of the earnings season.Downside surprises are likely given elevated earnings expec-tations, while undemanding valuation multiples and lower in-terest rates are supportive. Regionally, we prefer the USAgiven its defensive sector exposure, modest earnings expec-tations and a recent improvement in investment flows.

(10/07/2020)


Foreign exchange

Diversifying out of USDWe favor diversifying out of the USD, as a reduced carry advantage, improving globalactivity and the growing US twin deficits should push the overvalued USD lower.

We like the EUR, JPY, NOK, SEK and NZD in the G10 countries and favor the CNY, KRWand ZAR in emerging markets.

Luca BindelliHead of Fixed Income and Currency and Commodity Strategy

The US Dollar Index (DXY) has been broadly stable sincemid-June despite a negative shift in market positioning anda dovish Federal Reserve (Fed). In part, this can be attributedto better-than-expected economic data in the USA and volatilecoronavirus news. We maintain that the USD should weakengoing forward. Its carry advantage should be durably loweredand could fall further as the Fed’s outlook suggests that rateswill stay close to zero for the next two years at least. The riskof yield curve control implementation adds downside potentialbeyond that horizon. This should further reduce the appealof US assets and lower the hurdle for foreign investors tohedge back existing USD exposure.

Moreover, the recent string of very positive US macroeconom-ic surprises is unlikely to last as investors adjust their expec-tations upward. Other areas, in particular Europe, are catchingup and should narrow the economic surprise gap, supportedby the upswing in global activity. The USA’s structural currentaccount deficit and mounting fiscal deficit will require a lowerUSD, so foreign investors can help to finance these deficitsas US real rates are unlikely to move higher in the mediumterm. We also believe that the strong growth of the Fed’sbalance sheet will cap USD upside risk in case of a flare-upin geopolitical tensions or a second wave of coronavirus infec-tions.

Keep cyclical tilt in G10With the ongoing peripheral spread contraction and improvingmacro data, sentiment toward the Eurozone and the EURremains positive. However, more clarity is needed on theEuropean Union (EU) recovery fund, as the June EU Commis-

sion meeting failed to deliver on this front. We expect thatthe growing case for fiscal solidarity in Europe remains intact.Besides, the European Central Bank’s quantitative easingprograms will continue to support peripheral spreads and re-duce EUR “tail risks.” With lockdowns easing across Europe,economic activity in H2 should rebound more quickly than inthe USA on a sequential basis. We expect EUR/USD at 1.18in 3M and 1.20 in 12M. We continue to like the SEK, NOKand NZD against the USD, based on cheap valuations andtheir more cyclical nature. Moreover, we think the JPY shouldstill be preferred as there is no room left for rate cuts in Japan.Besides, the JPY still offers diversification benefits in casevolatile market conditions return.

Be selective in EM FXThe recovery in emerging market (EM) currencies has stalledof late as EM risk sentiment stabilized at a high level. Improve-ments in trade balances and terms of trade remain the domi-nant drivers. Therefore, we continue to favor a more cyclicalpositioning in EM FX and reiterate our positive view on theZAR and our negative view on the TRY. We expect the ZARto benefit from a continuation of the pro-risk environment andimprovements in South Africa’s terms of trade. Conversely,Turkey’s fundamental backdrop remains vulnerable. Risinginflation, low net foreign exchange reserves and deterioratingterms of trade remain headwinds for the TRY.

Asian currencies have outperformed EM currencies lately.We maintain our negative views on USD/CNY andUSD/KRW. For the remaining Asian currency pairs, we arestill mildly positive given that even in case of a resurgence ofinfections in the USA and elsewhere, we are unlikely to seeintense USD funding stress re-emerge and push market vol-atility higher again. (10/07/2020)


Forecasts

At a glanceMore information on the forecasts and estimates is availableon request. Past performance is not an indicator of futureperformance. Performance can be affected by commissions,fees or other charges as well as exchange rate fluctuations.

Short interest rates 3M Libor/10-year governmentbonds

10Y3M Libor

12M3MSpot12M3MSpotin %

-0.2-0.2-0.42-0.8 to -0.6

-0.8 to -0.6-0.69CHF

-0.2-0.2-0.45-0.5 to -0.3

-0.5 to -0.3-0.43EUR*

1.210.630.2 to 0.40.2 to 0.40.27USD

0.50.30.150.0 to 0.20.0 to 0.20.08GBP

0.70.80.890.0 to 0.20.0 to 0.20.10AUD**

000.03-0.1 to0.1

-0.1 to 0.1-0.05JPY

Spot rates are closing prices as of 14/7/2020. Forecast date 9/7/2020. *3M Euribor,**3M bank bill rates. These forecasts are no reliable indicators of future performance.Source: Bloomberg, Credit Suisse/IDC

Equities12M*3M*Div. y.

(%)P/ESpotIndex

1,4201,3602.619.71,349MSCI AC World**

3,2903,2002.321.53,198US S&P 500

3,4003,3252.816.33,321Eurostoxx 50

6,2206,1704.614.96,180UK FTSE 100

1,5751,5502.515.91,565Japan Topix

6,1806,0004.119.45,941Australia S&P/ASX200

10,72010,3303.017.810,260Switzerland SMI

154,000147,5002.914.9143,673MSCI Emerging Mar-kets**

Prices as of 14/7/2020 . *Forecast as on 9/7/2020 . **Gross return (incl. dividends).Source: Bloomberg, Datastream, Credit Suisse/IDC

Commodities12M*3M*Spot

190018501809Gold (USD/oz)

191919.2Silver (USD/oz)

900900828.5Platinum (USD/oz)

190020001978Palladium (USD/oz)

625062506498Copper (USD/ton)

454040.5WTI Crude Oil (USD/bbl)

151143141.6Bloomberg Commodity index

Spot rates are as of 15/7/2020 *forecast as on 9/7/2020Source: Bloomberg, Credit Suisse/IDC

Credit: Selected indices12M TR fore-cast*

3M TRforecast*

Duration(years)

Spread(bp)

Yield(%)

0.80%0.30%7.35560.92BC Global Aggregate

-1.00%-0.50%8.79140.47BC Global Treasuries

4.01%1.00%7.451471.75BC Global IG Corp

4.44%-0.40%4.216336.72BC Global HY Corp

3.80%0.95%7.294695.41JPM EMBI Global Di-versified HC

BC = Barclays Capital, IG= Investment Grade, JPM = JP Morgan (EMBI+). Index dataas 14/7/2020. *Forecast as on 9/7/2020Source: Bloomberg, Credit Suisse/IDC

Foreign exchange12M3MSpot

1.201.181.14EUR/USD

0.940.930.94USD/CHF

1.131.101.07EUR/CHF

100.00104.00107.27USD/JPY

0.930.920.91EUR/GBP

1.291.281.26GBP/USD

0.740.710.69AUD/USD

1.301.331.36USD/CAD

10.0010.2010.43EUR/SEK

10.3010.4010.73EUR/NOK

4.594.574.47EUR/PLN

6.906.957.01USD/CNY

1.341.371.39USD/SGD

1145.001165.001206.65USD/KRW

74.0074.5075.43USD/INR

5.405.305.37USD/BRL

23.0022.6022.73USD/MXN

Spot rates are as of 15/7/2020Source: Bloomberg/IDC

Real GDP growth and inflationInflationGDP

growth

2021*2020*20192021*2020*2019in %

0.3-0.70.43.5-4.00.9CH

0.80.51.28.1-8.21.2EMU

1.60.71.83.5-5.62.3USA

0.80.91.88.3-9.21.4UK

1.00.01.75.0-6.02.0Australia

0.3-0.30.61.0-3.90.7Japan

2.62.72.95.63.36.1China

*Forecast date: 08/07/2020. These forecasts are no reliable indicators of future per-formance.Source: Credit Suisse

(15/07/2020)


Glossary

Risk warnings

Emerging markets are located in countries that possess one or more of the following characteristics: a certain degree of politicalinstability, relatively unpredictable financial markets and economic growth patterns, a financial market that is still at the developmentstage or a weak economy. Emerging market investments usually result in higher risks as a result of political, economic, credit,exchange rate, market liquidity, legal, settlement, market, shareholder and creditor risks.

Emerging markets

Regardless of structure, hedge funds are not limited to any particular investment discipline or trading strategy, and seek toprofit in all kinds of markets by using leverage, derivative instruments and speculative investment strategies that may increasethe risk of investment loss.

Hedge funds

Commodity transactions carry a high degree of risk and may not be suitable for many private investors. The extent of loss dueto market movements can be substantial or even result in a total loss.

Commodity investments

Investors in real estate are exposed to liquidity, foreign currency and other risks, including cyclical risk, rental and local marketrisk as well as environmental risk, and changes to the legal situation.

Real estate

Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investor’sreference currency.

Currency risks

Equities are subject to market forces and hence fluctuations in value, which are not entirely predictable.Equity risk

Financial markets rise and fall based on economic conditions, inflationary pressures, world news and business-specific reports.While trends may be detected over time, it can be difficult to predict the direction of the market and individual stocks. Thisvariability puts stock investments at risk of losing value.

Market risk

High Yield Bonds are typically rated below investment grade or are unrated and as such are often subject to a higher risk ofissuer default.

High Yield bond risk

Perpetual Bonds have no maturity date and therefore the Interest pay-out depends on the viability of the issuer in the very longterm.

Perpetual Bond risk

In case of liquidation of the issuer, investors can only get back the principal after other senior creditors are paid.Subordinated Bond risk

Investors would face uncertainty over the amount and time of the interest payments to be received.Risk of Bonds with variable/ deferral of interest terms

Investors face reinvestment risk when the issuer exercises its right to redeem the bond before it matures.Callable bond risk

Investors would not have a definite schedule of principal repayment.Risk of Bonds with extendable maturity date

Investors are subject to both equity and bond investment risk.Convertible or exchangeable bond risk

The bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event.Cocos risk

Explanation of indices frequently used in reports

CommentIndex

S&P/ASX 200 is an Australian market-capitalization-weighted and float-adjusted stock index calculated by Standard and Poor's.Australia S&P/ASX 200

The US Corporate High Yield Index measures USD-denominated, non-investment grade, fixed-rate and taxable corporatebonds. The index is calculated by Barclays.

BC High Yield Corp USD

The Euro Corporate Index tracks the fixed-rate, investment-grade, euro-denominated corporate bond market. The index includesissues that meet specified maturity, liquidity and quality requirements. The index is calculated by Barclays.

BC High Yield Pan EUR

The US Corporate Index tracks the fixed-rate, investment-grade, dollar-denominated corporate bond market. The index includesboth US and non-US issues that meet specified maturity, liquidity and quality requirements. The index is calculated by Barclays.

BC IG Corporate EUR

The IG Financials Index tracks the fixed-rate, investment-grade, dollar-denominated financials bond market. The index includesboth US and non-US issues that meet specified maturity, liquidity and quality requirements. The index is calculated by Barclays.

BC IG Corporate USD

The S&P/TSX composite index is the Canadian equivalent of the S&P 500 Index in the USA. The index contains the largeststocks traded on the Toronto Stock Exchange.

Canada S&P/TSX comp

Consumer Confidence Indices (CCIs) are based on surveys of consumers' spending intentions and economic situations, as wellas their concerns and expectations for the immediate future.

Consumer Confidence Indices

The Credit Suisse Hedge Fund Index is compiled by Credit Suisse Hedge Index LLC. It is an asset-weighted hedge fund indexand includes only funds, as opposed to separate accounts. The index reflects performance net of all hedge fund componentperformance fees and expenses.

CS Hedge Fund Index

The Liquid Swiss Index ex govt CHF is a market-capitalized bond index representing the most liquid and tradable portion of theSwiss bond market excluding Swiss government bonds. The index is calculated by Credit Suisse.

CS LSI ex govt CHF

The German Stock Index stock represents 30 of the largest and most liquid German companies that trade on the FrankfurtExchange.

DAX

A measure of the value of the US dollar relative to the majority of its most important trading partners. The US Dollar Index issimilar to other trade-weighted indices, which also use the exchange rates from the same major currencies.

DXY

Eurostoxx 50 is a market-capitalization-weighted stock index of 50 leading blue-chip companies in the Eurozone.Eurostoxx 50

The FTSE EPRA/NAREIT Global Real Estate Index Series is designed to represent general trends in eligible real estate equitiesworldwide.

FTSE EPRA/NAREIT Global Real Estate Index Series

The Hedge Fund Barometer is a proprietary Credit Suisse scoring tool that measures market conditions for hedge fund strategies.It comprises four components: liquidity, volatility; systemic risks and business cycle.

Hedge Fund Barometer

TOPIX, also known as the Tokyo Stock Price Index, tracks all large Japanese companies listed in the stock exchange's "firstsection." The index calculation excludes temporary issues and preferred stocks.

Japan Topix

The Emerging Market Bond Index Plus tracks the total return of hard-currency sovereign bonds across the most liquid emergingmarkets. The index encompasses US-denominated Brady bonds (dollar-denominated bonds issued by Latin American countries),loans and Eurobonds.

JPM EM hard curr. USD

The JPMorgan Government Bond Index tracks local currency bonds issued by emerging market governments across the mostaccessible markets for international investors.

JPM EM local curr. hedg. USD


The MSCI All Country Asia Pacific Index captures large and mid cap representation across 5 developed market countries and8 emerging markets countries in the Asia Pacific region. With 1,000 constituents, the index covers approximately 85% of thefree float-adjusted market capitalization in each country.

MSCI AC Asia/Pacific

The MSCI All Country World Index captures large and mid cap representation across 23 developed markets and 23 emergingmarket countries. With roughly 2480 constituents, the index covers around 85% of the global investable equity opportunity set.

MSCI AC World

MSCI Emerging Markets is a free-float-weighted Index designed to measure equity market performance in global emergingmarkets. The index is developed and calculated by Morgan Stanley Capital International.

MSCI Emerging Markets

The MSCI EMU Index (European Economic and Monetary Union) captures large and mid cap representation across the 10Developed Markets countries in the EMU. With 237 constituents, the index covers approximately 85% of the free float-adjustedmarket capitalization of the EMU.

MSCI EMU

The MSCI Europe Index captures large and mid cap representation across 15 developed markets countries in Europe. With442 constituents, the index covers approximately 85% of the free float-adjusted market capitalization across the Europeandeveloped markets equity universe.

MSCI Europe

The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market.With 111 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in the UK.

MSCI UK

MSCI World is an index of global equity markets developed and calculated by Morgan Stanley Capital International. Calculationsare based on closing prices with dividends reinvested.

MSCI World

OECD Composite Leading Indicators (CLIs) are designed to provide early signals of turning points in business cycles withcomponents that measure early stages of production, respond to changes in economic activity, and are sensitive to expectationsof future activity.

OECD Composite Leading Indicators

Purchasing Managers' Indices (PMIs) are economic indicators derived from monthly surveys of private-sector companies. Thetwo principal producers of PMIs are Markit Group, which conducts PMIs for over 30 countries worldwide, and the Institute forSupply Management (ISM), which conducts PMIs for the United States. The indices include additional sub-indices for manufac-turing surveys such as new orders, employment, exports, stocks of raw materials and finished goods, prices of inputs and finishedgoods, and services.

Purchasing Managers' Indices

The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe basedon 1000 large-cap companies with higher price-to-book ratios and higher forecast growth values.

Russell 1000 Growth Index

The Russell 1000 Index is a stock market index that represents the highest-ranking 1,000 stocks in the Russell 3000 Index(encompassing the 3,000 largest US-traded stocks, with the underlying companies all incorporated in the USA), and representingabout 90% of the total market capitalization of that index. The Russell 1000 Index has a weighted average market capitalizationof USD 81 billion and the median market capitalization is approximately USD 4.6 billion.

Russell 1000 Index

The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe based on1000 large-cap companies with lower price-to-book ratios and lower expected growth values.

Russell 1000 Value Index

The Swiss Market Index is made up of 20 of the largest companies listed of the Swiss Performance Index universe. It represents85% of the free-float capitalization of the Swiss equity market. As a price index, the SMI is not adjusted for dividends.

Switzerland SMI

FTSE 100 is a market-capitalization-weighted stock index that represents 100 of the most highly capitalized companies tradedon the London Stock exchange. The equities have an investibility weighting in the index calculation.

UK FTSE 100

Standard and Poor's 500 is a capitalization-weighted stock index representing all major industries in the USA, which measuresthe performance of the domestic economy through changes in the aggregate market value.

US S&P 500

Abbreviations frequently used in reports

DescriptionAbb.DescriptionAbb.

International Monetary FundIMF3/6/12 month moving average3/6/12 MMA

Latin AmericaLatAmAlternative investmentsAI

London interbank offered rateLiborAsia PacificAPAC

Million barrels per daym b/dbarrelbbl

A measure of the money supply that includes all physical money,such as coins and currency, as well as demand deposits,checking accounts and negotiable order of withdrawal accounts.

M1Bank IndonesiaBI

A measure of money supply that includes cash and checkingdeposits (M1) as well as savings deposits, money market mutualfunds and other time deposits.

M2Bank of CanadaBoC

A measure of money supply that includes M2 as well as largetime deposits, institutional money market funds, short-term re-purchase agreements and other larger liquid assets.

M3Bank of EnglandBoE

Mergers and acquisitionsM&ABank of JapanBoJ

Monetary Authority of SingaporeMASBasis pointsbp

Master Limited PartnershipMLPBrazil, Russia, China, IndiaBRIC

Month-on-monthMoMCompound annual growth rateCAGR

Monetary Policy CommitteeMPCChicago Board Options ExchangeCBOE

Option-adjusted spreadOASCash from operationsCFO

Organisation for Economic Co-operation and DevelopmentOECDCash flow return on investmentCFROI

Overnight indexed swapOISDiscounted cash flowDCF

Organization of Petroleum Exporting CountriesOPECDeveloped MarketDM

Price-to-book valueP/BDeveloped MarketsDMs

Price-earnings ratioP/EEarnings before interest, taxes, depreciation and amortizationEBITDA

People's Bank of ChinaPBoCEuropean Central BankECB

P/E ratio divided by growth in EPSPEGEastern Europe, Middle East and AfricaEEMEA

Purchasing Managers' IndexPMIEmerging MarketEM

Purchasing power parityPPPEurope, Middle East and AfricaEMEA


Quantitative easingQEEmerging MarketsEMs

Quarter-on-quarterQoQEuropean Monetary UnionEMU

right-hand side (for charts)r.h.s.Earnings per shareEPS

Reserve Bank of AustraliaRBAExchange traded fundsETF

Reserve Bank of IndiaRBIEnterprise valueEV

Reserve Bank of New ZealandRBNZFree cash flowFCF

Real estate investment trustREITUS Federal ReserveFed

Return on equityROEFunds from operationsFFO

Return on invested capitalROICFederal Open Market CommitteeFOMC

Reserve requirement ratioRRRForeign exchangeFX

Strategic asset allocationSAAGroup of TenG10

Special drawing rightsSDRGroup of ThreeG3

Swiss National BankSNBGross domestic productGDP

Tactical asset allocationTAAGovernment Pension Investment FundGPIF

Trade-Weighted IndexTWIHard currencyHC

Volatility IndexVIXHigh yieldHY

West Texas IntermediateWTIInterest-bearing debtIBD

Year-on-yearYoYCredit Suisse Investment CommitteeIC

Year-to-dateYTDInvestment gradeIG

An indicator of the average increase in prices for all domesticpersonal consumption.

Personal ConsumptionExpenditure (PCE defla-tor)

Inflation-linked bondILB

Currency codes frequently used in reports

CurrencyCodeCurrencyCode

South Korean wonKRWArgentine pesoARS

Mexican pesoMXNAustralian dollarAUD

Malaysian ringgitMYRBrazilian realBRL

Norwegian kroneNOKCanadian dollarCAD

New Zealand dollarNZDSwiss francCHF

Peruvian nuevo solPENChilean pesoCLP

Philippine pesoPHPChinese yuanCNY

Polish złotyPLNColombian pesoCOP

Russian rubleRUBCzech korunaCZK

Swedish krona/kronorSEKEuroEUR

Singapore dollarSGDPound sterlingGBP

Thai bahtTHBHong Kong dollarHKD

Turkish liraTRYHungarian forintHUF

New Taiwan dollarTWDIndonesian rupiahIDR

United States dollarUSDIsraeli new shekelILS

South African randZARIndian rupeeINR

Japanese yenJPY

Important information on derivatives

Option premiums and prices mentioned are indicative only. Option premiums and prices can be subject to very rapid changes:The prices and premiums mentioned are as of the time indicated in the text and might have changed substantially in themeantime.

Pricing

Derivatives are complex instruments and are intended for sale only to investors who are capable of understanding and assumingall the risks involved. Investors must be aware that adding option positions to an existing portfolio may change the characteristicsand behavior of that portfolio substantially. A portfolio’s sensitivity to certain market moves can be heavily impacted by theleverage effect of options.

Risks

Investors who buy call options risk the loss of the entire premium paid if the underlying security trades below the strike price atexpiration.

Buying calls

Investors who buy put options risk loss of the entire premium paid if the underlying security finishes above the strike price atexpiration.

Buying puts

Investors who sell calls commit themselves to sell the underlying for the strike price, even if the market price of the underlyingis substantially higher. Investors who sell covered calls (own the underlying security and sell a call) risk limiting their upside tothe strike price plus the upfront premium received and may have their security called away if the security price exceeds thestrike price of the short call. Additionally, the investor has full downside participation that is only partially offset by the premiumreceived upfront. If investors are forced to sell the underlying they might be subject to taxing. Investors shorting naked calls(i.e. selling calls but without holding the underlying security) risk unlimited losses of security price less strike price.

Selling calls

Put sellers commit to buying the underlying security at the strike price in the event the security falls below the strike price. Themaximum loss is the full strike price less the premium received for selling the put.

Selling puts

Investors who buy call spreads (buy a call and sell a call with a higher strike) risk the loss of the entire premium paid if theunderlying trades below the lower strike price at expiration. The maximum gain from buying call spreads is the difference betweenthe strike prices, less the upfront premium paid.

Buying call spreads


Selling naked call spreads (sell a call and buy a farther out-of-the-money call with no underlying security position): Investorsrisk a maximum loss of the difference between the long call strike and the short call strike, less the upfront premium taken in,if the underlying security finishes above the long call strike at expiration. The maximum gain is the upfront premium taken in, ifthe security finishes below the short call strike at expiration.

Selling naked call spreads

Investors who buy put spreads (buy a put and sell a put with a lower strike price) also have a maximum loss of the upfrontpremium paid. The maximum gain from buying put spreads is the difference between the strike prices, less the upfront premiumpaid.

Buying put spreads

Buying strangles (buy put and buy call): The maximum loss is the entire premium paid for both options, if the underlying tradesbetween the put strike and the call strike at expiration.

Buying strangles

Investors who are long a security and short a strangle or straddle risk capping their upside in the security to the strike price ofthe call that is sold plus the upfront premium received. Additionally, if the security trades below the strike price of the short put,investors risk losing the difference between the strike price and the security price (less the value of the premium received) onthe short put and will also experience losses in the security position if they owns shares. The maximum potential loss is the fullvalue of the strike price (less the value of the premium received) plus losses on the long security position. Investors who areshort naked strangles or straddles have unlimited potential loss since, if the security trades above the call strike price, investorsrisk losing the difference between the strike price and the security price (less the value of the premium received) on the shortcall. In addition, they are obligated to buy the security at the put strike price (less upfront premium received) if the security fin-ishes below the put strike price at expiration.

Selling strangles or straddles


Important information on mutual fundsFees and charges, etc.Different types of fees and commissions (subscription fee, amount whichmust be retained in trust assets, repurchase fee, etc.) are charged wheninvestment trusts/funds are purchased and sold. In addition, apart from thesefees and commissions, trust and management fees and other fees (auditfee, trust administrative charges, carried interest, etc.) are charged and borneby you through your trust asset. Fees and commissions borne by you will bea sum of these amounts. Such fees and commissions vary depending onthe investment trust/fund and depending on the investment status, andtherefore, we cannot provide specific amounts or calculation methods.

For detailed information on fees and commissions, etc. of each re-spective investment trust/fund, please refer to the pre-contractdocuments (prospectus and other supplementary documents).

Important information on dividends:• Dividends are different to interest on deposits and are paid from the netasset value of investment trusts/funds. Therefore, when dividends are paid,the base value (net asset value per unit) will decrease by an amount equivalentto the amount paid.

• Dividends may be paid exceeding the profit earned during the calculationperiod (trading profit including profits of dividends, etc. after expenses). Inthis case, the base value (net asset value per unit) on the settlement datein this period will decrease compared to that on the settlement date in theprevious period. Also, the level of dividends does not always reflect the rateof return for the investment trust/fund during the calculation period.

• A part or all of dividends may be virtually equivalent to some repayment ofthe principal depending on the purchase price of the investment trust/fundby an investor. The same can be applied to a case that an increase in thebase value (net asset value per unit) is smaller than a dividend amount dueto the investment status after purchase of the investment trust/fund.

Please refer to the prospectus for details.

Explanation of major risks (description pursuant to Ar-ticle 37 (Regulation on Advertising, etc.) of the FinancialInstruments and Exchange Act, etc.)The risks described below are a summary of some general risks of investmenttrusts/funds (risks which have an impact on net asset value) and do notcover all risks. Please refer to the pre-trade documents (prospectus andother supplementary documents).

Price volatility risk:Investment trusts/funds invest mainly in equities, bonds and derivativeproducts, etc. The value of the investment trust/fund will go up or down dueto increases or decreases in the prices of such investments. Further, thevalue of such investments will be impacted by political and economic factors,the financial standing of an issuer, market demand and supply, interest ratesand other factors.

Foreign currency risk:Investment trusts/funds which invest in equities or bonds, etc. denominatedin foreign currencies entail a foreign currency risk, and the base value (ornet asset value) of investment trusts/funds may change depending on thecurrency exchange rate. Even when you do not experience a loss of invest-ment principal when calculated in the base currency, you may suffer a lossat conversion into Japanese yen due to fluctuations in exchange rates. Fur-thermore, investment trusts/funds which utilize currency trading amongmultiple currencies may incur costs due to such currency trading dependingon the difference in short-term interest rates between the currencies, andyou may suffer a loss.

Credit risk:For investment trusts/funds which invest in equities or bonds, etc., the pricesof these investments may increase and decrease due to changes in thebusiness or financial standing of the issuer and other factors, and you maysuffer a loss.

Risk pertaining to liquidity:Where there is sudden high volume in a particular investment or when suddenchanges in the external environment surrounding markets triggers a suddendownturn in a market or period of market turmoil, etc., investments may notbe flexibly traded. In such a case, a decline in the price of the investmentmay impact the base value (or net asset value) of the investment trust, result-ing in a loss. Further, the management company may decide to stop calcu-lation of net asset prices or suspend sell or redemption claims.

In addition, for certain types of investment trust/fund there is a risk thatparticular investments may be designated to a separate account (or sidepocket) due to a lack of liquidity. When a separate account is utilized by in-vestment trusts/funds restrictions may apply as to when such investmentscan be liquidated through a sell or redemption claim and there may be a re-striction in the timing or form of redemption claim permissible. In particular,for Fund of Fund investments, when an investment trust/fund makes an in-vestment without time limit in another fund, the investment trust/fund maybe influenced by investment results in the other funds.

Risk associated with an outflow of money received fromsales orders:When there is a large volume of sale orders in a short period of time, theinvestment trust/fund may be forced to sell structured securities at a lowerrate than the prevailing market price to refund monies to investors and as aresult you may suffer a loss. Also, alternative investment trusts/funds gen-erally have a limitation in selling or cashing out the investment compared totraditional investment trusts/funds. Many alternative investment trusts/fundsonly accept a sell or redemption order on a monthly or quarterly basis andtherefore you may not be able to rapidly exit the investment in, for example,times of economic uncertainty.

Redemption risk:Investment trusts/funds may become subject to mandatory redemption dueto a certain reason. For details, please refer to the pre-trade documents(prospectus and other supplementary documents) before subscription.

Concentration risk:Investment trusts/funds which invest in a certain investment product orsimilar investment product group may significantly decrease in value (netasset value) under severe market circumstances.

Country risk:When changes in political, economic and social conditions in investmentdestination countries and regions cause a dislocation in financial and securitymarkets, security prices may significantly change. Also, investments inemerging markets involve unique risks including small market size and tradevolume, political and social uncertainties, undeveloped market infrastructuresuch as a clearing system, undeveloped information disclosure system andlegal system by supervising authorities, large fluctuations in exchange rates,restrictions on currency remittance to foreign countries and other factors,and, therefore, may have larger price fluctuations compared to investmentsin major developed markets.

Important information on non-Japanese stocksPlease refer to the issuer information when you purchase non-Japanesestocks.

DisclaimerThis material is published solely for information purposes and is intended forthe recipient’s sole use. Credit Suisse does not represent or warrant its ac-curacy or completeness. The material is not directly or indirectly intended forany investment solicitation, and does not constitute an invitation or offer toconclude a transaction contract for financial instruments, etc. Credit Suisseaccepts no liability for loss arising from the use of the information in thismaterial. It is recommended that you consult with the third party professionaladvisors as to legal or tax issues, etc. This material should not be reproducedor quoted without the prior express written consent of Credit Suisse. Theinformation and opinions expressed in this material were produced by PrivateBanking Division at Credit Suisse as of the date of writing and are subjectto change without notice. Views expressed in respect of particular investmentproducts in this material may be different from, or inconsistent with, the ob-


servations and views of other divisions besides Private Banking due to thedifferences in evaluation criteria. This material is solely distributed in Japanby Credit Suisse Securities (Japan) Limited. Credit Suisse Securities (Japan)Limited will not distribute or forward it outside Japan.

You may incur a loss as a result of fluctuations in stock prices if you investin stocks. In relation to foreign stocks, you may incur a loss in such stocksdue to foreign exchange rate fluctuations, etc. The market value of bondsis affected by interest rate fluctuations or changes in the financial standingof any issuer, etc. as such you may incur a loss if you sell such bonds beforethey are redeemed. In relation to foreign bonds, you may incur a loss in suchbonds due to foreign exchange rate fluctuations, etc. The net asset valueof mutual funds can fall as well as rise due to price changes of underlyingstocks, bonds, etc. and foreign exchange rate fluctuations, and this maycause you to incur a loss.

Structured securities and derivatives are complex instruments, typically involvea high degree of risk and are intended for sale only to sophisticated investorswho are capable of understanding and assuming the risks involved. Themarket value of any structured security or transaction may be affected bychanges in financial market conditions, reference indices, volatility and thecredit quality of any issuer or reference issuer.

Furthermore, there are structured securities on which you may incur a losssince the redemption amounts are linked with fluctuations in reference indices,etc. There are also derivatives on which potential losses may exceed theamount of the initial investment. Commission rates for any transactions willbe as per the rates agreed between Credit Suisse and you. For transactionsconducted on a principal to principal basis between Credit Suisse and you,the purchase or sale price will be the total consideration. Transactions con-

ducted on a principal to principal basis, including over the counter derivativestransactions, will be quoted as a purchase/bid price or sell/offer price andfor which a difference or spread may exist. Charges in relation to transactionswill be agreed prior to dealing as per our requirements under the FinancialInstruments and Exchange Law.

By purchasing financial instruments, etc., you may incur a loss or aloss in excess of the principal as a result of fluctuations in marketprices or other financial indices, etc. Please read carefully the Pre-Contract Documentation provided for an explanation of associatedrisks and commissions etc. of individual financial instruments, etc.prior to purchase. Please contact your Relationship Manager if youhave any questions.

UNITED STATES: NEITHER THIS REPORT NOR ANY COPY THEREOFMAY BE SENT, TAKEN INTO OR DISTRIBUTED IN THE UNITED STATESOR TO ANY US PERSON (WITHIN THE MEANING OF REGULATION SUNDER THE US SECURITIES ACT OF 1933, AS AMENDED).

Credit Suisse Securities (Japan) Limited, Financial Instruments Dealer, Di-rector-General of Kanto Local Finance Bureau (Kinsho) No. 66, a memberof Japan Securities Dealers Association, Financial Futures Association ofJapan, Japan Investment Advisers Association, Type II Financial InstrumentsFirms Association.

Copyright © 2020 Credit Suisse Group AG and/or its affiliates. All rightsreserved.

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