credit suisse, market focus, jan 17,2013

7/29/2019 Credit Suisse, Market focus, Jan 17,2013

1/12

ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES ARE IN THE DISCLOSURE APPENDIX. FOR OTHER

IMPORTANT DISCLOSURES, PLEASE REFER TO https://firesearchdisclosure.credit-suisse.com.

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION

Client-Driven Solutions, Insights, and Access

Market Focus

The state of risk appetite

Viewed in longer perspective the state of investor risk appetite is severely

depressed arguably worse than at any time in the last 25-30 years. You might

call this a secular funk, reflected in the massive de-risking of investor portfolios

over the course of the last 12-13 years, the relative valuation of safe versus

riskier assets, the tendency to look for a system threatening Black Swan events

around every corner and what is for our money an excessive and

sometimes indiscriminate use of the deleveraging word.

We cannot remember a time even in the late 1970s when pessimismappeared so pervasive and uncertainty about the longer-term future seemed so

great among investors and business leaders alike.

But in the short-run, some of our measures of risk appetite have started to froth

a bit (Exhibit 1).

US Credit Risk Appetite is leading the way. Late last year it soared into the

euphoria zone, for the first time since early 2010, and is in fact at a 10-year

high. Thats some turnaround from the extreme panic of 2011.

Global Risk Appetite remains comfortably below the euphoria zone. But it is

above its early 2012 peak, and Credit Risk Appetite is sometimes a good

leading indicator. Meanwhile, equity sentiment indicators are already

uncomfortably high, with the year less than three weeks old.

So could we be heading for the first euphoria episode since 2006? And if we do

hit euphoria, when is that most likely to happen and what will it mean? Will that

be the last chance to get out before the next great crash? Or the big overbought

signal that often signals the start of a new bull market phase?

The answer at the end of the day will depend on growth, as we explore below.

But there is something rather intriguing worth looking at first.

A few years ago, we put together a small model designed to give prior warning

of major market crises. We called it the Composite Risk Indicator, and the idea

was, first, to identify when the potential for a bad market episode was unusually

high (propensity), and then to identify potential catalysts that might help

precipitate the crisis itself (triggers). Though this was not the original purpose,the system by definition also generates positive risk signals moments when

the propensity for a period of good markets (higher-than-normal Sharpe ratios

for risk assets) is unusually high.

Research Analysts

Jonathan Wilmot

+44 20 7888 3807

[email protected]

James Sweeney

212 538 4648

[email protected]

Matthias Klein

+44 20 7883 8189

[email protected]

Paul McGinnie

+44 20 7883 6481

[email protected]

Aimi Plant

+44 20 7888 7054

[email protected]

Wenzhe Zhao

212 325 1798

[email protected]

Jeremy Schwartz

212 538 6419

[email protected]

17 January 2013

Economics Research

http://www.credit-suisse.com/researchandanalytics


2/12

17 January 2013

Market Focus 2

Within the propensity part we found the most useful approach was to look at valuation

measures and leverage. When one or more important global asset markets was significantly

overvalued, when unusually rapid credit growth to the real economy had taken place in

recent years, and/or leverage within the financial sector itself was unusually high, then

propensity for a major bad market episode was also high. (And in principle vice versa.)

Among the possible catalysts for a crisis in waiting to occur within weeks or months, we

put unusually tight monetary conditions, an imminent peak in global growth momentum,and risk appetite euphoria episodes. So the full recipe for a major crisis could be thought

of as follows: extreme overvaluation of one or more major global asset classes,

abnormally high real economy or high financial system leverage, risk appetite euphoria,

imminent turndown in global growth (IP momentum), and hostile monetary policy.

So far so intuitive. But the hardest part of this exercise was to find consistent,

comprehensive, and timely estimates of financial system leverage. We looked at many

plausible candidates but in the end the Holy Grail eluded us and we decided to put in the

5-year moving average of risk appetite itself (Exhibit 3), using it as a rough proxy for the

longer cycle in financial system leverage.

Statistically this is a bit risqu, but intuitively its very appealing. And it certainly seemed to

work in terms of giving appropriate signals in 1987, in 1989/90, in 2002 (positive risk

signal) and 2007/8.

Now currently the 5-year moving average of Global Risk Appetite is just turning up from an

all-time low. A possible interpretation of that is as follows: financial system leverage

partly through the impact of regulation, partly through the effect of poor risk asset returns

and exceptionally high volatility has overshot to the downside and is just starting to

improve from abnormally low levels. So financial system leverage, arguably a leading

indicator of real economy credit availability and demand, is potentially starting a new

longer-term up cycle!

We are aware that this idea will annoy some of our readers, or at least worry them, but we

tend to think that our simple leverage proxy suggests that the global credit cycle is starting

to shift from a vicious circle process to a more virtuous process which will help support a

more complete recovery in the real economy.

For us its not just a key policy goal but also a humanitarian imperative to get the major

developed economies back on to a more robust growth path, one that offers hope of a

return to full employment within a few years.

For that you need investors and private sector business leaders who are less frightened,

more stable collateral to borrow and lend against, and a gradual re-expansion of funding

liquidity; loan demand and loan supply based on both sounder collateral and a sounder

capital structure within the banking system.


3/12

17 January 2013

Market Focus 3

Exhibit 1: Global and US credit risk appetite

Euphoria

Panic

-7

-5

-3

-1

1

3

5

7

95 97 99 01 03 05 07 09 11 13

Global Risk Appetite

US Credit Risk Appetite

Exhibit 2: Global risk appetite and global IP momentum

-10

-8

-6

-4

-2

0

2

4

6

-24%

-20%

-16%

-12%

-8%

-4%

0%

4%

8%

12%

16%

20%

90 92 94 96 98 00 02 04 06 08 10 12

Global IP Momentum

Global Risk Appetite (daily, rhs)

Euphoria

Panic

Exhibit 3: 5-year moving average of global risk appetite

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

81 84 87 90 93 96 99 02 05 08 11

Extremely high

Extremely low

Long-run average(1981-2006)

Source: Credit Suisse, the BLOOMBERG PROFESSIONAL service, Thomson Reuters DataStream


4/12

17 January 2013

Market Focus 4

Obviously, not all parts of the world economy and financial system fully meet those key

conditions sound collateral, adequate capitalization, more secure funding for a

normalization of credit supply and demand. But we have made some progress everywhere,

even in Europe. And in at least two key regions the US and China we think there is

reason to believe that a positive turning point is already under way.

A key test for a normalization of the credit cycle is a normalization of the cost and

availability of longer-term credit for the banks and quasi-banks.So what would you expect to see if the credit cycle is turning up again? A credit risk

appetite euphoria due to the outperformance of longer-dated bonds issued by financial

institutions and banks!

Which is exactly what we have seen in recent months.

But the change in market psychology is also visible elsewhere. Exhibit 4 shows how MSCI

World is arguably breaking the long-term downtrend it has been in since 2009. Exhibits 5

and 6 look at our World Wealth Index (65% global equities, 35% global fixed income) in

two slightly different ways.

The first chart shows how we have recently broken out to a new all-time high, with a healthy

acceleration post that break out. To us this is in itself a hint that there is considerable room

for World Wealth to climb further over the next couple of years, which by definition requiresthe equity component of the index to do so at a more accelerated pace.

The second chart indicates that World Wealth is already shifting towards a steeper and

less volatile uptrend than the prevailing norm of the last two years, though we note that the

top of the steeper uptrend is a few percent away.

The last World Wealth chart (Exhibit 7) shows how the current cycle is tracking previous

five-year bull markets quite closely. Given how low leverage is now, and how far we are

from full employment, is it possible that this World Wealth cycle could be even longer than

five years?

So a number market signals are there to support the following hypothesis:

1) On a longer-term view risk appetite remains abnormally low, but the medium-term

trend may finally be turning up, consistent with an upturn in the global credit cycle.

2) On a shorter-term basis the prospective returns for equities (absolutely and relative

to safe bonds) may have already shifted to a steeper and less volatile uptrend.

3) If so, we should allow for the possibility that the next euphoria may be a big one, like

Credit Risk Appetite now, and quite extended too. The subsequent correction, by

contrast may be unusually shallow, even if it too takes months to complete.


5/12

17 January 2013

Market Focus 5

Exhibit 4: MSCI World with downtrend

Exhibit 5: World Wealth with tramlines

-17% -34%

-39%

5.6

5.8

6

6.2

6.4

97 99 00 02 04 06 08 10 12

(in logscale)

Exhibit 6: World Wealth with trend



6/12

17 January 2013

Market Focus 6

That is quite a familiar story: at the very moment a new medium-term bullish phase begins

markets sometimes get strongly overbought in the short-run, something that is in the end a

confirmation of a new and more positive regime rather than a signal of a major and

bearish trend reversal.

This is more likely to happen when medium-term (real money) investors are poorly

positioned for the new trend. That is very much where we think real money is now: under

or outright badly positioned for better global growth over the next year or two.

Exhibit 7: World Wealth recoveries from trough

100

120

140

160

180

200

220

240

0 1 2 3 4 5 6

12/08/1982

09/03/1995

09/10/2002

02/03/2009

years from trough


At the end of the day, however, market signals can only suggest what the future may bring,

and can always be over-ridden by fundamentals or major new shocks.

On the fundamental side the main issue is global growth, and whether that is set to

improve on a sustained basis.

Going back to Exhibit 2 it is clear that Global Risk Appetite as so often has already

anticipated a significant pick-up in global production momentum (from a low of -1.3% per

annum in November to a local peak/plateau of 7.3% around April/May).

This is unusually far ahead of the improvement in global PMI new orders so far seen, but

we expect better confirmation over the next few months.

But this is where it gets really interesting.

A simple comparison of the recovery since March 2009 with the last three expansions

suggests we are at the very moment when you might expect to shift from a virtual standstill

in global IP growth to a new phase in which growth is both stronger (at or slightly above

trend), and significantly less volatile. See Exhibit 8 and our Market Focus from 05

NovemberThis Time Its Different.
https://plus.credit-suisse.com/r/JRGyoGhttps://plus.credit-suisse.com/r/JRGyoGhttps://plus.credit-suisse.com/r/JRGyoGhttps://plus.credit-suisse.com/r/JRGyoGhttps://plus.credit-suisse.com/r/JRGyoGhttps://plus.credit-suisse.com/r/JRGyoG


7/12

17 January 2013

Market Focus 7

Exhibit 8: Global IP cycles compared

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

0 12 24 36 48 60

Global IP Momentum rebased from trough

Nov-82

Dec-92

Nov-01

Feb-09months from trough

Source: Credit Suisse, Thomson Reuters DataStream

Moreover, one could argue that the fragility of growth recently, and the repeated doses of

system-threatening political brinkmanship that have contributed to it, have started to shiftthe momentum of policy in a more growth-friendly direction. With an obvious short-term

caveat for US fiscal policy, the global drift of monetary policy, financial regulation and fiscal

policy is towards a more stimulative, or somewhat less restrictive path.

Add that to the tendency for mid-cycle slowdowns to end at about this stage in prior

expansions, the hints from our financial leverage proxy that the global credit cycle is

turning up, and the better equity market dynamics discussed above, and you begin to

wonder: are we about to see the new normal consensus die a slow death? To be

replaced in due course by something less emotionally addictive but altogether more

interesting? (Which isnt, by the way, a simple return to the old normal.)

In any case, the new normal story has been a brilliant parable for our times, and whats

more a highly effective guide to investors since the Greek crisis really started to escalate.

Its not so much our forecast that would be foolishly over-confident as our working

hypothesis that the best days of the new normal story as an investment road map are

already behind us.

Like all working hypotheses this one needs to be continually checked and re-checked

against the facts. On that score the latest incremental news on global growth contains a

couple of surprisingly positive items and one potentially (big) negative.

In the positive ledger we see China and Japan. For China the key innovation of th e last

several weeks has been a dramatic turn round in the domestic equity market, and perhaps

most significantly in the fortunes of the bank stocks. Coupled with growing evidence of

better credit supply and demand.

In Japan, Abenomics has galvanised the equity market, given a big shot in the arm to

business confidence and put Japan firmly back on the agenda for global investors. Ofcourse the jury remains out on finally ending Japans long deflationary malaise, but Abe

has already transformed the likely path for Japanese growth over the next six months.

The top political priority is to make certain of an LDP majority in the Upper House elections

this summer (giving the government more leverage over the BoJ among other things), and

fiscal policy is being managed to that end. There will likely be no consumption tax increase

until the economy is in better shape, while government investment is to get a big short-

term boost. By late summer we now see the level of Japanese industrial production some

4%-5% higher than in our previous forecast.


8/12

17 January 2013

Market Focus 8

That has an important effect on our global IP projections, which now look for more of a

growth plateau in Q2/Q3 than a clear-cut peak. These are just the growth conditions that

could support an extended euphoria

The obvious negative is the second and potentially more bitter round of US fiscal cliff

bargaining. Meaning this particular lump of policy uncertainty is down but by no means out.

Market talk at the moment is that we are learning to live with all this political brinkmanship

and that at the end of the day we will get a last minute agreement on spending cuts toroughly match the tax increases passed in January. So the chances are we wont get

much market disruption this time round.

We are a lot more cautious.

It all depends on exactly which instrument the politicians choose to play their game of

chicken with. If it looks at any stage as if there is even a small chance of failing to pass a

debt ceiling increase in time, and thus forcing the US government into technical default,

however short lived, we think the chances of a nasty sell-off in US Treasuries, the dollar

and risk assets all at the same time are all too real. Thats because as we understand it

the treasury market would be effectively rendered totally illiquid and untradeable, and in

a way that could not be easily restored in a day or two.

But perhaps because of the potentially extreme consequences the (Republicans)instrument of choice in this particular stand-off might be the indication to let the spending

sequester happen on March 1, using it as a bludgeon to force an agreement on deeper

(entitlement) spending cuts in the days or weeks afterwards.

That is potentially less disruptive, but far from good news for the economy in the short-run.

And it highlights the paradox behind our global IP projections: the medium-term prospect

of faster private sector GDP growth in the US, as housing turns and becomes good

collateral again, is a higher conviction story than robust growth in the euro zone, or even

Japan. But over the next few months there is considerable policy risk to our current US

production forecast.

And while that risk remains, we think it will be quite hard for US bonds to sell off

significantly at the same time as global equities rally further, which is the combination most

likely to push Global Risk Appetite all the way into the euphoria zone. And at the limit,

Washington still has the capacity to quite seriously damage both the short-term outlook for

growth and the new found optimism about equity market performance this year.

Either way, we think the most likely timing for a (potentially quite extended) risk appetite

euphoria episode will be in the second quarter, just about when global IP growth is

plateauing.

And even if global growth cools a bit from there, there is a decent chance that the pullback

in growth momentum (and global equity markets) will be relatively shallow, ushering in a

much more optimistic outlook for global growth in 2014 than most people can yet

realistically imagine.

Our last panel of charts helps to highlight some of the potential consequences of that.

First, it is remarkable just how closely real US earnings per share track the level of global

industrial production (Exhibit 9). So if global IP grows in the sort of way it did at the same

stage of previous expansions, then we would expect US earnings to largely follow suit

(thus remaining way above trend for a surprisingly long time).

Second, there need be no real dichotomy between the recent rally in equity markets and

faltering earnings momentum: the prospect is for negative earnings surprises to moderate

as year-on-year growth in global production picks up, Exhibit 10.


9/12

17 January 2013

Market Focus 9

Third, the longer-term trend in our World Wealth index is fairly closely aligned with the

longer-term trend of global industrial production, but with World Wealth tending to oscillate

around the growth trend. The periods of what one might call multiple expansion tend to

come when the credit cycle is improving, with the crashes back to earth during periods of

sharp de-leveraging and recession.

So if, and when, confidence in the sustainability of growth improves World Wealth will

likely rise faster than growth itself.In sum, the near-term prospects for this risk appetite rally are pretty mixed, but that is in a

sense not the really important story.

The curious state of risk appetite and financial sector leverage deeply depressed on a

longer-term view getting a little frothy in the short term are in a sense pointing in the

same direction. For the first time in a few years, there is room to imagine not a perfect

future, but a brighter and less unstable couple of years in which the private credit cycle

starts to reinforce growth, and growth starts to reinforce the credit cycle.

So instead of the central banks having to work overtime to stop a vicious cycle of self-

reinforcing credit stress, they will (eventually) be able to return to more conventional policy

making, as private sector credit channels start to function more fully again.

There are of course many stages yet to come in the long saga of restoring the medium- tolong-term sustainability of government finances in the US, Europe and Japan, but more

robust (nominal) growth is the essential foundation for more structural solutions to be

gradually put in place. There is neither any prospect, nor any overriding need, for radical

and complete solutions to be found immediately.

Indeed, right now one can say that the most crucial factor is that policy makers do no great

harm to the evolving pick-up in global growth. And specifically that Congress and the

President end up doing basically the right thing in Act II of the fiscal cliff drama.

After, no doubt, exhausting every other alternative.


10/12

17 January 2013

Market Focus 10

Exhibit 9: US and Global IP and EPS

0

20

40

60

80

100

120

140

160

180

75

80

85

90

95

100

105

110

115

120

0 1 2 3 4 5 6

(rebased from Feb 08)

Global IP

US IP

US EPS (rhs)

time in years

Exhibit 10: Global IP and earnings surprises

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%10%

12%

0.350.400.450.500.550.600.650.700.750.800.850.900.951.001.051.10

1.15

85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

Earnings Surprise (Actual Earnings to Forecast Ratio)

Global IP yoy% (rhs)

Exhibit 11: World Wealth and Global IP, log level

4.5

4.7

4.9

5.1

5.3

5.5

5.7

5.9

4.8

5

5.2

5.4

5.6

5.8

6

6.2

6.4

6.6

6.8

85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

World Wealth

Global IP, rhs

Trend IP Growth= 4.3% p.a. (1985 to 2011)

Trend World Wealth Growth

= 5.2% p.a. (1985 to 2011)



11/12

FIXED INCOME GLOBAL STRATEGY RESEARCH

Jonathan Wilmot, Managing Director

Chief Global Strategist

+44 20 7888 3807

[email protected]

Eric Miller, Managing Director

Global Head of Fixed Income and Economic Research+1 212 538 6480

[email protected]

LONDON One Cabot Square, London E14 4QJ, United Kingdom

Paul McGinnie, Director

+44 20 7883 6481

[email protected]

Matthias Klein, Director

+44 20 7883 8189

[email protected]

Aimi Plant, Associate

+44 20 7888 [email protected]

NEW YORK 11 Madison Avenue, New York, NY 10010

James Sweeney, Managing Director


Wenzhe Zhao, Associate


Jeremy Schwartz, Analyst



12/12

Disclosure Appendix

Analyst CertificationJonathan Wilmot, James Sweeney, Matthias Klein, Aimi Plant, Wenzhe Zhao and Jeremy Schwartz each certify, with respect to the companies or securities that he or she analyzes, that (1) theviews expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly orindirectly related to the specific recommendations or views expressed in this report.

DisclaimerReferences in this report to Credit Suisse include all of the subsidiaries and affiliates of Credit Suisse operating under its investment banking division. For more information on our structure, pleaseuse the following link: https://www.credit-suisse.com/who_we_are/en/. This report may contain material that is not directed to, or intended for distribution to or use by, any person or entity who is acitizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subjectCredit Suisse AG or its affiliates ("CS") to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is undercopyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express writtenpermission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates. The information,ools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy orsubscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treatrecipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommendedhat you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice,or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise onhe tax consequences of investments and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. Information andopinions presented in this report have been obtained or derived from sources believed by CS to be reliable, but CS makes no representation as to their accuracy or completeness. CS accepts noliability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes orregulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, other communicationshat are inconsistent with, and reach different conclusions from, the information presented in this report. Those communications reflect the different assumptions, views and analytical methods ofhe analysts who prepared them and CS is under no obligation to ensure that such other communications are brought to the attention of any recipient of this report. CS may, to the extent permittedby law, participate or invest in financing transactions with the issuer(s) of the securities referred to in this report, perform services for or solicit business from such issuers, and/or have a position orholding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto. In addition, it may make markets in the securities mentioned inhe material presented in this report. CS may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market inissues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investmentconcerned or a related investment. Additional information is, subject to duties of confidentiality, available on request. Some investments referred to in this report will be offered solely by a singleentity and in the case of some investments solely by CS, or an associate of CS or CS may be the only market maker in such investments. Past performance should not be taken as an indicationor guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this reportreflect a judgment at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned inhis report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of suchsecurities or financial instruments. Investors in securities such as ADR's, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complexinstruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value ofany structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, marketconditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of theproduct and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. Highvolatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case ofsome investments the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses. Income yieldsrom investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and itmay be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This reportmay provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes noresponsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and informationand the content of any such website does not in any way form part of this document. Accessing such website or following such link through this report or CS's website shall be at your own risk.This report is issued and distributed in Europe (except Switzerland) by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is regulated in the UnitedKingdom by The Financial Services Authority ("FSA"). This report is being distributed in Germany by Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by theBundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). This report is being distributed in the United States and Canada by Credit Suisse Securities (USA) LLC; in Switzerland by Credit Suisse

AG; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; in Mexico by Banco Credit Suisse (Mxico), S.A. (transactions related to the securities mentioned in this report willonly be effected in compliance with applicable regulation); in Japan by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau(Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms

Association; elsewhere in Asia/ Pacific by whichever of the following is the appropriately authorised entity in the relevant jurisdiction: Credit Suisse (Hong Kong) Limited, Credit Suisse Equities(Australia) Limited, Credit Suisse Securities (Thailand) Limited, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse AG, Singapore Branch, Credit Suisse Securities (India) Private Limitedregulated by the Securities and Exchange Board of India (registration Nos. INB230970637; INF230970637; INB010970631; INF010970631), having registered address at 9th Floor, CeejayHouse,Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777, Credit Suisse Securities (Europe) Limited, Seoul Branch, Credit Suisse AG, Taipei Securities Branch, PT Credit SuisseSecurities Indonesia, Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above. Research on Taiwanese securities produced by CreditSuisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for CreditSuisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020. This research may not conform to Canadian disclosure requirements. In jurisdictions where CSis not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and mayrequire that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wishing to effect a transaction should contact a CS entityin their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA)LLC in the U.S. Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are notmarket professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for anynecessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not regulated by the FSA or in respect ofwhich the protections of the FSA for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon requestin respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering intosuch transactions. Any services CS provides to municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.CS is providing any such services and related information solely on an arm's length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any suchservices, there is no agreement, direct or indirect, between any municipality (including the officials, management, employees or agents thereof) and CS for CS to provide advice to the municipality.Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit

he municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by themunicipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of themunicipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institutionshould contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to theclients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct orconsequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up anaccount or at any time after that.

Copyright 2013 CREDIT SUISSE AG and/or its affiliates. All rights reserved.

Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on whichinvestment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments.When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporatebonds) from CS as a seller, you will be requested to pay the purchase price only.
https://www.credit-suisse.com/who_we_are/en/https://www.credit-suisse.com/who_we_are/en/https://www.credit-suisse.com/who_we_are/en/https://www.credit-suisse.com/who_we_are/en/

credit suisse, market focus, jan 17,2013

Documents