jul 30 unicredit equity strategy market outlook

8/9/2019 JUL 30 UniCredit Equity Strategy Market Outlook

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30 July 2010 Equity Strategy

Market Outlook

UniCredit Research page 1 See last pages for disclaimer.

Weaker leading indicators will successively

dominate in the course of 3QStress test: The impact of the stress test on the ability of the interbank

money market to function is a key indicator with respect to the medium-term impact on the parameters for the equity market. The more stronglythe stress in the banking system is ultimately linked with the problems ofindividual countries (government deficit, competitiveness), the lessprobable rapid relief is.

EMU: The causes of the tensions in EMU can only be eliminated via aprotracted reform process. The possible renewed escalation of the tensionsremains a material risk factor.

Economy: The recent rise in the Ifo expectations does not mark thebeginning of a new positive trend. The positive share price effects fromthe reporting season will successively wane, and the strains from weakerleading indicators will increase.

Financials: Rally yes sustained no. We think three risk groups will cutshort the rally by the banks: credit risk, sovereign risk and regulatory risk.

Defensives: Growing appeal in 2H10. Leading indicators such as themoney supply M1 are signaling the turning point in the relative earningsdynamic of cyclicals versus defensives.

STOXX 600 allocation: Chemicals, Oil & Gas, Telecom and Utilities remainoverweighted. Alongside Construction & Materials, we are underweightingBasic Resources and Retail.

IT IS IMPROBABLE THAT THE GROWTH EXPECTATIONS WILL CONTINUE TOTREND HIGHER (= HEADWIND FOR THE EQUITY MARKET)

Euro zone: money supply M1 and Ifo growth expectations

99 00 01 02 03 04 05 06 07 08 09 10 1175

80

85

90

95

100

105

110

0

2

4

6

8

10

12

14

EU: money supply M1 (% change yoy, shifted by 6M, rs)ifo business climate - subindex expectations

Source: Reuters, Thomson Datastream, UniCredit Research

KEY VIEWS & RECOMMENDATIONS

Index targets End 2010

STOXX Europe 600 255EURO STOXX 50 2700

DAX 6000

MDAX 7800

S&P 500 1150

Topix 880

CROSS-ASSET-RECOMMENDATION

Equities underweight

COUNTRY-RECOMMENDATIONS

Global (in local currency)

Europe underweight

USA neutral

Japan underweight

STYLE-RECOMMENDATIONS

STOXX Large vs. STOXX neutral

STOXX Mid vs. STOXX neutral

STOXX Small vs. STOXX neutral

SECTOR-RECOMMENDATIONS

Western Europe (vs. STOXX Europe 600)

ChemicalsOil & GasTelecommunications

Utilities

overweight

Basic ResourcesConstruction & MaterialsRetail

underweight

Source: UniCredit Research

Dr. Tammo Greetfeld, Equity Strategist+49 89 [email protected]

Christian Stocker, CEFA (UniCredit Bank)+49 89 [email protected]


2/12


Market Outlook


The positive share price effect of the reportingseason will successively wane

Step by step, weaker leading indicators will dominate shareprice performance in the course of 3Q. The Ifo businessclimate (expectations) was a surprise recently with a strongincrease and has hit a new high for this cycle. A centralelement in our medium-term picture for the equity markets isour expectation that falling leading indicators will hurt theequity market outlook. How should the recent "jump" in theIfo business climate now be assessed in this context?

From our standpoint, the key question an investor shouldanswer for himself is: How probable is it that the Ifo growthexpectations will continue to trend clearly higher over the

next 3-6 months? If they were to increase, then there areimprovements that the equity market would anticipate viarising share prices. If they were to fall, then this points todisappointments that will weigh on the equity market. Aswe see it, a falling trend is probable (waning impulsesfrom the inventory cycle, end of fiscal support measures,more restrictive fiscal policy in many countries lookingto 2011). This expectation gels with the message from thedevelopment of the money supply M1. Turning points inthe growth rate of the money supply signal "time windows"(not a point in time), when turning points in the growthexpectations become more probable (see chart on the titlepage). Naturally, it must be considered in every cycle

what special features are having an impact and caninfluence the development.

The earnings trend of the national equity markets revealsthe greatest divergences between the EMU memberssince the inception of EMU (see on this point and for ourassessment of the 2Q reporting season in general theStrategy Special dated 22 July). In the coming months itcould become clear that the renewed, particularly strongimprovement in the German leading indicators points,among other things, primarily to a hardening of variouseconomic developments within EMU (and via differing

earnings trends will impact the relative performance of thenational markets to each other).

One positive aspect is that with the current new high inthe Ifo expectations the valuation of the Euro STOXX 50has already fallen to a lower level. At currently 9.9 (12Mforward index earnings), it is substantially lower than atthe high points in the growth expectations of the past 10years. We factor this in, for example, in that despiteexpected falling economic data we expect on balance for2H10 as a whole a sideways move on the equity market.

A large number of economic indicators point to a pendingslowdown of the growth dynamic (e.g. the OECD leadingindicator for many geographical regions). If this impression

were to harden in the coming months, then a new topiccould assume importance on the equity market: Whatscope do governments and central banks have with theirfiscal and monetary policy? Low key interest rates andhigh government deficits limit their scope. Faced with thisdilemma, there is the possibility that equity investors willreact more cautiously with investments in the currentcycle on signs of a slowdown and will be more reluctantto increase the equity ratio on signs of a possible (but stilluncertain) economic improvement.

THE EQUITY MARKET RALLY IN 2009 WAS DRIVEN PRIMARILY

BY THE ECONOMIC RECOVERY

Euro zone: Euro STOXX 50 and CDS spreads (5Y, average)

2007 2008 2009 20100

50

100

150

200

250

300

350

400

450

500

1500

2000

2500

3000

3500

4000

4500

5000

CDS Spread of Euro STOXX 50 banksCDS Spread of countries whose banks are Euro STOXX 50 membersEuro STOXX 50 (rs)

Source: DATASTREAM

Source: Thomson Datastream, UniCredit Research

Decisive indicator for the medium-term impact of the stress

test on the equity market environment: Return of normalcy

in the interbank money market? The chart below showsthe share of various national banking systems in Eurosystemlending. The development of the share is an indicator to trackthe developments of the tensions within EMU. The morestrongly the stress in the banking system is ultimately linkedwith the problems of individual countries (government deficit,competitiveness), the less probable rapid relief is. Thecauses of the tensions in EMU can only be eliminated via aprotracted reform process. The possible renewed escalationof the tensions remains a material risk factor. For ourassessment of the stress test, see the Strategy Flash dated26 July. The CDS spreads of many EMU countries are stillclearly above the levels reached in the wake of the spreadnarrowing in reaction to the EUR 750bn rescue package.


3/12


Market Outlook


THE RISING DEPENDENCE ON REFINANCING VIA THEEUROSYSTEM POINTS TO TENSIONS

Eurosystem: National shares in lending to banks (%)

2009 2010 20110

5

10

15

20

25

30

GriechenlandPortugalSpanien

0

5

10

15

20

25

30

Source: DATASTREAM

The Spanish data was calculated based on "net lending" data and is not directlycomparable with the other data.

Source: National central banks, Thomson Datastream, UniCredit Research

Equity market outlook: Sideways move continues. Thereporting season is approaching its high point. At the end of nextweek, 85% of the S&P 500 companies will have reported,and 76% of the Euro STOXX 50 companies. The impulses

from the reporting season will then expire, and macro datawill again dominate activities more strongly. For 2H10, weexpect a broad sideways move for the Euro STOXX 50(year-end target: 2,700 points). Our sector allocation retainsa defensive bias, and the table on page 6 provides anoverview of the individual stocks the UniCredit companyanalysts think are most promising in the respective sectors.

Bottom line: Falling leading indicators will ultimately proveto be the stronger input factor for share price performancethan positive 2Q company reports.

Dr. Tammo Greetfeld, Equity Strategist

+49 89 [email protected]

Sector Allocation

Since the lows in May, the STOXX Europe 600 has rallied

just over 12%, and it is currently trading roughly 4% belowits highs for the year, posted at mid-April. The sector

performance achieved reveals an interesting picture

here: Cyclicals and defensives outperformed, while

financials underperformed. On strategic considerations,

we think that looking to the second half of the year the still

growing economic uncertainty factors also increasingly

from the USA will increasingly strengthen the relative

performance of defensives and that doubts will increase

about the further performance of cyclicals. On tactical

considerations, financials should have still further, albeit

limited, recovery potential in light of the easing of the

Basel III regulations; given the high weighting of

financials in the Euro STOXX 50 this could underpin still

further recovery potential in the shorter term. On balance,

we will in the coming weeks exploit the higher share

price levels to increase our defensive exposure. The

sectors Food & Beverage and Personal & Household

Goods are ideal candidates here (see also our Strategy

Special dated 22 July "Falling leading indicators stronger

than positive 2Q company reports"). The STOXX Europe600 sectors Chemicals, Oil & Gas, Telecom and Utilitiesremain overweighted. Alongside Construction & Materials weare underweighting Basic Resources and Retail.

In our view, the remaining recovery potential of thefinancials is very short lived. Financials are currentlyprofiting as expected (we upgraded Financials to neutral on9 July, 2010) from their low valuation KPIs and the recoveryof the very negative sentiment versus banks. Various surveyshave revealed in recent weeks that financials, and here aboveall the banking sector, are the most strongly underweightedsector in Europe. We think the rally will probably continue,but it will be short lived and not usher in a newoutperformance trend. We do not attribute the improvementin sentiment towards the banks directly to the results of thestress test, but to the easing of the Basel III requirements(easing of certain funding requirements) At the same time,

risk indicators such as the spread of European governmentbonds to Bunds and a firming of the euro versus the US dollarpoint to (at least temporary) relief in the expectations and theinterpretation of the further development of sovereign risks inEurope.


4/12


Market Outlook


RISK INDICATORS STILL SUPPORT THE RALLY BY FINANCIALSTOCKS

STOXX Europe Banks: relative performance and yield spreads7-10Y EMU government bonds to Bunds

2005 2006 2007 2008 2009 2010-1.60

-1.40

-1.20

-1.00

-0.80

-0.60

-0.40

-0.20

0

0.60

0.70

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

Yield differential 7-10Y EMU sovereigns vs. BundsRelative performance STOXX E Banks / STOXX E 600 (RS)

STOXX Europe Banks: relative performance and EUR/USD

J A S O N D J F M A M J J A S O N D J F M A M J J0.50

0.60

0.70

0.80

0.90

1.00

1.10

1.20

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

1.60

Relative performance STOXX E Banks / STOXX E 600EUR / USD (RS)


In this environment, speculative, tactical purchases of

financials will probably persist. On medium-term, strategicconsiderations, financials have, however, little potential tousher in a sustainable uptrend. Three risk groups will in ourview cut short the rally by the banks:

Credit risk: The credit risk for banks remains high becauseof the government austerity measures in Europe (first andforemost in the periphery) and the resulting growth risks.

Sovereign risk: The risk of haircuts for government bondsin some countries of Europe has not been banished andwill even increase on a probable, asymmetrical economicdevelopment in Europe.

Regulatory risk: Despite the relaxation of parts of Basel IIIannounced on Monday evening (26 July), the capital andliquidity requirements are once again being tightened

considerably versus Basel II and are therefore also limitingthe earnings potential and equity capital profitability. Inaddition, the ECB announced on Wednesday (28 July)that it will tighten its haircuts with respect to the collateralit accepts for credits substantially from 1 January 2011.

Bottom line: This means we are sticking to our tactical upgradeof Banks to neutral three weeks ago, and in the short term seestill further potential for the sector given the constructive riskindicators and the favorable valuation KPIs. Looking to thefurther course of 3Q10, the uncertainties emanating from theeconomic indicators will, however, likely increase again and

above all with respect to the two risk groups, credit risk andsovereign risk, increase the pressure on the banking sector. Adowngrade back to "underweight" cannot then be ruled out; weremain cautious towards the medium-term prospects for banks.

Leading indicators such as the money supply M1 point

to the turning point in the relative earnings dynamic of

cyclicals versus defensives. There is a traditionally closecorrelation between the relative earnings dynamic of cyclicalsversus defensives and the development of the leadingindicators. Now that it is becoming increasingly apparent thatthe leading indicators around the globe are currently peakingor have already peaked, it must be assumed that the positive

earnings surprises for cyclicals will abate strongly in thecoming quarters and that the stable earnings trend ofdefensives will be seen in their performance. We interpret thenew cyclical high in the expectations component of the Ifobusiness climate (July reading, released last week) as a"German outlier" that the indicators for Europe are unlikely toemulate. An excellent pointer is provided here by the moneysupply M1, which experienced a further decline with its Junereading (published on 27 July). Against this backdrop, we nolonger assume that as in past quarters cyclicals will see strong,positive percentage earnings revisions in 2H10 after theadjustments of the current earnings reporting. Above all forBasic Resources, the recently strong momentum will not besustainable. We also expect Chemicals to experience a strongdecline in the expected earnings dynamic in the comingquarters. The development of the euro zone money supply M1 isan outstanding indicator above all for the development of theearnings expectations in Materials (Basic Resources, Chemicals)(see also chart on the right). The described correlationbetween the leading indicators/money supply M1 (as leadingindicator for the growth dynamic) and the dynamic in theearnings expectations is also increasingly being reflected inthe reduction of the cyclical exposure of our sector strategy:we are already underweighting the strongly cyclical sectorsBasic Resources and Construction & Materials. A further

reduction in the weighting of cyclicals is very probablethroughout 3Q10.


5/12


Market Outlook


CYCLICALS WILL LOSE MUCH OF THEIR EARNINGS DYNAMICIN THE COMING QUARTERS

Earnings dynamic* in Materials (Chemicals, Basic Resources)and money supply M1

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

2

4

6

8

10

12

14

-80

-60

-40

-20

0

20

40

60

80

100

Euroland money supply M1, in % yoy, with 9M leadMaterials: earnings dynamic in % vs. 9M (RS)

*Earnings dynamic: Change of the 12M FWD earnings estimates as %


Christian Stocker, CEFA (UniCredit Bank)+49 89 [email protected]


6/12


Market Outlook


SECTOR ALLOCATION WESTERN EUROPE

STOXX Europe 600 sectorBenchmarkweight (%)

Portfolio weightover +/underweighted (%)

Portfolioposition (%)

Shares with a Buy rating(STOXX Europe 600 universe)

Automobiles & Parts 2.0 0 2.0 BMW, Daimler, Michelin, Pirelli,Volkswagen Pref.

Banks 14.9 0 14.9 Banca Popolare Emilia Romagna, Barclays,BBVA, Credit Suisse, HSBC, Royal Bank ofScotland, Santander, UBI Banca

Basic Resources 5.4 -1.5 3.9 ENRC, Kazakhmys

Chemicals 4.0 +0.5 4.5 Akzo Nobel, BASF SE, Clariant, DSM,Lanxess, Symrise

Construction & Materials 2.8 -1.0 1.8

Financial Services 1.4 0 1.4 Azimut Holding, Deutsche Brse AG

Food & Beverage 7.6 0 7.6 Carlsberg Breweries, Nestl

Health Care 9.8 0 9.8 Fresenius SE, Intercell,Rhn-Klinikum, STADA

Industrial Goods & Services 9.1 0 9.1 Atlantia, Deutsche Post DHL, Finmeccanica,Fraport, GEA Group, Siemens

Insurance 5.5 0 5.5 Allianz, Hannover Re, Munich Re

Media 2.2 0 2.2

Oil & Gas 9.0 +1.0 10.0 Dragon Oil, Total

Pers. & Household Goods 5.3 0 5.3 Beiersdorf, L'Oral, LVMH, Philips, Richemont

Real Estate 1.1 0 1.1

Retail 3.5 -1.0 2.5 Ahold, Celesio, METRO, Tesco

Technology 3.2 0 3.2 ASML, Infineon, SAP, United Internet

Telecommunications 6.2 +1.0 7.2 KPN, Telecom Italia, Telefonica, Vodafone

Travel & Leisure 1.3 0 1.3 bwin

Utilities 5.7 +1.0 6.7 E.ON, EDP, Fortum Oyj, GDF Suez, IberdrolaRenovables, Red Electrica, RWE, Terna

Source: STOXX Ltd., UniCredit Research


7/12


8/12


Market Outlook


SECTORS: STOXX 600 COMPANIES COVERED BY UNICREDIT RESEARCH WITH A BUY OR SELL RATING*

Sector Company Rating ISIN

Automobiles & Parts BMW Buy DE0005190003

Automobiles & Parts Daimler Buy DE0007100000Automobiles & Parts Michelin Buy FR0000121261Automobiles & Parts Pirelli Buy IT0000072725Automobiles & Parts Volkswagen Pref. Buy DE0007664039Banks Alpha Bank Sell GRS015013006Banks Banca Popolare Emilia Romagna Buy IT0000066123Banks Banco Popolare Sell IT0004231566Banks Banco Popular Sell ES0113790531Banks Banco Sabadell Sell ES0113860A34Banks Barclays Buy GB0031348658Banks BBVA Buy ES0113211835Banks Commerzbank Sell DE0008032004Banks Credit Suisse Buy CH0012138530Banks EFG EUROBANK ERGASIAS Sell GRS323013003Banks HSBC Buy GB0005405286Banks Lloyds Banking Group Sell GB0008706128Banks National Bank of Greece Sell GRS003013000Banks Piraeus Bank Sell GRS014013007Banks Raiffeisen International Sell AT0000606306

Banks Royal Bank of Scotland Buy GB0007547838Banks Santander Buy ES0113900J37Banks UBI Banca Buy IT0003487029Basic Resources ENRC Buy GB00B29BCK10Basic Resources Kazakhmys Buy GB00B0HZPV38Chemicals AkzoNobel Buy NL0000009132Chemicals BASF SE Buy DE0005151005Chemicals Clariant Buy CH0012142631Chemicals DSM Buy NL0000009827Chemicals Lanxess Buy DE0005470405Chemicals Symrise Buy DE000SYM9999Financial Services Azimut Holding Buy IT0003261697Financial Services Deutsche Brse AG Buy DE0005810055Food & Beverage Carlsberg Breweries Buy DK0010181759Food & Beverage Lindt & Sprngli Sell CH0010570759Food & Beverage Nestl Buy CH0038863350Health Care Fresenius SE Buy DE0005785638Health Care Intercell Buy AT0000612601Health Care Rhn-Klinikum Buy DE0007042301Health Care STADA Buy DE0007251803Ind. Goods & Services Atlantia Buy IT0003506190Ind. Goods & Services Deutsche Post DHL Buy DE0005552004Ind. Goods & Services Finmeccanica Buy IT0003856405Ind. Goods & Services Fraport Buy DE0005773303Ind. Goods & Services GEA Group Buy DE0006602006Ind. Goods & Services SGL Group Sell DE0007235301Ind. Goods & Services Siemens Buy DE0007236101Ind. Goods & Services ThyssenKrupp Sell DE0007500001Insurance Allianz Buy DE0008404005Insurance Hannover Re Buy DE0008402215Insurance Munich Re Buy DE0008430026Oil & Gas Dragon Oil Buy IE0000590798Oil & Gas REC Sell NO0010112675Oil & Gas SolarWorld Sell DE0005108401Oil & Gas Total Buy FR0000120271Pers. & Household Goods Beiersdorf Buy DE0005200000Pers. & Household Goods LOral Buy FR0000120321

Pers. & Household Goods LVMH Buy FR0000121014Pers. & Household Goods Philips Buy NL0000009538Pers. & Household Goods Richemont Buy CH0045039655Retail Ahold Buy NL0006033250Retail Carrefour Sell FR0000120172Retail Celesio Buy DE000CLS1001Retail METRO Buy DE0007257503Retail Tesco Buy GB0008847096Technology ASML Buy NL0006034001Technology Ericsson Sell SE0000108656Technology Infineon Buy DE0006231004Technology SAP Buy DE0007164600Technology United Internet Buy DE0005089031Telecommunications KPN Buy NL0000009082Telecommunications Telecom Italia Buy IT0003497168Telecommunications Telefonica Buy ES0178430E18Telecommunications Vodafone Buy GB00B16GWD56


9/12


Market Outlook


SECTORS: STOXX 600 COMPANIES COVERED BY UNICREDIT RESEARCH WITH A BUY OR SELL RATING* (CONTINUED)

Sector Company Rating ISIN

Travel & Leisure bwin Buy AT0000767553

Utilities E.ON Buy DE000ENAG999Utilities EDP Buy PTEDP0AM0009Utilities Fortum Oyj Buy FI0009007132Utilities Gas Natural Sell ES0116870314Utilities GDF Suez Buy FR0010208488Utilities Iberdrola Renovables Buy ES0147645016Utilities Red Electrica Buy ES0173093115Utilities RWE Buy DE0007037129Utilities Terna Buy IT0003242622

*This list shows the current ratings for the stated companies, not changes to ratings. Source: UniCredit Research


10/12


Market Outlook

UniCredit Research page 10

Disclaimer

Our recommendations are based on information obtained from, or are based upon public information sources that we consider to be reliable but for the completeness andaccuracy of which we assume no liability. All estimates and opinions included in the report represent the independent judgment of the analysts as of the date of the issue. We reserve the

right to modify the views expressed herein at any time without notice. Moreover, we reserve the right not to update this information or to discontinue it altogether without notice.This analysis is for information purposes only and (i) does not constitute or form part of any offer for sale or subscription of or solicitation of any offer to buy or subscribe for anyfinancial, money market or investment instrument or any security, (ii) is neither intended as such an offer for sale or subscription of or solicitation of an offer to buy or subscribefor any financial, money market or investment instrument or any security nor (iii) as an advertisement thereof. The investment possibilities discussed in this report may not besuitable for certain investors depending on their specific investment objectives and time horizon or in the context of their overall financial situation. The investments discussedmay fluctuate in price or value. Investors may get back less than they invested. Changes in rates of exchange may have an adverse effect on the value of investments.Furthermore, past performance is not necessarily indicative of future results. In particular, the risks associated with an investment in the financial, money market or investmentinstrument or security under discussion are not explained in their entirety.

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To prevent or remedy conflicts of interest, UniCredit Bank AG, UniCredit Bank AG London Branch, UniCredit Bank AG Vienna Branch, UniCredit Bank AG Milan Branch,UniCredit Securities, UniCredit Menkul Deerler A.., UniCredit Bulbank, Zagrebaka banka, UniCredit Bank, Bank Pekao, Yapi Kredi, UniCredit Tiriac Bank, ATFBank haveestablished the organizational arrangements required from a legal and supervisory aspect, adherence to which is monitored by its compliance department. Conflicts of interestarising are managed by legal and physical and non-physical barriers (collectively referred to as Chinese Walls) designed to restrict the flow of information between onearea/department of UniCredit Bank AG, UniCredit Bank AG London Branch, UniCredit Bank AG Vienna Branch, UniCredit Bank AG Milan Branch, UniCredit Securities, UniCreditMenkul Deerler A.., UniCredit Bulbank, Zagrebaka banka, UniCredit Bank, Bank Pekao, Yapi Kredi, UniCredit Tiriac Bank, ATFBank and another. In particular, InvestmentBanking units, including corporate finance, capital market activities, financial advisory and other capital raising activities, are segregated by physical and non-physicalboundaries from Markets Units, as well as the research department. In the case of equities execution by UniCredit Bank AG Milan Branch, other than as a matter of clientfacilitation or delta hedging of OTC and listed derivative positions, there is no proprietary trading. Disclosure of publicly available conflicts of interest and other material interestsis made in the research. Analysts are supervised and managed on a day-to-day basis by line managers who do not have responsibility for Investment Banking activities,including corporate finance activities, or other activities other than the sale of securities to clients.


11/12


Market Outlook


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Notice to Austrian investorsThis document does not constitute or form part of any offer for sale or subscription of or solicitation of any offer to buy or subscribe for any securities and neither this documentnor any part of it shall form the basis of, or be relied on in connection with or act as an inducement to enter into, any contract or commitment whatsoever.

This document is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on to any other person or published, inwhole or part, for any purpose.

Notice to Czech investorsThis report is intended for clients of UniCredit Bank AG, UniCredit Bank AG London Branch, UniCredit Bank AG Vienna Branch, UniCredit Bank AG Milan Branch, UniCreditSecurities, UniCredit Menkul Deerler A.., UniCredit Bulbank, Zagrebaka banka, UniCredit Bank, Bank Pekao, Yapi Kredi, UniCredit Tiriac Bank, ATFBank in the CzechRepublic and may not be used or relied upon by any other person for any purpose.

Notice to Italian investorsThis document is not for distribution to retail clients as defined in article 26, paragraph 1(e) of Regulation n. 16190 approved by CONSOB on October 29, 2007.In the case of a short note, we invite the investors to read the related company report that can be found on UniCredit Research website www.research.unicreditgroup.eu.

Notice to Russian investorsAs far as we are aware, not all of the financial instruments referred to in this analysis have been registered under the federal law of the Russian Federation On the SecuritiesMarket dated April 22, 1996, as amended, and are not being offered, sold, delivered or advertised in the Russian Federation.

Notice to Turkish investorsInvestment information, comments and recommendations stated herein are not within the scope of investment advisory activities. Investment advisory services are provided inaccordance with a contract of engagement on investment advisory services concluded with brokerage houses, portfolio management companies, non-deposit banks and theclients. Comments and recommendations stated herein rely on the individual opinions of the ones providing these comments and recommendations. These opinions may notsuit your financial status, risk and return preferences. For this reason, to make an investment decision by relying solely on the information stated here may not result inconsequences that meet your expectations.

Notice to Investors in Japan

This document does not constitute or form part of any offer for sale or subscription for or solicitation of any offer to buy or subscribe for any securities and neither this documentnor any part of it shall form the basis of, or be relied on in connection with or act as an inducement to enter into, any contract or commitment whatsoever.

Notice to UK investorsThis communication is directed only at clients of UniCredit Bank AG, UniCredit Bank AG London Branch, UniCredit Bank AG Vienna Branch, UniCredit Bank AG Milan Branch,UniCredit Securities, UniCredit Menkul Deerler A.., UniCredit Bulbank, Zagrebaka banka, UniCredit Bank, Bank Pekao, Yapi Kredi, UniCredit Tiriac Bank, ATFBank in theCzech Republic who (i) have professional experience in matters relating to investments or (ii) are persons falling within Article 49(2)(a) to (d) (high net worth companies,unincorporated associations, etc.) of the United Kingdom Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or (iii) to whom it may otherwise lawfullybe communicated (all such persons together being referred to as relevant persons). This communication must not be acted on or relied on by persons who are not relevantpersons. Any investment or investment activity to which this communication relates is available only to relevant persons and will be engaged in only with relevant persons.

Notice to U.S. investorsThis report is being furnished to U.S. recipients in reliance on Rule 15a-6 ("Rule 15a-6") under the U.S. Securities Exchange Act of 1934, as amended. Each U.S. recipient ofthis report represents and agrees, by virtue of its acceptance thereof, that it is such a "major U.S. institutional investor" (as such term is defined in Rule 15a-6) and that itunderstands the risks involved in executing transactions in such securities. Any U.S. recipient of this report that wishes to discuss or receive additional information regarding anysecurity or issuer mentioned herein, or engage in any transaction to purchase or sell or solicit or offer the purchase or sale of such securities, should contact a registeredrepresentative of UniCredit Capital Markets, Inc. (UCI Capital Markets).Any transaction by U.S. persons (other than a registered U.S. broker-dealer or bank acting in a broker-dealer capacity) must be effected with or through UCI Capital Markets.The securities referred to in this report may not be registered under the U.S. Securities Act of 1933, as amended, and the issuer of such securities may not be subject to U.S.reporting and/or other requirements. Available information regarding the issuers of such securities may be limited, and such issuers may not be subject to the same auditing andreporting standards as U.S. issuers.

The information contained in this report is intended solely for certain "major U.S. institutional investors" and may not be used or relied upon by any other person for any purpose.Such information is provided for informational purposes only and does not constitute a solicitation to buy or an offer to sell any securities under the Securities Act of 1933, asamended, or under any other U.S. federal or state securities laws, rules or regulations. The investment opportunities discussed in this report may be unsuitable for certaininvestors depending on their specific investment objectives, risk tolerance and financial position. In jurisdictions where UCI Capital Markets is not registered or licensed to tradein securities, commodities or other financial products, transactions may be executed only in accordance with applicable law and legislation, which may vary from jurisdiction to

jurisdiction and which may require that a transaction be made in accordance with applicable exemptions from registration or licensing requirements.The information in this publication is based on carefully selected sources believed to be reliable, but UCI Capital Markets does not make any representation with respect to itscompleteness or accuracy. All opinions expressed herein reflect the authors judgment at the original time of publication, without regard to the date on which you may receivesuch information, and are subject to change without notice.UCI Capital Markets may have issued other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. These publicationsreflect the different assumptions, views and analytical methods of the analysts who prepared them. Past performance should not be taken as an indication or guarantee of futureperformance, and no representation or warranty, express or implied, is provided in relation to future performance.UCI Capital Markets and any company affiliated with it may, with respect to any securities discussed herein: (a) take a long or short position and buy or sell such securities; (b)act as investment and/or commercial bankers for issuers of such securities; (c) act as market makers for such securities; (d) serve on the board of any issuer of such securities;and (e) act as paid consultant or advisor to any issuer.The information contained herein may include forward-looking statements within the meaning of U.S. federal securities laws that are subject to ri sks and uncertainties. Factorsthat could cause a companys actual results and financial condition to differ from expectations include, without limitation: political uncertainty, changes in general economicconditions that adversely affect the level of demand for the companys products or services, changes in foreign exchange markets, changes in international and domesticfinancial markets and in the competitive environment, and other factors relating to the foregoing. All forward-looking statements contained in this report are qualified in theirentirety by this cautionary statement

This document may not be distributed in Canada or Australia.


12/12


Market Outlook


UniCredit Research*Thorsten Weinelt, CFAGlobal Head of Research & Chief Strategist


Dr. Ingo HeimigHead of Research Operations


European Equity Research

Christopher Williams, Head of European Equity Research+44 20 7826-7889, [email protected]

EUROPEAN SECTOR ANALYSTS

Aerospace & Defence/Airlines/Industrials

Uwe Weinreich+49 89 378-12640Gabriele Parini+39 02 8862-8587

Automobiles & Parts

Georg Strzer+49 89 378-18252Christian Aust, CFA+49 89 378-11394

Gabriele Parini+39 02 8862-8587

Banks

Eugenio M. Cicconetti+44 207 826-7972Tania Gold+44 20 7826-7946James Invine+44 20 7826-7975

Marketing AnalystJoseph Champion+44 20 7826-7887

Capital Goods

Alessandro Falcioni+39 02 8862-2242Peter Bauernfried, CEFA+43 5 05 05-82368Katherina Kastenberger+43 5 05 05-82367Peter Rothenaicher

+49 89 378-18718Antonio Vizzari+39 02 8862-2597

Chemicals & Health Care

Andreas Heine+49 89 378-16921Markus Mayer+49 89 378-18670Dr. Silke Stegemann+49 89 378-17101

Construction & Materials

Peter Bauernfried, CEFA+43 5 05 05-82368Maurizio Moretti+39 02 8862-2715

Consumer/HPC

Nicolas Sochovsky+44 20 7826-7885Graeme Eadie+44 20 7826-7899

Marketing AnalystRupert Trotter+44 20 7826-7890

Fashion & Luxury Goods

Davide Vimercati+39 02 8862-2456

Volker Bosse+49 89 378-11398

Insurance/Financial Services

Bernd Mller-Gerberding, CFA+49 89 378-18706

Marketing AnalystJoseph Champion+44 20 7826-7887

Media

Maurizio Moretti+39 02 8862-2715

Metals & Mining

Christian Obst+49 89 378-15117Alexander Hodosi+43 5 05 05-82359Jonathan Schroer, CFA+49 89 378-12416

Mid & Small Cap

Roberto Odierna+39 02 8862-8912Pierluigi Amoruso+39 02 8862-2007Peter Bauernfried, CEFA+43 5 05 05-82368Alessandro Falcioni+39 02 8862-2242Katharina Kastenberger+43 5 05 05-82367Maurizio Moretti+39 02 8862-2715Peter Rothenaicher+49 89 378-18718Antonio Vizzari+39 02 8862-2597Christian Weiz+49 89 378-15229

Oil & Gas

Sergio Molisani+39 02 8862-8374David Thomas+44 20 7826-7895Stefano Vitali+39 02 8862-8367

Marketing AnalystClay Smith+44 20 7826-7893

Real Estate

Andre Remke, CFA+49 89 378-18202Pierluigi Amoruso+39 02 8862-8586Alexander Hodosi+43 5 05 05-82359

Renewables

Michael Tappeiner+49 89 378-14163

Retailers (Food)

Volker Bosse+49 89 378-11398

Semiconductors/Telecom Equipment/Technology Hardware

Guenther Hollfelder, CFA+44 20 7826-7960

Software & IT Services

Knut Woller+49 89 378-11381

Telecommunications

Thomas Friedrich, CFA+49 89 378-12798Giovanni D'Amico+39 02 8862-2007

Tourism, Leisure & Services

Christian Obst+49 89 378-15117Jonathan Schroer, CFA+49 89 378-12416

Utilities

Lueder Schumacher+44 20 7826-7967Vincent Ayral+44 207 826-7891Javier Suarez+39 02 8862-8183

Marketing AnalystJenny Ping

+44 207 826-7966

REGIONAL RESEARCH

AustriaThomas Neuhold, CFA, Head+43 5 05 05-82355Peter Bauernfried, CEFA+43 5 05 05-82368Alexander Hodosi+43 5 05 05-82359Katharina Kastenberger+43 5 05 05-82367

ItalyRoberto Odierna, Head+39 02 8862-8912Pierluigi Amoruso+39 02 8862-8586Giovanni D'Amico+39 02 8862-2007Alessandro Falcioni+39 02 8862-2242Sergio Molisani+39 02 8862-8374Maurizio Moretti+39 02 8862-2715Gabriele Parini+39 02 8862-8587Javier Suarez+39 02 8862-8183Davide Vimercati+39 02 8862-2456Stefano Vitali+39 02 8862-8367

Antonio Vizzari+39 02 8862-2597

GermanyAndreas Heine, Co-Head+49 89 378-16921Georg Strzer, Co-Head+49 89 378-18252Christian Aust, CFA+49 89 378-11394Volker Bosse+49 89 378-11398Thomas Friedrich, CFA+49 89 378-12798Guenther Hollfelder, CFA+44 20 7826-7960Markus Mayer+49 89 378-18670Bernd Mller-Gerberding, CFA+49 89 378-18706

Christian Obst+49 89 378-15117

Andre Remke, CFA+49 89 378-18202Peter Rothenaicher+49 89 378-18718Jonathan Schroer, CFA+49 89 378-12416Dr. Silke Stegemann+49 89 378-17101Michael Tappeiner+49 89 378-14163Uwe Weinreich+49 89 378-12640Christian Weiz+49 89 378-15229Knut Woller+49 89 378-11381

ESG Research

Patrick Berger, CFA+44 20 7826-7952

Equity Strategy

Gerhard Schwarz, Head+49 89 378-12421Volker Bien+49 89 378-18148Dr. Tammo Greetfeld+49 89 378-18361Christian Stocker+49 89 378-18603

Research MarketingStefanie Ruehl, CFA+44 207 826-7957

EQUITY SALES

Equity Sales London+44 207 826-6949

Equity Sales Milan+39 02 8862-0643

Equity Sales Munich+49 89 378-14129

Equity Sales New York+1 212 672-6140

Equity Sales Vienna+43 5 05 05-82976

Equity Derivates+44 207 826-6444

Publication Address

UniCredit ResearchCorporate & Investment BankingUniCredit Bank AGArabellastrasse 12D-81925 MunichTel. +49 89 378-18927Fax +49 89 378-18352

BloombergUCGR

Internetwww.research.unicreditgroup.eu

*UniCredit Research is the joint research department of UniCredit Bank AG (UniCredit Bank), UniCredit CAIB Group (UniCredit CAIB), UniCredit Securities (UniCredit Securities),UniCredit Menkul Deerler A.. (UniCredit Menkul), Zagrebaka banka and UniCredit Bulbank.

jul 30 unicredit equity strategy market outlook

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