CONFIDENTIAL/ NOT FOR REDISTRIBUTION 1 Robert Parker – Vice Chairman, Asset Management 9 th September, 2009 The Outlook for Global Capital Markets & Investment Themes for the remainder of 2009 & 2010

2 Key questions for global capital markets, investment strategy and asset allocation  Assuming the credit crunch is over, how will credit conditions now evolve?  Is the economic recovery in the developed G20 countries durable and how will the pattern of growth evolve?  Have emerging economies decoupled from the developed economies and will emerging economies be the key driver in global growth?  Has the risk of deflation passed and what is the risk of a rapid return to inflation?  Will currency markets become unstable particularly with the major US fiscal deficit and central bank reserve diversification leading to a US dollar sell-off?  Will emerging market demand lead to a further commodity boom?  After the significant decline in equity markets from mid-2007 to early 2009, have equities now formed a base for a durable recovery and if so, which markets and sectors will outperform?  What signs are there of recovery in alternative asset classes such as real estate, private equity and hedge funds?

3 Source: PMI Premium, Bloomberg, Credit Suisse There are clear signs of recovery Last data point: June 2009

4 Recovery has been pronounced in Asia Source: PMI Premium, Bloomberg, Credit SuisseLast data point: June 2009

5 Recovery is reflected in global trade and commodity indices Source: IDC, Bloomberg Price index 2000 = /200001/200101/200201/200301/200401/200501/200601/200701/200801/2009 Baltic Dry IndexBrent oilCopper

6 US home inventories (new +existing homes) NAHB Index versus US housing starts (yoy, %) House price to wage ratio NAHB sentiment index leads housing starts by 2 months One source of the economic crisis, i.e. the US housing market is now forming a base

7 Recovery has been boosted by public expenditure but deficits are unsustainable Source: IMF, Credit Suisse Forecasts

8 Credit conditions have improved but remain tight on trend UK bank lending conditionsEuro-area bank lending standards Source: Bank of England, © Datastream International Limited ALL RIGHTS RESERVED, Credit Suisse research US bank lending conditions

9 Demand for cash balances is elevated at banks.... Sources: Federal Reserve, Credit Suisse Ratio: Excess Reserves to Required Reserves

10 Consumers are increasing savings Source: Bloomberg, Credit Suisse Last data point: May 2009, Value: 6.9%

11 US consumer credit has collapsed Source: Bloomberg, Credit Suisse

12 Emerging and developed economies are decoupling Source: IMF, Credit Suisse * Includes 22 oil-exporting nations ** Excludes Russia & Saudi Arabia *** World includes G20 & oil-exporting nations Note: Real annual growth is estimated by multiplying the real growth rate of each economy to its GDP share in the previous year (at market exchange rates) 2004 – 08E

13 G3 countries; inflation has fallen sharply Credit Suisse; the BLOOMBERG PROFESSIONAL™ service; DataStream

14 Global output gap with cyclical inflation Credit Suisse; the BLOOMBERG PROFESSIONAL™ service; DataStream

15 Taylor rule: forecasting official interest rates Credit Suisse; the BLOOMBERG PROFESSIONAL™ service; DataStream

16 Capital market activity has improved Source: Trim Tabs, Bloomberg, Credit Suisse IBLast data point: 25 June 2009 Source: Bloomberg, Credit SuisseLast data point: 26 June 2009

17 Credit markets have improved since late 2008 Last data point: Source: Bloomberg, Credit Suisse / IDC

18 Credit spreads emerging markets Last data point: Source: Bloomberg, Credit Suisse / IDC

19 Credit Suisse; the BLOOMBERG PROFESSIONAL™ service; DataStream G3+ 10yr yield with kernel trend – yields remain unusually low

20 USD trading above fair value Source: Bloomberg, Credit Suisse

21 USD: capital inflows into USA still very weak Source: Bloomberg, Credit Suisse / IDCLast data point External balance: the current account deficit has narrowed, but net capital inflows have also dramatically fallen

22 USD/JPY: Yen weakness is correlated with increased investor risk taking Source: Bloomberg, Credit Suisse / IDC

23 EM currencies: Brazil, China, India, Indonesia, Korea, Mexico, South Africa, Turkey vs. USD Source: Datastream, Credit Suisse

24 Source: Bloomberg, Credit Suisse Trade-weighted fair value measures

25 Credit Suisse; the BLOOMBERG PROFESSIONAL™ service; DataStream Historic equity recoveries

26 Equity downside is protected by the credit rally Source: © Datastream International Limited ALL RIGHTS RESERVED, Credit Suisse research Over the past year, credit and equities have moved together

27 Investors are still long cash underpinning markets US households, equities as % of all financial assets Source: US Insurance team, © Datastream International Limited ALL RIGHTS RESERVED, Credit Suisse research US money market funds reached a record 49% of market cap in early March (currently 36%)

28 Earnings revisions Source: Datastream, Credit Suisse Last data point: 1 July 2009

29 Corporate sector balance sheets have repaired themselves US non-fin corporate FCF, % of GDP US non-residential investment, % of GDP US non-fin corporate financing gap

30 Global equity risk premium (GERP) Last data point: Source: Datastream, Credit Suisse / IDC

31 Valuations: equity valuations are in line with their long- run averages US Tobin’s Q US market cap-to-GDP US P/E on trend earningsUS 12-month forward P/E Source: © Datastream International Limited ALL RIGHTS RESERVED, Credit Suisse research

32 Low-debt / higher beta sectors Source: Datastream, HOLT, Credit Suisse Banks & Diversified Financials

33 Emerging markets equities Source: Bloomberg, Credit SuisseLast data point: 2 July 2009

34 EM to World: P/E valuation relative Last data point: Source: Datastream, Credit Suisse / IDC

35 Capital market conclusions and investment strategy  The G3 countries have emerged from a steep recession but will experience at least 3 years of mediocre growth. The smaller European economies and central Europe will emerge from recession last  Government action through expansionary monetary and fiscal policies has prevented a sustained depression and a successful rescue of the banking industry has largely taken place  Headline inflation has decelerated rapidly but long-term deflation should be avoided. Inflationary expectations may deteriorate in 1H2010, but any upturn in inflation will prove short-lived  The growth slowdown in the larger emerging markets has reversed quickly, although emerging markets with current account deficits and over-leveraged banking systems will remain under severe pressure in the medium term  On trend, Asia and Latin America are the most attractive emerging markets  After the strong performance of equity markets from early March until early August, the 1-2 months outlook is for an equity market correction. During the 4 th quarter, equity markets should outperform. In 2010 there is a risk that the equity market rally in developed markets fails with markets going through a medium term period of broad stability

36 Capital market conclusions and investment strategy  Foreign exchange market volatility has fallen. The Asian and Latin American currencies are the most undervalued. The sterling devaluation is over  The investment grade credit rally is durable, although risk in the high yield market has risen sharply. Risk/reward in Government bond markets is starting to erode  The banking system will be characterised by further de-leveraging. Banks with high commission income and emerging market exposure will outperform those banks with government ownership  Although real estate markets are undervalued, it is premature to forecast a recovery in this sector. The central scenario is that real estate markets will move sideways for 2-3 years  Consumption will remain weak where consumers are de-leveraging, notably in the US and the UK  On a 1-2 year view, defensive equity sectors in the G3 markets with strong cash flows will out perform cyclical sectors. On trend, emerging markets will out perform developed markets  Sectors that will benefit from the recession easing are IT and infrastructure  The nature of private equity is changing radically with 2009 being characterised by significant valuation write-downs and sales of distressed assets. The improvement in the hedge fund industry since the beginning of 2009 is likely to prove durable

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