GLOBALEQUITYSTRATEGY：ANDREWGARTHWAITEANDTEAMREGIONALANDSECTORSCORECARDS1024.ppt

1,Global equity strategyAndrew Garthwaite and teamRegional and sector scorecards22nd October 2012Research analystsAndrew Garthwaite,andrew.garthwaitecredit-,+44 20 7883 6477Nicolas Wylenzek,nicolas.wylenzekcredit-+44 20 7883 6480Marina Pronina,marina.proninacredit-,+44 20 7883 6476Mark Richards,mark.richardscredit-,+44 20 7883 6484Sebastian Raedler,sebastian.raedlercredit-,+44 20 7888 7554Robert Griffiths,robert.griffithscredit-+44 207 883 8885DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS.U.S.Disclosure:Credit Suisse does and seeks to do business withcompanies covered in its research reports.As a result,investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.,CREDIT SUISSE SECURITIES RESEARCH&ANALYTICS,BEYOND INFORMATIONClient-Driven Solutions,Insights,and Access,Contents,Explanations&limitations Most important changes,Regional composite scorecard,Monetary conditionsEconomic momentumValuation,Earnings momentumPositioning,European composite sector scorecard,Valuation,Macro sensitivity(sensitivity to macro factors)Earnings momentumPrice momentumPositioning,Fundamental(RoE,balance sheet,EPS,sales growth)Fundamentals vs valuation,2,Explanation&limitations,This is a monthly publication we aim to deliver in the middle of every month.We only show our European sector scorecards,but we have US and Global,scorecards available upon request.,The rankings do not necessarily represent our portfolio weightings of these,regions/sectors,since the scorecards represent only one part of our evaluationand weighting process.,For most of our rankings we use a z score to compare the different sectors and,regions.A z score indicates by how many standard deviations an observation is,above or below the mean.z score=(latest value average)/standard deviation,Please be aware that we normalize z-scores before feeding them into the,aggregates.The z scores of the sectors in the individual scorecards aretherefore different to those displayed in the aggregate scorecards.Normalization enables us to improve the comparability of the differentscorecards.,3,Key conclusions,On our regional scorecard US scores best;GEM worst.Over the last month,the US and Japan both moved up one spot to first and third respectively.TheUK and Europe dropped by one spot to second and fourth respectively.,The biggest changes were due to macro momentum,where US,GEM and,Japan improved compared to Europe and the UK.,Pharma,software,telecoms and retail score best on our aggregate sector,scorecard,Construction materials,retailing and beverages score at the bottom of our,aggregate sector scorecard,Looking just at fundamentals and valuation,pharma and software score the,best.,4,Key conclusions(continued),The best earnings revisions are now seen in consumer durables,software and,beverages.The worst in semis,tobacco and metal and mining.,The biggest overweights by fund managers and sell side analysts are autos,software and consumer durables.The biggest shorts are banks,semis andtelecoms.,If we are right and markets rise and macro momentum rises and the dollar,strengthens,then the sectors that do the best from this combination are semis,healthcare equipment and media.,5,-,-,6,Regional composite scorecard:US&UK are at the top of our scorecard.Regional composite scorecard,RegionsWeightsUSUKJapanEurope ex UKGEM,MCI20%0.870.74-1.310.54-0.84,Economicmomentum20%1.65-0.10-0.67-0.900.03,Normalized scoresValuation30%-0.75-0.181.75-0.32-0.51,Earningsmomentum20%1.35-0.40-1.370.050.36,Positioning&Sentiment10%1.47-0.530.58-0.97-0.55,Overall score100%0.70-0.06-0.09-0.25-0.30,Overallscore1m ago0.220.34-0.170.05-0.45,Former rank1m ago21435,Change1m ago+=,For all the measures above,a high z score is considered as positiveRegion with higher liquidity,better economic momentum,cheaper valuation,better earnings momentum and morebearish positioning&sentiment is ranked at the topDescription:The z-scores of each sub-scorecard are normalized beforebeing put into the aggregate scorecardSource:Thomson Reuters,Credit Suisse research,-,7,Component 1:monetary conditions we hardly saw any changes over the lastmonth.Although Europe and the US switched places the total z-scores hardlychanged.Regional scorecard on monetary conditions,Real policy rate,M1-Nominal GDPgrow th,Ex change rate,dev.from trend,MCI,st.dev.Ov erall score,Former rank,Change,Weight:USEuro-areaUKGEMJapan,50%-1.7%-0.8%-1.2%2.5%0.6%,25%10.3%3.9%0.8%-4.4%1.8%,25%-6.7%-3.9%-8.4%-9%18%,100%-1.6-1.5-1.30.21.0,1m ago-1.5-1.6-1.10.21,1m ago21345,1m ago+=,Lower value of MCI indicates higher liquidityRegion with least real policy rate,slowest M1-Nominal GDP growthand most undervalued currency is ranked at the topDescription:We evaluate monetary conditions on three factors:1.The real policy rate(the lower the better)2.M1 Nominal GDP growth(the slower the better)3.Exchange rate dev.from trend(the lower the better)We use these values to aggregate a composite score estimating the overallmonetary condition and calculate the deviation from the historic norm of thisvalue.The lower the z score the better the liquidity and the ranking.Source:Thomson Reuters,Credit Suisse research,8,Component 2:economic momentum This scorecard shows probably the biggest changes.The US is the biggest winner due to its strong improvement in composite PMIs in terms oflevel as well as momentum.The UK lost mainly due to its now negative 3m change andEuropes bad score is a result of its low level as well as its negative 3m change,Rank,Region,Composite PMIIndex,now Index,3m ch,Score,Ov erall score1m ago,Former rank1m ago,Change1m ago,12345,USGEMUKJapanEurope ex UK,55.751.951.348.446.1,5.00.1-0.1-0.8-0.3,3.10.1-0.2-1.3-1.7,0.0-0.42.0-1.2-0.3,24153,+-+-,Region having highest PMI and highest 3m change is ranked at the top*Average of ISM Manufacuting&Non-manufacturingDescription:Countries/regions are scored on the level of the PMI and thechange over the last three months.The two factors are then normalized toproduce an average z-score that is included in the composite scorecardSource:Thomson Reuters,Credit Suisse research,9,Component 3:valuation Our valuation scorecard shows no changes over thelast monthRegional valuation scorecards,Region,12m Fwd P/ELatest Z-score,Price to BookLatest Z-score,BY-12m fwd Earnings YieldLatest Z-score,Latest,DY,Z-score,Latest,PEG,Z-score,Z-score,Overall score,Former rank,Change,Weight,35%,15%,30%,10%,10%,1m ago,1m ago,1m ago,JapanUKEurope ex UKGEMUS,11.210.411.010.112.9,1.00.1-0.2-0.3-0.8,0.91.61.31.72.4,1.60.60.9-1.0-0.7,-8.2-7.9-6.2-5.4-6.0,1.60.1-1.1-0.5-0.1,0.91.20.11.10.8,-0.3-1.60.5-0.3-0.6,0.81.51.20.81.2,1.0-1.4-0.30.9-0.4,1.15-0.14-0.23-0.36-0.52,0.98-0.14-0.21-0.26-0.52,12345,=,Cheapest region,with cheaper valuation(12m fwd P/E,P/B,DY&PEG rations)and smaller spread between bond yields and earnings yields,is ranked at the topA higher z-score is a positive on all measuresDescription:z-scores are calculated for:12m forward P/E(35%)and price to book(15%)-past 20 yearsBond yield minus 12m forward earnings yield(30%)-past 14 years Dividend yield(10%)Past 15 years PEG ratio(10%)Past 20 yearsSource:Thomson Reuters,Credit Suisse research,-,-,10,Component 4:sentiment and positioning In terms of positioning Japan and GEM moved upby one spot to second and fourth place,whereas the UK and Europe moved down to third andfifth place respectively.The US ranks top based on its low risk appetite and below averagefund flows.Regional positioning scorecard,Region,Risk appetite,rel global,3m annualized flows,rel global,Sell side recommendations,rel global,Total z score*,Overall score,Former rank,Change,Latest,z-score,Latest,LT.average,z-score,Latest,LT.average,z-score,Weight,40%,40%,20%,100%,1m ago,1m ago,1m ago,USJapanUKGEMEurope ex UK,-0.24-0.200.540.930.45,0.680.26-0.89-1.16-0.85,-2.3%-1.2%-1.2%3.7%2.7%,-1.5%-0.3%-0.6%4.6%-5.0%,0.210.030.130.08-0.71,3.8%-2.8%-1.5%-0.3%-3.0%,3.8%-4.2%-2.3%0.1%-2.6%,-0.03-0.50-0.490.130.30,0.350.01-0.40-0.41-0.56,-0.02-0.11-0.1-0.22-0.2,13254,=+,Regions with lower risk appetite,most net outflows and most bearish sell-side recommendations are ranked at the topA higher z-score is positive for all measures,Description:we judge sentiment and positioning in terms of riskappetite(the relative performance of high beta sectors within aregion),3m annualized flows relative to global equities andaggregate sell-side net buy analyst recommendations.Z-scores arecalculated from 1995 for risk appetite and sell siderecommendations and from 2003 for fund flows.,A high z-score for risk appetite indicateshigh beta sectors have underperformedwithin the region.High score for fund flowsindicates inflows are weaker compared tonorm.High score for sell-siderecommendations indicate analysts arebearish on the region compared to normSource:Thomson Reuters,Credit Suisse research,-,-,11,Component 5:earnings momentum GEM showed the biggest improvements in earningsmomentum over the last month jumping from fourth to second.US and Japan continue torank top and bottom respectively.Regional earnings momentum scorecards,Net Upgrades(%tot.rev isions),12m EPS change,Total score,Ov erall score Former rank,Change,1m,3m,z-score,1m,3m,(50%upgrades,z-score 50%EPS change),1m ago,1m ago,1m ago,USGEMEurope ex UKUKJapan,-6%-21%-39%-37%-72%,-11%-31%-24%-31%-44%,1.30.20.1-0.1-1.4,-0.4%-0.5%-0.9%-1.2%-1.4%,-1.5%-3.8%-3.8%-4.7%-6.1%,1.30.50.0-0.6-1.2,1.30.30.0-0.4-1.3,1.5-0.50.3-0.3-1,14235,=+=,Global,-22%,-23%,-0.5%,-2.9%,Description:We evaluate earnings momentum on net upgradesand 12m EPS change.Regions with higher net upgrades(number of upgrades-number of downgrades)/(Total number ofupgrades-number of downgrades)and higher revisions to EPSare ranked as best,and shown at topSource:Thomson Reuters,Credit Suisse research,Overall European sector scorecard The scorecard comprises valuation+HOLT(25%),macrofactors(15%),earnings momentum(15%),price momentum(10%),positioning(10%)andfundamentals(25%).Z-scores,Pan-European SectorsWeightPharmaceuticalsH/H Pers PrdSoftw areTelecomsFood RetailEnergyConsumer DurablesTobaccoUtilitiesTechnology Hardw areMediaCapital GoodsInsuranceSemiconductorsPulp&PaperAutomobilesBanksHealthcare EquipFood ProducersChemicalsTransportReal EstateMetals and MiningCommercial Serv icesDiv ersified FinancialsHotels&LeisureBev eragesRetailingConstruction Materials,Valuation+HOLT25%0.370.090.490.921.210.82-0.56-0.580.990.400.10-0.100.680.251.220.490.31-0.73-1.07-0.84-0.59-0.240.26-1.290.53-0.77-1.73-1.86-0.58,Macro15%0.040.010.03-0.06-0.02-0.010.05-0.06-0.060.010.05-0.010.000.070.020.01-0.050.060.02-0.04-0.05-0.07-0.060.04-0.010.040.020.030.00,Earningsmomentum15%0.460.680.92-0.07-0.490.042.45-1.150.00-0.850.22-0.240.58-1.55-0.06-0.09-0.03-0.100.570.350.200.40-2.120.01-0.770.030.69-0.210.10,Price momentum10%0.00.00.01.01.20.80.71.60.00.70.00.6-1.90.60.00.5-1.50.00.00.50.80.00.80.0-1.10.00.00.00.0,Positioning10%0.150.70-0.301.39-0.08-0.76-1.27-0.64-0.391.260.270.54-0.060.48-0.85-1.391.670.41-0.64-0.850.06-0.16-0.85-0.81-0.03-0.04-0.640.37-0.85,Fundamental25%1.050.830.62-0.26-0.100.330.371.49-0.34-0.31-0.090.02-0.140.23-1.12-0.43-0.760.090.450.18-0.44-0.790.140.64-0.62-0.310.380.04-1.15,Total100%0.440.400.390.390.310.290.270.150.120.090.070.050.020.00-0.07-0.08-0.11-0.12-0.13-0.15-0.15-0.23-0.23-0.24-0.25-0.26-0.29-0.44-0.50,Description:For all themeasures,a high z score isconsidered as positive.Sectors with cheaper valuation,better exposure to our macroforecasts,better earnings&pricemomentum,more bearishpositioning&sentiment and betterfundamentals are ranked at thetop.,A high z-score indicates a positive for each indicator12Source:Thomson Reuters,HOLT,Credit Suisse research,Component 1:European sectors valuation scorecard comprises:P/E rel,yield rel,P/Brelatives and HOLT(economic P/E,implied CFROI against its 10 year average),Pan Europe Sectors,12m fw d P/EAbsolute Relative,z-score,Absolute,P/BRelative,z-score,Absolute,Div yieldRelative,z-score,Eco PEz-score,CFROIz-score,HOLT scorez-score,Total Z-Score,Pulp&PaperFood RetailUtilitiesTelecomsEnergyInsuranceDiversified FinancialsSoftw areAutomobilesTechnology Hardw arePharmaceuticalsBanksMetals and MiningSemiconductorsMediaHousehold ProductsCapital GoodsReal EstateConsumer DurablesTobaccoConstruction MaterialsTransportHealthcare EquipHotels&LeisureChemicalsFood ProducersCommercial ServicesBeveragesRetailing,10.410.010.39.78.58.28.415.36.620.012.08.89.717.412.116.111.716.311.513.313.613.017.414.712.716.715.716.415.8,95%91%94%89%78%75%77%140%60%183%109%80%88%159%111%147%107%149%105%121%124%119%159%135%116%153%143%150%144%,0.31.20.30.11.30.50.50.80.2-2.60.40.2-0.50.10.60.50.0-0.10.6-0.8-1.6-0.5-0.7-1.3-0.7-1.2-1.4-1.6-1.3,0.71.41.21.41.40.90.73.91.01.33.50.71.32.92.83.12.11.02.76.20.91.53.12.82.33.64.63.33.6,45%96%80%96%92%61%49%264%65%86%238%47%86%193%189%211%143%67%184%417%60%100%211%188%155%243%308%219%242%,1.21.81.2-0.61.50.72.00.3-0.12.1-0.71.50.6-1.8-0.30.4-1.4-1.7-1.5-1.41.2-0.2-1.2-1.9-1.8-1.6-2.2-2.1-3.0,6.2%4.3%6.3%7.9%4.4%5.0%2.5%1.6%3.6%4.2%3.7%3.9%3.1%1.7%3.5%2.5%3.5%5.4%1.9%4.1%2.2%3.2%1.3%3.5%2.8%3.1%2.3%2.1%3.1%,160%112%162%204%112%130%65%41%93%110%96%102%81%43%91%64%91%138%49%107%58%81%33%91%73%79%60%53%79%,1.21.40.91.8-0.31.2-1.20.50.61.40.7-0.90.01.8-0.20.90.90.8-1.0-0.5-1.4-0.2-0.7-1.1-0.9-0.6-1.1-1.5-1.7,0.50.60.80.7-0.30.91.10.91.00.4-0.20.00.31.10.6-0.81.1na0.31.4-1.7-0.90.5-0.10.8-0.7-0.1-1.2-0.5,3.90.32.43.91.9-0.40.4-0.31.51.22.31.11.40.7-0.2-2.1-0.7na-1.0-0.50.7-1.9-1.32.4-0.8-1.0-0.8-2.2-2.5,2.20.41.62.30.80.30.70.31.20.81.10.50.90.90.2-1.40.2na-0.30.5-0.5-1.4-0.41.20.0-0.9-0.4-1.7-1.5,1.21.21.00.90.80.70.50.50.50.40.40.30.30.30.10.1-0.1-0.2-0.6-0.6-0.6-0.6-0.7-0.8-0.8-1.1-1.3-1.7-1.9,A high z-score indicates the sector is cheap on all metricsDescription:For all the measures,a high z score is considered as positive.The sectors z score for each component is calculated against the sectors own long term average.For P/E,P/B and Divyield the long term average is based on values dating back to 1995.For the HOLT measures we use a 10y averages.The HOLT score is an equal weighted average of the economic P/Es and the implied CFROIs relative to its norm13Source:Thomson Reuters,HOLT,Credit Suisse research,Component 2:European sectors macro scorecard-our base case is for a smallrise in ISM,a stronger dollar against the Euro and a small rise in markets.,European Sectors-Macro Scorecard,Beta,ISM,10Y correlation with:BYCore CPI,USD,Rank,Z-score,Scenario:1=up,0=no change,-1=Down,0.1,0.1,0,0,0.3,SemiconductorsHealthcare EquipMediaConsumer DurablesHotels&LeisureCommercial ServicesPharmaceuticalsSoftwareRetailingPulp&PaperFood ProducersBeveragesHousehold ProductsAutomobilesTechnology HardwareInsuranceConstruction MaterialsDiversified FinancialsEnergyCapital GoodsFood RetailChemicalsTransportBanksUtilitiesTobaccoMetals and MiningTele