1Global 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&ANALYTICSBEYOND INFORMATIONClient-Driven Solutions,Insights,and AccessContents Explanations&limitations Most important changes Regional composite scorecardMonetary conditionsEconomic momentumValuationEarnings momentumPositioning European composite sector scorecardValuationMacro sensitivity(sensitivity to macro factors)Earnings momentumPrice momentumPositioningFundamental(RoE,balance sheet,EPS,sales growth)Fundamentals vs valuation2Explanation&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 Globalscorecards available upon request.The rankings do not necessarily represent our portfolio weightings of theseregions/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 andregions.A z score indicates by how many standard deviations an observation isabove or below the mean.z score=(latest value average)/standard deviation Please be aware that we normalize z-scores before feeding them into theaggregates.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.3Key conclusions On our regional scorecard US scores best;GEM worst.Over the last monththe 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 andJapan improved compared to Europe and the UK.Pharma,software,telecoms and retail score best on our aggregate sectorscorecard Construction materials,retailing and beverages score at the bottom of ouraggregate sector scorecard Looking just at fundamentals and valuation,pharma and software score thebest.4Key conclusions(continued)The best earnings revisions are now seen in consumer durables,software andbeverages.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 dollarstrengthens,then the sectors that do the best from this combination are semis,healthcare equipment and media.5-6Regional composite scorecard:US&UK are at the top of our scorecard.Regional composite scorecardRegionsWeightsUSUKJapanEurope ex UKGEMMCI20%0.870.74-1.310.54-0.84Economicmomentum20%1.65-0.10-0.67-0.900.03Normalized scoresValuation30%-0.75-0.181.75-0.32-0.51Earningsmomentum20%1.35-0.40-1.370.050.36Positioning&Sentiment10%1.47-0.530.58-0.97-0.55Overall score100%0.70-0.06-0.09-0.25-0.30Overallscore1m ago0.220.34-0.170.05-0.45Former rank1m ago21435Change1m 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-7Component 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 conditionsReal policy rateM1-Nominal GDPgrow thEx change rate,dev.from trendMCI,st.dev.Ov erall score Former rankChangeWeight:USEuro-areaUKGEMJapan50%-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%-1.6-1.5-1.30.21.01m ago-1.5-1.6-1.10.211m ago213451m 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 research8Component 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 changeRankRegionComposite PMIIndex,now Index,3m chScoreOv erall score1m agoFormer rank1m agoChange1m ago12345USGEMUKJapanEurope ex UK55.751.951.348.446.15.00.1-0.1-0.8-0.33.10.1-0.2-1.3-1.70.0-0.42.0-1.2-0.324153+-+-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 research9Component 3:valuation Our valuation scorecard shows no changes over thelast monthRegional valuation scorecardsRegion12m Fwd P/ELatest Z-scorePrice to BookLatest Z-scoreBY-12m fwd Earnings YieldLatest Z-scoreLatestDYZ-scoreLatestPEGZ-scoreZ-scoreOverall scoreFormer rankChangeWeight35%15%30%10%10%1m ago1m ago1m agoJapanUKEurope ex UKGEMUS11.210.411.010.112.91.00.1-0.2-0.3-0.80.91.61.31.72.41.60.60.9-1.0-0.7-8.2-7.9-6.2-5.4-6.01.60.1-1.1-0.5-0.10.91.20.11.10.8-0.3-1.60.5-0.3-0.60.81.51.20.81.21.0-1.4-0.30.9-0.41.15-0.14-0.23-0.36-0.520.98-0.14-0.21-0.26-0.5212345=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-10Component 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 scorecardRegionRisk appetite,rel global3m annualized flows,rel globalSell side recommendations,rel globalTotal z score*Overall scoreFormer rankChangeLatestz-scoreLatestLT.averagez-scoreLatestLT.averagez-scoreWeight40%40%20%100%1m ago1m ago1m agoUSJapanUKGEMEurope ex UK-0.24-0.200.540.930.450.680.26-0.89-1.16-0.85-2.3%-1.2%-1.2%3.7%2.7%-1.5%-0.3%-0.6%4.6%-5.0%0.210.030.130.08-0.713.8%-2.8%-1.5%-0.3%-3.0%3.8%-4.2%-2.3%0.1%-2.6%-0.03-0.50-0.490.130.300.350.01-0.40-0.41-0.56-0.02-0.11-0.1-0.22-0.213254=+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 measuresDescription: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-11Component 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 scorecardsNet Upgrades(%tot.rev isions)12m EPS changeTotal scoreOv erall score Former rankChange1m3mz-score1m3m(50%upgrades,z-score 50%EPS change)1m ago1m ago1m agoUSGEMEurope 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%1.30.50.0-0.6-1.21.30.30.0-0.4-1.31.5-0.50.3-0.3-114235=+=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 researchOverall European sector scorecard The scorecard comprises valuation+HOLT(25%),macrofactors(15%),earnings momentum(15%),price momentum(10%),positioning(10%)andfundamentals(25%).Z-scoresPan-European SectorsWeightPharmaceuticalsH/H Pers PrdSoftw areTelecomsFood RetailEnergyConsumer DurablesTobaccoUtilitiesTechnology Hardw areMediaCapital GoodsInsuranceSemiconductorsPulp&PaperAutomobilesBanksHealthcare EquipFood ProducersChemicalsTransportReal EstateMetals and MiningCommercial Serv icesDiv ersified FinancialsHotels&LeisureBev eragesRetailingConstruction MaterialsValuation+HOLT25%0.370.090.490.921.210.82-0.56-0.580.990.400.10-0.100.680.251.220.490.31-0.73-1.07-0.84-0.59-0.240.26-1.290.53-0.77-1.73-1.86-0.58Macro15%0.040.010.03-0.06-0.02-0.010.05-0.06-0.060.010.05-0.010.000.070.020.01-0.050.060.02-0.04-0.05-0.07-0.060.04-0.010.040.020.030.00Earningsmomentum15%0.460.680.92-0.07-0.490.042.45-1.150.00-0.850.22-0.240.58-1.55-0.06-0.09-0.03-0.100.570.350.200.40-2.120.01-0.770.030.69-0.210.10Price momentum10%0.00.00.01.01.20.80.71.60.00.70.00.6-1.90.60.00.5-1.50.00.00.50.80.00.80.0-1.10.00.00.00.0Positioning10%0.150.70-0.301.39-0.08-0.76-1.27-0.64-0.391.260.270.54-0.060.48-0.85-1.391.670.41-0.64-0.850.06-0.16-0.85-0.81-0.03-0.04-0.640.37-0.85Fundamental25%1.050.830.62-0.26-0.100.330.371.49-0.34-0.31-0.090.02-0.140.23-1.12-0.43-0.760.090.450.18-0.44-0.790.140.64-0.62-0.310.380.04-1.15Total100%0.440.400.390.390.310.290.270.150.120.090.070.050.020.00-0.07-0.08-0.11-0.12-0.13-0.15-0.15-0.23-0.23-0.24-0.25-0.26-0.29-0.44-0.50Description: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 researchComponent 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 Sectors12m fw d P/EAbsolute Relativez-scoreAbsoluteP/BRelativez-scoreAbsoluteDiv yieldRelativez-scoreEco PEz-scoreCFROIz-scoreHOLT scorez-scoreTotal Z-ScorePulp&PaperFood RetailUtilitiesTelecomsEnergyInsuranceDiversified FinancialsSoftw areAutomobilesTechnology Hardw arePharmaceuticalsBanksMetals and MiningSemiconductorsMediaHousehold ProductsCapital GoodsReal EstateConsumer DurablesTobaccoConstruction MaterialsTransportHealthcare EquipHotels&LeisureChemicalsFood ProducersCommercial ServicesBeveragesRetailing10.410.010.39.78.58.28.415.36.620.012.08.89.717.412.116.111.716.311.513.313.613.017.414.712.716.715.716.415.895%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%0.31.20.30.11.30.50.50.80.2-2.60.40.2-0.50.10.60.50.0-0.10.6-0.8-1.6-0.5-0.7-1.3-0.7-1.2-1.4-1.6-1.30.71.41.21.41.40.90.73.91.01.33.50.71.32.92.83.12.11.02.76.20.91.53.12.82.33.64.63.33.645%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%1.21.81.2-0.61.50.72.00.3-0.12.1-0.71.50.6-1.8-0.30.4-1.4-1.7-1.5-1.41.2-0.2-1.2-1.9-1.8-1.6-2.2-2.1-3.06.2%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%1.21.40.91.8-0.31.2-1.20.50.61.40.7-0.90.01.8-0.20.90.90.8-1.0-0.5-1.4-0.2-0.7-1.1-0.9-0.6-1.1-1.5-1.70.50.60.80.7-0.30.91.10.91.00.4-0.20.00.31.10.6-0.81.1na0.31.4-1.7-0.90.5-0.10.8-0.7-0.1-1.2-0.53.90.32.43.91.9-0.40.4-0.31.51.22.31.11.40.7-0.2-2.1-0.7na-1.0-0.50.7-1.9-1.32.4-0.8-1.0-0.8-2.2-2.52.20.41.62.30.80.30.70.31.20.81.10.50.90.90.2-1.40.2na-0.30.5-0.5-1.4-0.41.20.0-0.9-0.4-1.7-1.51.21.21.00.90.80.70.50.50.50.40.40.30.30.30.10.1-0.1-0.2-0.6-0.6-0.6-0.6-0.7-0.8-0.8-1.1-1.3-1.7-1.9A 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 researchComponent 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 ScorecardBetaISM10Y correlation with:BYCore CPIUSDRankZ-scoreScenario:1=up,0=no change,-1=Down0.10.1000.3SemiconductorsHealthcare EquipMediaConsumer DurablesHotels&LeisureCommercial ServicesPharmaceuticalsSoftwareRetailingPulp&PaperFood ProducersBeveragesHousehold ProductsAutomobilesTechnology HardwareInsuranceConstruction MaterialsDiversified FinancialsEnergyCapital GoodsFood RetailChemicalsTransportBanksUtilitiesTobaccoMetals and MiningTelecomsReal estateCyclicalsDefensives1.430.600.731.240.860.710.470.830.811.200.530.810.631.190.881.281.311.660.811.210.541.111.181.680.730.371.640.561.171.090.580.41-0.25-0.140.330.00-0.20-0.500.16-0.17-0.02-0.45-0.22-0.45-0.020.090.230.190.50-0.240.38-0.310.200.140.37-0.37-0.450.47-0.290.040.12-0.370.40-0.31-0.280.16-0.11-0.10-0.440.07-0.34-0.01-0.50-0.44-0.420.220.110.280.380.43-0.070.48-0.310.310.120.32-0.22-0.570.51-0.49-0.080.13-0.41-0.240.09-0.20-0.16-0.10-0.050.17-0.140.11-0.110.160.090.080.09-0.17-0.20-0.07-0.120.05-0.150.11-0.05-0.120.070.110.18-0.16-0.030.15-0.100.110.150.450.370.120.270.340.460.180.250.120.350.220.310.070.09-0.06-0.07-0.230.14-0.120.18-0.16-0.22-0.39-0.010.09-0.430.00-0.280.060.23123456789101112131415161718192021222324252627282912160.070.060.050.050.040.040.040.030.030.020.020.020.010.010.010.000.00-0.01-0.01-0.01-0.02-0.04-0.05-0.05-0.06-0.06-0.06-0.06-0.07Description:For all the measures,a high z score is considered as positive.This scorecard evaluates each sectors exposure to the different macro economic factors and ranks them by thereestimated relative performance given our economic base case.14Source:Thomson Reuters,Credit Suisse researchComponent 3&4:European sectors earnings&price momentum scorecardPan Europe sectorsChange in 12m fwd EPS1-month 3-monthEarnings breadth1-month 3-monthTotal Z-scorePan Eur sectorsPrice momentumRelativ e z-scoreConsumer DurablesSoftw areBev eragesHousehold ProductsInsuranceFood ProducersPharmaceuticalsReal EstateChemicalsMediaTransportConstruction MaterialsEnergyHotels&LeisureCommercial Serv icesUtilitiesBanksPulp&PaperTelecomsAutomobilesHealthcare EquipRetailingCapital GoodsFood RetailDiv ersified FinancialsTechnology Hardw areTobaccoSemiconductorsMetals and Mining20%2.0%2.5%0.2%0.3%0.7%0.2%0.9%0.7%0.4%0.7%1.4%0.4%-2.0%0.2%-0.7%1.2%-0.4%-0.2%0.3%0.8%-0.1%0.3%-1.7%0.0%-2.1%0.0%-5.1%-5.0%29%9.2%6.8%7.8%6.1%7.7%3.7%4.9%4.9%5.3%7.3%6.7%1.0%2.8%3.7%3.4%2.0%15%3.3%4.4%5.3%4.6%3.3%2.2%-4.9%-13%4.5%-2.8%-17%-1.7%1.7%0.1%-1.3%1.1%-0.7%-1.0%0.1%-1.4%-3.6%-2.9%-5.3%-2.3%-4.0%-4.4%-3.3%-3.4%-7.0%-4.0%-6.6%-5.7%-8.1%-6.9%-9.0%-7.2%-3.3%-13%-19%-15%3.7%4.3%1.5%5.9%1.2%1.5%3.2%-2.3%-1.0%-1.2%-5.2%-5.2%-4.4%0.2%-4.3%-4.1%-6.8%-12%-5.8%-4.5%-7.6%-5.2%-7.2%-6.6%-14%-11%-23%-12%-20%2.450.920.690.680.580.570.460.400.350.220.200.100.040.030.010.00-0.03-0.06-0.07-0.09-0.10-0.21-0.24-0.49-0.77-0.85-1.15-1.55-2.12TobaccoFood RetailTelecomsMetals and MiningTransportEnergyTechnology Hardw areConsumer DurablesCapital GoodsSemiconductorsAutomobilesChemicalsHealthcare EquipHotels&LeisureHousehold ProductsPulp&PaperFood ProducersBev eragesCommercial Serv icesUtilitiesRetailingPharmaceuticalsReal EstateMediaConstruction MaterialsSoftw areDiv ersified FinancialsBanksInsurance-7.7%-6.5%-6.1%-5.4%-2.1%-3.5%-7.7%-1.9%-1.0%-5.2%-2.8%-0.3%0.1%-1.1%-0.3%-3.2%-0.5%1.4%0.7%-0.2%2.0%1.5%1.5%0.8%2.0%3.9%6.1%8.5%6.8%1.631.191.000.790.780.750.690.660.570.560.550.520.400.360.290.260.250.150.130.09-0.16-0.20-0.22-0.29-0.39-0.40-1.09-1.54-1.91We use change in 12m fwd EPS and earnings breadth.Breadth is calculated as sum of weekly revisions up lesssum of weekly revisions down divided by sum of weeklytotal estimates,over the period under considerationPrice momentum is the%deviation from 6m moving average,relative to the market.Most oversold sector ranked as best.Howeverfor the aggregate scorecard we consider only extreme values whensector is very overbought or oversold.15Source:Thomson Reuters,Credit Suisse researchComponent 5:European sectors positioning scorecard-net buyrecommendations by the sell side relative to the norm and fund managersweightings.The more positive the score,the bigger the underweight!Sell-side analysts consensus recomm.Fund managers weighting rel toPan Europe Sectorsrel to marketbenchmarkTotal scoreDescription:For all the measures,a high zBanksSemisTelecomRetailTech&HWCapital GoodsH/H Pers PrdFood&BevHealthcareInsuranceComl SvsUtilitiesHotels&LeisureReal EstatePharmaMediaOil&GasFood RetailersDiv FinsMaterialsTransportationSoftware&SvsAutomobilesCons DurCurrent,pp-7.9%-3.9%-2.8%-2.7%-5.4%-0.5%-4.9%-0.6%-1.4%-0.5%1.6%0.7%2.7%-1.0%-1.1%1.1%6.1%-3.3%2.3%1.0%3.6%4.6%2.1%4.4%Z-Score1.670.481.390.371.260.540.70-0.640.41-0.06-0.81-0.39-0.04-0.160.150.27-0.76-0.08-0.03-0.850.06-0.30-1.39-1.27Current,pp-1.5%-0.6%-1.1%-0.7%0.5%1.3%-0.2%-2.8%1.5%0.5%0.4%-0.9%-0.3%-0.4%-1.3%0.9%-2.4%0.2%0.0%0.4%1.5%2.0%1.1%1.8%Z-Score1.172.080.601.460.180.230.071.25-0.060.200.700.27-0.10-0.18-0.69-0.870.14-0.67-0.72-0.04-1.50-1.69-0.62-1.752.842.561.991.831.440.770.770.610.350.14-0.11-0.12-0.14-0.34-0.55-0.60-0.62-0.75-0.76-0.88-1.45-1.99-2.01-3.02score is considered as positive.The sectors z score for each component iscalculated against the sectors own long termaverage.For sell side analyst recommendationsthe average is based on values dating back to1995.For fund managers weighting they dateback to 2006.Most un-loved(bearish sell-side positioning)and most under-owned(low fund managers weighting)sectors are ranked as best.16Source:Thomson Reuters,Credit Suisse researchEuropeansectorsComponent 6:European sectors fundamentals scorecard comprises:RoE,sales and balance sheet.-Level-12m fw d 5y average Sales EPS Credit CDS Net debt to WeightedROE ROE grow th grow 。